CSPi FY2026 Q1 Services Surge 14.6%, Strategic Initiative Expands Gross Margin to 39.3%

CSPi (NASDAQ:CSPI) delivered a robust fiscal first quarter, marking a successful opening to the year with significant momentum in its core technology solutions division. Released on February 12, 2026, the company’s earnings revealed services revenue expansion of 14.6% compared to the prior year period, alongside an impressive gross margin climb to 39.3%—a substantial jump that reflects the company’s strategic shift toward higher-margin service offerings. The Lowell, Massachusetts-based cybersecurity and IT solutions provider generated net income of $91 thousand for the quarter ended December 31, 2025, translating to $0.01 per diluted share.

The board also authorized a quarterly dividend of $0.03 per share, payable March 12, 2026, signaling confidence in the company’s financial trajectory. With cash and cash equivalents totaling $24.9 million, CSPi maintains robust financial footing to accelerate growth initiatives across its managed services and AZT PROTECT security solutions portfolios.

Customer Retention Fuels Technology Solutions Momentum

CSPi’s technology solutions segment demonstrated exceptional performance through strong customer retention paired with successful new customer acquisition. The company achieved one of its highest net new engagement rates in recent quarters, underscoring the appeal of its managed IT services offering. Victor Dellovo, Chief Executive Officer, emphasized the significance of this trajectory: “We had an encouraging start to the year and the progress we made across our businesses during the quarter positions us favorably for the next three quarters.”

The managed services practice exhibited particular strength, with the company’s engineers continuing to deliver 24/7/365 support across five core technology specializations—Advanced Security, Communication and Collaboration, Data Center, Networking, and Wireless & Mobility. This comprehensive service portfolio drove the 14.6% year-over-year expansion, as enterprises increasingly opted for outsourced IT management rather than maintaining internal departments. The revenue composition shift proved instrumental to overall profitability, as service engagements carry substantially higher gross margins than product sales.

AZT PROTECT Expansion Accelerates Multi-Site Deployment

A standout achievement emerged in the AZT PROTECT security solution, where the company’s proof-of-concept approach yielded tangible results. Initial single-site customer engagements during the fiscal first quarter evolved into multi-location orders as enterprises validated the platform’s effectiveness in defending critical infrastructure against cyberattacks.

Several new customers signed initial AZT PROTECT deployments during the quarter, while existing customers expanded their footprint with additional site licenses. Though revenue contribution from these early deployments remains modest, the trajectory signals meaningful opportunity ahead. The company now operates AZT PROTECT installations across multiple enterprise locations, demonstrating the solution’s value proposition for protecting sensitive infrastructures in power, water, and other critical sectors.

“We are focused on driving expansion of AZT PROTECT deployment through our distribution partners and further deepen our customer engagements,” Dellovo noted. “We believe the solution remains unmatched in its effectiveness to stop otherwise unprotected attacks on critical operating systems throughout the world.” The company projects continued pipeline expansion through channel partnerships as it scales this strategic initiative.

ARIA Cybersecurity Portfolio Anchors High-Performance Division

CSPi’s High Performance Product division, encompassing ARIA Cybersecurity Solutions, provides organizations with sophisticated threat detection and incident response capabilities. The ARIA ADR solution monitors internal traffic, device-level logs, and network output to substantially improve threat detection and surgically disrupt cyberattacks and data exfiltration attempts. Complementing this offering, the AZT Gateway Software interrogates network packets at 100 megabits-per-second line-rate to enforce forwarding and capture policies instantaneously.

This portfolio addresses organizations seeking to shield critical applications from cyberattack while maintaining comprehensive visibility into suspicious network behavior. Customers spanning multiple industries leverage ARIA solutions to accelerate incident response times, automate breach detection processes, and protect their most critical assets regardless of storage location or access method.

Financial Performance: Margin Expansion Amid Revenue Cycle

Total sales for the fiscal first quarter reached $12.0 million, compared to $15.7 million in the prior year period. The decline reflects timing differences in large customer contracts, as the year-ago quarter included several one-time customer orders totaling over $4.5 million in recognized revenue. CSPi continues to pursue similar-magnitude transactions, though their quarter-to-quarter timing remains variable.

Despite the revenue decrease, gross profit remained relatively flat at $4.7 million, up modestly from $4.6 million year-over-year. The truly significant metric, however, resides in gross margin expansion: the 39.3% gross margin for the fiscal first quarter represents a substantial 1,020-basis-point increase from the prior year’s 29.1% margin. This expansion principally stems from the higher proportion of services revenue within the total sales mix, as service engagements carry meaningfully superior profitability compared to product sales.

Product revenue declined to $6.7 million from $11.0 million, while services revenue climbed to $5.3 million from $4.7 million. On the cost side, product cost of sales fell to $5.3 million from $9.1 million, while service delivery costs remained essentially flat at $2.0 million. Operating expenses totaled $4.8 million, compared to $4.9 million in the prior year, reflecting disciplined cost management alongside strategic reinvestment in services expansion.

The company reported an operating loss of $112 thousand, versus a prior-year loss of $354 thousand—a clear improvement. Other income of $483 thousand (compared to $711 thousand year-over-year) moved the company to pre-tax income of $371 thousand. After income tax expense of $280 thousand, net income settled at $91 thousand, or $0.01 per diluted share on a weighted average of 9.683 million diluted shares outstanding.

Balance Sheet Strength Supports Strategic Execution

CSPi’s financial position remained healthy as of December 31, 2025. The condensed balance sheet revealed total assets of $69.2 million, only slightly below the September 30, 2025 figure of $71.2 million. Current assets stood at $49.2 million, including cash and cash equivalents of $24.9 million, accounts receivable of $11.8 million, and financing receivables of $7.7 million. The company maintained measured inventory levels at $2.4 million.

Current liabilities declined to $17.9 million from $22.2 million, a favorable trend reflecting improved working capital management. Shareholders’ equity grew modestly to $44.8 million from $44.6 million, maintaining a solid equity cushion. This financial configuration provides CSPi the necessary resources to execute its multi-year growth strategies across managed services expansion and AZT PROTECT deployment acceleration.

Strategic Outlook and Market Positioning

Looking forward, management’s commentary reflects constructive sentiment regarding the company’s positioning. The initial quarter performance has validated the company’s strategic pivot toward services-centric revenue generation, a move that inherently produces superior unit economics and customer stickiness.

CSPi’s competitive positioning stems from its dual-division structure: the High Performance Product division addresses organizations requiring sophisticated cybersecurity capabilities, particularly for critical infrastructure protection; simultaneously, the Technology Solutions division serves enterprises seeking to outsource IT operations entirely. This complementary business model creates cross-selling opportunities while diversifying revenue streams.

The expansion of AZT PROTECT from single-site PoCs to multi-location deployments demonstrates successful market validation. As enterprises recognize the solution’s value in protecting sensitive systems against increasingly sophisticated cyberattacks, the company anticipates accelerating adoption throughout its distribution channel network.

Chief Financial Officer Gary W. Levine noted the company’s capital allocation priorities remain focused on reinvesting in high-margin service delivery capabilities while maintaining operational discipline. The $0.03 quarterly dividend declaration further underscores management confidence in sustainable cash generation going forward.

About CSPi

CSPi operates two complementary business divisions serving enterprise customers navigating complex technology landscapes. The High Performance Product division, anchored by ARIA Cybersecurity Solutions, delivers packet capture, threat detection, and incident response capabilities. ARIA’s product suite—including the AZT solution for critical application protection, ARIA ADR for internal traffic monitoring, and AZT Gateway Software for real-time packet interrogation—enables organizations to defend against cyberattacks targeting critical operating systems globally.

The Technology Solutions division partners with enterprises seeking managed IT services and professional services support. Offering 24/7/365 proactive monitoring and support across five core specialization areas, this division helps clients accelerate time-to-market while reducing operational IT costs. The combination of advanced cybersecurity products and comprehensive managed services positions CSPi as a versatile technology partner for organizations prioritizing security, availability, and operational efficiency.

For investor relations inquiries, contact Gary W. Levine, Chief Financial Officer, at 978-954-5040.