CSPI’s Patience Game: AZT Protect Inches Forward as Hardware Headwinds Pile Up

Q3 FY26: backlog soars on vendor delays, but AZT’s long game and managed services offer glimmers

CSPI · Earnings Call · 2026-08-14

Hardware Drought, Not Demand Drought

CSPI’s third quarter was a tale of two bottlenecks. The Technology Solutions (TS) business — still the revenue workhorse — saw solid order growth, but CEO Victor Dellovo was blunt about the culprit: “vendor deliveries that historically took 30 to 60 days are now extending well beyond 200 days.” — Victor J. Dellovo, Chief Executive Officer · 2026-08-14 The result is a backlog up 65% year-over-year, a stark contrast to the 3% revenue decline in the quarter. This is not a demand problem; it’s a supply-chain choke point driven by the AI buildout’s insatiable appetite for compute components. Dellovo expects the strain to persist: “as long as the big boys keep buying all the product out there, this is not gonna go away anytime soon.” — Victor J. Dellovo, Chief Executive Officer · 2026-08-14 The financials reflect the squeeze. Revenue fell to $14.4M from $15.4M, yet gross margin expanded 130bps to 30.1% — a silver lining of mix shift toward services and higher-margin product sales. The company still posted a net loss of $0.09 per share, though the balance sheet remains fortress-like with $24.7M in cash. The real story, however, is not the quarter’s numbers but the strategic patience being exercised around AZT Protect.

AZT Protect: The Long Game Grinds On

The core narrative remains AZT Protect, the OT cybersecurity product. Management’s own sales cycles remain stubbornly long — 18 to 24 months for large opportunities — but there are tangible signs of motion. The integration with Acronis software is nearing completion, with SKUs on track for a fall launch. In South Africa, an OEM partner has issued a third purchase order for solutions with AZT embedded. Even more telling is the 100% renewal rate on all contracts reaching their one-year mark. Yet the frustration is palpable. Dellovo’s description of dealing with large enterprises is almost wistful:

It is never us. It is always them. … They are larger organizations that truly move at a slower pace. … It is hard to move these guys.
Victor J. Dellovo, Chief Executive Officer · 2026-08-14

That sentiment echoes prior quarters, where the same refrain appeared. As he noted in May: “We are working with the distributors … with their end-user customers where we have sold maybe one particular site and we are trying to expand.” — Victor J. Dellovo, Chief Executive Officer · 2026-05-07 The pace is glacial, but the direction is forward. One fresh development is the sales team overhaul. Dellovo confirmed replacing three of four sales professionals with executives accustomed to longer enterprise cycles — a recognition that the go-to-market motion must change. The keyword trajectory mirrors this pivot: sales organization and service agreement both spiked in Q3, alongside OT environment.

Managed Services as the Steady Anchor

Amid the hardware noise, the managed services practice continues to compound. The company signed a 6-year, 7-figure deal with a nationally recognized sports team and a 3-year agreement with a food distributor expected to generate mid-six figures annually. Service gross margin expanded 130bps year-over-year to 51.2%. This is the quiet engine that funds the AZT experiment — and it’s working. As “Dellovo framed it” — Victor J. Dellovo, Chief Executive Officer · 2026-08-14, the goal is to “keep building the recurring revenue business on the MSP, the cloud business, and AZT,” the parts he can control. The market, however, remains skeptical. The stock sits 73% below its 2024 peak and is down 14% over the past 90 days, reflecting impatience with the pace. The Hugging Face press release — positing that AZT would have prevented the OpenAI/ChatGPT attack — is an attempt to educate and catalyze. It may take more than a press release to move the needle, but the 100% retention and growing OEM pipeline suggest the product has staying power. For now, CSPI is a classic story of a tiny company with a superior niche product, waiting for the world to catch up.