CSP Posts Q2 Loss as HPP Sales Fall & AZT Pipeline Expands

Shares of CSP Inc. CSPI have declined 6% since the company reported its earnings for the second quarter of fiscal 2025. This compares to the S&P 500 index’s 1.4% gain over the same time frame. Over the past month, the stock has risen 2.8% compared with the S&P 500’s 15.5% increase.CSPI: Revenue and EPS ComparisonCSP reported revenues of $13.1 million for the quarter ended March 31, 2025, down 4.1% from $13.7 million in the same period a year earlier. The decline was driven by a 74% plunge in sales from the High Performance Products (“HPP”) segment, which offset a 12% increase in the Technology Solutions (“TS”) segment’s revenues.Net loss for the quarter was $108,000, or 1 cent per diluted share, against a net income of $1.6 million, or 16 cents per diluted share, in the prior year quarter, driven largely by a non-recurring high-margin sale in the HPP segment last year.CSP Inc. Price, Consensus and EPS Surprise CSP Inc. price-consensus-eps-surprise-chart | CSP Inc. QuoteOther Key Business Metrics of CSPGross Margin and Segment Performance:Gross profit decreased to $4.2 million from $6.5 million in the prior year. The gross margin narrowed significantly to 32% from 47%. The HPP segment’s gross margin fell to 57% from 86%, reflecting the absence of a large ARIA Zero Trust Gateway sale recorded in the prior-year period. The TS segment's gross margin also declined to 31% from 39%, impacted by reduced third-party maintenance revenues and higher product component costs.Operating Income:CSPI posted an operating loss of $994,000 for the second quarter of fiscal 2025 compared to operating income of $1.2 million in the same quarter last year. While SG&A expenses remained relatively flat at $4.4 million, margins were pressured by the sales mix and lower high-margin deals in the HPP segment.Balance Sheet and Capital Allocation:As of March 31, 2025, CSP held $29.5 million in cash and cash equivalents. During the quarter, the company repurchased approximately $384,000 worth of common stock and declared a quarterly dividend of 3 cents per share, reaffirming its ongoing commitment to shareholder returns.CSPI’s Management CommentaryCEO Victor Dellovo described the quarter’s revenue performance as aligned with internal expectations, noting a modest increase in product sales and a service revenue dip due to the absence of a repeat multi-million-dollar contract from the prior year. Importantly, Dellovo highlighted continued momentum in the ARIA AZT PROTECT line, citing the addition of six new customers and fivefold pipeline growth in recent quarters. A notable agreement was signed in South Africa with a major cell tower operator, which could potentially generate seven-figure revenues over 18 months.CFO Gary Levine attributed the year-over-year gross margin compression to higher component costs and the prior-year presence of a high-margin sale. He also cited a $683,000 tax benefit, largely from vested stock awards and tax credits, which softened the net loss impact.Factors Influencing CSP’s Headline NumbersThe sharp revenue drop in the HPP segment stemmed primarily from the lack of a repeat of a large ARIA AZT PROTECT order that had significantly boosted last year’s results. Gross margins were further affected by elevated component costs. On the TS side, reduced third-party maintenance revenues weighed on margins, although managed and internal services showed modest growth.Foreign exchange losses of $132,000 and a $64,000 drop in interest income also contributed to the net loss, despite stable operating expenses and higher stock-based compensation being largely offset by other cost efficiencies.Guidance by CSPIManagement indicated confidence in its AZT PROTECT pipeline and emphasized continued investments in marketing and reseller partnerships. The deal with Rexel USA and a webinar co-hosted with Rockwell Automation generated promising leads expected to materialize in future quarters. Moreover, the company noted an expanding backlog of cloud-based projects, with more than 20 ongoing initiatives compared to 14 at the end of 2024.Other Developments at CSPThe company announced a new reseller partnership with Rexel USA, a top Rockwell Automation distributor, which has already initiated deployments of AZT PROTECT at an industrial client’s facility. Additionally, a significant new partnership was formed with Oryx Industries in South Africa. The deal marks CSP’s first move into cell tower cybersecurity protection and positions the company to potentially expand into similar markets. The targeted customer is one of the largest cell tower providers in South Africa, and the agreement could result in AZT PROTECT being deployed across the customer’s entire infrastructure over 18 months.Overall, CSP faced a challenging second quarter but laid the groundwork for potential growth in the second half of fiscal 2025, largely hinging on the success of its AZT PROTECT offerings and managed services expansion.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. 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