Csp Inc 10-Q for FY2024 Q1
Csp Inc (CSPI)
About this 10-Q
Csp Inc filed this 10-Q on February 14, 2024, covering the quarter ended December 31, 2023 (FY2024 Q1).
Headline figures
Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $15.38M
- down 16.2% from $18.34M a year earlier
- Net loss
- $73K
- compared with net income of $961K a year earlier
- Diluted EPS
- -$0.02
- compared with $0.21 a year earlier
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the Quarterly Period Ended
or
For the transition period from to .
Commission File Number
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
(Address of principle executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ◻ | Accelerated filer | ◻ |
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⌧ | Smaller reporting company | ||
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Emerging growth company | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
As of February 2, 2024, the registrant had
INDEX
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| Condensed Consolidated Balance Sheets as of December 31, 2023 (unaudited) and September 30, 2023 | 3 |
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| 4 | |
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| 5 | |
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| 6 | |
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| 7 | |
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| Notes to Condensed Consolidated Financial Statements (unaudited) | 9 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
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31 | ||
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31 | ||
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31 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CSP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)
| | December 31, | | September 30, | ||
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| 2023 |
| 2023 | ||
| | (unaudited) | | | | |
ASSETS |
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Current assets: |
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Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net of allowances of $ | |
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Financing receivables, net of allowances of $ | |
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Inventories | |
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Other current assets | |
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Total current assets | |
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Property, equipment and improvements, net | |
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Operating lease right-of-use assets | | | | | | |
Intangibles, net | |
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Financing receivables due after one year, net of allowances of $ | | | | |
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Deferred income taxes, net | |
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Cash surrender value of life insurance | |
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Pension benefits assets | | | | | | |
Other assets | |
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Total assets | | $ | | | $ | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | |
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Current liabilities: | |
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Accounts payable and accrued expenses | | $ | | | $ | |
Line of credit | | | | | | |
Note payable | | | | | | |
Deferred revenue | |
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Pension and retirement plans | |
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Income taxes payable | |
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Total current liabilities | |
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Pension and retirement plans | |
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Operating lease liabilities - noncurrent portion | | | | | | |
Income taxes payable | |
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Other noncurrent liabilities | |
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Total liabilities | |
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Shareholders’ equity: | |
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Common stock, $ | |
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Additional paid-in capital | |
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Retained earnings | |
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Accumulated other comprehensive loss | |
| ( | |
| ( |
Total shareholders’ equity | |
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Total liabilities and shareholders’ equity | | $ | | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
3
CSP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except for per share data)
(Unaudited)
| | Three Months Ended | | ||||
| | December 31, | | December 31, | | ||
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| 2023 |
| 2022 | | ||
Sales: | | |
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Product | | $ | | | $ | | |
Services | |
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Total sales | |
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Cost of sales: | |
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Product | |
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Services | |
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Total cost of sales | |
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Gross profit | |
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Operating expenses: | |
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Engineering and development | |
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Selling, general and administrative | |
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Total operating expenses | |
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Operating (loss) income | |
| ( | |
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Other income (expense): | |
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Foreign exchange loss | |
| ( | |
| ( | |
Interest expense | |
| ( | |
| ( | |
Interest income | |
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Other income, net | |
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Total other income (expense), net | |
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| ( | |
(Loss) income before income taxes | | | ( | |
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Income tax expense | | | | |
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Net (loss) income | | $ | ( | | $ | | |
Net (loss) income attributable to common shareholders | | $ | ( | | $ | | |
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Net (loss) income per common share - basic | | $ | ( | | $ | | |
Weighted average common shares outstanding – basic | |
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Net (loss) income per common share - diluted | | $ | ( | | $ | | |
Weighted average common shares outstanding – diluted | | | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements.
4
CSP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
| | Three Months Ended | | ||||
| | December 31, | | December 31, | | ||
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| 2023 |
| 2022 | | ||
Net (loss) income | | $ | ( |
| $ | | |
Foreign currency translation gain adjustments, net | |
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Total comprehensive income | | $ | |
| $ | | |
See accompanying notes to unaudited condensed consolidated financial statements.
5
CSP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the three months ended December 31, 2023 and 2022:
(Amounts in thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | other | | Total | |||
| | | | | | | Paid-in | | Retained | | comprehensive | | Shareholders’ | ||||
Three months ended December 31, 2023: |
| Shares |
| Amount |
| Capital |
| Earnings |
| loss |
| Equity | |||||
Balance as of September 30, 2023 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Adoption of Accounting Standards Update 2016-13 | | | | | | | | | | | ( | | | | | | ( |
Net loss |
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| ( | |
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| ( |
Other comprehensive income |
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Stock-based compensation |
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Dividends declared ($ |
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| ( |
Balance as of December 31, 2023 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | Additional | | | | | other | | Total | |||
| | | | | | | Paid-in | | Retained | | comprehensive | | Shareholders’ | ||||
Three months ended December 31, 2022: |
| Shares |
| Amount |
| Capital |
| Earnings |
| loss |
| Equity | |||||
Balance as of September 30, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Net income |
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Other comprehensive income |
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Stock-based compensation |
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Restricted stock issuance |
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Dividends declared ($ |
| | | | | | | | | | ( | | | | |
| ( |
Balance as of December 31, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
6
CSP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | Three Months Ended | ||||
| | December 31, | | December 31, | ||
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| 2023 |
| 2022 | ||
Operating activities |
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Net (loss) income | | $ | ( | | $ | |
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Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | |
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Depreciation | |
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Amortization of intangibles | |
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Foreign exchange loss | |
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Provision for credit losses | |
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Provision for obsolete inventory | |
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Amortization of lease right-of-use assets | | | | | | |
Stock-based compensation expense on restricted stock awards | |
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Increase in cash surrender value of life insurance | |
| ( | |
| ( |
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Changes in operating assets and liabilities: | |
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Decrease in accounts receivable | |
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Decrease in financing receivable | | | | | | |
(Increase) decrease in inventories | |
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Decrease in refundable income taxes | |
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Decrease in other assets | | | | | | |
Increase (decrease) in accounts payable and accrued expenses | |
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| ( |
Increase in interest payable | | | | | | |
Decrease in operating lease liabilities | | | ( | | | ( |
Decrease in deferred revenue | |
| ( | |
| ( |
Decrease in pension and retirement plans liabilities | |
| ( | |
| ( |
Increase in income taxes payable | |
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Increase (decrease) in other long-term liabilities | |
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Net cash provided by (used in) operating activities | |
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Investing activities | |
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Additions of intangible assets | | | ( | | | ( |
Purchases of property, equipment and improvements | |
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Net cash used in investing activities | |
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| ( |
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Financing activities | |
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Net borrowing under line-of-credit agreement | | | ( | | | |
Repayments on note payable | | | ( | | | ( |
Principal payments on finance leases | |
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Net cash used in financing activities | |
| ( | |
| ( |
Effects of exchange rate on cash, net | |
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Net increase (decrease) in cash and cash equivalents | |
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Cash and cash equivalents beginning of period | | | | |
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Cash and cash equivalents end of period | | $ | | | $ | |
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Supplementary cash flow information: | |
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Cash paid for income taxes | | $ | | | $ | |
Cash paid for interest | | $ | | | $ | |
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Supplementary non-cash financing activities: | | | | | | |
7
Dividend declared during period | | $ | | | $ | |
Customer financing for inventory sold (see Note 5 Financing receivables for details) | | $ | | | $ | |
See accompanying notes to unaudited condensed consolidated financial statements.
8
CSP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Organization and Business
CSP Inc. ("CSPi" or "CSPI" or "the Company" or "we" or "our") was incorporated in
1. Summary of Significant Accounting Policies
Basis of presentation
The accompanying interim condensed consolidated financial statements have been prepared by the Company and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States, have been omitted.
Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the unaudited condensed consolidated financial statements should be read in conjunction with the notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Presentation - sales whose payment terms exceed one year
Effective as of December 31, 2023 sales whose payment terms exceed one year is now presented as “Finance receivables, net of allowance” on the Consolidated Balance Sheets rather than being combined with Accounts receivable. The financial statement line item Long-term receivable is now labeled as “Financing receivables due after one year, net of allowances.” These changes are reflected retrospectively as of September 30, 2023. This change was made to provide more detail on the balance sheet related to these receivables and align with our footnotes.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates and assumptions are related to the allowance for credit losses for accounts receivable and financing receivables, reserves for inventory obsolescence, the impairment assessment of intangible assets, right-of-use assets and lease liabilities, and the calculation of standalone selling price for revenue recognition, the calculation of liabilities related to deferred compensation and retirement plans and the calculation of income tax liabilities. Actual results may differ from those estimates under different assumptions or conditions.
Significant Accounting Policies
Except for the change in certain accounting policies upon adoption of the accounting standard described below, there have been no significant changes to the Company's significant accounting policies described in PART II, Item 8, Note 1, "Summary of Significant Accounting Policies", of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
9
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), an amendment of the FASB Accounting Standards Codification. Additional updates were issued in 2018-2020. The amended guidance replaces the current incurred loss impairment methodology for measurement of credit losses on financial instruments with a methodology (the “current expected credit losses model,” or “CECL model”) that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the CECL model, the allowance for losses on financial assets, measured at amortized cost, reflects management’s estimate of credit losses over the remaining expected life of such assets.
The Company adopted ASU 2016-13 (the “new CECL standard”) as of October 1, 2023 using the modified retrospective method, with a cumulative-effect adjustment to the opening balance of Shareholders’ equity as of October 1, 2023. The adoption primarily impacted the estimation of our Allowance for credit losses for Accounts receivable and Financing receivables. Additionally, it affected allowance for credit losses of contract assets and investment in lease, net with effects being immaterial. The total impact recorded on our initial adoption of ASU 2016-13 as of October 1, 2023 included an increase of Accounts receivable, net of $
2. Revenue
We derive revenue from the sale of integrated hardware and software, third-party service contracts, professional services, managed services, financing of hardware and software, and other services.
We recognize revenue from hardware upon transfer of control, which is at a point in time typically upon shipment when title transfers. Revenue from software is recognized at a point in time when the license is granted.
Professional services generally include implementation, installation, and training services. Professional services are considered a series of distinct services that form one performance obligation and revenue is recognized over time as services are performed.
Revenue generated from managed services is recognized over the term of the contract. Certain managed services contracts include financing of hardware and software. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease component includes hardware, which is subject to ASC 842, Leases. The non-lease components are subject to ASC 606, Revenue from Contracts with Customers.
Other services generally include revenue generated through our royalty, extended warranty, multicomputer repair, and maintenance contracts. Royalty revenue is sales-based and recognized on the date of subsequent sale of the product, which occurs on the date of customer shipment. Revenue from extended warranty contracts is recognized ratably over the warranty period. Multicomputer repair services revenue is recognized upon control transfer when the customer takes possession of the computer at time of shipping. Revenue generated from maintenance services is recognized evenly over the term of the contract.
The right of return risk lies with the original manufacturer of the product. Managed service contracts contain the right to refund if canceled within
10
The following policies are applicable to our major categories of segment revenue transactions:
TS Segment Revenue
TS Segment revenue is derived from the sale of hardware, software, professional services, third-party service contracts, maintenance contracts, managed services, and financing of hardware and software. Financing revenue pertaining to the portion of an arrangement containing a lease is recognized in accordance with ASC 842. Financing revenue related to the lease is recorded in revenue as equipment leasing is part of our operations.
Third-party service contracts are evaluated to determine whether such service revenue should be recorded as gross or net sales and whether over time or at point in time.
HPP Segment Revenue
HPP segment revenue is derived from the sale of integrated hardware and software, maintenance, and other services through the Myricom, Multicomputer, and ARIA product lines. ARIA revenue is derived from sale of hardware, software, and managed services.
Myricom revenue is derived from the sale of products, which are comprised of both hardware and embedded software which is essential to the products’ functionality, and post contract maintenance and support. Post contract maintenance and support is considered immaterial in the context of the contract and therefore is not a separate performance obligation. Multicomputer revenue is derived from the sale of hardware, software, extended warranties, royalties, and repair services. See disaggregated revenues below by products/services and divisions/segments.
| | | | Technology Solutions Segment | | | |||||||||
| | High | | | | | | | | | | | | | |
| | Performance | | | | | | | | | | | | | |
| | Products | | United | | | | | | | | Consolidated | |||
Three months ended December 31. |
| Segment |
| Kingdom |
| U.S. |
| Total |
| Total | |||||
| | (Amounts in thousands) | |||||||||||||
2023 | | | | | | | | | | | |||||
Sales: | | | | | | | | | | | |||||
Product | | $ | | $ | | $ | | $ | | $ | |||||
Service | | | | | | | | | | | |||||
Finance * | | | | | | | | | | | |||||
Total sales | | $ | | $ | | $ | | $ | | $ | |||||
| | | | | | | | | | | | | | | |
| | | | Technology Solutions Segment | | | |||||||||
| | High | | | | | | | | | | | |||
| | Performance | | | | | | | | | | | | | |
| | Products | | United | | | | | | | | Consolidated | |||
Three months ended December 31. |
| Segment |
| Kingdom |
| U.S. |
| Total |
| Total | |||||
| | (Amounts in thousands) | |||||||||||||
2022 | | | | | | | | | | | |||||
Sales: | | | | | | | | | | | |||||
Product | | $ | | $ | | $ | | $ | | $ | |||||
Service | | | | | | | | | | | |||||
Finance * | | | — | | | — | | | | | | | |||
Total sales | | $ | | $ | | $ | | $ | | $ | |||||
* Finance revenue is related to equipment leasing and is not subject to the guidance on revenue from contracts with customers (ASC 606).
11
Significant Judgments
The input method using labor hours expended relative to the total expected hours is used to recognize revenue for professional services. Only the hours that depict our performance toward satisfying a performance obligation are used to measure progress. An estimate of hours for each professional service agreement is made at the beginning of each contract based on prior experience and monitored throughout the performance of the services. This method is most appropriate as it depicts the measure of progress towards satisfaction of the performance obligation.
A financing component exists when at contract inception the period between the transfer of a promised good and/or service to the customer differs from when the customer pays for the good and/or service. As a practical expedient, we have elected not to adjust the amount of consideration for effects of a significant financing component when it is anticipated the promised good or service will be transferred and the subsequent payment will be one year or less.
Certain contracts contain a financing component including managed services contracts with financing of hardware and software. The interest rate used reflects the approximate interest rate consistent with a separate financing transaction with the customer at the inception of the agreement. Revenues from arrangements which include financing are allocated considering relative standalone selling prices of lease and non-lease components within the agreement. The lease component includes hardware, which is subject to ASC 842, Leases. The non-lease components are subject to ASC 606, Revenue from Contracts with Customers.
When product and non-managed services are sold together, the allocation of the transaction price to each performance obligation is calculated based on the estimated relative selling price or a budgeted cost-plus margin approach, as appropriate. Due to the complex nature of these contracts, there is significant judgment in allocating the transaction price. These estimates are periodically reviewed by project managers, engineers, and other staff involved to ensure estimates remain appropriate. For items sold separately, including hardware, software, professional services, maintenance contracts, other services, and third-party service contracts, there is no allocation as there is one performance obligation.
We recognize revenue from third-party service contracts as either gross sales or net sales depending on whether we are acting as a principal party to the transaction or simply acting as an agent or broker based on control and timing. We are a principal if we control the good or service before that good or service is transferred to the customer. We record revenue as gross when we are a principal party to the arrangement and net of cost when we are acting as a broker or agent for a third party. Under gross sales recognition, the entire selling price is recorded in revenue and our cost to the third-party service provider or vendor is recorded in cost of sales. Under net sales recognition, the cost to the third-party service provider or vendor is recorded as a reduction to revenue resulting in net sales equal to the gross profit on the transaction. Third-party service contracts are sold in different combinations with hardware, software, and services. When we are an agent, revenue is typically recorded at a point in time. When we are the principal, revenue is recognized over the contract term. We have concluded we are the agent in sales of third-party maintenance, software or hardware support, and certain security software that is sold with integral third-party delivered software maintenance that includes critical updates.
Contract Assets and Liabilities
When we have performed work but do not have an unconditional right to payment, a contract asset is recorded. When we have the right to bill a customer, accounts receivable is recorded as an unconditional right exists. Current contract assets were $
Contract liabilities arise when payment is received before we transfer a good or service to the customer. Current contract liabilities were $
12
Contract Costs
Costs to fulfill a contract are capitalized when the costs are related to a contract or anticipated contract, generate or enhance resources that will be used in satisfying performance obligations in the future, and costs are recoverable. Costs to fulfill a contract are related to the TS portion of the business and involve activities performed before managed services can be completed. Current capitalized fulfillment costs are in the other current assets and noncurrent costs are in other assets on the condensed consolidated balance sheets. The were
Other
Projects are typically billed upon completion or at certain milestones. Product and services are typically billed when shipped or as services are being performed. Payment terms are typically
We have certain contracts that have an original term of more than one year. The royalty agreement is longer than one year, but not included in the table below as the royalties are sales-based. Managed service contracts are generally longer than one year. For these contracts the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2023 is set forth in the table below:
|
| (Amounts in thousands) | |
Fiscal 2024 | | ||
Fiscal 2025 | | | |
Fiscal 2026 | | | |
Fiscal 2027 | | | |
| | $ | |
13
3. Earnings Per Share of Common Stock
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share includes the dilutive effect of restricted stock, if any, calculated using the treasury stock method. For unvested restricted stock, assumed proceeds under the treasury stock method would include unamortized compensation cost.
We are required to present earnings per share (“EPS”), utilizing the two class method because we had outstanding, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents, which are considered participating securities
Basic and diluted earnings per share computations for the Company’s reported net loss attributable to common stockholders are as follows:
| | Three Months Ended | ||||
| | December 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
| | | | | | |
Net (loss) income |
| $ | ( |
| $ | |
Less: net income attributable to nonvested common stock |
| | |
| | ( |
Net (loss) income attributable to common shareholders | | $ | ( |
| $ | |
| | | | | | |
Weighted average total shares outstanding – basic | | | | | | |
Less: weighted average non–vested shares outstanding | | | | | | ( |
Weighted average number of common shares outstanding – basic | | | |
| | |
Add: potential common shares from non–vested stock awards | | | |
| | |
Weighted average common shares outstanding – diluted | | $ | |
| | |
| | | | | | |
Net (loss) income per common share - basic | | $ | ( | | $ | |
Net (loss) income per common share - diluted | | $ | ( | | $ | |
Anti-dilutive securities include restricted stock, which are excluded from the diluted income (loss) per common share computation. Non-vested restricted stock awards of
4. Accounts receivable, net
Upon adoption of the new CECL standard as described in Note 1, the Company recognizes an allowance for losses on accounts receivable in an amount equal to the current expected credit losses. The estimation of the allowance is based on an analysis of historical loss experience, management’s assessment of current conditions and reasonable and supportable expectation of future conditions as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible including reviewing the current receivables aging. This results in a general reserve and a specific reserve. The Company assesses collectability by pooling receivables where similar characteristics exist and evaluates receivables individually when specific customer balances no longer share those risk characteristics and are considered at risk or uncollectible. The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.
Amounts disclosed below for the three months ended December 31, 2023 reflect adoption of the new CECL standard and the amounts disclosed for the three months ended December 31, 2022 reflect superseded guidance.
14
The following table presents the components of the Company’s accounts receivable for the periods indicated.
| Three months ended | |||||
| | December 31, 2023 | | December 31, 2022 | ||
| | (Amounts in thousands) | ||||
Allowance for credit losses for accounts receivable: | | | | | | |
Balances at beginning of the period | | $ | | | $ | |
Adjustment for adoption of new CECL standard | | | ( | | | |
Charge-offs | | | | | | |
Provision for credit losses | | | | | | |
Balances at end of the period | | $ | | | $ | |
5. Financing receivables, net
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. This financing is separate from agreements with a leasing component, see Note 7 Leases for financing through leases. Determining whether to offer financing involves looking at the customer’s payment history, economic conditions, and capacity to pay.
The Company assigns an internal risk rating to each customer at inception, which groups customers into a portfolio based off this risk rating. A risk rating is assigned by analyzing a customer’s financial statements and the latest Fitch rating if publicly available as well as recent payment activity. The credit quality of customers is continually monitored by these items. Accounts rated low risk have the equivalent of a Fitch rating of BBB– or higher, while accounts rated moderate risk have the equivalent of BB. The Company does not offer financing for customers where the risk is classified as higher, which would be lower than the equivalent of a BB Fitch rating.
Financing receivables, net carry an average weighted interest rate of
The amount of interest income earned from sales whose payment terms exceed one year for the three months ended December 31, 2023 and 2022 was $
Amounts disclosed below as of December 31, 2023 reflect adoption of the new CECL standard and the amounts disclosed as of September 30, 2023 reflect superseded guidance.
The following table presents the components of the Company’s Financing receivables, net segregated by portfolio (risk rating) for the periods indicated:
|
| As of December 31, 2023 | | As of September 30, 2023 | ||||||||||||||
| | Risk Rating | | | | | Risk Rating | | | | ||||||||
| | | Low | | | Moderate | | | Total | | | Low | | | Moderate | | | Total |
| | (Amounts in thousands) | | (Amounts in thousands) | ||||||||||||||
Financing receivables, net: | | | | | | | | | | | | | | | | | | |
Financing receivables, gross | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Unearned interest income | | | ( | | | ( | | | ( | | | ( | | | ( | | | ( |
Allowance for credit losses | | | ( | | | ( | | | ( | | | | | | | | | |
Financing receivables, net | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Short-term | | $ | | $ | | $ | | $ | | $ | | $ | ||||||
Long-term | | $ | | $ | | $ | | $ | | $ | | $ | ||||||
15
Amounts disclosed below for the three months ended December 31, 2023 reflect adoption of the new CECL standard and the amounts disclosed for the three months ended December 31, 2022 reflect superseded guidance.
The following table presents the changes in Allowance for credit losses for Financing receivables, net for the periods indicated:
| | Three months ended | ||||||||||||||||
| | December 31, 2023 | | December 31, 2022 | ||||||||||||||
| | Risk Rating | | | | | Risk Rating | | | | ||||||||
|
| Low |
| Moderate |
| Total |
| Low |
| Moderate |
| Total | ||||||
| | (Amounts in thousands) | | (Amounts in thousands) | ||||||||||||||
Allowance for credit losses for financing receivables: | | | | | | | | | | | | | | | | | | |
Balances at beginning of the period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Adjustment for adoption of new CECL standard | | | | | | | | | | | | | | | | | | |
Charge-offs | | | | | | | | | | | | | | | | | | |
Provision charged to Consolidated Statements of Operations | | | ( | | | | | | ( | | | | | | | | | |
Balances at end of the period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Upon adoption of the new CECL standard as described in Note 1, the Company recognizes an allowance for credit losses for financing receivables in an amount equal to the probable losses net of recoveries. A probability method for calculating credit losses is used based on historical data of defaults of Fitch ratings and length of time. Various factors are also assessed in the allowance for credit losses including internal historical data as well as macroeconomic forecast assumptions and management judgments applicable to and through the expected life of the portfolios. Macroeconomic conditions include the level of gross domestic product (“GDP”) growth and unemployment rates, which directly correlate with our historical credit losses. The expense associated with the allowance for expected credit losses is recognized in Selling, general, and administrative expenses in the Consolidated Statements of Operations.
Financing receivables whose payment terms exceed
The following table presents Financing receivables, gross, including accrued interest, by credit quality indicator segregated by risk rating and year of origination as of December 31, 2023:
| | December 31, 2023 | |||||||||||||
| | Fiscal year of origination | | | | ||||||||||
Risk Rating |
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| Total | |||||
|
| | | | | | | | | | | | | | |
Moderate |
| $ | | |
| | |
| | |
| | |
| |
Low |
|
| | | $ | | | $ | | | $ | | | $ | |
Total |
| $ | | | $ | | | $ | | | $ | | | $ | |
16
Contractual maturities of outstanding financing receivables are as follows:
Fiscal year ending September 30: |
| (Amounts in thousands) | |
2024 | | $ | |
2025 | | | |
2026 | | | |
2027 | | | |
Total payments | | $ | |
Less: unearned interest income | | | ( |
Less: allowance for credit losses | | | ( |
Total, net of unearned interest income and allowance for credit losses | | $ | |
6. Inventories
Inventories consist of the following:
| | December 31, | | September 30, | ||
|
| 2023 |
| 2023 | ||
| | (Amounts in thousands) | ||||
Raw materials | | $ | | | $ | |
Work-in-process | |
| | | | |
Finished goods | |
| | | | |
Total | | $ | | | $ | |
We evaluate inventory for obsolescence on at least a quarterly basis or more frequently if needed. Our HPP segment has a multi-faceted approach in determining obsolescence including reviewing inventory by product line, program, and individual part. In the TS segment, we seek to minimize obsolete inventory by having nearly all of our inventory purchased in conjunction with a sales agreement. From time to time, we do purchase certain inventory in bulk to receive discounts, but only when we anticipate selling this inventory. The inventory we purchase at the TS segment is in high demand, especially in the current environment, and has a limited risk of obsolescence.
17
7. Leases
Information related to both lessee and lessor
The components of lease costs for the three months ended December 31, 2023 and 2022 are as follows:
| | | Three months ended | ||||
| Condensed Consolidated Statements of Operations Location | | December 31, 2023 | | December 31, 2022 | ||
| | | (Amounts in thousands) | ||||
Operating Lease: | | |
| | |
| |
Operating lease cost | Selling, general, and administrative | | $ | | | $ | |
Short-term lease cost | Selling, general, and administrative | | | | | | |
Total lease costs | | | $ | | | $ | |
Less sublease interest income | Revenue | | | | | | ( |
Total lease costs, net of sublease interest income | | | $ | | | $ | |
Supplemental cash flow information related to leases for three months ended December 31, 2023 and 2022 is below:
| Three months ended | |||
| December 31, 2023 | December 31, 2022 | ||
| (Amounts in thousands) | |||
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows paid for operating leases | $ | | $ | |
Operating cash flows paid for short-term leases | | | | |
Financing cash flows paid for finance leases | | | | |
Cash received from subleases | | ( | | ( |
8. Accounts payable and accrued expenses, and Other noncurrent liabilities
The Company enters into certain multi-year agreements with vendors when also entering into some of the multi-year financing contracts the Company enters into with customers. See Note 5 Financing receivables, net for further information related to the multi-year agreements with customers.
There was not an interest rate stated in the agreements and therefore interest was imputed under ASC 835 Interest as the payments in the exchange represented two elements: principal and interest. The imputed interest rate for the agreements was determined to be
Interest expense related to these agreements for the three months ended December 31, 2023 and 2022 was $
The amounts owed for these agreements are in Accounts payable and Other noncurrent liabilities because they are owed to vendors rather than banks or financial institutions for borrowings. See Note 9 Note Payable and Line of Credit for amounts due to banks and other financial institutions for borrowings.
18
Below are details of the agreements with the vendors that contain imputed interest:
| December 31, 2023 | | September 30, 2023 | ||
| (Amounts in thousands) | ||||
Current | $ | | | $ | |
Less: discount | | ( | | | ( |
Accounts payable and accrued expenses | $ | | | $ | |
| | | | | |
Noncurrent | $ | | | $ | |
Less: discount | | ( | | | ( |
Other noncurrent liabilities | $ | | | $ | |
The Company had a total of approximately $
9. Note Payable and Line of Credit
In October 2019, the Company borrowed $
There was
| December 31, 2023 | | September 30, 2023 | ||
| (Amounts in thousands) | ||||
Current | $ | | | $ | |
Less: notes discount | | | |
| |
Note payable - current portion | $ | | | $ | |
As of December 31, 2023 and September 30, 2023, the Company maintained an inventory line of credit with a borrowing capacity of $
10. Pension and Retirement Plans
The Company’s operations have defined benefit and defined contribution plans in the U.K. and in the U.S. In the U.K., the Company provides defined benefit pension plans and defined contribution plans for some of its employees. In the U.S., the Company provides benefits through supplemental retirement plans to certain former employees. The U.S. supplemental retirement plans have life insurance policies which are not plan assets but were purchased by the Company
19
as a vehicle to fund the costs of the plan. The Company also provides for officer death benefits through post-retirement plans to certain current officers of the Company in the U.S. All the Company’s defined benefit plans are closed to newly hired employees and have been since September 2009.
The Company funds its pension plans in amounts sufficient to meet the requirements set forth in applicable employee benefits laws and local tax laws. Liabilities for amounts in excess of these funding levels are accrued and reported in the condensed consolidated balance sheets.
The Company’s pension plan in the U.K. is the only plan with plan assets. The plan assets consist of an investment in a commingled fund which in turn comprises a diversified mix of assets including corporate equity securities, government securities and corporate debt securities.
The components of net periodic benefit costs related to the U.S. and U.K. plans are as follows:
| | Three months ended December 31, | ||||||||||||||||
| | 2023 | | 2022 | ||||||||||||||
|
| U.K. |
| U.S. |
| Total |
| U.K. |
| U.S. |
| Total | ||||||
| | (Amounts in thousands) | ||||||||||||||||
Pension: | | | | | | | | | | | | | | | | | | |
Interest cost | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Expected return on plan assets | |
| ( | |
| | |
| ( | |
| ( | |
| | |
| ( |
Amortization of past service costs | | | | | | | | | | | | | | | | | | |
Amortization of net gain | |
| | |
| ( | |
| ( | |
| | |
| ( | |
| ( |
Net periodic (benefit) cost | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | | | $ | ( |
| | | | | | | | | | | | | | | | | | |
Post Retirement: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Service cost | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Interest cost | |
| | |
| | |
| | |
| | |
| | |
| |
Amortization of net gain | |
| | |
| ( | |
| ( | |
| | |
| ( | |
| ( |
Net periodic benefit | | $ | | | $ | ( | | $ | ( | | $ | | | $ | ( | | $ | ( |
The fair value of the assets held by the U.K. pension plan by asset category are as follows:
| | Fair Values as of | ||||||||||||||||||||||
| | December 31, 2023 | | September 30, 2023 | ||||||||||||||||||||
| | Fair Value Measurements Using Inputs Considered as | | Fair Value Measurements Using Inputs Considered as | ||||||||||||||||||||
Asset Category |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||
| | (Amounts in thousands) | ||||||||||||||||||||||
Cash on deposit | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Fixed income | | | | | | | | | | | | — | | | | | | | | | | | | — |
Equity | |
| | |
| | | | | | | | |
| | |
| | | | | | | |
Total plan assets | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
11. Income Taxes
An income tax expense of $
20
The effective tax rate for the three months ended December 31, 2023 was also
While the Company had maintained a full valuation allowance, we had been using the discrete effective tax rate method to calculate income taxes for the purposes of quarterly reporting. Now that the valuation allowance has been reduced, the Company has resumed using the annualized effective tax rate method to calculate income taxes as prescribed under ASC 740 and has done so for the period ending December 31, 2023.
12. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
| | December 31, | | September 30, | ||
|
| 2023 |
| 2023 | ||
| | (Amounts in thousands) | ||||
Cumulative effect of foreign currency translation, net | | $ | ( | | $ | ( |
Cumulative unrealized loss on pension liability | |
| ( | |
| ( |
Accumulated other comprehensive loss, net | | $ | ( | | $ | ( |
13. Fair Value of Financial Assets and Liabilities
Under the fair value standards fair value is based on the exit price and defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement should reflect all the assumptions that market participants would use in pricing an asset or liability. A fair value hierarchy is established in the authoritative guidance outlined in three levels ranking from Level 1 to Level 3 with Level 1 being the highest priority.
Level 1: observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly
Level 3: unobservable inputs (e.g., a reporting entity’s or other entity’s own data)
The Company had no assets or liabilities measured at fair value on a recurring (except our pension plan assets and whole life insurance policies, see Note 10 Pension and retirement plans for pension plan assets) or non-recurring basis as of December 31, 2023 or September 30, 2023.
21
To estimate the fair value of the financial instruments below, quoted market prices are used when available and classified within Level 1. If this data is not available, we use observable market-based inputs to estimate fair value, which are classified within Level 2. If the preceding information is unavailable, we use internally generated data to estimate fair value which is classified within Level 3.
| | As of December 31, 2023 | | | As of September 30, 2023 | | | | | ||||||
| | Carrying Amount | | | Fair Value | | | Carrying Amount | | | Fair Value | | Fair Value Level | | Reference |
| | (Amounts in thousands) | | | | | |||||||||
Assets: | | | | | | | | | | | | | |||
Cash and cash equivalents | $ | | | $ | | | $ | | | $ | | | 1 | | Condensed Consolidated Balance Sheets |
Accounts receivable | | | | | | | | | | | | | 2 | | Condensed Consolidated Balance Sheets |
Financing receivables | | | | | | | | | | | | | 3 | | Note 5 |
Liabilities: | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses and other long-term liabilities* | | | | | | | | | | | | | 3 | | Note 8 |
Line of Credit | | | | | | | | | | | | | 2 | | Note 9 |
Note payable | | — | | | — | | | | | | | | 3 | | Note 9 |
Cash and cash equivalents
Carrying amount approximated fair value.
Financing receivables with original maturity over one year
Fair value was estimated by discounting future cash flows based on the current rate with similar terms.
Line of credit
The fair value of our line of credit is based on borrowing rates currently available to a market participant for loans with similar terms or maturity. The carrying amount of our outstanding revolving line of credit approximates fair value because the base interest rate charged varies with market conditions and the credit spread is commensurate with current market spreads for issuers of similar risk. No interest accrues under the inventory line of credit when advances are paid within terms.
Note Payable
Fair value was estimated by discounting future cash flows based on the current rate the Company could get in another transaction with similar terms based on historical information.
Fair value of accounts receivable with an original maturity of one year or less and accounts payable was not materially different from their carrying values as of December 31, 2023 and September 30, 2023.
22
14. Segment Information
The following tables present certain operating segment information for the three months ended December 31, 2023 and 2022.
| | | | | Technology Solutions Segment | | | | |||||||
| | High | | | | | | | | | | | | | |
| | Performance | | | | | | | | | | | | | |
| | Products | | United | | | | | | | | Consolidated | |||
Three months ended December 31, |
| Segment |
| Kingdom |
| U.S. |
| Total |
| Total | |||||
| | (Amounts in thousands) | |||||||||||||
2023 | | | | | | | | | | | | | | | |
Sales: | | | | | | | | | | | | | | | |
Product | | $ | | | $ | | | $ | | | $ | | | $ | |
Service | |
| | |
| | |
| | |
| | |
| |
Total sales | | $ | | | $ | | | $ | | | $ | | | $ | |
Operating (loss) income | | $ | ( | | $ | | | $ | | | $ | | | $ | ( |
Interest expense | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | ( |
Interest income | | $ | | | $ | | | $ | | | $ | | | $ | |
Total assets | | $ | | | $ | | | $ | | | $ | | | $ | |
Capital expenditures | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | ( |
Depreciation and amortization | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | | | | |
2022 | |
|
| |
|
| |
|
| |
|
| |
|
|
Sales: | |
|
| |
|
| |
|
| |
|
| |
|
|
Product | | $ | | | $ | | | $ | | | $ | | | $ | |
Service | |
| | |
| | |
| | |
| | |
| |
Total sales | | $ | | | $ | | | $ | | | $ | | | $ | |
Operating (loss) income | | $ | ( | | $ | | | $ | | | $ | | | $ | |
Interest expense | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | ( |
Interest income | | $ | | | $ | | | $ | | | $ | | | $ | |
Total assets | | $ | | | $ | | | $ | | | $ | | | $ | |
Capital expenditures | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | ( |
Depreciation and amortization | | $ | ( | | $ | | | $ | ( | | $ | ( | | $ | ( |
Operating income (loss) from operations consists of sales less cost of sales, engineering and development expenses, and Selling, general and administrative expenses but is not affected by either other income/expense or by income taxes expense (benefit). Non-operating expenses/income consists principally of interest income from transactions with payment terms exceeding one year (see Note 5, Financing receivables, net for details), interest income from cash and cash equivalents, and interest expense. All intercompany transactions have been eliminated.
The following table lists customers from which the Company derived revenues of 10% or more of total revenues for the three months ended December 31, 2023 and 2022.
| | Three months ended December 31, | | |||||||||
| | 2023 | | | 2022 | | ||||||
| | (in millions) | | | (in millions) | | ||||||
| | Customer | | % of Total | | | Customer | | % of Total | | ||
|
| Revenues |
| Revenues |
| | Revenues |
| Revenues |
| ||
| | | | | | | | | | | | |
Customer A | | $ | | | | % | | $ | | | | % |
Customer B | | $ | | | | % | | $ | | | | % |
Customer C | | $ | | | | % | | $ | | | | % |
Customer D | | $ | | | | % | | $ | | | | % |
23
One customer as of December 31, 2023 had a balance of $
Customer D had a balance of $
15. Dividend
On December 12, 2023, the Company’s board of directors declared a dividend of $
Item 2. 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”, “project”, “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, 2023. 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, our high dependence on contracts with the U.S. federal government, 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, 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, 2023.
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, 2023 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 three months
24
ended December 31, 2023 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, 2023 except for the estimation for credit losses. See Note 1 Basis of presentation in Item 1 to this Quarterly Report on Form 10-Q for details of the new policy.
Recent trends affecting our financial performance
As of December 31, 2023, the Russian/Ukrainian military conflict and the Israeli-Hamas conflict has not had a direct significant impact on revenue as we do not have any recurring customers in either region. However, we do have customers and suppliers in surrounding regions which may be affected and further escalation of both conflicts and geopolitical tensions related to such conflicts could adversely affect our business, financial condition and results of operations, by among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets. It is not possible at this time to predict the size of the impact or consequences of the conflicts on the Company and our customers or suppliers.
Results of Operations.
Overview of the three months ended December 31, 2023
Our sales decreased by approximately $2.9 million, or 16%, to $15.4 million for the three months ended December 31, 2023 as compared to $18.3 million for the three months ended December 31, 2022. The decrease in sales is the result of a decrease of $1.2 million in our TS segment combined with approximately a $1.7 million decrease in our HPP segment. Our gross margin percentage as a percentage of sales decreased to 27% for the three months ended December 31, 2023 as compared to 32% for the three months ended December 31, 2022. For the three months ended December 31, 2023 there was an operating loss of $(0.3) million compared to operating income of $1.4 million for the three months ended December 31, 2022. Other income (expense), net increased $0.6 million for the three months ended to December 31, 2023 as compared to the three months ended December 31, 2022. An income tax expense of $13 thousand was recorded for the three months ended December 31, 2023 compared to an income tax expense of $133 thousand in the same period of fiscal year 2023.
The following table details our results of operations in dollars and as a percentage of sales for the three months ended December 31, 2023 and 2022:
| | | | | % | | | | | % | |
|
| December 31, 2023 |
| of sales |
| December 31, 2022 |
| of sales |
| ||
| | (Dollar amounts in thousands) |
| ||||||||
Sales | | $ | 15,375 |
| 100 | % | $ | 18,344 |
| 100 | % |
Costs and expenses: | |
|
|
|
| |
|
|
|
| |
Cost of sales | |
| 11,280 |
| 73 | % |
| 12,527 |
| 68 | % |
Engineering and development | |
| 700 |
| 5 | % |
| 836 |
| 5 | % |
Selling, general and administrative | |
| 3,738 |
| 24 | % |
| 3,617 |
| 20 | % |
Total costs and expenses | |
| 15,718 |
| 102 | % |
| 16,980 |
| 93 | % |
Operating income | |
| (343) |
| (2) | % |
| 1,364 |
| 7 | % |
Other income (expense), net | |
| 283 |
| 2 | % |
| (270) |
| (1) | % |
Income before income taxes | |
| (60) |
| — | % |
| 1,094 |
| 6 | % |
Income tax expense | |
| 13 |
| — | % |
| 133 |
| 1 | % |
Net (loss) income | | $ | (73) |
| — | % | $ | 961 |
| 5 | % |
Sales
Our sales decreased by approximately $2.9 million to $15.4 million for the three months ended December 31, 2023 as compared to $18.3 million for the same prior year period.
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TS segment sales change was as follows for the three months ended December 31, 2023 and 2022:
| | December 31, | | Decrease |
| |||||||
|
| 2023 |
| 2022 |
| $ |
| % |
| |||
| | (Dollar amounts in thousands) | | |||||||||
Products | | $ | 10,935 | | $ | 12,059 | | $ | (1,124) | | (9) | % |
Services | |
| 3,728 | |
| 3,796 | |
| (68) | | (2) | % |
Total | | $ | 14,663 | | $ | 15,855 | | $ | (1,192) | | (8) | % |
The decrease in TS segment product sales of $1.1 million during the period is primarily attributable to the U.S. division due to decreased sales to several major customers. Service sales for the three months ended December 31, 2023 decreased $0.1 million from the prior year period, which is attributable to the U.S. division. The decrease in service sales included decreased third party maintenance sales of $0.3 million, partially offset by increased managed services sales of $0.2 million.
HPP segment sales change was as follows for the three months ended December 31, 2023 and 2022:
| | December 31, | | Decrease |
| |||||||
|
| 2023 |
| 2022 |
| $ |
| % |
| |||
| | (Dollar amounts in thousands) | | |||||||||
Products | | $ | 472 | | $ | 2,162 | | $ | (1,690) | | (78) | % |
Services | |
| 240 | |
| 327 | |
| (87) | | (27) | % |
Total | | $ | 712 | | $ | 2,489 | | $ | (1,777) | | (71) | % |
The HPP product sales decreased by $1.7 million for the three months ended December 31, 2023 as compared to the same prior year period primarily as a result of one large Myricom product order in the first quarter of fiscal year 2023 which did not reoccur in fiscal year 2024. The HPP services sales decreased $0.1 million for the three months ended December 31, 2023 compared to the prior year period as a result of decreased royalties on high-speed processing boards related to the E2D program.
Our sales by geographic area, which is based on the customer location to which the products were shipped or services rendered, were as follows for the three months ended December 31, 2023 and 2022:
| | December 31, | | Increase (decrease) |
| |||||||||||
|
| 2023 |
| % |
| 2022 |
| % |
| $ |
| % |
| |||
| | (Dollar amounts in thousands) | | |||||||||||||
Americas | | $ | 14,552 |
| 95 | % | $ | 17,940 |
| 97 | % | $ | (3,388) | | (19) | % |
Europe | |
| 451 |
| 3 | % |
| 288 |
| 2 | % |
| 163 | | 57 | % |
Asia | |
| 372 |
| 2 | % |
| 116 |
| 1 | % |
| 256 | | 221 | % |
Totals | | $ | 15,375 |
| 100 | % | $ | 18,344 |
| 100 | % | $ | (2,969) | | (16) | % |
The $3.4 million decrease in sales to the Americas was primarily the result of a decrease in the TS segment’s U.S. division of $1.7 million, a decrease in the TS segment’s U.K. division of $0.1 million, and a decrease in the HPP segment of $1.6 million. The $0.2 million increase in sales to Europe was primarily the result of increased sales by our TS segment’s U.K. division of $0.2 million and U.S. division of $0.1 million, partially offset with a $0.1 million decrease in the HPP segment. The sales to Asia increased $0.3 million due to an increase of sales in the TS segment’s U.S. division of $0.4 million, partially offset with a decrease in the U.K. division of $0.1 million.
26
Gross Margins
Our gross margin ("GM") decreased $1.7 million for the three months ended December 31, 2023 as compared to the same prior year period. The GM as a percentage of sales decreased to 27% for the three months ended December 31, 2023 as compared to the prior year period of 32%.
| | December 31, | | | | | | | ||||||||
| | 2023 | | 2022 | | Decrease |
| |||||||||
|
| GM$ |
| GM% |
| GM$ |
| GM% |
| GM$ |
| GM% |
| |||
| | (Dollar amounts in thousands) | | |||||||||||||
TS | | $ | 3,757 |
| 26 | % | $ | 4,164 |
| 26 | % | $ | (407) |
| — | % |
HPP | |
| 338 |
| 47 | % |
| 1,653 |
| 66 | % |
| (1,315) |
| (19) | % |
Total | | $ | 4,095 |
| 27 | % | $ | 5,817 |
| 32 | % | $ | (1,722) |
| (5) | % |
The impact of product mix within our TS segment on gross margin for the three months ended December 31, 2023 and 2022 was as follows:
| | December 31, | | | | | | | ||||||||
| | 2023 | | 2022 | | Decrease |
| |||||||||
|
| GM$ |
| GM% |
| GM$ |
| GM% |
| GM$ |
| GM% |
| |||
| | (Dollar amounts in thousands) | | |||||||||||||
Products | | $ | 1,897 |
| 17 | % | $ | 2,029 |
| 17 | % | $ | (132) |
| — | % |
Services | |
| 1,860 |
| 50 | % |
| 2,135 |
| 56 | % |
| (275) |
| (6) | % |
Total | | $ | 3,757 |
| 26 | % | $ | 4,164 |
| 26 | % | $ | (407) |
| — | % |
The overall TS segment GM as a percentage of sales remained flat at 26% for the three month period ended December 31, 2023 compared to the prior year period. Product GM as a percentage of product sales remained flat at 17% for the three months ended December 31, 2023 compared to 17% for the prior year period. There were not any significant changes in GM for any individual products sold. Service GM as a percentage of service sales decreased to 50% for the three months ended December 31, 2023 compared to the prior year period of 56% due to decreased third party maintenance sales in which the sale is recorded “net” meaning gross profit is recorded in the services sales financial statement line item. This “net” recording increases GM as a percentage of sales.
The impact of product mix within our HPP segment on gross margin for the three months ended December 31, 2023 and 2022 was as follows:
| | December 31, | | | | | | | ||||||||
| | 2023 | | 2022 | | Decrease |
| |||||||||
|
| GM$ |
| GM% |
| GM$ |
| GM% |
| GM$ |
| GM% |
| |||
| | (Dollar amounts in thousands) | | |||||||||||||
Products | | $ | 282 |
| 60 | % | $ | 1,421 |
| 66 | % | $ | (1,139) |
| (6) | % |
Services | |
| 56 |
| 23 | % |
| 232 |
| 71 | % |
| (176) |
| (48) | % |
Total | | $ | 338 |
| 47 | % | $ | 1,653 |
| 66 | % | $ | (1,315) |
| (19) | % |
The overall HPP segment GM as a percentage of sales decreased to 47% for the three months ended December 31, 2023 from 66% for the three months ended December 31, 2022. The 6% decrease in product GM as a percentage of product revenue for the three months ended December 31, 2023 compared to the same prior year period is primarily due to one major order, which had relatively high GM as a percentage of sales, which did not reoccur in the current year period. The 48% decrease in service GM as a percentage of services revenue from the prior year was due to decreased royalty sales, which are nearly all GM.
27
Engineering and Development Expenses
The engineering and development expenses incurred by our HPP segment decreased $0.1 million for the three months ended December 31, 2023 to $0.7 million when compared to the prior year period due to decreased consulting and labor 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 December 31, 2023 and 2022:
| | Three months ended December 31, | | | $ | | % |
| ||||||||
| | | | | % of | | | | | % of | | | Increase | | Increase | |
|
| 2023 |
| Total |
| 2022 |
| Total |
| | |
| | | ||
| | (Dollar amounts in thousands) | | |||||||||||||
By Operating Segment: |
| |
|
|
|
| |
|
|
|
| |
|
|
| |
TS segment | | $ | 2,755 |
| 74 | % | $ | 2,703 |
| 75 | % | $ | 52 |
| 2 | % |
HPP segment | |
| 983 |
| 26 | % |
| 914 |
| 25 | % |
| 69 |
| 8 | % |
Total | | $ | 3,738 |
| 100 | % | $ | 3,617 |
| 100 | % | $ | 121 |
| 3 | % |
SG&A expenses of $3.7 million for the three months ended December 31, 2023 increased $0.1 million as compared to the prior year period. The TS segment G&A expenses increased by approximately $0.1 million due to increased salaries and stock compensation expense when compared to the prior year period. The HPP segment SG&A expenses increased approximately $0.1 million for the three months ended December 31, 2023 as compared to the prior year period due to increased consulting expenses.
Other Income/Expenses
The following table details Total other income (expense), net for the three months ended December 31, 2023 and 2022:
| | Three months ended | | | | ||||
| | | | | | | | Increase | |
|
| December 31, 2023 |
| December 31, 2022 |
| (Decrease) | |||
| | (Amounts in thousands) | |||||||
Foreign exchange loss | | $ | (174) | | $ | (501) | | $ | 327 |
Interest expense | | | (49) | | | (64) | | | 15 |
Interest income | |
| 496 | |
| 261 | |
| 235 |
Other income, net | |
| 10 | |
| 34 | |
| (24) |
Total other income (expense), net | | $ | 283 | | $ | (270) | | $ | 553 |
The approximately $0.6 million increase in total other income (expense), net for the three months ended December 31, 2023 as compared to the same prior year period is primarily due to a net decrease in foreign exchange loss of $0.3 million combined with an increase in interest income of $0.2 million.
In consolidation, U.S. dollars and Euros are remeasured into the functional currency, British Pounds, of our U.K. subsidiary. This non-cash remeasurement is included in foreign exchange gain (loss) on the income statement and the foreign exchange gain is primarily from the U.S. Dollar bank account. The US dollar weakened relative to the British Pound for the three months ended December 31, 2023 causing a foreign exchange loss, but to a much lesser extent than the same prior year period.
The interest income increase of $235 thousand for the three months ended December 31, 2023 as compared to the prior year period is primarily due to higher interest income from our cash and cash equivalents from increased interest rates.
28
The interest expense decrease of $15 thousand for the three months ended December 31, 2023 as compared to the prior year period is related to the TS U.S. division entering into multi-year contracts in prior years, which incur less interest expense as time elapses due to principal payments being made. Payments on these agreements contain both principal and interest expense. See Note 8 Accounts payable and accrued expenses, and Other noncurrent liabilities in Item 1 to this Quarterly Report on Form 10-Q for details. Additionally, the last payment on the only note payable outstanding as of September 30, 2023 was made the first day of the quarter and no interest expense was incurred during the first three months of December 31, 2023.
Income Taxes
An income tax expense of $13 thousand was recorded for the three months ended December 31, 2023 compared to an income tax expense of $133 thousand in the same period of 2022. The estimated annualized effective income tax rate for the three months ended December 31, 2023 was 23%, excluding the impacts of the UK entity which continues to experience losses and maintains a full valuation allowance. The difference between our effective income tax rate and the U.S. federal statutory rate is the impact of state taxes and tax credits that we expect to be able to utilize against federal and state taxes.
The effective tax rate for the three months ended December 31, 2023 was also 23%, excluding the UK as previously mentioned, as there were no discrete tax items recorded during the period. The income tax expense for the three months ended December 31, 2022 was primarily driven by minimum state tax expenses and the required capitalization of R&D expenses under IRC Section 174, offset by the use of federal NOL and R&D credits. For the three months ended December 31, 2022, we used the discrete method to arrive at tax expense due to the full valuation allowance against our deferred tax assets and cumulative loss position.
While the Company had maintained a full valuation allowance, we had been using the discrete effective tax rate method to calculate income taxes for the purposes of quarterly reporting. Now that the valuation allowance has been reduced, the Company has resumed using the annualized effective tax rate method to calculate income taxes as prescribed under ASC 740 and has done so for the period ending December 31, 2023.
Liquidity and Capital Resources
Our primary source of liquidity is our cash and cash equivalents and our line of credit.
Cash and cash equivalents increased by $0.4 million to $25.6 million as of December 31, 2023 from $25.2 million as of September 30, 2023.
The following is a summary of our cash flows for the three months ended December 31, 2023 and 2022:
| | For the Three months ended December 31, | ||||
|
| | |
| | |
(Dollar amounts in thousands) | | 2023 | | 2022 | ||
| | (Dollar amounts in thousands) | ||||
Net cash provided by (used in): |
| |
|
| |
|
Operating activities | | $ | 1,673 |
| $ | (4,227) |
Investing activities | | | (126) | | | (95) |
Financing activities | | | (1,182) | | | (125) |
Effect of exchange rate changes on cash | | | 29 | | | 50 |
Increase (decrease) in cash and cash equivalents | | $ | 394 |
| $ | (4,397) |
Operating Activities
Cash provided by operating activities was $1.7 million for the three months ended December 31, 2023 compared to $4.2 million used in operating activities in the prior year. The increase from the prior year is primarily related to
29
increased accounts payable and accrued expenses of $10.4 million, partially offset with increased purchases of inventory of $4.7 million. Inventory fluctuations are dependent on when orders are received and shipped. Accounts payable and accrued expenses fluctuations are dependent on when vendor invoices are received as well as the related timing of the payments. The remaining differences are primarily related to timing differences in operating assets and liabilities.
Investing Activities
Cash used in investing activities was $126 thousand for the three months ended December 31, 2023 compared to $95 thousand used in investing activities for the prior year. The increase in cash used from the prior year is primarily related to an increase in purchases of property, equipment, and improvements.
Financing Activities
Cash used in financing activities was $1.2 million for the three months ended December 31, 2023 compared to $0.1 million for the prior year. The primary difference was the timing in the net borrowing on the line-of-credit, which for the three months ended December 31, 2023 we had a net payment of $0.8 million compared to a net borrowing of $0.1 million in the prior year.
Other Liquidity and Capital Resources Items
Our cash held by our foreign subsidiary in the United Kingdom totaled approximately $4.9 million as of December 31, 2023, which consisted of 0.2 million Euros, 0.3 million British Pounds, and 4.3 million U.S. Dollars. This cash is included in our total cash and cash equivalents reported within our financial statements. Due to the pension obligation in the U.K., we maintain a large balance of cash in the U.K.
As of December 31, 2023 and September 30, 2023, 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. Amounts of $14.2 million and $13.5 million were available as of December 31, 2023 and September 30, 2023, respectively. As of December 31, 2023 and September 30, 2023 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 Note Payable and Line of Credit.
We have multi-year agreements in which we sell certain customers goods and services with financing. This is on the Consolidated Balance Sheets as Financing receivables, net of allowances and Financing receivables due after one year, net of allowances. In the remainer of fiscal year 2024 we are scheduled to receive $5.7 million related to the financing receivables.
We also have multi-year agreements with vendors related to some of the financing agreements we have for customers, which are on the Consolidated Balance Sheets in Accounts payable and accrued expenses and Other noncurrent liabilities payables (long-term portion in other noncurrent liabilities). In the remainder of fiscal year 2024 we are scheduled to pay $1.5 million related to the payables.
Our last payment on the only note payable outstanding as of September 30, 2023 was made in the first fiscal quarter and we no longer have any note payable outstanding as of December 31, 2023.
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.
30
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023 based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission (“2013 Framework”). Our Chief Executive Officer, our Chief Financial Officer and other members of our senior management team supervised and participated in this evaluation. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the three months ended December 31, 2023, there was one material change in internal control related to the new CECL standard, as described in note 1 of our condensed consolited financial statements contained in this Quarterly Report on Form 10-Q. Our control for credit losses was changed to incorporate a broader range of reasonable and supportable information to estimate credit losses based on expected losses rather than incurred losses. Except for this change, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1A. Risk factors
There have been no material changes to the risk factors set forth in Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Item 5. Other
During the three months ended December 31, 2023, no director or officer of the Company adopted, modified, or terminated any “
Item 6. Exhibits
31
101* | | The following financial statements for the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 formatted in eXtensible Business Reporting Language (XBRL) (a) our Condensed Consolidated Balance Sheets as of December 31, 2023 and September 30, 2023, (b) our Condensed Consolidated Statements of Income (Loss) for the three months ended December 31, 2023 and 2022, (c) our Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended December 31, 2023 and 2022, (d) our Condensed Consolidated Statement of Shareholders’ Equity for the three months ended December 31, 2023 and 2022, (e) our Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2023 and 2022 and (f) the Notes to such Condensed Consolidated Financial Statements. |
104* | | The cover page from this Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, formatted in inline XBRL. |
* Filed Herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CSP INC. | |
| | |
February 14, 2024 | By: | /s/ Victor Dellovo |
| | Victor Dellovo |
| | Chief Executive Officer, |
| | President and Director |
| | |
February 14, 2024 | By: | /s/ Gary W. Levine |
| | Gary W. Levine |
| | Chief Financial Officer |
32
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Victor Dellovo, certify that:
1.I have reviewed this quarterly report on Form 10-Q of CSP Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 14, 2024 |
|
/s/ Victor Dellovo |
Victor Dellovo |
Chief Executive Officer; |
President and Director |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary W. Levine, certify that:
1.I have reviewed this quarterly report on Form 10-Q of CSP Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 14, 2024 |
|
/s/Gary W. Levine |
Gary W. Levine |
Chief Financial Officer |
Exhibit 32.1
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of CSP Inc. (the “Company”) for the quarter ended December 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned Chief Executive Officer, President and Chairman and Chief Financial Officer of the Company, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 14, 2023 | By: | /s/ Victor Dellovo |
| | Victor Dellovo |
| | Chief Executive Officer; |
| | President and Director |
| | |
February 14, 2023 | By: | /s/ Gary W. Levine |
| | Gary W. Levine |
| | Chief Financial Officer |