Shares of CSP Inc. CSPI have declined 0.4% since the company reported results for the second quarter of fiscal 2026. This performance contrasts with the broader market, as the S&P 500 index posted a 0.4% return over the same period. Over the past month, the CSPI stock has risen 2.6%, while the S&P 500 has gained 7.1%.
In the second quarter of fiscal 2026, CSP reported a solid revenue increase of 21.8% to $16 million from $13.1 million in the same quarter last year. The company's product revenues grew 30% to $11.1 million, driven by large customer orders. Service revenues also grew 6.6% to $4.9 million.
However, the gross margin for the quarter was slightly impacted by a higher proportion of product revenues. The metric dropped to 27.9% from 32% in the year-ago period. Despite this, CSP achieved net income of $264,000, or 3 cents per share, a significant turnaround from the net loss of $108,000, or 1 cent per share, incurred in the previous year.
CSP Inc. Price, Consensus and EPS Surprise
CSP Inc. price-consensus-eps-surprise-chart | CSP Inc. Quote
Other Key Business Metrics
CSP's operating expenses increased modestly, with research and development expenses rising 7% to $818,000, reflecting the ongoing customization of the AZT PROTECT product. Meanwhile, selling, general and administrative expenses grew 2% to $4.5 million. The company generated a 27.9% gross margin, slightly lower than last year’s 32% due to the higher contribution from product sales, which have lower margins than services.
Despite these rising costs, CSP's improved profitability and solid operational execution were highlighted by its continued success in the Technology Solutions division and its expanding service business.
Management Commentary
CEO Victor Dellovo emphasized CSP's strong fiscal second-quarter performance, particularly in its U.S. Technology Solutions business. The company’s growth was driven by a combination of large customer purchase orders and an uptick in deployments of the AZT PROTECT product.
Notably, CSP saw a significant increase in its land and expansion strategy, with more than 10 new AZT PROTECT orders from customers, double the amount secured in second-quarter fiscal 2025. This expansion in customer base is seen as a key growth driver for the company’s future, especially as CSP continues to address the increasing complexity of cybersecurity in operational technology (OT) environments.
Factors Influencing Headline Numbers
The increase in product revenues was mainly caused by a large one-time customer purchase order. Service revenues also contributed positively, benefiting from CSP's high customer retention rate and the growing demand for its cloud and managed IT services.
However, the company’s gross margin was impacted by the higher proportion of product sales, which typically have lower margins than services. Despite these factors, CSP managed to turn a profit this quarter, underscoring its strategic focus on expanding its service offerings while growing its product portfolio.
Guidance
CSP remains optimistic about the remainder of fiscal 2026. The company is confident in its ability to continue expanding its AZT PROTECT deployments and service business. CEO Dellovo pointed out that CSP’s focus on cybersecurity solutions, particularly the AZT PROTECT system, is positioned to drive growth for the remainder of the fiscal year. CSP also continues to benefit from its strong customer relationships and a growing market awareness of the unique capabilities of its products, especially in the OT space.
Other Developments
In the fiscal second quarter, CSP secured a major contract with a global cement manufacturer, deploying AZT PROTECT at more than two dozen U.S. plants. This initial deployment is part of a broader potential deal involving more than 100 plants globally. While CSP has successfully landed this deal in the United States, the real growth opportunity lies in expanding the deployment to international locations.
The company is also continuing to engage with strategic OEM partners, including Acronis, to embed its cybersecurity solutions into broader technology platforms, which could unlock significant long-term growth potential.
CSP's strong fiscal second-quarter results underscore its ongoing transformation, with a focus on expanding its footprint in both product and service markets, particularly in the cybersecurity and IT services sectors. With a robust product pipeline and a growing number of customer deployments, CSP is well-positioned to continue its growth trajectory throughout fiscal 2026.
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