CSP Inc. Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2021; comparisons are with the three months ended December 31, 2020. Dollar amounts are in millions unless stated otherwise. CSP develops and sells IT integration solutions, cybersecurity products, managed IT services, and high-performance computing products through its Technology Solutions (TS) and High Performance Products (HPP) segments.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $12.369 | $11.388 |
| Gross profit / margin | $3.614 / 29% | $3.378 / 30% |
| Operating income (loss) | ($0.396) | ($0.537) |
| Net income (loss) | ($0.366) | $1.151 |
| Basic and diluted EPS | ($0.09) | $0.27 basic; $0.26 diluted |
| Cash from operations | ($0.275) | $1.567 |
- Revenue increased 9% year over year. TS revenue rose $1.473 million (15%) to $11.305 million; HPP revenue fell $0.492 million (32%) to $1.064 million.
- Gross profit increased $0.236 million, but gross margin narrowed one percentage point to 29%. TS margin improved to 26% from 25%; HPP margin declined to 58% from 61%.
- The operating loss narrowed by $0.141 million. The net loss, versus prior-year net income, principally reflects the absence of the prior-year $2.196 million gain from forgiveness of Paycheck Protection Program loans. Other income, net, was $0.042 million versus $1.798 million.
- Operating expenses were $4.010 million, up from $3.915 million: SG&A increased to $3.383 million, while engineering and development declined to $0.627 million.
- TS reported an operating loss of $1.005 million, compared with $0.854 million; HPP reported operating income of $0.609 million, compared with $0.317 million.
Cash, liquidity, and obligations
- Cash and cash equivalents were $19.295 million at December 31, 2021, down from $20.007 million at September 30, 2021. Operating cash use was $0.275 million, investing cash use $0.196 million, and financing cash use $0.280 million; cash declined by $0.712 million overall.
- Total assets were $61.786 million and total liabilities $27.853 million at quarter-end. Current assets were $49.811 million and current liabilities $17.603 million.
- Bank debt comprised $1.144 million drawn on the inventory line of credit and $1.108 million of notes payable. The $15 million line had $13.9 million available; the company reported covenant compliance and no cash withdrawals under its separate $1 million cash-withdrawal feature.
- Accounts and long-term receivables from customer arrangements with payment terms over one year totaled $10.769 million, net of unearned interest. One customer represented $10.5 million, or 40%, of consolidated accounts and long-term receivables.
- Approximately $9.4 million was due to one vendor under multi-year agreements, equal to about 49% of accounts payable and other noncurrent liabilities. These vendor amounts are not bank borrowings.
- Management stated that cash, expected operating cash generation, and available credit were expected to meet working-capital and capital-expenditure needs for at least 12 months from the filing date.
Changes, outlook, and risks
- TS growth was led by U.S. product sales and managed and other services; lower U.K. sales partly offset the increase. HPP product sales declined, primarily due to lower E2D part sales.
- Management cited pandemic-related product shortages, longer manufacturer lead times, shipping delays, and price increases. A $1.8 million HPP contract for real-time network monitoring was expected to generate revenue over the following two years as products became available.
- The filing gives no quantified revenue or earnings guidance. Management said it could not reasonably estimate the scope or duration of COVID-19 effects.
- Disclosed risks include reliance on a limited number of customers, dependence on U.S. federal government contracts, potential single-source component supply, competition, tax-law changes, and COVID-19 effects. The company reported no material changes to the risk factors in its prior Form 10-K.
- Income-tax expense was $0.012 million, primarily minimum state taxes; the company maintained a full valuation allowance on its operations. The filing also notes estimates and judgments involving receivables, inventory, revenue recognition, taxes, and retirement-plan liabilities.
Important facts for investors to verify
- Whether supply constraints delay the $1.8 million HPP contract and affect other orders, revenue timing, costs, or margins.
- The payment performance and collectibility of long-term customer receivables, especially the 40% concentration with one customer; the filing reports no allowance for credit losses on these long-term receivables.
- The scale and terms of obligations to the concentrated vendor, and whether alternative suppliers are available on comparable terms.
- Whether operating cash flow recovers and whether liquidity remains adequate under continued working-capital pressure, while maintaining line-of-credit covenant compliance.
- Whether TS growth can offset HPP weakness and the company’s operating losses without relying on nonrecurring items such as the prior-year PPP loan forgiveness gain.