CSP Inc. — Q3 FY2022 Form 10-Q
Reporting period: Fiscal quarter and nine months ended June 30, 2022; financial statements are unaudited. CSP operates Technology Solutions (TS) and High Performance Products (HPP) businesses, serving commercial and defense customers.
Key financial results
| Metric | Three months ended June 30, 2022 | Prior-year quarter | Nine months ended June 30, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $13.33 million | $13.72 million | $37.68 million | $39.20 million |
| Gross profit / margin | $4.97 million / 37% | $4.23 million / 31% | $12.79 million / 34% | $11.98 million / 31% |
| Operating income (loss) | $0.02 million | $(0.36) million | $(0.40) million | $(1.02) million |
| Net income (loss) | $0.68 million | $(0.42) million | $0.47 million | $(0.12) million |
| Net income (loss) per common share, diluted | $0.15 | $(0.10) | $0.11 | $(0.03) |
| Cash provided by operating activities | Not separately provided for the quarter | $0.22 million | $0.88 million |
Quarterly revenue fell 3%; nine-month revenue fell 4%. Product revenue declined while services grew: nine-month product sales were down about $4.2 million and service sales increased about $2.6 million. The TS segment’s higher service sales and improved margins drove consolidated gross-margin improvement; HPP gross margin declined. The nine-month net profit compares with a prior-year loss, but prior-year results included a $2.20 million gain from forgiveness of Paycheck Protection Program loans.
Liquidity, debt, and cash flow
- Cash and cash equivalents were $21.42 million at June 30, 2022, up from $20.01 million at September 30, 2021. Current assets were $52.29 million and current liabilities $21.99 million.
- Operating cash flow was $0.22 million for the nine months, versus $0.88 million a year earlier. Cash increased by $1.41 million, supported in part by higher deferred revenue and line-of-credit borrowings.
- Borrowings included $3.00 million under the inventory line of credit and $0.95 million of notes payable. The $15 million credit facility had $12 million available; CSP reported compliance with its financial covenants.
- Inventory rose to $5.61 million from $3.99 million. Long-term customer receivables were $5.35 million; customer financing receivables have an average weighted interest rate of 4.9%.
- Management stated that cash, expected operating cash generation, and credit availability should cover working capital and capital expenditure needs for at least 12 months from the filing date.
Management commentary, outlook, and risks
- Management attributed lower product sales partly to customer-specific declines and product delays from widespread supply-chain shortages. It reported higher product prices and efforts to pass cost increases to customers.
- COVID-related disruptions, manufacturer shortages, and shipping delays continued to affect product availability. Management said it could not reasonably estimate the duration or extent of pandemic impacts.
- The company reported no direct significant revenue impact from the Russia-Ukraine conflict as of June 30, but warned of possible supply disruption, cyberattacks, weaker demand, and foreign-exchange or financial-market effects.
- Customer concentration is material: Customer A represented 17% of nine-month revenue and held 38% of consolidated accounts and long-term receivables at quarter-end. The filing also identifies dependence on U.S. federal contracts and certain single-source components as risks.
- Quarterly other income included a $0.62 million foreign-exchange gain; the nine-month gain was $0.78 million. Management described these remeasurement effects as non-cash. No specific revenue or earnings guidance was provided.
- After quarter-end, CSP entered a $12.8 million sales agreement with a financing component. It expected three payments, with the final payment due in FY2024; the first payment was expected in Q4 FY2022, while the associated cost was to be paid in full that quarter. Revenue was expected to be recorded net in Q4.
Most important facts for investors to verify
- Whether supply availability, product shipments, and customer demand improve, and whether pricing offsets inflationary costs.
- Collection timing and credit quality for customer financing receivables, particularly the balance concentrated with Customer A.
- Execution, cash timing, cost, and net revenue recognition for the $12.8 million post-quarter sales agreement.
- Ongoing operating cash generation, line-of-credit usage, and continued compliance with facility covenants.
- How much reported profitability depends on foreign-exchange movements and other items rather than operating income.