CSPI Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics

Revenue: $6 million for Q2 2026, down from $13.1 million in Q2 2025.
Product Revenue: Increased by 30% to $11.1 million, driven by a large one-time purchase order.
Service Revenue: Grew by 6.6% to $4.9 million.
Gross Profit: Increased to $4.5 million from $4.2 million year-over-year.
Gross Margin: 28% for Q2 2026, down from 32% in Q2 2025; product gross margin at 15% (down from 18%), service gross margin at 57% (up from 55%).
Net Income: $264,000 or $0.03 per share, compared to a net loss of $108,000 or $0.01 per share in the prior year.
Cash Position: $23.1 million in cash and cash equivalents, with a dividend of $0.03 per share announced for June 2026.

2. Strategic Updates and Business Highlights

Growth in Technology Solutions: The U.S. Technology Solutions business was a key growth driver, with product sales significantly up due to large customer orders.
AZT Protect Expansion: The company reported a doubling of land-and-expand orders for AZT Protect, with notable deployments in various industries, including a significant three-year contract with a global cement manufacturer.
Managed Services Growth: Continued strong performance in managed cloud and services, with an 11% growth attributed to increasing cloud migration needs.
OEM Relationships: Progress with Acronis to embed AZT Protect into their platform, with potential revenue generation expected by the end of the fiscal year.

3. Forward Guidance and Outlook

Growth Expectations: Management is optimistic about sustained top- and bottom-line growth for the remainder of fiscal 2026, with a focus on expanding both the AZT Protect and services segments.
Customer Base Expansion: Over 60 unique customers for AZT Protect, with ongoing efforts to deepen relationships and expand deployments.

4. Challenges and Points of Concern

Revenue Decline: Overall revenue decreased compared to the previous year, raising concerns about long-term growth sustainability.
Gross Margin Compression: Declining gross margins, particularly in product revenue, could impact profitability.
Sales Cycle Delays: The complex sales cycle for AZT Protect, including evolving stakeholder alignment and internal review processes, has led to longer deployment times.
Competitive Landscape: While AZT Protect faces little competition, the unique procurement processes and customer requirements may slow growth.

5. Notable Q&A Insights

Confidence in Growth: CEO Victor Dellovo expressed confidence in the company's direction, emphasizing the importance of customer validation and the ongoing evolution of the sales process.
Cement Company Deployment: Clarification on the cement manufacturer contract indicated potential for significant growth beyond the initial U.S. deployments, with over 100 global sites being targeted.
Resource Efficiency: AZT Protect's lower resource demands compared to competitors' products were highlighted as a competitive advantage, particularly for older hardware.
Channel Strategy: The company is focusing on leveraging third-party distributors to drive sales, with a significant portion of deals coming through these channels.

Overall, CSP Inc. demonstrated a return to growth in Q2 2026, driven by strong product sales and service performance, while also facing challenges related to revenue declines and sales cycle complexities. The outlook remains cautiously optimistic as the company continues to expand its customer base and product deployments.

CSPI — CSP Inc.