CSP Inc (CSPI) 2026 Q1 法說會逐字稿

Greetings. Welcome to the CSP's first quarter fiscal year 2026 conference call. (Operator Instructions). Please note this conference is being recorded. I will now turn the conference over to your host, Michael Polivio. You may begin.

Great. Thank you. Hello, everyone, and thank you for joining us to review CSPI's initial results for the fiscal 2026 1st quarter, which ended on December 31, 2025, as well as recent operating developments.

Today with me on the call is Victor Dellovo, CSPI's Chief Executive Officer, and Gary Levine, CSPI's Chief Financial Officer. After Victor and Gary conclude their opening remarks, we'll then open the call for questions. During the Q&A session, we asked participants to limit themselves to one question and one follow-up question, then requeue if you have additional questions.

Statements made by CSPI's management in today's call regarding the company's business that are not historical facts may be forward-looking statements as those identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions are intended to identify forward-looking statements.

Forwardlooking statements should not be meant as a guarantee of future performance or results. The company cautions you these statements reflect the current expectations about the company's future performance or events and are subject to several uncertainties, risks, and other influences, many of which are beyond the company's control, that may influence the accuracy of the statements and the projections upon which the segment and the statements are based.

Factors that may affect the company's results include but are not limited to the risks and uncertainties discussed in the risk factors section of the annual report on Form 10k and the quarterly report on Form 10Q 5 Series exchange Commission.

Forwardlooking statements are based on the information available at the time those statements are made and management's good faith belief as of the time with respect to future events. All forwardlooker statements are qualified in their entirety by this cautionary statement, and CSPI undertakes no obligation to publicly revise or update any forward look at statements, whether as a result of new information, future events, or otherwise after the date thereof. With that, I'll turn the call over to Victor Dellovo, Chief Executive Officer. Victor, please go ahead.

Thank you, Michael and good morning everyone. As expected, our first quarter product revenue compared to prior year period reflects tough year over year comparables, which obscures the progress we we continue to make executing our CSP core growth strategies and building long-term shareholder value.

In the year ago quarter we recorded approximately $4.5 million in a one-time product deal that did not repeat in fiscal Q1 2026, resulting in the decline in total revenue.

As I've emphasized on prior calls, our strategic focus is on expanding service revenue and growing our MRR base. In the first quarter, Service revenue driven by ongoing momentum in the technology solution and managed service practice grew 14.6%. This strength translated into a meaningful improvement in our overall gross margins, which reached 39.3%. The higher margin profile contributed to 171,000 increase in gross profit versus the prior year period.

We also continue to gain traction in the market with a differentiated and award-winning AZT Protect cybersecurity solution supported by both new customer wins and multi-site expansion with existing customers. Overall, our fiscal first quarter results reinforce our confidence that fiscal 2026 is shaping up to be a growth year for CSPI.

The technology solution business continues to lead our progress. Our offerings increase the efficiency and effectiveness of our customers' IT investments in networking, wireless mobility, unified communication and collaboration, data centers and advanced technology security. And while all our TS services are performing to plan, our managed cloud and managed service practices continue to excel. We are benefiting from the ever expanding business in organizational migration to the cloud and the increased trends for enterprise of all sizes to acquire operation support required once the migration is complete.

The primary factor behind this market driver is the growing complexity of the cloud and the unique and specific needs of each enterprise. Microsoft, through its Azure offering, is considered to be the market leader in this space, and our MSP practice is a platinum partner with the company. During our last call with you in December, we mentioned the increased investments we were making in the manage service practice. We have already begun to generate returns from the investment.

Through the signing of new customers. In Q1 we signed new MSP customers that will generate nearly 6 figures in monthly revenue commencing this quarter. This traction has continued into the second fiscal quarter as we look forward.

Look out over the remainder of the year we believe our service segment momentum can continue. Meanwhile, based on our best in class services, our customers retention rate remains extremely high, contributing to expanding our gross margins in the service segment.

We also achieved meaningful traction with our AZT Protect product suite in the first quarter, delivering year over year revenue growth while we are still progressing towards the full market opportunity for cybersecurity solutions.

The quarter reflected several encouraging developments. We secured multiple new site customers for AZT and through our strategic partnership and distribution continued to expand our pipeline of prospective deployments. Despite being in the market with the RAAZT for just over 1 year, we now serve over 46 unique customers, some of whom have multi-site installations on the way in addition.

In additional expansion opportunities, these costs span a broad range of verticals including steel, energy, manufacturing, water utilities, pharmaceuticals, food, and telecommunication. Importantly, many of the highest value multi-site opportunities, each with potential to develop into seven-figure relationships, remain ahead of us as customers advance through their respective procurement and deployment processes.

We have already received approval.

I believe we may have lost that. Gary, are you there?

Yeah, I'm here.

Let's, there's connected.

Ladies and gentlemen, please stand by. We'll get Victor back on the phone.

Yeah.

One moment please. I still see his line connected. I will reconnect it again. One moment please.

Yes. Again, please stand by. We're trying to get Victor back on the phone here.

We have Victor's line connected.

All right. Hey, Michael, where did we leave off? I didn't realize we dropped.

Yeah, why don't we just pick up on. Well, Victor, it's probably easier if we could pick up from the beginning. If not, we could pick up on the, top of page too.

Okay.

We'll, let's talk about technology solutions business, yeah. Sounds.

Good. Sorry about that, everyone our technology solution business continues to lead our progress.Our offerings increase the efficiency and effectiveness of our customers' IT investments in networking, wireless mobility, unified communication and collaboration, data centers and advanced technology security and while all our CS services are performing to plan, our managed cloud and managed service practice continue to excel.

We are benefiting from the ever expanding business in organizational migration to the cloud and the increasing trend for enterprises of all sizes to acquire operation support required. Once the migration is complete a primary factor behind the market driver is a growing complexity of cloud and unique and specific needs of each enterprise. Microsoft through its azure offering is considered to be the market leader in this space, and our MSP practice is a platinum partner with the company.

During our last call with you in December, we mentioned the increased investment we were making in a managed service practice and we have already begun to generate returns from that.

Investment through the signing of new customers. In Q1, we signed new MSB customers that will generate nearly six figure in monthly revenue commencing this quarter. Distraction has continued into the second fiscal quarter and we look over the remaining of the year and we believe our service segment momentum can continue.

Meanwhile, based on our best in class services, our customer retention rate remains extremely high, contributing to our expanding gross margin in the service segment. We also achieved meaningful traction with our AZT Protect product suite in the 1st quarter, delivering year over year revenue growth.

While we are still progressing towards the full market opportunity for our cybersecururage solution, the quarter reflects several encouraging developments. We secured multiple new sites, initial site customers for AZT Protect and through our strategic partnership and distribution, Continue to expand our pipeline of perspective deployments.

Despite having been in the market with AZT for just over a year, we are now serving 46 unique customers, some of whom have multi-site installations on the way and additional expansion opportunities. These customers span a broad range of verticals, including steel, energy, manufacturing, water, utilities, pharmaceutical, food, and telecommunication.

Importantly, many of the highest value multi-site opportunities, each with the potential to develop into seven-figure relationships, remain ahead of us as customers advance through their respective procurement and deployment process.

We have already received approval to proceed at several second and 3rd sites, and our team is focused on rapid execution to demonstrate the substantial value AZT Protect delivers in preventing cyberattacks that otherwise can disrupt operations for hours, days or even weeks.

The case studies developed from our initial industry installations are helpful getting our target customers to understand how exposed they are to operational disasters and how AZT Protect uniquely acts to prevent such disaster.

For some, they are learning of the risks as operational technology costs continue to lack effective cybersecurity protection at the level ADT Protect provides.

Unfortunately for many they don't realize their exposure until it's too late, and they are exposed. We continue to believe we have a strong competitive advantage in the space and believe that the market is starting to see us as a resource.

The unique procurement process and development criteria for each customer previously mentioned has resulted in various timing delays which we continue to work through. Our team is resilient and committed. And we are, aren't letting up. We continue to believe the effort will result in sizable AZT Protect sales for the fiscal year unfolds.

In addition to expanding direct pipeline, we are advancing strategic OEM relationships, most notably with the Krona as they work to embed AZT Protect into their platform. While these Integrations require time to mature.They represent highly scalable opportunities with substantial long-term potential.

We also conducted our first webinar this quarter with the Kronus, which drew nearly 200 attendees and generated more than a dozen demo requests. Engagement levels are strong, reinforcing our view that this go to market motion will be an important contributor to our long-term growth trajectory.

In summary we are off to a solid start for FY, the fiscal year, but particularly strong performance in our service business. We believe we remain on track to deliver steady, profitable improvements throughout the fiscal 2026.

Supported by the infrastructure investments we have put in place to enable meaningful scale.

As a result, we expect to generate substantial operating leverage as revenue grows. With that, I will turn the call over to Gary to discuss our recent financial results in more detail. Gary.

Thanks, Victor. Where the fiscal first quarter ended December 30th, 2025, we generated $12 million in revenue as compared to $15.7 million for the year ago fiscal first quarter. Product revenue for the fiscal first quarter of 2025 was $6.7 million compared to product revenue of $11 million for the fiscal first quarter of 2025.

Last year's revenue total for the quarter included several one-time transactions with customers totaling approximately $4.5 million and we didn't have any product orders of that magnitude in the first quarter of this year. Service revenue for the first fiscal quarter increased 14.6% to $5.3 million from $4.7 million in the year ago fiscal first quarter. Gross profit for the fiscal first quarter was $4.7 million versus 4$.6 million during the fiscal first quarter of 2025.

The solid service revenue growth in mix during the quarter drove the gross profit margin increase. Gross profit margins for the first quarter was 39.3% of sales, which was slightly more than 10% higher than the gross margin for the prior fiscal first quarter of 29.1%. Energy and development expenses increased 9.2% or $858,000 compared to the same period of prior year as we supported the customization of the AZT Protect deployments and OEM embedding developments. Sales in general and administrative expenses for the fiscal first quarter declined $143,000 to $4 million.

For a year ago, first fiscal quarter. The company had increased interest income that increased 23% over the prior year on our financing deals and interest on our cash. The company recorded a tax expense of 280,000, which represented a year-to-date effective tax rate of 75.5%. The differential between the company's effective tax rate year-to-date and the US statutory tax rate of 21% is primarily due to state income taxes, changes in the valuation allowance maintained against certain state credits, and non-deductible executive compensation.

Net income for the first quarter of fiscal year 2026 was $91,000 compared to $42,000 in the prior year period. Diluted earnings per common share was $0.01. Compared to $0.05 in the prior year, first quarter. As of December 30, 2025, our balance sheet remains strong with cash and cash equivalents of $24.9 million.

We would also like to point out that the decrease in cash from September 30, 2025 was primarily related to several financing deals that we closed in Q126, and we are to collect approximately $3.3 million from financing payments scheduled during the next two quarters. As we noted in the press release this morning, we will be paying a dividend of $0.03 per share on March 12th to shareholders' record of February 26th.

With that, I will turn it over to the operator for your questions.

Certainly at this time we will be conducting a question-and-answer session. (Operator Instructions). One moment please while we poll for questions. Your first question for today is from Joseph Nerges with Segren Investment.

Hello, good morning guys. How are you?

Good morning Joseph. How are you doing?

Okay. A quick accounting question. We keep talking about service revenue. Do we have two categories for service when you talk service revenue, are we talking managed services? Are we talking services beyond managed services? Are, is there two categories or just one category for services revenue.

It's you understand Multiple, yeah, it's, yeah, multiple items, Joseph.Okay, it's not just one.

Alright, so then what are we talking about for managed service, for the, quarter? You, I think you said, did you say 5. Like $5.3 million, is that correct?

Correct.

The managed services portion of our services revenue for the for the first quarter, well.

That's the the total service revenues inclusive of the TS division as well as the, yeah, AZT.

Okay. Break, okay, you're not breaking out between, TS and anything. I'm just trying to understand where, how much of our managed, how much revenue in managed services do we.

Have? a Lot. Yeah, it's a good portion of it, but I don't have that number right in front, but it's the majority.

Okay.

So, the majority of the $5.3 million would be, the managed services portion of it, okay? All right. Let me get past the accounting here. Let's talk about the Acronus just for a second. I noted that, from the Acronus website they changed their, we're going to be rolled into cronus Cyberprotect. That's going to be their product, I understand. Is that correct?

It'll be into, it'll be into not just the cyber protect. It'll be over all, it'll be on the front gooy. So like even when they potentially want to do a backup if the customer chooses they can run our product to to look at all the data and all the applications making sure there's no issues before they back up the data.

Okay, so, previously they had a product called cronus. Cyber backup. Now they've changed the name to Acronus Cyber Protect. That's, as I understand, where we'll be rolled into. So and are we not selling a Kronus cyber backup? Haven't we sold that in our TS division? We have customers that are utilizing the Kronus down there, haven't we? Yeah.

Yeah Correct.

So theoretically, we we can increase our AZT sales force by incorporating our sales team in Florida who sell, the Krona backup service which would now include AZT.

You understand my question?

It's not really, it's a statement, yes.

And we're expanding the capability of the backup service for the possibility of adding AZT to it, and since we have customers, I assume, because we've been representing for a number of years in our TS division, we must have a number of customers out there just in our division that have a ronus that are utilizing the backup service solely.

Okay, so in effect we, our sales team in Florida can expand the backup service to include AZT for those costs that want to have that protection.

Yeah, if we're doing. Backup for a customer, you have to understand not all customers we do backup for. There are a few that we do.

Well, okay, I'm, but whatever few we do can now utilize the ACT add-in if they.

Start. Yeah, if they choose to spend the money, yeah.

Okay, I'll let somebody else jump in, I don't want to dominate the whole thing, but, I'll come back and put another question after, other people have a chance to ask questions.

Okay. Thanks Joe.

Your next question is from Mike Price, a shareholder.

Good morning. Thanks for taking my calls, my questions. With AZT being embedded in the cronus offering, there should be some predictability. Can you give us an idea of how that translates into revenue? I mean, at some point it would be nice to have this quantified.

Yeah. We haven't even fully integrated. We're building the API, so how that rolls out Mike, if we ever get that out there that we have some, I'lllook on that, I'll include it, but at this stage it's way too early.

And how far out do you think that might be till you give some idea of of a dollar amount?

I have no idea, like, you, I, I'm not going to guess at this stage. Right now I'm concentrating on getting the integration finished.

Okay. And also it's been 5 months because of the blackout period that you've been able to repurchase shares. Is that, is that in the plans with, a $100 million market cap and the stock within hailing distance of the 12 month low?

Yeah, it's always been part of that. Yeah. We've been, unfortunately. Locked out for a while. It'll open up. In the next 48 hours and, we'll do something this quarter. Yeah, we'll be doing something this quarter.

Okay, and a statement along with that, it would sure show a lot of confidence if the insiders other than Joe Nergis, we're buying shares also just a statement.

Yeah.

Okay, thank you.

Thanks, Mike.

Your next question for today is from Brett Davidson, a private investor.

Good morning, gentlemen.

Morning to you.

Just got a few quick things, Gary, I think you were talking about. The repayments on the financing, the $3 million.

The interest, yeah, are we.

Yeah, are we still, so we're going to collect $3 million that that number on the balance sheet, could conceivably drop, but are we still acting in that financing role? Is it going to drop on the balance sheet or? It's just like going through to another customer or or whatever.

It could, right.It could, yeah.It's just every customer.Is a little different, but those are the ones that we've already, paid out, paid for the product, and now we'll.We'll be collecting so sometimes we're taking 3 year deals for the cost.And, the payment structure.For all deals are a little different.

But okay, so we're still in that business.

Just. Yeah.It, we're all, we're, we, we're offering it to customers that are, high. Quality customers and it keeps us sticky inside the organization and it's a, and It's a good, use of our cash.

Yeah, you got your claws in them. So the permission on the second and third sites, I, I'm just interested in kind of when that occurred. Are we talking about just in the 1st quarter or is that continued, or excuse me, in the prior. Quarter or is that continue into the current quarter, some of those second third sites.

The ones that have multi-site, there's a, there's two variations, right? The ones that we deal with corporate and then, if they have 50 locations like we did with one of our large pharmaceuticals, they bought it from the corporate level and we pushed it out to those 40 plus you know some cases all the budgets are separated, so we have to go to, one of the ones I mentioned was that steel company we have to go to all 20 some odd sites and we already got the 3rd site.

One came in last quarter, one came in this quarter, there's another one in the food industry that we got the second 1, another one in another industry came in actually yesterday for the 3rd site, so yeah, they're.

Unfortunately, it would be nice if we could just deal with corporate, take one purchase order and push it all out. In some cases that's not the case that we have to go to every individual site and, it gets easier after the first one because the PO, we don't have to do another POC. We just have to go get, budget money from them, and as I mentioned, earlier in the script that every customer's purchasing process is a little different.

So we have to kind of abide on how things. You know how each one does that and sometimes unfortunately they are very slow and things take way more time than Ithink it should but we're at the mercy of the customer.

Well, from the description there, it sounds like this is becoming a more regular occurrence. This is starting to happen with some kind of frequency.

Yeah Like last year at this time we had 2 customers, right? A year later, I mentioned we have 40 something, so, we are doing that where we see the product at one location, we TRY to get someone who can evangelize the difference between us and some of the competitors out there, why they should spend money with, a small company like us and how we truly do protect the endpoint and lock it down. And if we can get someone who can evangelize internally, it makes it a lot easier for the second, third in in multiple locations that that they have. So yeah, it's getting easier but it's not easy, right? Every customer is a little different and getting to know the customers and how they do business is, a lot of work but you know we are getting references.

We are getting references and the references are helping, right? We're working on a deal right now. They're like, who else do you do business with locally and we mentioned he's like, oh, I know that person. Let me call him if they, if they get thumbs up on RA AZT, I don't even have to do the POC. So things like that are happening, to me it could always be faster, but things are happening in a positive direction.

Yeah, I'm, that's exactly what I'm getting at, yeah, I fully get it that, it's just really tough slog, but eventually. So once I mean, if we get to the point where, multiple of these relationships start to pay dividends and one guy's talking to another guy and I mean do you get any feel yet of the kind of momentum where this starts to look exponential instead of linear? Or still too early.

Still a little too early. Right? You don't, we, we're gathering the data. It, it's getting a little easier to connect dots, but it's still, like I said, it's only been truly a year, of really pushing this product and kind of figuring out the messaging and, every every industry is a little different, so, building those.

Like I had mentioned, on the script there that we're putting, these one pages together that. Represent the industry to try to make it a little easier to understand how we can help them, and why we're a little different than the competitors, where we fit in with those competitors, right? Sometimes we can go alongside of those competitors, they can do the IT side of it while we do the OT side of it, right? And you know how we can join, all the logs on the, one interface. So those are the messages that we kind of put together over the last year to TRY to make it a little cleaner, clearer to the customer, everything to speed up the sales process.

So, it sounds like the beginning signs are there, but it just hasn't fully mushroomed yet, but, well, I commend you for the hard work and, moving this forward, and I'll try and be patient.

Yeah. Yeah. We're moving as fast as we can. I promise you that. You should know me. I'm not a patient person, so.

Okay.

All right, well thanks for taking my questions.

Thanks, Brett. As a reminder, if you would like to ask a question, please press one.

Your next question is a follow-up question from Joseph Nergiss. Your line is live.

Okay, I'm back on again. Okay, I just a little clarification. You elaborated on, the expansion of our marketing and managed services and I'm trying to get the numbers. I heard them once and I think we heard them through a repeat again where you said that we, we're adding some new customers in managed services.

Did you say that you thought there'd be, monthly revenues, going forward of 100,000? I'm trying to get the numbers that you gave in.

The, Joe, we had a really good, we had, we closed some nice deals. So the, a little clarity, when you close an MSP deal, right, it takes various time to get them set up and actually start billing them.

Over the last, we closed some before the end of last year we closed some nice deals. It took us a little time to get those up and running and as of last quarter we are starting to build, net close to 100,000, a little less than 100,000 additional per month, of net new revenue for the MSP that's net new revenue.

That's extremely good. That's what I thought you said and I'm, and that's a total of all the the customers you've added in.Yeah, those are the, yeah, just for the, just the additional increase for, per month.

Alright, well, great, thank you that's that that clarification. I thought that's what you said, but I just want to make sure that that was the numbers were added up to what I was thinking of. Thanks a lot. Thanks again guys.

Yeah, no problem, Joe.

We have reached the end of the question-and-answer session, and I will now turn over to Victor for closing remarks.

Thank you everyone.For joining us today. As I mentioned at the top of today's call.We made progress on all fronts during the first quarter and aggressively pursuing our opportunities for the remainder of fiscal 2026.Both on the services side of the business as well as the AZT. Protect, and we look forward to reporting on our progress with you in May. In the meantime, thank you.

To our shareholders for their support. To our team for the dedication and effort, and we wish everyone a good remainder of the day. Goodbye for now.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.