CSP Inc. (CSPI Quick QuoteCSPI - Free Report) exited fiscal 2025 with a sharper operating profile, driven by a rapidly expanding service mix in its Technology Solutions (TS) segment and rising adoption momentum for its AZT PROTECT cybersecurity platform in the High-Performance Products (HPP) segment.

Management’s recent disclosures highlight a company entering fiscal 2026 with improved margin structure, stronger customer traction and strategic partnerships that could reshape its growth trajectory over the next year.

Strong Revenues & Major Margin Expansion

CSPI reported $14.5 million in revenues for the fourth quarter of fiscal 2025, up 11% from $13 million a year earlier. Notably, the gross margin rose sharply to 37%, expanding by more than 800 basis points from the same period last year. This margin lift was primarily driven by accelerated service growth, which carries higher profitability than product revenues.

Management highlighted that while product revenues declined year over year in the quarter, service revenues surged 63% or by $2.5 million, which substantially improved gross profit and narrowed operating losses.

A defining development in fiscal 2025 was the increasing weight of services in the TS segment. In the fiscal fourth quarter, services represented 44% of the total revenues compared with approximately 30% in the prior-year quarter. For the full year, services rose to 36% of the total revenues from 33% the year before. This shift is strategically valuable for two reasons — service revenues tend to be “sticky” due to long-standing customer relationships and strong retention, and services earn a higher gross margin than product revenues.

The company also noted that managed cloud and managed service provider offerings expanded at a healthy double-digit rate in fiscal 2025, and 2026 efforts will include allocating more resources and adding additional sales representatives to accelerate expansion.

Maritime Industry: A Key Tailwind Entering FY26

CSPI’s managed service strategy has been especially effective in the maritime vertical. The company indicated it expanded installations in fiscal 2025 and expects the service contracts associated with these installations to begin contributing more meaningfully in fiscal 2026. It also disclosed that it entered fiscal 2026 with a backlog tied to cruise ship installs and upgrades that it hopes to convert to revenues over the next 12 months. This dynamic underscores how the TS segment’s services expansion is not only enhancing near-term margins but also strengthening revenue visibility.

Rising Customer Adoption & Multi-Site Expansion Strategy

Alongside TS execution, CSPI’s HPP segment is positioning AZT PROTECT as its long-cycle growth engine. Management stated that its go-to-market strategy delivered dozens of customer installations in fiscal 2025 and the pipeline of deployment opportunities continues expanding. A key component of that growth strategy is its channel approach through “gold star resellers,” including major Rockwell Automation distributors.

The company’s playbook involves landing a deployment at one operational site, then expanding to additional locations within the same enterprise. CSPI stated it has already executed this approach with several customers and is actively working on purchase orders for expansions.

Management also noted that customers span multiple industries, including steel, energy, manufacturing, water utilities, pharmaceuticals, food and telecommunications, and many have the potential to become six or seven-figure relationships, especially through multi-site deployments.

Rockwell Fair: Lead Generation & Channel Validation

CSPI reinforced that Rockwell events are becoming a major commercial catalyst for AZT PROTECT. The company disclosed that most AZT PROTECT orders over the last year originated from Rockwell-related exposure and leads. In its 2025 Rockwell Fair participation, CSPI reported a 50% year-over-year increase in leads, with the commodity's quality also improving significantly, largely attributed to greater distributor involvement. This matters because CSPI’s strategy relies heavily on channel partners scaling AZT PROTECT adoption using case studies and validated deployments.

Embedded IIoT Market Entry

Perhaps the most significant product development disclosed is the expansion of AZT PROTECT into embedded industrial IoT (IIoT) environments. The company stated that new AZT PROTECT features now enable entry into this market, and management emphasized that industrial IoT devices historically have been hard to protect because they often lack resources to support conventional IT endpoint solutions.

To address this, CSPI enhanced its software to integrate AZT PROTECT into industrial IoT vendors’ existing systems. Management stated it has overcome integration challenges without exception, though additional work remains to streamline mass deployment. The company believes these enhancements are driving a growing pipeline into what it describes as a large unserved industrial edge compute market.

Beyond operating performance, CSPI disclosed a notable balance-sheet-related development: it entered a buy-in contract in October 2024 as part of a planned termination of its U.K. defined benefit pension plan, paying £8.5 million. The company expects this buy-in contract to transition into a buy-out contract within fiscal 2026. This transition is significant because once the buy-in becomes a buy-out, the company would no longer retain legal responsibility to pay the benefits to members.