CSP Inc.
05/07/2026 | Press release | Distributed by Public on 05/07/2026 10:27
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The discussion below contains certain forward-looking statements including, but not limited to, among others, statements concerning future revenues and future business plans. Forward-looking statements include statements in which we use words such as "expect", "believe", "anticipate", "intend", "project", "estimate", "should", "could", "may", "plan", "potential", "predict", "will", "would" and similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, the forward-looking statements are subject to significant risks and uncertainties, and thus we cannot assure you that these expectations will prove to have been correct, and actual results may vary from those contained in such forward-looking statements. We discuss many of these risks and uncertainties in Item 1A under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025. Factors that may cause such variances include, but are not limited to, our dependence on a small number of customers for a significant portion of our revenue, intense competition in the market segments in which we operate, changes in the U.S. Tax laws, the impact of the Ukrainian-Russian military and Israeli-Hamas conflict on global trade and financial markets, the impact of tariffs or trade policies, and the impact of pandemics on our business, results of operations and financial condition. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. This management's discussion and analysis of financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this filing and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses for accounts receivable and financing receivables, inventory valuation, impairment assessment of intangibles, income taxes, deferred compensation and retirement plans, as well as estimated selling prices used for revenue recognition and contingencies. We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies is contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 in the "Critical Accounting Policies" section contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Management believes there have been no significant changes for the six months ended March 31, 2026 to the items that we disclosed as our critical accounting estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended September 30, 2025.
Results of Operations
Overview of the three months ended March 31, 2026
Our sales increased by $2.9 million, or 22%, to $16.0 million for the three months ended March 31, 2026 compared to $13.1 million for the three months ended March 31, 2025. Our gross margin percentage decreased to 28% for the three months ended March 31, 2026 compared to 32% for the same prior year period. For the three months ended March 31, 2026 there was an operating loss of $0.9 million compared to an operating loss of $1.0 million for the three months ended March 31, 2025. Other income, net increased $0.3 million to $0.5 million for the three months ended March 31, 2026 compared to $0.2 million for the same prior year period. An income tax benefit of $0.6 million was recorded for
the three months ended March 31, 2026 compared to an income tax benefit of $0.7 million in the same period in the prior year.
The following table details our results of operations in dollars and as a percentage of sales for the three months ended March 31, 2026 and 2025:
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|
|
|
|
|
|
|
|
|
|
% |
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|
|
|
% |
|
|
|
|
March 31, 2026 |
|
of sales |
|
March 31, 2025 |
|
of sales |
|||
|
|
|
(Dollar amounts in thousands) |
|||||||||
|
Sales |
|
$ |
16,012 |
100 |
% |
$ |
13,147 |
100 |
% |
||
|
Costs and expenses: |
|
|
|
|
|
|
|
||||
|
Cost of sales |
|
11,540 |
72 |
% |
8,940 |
68 |
% |
||||
|
Research and development |
|
818 |
5 |
% |
763 |
6 |
% |
||||
|
Selling, general and administrative |
|
4,505 |
28 |
% |
4,438 |
34 |
% |
||||
|
Total costs and expenses |
|
16,863 |
105 |
% |
14,141 |
108 |
% |
||||
|
Operating loss |
|
(851) |
(5) |
% |
(994) |
(8) |
% |
||||
|
Other income, net |
|
547 |
3 |
% |
203 |
2 |
% |
||||
|
Loss before income taxes |
|
(304) |
(2) |
% |
(791) |
(6) |
% |
||||
|
Income tax benefit |
|
(568) |
(4) |
% |
(683) |
(5) |
% |
||||
|
Net income (loss) |
|
$ |
264 |
2 |
% |
$ |
(108) |
(1) |
% |
||
Sales
TS segment sales change was as follows for the three months ended March 31, 2026 and 2025:
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|
|
|
|
|
|
March 31, |
|
Increase |
||||||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||
|
Products |
|
$ |
11,047 |
|
$ |
8,279 |
|
$ |
2,768 |
|
33 |
% |
|
Services |
|
4,617 |
|
4,221 |
|
396 |
|
9 |
% |
|||
|
Total |
|
$ |
15,664 |
|
$ |
12,500 |
|
$ |
3,164 |
|
25 |
% |
The increase in TS segment product sales of $2.8 million is primarily due to increased sales to several existing major customers in the US division of $3.2 million, partially offset with decreased sales to two existing customers in the UK division of $0.4 million. Service sales for the three months ended March 31, 2026 increased $0.4 million from the same prior year period, which was attributable to the US division. The increase consisted of an increase in third-party maintenance sales of $0.3 million and an increase in managed services of $0.2 million, partially offset by a $0.1 million decrease from internal and third-party services.
HPP segment sales change was as follows for the three months ended March 31, 2026 and 2025:
|
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|
|
|
|
|
|
|
|
|
|
March 31, |
|
Decrease |
||||||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||
|
Products |
|
$ |
66 |
|
$ |
273 |
|
$ |
(207) |
|
(76) |
% |
|
Services |
|
282 |
|
374 |
|
(92) |
|
(25) |
% |
|||
|
Total |
|
$ |
348 |
|
$ |
647 |
|
$ |
(299) |
|
(46) |
% |
The HPP product sales decreased $0.2 million for the three months ended March 31, 2026 compared to the same prior year period primarily due to decreased ARIA AZT revenue. The HPP service sales decreased $0.1 million due to one nonrecurring customer support sale.
Our sales by geographic area, which are based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended March 31, 2026 and 2025:
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|
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March 31, |
|
Increase (decrease) |
||||||||||||
|
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|
2026 |
|
% |
|
2025 |
|
% |
|
$ |
|
% |
||||
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(Dollar amounts in thousands) |
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|||||||||||||
|
Americas |
|
$ |
15,936 |
100 |
% |
$ |
12,343 |
94 |
% |
$ |
3,593 |
|
29 |
% |
||
|
Europe |
|
58 |
- |
% |
655 |
5 |
% |
(597) |
|
(91) |
% |
|||||
|
APAC and Africa |
|
18 |
- |
% |
149 |
1 |
% |
(131) |
|
(88) |
% |
|||||
|
Totals |
|
$ |
16,012 |
100 |
% |
$ |
13,147 |
100 |
% |
$ |
2,865 |
|
22 |
% |
||
The $3.6 million increase in sales to the Americas was primarily the result of an increase in the TS-US division of $3.8 million, partially offset by a decrease of $0.2 million in the HPP segment. The $0.6 million decrease in sales to Europe was primarily the result of decreased sales by our TS-UK division of 0.4 million combined with a decrease in our TS-US division of $0.2 million. The sales to APAC and Africa decreased $0.1 million for the three months ended March 31, 2026 compared to the same prior year period due to the HPP segment.
Gross Margins
Our gross margin ("GM") increased $0.3 million for the three months ended March 31, 2026 as compared to the same prior year period. The GM as a percentage of sales decreased to 28% for the three months ended March 31, 2026 compared to the same prior year period of 32%.
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March 31, |
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|
|
||||||||
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2026 |
|
2025 |
|
Increase (decrease) |
||||||||||
|
|
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
||||
|
|
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(Dollar amounts in thousands) |
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|||||||||||||
|
TS |
|
$ |
4,299 |
27 |
% |
$ |
3,836 |
31 |
% |
$ |
463 |
(4) |
% |
|||
|
HPP |
|
173 |
50 |
% |
371 |
57 |
% |
(198) |
(7) |
% |
||||||
|
Total |
|
$ |
4,472 |
28 |
% |
$ |
4,207 |
32 |
% |
$ |
265 |
(4) |
% |
|||
The impact of product mix within our TS segment on gross margin for the three months ended March 31, 2026 and 2025 was as follows:
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March 31, |
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||||||||
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2026 |
|
2025 |
|
Increase (decrease) |
||||||||||
|
|
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||||||
|
Products |
|
$ |
1,655 |
15 |
% |
$ |
1,500 |
18 |
% |
$ |
155 |
(3) |
% |
|||
|
Services |
|
2,644 |
57 |
% |
2,336 |
55 |
% |
308 |
2 |
% |
||||||
|
Total |
|
$ |
4,299 |
27 |
% |
$ |
3,836 |
31 |
% |
$ |
463 |
(4) |
% |
|||
The overall TS segment GM as a percentage of sales decreased to 27% for the three month period ended March 31, 2026 compared to 31% for the same prior year period. Product GM as a percentage of revenue decreased 3% due to a higher volume of sales with lower margins compared to the same prior year period. The service GM as a percentage of revenue increased 2% from the prior year primarily due to increased third-party maintenance sales, which are recorded "net" which means that the revenue, net of the associated cost, is recorded in the Services revenue financial statement line item causing an increase in GM as a percentage of sales.
The impact of product mix within our HPP segment on gross margin for the three months ended March 31, 2026 and 2025 was as follows:
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March 31, |
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||||||||
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|
2026 |
|
2025 |
|
Increase (decrease) |
||||||||||
|
|
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||||||
|
Products |
|
$ |
60 |
91 |
% |
$ |
173 |
63 |
% |
$ |
(113) |
28 |
% |
|||
|
Services |
|
113 |
40 |
% |
198 |
53 |
% |
(85) |
(13) |
% |
||||||
|
Total |
|
$ |
173 |
50 |
% |
$ |
371 |
57 |
% |
$ |
(198) |
(7) |
% |
|||
The overall HPP segment GM as a percentage of sales decreased to 50% for the three months ended March 31, 2026 from 57% for the three months ended March 31, 2025. The 28% increase in product GM as a percentage of product revenue for the three months ended March 31, 2026 compared to the same prior year period was primarily attributed to the current period's product mix primarily consisting of software sales, which were nearly all GM. The service GM as a percentage of services revenue from the same prior year period decreased 13% to 40% for the three months ended March 31, 2026 compared to 53% for the three months ended March 31, 2025 due to one high GM customer support contract which did not recur in the current period.
Research and Development Expenses
The research and development expenses incurred by our HPP segment remained relatively flat at $0.8 million for three months ended March 31, 2026 compared to the same prior year period without any significant change in specific types of expenses. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA Zero Trust Gateway cyber security products.
Selling, General and Administrative Expenses
The following table details our selling, general and administrative ("SG&A") expense by operating segment for the three months ended March 31, 2026 and 2025:
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|
Three months ended March 31, |
|
|
$ |
|
% |
|||||||||
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|
|
|
% of |
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|
|
|
% of |
|
|
Increase |
|
Increase |
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|
2026 |
|
Total |
|
2025 |
|
Total |
|
|
(Decrease) |
|
(Decrease) |
|
||
|
|
|
(Dollar amounts in thousands) |
|
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By Operating Segment: |
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|
|
|
|
|
|
|
|
||||||
|
TS segment |
|
$ |
3,462 |
77 |
% |
$ |
3,264 |
74 |
% |
$ |
198 |
6 |
% |
|||
|
HPP segment |
|
1,043 |
23 |
% |
1,174 |
26 |
% |
(131) |
(11) |
% |
||||||
|
Total |
|
$ |
4,505 |
100 |
% |
$ |
4,438 |
100 |
% |
$ |
67 |
2 |
% |
|||
SG&A expenses increased $0.1 million to $4.5 million for the three months ended March 31, 2026 compared to the same prior year period of $4.4 million. The $0.2 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased variable compensation. The HPP segment SG&A expenses decreased $0.1 million for the three months ended March 31, 2026 as compared to the prior year period primarily due to decreased consulting expenses.
Other Income/Expenses
The following table details other income, net for the three months ended March 31, 2026 and 2025:
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Three months ended |
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|
March 31, 2026 |
|
March 31, 2025 |
|
$ Change |
|||
|
|
|
(Amounts in thousands) |
|||||||
|
Foreign exchange gain (loss) |
|
$ |
70 |
|
$ |
(132) |
|
$ |
202 |
|
Interest expense |
|
|
(167) |
|
|
(77) |
|
|
(90) |
|
Interest income |
|
527 |
|
414 |
|
113 |
|||
|
Other income (expense), net |
|
117 |
|
(2) |
|
119 |
|||
|
Total other income, net |
|
$ |
547 |
|
$ |
203 |
|
$ |
344 |
Total other income (expense), net for the three months ended March 31, 2026 increased $0.3 million to $0.5 million compared to $0.2 million for the same prior year period.
The $0.2 million increased foreign exchange gain (loss) for the three months ended March 31, 2026 was primarily due to the US Dollar strengthening in the current period compared to the same prior year period in which it weakened relative to the British Pound. In consolidation, US dollars are remeasured into the functional currency, British Pounds, of our UK subsidiary. This non-cash remeasurement is included in the Foreign exchange gain (loss) in the Consolidated Statements of Operations. The foreign exchange gain (loss) was primarily from the US Dollar balance in our TS UK division.
Interest income increased $113 thousand for the three months ended March 31, 2026 compared to the same prior year period primarily due to increased interest income from agreements that have payment terms in excess of one year (see Note 5 Financing receivables, net in Item 1 to this Quarterly Report on Form 10-Q for details), partially offset by a reduction in interest rates related to our Cash and cash equivalents combined with a decreased average balance. All of these agreements are in the TS-US division.
The interest expense increase of $90 thousand for the three months ended March 31, 2026 compared to the same prior year period was related to the TS US division entering into additional multi-year vendor contracts related to sales agreements that have payment terms in excess of one year. Not all sales agreements that have payments in excess of one year have related multi-year vendor contracts.
Income Taxes
The Company recorded an income tax benefit of $568 thousand and $683 thousand for the three months ended March 31, 2026 and 2025, respectively. For these periods, the difference between our effective income tax rate and the U.S. federal statutory rate was the impact of tax credits that we expect to be able to utilize against federal and state taxes, the change in valuation allowance maintained against certain state tax credits, and the excess tax benefits on restricted stock awards that vested during the period.
Overview of the six months ended March 31, 2026
Our sales decreased by approximately $0.8 million, or 3%, to $28.0 million for the six months ended March 31, 2026 as compared to $28.8 million for the six months ended March 31, 2025. The decrease in sales is the result of a decrease of $0.9 million in the TS segment, partially offset by an increase of $0.1 million in our HPP segment. Our gross margin percentage increased 3% to 33% of sales for the six months ended March 31, 2026 compared to 30% for the six months ended March 31, 2025. For the six months ended March 31, 2026 operating loss was $1.0 million compared to operating loss of $1.3 million for the same prior year period. Other income, net increased $0.1 million for the six months
ended March 31, 2026 compared to same prior year period. An income tax benefit of $0.3 million was recorded for the six months ended March 31, 2026 compared to an income tax benefit of $0.8 million in the same prior year period.
The following table details our results of operations in dollars and as a percentage of sales for the six months ended March 31, 2026 and 2025:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
% |
|
|
|
|
March 31, 2026 |
|
of sales |
|
March 31, 2025 |
|
of sales |
|||
|
|
|
(Dollar amounts in thousands) |
|||||||||
|
Sales |
|
$ |
28,048 |
100 |
% |
$ |
28,817 |
100 |
% |
||
|
Costs and expenses: |
|
|
|
|
|
|
|
||||
|
Cost of sales |
|
18,841 |
67 |
% |
20,046 |
70 |
% |
||||
|
Research and development |
|
1,676 |
6 |
% |
1,549 |
5 |
% |
||||
|
Selling, general and administrative |
|
8,494 |
30 |
% |
8,570 |
30 |
% |
||||
|
Total costs and expenses |
|
29,011 |
103 |
% |
30,165 |
105 |
% |
||||
|
Operating loss |
|
(963) |
(3) |
% |
(1,348) |
(5) |
% |
||||
|
Other income, net |
|
1,030 |
3 |
% |
914 |
3 |
% |
||||
|
Income (loss) before income taxes |
|
67 |
- |
% |
(434) |
(2) |
% |
||||
|
Income tax benefit |
|
(288) |
(1) |
% |
(798) |
(3) |
% |
||||
|
Net income |
|
$ |
355 |
|
1 |
% |
$ |
364 |
|
1 |
% |
Sales
TS segment sales change was as follows for the six months ended March 31, 2026 and 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
Increase (decrease) |
||||||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||
|
Products |
|
$ |
17,541 |
|
$ |
19,212 |
|
$ |
(1,671) |
|
(9) |
% |
|
Services |
|
9,306 |
|
8,528 |
|
778 |
|
9 |
% |
|||
|
Total |
|
$ |
26,847 |
|
$ |
27,740 |
|
$ |
(893) |
|
(3) |
% |
The decrease in TS segment product sales of $1.7 million during the period as compared to the prior year period is primarily attributable to decreased sales of $1.2 million in the US division to existing major customers combined with a decrease in sales of $0.5 million in the UK division to three existing major customers. Service sales for the six months ended March 31, 2026 increased $0.8 million from the prior year period. In the U.S. division there was a $0.9 million increase due to an increase in third-party maintenance sales of $0.8 million and an increase in managed services of $0.4 million, partially offset by a decrease from internal and third-party services of $0.3 million. There was a $0.1 million decrease in the UK service sales due to a decrease in maintenance sales.
HPP segment sales change was as follows for the six months ended March 31, 2026 and 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
Increase (decrease) |
||||||||
|
|
|
2026 |
|
2025 |
|
$ |
|
% |
|
|||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||
|
Products |
|
$ |
273 |
|
$ |
355 |
|
$ |
(82) |
|
(23) |
% |
|
Services |
|
928 |
|
722 |
|
206 |
|
29 |
% |
|||
|
Total |
|
$ |
1,201 |
|
$ |
1,077 |
|
$ |
124 |
|
12 |
% |
HPP product sales decreased by $0.1 million for the six months ended March 31, 2026 as compared to the prior year period primarily as a result of one ARIA AZT order which occurred in the prior year period and did not recur in the current year. The HPP service sales increased $0.2 million for the six months ended March 31, 2026 compared to the prior year period due to increased revenue from Multicomputer repair services of $0.3 million, partially offset with decreased customer support revenue of $0.1 million.
Our sales by geographic area, which are based on the customer location to which the products were shipped or services rendered, were as follows for the six months ended March 31, 2026 and 2025:
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|
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|
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|
|
|
March 31, |
|
Increase (decrease) |
|
|||||||||||
|
|
|
2026 |
|
% |
|
2025 |
|
% |
|
$ |
|
% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||||||
|
Americas |
|
$ |
27,454 |
98 |
% |
$ |
27,827 |
96 |
% |
$ |
(373) |
|
(1) |
% |
||
|
Europe |
|
128 |
- |
% |
836 |
3 |
% |
(708) |
|
(85) |
% |
|||||
|
APAC and Africa |
|
466 |
2 |
% |
154 |
1 |
% |
312 |
|
203 |
% |
|||||
|
Totals |
|
$ |
28,048 |
100 |
% |
$ |
28,817 |
100 |
% |
$ |
(769) |
|
(3) |
% |
||
The $0.4 million decrease in sales to the Americas was the result of a decrease in the HPP segment of $0.2 million, a decrease of $0.1 million in the TS-US division, and a decrease in the TS-UK division of $0.1 million. The sales to Europe decreased $0.7 million from the prior year due to a decrease of $0.5 million in the TS-UK division combined with a decrease in the TS-US division of $0.2 million. The sales to APAC and Africa increased $0.3 million due to the HPP segment.
Gross Margins
Our gross margin ("GM") increased $0.4 million for the six months ended March 31, 2026 compared to the same prior year period. The GM as a percentage of total sales increased to 33% for the six months ended March 31, 2026 as compared to the same prior year period of 30%.
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March 31, |
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||||||||
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2026 |
|
2025 |
|
Increase |
||||||||||
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(Dollar amounts in thousands) |
|
|||||||||||||
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|
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
||||
|
TS |
|
$ |
8,415 |
31 |
% |
$ |
8,185 |
30 |
% |
$ |
230 |
1 |
% |
|||
|
HPP |
|
792 |
66 |
% |
586 |
54 |
% |
206 |
12 |
% |
||||||
|
Total |
|
$ |
9,207 |
33 |
% |
$ |
8,771 |
30 |
% |
$ |
436 |
3 |
% |
|||
The impact of product mix within our TS segment on gross margin for the six months ended March 31, 2026 and 2025 was as follows:
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March 31, |
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2026 |
|
2025 |
|
Increase (decrease) |
||||||||||
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|
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||||||
|
Products |
|
$ |
2,877 |
16 |
% |
$ |
3,336 |
17 |
% |
$ |
(459) |
(1) |
% |
|||
|
Services |
|
5,538 |
60 |
% |
4,849 |
57 |
% |
689 |
3 |
% |
||||||
|
Total |
|
$ |
8,415 |
31 |
% |
$ |
8,185 |
30 |
% |
$ |
230 |
1 |
% |
|||
The overall TS segment GM as a percentage of total sales increased to 31% for the six month period ended March 31, 2026 compared to 30% from the same prior year period. Product GM as a percentage of revenue for the six months ended March 31, 2026 decreased 1% from the prior year period due to product mix. Service GM as a percentage of total sales increased to 60% for the six months ended March 31, 2026 compared to 57% from the prior year period. This was primarily due to increased third-party maintenance sales, which are recorded "net" which means that the revenue, net of the associated cost, is recorded in the Services revenue financial statement line item causing an increase in GM as a percentage of sales.
The impact of product mix within our HPP segment on gross margin for the six months ended March 31, 2026 and 2025 was as follows:
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March 31, |
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||||||||
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2026 |
|
2025 |
|
Increase |
||||||||||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||||||
|
|
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
|
GM$ |
|
GM% |
||||
|
Products |
|
$ |
257 |
94 |
% |
$ |
233 |
66 |
% |
$ |
24 |
28 |
% |
|||
|
Services |
|
535 |
58 |
% |
353 |
49 |
% |
182 |
9 |
% |
||||||
|
Total |
|
$ |
792 |
66 |
% |
$ |
586 |
54 |
% |
$ |
206 |
12 |
% |
|||
The overall HPP segment GM as a percentage of sales increased to 66% for the six months ended March 31, 2026 from 54% for the six months ended March 31, 2025. The 28% increase in product GM as a percentage of product revenue compared to the same prior year period was primarily attributed to the product mix primarily consisting of software sales, which were nearly all GM. The 9% increase in service GM as a percentage of service revenue for the six months ended March 31, 2026 compared to the same prior year period was due to increased Multicomputer repair services, which are relatively high margin compared to other services.
Research and Development Expenses
The research and development expenses incurred by our HPP segment increased to $1.7 million for the six months ended March 31, 2026 compared to the same prior year period of $1.5 million due to increased salaries. The current period expenses were primarily for product engineering expenses incurred in connection with the continued development of the ARIA Zero Trust Gateway cyber security products.
Selling, General and Administrative Expenses
The following table details our selling, general and administrative ("SG&A") expense by operating segment for the six months ended March 31, 2026 and 2025:
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|
Six months ended March 31, |
|
|
$ |
|
% |
|
||||||||
|
|
|
|
|
|
% of |
|
|
|
|
% of |
|
|
Increase |
|
Increase |
|
|
|
|
2026 |
|
Total |
|
2025 |
|
Total |
|
|
(Decrease) |
|
(Decrease) |
|
||
|
|
|
(Dollar amounts in thousands) |
|
|||||||||||||
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By Operating Segment: |
|
|
|
|
|
|
|
|
|
|
||||||
|
TS segment |
|
$ |
6,417 |
76 |
% |
$ |
6,294 |
73 |
% |
$ |
123 |
2 |
% |
|||
|
HPP segment |
|
2,077 |
24 |
% |
2,276 |
27 |
% |
(199) |
(9) |
% |
||||||
|
Total |
|
$ |
8,494 |
100 |
% |
$ |
8,570 |
100 |
% |
$ |
(76) |
(1) |
% |
|||
SG&A expenses decreased $0.1 million for the six months ended March 31, 2026 compared to the same prior year period. The $0.1 million increase in TS segment SG&A expenses compared to the same prior year period is primarily the result of increased salaries and variable compensation. The HPP segment SG&A expenses decreased $0.2 million for the six months ended March 31, 2026 as compared to the same prior year period primarily due to decreased stock compensation expense and consulting expenses.
Other Income/Expenses
The following table details other income, net for the six months ended March 31, 2026 and 2025:
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|
|
Six months ended |
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||||
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|
|
|
|
|
|
March 31, 2026 |
|
March 31, 2025 |
|
$ Change |
|
|||
|
|
|
(Amounts in thousands) |
|
|||||||
|
Foreign exchange gain |
|
$ |
63 |
|
$ |
163 |
|
$ |
(100) |
|
|
Interest expense |
|
|
(295) |
|
|
(154) |
|
|
(141) |
|
|
Interest income |
|
1,128 |
|
903 |
|
225 |
|
|||
|
Other income, net |
|
134 |
|
2 |
|
132 |
|
|||
|
Total other income, net |
|
$ |
1,030 |
|
$ |
914 |
|
$ |
116 |
|
Total other income, net for the six months ended March 31, 2026 increased $0.1 million to income of $1.0 million compared to income of $0.9 million in the same prior year period.
The $0.1 million decreased foreign exchange gain for the six months ended March 31, 2026 was due to the US Dollar strengthening less relative to the British Pound compared to the same prior year period. In consolidation, US dollars are remeasured into the functional currency, British Pounds, of our UK subsidiary. This non-cash remeasurement is included in the Foreign exchange gain in the Consolidated Statements of Operations. The foreign exchange gain in the current period was primarily from the US Dollar balance in our TS UK division.
Interest income increased $225 thousand for the six months ended March 31, 2026 compared to the same prior year period primarily due to increased interest income from agreements that have payment terms in excess of one year (see Note 5 Financing receivables, net in Item 1 to this Quarterly Report on Form 10-Q for details), partially offset with decreased interest rates related to our Cash and cash equivalents and a decreased average balance. All of these agreements are in the TS-US division.
The interest expense increase of $141 thousand for the six months ended March 31, 2026 compared to the same prior year period was primarily related to the TS US division entering into additional multi-year vendor contracts related to sales agreements in fiscal year 2026 and 2025 that have payment terms in excess of one year. Not all sales agreements that have payments in excess of one year have related multi-year vendor contracts.
Income Taxes
The Company recorded an income tax benefit of $288 thousand and $798 thousand for the six months ended March 31, 2026 and 2025, respectively. For these periods, the difference between our effective income tax rate and the U.S. federal statutory rate was the impact of tax credits that we expect to be able to utilize against federal and state taxes, the change in valuation allowance maintained against certain state tax credits, and the excess tax benefits on restricted stock awards that vested during the period.
Liquidity and Capital Resources
Our primary source of liquidity is our Cash and cash equivalents and our line of credit.
Cash and cash equivalents decreased by $4.3 million to $23.1 million as of March 31, 2026 from $27.4 million as of September 30, 2025.
The following is a summary of our cash flows for the six months ended March 31, 2026 and 2025:
|
|
|
|
|
|
|
|
|
|
|
Six months ended March 31, |
||||
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
2025 |
||
|
|
|
(Dollar amounts in thousands) |
||||
|
Net cash (used in) provided by: |
|
|
|
|
||
|
Operating activities |
|
$ |
(3,409) |
$ |
3,653 |
|
|
Investing activities |
|
|
(173) |
|
|
(108) |
|
Financing activities |
|
|
(695) |
|
|
(4,603) |
|
Effect of exchange rate changes on cash |
|
|
(40) |
|
|
(32) |
|
Decrease in Cash and cash equivalents |
|
$ |
(4,317) |
$ |
(1,090) |
|
Operating Activities
Cash used in operating activities was $3.4 million for the six months ended March 31, 2026 compared to $3.7 million provided by operating activities in the prior year. Our largest source of cash provided by our operations is receipts from our customers. Net cash provided by operating activities can be impacted by factors such as timing of when we invoice the customer and receive payment, when we receive vendor invoices and make payments as well as vendor payment terms, and inventory fluctuations are dependent on when orders are received and shipped.
The operating cash used during the period primarily reflects the payment of Accounts payable and accrued expenses outstanding as of September 30, 2025 and continued investment in ARIA Zero Trust Gateway cyber security products. Collections remained strong during the period.
Investing Activities
Cash used in investing activities increased $0.1 million for the six months ended March 31, 2026 compared to the same prior year period due to increased purchases of property, equipment, and improvements.
Financing Activities
Cash used in financing activities was $0.7 million for the six months ended March 31, 2026 compared to $4.6 million used in the same prior year period. The decrease from the prior year was primarily due to decreased net repayments on our line-of-credit of approximately $3.7 million from the prior year and repurchases of common stock of $0.2 million. The line-of-credit payment changes are due to the timing of sales and related vendor invoices.
Other Liquidity and Capital Resources Items
Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $5.0 million as of March 31, 2026 and consisted of 0.9 million Euros, 0.2 million British Pounds, and 3.8 million US Dollars. This cash is included in our total Cash and cash equivalents reported on the Condensed Consolidated Balance Sheets.
As of March 31, 2026 and September 30, 2025, the Company maintained a line of credit with a capacity of up to $15.0 million for inventory accessible to both the HPP and TS segments. This line of credit also includes availability of a limited cash withdrawal of up to $1.0 million. As of March 31, 2026 and September 30, 2025 an amount of $14.1 million was available under the inventory line of credit. As of March 31, 2026 and September 30, 2025 there were no cash withdrawals outstanding. For further discussion of the Company's line of credit, including its financial covenants, see Item 1, Note 9 Line of Credit.
In the TS U.S. division, financing of goods and services is offered to certain customers. This involves amounts due reflecting sales whose payment terms exceed one year. As of March 31, 2026 and September 30, 2025 there were
$16.4 million and $14.9 million of Financing receivables, net outstanding, respectively. Of these amounts, $7.7 million and $8.9 million were current assets as of March 31, 2026 and September 30, 2025, respectively.
Related to the Financing Receivables, net there was a balance of $8.8 million and $4.8 million of multi-year contracts with financing due to our vendors. Of these amounts $4.6 million and $3.1 million were current liabilities as of March 31, 2026 and September 30, 2025, respectively. The current portion of these vendor financing arrangements is within Accounts payable and accrued expenses. The noncurrent portion is within Other noncurrent liabilities. Not every financing arrangement with our customers has a related vendor financing arrangement. Some vendors do not offer financing for agreements and if offered, management determines whether to use vendor financing due to various factors including interest rates and cash flow projections. Refer to Note 5 - Financing receivables, net and Note 8 Accounts payable and accrued expenses, and Other noncurrent liabilities for more information.
If cash generated from operations is insufficient to satisfy working capital requirements, we may need to access funds through bank loans or other means. If we are unable to secure additional financing, we may not be able to complete development or enhancement of products, take advantage of future opportunities, respond to competition, retain key employees, or continue to effectively operate our business.
Based on our current plans and business conditions, management believes that the Company's available Cash and cash equivalents, the cash generated from operations, and availability on our line of credit will be sufficient to provide for the Company's working capital and capital expenditure requirements for at least 12 months from the date of this filing.
CSP Inc. published this content on May 07, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 07, 2026 at 16:27 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]