CSP Inc. Faces Challenges as Earnings Fall Sharply
Shares of CSP Inc. CSPI have fallen 9.6% since the release of their fourth-quarter fiscal 2024 earnings, while the S&P 500 index has seen a modest rise of 1% in that timeframe. Over the past month, CSPI shares have declined by 19.3%, notably underperforming the broader market’s slight 0.3% dip.
Quarterly Earnings Report: A Step Backward
CSP reported a diluted loss per share of 18 cents for the fourth quarter of fiscal 2024, contrasting with earnings of 15 cents per share in the same quarter last year.
The company’s total revenues reached $13 million, marking a 14.9% decline from $15.3 million in the prior-year quarter. These results were partly affected by lower revenue and increased Selling, General, and Administrative (SG&A) expenses, primarily due to rising costs in legal, audit, tax, and recruitment activities.
Performance Overview: Price and Expectations
CSP Inc. price-consensus-eps-surprise-chart | CSP Inc. Quote
Segment Performance Highlights
Technology Solutions (TS): This segment generated $12.7 million in revenues for the fourth quarter of fiscal 2024. Notably, recurring revenues have surged to approximately 17% of total revenues, up from less than 5% just two years ago. This reflects CSP’s ongoing transition to more stable revenue streams.
High-Performance Products (HPP): HPP revenues stood at $0.4 million during the same period, primarily serving ARIA cybersecurity clients. Management indicated progress with the AZT PROTECT solution, including a recent contract with a Fortune 500 energy firm. Although HPP’s impact is currently modest, the company expects increased sales in fiscal 2025 through expanding partnerships and distributor agreements.
Key Financial Metrics
For the fourth quarter of fiscal 2024, gross profit totaled $3.7 million, or 28.4% of sales, down from $5.2 million, which represented 33.8% of sales year-over-year. The decline in gross margin is attributed to a higher share of lower-margin product sales.
Service revenues contributed $4 million to total sales, a decrease from $4.3 million in the previous year’s quarter.
Cash and Debt Analysis
As of September 30, 2024, CSP boasted a strong cash and cash equivalent balance of $30.6 million, which is a 21.3% increase from $25.2 million on the same date in 2023. This solid cash position equips the company to fund ongoing investments, including expanding its AZT PROTECT solution and other growth endeavors.
The company also reported total liabilities of $22.17 million, rising from $19.76 million in the previous year. Importantly, CSP has no long-term debt, which offers financial flexibility amid challenging market conditions.
Management Insights: Looking Ahead to FY25
CEO Victor Dellovo expressed optimism toward the end of the fourth quarter of fiscal 2024, citing stronger partnerships and an expanding pipeline of managed services and cruise-line projects. The collaboration with Rockwell Automation yielded over 100 leads for the AZT PROTECT cybersecurity solution. Management underscored growth potential in recurring revenue and higher-margin service offerings for fiscal 2025.
Obstacles to Recovery
Year-over-year declines in revenue and earnings were partly tied to the conclusion of a one-time employee retention credit in fiscal 2023 and a less favorable product mix in fiscal 2024. Additionally, operational investments in AZT PROTECT, including establishing a distribution network, have momentarily impacted profitability.
The reduced gross profit and revenue compared to the previous year were linked to the product mix and lower high-margin service revenues. Moreover, increased operating expenses, including legal, audit, and recruitment costs, have exerted pressure on profitability.
Other Key Developments
In the fiscal fourth quarter, CSP also repurchased 2,800 shares for $34,000 and announced a quarterly dividend of 3 cents per share, payable on January 15, 2025. Additionally, the company plans to enhance awareness and adoption of the AZT PROTECT solution through targeted trade shows and strategic partnerships.
With strategic initiatives and a solid balance sheet, CSP aims to return to growth in fiscal 2025. Meeting these goals will require navigating a competitive landscape and transforming its pipeline opportunities into actual revenue gains.
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