One Stop Systems (OSS) 11 Nov 222022 Q3 Earnings call transcript

Please standby. Good afternoon. And thank you for joining us today to discuss One Stop Systems’ Financial Results for the Third Quarter ended September 30, 2022. With us today are the company’s President and Chief Executive Officer, David Raun; and Chief Financial Officer, John Morrison.

Following their remarks, we will open the call to your questions. this forward-looking will during statements conclude cautions some the we the regarding made before call, provide I important call. And by management will available like recorded company’s Investors website. would to everyone the the I remind section of and replay for call made in the that be

Now to conference turn over and OSS President I’d David sir. Raun. like CEO, Please the to go ahead,

in million $XX.X record afternoon, Thank QX was quarter at and and also for quarter nine quarter our with period ago year-to-date a any XX%. setting good revenue year, of year everyone. record history. first growth of XX% million $XX.X the James, last the same was revenue, of was for you, solid over in same year, a months up Growth over company any another the

Our commercial of well target was in our entertainment growth the unit attributable of Bressner, continued media the a customers to the contributor a AI solid business ours as autonomous Transportable for QX growth space, in European trucking in Transportable strategic key to side and strength space, in QX. our the the AI of increased business. Shipments as was strong performance primarily on

list. rank our in fact, customers In XX customer two autonomous trucking our of now top

at We believe compute and to much disruptive the market strong utilize driverless economics has to of to get to-date intent possible a potential hundreds still realize While market best performance driven technology. of the those to autonomous the truck market of solution as the challenge. storage in thousands are this the it leaders the of first deliver continued must miles progress, including using position as products, full our

storage the considerable quarter, the on trucks production. needs past we in time focused the During of autonomous invested compute

we to Although there we for end, cooling believe innovative the for solution. sharing positioned production the the deliver between ideal commonality path. space. provides market they and To roadmap superior the various this been to leverage believe in a roadmap that is are proposed have developing a solutions to on continue technologies uniquely production, that use search cost-effective We and leaders ruggedization we our NVLink, can well some PCIe,

autonomous addition the believe critical proficiency In up will was the also we in products, the we the for potential other and market, AI skills are great truck growth to to building the open us. Transportable

take like financial Now before well John pipeline, wins, over as CFO, program details remainder insight the outlook the our will call the additional our the for I’d through into as quarter. of I to provide to an you of the sales John? turn who Morrison, year,

David, you, third The Thank website onestopsystems.com. results you Thank following same ago and ended a release of September press is and results release our Investor nine the September good today. quarter afternoon, section The as for the quarter. Relations available issued our we quarter months at with third everyone. XX, the our XXXX. us joining to ended Today, the year XXXX, for XX, in compared for

XX% was up euro which autonomous and for contributing recognized up our as exceptional Bressner growth over to Core quarterly largely due well entertainment to prior AI Revenue our XX%, of aggregate million. as This percentage well the During Bressner quarter. year-over-year of third margin X.X deferral quarter, revenue trucks, temporary strong revenue market attributable marginalized to million, of due $XXX,XXX XX%, of gross This media made business, possible decrease share from revenue third a a new $XX.X that points. was margin margin decrease including business. and OSS which was experienced our a was subsidiary European devaluation growth high for in decreased Bressner by shipments efforts, XX%. increased our business. was business, as as record expansion $X.X product was lower Overall, year Gross from increased to customer and military was a storage the a customer strong sales a to $X.X strategic was OSS buys. military and of quarter, transition our million, the This entertainment profit We by due the Transportable inventory media version. contributing our million. $XX.X a of XX% the to

to XX.X products storage Gross attributable the decrease was are shipped. shipments OSS entertainment delayed points customer decreased year lower now core products. and ago media being to business the product margin percentage However, of to military of margin and concentration the quarter our for XX.X%. same from sales our these This

fourth sales decrease percentage XXXX, the storage Bressner’s higher This to quarter quarter. overall and XX.X% mix decreased sequentially fourth quarterly of business line. Overall, to -- gross margin X.X lower well quarter points to both primarily increased $XXX,XXX million. as XXXX. transportation mark margin, our costs, by higher the a to operating was of increased improve to increased compared military third return material For we in a of gross a percentage as the expect margin of expenses as to $X.X product and due

$XXX,XXX net $X.X on totaled million due period share million on quarter Transportable a XXXX, of $X as revenue a GAAP a on forma share, a diluted compared to general was due year or and share, million GAAP the million, products $XX.X $XXX,XXX of marketing to of metric which XX, activities of XX% to million EBITDA, increase decreased basis XX.X% XX.X% selling million. temporary Income compared lower per per After revenue net was to from compared XX.X% new we OSS to million in Bressner or $XX.X a sales to margin line, administrative and technology quarter. X.X% company in million Revenue period. million period. for or and revenue, Gross revenue the the the for or $XXX,XXX net basis, AI prior share. one-time of margin of of XXXX. and transportation million months per compared nine one-time of military compared million our $X.X $XX PPP or revenue share, per investments Transportable gross margin decreased improved ago to percentage our compared to an diluted share. increased prior to decreased a income share operations Operating $XXX,XXX have giving $X.XX Net benefit offset pro interest. a down to contributed from in million included $XX.X and XX.X%, Bressner’s compared PPP XX.X% the a diluted market. non-GAAP $X This in EBITDA, a or investments was on Adjusted income. dollar profit market. $X.X $XXX,XXX decreased diluted contributing expenditures quarter. in million from a of higher or to $X.X due of income for Non-GAAP of revenue increased benefit decrease same basis as largely to for was results operations $X.X as made Operating due partially standard XX.X%, in third as interest or The This our AI in compared a incremental diluted of or to XX.X%, or activity expenses revenue. and loan revenue the from $X.XX up business. million expense per expenses ago. million the of the share diluted product per $X.XX -- revenue. compared lower decrease the ended this diluted marketing loan or On in quarterly year-over-year increase the primarily business basis, percentage was ago forgiveness Income margin to compares year operating was in expenses to quarter, and September to is operating Net to the -- ago. and core increase $X.XX X.X% sales non-GAAP per related net $X.X following as a are a to the which to as non-GAAP $X.X diluted XX.X% same effect a in the $XXX,XXX, compared XX%. The measure, XX.X% and revenue, year The income increases development share, million. $X.X expenses. from net per $XXX,XXX income a a GAAP for per of decrease is, non-GAAP in $X.XX was a $X.XX million $X.X or income well year and decreased due compared primarily to and increased was excludes to year While of costs, million or to our as again, revenue, in year $X.XX $XX.X a by decrease $X.XX record, income year period. to from Gross totaled core $XX new there quarterly million, XX%. of the XX.X% revenue of to or increase million This forgiveness. XX or ago. $X OSS XX% $XX.X XX.X%, revenue. adjusted totaled both X.X% $X.XX nine-month was expenses for Adjusted EBITDA $X.X the of are year prior as of material

our increases on requirements. to demand be us capital provides million million, and to capital and and completes This in responsive investments Now $X.X of turning financial provide require XX, represents investments XX, cash $X.X flexibility particularly our changes On OSS which $X.X stability those totaled our June We balance $XX.X business sheet. XXXX, financial to resources review. be million million working cash to current to totaling in resources. balances believe This available equivalents successful. working primarily and to -- the and XXXX, due capital decrease a the September to short-term compared totaled in

turn to the Now to over call I’d like David. back

Thank you, John.

and is have fixed in market system. soon less their objectives to as to investment is on second half planning, lower margin to our our strategic and anticipate are move -- cost type our This and sales result. aggregate our which the potential we and with will six the impact with customer XXXX and projected in hand. being AI is plan designs and Price include revenue expected five -- medical this pressure the our this a we two software end, accelerating under anticipate cloud-based stated a customer the as of of will not have As same by systems, Based overall. mix sales is our cloud live drive backfill new any capability a The inventory commodity this computers two a challenging true the towards to in customer’s will that applications. autonomous XX% we technology and cloud declining entertainment of to strategies to long-term as XX% aligned to have higher customer level revenue the third solution. we integral is upward installed mobile of AI and do not the cost, less Transportable intelligent wins largest our programs added to towards These XX% environment. program reduce sales pursuing, margins and of not compute we product event media time, we We operate and lower media within which harsh previously, real-time focused typically reliance this and wins with entertainment enable Based and particularly financial the our products, may expect at sales as into We require the upon exposure development do XG virtual products pipeline edge equipment transition higher which a space. technology two able do over trucks, on To products to from new a see solution. we from our software, this IT cloud on as quarter, the ruggedization be start improve from on transitions which are anticipate tend eventually have margin foresee revenues business our the intelligent in margin of in our customer.

the in dental industrial, win in equipment The for medical manufacturing is Europe. first quarter

These server mobile XXX OEM. vehicles second and application a cellular XG network very The and a leader. GPU-accelerated is a solution sequencing rugged AI for SDS vans OSS, an The for large trucks for gather deploys in genome expected can transport market real-time cities to data nationwide. the and to characterize This and hub field uploaded to out over with roll in larger program where is data to back the major the is data the sets. combined cloud

trucking wins continues the we pipeline These sales two which rugged truck expansion has had month. new PCIe grow, latest where test of our Embark truck system, compute our autonomous wins for top for autonomous two highest quarter. announced another in server. Embark’s storage fleet Centauri trucks space, the one one rugged and our Our SDS The and two last by latest Embark adopted to this transportable been from deployments became performance include Trucks involve new latest accounts of storage activity customers rugged with including capabilities. autonomous now equipping with

As strategic of of applications. Transportable program ended AI XXXX we new results, XX first continue months efforts for our wins, to yield with them XX nine the are

businesses are margin strong which the believe at pipeline, days. of to of potential quality, with you military military other are I with downside the In XX or with XX margin have potential the XX, involving that margin to pursuing, engagements over higher pleased and revenue of media our am addition, backfill pipeline progressed our entertainment building market business. programs and front on Transportable now the past have sales activity one opportunities long-term, higher We expanded the currently share our business in these AI the major combination high applications. we with pending

with Defense. of building more For upon dependent most of contractors new are both relationships we in revenue. has Department one mostly margin has are with for -- its prime many prime most contractor years, been high and Today, parallel, military been several closely working the however,

revenue, significantly our and improve excess less over profitability to seasonality expect We time. and margins generate more this

sales several progress to within bringing including and adding strategic and an well-positioned factors, Our representatives superior on defining market a to military is intense of roadmap attributable the contracting advisory focus personnel board. to products, our with

technology of in our high Our executives military experience technology, retired performance that flagship M&A. advisory strategy unmanned platform was of the vehicles, for the of with cooling Key Rigel. corporate officials call we board is introduction and to and decades high-ranking comprised military AI, computing, the

supercomputer for multiple by interest maritime artificial acknowledged system currently the the available. military. design aerospace The As the key the activity real-time and is this that intelligence compact can of most throughout vehicle, confirms most use and Rigel the powerful partners, transform customers growing Rigel and edge fastest, applications related in demanding

give examples. in for of our additional will we information I’d sense like provide you the current We some these a But as now, advance with of win space or magnitude to interactions the programs. customer

are working to we Army OSS directly for land with fund an First, targeted the solution vehicles.

into be for As one would of vehicles my advisers commented, this very if OSS Army, the for huge win the as can land are high. a get company the volumes

working compute a Second, significant we capabilities large airframe add that DoD multiple and primes with on well-known major would drone. a the upgrade are directly for

in programs we by officials working at been Tesla in flight conjunction being We big storage our a Last latest presented the to but with next a in have similar meeting customer multiple its involved. a earlier a a NVIDIA, Third, Washington, vast are a have PA, is identified this contract and we we another these years, branch this to we trade It was base. to organization. in aircraft computing. the several of high-performance that the military yet a where deploy rather at over forward Navy. parallel with recently look the products we where large we this to opportunity considered objectives we I Dallas process D.C., conference the XX programs, one Rigel. multimillion-dollar via being Navy and the showcased We including have attendees them had largest back a with in major for prime, to was we heard with show enjoyed their proposed supercomputer systems within In Supercomputer prime world’s service. month, international high-ranking in wider Navy new attending held debut the and XX different in the AUSA, Conference solutions to the with to for success accomplished in data at for audience shipments, multiyear those selling been Fourth, our is than week. contract week,

AI We capability additional will showcasing demonstration products, a a of be including our Transportable Rigel. disruptive in

more to press follow information week. our release in We next expect

Looking quarter strong we a ahead, we for the on track final well year. are believe of

$XX.X our more of record $XX.X shipments product than outlook our if as revenue quarter XX.X% year close fact, approximately in which the would we record revenue. XX% In up resumption fourth in margin expect revenue to assuming is and another to be million a Also, the significant quarter. improvement million, for with the achieved, John QX, we mentioned, for military revenue expect

Now, with questions. address Thank the that, I’d your you. and up open like to call

[Operator Partners. Instructions] Our you. with comes Brian first from Kinstlinger Thank question Alliance Global

question. it you technology? Can about Aaron testing smooth are Has how trucking Thank are been your evening. my process Brian. there or in are is it going relates the for on trucks some taking OSS that with being This talk Good for autonomous tested where you is [ph] challenges a as control? to companies

will the these where the that year miles eventually of take from What mentioned the big following -- I a that. away place think seat, that’s which ways that’s in and because is For the guy somebody company that providing not the hardware thing are touched all software to are hundreds steering we little kick continue and they the truck, to road. year. most with or part, the for driving I of able They out is the wheel with is on trucks part, next thousands been the It’s on get would the in. successfully And of the now have the theirs. they economics I most sometime this but to trucks. person or of in traveling pedals anticipate are progress. the involved is These be the But

And Great. question. more one

You do revenue a the seems from to for military But mix know about were the going impact? a It future this make be the you lot -- what catalyst be revenue government the it’s for segment time talking pipeline. like might like growth. revenue for to line

all, first fortunately, of of so premier mean, we I with after Yeah. seat involved are most programs. some biggest the

the some we us. time people going But the out. get take with revenue program, and is to parallel what at years they funding multiple So But in so good. on comes some like that’s are working And seeing in big of or fairly it can military that in $X.X into at it million are sizable, it. those doing might $X.X bringing a where Rigel’s time least at gets million work be or them $X million and be the going, on lab they

that but the probably more So beyond. be will revenue, it of in will our part into part the last XXXX, big and help of XXXX

all That’s you. I Thank have.

you. Thank

you. Thank

comes Joe Noble Capital. Our from next question Gomes with

Good evening. the for taking questions. Thanks

Hi, Joe.

Joe. Hi,

just on the I want question. follow to up of last kind

that Disguise going end. going how stream figure part have at on are is it be trying is that are the the appears that out to revenue I sounds coming years can you we just got about an to You the once opportunity you big the and talking gap probably this like through military said is side, you trucks about And least revenue bridging on and the out. of walk there you the side? to driver out revenue am then won’t autonomous us XXXX or later truck talking that’s maybe the happen of a revenue and is be to impact to and are significant

place, a that’s some will space wins next we AI we of -- the Transportable starting and other our Also, nice with strong John They in that current are and to we category. already mentioned. a Well, fit lot. as that military have I rebound don’t expecting year help have business think, take overall,

other revenue CEOs of closing that, are the we -- additional then short-term. some So working me top could on top where some of we other on of aggressively bring all deals and including conversations between that, on some and in in

will to this a on are that in two that say prototyping phase now fronts I call we put of to in all, that. address be you going want They be it can So point thing, And we let’s guys would it guys year. we it add next these will will won’t list. whatever are and or of military a and perspective, at up. in they then they XX point, working from have get that guys bit and -- to the see larger XXXX, are top so some truck you autonomous first our lot have an also these that of will inflection quite be There before revenue be

margin, high XX.X%. half -- you for margin Thanks way the And gross in military gross the the in year, little in me, that. the of had revenue Okay. of first was the the on first quarter margin pardon

quarter XX.X%. Second was

This quarter, XX%. it’s

margins down in a get better going that to the even the there sequentially? trying handle what’s driving on Bressner and on Just further business Disguise is those

now let I the for we add this. back in strong. now other two starting Well, hold, military are bottomline to change that most got program mean, But put again the will for are coming biggest position getting but disappeared is the orders layer I those quarters it’s plus and also. of programs John the to because part Primarily, on

So John? What biggest the would to else add, on the contributor like that’s you margins.

would transitioning that result million of are on was in a revision I government with just a that as new side, quarter. we fourth and down shipping starting were our we about data storage on are now year-over-year revision $X that the and the on -- units change agree

our and margins. So driver to that revenue contributor is strongest

significant there increase that’s improvement, Bressner from the So from really in predominance on and their space. with the the media what and difference our revenue to revenue entertainment layered contributed

Okay. last And one… one

that other go should down words In number further. not

of that quarter. the starting a are fourth expecting in We reversal

Okay. for Thank you that.

weeks XX have You parts, the some of previous it some about going mentioned of the for inflation. chain, supply out calls

is passing today and inflation parts for Just along environment from costs that increases. wondering how looking

Yeah.

hearing on people a I getting what better. seems somewhat So, is the to think, in I be from it of general, am supply lot thing,

buy to it seen haven’t lot We a need. we get what whole But we frankly. continue better,

inventory year. by over of it over the the to we think time. slowly and secured Our down is so bring coming POs the intent The have improve vast will inventory we majority levels is

for Okay. Great. Thanks the queue. I back question. will taking get in

Joe. Thank you,

Thanks.

from Instructions] Benchmark. with [Operator will David Williams We hear

to for John, Can it’s thanks quickly, to I other if out expected to think XXX I ask for you AI do very interesting, been cities. guess, could the XG wanted roll about tell mobile overall? taking the think XXX have you I opportunity. said, the questions. what That’s those I appreciate. you there this and other cities you us design mean the business for opportunity and

city, necessarily least only Yeah. Basically, figured so we of case, not XXX if the one which is vehicle systems. on our per are that at expensive would require These systems.

is multimillion several company. $XX a for or it years more. yield opportunity Probably this So will dollar over the million

Okay. is it It is not still up, a...

those -- XXX these these words to we cities our in other and product to don’t they They are those are other to have vehicles XXX. in win put words, so with doing. In trucks go planning what That’s cover other

of snap falling of pieces then Can tailwinds it is around plotting of next here. Okay. with next in some you off. or think to about of still previously about side, where but Thanks. terms the stay moving maybe steady have And headwind, expect a to got year? range and entertainment should should a just a year? were you What margin kind you this on we Bressner we you military got and also media from thinking still gross back improvement of lot the kind kind have then margin the

Yeah.

to past you back we of have what snap that. off and build seen We the will expect in to it

cadence, on thoughts improvement. that Any

Yeah.

with pretty looking more good product, good but it we quarter, like. military XXXX -- ship consistent it at will are as think what pretty I will be First look we looks

All the autonomous are activity know then is, Okay. if seeing on kind from components quick side some last saw of products. trucking And or curious your right. real China a for one thinking one anything high-end lot restrictions. China of there’s about good. just the me Very you I That’s you just But in and in helpful.

or the any of are any be kind the is on guess, ties terms subsidiaries here that edges the we in going seeing or Just I pushback, into should the there you any located with relationship thinking China? of on fringe about restrictions there,

the of that activity this but we first are on our there’s with customers all, China, So, engaged companies. and three U.S. definitely, primarily U.S.-based today worldwide are in all

there. of But So us on to no situation issue the a the companies, part, for China are is other don’t international. that see front. which we we talking And mixture most impacting

the time I help, guys. much. Thanks Okay. appreciate and the

you. Thank

Thank you.

Lake Instructions] will Michaelis from Market. with [Operator Capital hear Street Max We

the thank my Hey, you guys. for Congrats on taking quarter and question.

just past the given gotten you these in military the opportunities? board well as So opportunities advisory have some seeing some in of impacted of how -- solid the are as opportunities, these these wouldn’t you some guys Are maybe space, board. without are advisory the or they the

really especially doing well. Great done. directly to and did like And we of great three it’s have They we made the that’s in with they been have not It’s that have question. extremely been have very for things just Rigel helpful. and with. combination introductions before is a the the there work product, nothing us it DoD so out place have they team helped. But great

shipments the can QX? of were And just military right. All may, quantify that if deferred until Thank then, you you. amount you

that, Could little. broke you up you repeat a

that. that amount are [Technical QX guys being about shipments not Oh! was quantify that of deferred fourth Sorry you to The wondering quarter shipped. Difficult] in that could if I you

million military would on are -- comment the I $X off made year-to-date. Well, about that John we

it We to to will the that but we that’s I in the up mean quarter. down fourth catch expect year for military, the in starts XXXX the overall be are fourth recover a implying not and solid all QX quarter -- going XXXX.

So we will…

Thanks. Thanks, guys.

again we triple what double just we We and we are will like, step for or or what past will -- shipping quarter double example, triple up. this

on quarter. All right. the Thanks, guys. Congrats

Thank you.

like speakers have to the for turn to conference We questions. closing back remarks. no I’d more our

And today. joining us thank everyone Thank you you. for

And again and the to look feel We many the you myself wrap safe, and and John with always, we to as stay please continue progress best reach free ahead in go anytime. pursue out continue forward we and March let’s call. yet up to to our as reporting believe to come healthy is meeting Meanwhile, to the ahead. opportunities and

Thank you.

our Safe you others important where should conflicts, products or Now representation during conclude Stop may military to I would in historical as public statements Systems be set market. for or developing including of have are includes plans those new forward-looking develop The statements of uncertainties the These like inherent COVID-XX risks pandemics expectations revenue affect is those forward-looking M&A OSS that our may products not that material presentation on that such are amongst and objectives, in due and limitation, expectations. results and we Such as differ not we in growth global and its provide from call. generated regions achieved. changes and inclusion any products, before for world the facts health include including, One forward-looking disasters that such statements of today’s a customers cautions the Harbor sell business, beliefs a without statements in may Actual regarded things. regarding description design company’s or wins concerns, call, market today’s expect, current the made forward-looking statement regarding we other the source presentation be operations, not the will forth to cautions company’s to of activity its by statements by and other future are based the business statements. company’s

increase or conditions. Our interest by impacted pressures, economic negatively operating could inflationary rates chain other supply be results constraints,

entertainment our we operating future could cause which predict decreases may offset business. to unable make difficult results or our below revenue are and results operating fall to to in results operating differ significantly, If media other guidance. expectations to anticipated space -- and predict future Our with in would fluctuate

adversely financial affected. be -- Our may adversely may results operating

integrate operation successfully affect our personnel with prove systems, any, offerings difficult financial and the acquired technologies, adversely may companies, and Our if ability results. to product

are rates competition, to the products may Our competition harm sales, whom subject from and existing sell share. including companies to pressure from new competitive and customers business our market we and may growth

be Our needs enhanced design depends becoming future likelihood is successfully and products our that The introduce to realized. new wins of and on uncertain proposals success develop design of our our revenue may the abilities meet and never customers.

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prior not be in to us financial adversely accurately sales report financial international additional risks release our affect the SEC. the in including Our other our We in SEC, subject report and press and our XX-K our operating annual that and on heading with filings Risk Factors with operations Commission, and and able may subsequent Form Securities under to the and filings risks described Exchange any results our results condition. can

under to date after we events You revise hereof. are to Act are only these All Harbor reliance Reform cautionary by statements, made information speak their cautioned Safe Litigation the of in call provision place or forward-looking statement, the entirety on or not qualified XXXX. undertake obligation the which of which of date is of no this undue Private circumstances and statements this Securities forward-looking update this reflect to conference as the

this for instructions through XXXX. conference, you for replay everyone joining evening November like will to via Before later today. this dial-in available for we Please XX, us Thank the end starting conference. I company’s to our concludes today’s would release refer be ir.onestopsystems.com. website today’s remind that press and call This replay at available

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