CSP Inc. (CSPI) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call shows mixed results: a decline in total revenue and product revenue, but growth in service revenue and gross profit margin. The Q&A highlights strategic partnerships and share repurchases, but also reveals uncertainties in AZT integration. The dividend announcement is positive, but increased R&D expenses and high tax rates are concerning. Overall, the sentiment is neutral, with no strong catalysts to drive significant stock price movement.
Key Financial Performance
Total Revenue $12 million, a decrease from $15.7 million in the prior year fiscal first quarter. The decline was due to the absence of $4.5 million in one-time product deals recorded in the previous year.
Product Revenue $6.7 million, a decrease from $11 million in the prior year fiscal first quarter. The decline was attributed to the absence of one-time transactions totaling $4.5 million in the prior year.
Service Revenue $5.3 million, an increase of 14.6% from $4.7 million in the prior year fiscal first quarter. The growth was driven by momentum in the technology solution and managed service practice.
Gross Profit $4.7 million, an increase from $4.6 million in the prior year fiscal first quarter. The increase was due to solid service revenue growth and mix.
Gross Profit Margin 39.3%, an increase from 29.1% in the prior year fiscal first quarter. The improvement was attributed to the higher margin profile of service revenue.
Research and Development Expenses $858,000, an increase of 9.2% compared to the prior year. The increase was due to support for customization of AZT PROTECT deployments and OEM embedding developments.
Sales and General Administrative Expenses $4 million, a decrease of $143,000 compared to the prior year fiscal first quarter. The reduction was not specifically attributed to any reason in the transcript.
Interest Income Increased by 23% over the prior year due to financing deals and interest on cash.
Tax Expense $280,000, representing an effective tax rate of 75.5%. The high rate was due to state income taxes, changes in valuation allowance against certain state credits, and nondeductible executive compensation.
Net Income $91,000, an increase from $42,000 in the prior year fiscal first quarter. The increase was not specifically attributed to any reason in the transcript.
Diluted Earnings Per Share $0.01, a decrease from $0.05 in the prior year fiscal first quarter. The decrease was not specifically attributed to any reason in the transcript.
Cash and Cash Equivalents $24.9 million as of December 31, 2025. The decrease from September 30, 2025, was primarily related to financing deals closed in Q1 2026, with $3.3 million in financing payments expected in the next two quarters.
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Operating Highlights
AZT PROTECT cybersecurity solution: Gained traction with new customer wins and multisite expansions. Currently serving 46 unique customers across various industries, with potential for 7-figure relationships.
Cloud migration and managed services: Benefiting from increased enterprise migration to the cloud. Signed new MSP customers generating nearly 6-figure monthly revenue.
Service revenue growth: Increased by 14.6% year-over-year, contributing to higher gross margins of 39.3%.
Customer retention: Retention rate remains high, supporting gross margin expansion.
OEM partnerships: Advancing strategic relationships, notably with Acronis, to embed AZT PROTECT into their platform, representing scalable long-term opportunities.
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Risk or Challenges
Revenue Decline: The company experienced a decline in total revenue for Q1 2026 compared to the prior year, primarily due to the absence of a $4.5 million one-time product deal from the previous year.
Timing Delays in AZT PROTECT Deployments: The unique procurement process and development criteria for each customer have resulted in timing delays for AZT PROTECT deployments, potentially impacting revenue realization.
Market Complexity in Cloud Services: The growing complexity of cloud services and unique enterprise needs pose challenges in delivering managed cloud and service products effectively.
High Effective Tax Rate: The company reported a high effective tax rate of 75.5%, driven by state income taxes, valuation allowance changes, and nondeductible executive compensation, which could impact net income.
Dependence on Strategic Partnerships: The company's growth in cybersecurity solutions, particularly AZT PROTECT, is heavily reliant on strategic partnerships like Acronis, which require time to mature and may delay revenue growth.
Increased R&D Expenses: Research and development expenses increased by 9.2% due to customization and OEM embedding developments for AZT PROTECT, which could strain financial resources.
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Guidance & Outlook
Service Segment Momentum: The company expects continued momentum in its service segment, driven by high customer retention rates and expanding gross margins.
Managed Service Practice: Investments in the managed service practice are generating returns, with new customers signed in Q1 expected to generate nearly six figures in monthly revenue starting this quarter. This momentum is anticipated to continue throughout the fiscal year.
AZT PROTECT Cybersecurity Solution: The company is progressing towards the full market opportunity for its cybersecurity solution, AZT PROTECT. It has secured 46 unique customers, with multisite installations and additional expansion opportunities underway. High-value multisite opportunities with potential seven-figure relationships are expected as customers advance through procurement and deployment processes.
Strategic OEM Relationships: The company is advancing strategic OEM relationships, particularly with Acronis, to embed AZT PROTECT into their platform. These integrations are expected to mature into scalable opportunities with substantial long-term potential.
Revenue Growth and Operating Leverage: The company anticipates steady, profitable improvements throughout fiscal 2026, supported by infrastructure investments enabling meaningful scale. Substantial operating leverage is expected as revenue grows.
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Shareholder Return Plan
Dividend Announcement: The company announced a dividend of $0.03 per share to be paid on March 12 to shareholders of record as of February 26.
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Key Q&A
Q:Do we have 2 categories for service revenue or just 1?
A:There are multiple categories for service revenue, not just one.
Q:What is the managed services revenue for the quarter?
A:The total service revenues, including the TS division and AZT, amount to $5.3 million. However, the specific managed services revenue is not broken out.
Q:Are we expanding the capability of the backup service to include AZT?
A:Yes, the backup service can include AZT for customers who choose to spend the money.
Q:With AZT being embedded in the Acronis offering, can you quantify the revenue impact?
A:It is too early to quantify the revenue impact as the integration is still in progress.
Q:Will there be share repurchases given the current market cap and stock price?
A:Yes, share repurchases are planned for this quarter as the blackout period will end in the next 48 hours.
Q:Are we still acting in the financing role for customers?
A:Yes, the company continues to offer financing to high-quality customers, which helps maintain strong relationships.
Q:Are multisite deals becoming more frequent?
A:Yes, multisite deals are becoming more regular, but the process varies by customer and can be slow.
Q:Is there momentum building for the product to grow exponentially?
A:It is still too early to determine exponential growth, but there are positive signs and efforts to streamline the sales process.
Q:What is the monthly revenue increase from new managed services customers?
A:The company has added close to $100,000 per month in net new revenue from managed services customers.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact revenue impact of AZT integration with Acronis, citing that it is too early to quantify. Additionally, they did not provide a clear timeline for when this information might be available.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AZT multisite
Acronis
Azure offering
CSPi
EVC Group
Group Inc
MSP figure
MSP practice
PROTECT product
Solutions progress
class service
cloud need
cloud trend
complexity cloud
cybersecurity solution
deployment market
development site
disaster
distribution deployment
driver complexity
enterprise Microsoft
enterprise size
expansion opportunity
factor market
figure relationship
figure traction
installation expansion
investment service
investment signing
leader space
market driver
market leader
migration
procurement
service practice
service segment
technology
CSPI Transcript
CSP Inc. (CSPI) Q1 2026 Earnings Call Transcript
Unknown2-14
The earnings call shows mixed results: a decline in total revenue and product revenue, but growth in service revenue and gross profit margin. The Q&A highlights strategic partnerships and share repurchases, but also reveals uncertainties in AZT integration. The dividend announcement is positive, but increased R&D expenses and high tax rates are concerning. Overall, the sentiment is neutral, with no strong catalysts to drive significant stock price movement.
CSP Inc. (CSPI) Q4 2025 Earnings Call Transcript
Unknown12-16
The earnings call shows mixed signals: strong service revenue growth and improved operating loss are positive, but net loss and cash decline are concerning. The Q&A reveals uncertainty in revenue predictability and lack of OEM agreements. While the Acronis partnership and potential endpoint sign-ups are promising, the lack of concrete guidance tempers optimism. Overall, the sentiment is neutral due to balanced positives and negatives.
CSP Inc. (CSPI) Q3 2025 Earnings Call Transcript
Unknown8-14
The earnings call presents a mixed picture: positive revenue growth and cash position, but declining gross margins and higher expenses. The Q&A reveals potential in the AZT PROTECT product and new markets, but management's reluctance to share future projections adds uncertainty. Given these factors and the lack of clear guidance, the stock price is likely to remain stable in the short term.
CSP Inc. (NASDAQ:CSPI) Q2 2025 Earnings Call Transcript
Unknown5-15
The earnings call revealed declining service revenue, reduced gross profit margins, and a net loss for the quarter, despite a solid cash position. The Q&A session highlighted management's reluctance to provide specific details on the backlog and potential contracts, raising concerns about transparency and future growth. While there are positive elements like industry recognition and partnerships, the overall financial performance and lack of clarity in guidance suggest a negative outlook, potentially leading to a stock price decline of -2% to -8% over the next two weeks.
CSPI Report
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
