CSP NASDAQ: CSPI reported lower fiscal third-quarter revenue and a wider net loss as longer hardware delivery times delayed the conversion of orders into revenue, while the company continued to build its managed services business and pursue larger enterprise opportunities for its AZT PROTECT cybersecurity offering.
For the quarter ended June 30, 2026, revenue was $14.4 million, compared with $15.4 million in the prior-year quarter. Product revenue declined to $9.9 million from $10.2 million, while service revenue fell to $4.5 million from $5.3 million.
Chief Executive Officer Victor Dellovo said the Technology Solutions business performed near expectations and continued to generate order growth, but vendor shipment delays have limited revenue recognition. Hardware deliveries that had historically taken 30 to 60 days are now taking more than 200 days in many cases, he said.
As a result, the company’s Technology Solutions backlog was 65% higher than it was a year earlier. Dellovo said the delays reflect broader supply constraints tied to demand for components including memory, hard drives and processors amid AI-related infrastructure buildouts.
Margins Improve Despite Revenue Decline
Gross profit was $4.3 million, compared with $4.5 million a year earlier. However, gross margin improved to 30.1% of sales from 28.8% in the prior-year quarter.
- Product gross margin increased to 20.7% from 15.7% a year earlier.
- Service gross margin was 51.2%, compared with 53.9% in the prior-year period.
- Research and development expense rose 5% to $832,000, reflecting work on AZT PROTECT customer customizations and OEM integrations.
- Selling, general and administrative expense increased 3% to $5 million.
CFO Gary Levine said the operating loss widened to $1.5 million from $1.2 million in the prior-year quarter, partly due to higher variable compensation in the Technology Solutions division and costs related to the sale of the company’s U.K. pension obligation to an insurance company.
Net loss was $846,000, or $0.09 per share, compared with a net loss of $264,000, or $0.03 per share, in the fiscal 2025 third quarter.
For the first nine months of fiscal 2026, CSPi reported revenue of $42.4 million, down from $44.3 million a year earlier. Gross profit increased to $13.5 million, or 31.9% of sales, from $13.2 million, or 29.9% of sales. The nine-month net loss was $491,000, or $0.05 per share, compared with net income of $100,000, or $0.01 per diluted share, in the comparable prior-year period.
AZT PROTECT Sales Effort Targets Enterprise and OEM Channels
Dellovo said AZT PROTECT’s growth has been constrained by longer sales cycles for larger enterprise opportunities, though the company added customers and expanded deployments at existing accounts during the quarter. CSPi achieved a 100% renewal rate for customer sites reaching their one-year renewal periods, he said.
The company is nearing the end of several 18- to 24-month sales cycles involving large six-figure opportunities and expects some may convert into contracts. Dellovo said larger opportunities can require extensive lab testing, internal reviews and alignment among operational technology and information technology stakeholders.
CSPi is also seeking to embed AZT PROTECT in original equipment manufacturer products. The company completed integrations with several OEM products during the quarter and said it is seeing a growing pipeline from the segment.
Dellovo cited Acronis Software as an example, saying the technical integration is complete and the company expects associated marketing materials and SKUs to be available for a fall launch. During the question-and-answer session, he said Acronis had indicated that full integration could be completed by Oct. 1, after which CSPi expects to resume sales-team education and broader commercial efforts.
In South Africa, an OEM partner serving a telecommunications customer is working on a third purchase order involving AZT PROTECT embedded in its deployed solution, Dellovo said. CSPi is also in discussions with three additional U.S. OEMs at different stages of engagement.
Managed Services Adds New Contracts
The company’s cloud and managed services practice continued to grow, supported by customer migration to cloud environments and demand for ongoing operational support, according to Dellovo.
During the quarter, CSPi entered the professional sports market with a six-year, seven-figure managed-services agreement with a nationally recognized sports team. The company said it expects to issue a joint press release in coming weeks. It also signed a three-year managed-services agreement with a food distribution customer that is expected to generate mid-six-figure annual recurring revenue.
Dellovo said the company is focusing on recurring revenue from managed services, cloud offerings and AZT PROTECT while it continues to manage hardware availability constraints.
Balance Sheet, Dividend and Repurchases
CSPi ended the quarter with $24.7 million in cash and cash equivalents. Levine said the company extended payment terms on more than 20 customer transactions as of June 30, supported by what he described as a strong balance sheet.
The company repurchased approximately 13,000 shares during the quarter and said its board approved a quarterly dividend of $0.03 per share. The dividend is scheduled to be paid Sept. 15, 2026, to shareholders of record as of Aug. 28, 2026.
Looking ahead, Dellovo said CSPi is working to maximize its opportunities through the remainder of fiscal 2026 and into fiscal 2027 across both its services operations and AZT PROTECT business.
About CSP (NASDAQ:CSPI)
CSP Inc develops and markets IT integration solutions, security products, managed IT services, cloud services, purpose-built network adapters, and cluster computer systems for commercial and defense customers worldwide. It operates in two segments, Technology Solutions and High Performance Products. The Technology Solutions segment provides third-party computer hardware and software as a value-added reseller to various customers in web and infrastructure hosting, education, telecommunications, healthcare services, distribution, financial and professional services, and manufacturing industries.
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