CSPI · CSP Inc.

Revenue for Q2 FY2026 reached $16.0 million, up 21.8% from $13.1 million in the prior year quarter. This growth reflects expanded business activity, with gross profit advancing 6.3% to $4.5 million from $4.2 million. The gross margin of 27.9% benefited from increased third-party maintenance sales, which are recorded net—meaning revenue net of associated costs appears in the Services line item. This structure inherently lifts gross margin as a percentage of sales by excluding direct costs. Additionally, service gross margins saw uplift from higher multicomputer repair services, which carry relatively higher margins compared to other services, though HPP service sales dipped due to the absence of a prior nonrecurring customer support sale.

Operating income narrowed to a loss of $851 thousand from $994 thousand last year, an improvement of 14.4%, as the higher revenue base absorbed fixed costs more effectively despite ongoing margin pressures. The operating margin stood at -5.3%. Non-operating factors contributed to net income flipping to a $264 thousand profit from a $108 thousand loss, yielding diluted EPS of $0.03 versus -$0.01. This swing underscores how other income and financing dynamics can offset operational challenges in a quarter.

Cash flow from operations reversed to a $3.4 million outflow from a $3.7 million inflow prior year, with free cash flow at -$3.5 million after $119 thousand in capital expenditures, up from $54 thousand. Management notes that operating cash is sensitive to the timing of customer invoicing and payments received, vendor invoice timing and payment terms, as well as inventory levels tied to order receipt and shipment patterns. These working capital swings explain the quarter's cash consumption without signaling underlying operational distress.