One Stop Systems (OSS) 11 May 232023 Q1 Earnings call transcript

Good afternoon and thank you for joining us today to discuss One Stop Systems Financial Results for the First Quarter ended March 31, 2023. With us today are the company's President and Chief Executive Officer, David Raun, and Chief Financial Officer, John Morrison, as well as the company's Chief Product Officer, Jim Ison.

Following their remarks we will open the call to your questions, then before we conclude this call, I will provide some important information regarding the forward-looking statements made by management during the call.

I would like to remind everyone that the call will be recorded and made available for replay in the investor section of the company's website.

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

and everybody. Chris, good you, afternoon, Thank

increasing revenue core industrial a period product European we with In million, XX.X more growth slightly sales, military quarter, the our OSS OSS million, compared includes the AI totaled XX.X X.X customers. consolidated had revenue classic strong our above business, the margin the XX% to Europe as lower same for quarter first that also million excluding media and increased our guidance Transportable ago. revenue year XX% of OSS engage of

OSS In of in contrast, we sold approximately in XXX,XXX quarter of first products the Europe XXXX.

overall and media increased OSS reduction core Our to quarter, quarter, a first slight and the products in increase our sales sales legacy of the year XX.X as planned margin by a gross U.S. well from as in Driven of last up from Europe, margin XX.X the customer. low was ago.

a the recall As design, that may land of rugged for prototypes Army the development Stryker, you contract XXX-degree we and the system the and for Bradley in announced directly vehicles, compute for U.S. a Abrams. with execution $X.X visualization February, including million

to program to applications opportunity, realize this expect QX. Army. from The the within start We also potentially in represents contract revenue significant other a revenue while opening

learned plus recently contractors. compact Supercomputer XX are flagship points engaged we We contract with another with yesterday's several that both want directly Early a proof prime announcement our Force Air through top prime opportunities Rigel. and includes Force Air they include from

this cases, programs. to were exposure year. about OSS and key more this visibility both new announce providing and these for win product to expect later additional ship We prime other contractors In

industrial the advancing in and the Europe. and QX, in autonomous throughout other several U.S. markets, in trucks, Additionally, DoD defense related opportunities continued including we and agriculture, multiple

and opportunities. on I've and wins John? to financials. the further to Before Jim expand strategy I growth our these asked And comment outlook, John on customer on comment

XXXX our the XXX,XXX quarter Consolidated results other Thank media mostly you, The Today customer, XX.X Thank included our period an following Relations million. onestopsystems.com. compared quarter for results ended issued same everyone. low-margin joining $X was for David, in growth in is release in our release March Investor XXXX. a the sales us first XXXX. you to and to by revenue for the revenue the offset customers. increase at first website in to as good afternoon, expected of XX.X% million section The today. with reduction declined available from which we press XX, OSS This

Classic OSS from As all from shipments that designed clarification, OSS OSS core is operations. is as Europe References originated they throughout through and U.S. both operations the in defined as sold those world. Similarly, to and U.S. European are to defined all margins. products tend are delivered higher operations products the shipments yield

revenue to X.X the XX.X% classic XX% OSS of quarter, total decreased representing revenue. million for

core increased products. OSS quarterly million, Excluding classic incremental $X increased represented OSS higher total of including of lower Revenue Europe million an to OSS revenue. media customer OSS from X.X revenue, margin XX.X%. margin XX% Europe XX% revenue

gross profit overall Our X.X million. quarter first in the was

transportable The XX to points to of basis basis AI greater for sequentially OSS attributable XXX a points business Our margins gross XX.X% XX transportable greater points products. to increased increased mix basis to AI attributable of by mix our products. and classic margin XX.X

European sold XXX.X% margin XX% Europe's core, gross Our product content our markets. to to being XXX percentage into due OSS OSS to core points OSS improved compared

attributable approximately was The was to XXX,XXX was transition the costs. increase XXX,XXX in our general offset to increase to Marketing transportable operating realignment XXX,XXX severance with expenses partially support XXX,XXX administrative sales operating Overall, attributable expenses costs to R&D in a to and quarterly AI associated million, recent by X.X strategy. increased increases expenses increasing resources with to due of in and primarily XX,XXX expense. expenses, expenses to in operating of of compared XX.X%. with operating expenses selling increased decrease as being XX.X% revenue percentage a This CEO XX.X% of

from compared XXX,XXX operations difference in was period to higher predominantly XXXX. the in Loss same operations from This XXX,XXX income to expenses. was attributable of operating

or a the or XXXXXX on basis loss per was a per or million. per revenue, $X.XX from of down non-GAAP a XXX,XXX $X.XX net EBITDA, per X.X GAAP of share, metric basis, income as share. share $X.XX Net share. $X.XX a income net negative X.X% or XXX,XXX net or $XX,XXX, decrease XXX,XXX quarterly from income loss to was compared of non-GAAP On of non-GAAP was Adjusted a

cash balance XX, our compared to investments cash and XXXX. with XXXX. million. a December for equivalents as of cash a short-term represents total as of XXX,XXX to million, decrease X.X sheet cash X.X XX.X XX, investments of combined March and of This short-term of million equivalents totaled Turning and

working responsive those was and decrease requirements. in capital working and and business current us financial us investment cash OSS that changes available and capital require stability and to be the to purchases successful. strategic inventory flexibility believe demands, to be attributable the resources order Our provides to for to We with particularly

Product like Chief turn to our over to Jim completes financial for our Jim? quarter. This the review now the Officer, Ison. would I call

seven new John good afternoon, and wins. major In we program you, added Thank QX, everyone.

wins the about The industrial $X wins wins Visualization manufacturing System U.S. these medical, yield We the system, a and in anti-electronic Army, Air including were million U.S. Transportables, for were these application. in expect warfare autonomous in server year. new revenue Ruggedized this of and a Compute Force finance, win. AI to remaining Three truck

from we order February. a $X.X Dave U.S. million mentioned, the Army As won in

remain year. to on closely the with continue deliver later we track U.S. We as Army work will this to prototypes

awareness identification. as object there In this are including broaden addition customer, transportable to AI this providing applications recognition, the contract, XXX or opportunities sensor degrees situational part additional systems friend to of within and acquisition, foe

the for PCI of providing of Express our solution. years connecting accelerators Army experience U.S. latest creating them generation compute the Technology, low rugged by latency a chosen were compact, We with very and

We prime also transportable for SDS including a contractor, prime contractor inside $X.X Force storage SDS announced design program applications AI this a we similarly acceleration through compute leading and data win U.S. servers see acquisition. other servers. new configured win, Yesterday, this to Air for million procured

two the the DoD to servers transportable Centauri where addition other we deploying storage actively AI autonomous In customer, wins, current truck win, a solutions. including are for

leadership an application. Our key multiple AI ability as within our to transportable is to designs a in build we win strategy position account

pending We programs quarter. three during also added new the major

in such greater years, expect pending or closing. We more major revenue to with of four dollars each generate XX% a or over million likelihood programs a

pending end in QX AI of with the XX the XX programs Pacific, of these Our major Asia totaled at Europe. involving U.S., pipeline and of transportable applications

Rigel and full the the recently together only Nvidia product front, certification for Nvidia with GPU. earlier certified drones as OSS edge vehicle chips. certification based supercomputer AXXX engaged the trucks, the flagship stands at our autonomous AUVSI and and announced where On HDX, product OSS on rugged week, engineers this obtained innovative customers show Nvidia's sales

provide using telemetry products Rigel X manages The the acceleration, allows using as and the benefits Gen secure UBMC data vehicle, OSS software Pro software systems management to these OSS several customers OSS compute. products or The controls our data their and baseboard Both XU in Software storage, customers management, vehicle and providing proprietary the of controller, accelerator monitors such include unify unified developed a UBMC. to advanced with that our OSS systems acquisition, features set UBMC for autonomous apart. on our unique system

may a moving but via additional recurring software revenue More Our our This software in capabilities lead and eventually forward. model. higher to include stream. solutions stickiness additional functionality a will products contain UBMC is and plan margin provide OSS the products strategy to creates basic the product software revenue and software value,

turn like to I'd over the that, back Dave. with call Now to

Jim. you, Thank

in from increasing OSS many communicated transitional call, bringing addition is talent. XXXX high margin As proof more of business, and a transportable business, year down last military reducing inventory AI delivering ranging low our new the fronts, levels, on points, for margin

carrier within We as the trucks, of and our portion agricultural military. from including equipment the industrial are autonomous business well growth segments multiple projecting as cellular trucks

same mode remains XXXX. XXXX, we our the with did margin business growth and back objective XXXX in and reduction move lower offset XXXX in Our AI into as transportable growth overall to the of media an

outlined verticals and industrial believe with transportable to AI that has military push solid we in market the capabilities our have a tailwinds we several in autonomous throughout investor presentation, add As market. AI and

companies, pursuing we opportunities will identify confirmed which our As pending our with In we and pipeline we with many the are which of opportunities we products, are need that customer, opportunities maintain which target generate wins, database. and a program many project we in revenue. identified wins include engaged should case,

After the years XX% we projections These XX%. weighted of but solid a The percentage applications, XXXX rates estimated these opportunities supports to current to opportunities opportunities growing beyond, approximately is military XXXX including XXXX, growing. the value three $XXX judge of through growth these applications and million each total the industrial represent of and identifiable over for year. with apply combination and growth outcome probabilities and military of the in range

segment customer announced a Upon and the of we to could truck top had key state, will Jim the lines. reaching a companies another Two year, upward list revenues these with autonomous for win Last the storage rose of companies one believe inflection XX our grow. of point utilizing partnership quarter, year, we to we customers production segment past this our market at and the significant outlined, product truck two servers produce last program continue a as OSS.

forward, similar As time. leveraging developing we over verticals additional we OSS see look capabilities

QX an autonomous win pending provide a have is close we example, for expected boat. revenue and to For that

progress. In parallel industrial to the

will over Navy, and our opportunities of Military combined a takes AI tailwinds We with OSS. for past years and divisions innovation the Marine create new develop. Army, blocks have AI deploying team drive the higher the the the Theater, two remained believe years. building primary base of Nevertheless, the Corps are coming these opportunities military to and that longer for margins all for opportunities be revenue, transportable autonomous with or focused and the shareholders significantly value which OSS of pursuit capabilities, We over on broad Force the Air within

at by been the encourage by On and holding second rigorous XX.X revenue you to process company's running May disclosed, the as the XX, contacts to finally, We recommended a stockholder Wednesday, VP we a time. a participate meeting for approximately quarter And next ahead Looking extensive be Pacific we've military XXam as search to Directors. million. and Sales XXXX, identify expect with Board selection and the virtual voting successor advancement of to previously CEO accelerate our annual of level. we'll of experience

candidate. support the our of finalists win The in you, Board and OSS and quality will customers. investors, employees pleased the the well sincere Their interest the our I as with are of and as anticipate

honor a successor end smooth of with place to look have the your support in to expect know the on to transition CEO working years. and Board OSS the transition. We the schedule to in the contact I by CEO customers a be an to look It process. forward of productive in on as remain new appreciate through of and past to over the investors great employees, June. get a of director. this has I And three been the member stay a as and Directors and forward

Chris? with like call up questions. open that, Now the I'd to to

Thank Eric, please ahead. [Operator Martinuzzi, comes Street. question from Instructions] you. Lake Your Eric first go

you with I'll on laid QX. out one down it, just for low my at of outlook of flat Is like the for equation half. of here plan, for revenues of subsequent of it we're the at the in expectation in a to the wins. with the offset we half first there. the get questions print quarter And in the still, the we're least minus Yes. the half as in half, expense the given is outlook Good growth like what or first and QX, come you've year the the roughly be QX on sort half, the to single to kind is revenue was assuming digits? could other out but to wanted in the of because XX.X for year-on-year program side start to front back revenue decline last for job XXXX going X% for your that that's know the M&A Wanted be back the expectation that looks is

Yes, thanks. question. Good

were So, Eric, we half a first yes, little like looks off. the

first, the as as of far as don't much have half, visibility, do, second the As we we course.

as pipeline objective in a same some the that. doubt we're to challenge. the do replace big in, that's the Our as with programs have it. There's about no to is that. We do that allows long us objective. But driving It's come And towards they judgment.

as number. last our possible as be to so, year's objective And again, to close is

Okay. years. And in look put that pipeline, million talking out that three we that or over If about that? Can year next of was What looking frame up the grown further And you that back I do much maintained? a slide XXX of have a that? the kind the How ago, you're did what that beyond the we -- then was growth you XXXX. it appreciate we about that for reference pipeline is jump like?

targets Sorry, would I a it. coming It's has in a I XX% to in sure everything exact want I weighting we've identified from on number. other have applied, Eric, and to mixture it anywhere I it's But between. definitely little area was solid from XX% I of out that. design make will everything don't side XX%, everybody add color than And an the it to mean, year grown. to And knows. just, wins judgments to a ago. grown, X% depending guess, somewhere larger steadily the probability and a that's

XX% us. customer But XX. that. as really It's like more growth. the FY of it that correct? behind sounds media I sound given to I organic picture that know us big certainly, guiding XX% analysis like not you've of you're Is to a the will be of

should be assumptions all think I Yes, that.

the then And thinking we off two and the the on side, operating I there. What for talked different about quarter? color three appreciate slight should I the one expense you a little for operating offset. Okay. bit expense be puts to about, intakes, the second was negative

the June we will related of with severance is plan quarter accruing be the XX. departure second right The current David now that all with as of

Xk, As previously severance disclosed approximately package includes year his the one of in income.

that of So June be as have we will XX. accruing

additional search have the an additional legal to also $XXX,XXX could expenses run and or That neighborhood We about in costs $XXX,XXX. costs. of

I'm then figure And what's asked QX Okay. of to like? normalized should normalize have -- we OpEx. do look where the out post kind maybe on I trying just

going QX, around we're X.X. to be right

they'll people, the do we on to that, floodgates how very where have just on that And is that think for increased something to or we'll QX, the eye progress John multiple that spending we've we've And fronts. keep add in some with mentioned hired we depending opened is I few. the number dynamics an not hiring on hiring

that broken the see wins final new to a I a got just that more And before. behind good Okay. comment, pipeline, worked logjam that assessment? there's we it's far maybe prime contractors. Is those that kind with other wins as believe to with some of that fair with the primes as haven't program in the we've

time just mean, the long I last process a It's strong on the bullish in very shared I front. absolutely. I just just military. Yes, is this the mean activities, we're military. is in very frustration

you. Thank

go question Kinstlinger, Brian, please next ahead. Partners. Your comes from Global Alliance Brian

of hear. XX% made opportunities opportunities and or And months? focus, b, best Could XX%, that generate wins. This growing you pipeline of you a quantify it's to the and Thanks XX the just wins a, next bit pipeline quantify of the to submitted great the Shervin I the the is pipeline near-term wins? wins will is figure Thanks. bids more for see then, great targets It's and for little larger, within on up of question. revenue expect opportunities planned pending for Brian. see pending taking company

number And say Meaning number of I right side as two-thirds on of of left in the we've win to of of two-thirds And in about either funnel. XX% an the would opportunities half a XX% it's between Yes. be Hope drive already funnel. or where about are that's the that are what balance would helps. the targets then category. growth, we that the side wins far the as pending pending that and and didn't see engaged the two-thirds we the opportunity. recognized

to sure make I just Sorry, clarify understood correctly. and

funnel, And is pending right wins. of opportunities. remaining side half You're then on and and third between of targets the saying XXX two-thirds the the of wins

number. Yes, looking of just numbers would right that's side be I'm approximate real the third at on -- funnel, to the be that the quick.

Yes.

generally. Just

keep mind, probability higher. think for And a pending or that us means in is XX% the win we

don't, think we're some just It's really that You it? going of close to course.

then revenue submitted bids, pipeline planned bid the the quantify will And you XX of within or the Okay. about generate months? that expect could opportunities quantify, you next

question Could ask that one more time?

If of months. you bids will opportunities can within next the generate the pipeline submitted planned revenue XX quantify or you expect

says already. growth and it any way things clarification a have as we next, quantify have mentioned to that I I don't just the of I that on side. have would that these I rack specific say number the type stack further produced that, the don't numbers

right. you. All Thank

military Next you question. cycles the the we year, even slow mentioned and of I on revenue to opportunities. since of the contracts this lot great this rates seen cycles. see you or long Can recently that expect decision-making, further inflow to up? we've delaying It's seen wins clients, great have government into a continue sales military have started you been these spill which close awards that turmoil program move pick your for long generation? any down from could But of know

were are to military that delayed, and of that taking the it's opportunity normal the maybe changed. expected. think things with positiveness But definitely market just dynamics I'm and in in for general, generate in sure overall theme combination government. fact longer than too because I us some the And optimistic and things revenue we maybe the combined its we get hasn't about

your for priority capital plans your over And last Where your in the are of on list, any? few if what quarters, general company low? cash deployments, past high just is or on $XX around Great. million or $XX had Thank you. And hand. M&A question,

some really deal focused we short although cash have away an on obvious $X sure far doing believe does want number that And two, be it's we And when move why on acquisition. from sizable opportunity. to and that to think cash doing. worthwhile it, term I also million we're not, investors M&A, the doing don't are that, make growth. wouldn't and it's team organic We we number in go [indiscernible] And organic better do the we one.

the laser on very we're focused for So most opportunity. organic part,

comes go you. [Operator question Joe, Joe next Your Instructions] capital. please Gomes, Noble Thank ahead. from

VP a anything much mention So, David, mid-June, you if in that? you on update little you about us wondering the the search give talked CEO search, really on more just didn't Sales

absolutely. Yes,

think couple have a really VP doing we a should just have we've level things, CEO to them quickly a of what been handful move able myself, some like place, So but candidates. we I'm Sales consider. that do are in that we of what to to filling of is, interviewing is individuals by And other that of not is are qualified be once what do I'd trying the And to new spot. that

I just the them a him in think key guy doing. it's that's Get decision-making be part the here, clear what involved really, circumstance, of a get CEO that unless really we're process. under we we let and get hire any should that's

We've very also they that had some indicated VPs Sale of some these along. candidates, bring candidates have they of that they've strong can

get Sales To place and CEO hopefully that's answer situation in in the of we get we So the July. there. that in a VP place,

inventory John on quarter today. and And that down. during little inventory inventory the And and mentioned trying situation you to buying the commentary, are levels think great. inventory was in Okay, increase mentioned to handle just out some one you a there get the goals better I bring your of

parts than Taiwan OSS the [indiscernible], water to and break OSS, question. a go OSS portion from is With And dressing first done I to attributable FOB to about point. the I'll respect address earlier classic. attributable respond, Europe, the one-week that that anticipated. then they on at portion had shipping shipment into two will that's

done basically, left a than in left earlier was week So March. the ship it to be April, anticipated. It port in

So associated product. that was all with

and will QX identified period. be it been in it's sold QX, For

inventory was million timing So of on And was a that that that water. approximately was issue. the $X.X

advance some date, XX% increase of With of as lead back being about with in increase have a to represents X we to X% a originally were we of get result otherwise, It classic would take delivery required million. Broadcom in is Gen to price. planned time an line OSS chips and respect had XX-week the them delivered $X.X to in

when originally went they those and planned in. So were ahead to in we took chips come advance of

add would So just I to that.

is to said. caught the we intent This down bring our guard. us as So off inventory

it'll the their Fortunately, pretty go these switches, to we are off need. of quickly. our case longer into the the it'll In key that stuff, products Europe time, be take period products In a burned us of of but case almost everything. the

$XX year inventory by bring million. down to Long-term end, around to hope we

concerns as And auditors in quarter, write internally big and wondering you're believe this not about appropriately with analyze out we our if about have general, needed. we we our just off And a there. inventory, exposure and do every things

OSS how that. for core OSS forward? significant the kind know, here see you there? you And the Europe how core European of some sold that see products selling Thank Okay. in you and come opportunity of do out As being going the you in products OSS about increase playing of channel? through growth did on selling Do significant that

Take it, Jim.

European OSS it's team and operation AI Sure. we've works Transportables where the focused the several in for place put the in in Yes, a on years been product.

of growth starting was. So show the to general. a now, of what part Transportables goal strategy the they're in is The AI is which key

some bring see design it European from of wins this down continue Transportables operation. continuing I coming they see and to AI on path you'll out has the

trend It's good in is news. a would anyway, have be should continues. This earlier. it place we But lot thought a that Yes. something we

speakers our you. Thank closing time. are no questions it now this back There turn further for remarks. will I to at

With us company is management solid any feel strategy latest forward always and again reach the meantime, ahead call. We've that, let's our wrap you and and August, the future with sharing in free the enjoyed Thank the with speaking progress at and OSS if John to time. joining OSS free at to bright. today In as up for myself looks out is go you feel you, everybody to not today. believe sooner.

Thank you.

today's before the we that to includes cautions like during conclude forward-looking made would important Harbor statements regarding provide Now, statement today's I call. call, Company's Safe

Stop statements. cautions statements historical beliefs current description are These Company's of products, by a are be new forward-looking the revenue expectations presentation statements that OSS expectations. business generated statements that and for statements of and you based forward-looking facts example, be include, those changes management, are inclusion Such company' Systems growth of that regarding as other One any in future objectives not forward-looking on such plans wins activity the and a its will to of amongst The regarded by members things. M&A design its and achieved. others should not for representation

the the results limitation, products we that expect, differ such in market and may those without and customers risks in have uncertainties presentation or affect to instability world forth our global developing for economic Actual or not pandemics business, where from the due conflicts, develop in inherent as we may set material our may including, source military of sell and public operations, regions market. other or concerns, disasters the products and health is

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

results below guidance. our predict and expectations results fall operating operating could future operating significantly, would to results make may fluctuate which cause Our to difficult or

media in other results in financial adversely and anticipated If future we revenue our entertainment operating business, affected. are unable our with offset may space decreases to be

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

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

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

to of such industry Our functions within or characteristics way unnecessary specialized and products the fulfill needs needs technology or such needs in longer fulfill cause our needs to and as become or such such may functions. may and functions functions the shift no a products

rights New enforce our suppliers a significant harm process. expenses competitive entrants harmed cannot support limited proprietary design rely And position. or rights. into our may be on design competitive We property incur position our intellectual of market rights, our we we number the to to protect manufacturer could our and could

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

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

this and website Company's would XXXX. instructions today’s Please at available May like the end I release to conference, press that we through Before XX, later today's for via replay dial-in for starting replay call everyone to evening will be this refer ir.onestopsystems.com. available remind

concludes you conference. Thank us our for joining today. This

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