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CSP (CSPI) Registers Loss and Y/Y Revenue Decline in Q3

Zacks Equity Research
3 min read
In this article:

CSP Inc.'s CSPI third-quarter fiscal 2024 results reflect a challenging transition from last year’s backlog-driven revenue boost to more normalized operations. The company faced a decline in product sales and overall revenues, leading to a slight net loss. However, growth in its Services segment and strong cash reserves underscore strategic efforts to enhance profitability and position the company for success.

Q2 Results

CSPI reported a third-quarter fiscal 2024 loss per share of 2 cents, moving down from the year-ago quarter’s earnings of 26 cents.

The company reported a year-over-year revenue decline for the third quarter of fiscal 2024, ending Jun 30, 2024, with total sales of $13.1 million compared with $17.7 million in the prior-year quarter.

Weak quarterly earnings can be primarily attributed to the significant backlog conversion in third-quarter fiscal 2023 as supply-chain challenges were alleviated, allowing the company to complete and ship key customer orders. In contrast, the third-quarter fiscal 2024 reflected more normalized operations without the benefit of this backlog conversion.

Performance Overview

CSPI's financial performance in the third quarter of fiscal 2024 was shaped by several key factors. The drop in product sales to $7.8 million from $12.9 million in third-quarter fiscal 2023 was the most significant drag on overall revenues. This was a result of the company completing a significant portion of its backlog in the prior year when supply-chain issues eased. The third-quarter’s sales reflect a more routine level of operations without the benefit of backlog conversion.

However, the company’s Services segment demonstrated resilience, posting a 10% increase in revenues to $5.3 million from $4.8 million in third-quarter fiscal 2023. This growth in services contributed to an improvement in the gross margin, which rose 150 basis points to 35% from 33.5% in the prior-year quarter. The Services segment’s growth is a positive indicator, showcasing the company’s strategic shift toward higher-margin offerings.

Profitability

CSPI achieved a gross profit of $4.6 million, a decrease from the $5.9 million recorded in third-quarter fiscal 2023, reflecting lower overall sales volume.

Despite the improved margin, CSPI reported a net loss of $0.2 million, contrasting sharply with the net income of $2.5 million in the prior-year quarter. The loss was influenced by lower product sales.

Expenses

CSPI’s operating expenses were $5.3 million compared with $5.4 million in third-quarter fiscal 2023, demonstrating the company’s commitment to cost control despite lower sales. These include expenses for engineering and development, and selling, general and administrative expenses.

Cash & Debt

The company’s balance sheet remained robust, with cash and cash equivalents increasing to $28.9 million as of Jun 30, 2024, from $25.2 million at the end of Sep 2023. This near-record cash position provides CSP with the financial flexibility to support its ongoing infrastructure development, particularly in promoting its AZT PROTECT product.

Management Guidance

The company is anticipating favorable impacts in fiscal 2025 from several pending customer orders. Additionally, CSPI has seen growing interest in its Unified Communications as a Service offering, which could drive revenue growth in the upcoming fiscal year.

Other Developments

In third-quarter fiscal 2024, CSP made strategic moves to bolster growth. The company hired a new vice president of Global Sales, Greg Pysher, to lead the sales efforts for its ARIA Cybersecurity Solutions, particularly the AZT PROTECT product. This move is part of a broader strategy to expand the product's market penetration. Moreover, CSP expanded its customer base and reseller partnerships, which are expected to accelerate the adoption of AZT PROTECT among small and mid-sized enterprises.

Additionally, CSPI repurchased 4,800 shares in the quarter under review, reflecting its confidence in long-term value creation despite short-term financial challenges.

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