Shares of CSP Inc. (CSPI Quick QuoteCSPI - Free Report) have gained 1.4% since the company reported earnings for the first quarter of fiscal 2025. This compares to the S&P 500 index’s 0.7% growth over the same time frame. Over the past month, the stock has gained 27.1% compared with the S&P 500’s 3.9% growth.

Financial Performance Overview

CSP reported diluted earnings per share of 5 cents in the first quarter of fiscal 2025 against a loss of 1 cent in the year-ago quarter.

The company’s total quarterly revenues of $15.7 million increased 2% from $15.4 million in the same period a year ago. The increase was driven by a 17% rise in service revenues to $4.7 million from $4 million in the prior-year quarter. Product sales, however, declined slightly to $11 million from $11.4 million.

Higher gross margin, interest income and foreign exchange gains drove the quarterly improvement. The company also benefited from an income tax benefit of $115,000.

CSP Inc. Price, Consensus and EPS Surprise

 

CSP Inc. price-consensus-eps-surprise-chart | CSP Inc. Quote

Other Key Business Metrics

The Technology Solutions segment was the primary revenue driver, contributing $15.2 million in sales. The segment benefited from increased managed service offerings and a growing customer base, particularly in the cruise and ocean freight industries. Service revenue growth helped offset weaker product sales, as recurring revenues from cloud-based services and third-party maintenance contracts provided stability.

The High-Performance Products segment, which includes cybersecurity solutions such as AZT PROTECT, generated $430,000 in revenues, down 40% year over year. However, the segment showed an improvement in the gross margin to 50% from 47% in the prior-year quarter. This was driven by sales of AZT PROTECT, which carries a higher margin profile.

Gross profit increased to $4.6 million, or 29.1% of total sales, from $4.1 million, or 26.6%, in the prior year. The margin expansion was supported by higher-margin service revenue growth.

Cash & Debt

CSP maintained a strong balance sheet, ending the quarter with $30.7 million in cash and cash equivalents, up slightly from $30.6 million at the end of the prior quarter. The company also continued its quarterly cash dividend of 3 cents per share.

The company maintained a $15-million inventory line of credit, with $2.6 million outstanding as of Dec. 31, 2024, down from $4.2 million at the end of the prior quarter. It remained in compliance with all financial covenants under its credit agreement. The reduction in outstanding debt reflects improved cash flow from operations, which generated $1.7 million in the quarter.

Costs

Operating expenses increased, with engineering and development costs rising to $786,000 from $700,000 due to increased consulting and stock compensation expenses. Selling, general and administrative expenses were $4.1 million, up from $3.7 million in the prior year, reflecting higher marketing, trade show and sales commission expenses.

Management Commentary

CEO Victor Dellovo highlighted the company’s continued momentum, particularly in service revenue growth and expanding gross margins. He pointed to strong demand in the Technology Solutions segment, which generated $15.2 million in sales. CSP also secured a second major cruise line order and continued to expand its presence in the ocean freight liner market with managed service offerings.

The company emphasized the growing adoption of its AZT PROTECT cybersecurity solution, securing new customers and renewing contracts, including a six-figure post-contract support agreement with a large pharmaceutical client. CSP also formed a partnership with United Flow Technologies to deploy AZT PROTECT in water treatment facilities, addressing increasing cyber threats in critical infrastructure.

Factors Influencing Results

Revenue growth was primarily supported by the expansion of service contracts and demand for managed services, particularly in cloud-based solutions. The Technology Solutions segment remained the primary revenue driver. Meanwhile, the HPP segment saw a 40% year-over-year revenue decline due to a drop in Myricom product sales. However, AZT PROTECT contributed to a 45% increase in HPP service revenues.

Margin expansion was aided by a greater mix of service revenues, which typically carries higher profitability than hardware sales. The company also saw favorable foreign currency movements and increased interest income.

Guidance and Outlook

While CSP did not provide formal financial guidance, management indicated that they were expecting continued growth in AZT PROTECT adoption. The company is working to integrate its cybersecurity solutions into the Rockwell Automation sales channel, which could contribute to higher revenues in future quarters.

CSPI is budgeting for a significant increase in AZT PROTECT revenues in fiscal 2025, signaling confidence in market penetration. Management emphasized its efforts to establish more partnerships and expand into the middle-market operational technology sector, which has shorter sales cycles compared with larger enterprise customers.

Other Developments

CSP remains active in capital allocation, repurchasing shares under its buyback program. Management intends to increase buyback activity going forward to offset dilution from stock-based compensation. The company also reiterated its commitment to maintaining its quarterly dividend.

Overall, CSPI delivered a solid start to fiscal 2025, with revenue growth on higher-margin services, continued investment in cybersecurity offerings and a strong financial position. The stock’s notable outperformance over the past month reflects investor optimism surrounding the company’s expanding market opportunities.