CSPI (CSPI) Q2 2026: AZT Protect Orders Double, Channel Expansion Drives OT Cybersecurity Penetration
CSPI’s Q2 saw a sharp acceleration in AZT Protect demand, with land-and-expand orders more than doubling year-over-year, reflecting deepening traction in operational technology (OT) cybersecurity. Strategic channel partnerships and a marquee multi-site win signal scalable growth potential, even as sales cycles remain complex and expansion timing varies by customer. Management points to continued gross margin gains in services, robust channel engagement, and a pipeline of global opportunities as key levers for the second half of fiscal 2026.
Summary
- OT Cybersecurity Momentum: AZT Protect adoption accelerated, with new customer orders more than doubling versus last year’s Q2.
- Channel Leverage Expands Reach: Distribution partners now drive the majority of multi-site deployments and pipeline growth.
- Global Expansion Pipeline: Multi-year, multi-site deals and international opportunities set the stage for long-term scale.
Business Overview
CSPI provides technology solutions and managed services, with a growing focus on operational technology (OT) cybersecurity through its flagship AZT Protect product. The company operates two primary segments: Product Sales (including AZT Protect and related hardware/software) and Services (managed IT, cloud, and network support). Revenue is generated from direct sales, channel partners, and recurring managed service contracts, with a strategic emphasis on expanding AZT Protect’s footprint across industrial and critical infrastructure verticals.
Performance Analysis
CSPI’s second quarter marked a return to growth, driven by a 30% year-over-year increase in product sales and a 7% rise in services revenue. The product segment benefited from a large one-time order, but the core story is the growing adoption of AZT Protect, which saw more than 10 new “land and expand” deals—twice as many as the prior year’s quarter. These initial deployments are typically single-site pilots, with the goal of expanding across customer networks as proof points build.
Gross profit rose modestly, though overall gross margin compressed due to the sales mix and lower product margins, partially offset by expanding service margins. Service gross margin improved by over 100 basis points year-over-year, reflecting operational leverage and high customer retention. R&D and SG&A spending were up slightly, supporting product customization and go-to-market initiatives. The balance sheet remains strong, enabling CSPI to self-finance customer orders and support growth investments.
- Land-and-Expand Acceleration: AZT Protect’s pilot-to-multi-site conversion is gaining traction, with several customers moving from test deployments to broader rollouts.
- Channel-Driven Growth: Most new wins and expansion opportunities are sourced through channel partners, de-risking customer acquisition and scaling reach.
- Service Margin Expansion: Managed services continue to deliver high retention and rising profitability, anchoring cash flow and supporting margin stability.
CSPI’s Q2 performance validates its dual-engine model—leveraging recurring services for stability while scaling high-potential OT cybersecurity products through channel and direct sales. The company’s ability to finance orders and maintain a robust cash position provides flexibility to pursue larger, more complex deals as the year progresses.
Executive Commentary
"We did see an increased pickup in the AZT Protect orders during the quarter with more than 10 of what we call land and expand orders with new customers. This was double the amount of AZT Protect orders we signed in Q2 2025."
Victor DeLobo, Chief Executive Officer
"Our strong balance sheet offered us the opportunity to finance customer purchase orders, and as of March 31, 2026, we extended terms on over 30 transactions. We finished the quarter with cash and cash equivalents of $23.1 million."
Gary Levine, Chief Financial Officer
Strategic Positioning
1. OT Cybersecurity Differentiation
AZT Protect’s lightweight architecture and patchless approach are proving compelling in industrial environments where legacy systems and minimal downtime are critical. The solution’s ability to protect older operating systems (e.g., Windows XP/7/10) with minimal CPU and memory footprint creates a clear wedge against competitors who require more modern, resource-intensive hardware.
2. Channel Ecosystem as a Growth Multiplier
CSPI has built a multi-tiered channel network, with three major distributors and several smaller resellers now representing the majority of new deals. This approach leverages partners’ deep customer relationships in water, energy, and manufacturing, accelerating market penetration and reducing direct selling costs.
3. Global Multi-Site Expansion Potential
The recent three-year, two-dozen-site deal with a global cement manufacturer opens a pipeline to over 100 additional sites worldwide. Management sees this as a template for further international expansion, with the potential for “all or nothing” rollouts as customer confidence builds and deployment cycles shorten.
4. Service Segment as Margin Anchor
Managed services continue to deliver high retention and expanding gross margins, providing a stable base of recurring revenue. Cloud migration and support remain in demand, and new customers are onboarding at near six-figure monthly run rates, further diversifying CSPI’s revenue mix.
5. OEM and Strategic Alliances
Progress with OEM partners, notably Acronis, cybersecurity software provider, to embed AZT Protect into broader platforms, could drive highly scalable revenue streams. While revenue from these alliances is expected to begin later in the year, they represent a significant long-term growth lever.
Key Considerations
CSPI’s Q2 results reflect a business at an inflection point, balancing the steady cash flow of managed services with the high-growth, high-variability profile of OT cybersecurity adoption.
Key Considerations:
- Sales Cycle Complexity: Multi-site industrial customers require extensive validation, stakeholder alignment, and often long pilot phases, leading to unpredictable expansion timing.
- Channel Reliance: The shift to channel-led growth reduces direct sales burden but introduces dependency on partner execution and customer relationships.
- Margin Dynamics: Product margin pressure from large orders is partially offset by service margin gains, but overall profitability will depend on scaling higher-margin OT software deployments.
- Global Opportunity Scale: The cement manufacturer pilot illustrates the magnitude of international expansion potential, but conversion to global rollouts is not guaranteed and may be binary in nature.
Risks
Execution risk remains high as CSPI navigates complex, multi-stakeholder sales cycles in the OT space, where expansion can stall due to internal customer dynamics or shifting priorities. Channel partner performance is uneven, and global expansion introduces regulatory and operational uncertainties. Margin compression from large, low-margin product orders and the timing of OEM revenue ramp are additional watchpoints. Management’s confidence is high, but visibility on deal conversion and rollout pace remains limited.
Forward Outlook
For Q3 2026, CSPI expects:
- Recognition of the multi-site cement manufacturer contract, providing a step-up in recurring product revenue.
- Continued expansion in managed services, with new client wins onboarding in the second half.
For full-year 2026, management reiterated its expectation of both top- and bottom-line growth:
- Full-year revenue and profit to exceed fiscal 2025, driven by AZT Protect expansion and service margin gains.
Management highlighted ongoing progress in AZT Protect deployments, a robust pipeline of channel-led opportunities, and the anticipated start of OEM partner revenue as key drivers for the remainder of the year.
- Acceleration of land-and-expand conversions across verticals and geographies.
- Potential for international rollouts pending successful U.S. deployments.
Takeaways
CSPI’s Q2 validates its dual-engine strategy, with OT cybersecurity gaining momentum and services anchoring profitability.
- Land-and-Expand Scaling: Doubling of AZT Protect pilots and a marquee multi-site win signal growing market fit, but sales cycles remain elongated and variable.
- Channel and OEM Leverage: Strategic partnerships are now central to growth, with channel partners driving most new deals and OEM integrations representing future upside.
- Watch for Global Expansion: The next phase hinges on converting pilots into large-scale, cross-border deployments and realizing OEM revenue ramp in late 2026.
Conclusion
CSPI’s Q2 2026 results confirm growing demand for its differentiated OT cybersecurity solution, underpinned by channel expansion and strong service margins. The company’s ability to convert pilots into multi-site, recurring revenue deals will determine the pace and magnitude of future growth as it pursues opportunities both in the U.S. and abroad.
Industry Read-Through
CSPI’s experience highlights a broader OT cybersecurity trend: industrial and critical infrastructure operators are increasingly seeking lightweight, patchless protection for legacy assets, and are willing to pilot solutions before scaling. The slow but steady shift to channel-driven sales and OEM integrations is likely to become a model for smaller cybersecurity vendors seeking to break into risk-averse verticals. Service margin expansion and customer retention in managed IT remain key differentiators for tech solution providers as the complexity of cloud and hybrid environments grows. For industry peers, the message is clear: channel leverage and product fit for legacy environments are emerging as critical success factors in industrial cybersecurity.