CLPS — H1 FY2026 Financial Report Analysis

CLPS stays barely profitable as overseas growth fills the hole left by a shrinking China banking client

CLPS Incorporation, a Hong Kong-headquartered IT services firm that mainly supplies software engineers and consultants to banks, wealth managers, e-commerce and car companies, reported results for the first half of its fiscal year 2026 — the six months from July 1 to December 31, 2025 (its fiscal year ends June 30). Revenue rose 2.8% to $85.1 million and the company returned to a small profit for shareholders, $83 thousand, after a $0.39 million loss a year earlier. Under the surface, two very different businesses are moving in opposite directions: revenue from outside mainland China jumped 63.1% to $31.0 million, while mainland China revenue fell about 15% as a key banking client kept shrinking its China Solution Centers (the outsourced development centers CLPS staffs for it).

At a glance

• Revenue outside mainland China: $31.0M, +63.1%. Singapore, Hong Kong, Japan and the US now make up 36% of sales, up from 23% — the company's main growth engine.
• Banking revenue: $26.1M, −22.0%. The single biggest customer group lost $7.4M of revenue in a year, which is why total growth was only 2.8% despite the overseas surge.
• Profit for shareholders: $83K, or $0.003 per share. CLPS is essentially at breakeven; stock-based pay of $1.75M is more than five times total net income.

Key figures

Gross margin is the share of revenue left after paying the staff and costs that directly deliver the work. Operating margin is what's left after also paying for sales, research and head office — before interest and tax. "n/m" = not meaningful, because a loss turned into a profit.

Where the revenue came from

CLPS sells mostly people-time: IT consulting services (engineers placed on client projects) were $81.8M, 96.2% of revenue, up 2.2%, which the company attributes to "a growth in client base and the successful execution of our global expansion strategy." The much smaller customized IT solutions line — fixed projects and its own products — more than doubled (+134.7%) to $2.2M, helped by the first revenue from Nibot, its AI agent for banks, and an AI-assisted project modernizing a Hong Kong bank's legacy mortgage system. Academic education (the College of Allied Educators in Singapore) fell 19.0% to $0.9M and other services fell 79.9% to $0.1M.

By customer industry, the picture is a rotation rather than growth:

By region, Asia-Pacific outside mainland China rose from $16.9M to $26.8M and the US more than doubled (+101.6%) to $4.1M. Mainland China, still the largest market, fell from about $63.8M to about $54.1M. In other words, roughly $12M of new overseas revenue replaced roughly $10M of lost China revenue.

Takeaway: CLPS's overseas expansion is real and fast — but in this half it mostly replaced business lost from one shrinking China banking client rather than adding to it. Until the China decline stops, 60%-plus overseas growth translates into low-single-digit total growth and a profit that rounds to zero per share.

What the headline numbers hide

• "Operating income +300%" is a move from $0.16M to $0.64M. On $85M of revenue, that is an operating margin of 0.7%. The percentage is large only because the starting point was close to zero.
• Part of the cost cut is a relabeling. Research and development spending fell 38.7% ($1.3M), but the company says this was "primarily due to the redeployment of R&D staff to deliver customized IT solutions, resulting in a reclassification of these expenses as cost of revenues." That cost didn't disappear; it moved into the gross-margin line, which is one reason gross margin slipped to 23.0% even as higher-value work grew.
• Lower government subsidies worked against the result. "Subsidies and other operating income" fell from $0.85M to $0.16M, a $0.69M swing. Administrative costs rose $0.8M (5.8%), which the company says was mainly one-time severance payments tied to the key client's global restructuring (the amount isn't broken out). Excluding both, the underlying improvement would look better than the reported one — but neither number is disclosed precisely enough to compute it.
• Most of the profit doesn't belong to CLPS shareholders. Of $0.32M total net income, $0.24M (74%) went to minority partners in subsidiaries CLPS doesn't fully own ("noncontrolling interests"). That's why total net income rose 74.9% while shareholders' share was only $83K.
• The adjusted figure and the GAAP figure tell different stories. CLPS's non-GAAP net income only excludes stock-based compensation. It fell 9.5% to $2.07M, while GAAP net income rose — because stock pay dropped from $2.11M to $1.75M. Stock pay is a real cost to shareholders: shares outstanding rose 6.6%, from 27.99M (June 30, 2025) to 29.84M (December 31, 2025), and the $1.75M rise in paid-in capital roughly matches the stock pay expense, which suggests most new shares went to staff.
• A lower tax bill helped. Income tax fell to $0.17M from $0.27M even though pre-tax income rose; the effective tax rate dropped from about 72% to about 32%.
• Cash flow was much stronger than profit. Operating cash flow — cash actually collected from running the business — was about $4.7M, versus $0.32M of net income. Receivables (money owed by clients) fell from $44.9M to $42.8M, and contract liabilities (cash customers paid before the work was done) rose from $2.5M to $4.9M. Partly offsetting this, salaries payable fell by $1.9M. Most of that cash went to repaying bank loans, which fell from $30.2M to $26.2M; cash ended at $28.4M, leaving the company with a small net cash position of about $2.3M.

What to watch next

Management's guidance for fiscal 2026 (year to June 30, 2026): revenue growth of about 10% to 15% over fiscal 2025 and non-GAAP net income of about $4.4M to $5.0M. The company repeated the same range in a June 2026 investor presentation, so it was not cut after the first half. With fiscal 2025 revenue of $164.5M (per the company's June 2026 investor presentation), the target implies roughly $181M–$189M for the year — which means the January–June 2026 half needs about $96M–$104M of revenue, 17% to 27% above the same half a year earlier ($81.7M), compared with 2.8% growth in the half just reported. On profit, the second half needs roughly $2.3M–$2.9M of non-GAAP net income, a big swing from the non-GAAP loss of about $6M implied for the second half of fiscal 2025 (full-year fiscal 2025 non-GAAP net loss of $3.8M, minus the $2.3M first-half profit).

That is a steep second-half ramp, and the first half doesn't by itself show it under way. The full-year answer is close: CLPS files its annual report (Form 20-F) for the year ended June 30, 2026 by the end of October 2026 — last year's arrived on October 17.

Other things worth tracking:

• Whether banking revenue stabilizes. The −22% drop in banking is the single biggest drag. Once the key client's downsizing has passed a full year, the comparison gets easier.
• Share count vs. buyback. On February 4, 2026, the board approved buying back up to 1,000,000 shares through November 4, 2026, at prices below $2.00 — about 3% of shares outstanding, smaller than the 1.85M shares added in the last half alone.
• Listing status. The stock closed below Nasdaq's $1.00 minimum for 30 straight business days in spring 2026, triggering a deficiency notice in May; it regained compliance in early September 2026 after closing at or above $1.00 for 10 straight trading days (August 20 to September 2).

Our read: the geographic shift is the right direction and the cash flow was solid, but at a 0.7% operating margin there is almost no cushion. If the China decline continues at this pace, the guided 10%–15% full-year growth looks hard to reach; the 20-F due this month will show whether the second half delivered the ramp management promised.