One Stop Systems (OSS) 6 Nov 242024 Q3 Earnings call transcript

Good day, and welcome to the One Stop Systems Third Quarter 2024 Conference Call and Webcast. [Operator Instructions] As a reminder, this call is being recorded.

As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results as well as their business plans, objectives and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSS that any of its plans or expectations will be achieved.

Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and that OSS desires to avail itself of protections of the safe harbor for these statements. those actual by differ to on the and and that stated from certain Form advised company's recent uncertainties implied the press reports or forward-looking including XX-Q XX-K, be subsequent results annual on materially could those risks most quarterly Please recent in Form report and described statements due releases.

statements other disclaims except will make revise SEC. OSS any Please applicable to OSS its required law. read with as that forward-looking these by the future filings reports or duty and update the

It is to go turn Mike over conference ahead, and the Please President CEO, now my Knowles. pleasure to OSS sir. Mr.

customer-funded of outpaced XXXX segment orders number the Thank and strategies and quarters. . With $X last we pipeline in remain quarterly economic within is opportunities that helped you, for growth of year-to-date we you impacted segment, continued our focused OSS growth. OSS are softness well thank greater are that taking OSS pursuing higher-margin which converting market Higher X projects. sustainable include hold, advantage in we everyone, that Vincent. our high-growth revenue activity growing a Good the to by offset positive and revenue large, are segment. pursuing on Highlights remained for the segment have The Bressner market. development joining quarter segment, today's revenue call. our and in well third take excess in positioned OSS sales We afternoon, sluggish of in to for positive orders momentum X believe revenue billion-plus our European of

on revenue of revenue, growth XX.X%. a basis, consolidated Continued development segment expanded growth year-over-year OSS sequential customer-funded revenue

return growth the impact $X.X are believe OSS inventory and adjusted sequential favorable Operating revenue XX.X%, for to for charge. the positioning excluding inventory remainder of a the We EBITDA throughout over of margin in XXXX charge. segment $XXX,XXX XXXX. after profitability setting OSS out transformative stage of and continued Gross backing a our cash flow these million of the trends a

release, identified this third company's in well transition edge and in slow-moving discussed operating we of the and during inventory morning's compute quarter, and adoption markets. we commercial slower model movement and as As strategies business press defense certain as associated with the the obsolete

As charge a took ended we $X.X X- and reported EBITDA a the income which margin, result, and million, net September reduced of XX, for periods X-month XXXX. gross adjusted

This With third quarter, activities, any improvement changes not this opportunities in do charge us, currently our of historical encouraged on our profitability the I'm commercial trends. from markets. inventory reflecting during segment OSS We the outside inventory generated the pursuing impact sheet. on operating quarter, balance higher-margin had behind focus adjustment defense positive further strategic now revenue and foresee cash in further limited by position. our cash during And supporting we strong

As we we market objectives on important calls, to XXXX, pipeline take last discussed healthy favorable focusing throughout X of and have the prior on dynamics we advantage year. developed are

that we our and First, we OSS expanding enterprise-class multiyear opportunities for driving OSS are looking rugged support on believe markets, platforms Across pursuing needs our segment. technology will to OSS commercial in focused customers for partners on And solutions. defense customer-funded second, global incumbent converting compute their we like are contracts. establish are our an pipeline as development production orders future to

future sensor applications company's demand we and requirements the performance The challenging latest the emerging current for processing intelligence, autonomy best-in-class edge. OSS platforms Driving trends. harsh artificial these trends and data to at that and of bring software hardware will advantage machine allow to believe learning, center are take the and

months is of quarter the during aligned with performance and underlying plan. third X our year the Our

a XXXX believe year-over-year return sustainable and for a XXXX. growth revenue foundation to strong in is creating continue to We profitability

economic in continued expected navigate in we recovery European Even with our markets in as XXXX XXXX. an uncertainty

starting at efforts overview, quarter with progress during made we to detail, in orders. more the third So the to let's convert our with this look our pipeline

Our remained $X comprised of software to OSS. the we organization, pipeline are contribution opportunities, the I'm XX% pleased of our Approximately development and at in multiyear drive hardware quarter the and predictable investments and growth our and which platform the growing backlog we of over for unfactored transformation reflecting our end revenue will current of our making third of billion. pipeline X-year multiyear is sales the strategic help product with positive platforms. and pipeline, demand the believe

that coming several quarters. opportunities we multimillion multiyear are dollar Within to and we are close our that expecting pipeline, pursuing business are current there the in

we pursuing orders increasing in plan grow segment. on XXXX remains pipeline, our to within focused opportunities continue As our OSS our operating

XXXX orders XX% we third by for third and quarter saw the a the outpace For in quarter, revenue row.

existing past order over air Our was the growth in customers the months driven CX X ISR defense by markets. maritime and

Army commercial CX market. market Air infrastructure In and customer new the in addition, ISR composable we had awards

these growing high-performance are and to announce multimillion follow-on engagements of evolve data market new PCIe dollar the into segment coming AI, science applications. revenue leading and compute, many in expect center We our market growing solutions commercial in capabilities opportunities new well positioned is data visualization from as support look this a support and composable to weeks. to ML customers believe multiyear Interest periods. future faster infrastructure We order in the rapidly will companies for expect

objective growing programs. on The focused on second this our is customer-funded we important year development pursuing presence are

cost new we results started and disclose and lines show financial development revenue XXXX, with in During associated our customer-funded separate track to potential projects to wins. our

our customer-funded as we solution compared work typically offerings. integrated customer-funded programs, more development a financial historic to statements. the company's program-related defined development providing are Through development on have We

establishes what In is multiyear even addition, and as almost platform on contract margins. OSS incumbent a production profit greater a follow-on always it at support

of result, a revenue recurring expect and mix we business multiyear the higher from benefit to in a our backlogs As future. contracted model annual

customer to steady $X.X to revenue benefit same while period the growth principally the as leading X Development production of has This are been funded solid follow-on expansion to existing a before opportunities. I'm of potential and year-to-date million building to take growth with program $XXX,XXX large-scale orders, increased a as feeling development the well compared pursuing we development to by foundation as to relationship grow we scales, expected aerospace years business revenue revenue a for to so an relationships last quarter-over-quarter from are strategies the customer-funded pleased of product our production. driven report to expect that for new customer commercial X year.

programs, are submitted. currently multiple have increased we entries customers and seeing expected, to we their proposals development support As from

to development into customer-funded remainder the result, of growth revenue As year-over-year a and experience will XXXX we believe throughout continue XXXX. strong we

focused We and development edge in X product both currently expanded efforts defense applications. efforts product also have our development commercial OSS this segment under the computing for on and year have

throughout expect year of We announce to demonstrate first XXXX. of end and and the products the half these before the

retirement. morning, John to have As and OSS, our commitment the Morrison his played his may retirement On from excellence. John OSS. a to I this everyone behalf seen John CFO. for you financial key John and best announced his as strategies at ensuring wish business of OSS role want developing in I has long-term dedication has thank I in

including managing some of company. defense knowledge has Throughout has is this Gabel financial have the leadership Case I part to and CFO contractors, Daniel and performance President dynamic that Daniel proven his while focused financial drive pleased a teams of welcome strong XXXX, controls. the high-performing May proven and world's large, the on to transition, and excellence As career, CEO to top set strategic his leveraged I joining skill a and in Raytheon. improve of at of led Daniel organization. Since fast-growing and am financial accounting industry assembling team experience ensuring with and as leaders company

our Fabrizio Scientific strategic also new experience hired we manufacturing, leading Sardo, quarter, Thermo at brings and Raytheon and C-scan, defense VP the of Operations. and Fisher companies, who During industrial including operations as

months, assembled commercial that XX new a aligned defense and pursuing have markets. and high-margin past are we the Over large, growth leadership with we the high-growth strategies across team is

directors and September been of XXXX. our have our align have refined Board direction since added also to We strategic of of our X X Directors current with

I'm confident OSS and next and level. the to of leadership skill to set, [indiscernible] as experience team that Board a our enhanced drive Directors take

now first to our long-term plan investors With and in update new growth on team half in plan of the XXXX. our place, we leadership guidance strategic new

As quarter third a the result of financials. through go John's this morning, retirement I'll quickly announcement

million the third offset segment million. $XX.X $XX.X For consolidated we revenue reduction revenue by in slight activity The consolidated $X million million, increase year-over-year revenue of Europe, reported in guidance our result quarter, in Bressner associated revenue. slower economic in a which of of OSS decrease was $X a a year-over-year with exceeded

increased margin, periods took -- September Gross margin XX, year XX%, negative percentage we was quarter X-month inventory the gross As reported September million for prior in the was XXXX. ended I year. gross Consolidated third XX.X% the year inventory up reduced adjusted XXXX, XX.X% X- loss compared during same charge mentioned the million ended EBITDA charge earlier, quarter. the $X.X and reduced margin, which $X.X a last XX, net and period from XX.X% excluding to

a for OSS OSS period for year segment mix had profitable more and the compared point increase XX.X% percentage profitable margin and a segment growth driven of same was decrease a On was same X.X XX.X%, a the period company's inventory additional XX.X year, to the charge, inventory period the driven basis, of mix by a revenue segment reserve. gross gross same The and point last of percentage less the margin, ago. company's excluding last a a from gross XX%, by margin percentage segment revenue XX.X% year, an revenue. negative Bressner from of

operating a the impairment of to management $X occurred attributable quarter to planned the program $X.X partially million, expenses quarter. by offset decreased quarter made in third that third is of to million Total investments XXXX, during goodwill which XX.X% both

million million $X.XX year. $X.XX third share. For a loss net or compared net to to $X.X share per company per or net per the million of a GAAP a share $XXX,XXX share non-GAAP of in of The prior non-GAAP $X.XX company $X.XX the loss of loss $X.X $X.X the quarter, per or loss a net compared reported reported or

$X the The quarter. and loss to was included loss XXXX third loss an million non-GAAP included adjusted compared in metric, net charge a EBITDA a a inventory year of net $X EBITDA, inventory million non-GAAP $XXX,XXX Adjusted a third million, prior of $X charge. which loss quarter

detail. more in sheet balance the at Looking

short-term loans As total and a million XXXX, million. of its of term cash and revolving million. its on XX, borrowing OSS No on balance of $XX.X consolidated $X.X outstanding outstanding credit September of $X line investments had

XX, operating X $XXX,XXX months XXXX, months ended for X from compared OSS $X.X activities the the million $X.X September For to cash in ended generated September XXXX. million XX, or

at headed. remainder are look As we direction the excited of by the we XXXX, I'm

profitability. execute orders, to building plan continue our growing transformation and against We driving near-term on focus backlog, improving we revenue as

factor a we scale, want hard I'm strong to work building we remain foundation will orders dedication and continued I a as of building team objectives. their long-term a pursue for as get achieve timing for we the thank are While growth to shareholders. aimed our strategies at compelling our value confident our that to greater growth

quarter million Looking $XX approximately anticipate consolidated in of the forward, we revenue fourth XXXX. of

guidance balance particularly easier global expect expected quarter strong revenue of headed, sheet create for expected segment for year-over-year markets I and of positive are the Our we well year believe growth. across driven of value committed was XXXX in to primarily fourth our the X% over revenue and Bressner XX% is advantage challenging. representing our team the are encouraged fourth year-over-year take by direction last shareholders. OSS $X includes long-term Overall, of and leading compute XXXX fundamentals of enterprise-class I'm an million, by solutions, quarter of fourth we positioned as In million, growth our Bressner the comparison for quarter $X segment,

the This questions. please open completes my remarks. prepared Vincent, up call to

[Operator Instructions]

line Global Kinstlinger question from First Alliance the of Partners. comes with Brian

great My this on success X of government book-to-bill you. X much is in commercial? and question had you versus the first how improving strengthening been in bookings trends? [indiscernible] Congrats of is Great. has And above driving and bookings continued consecutive core John OSS. quarters the with working What's

growing bookings the the past ratios over We're Brian, book-to-bill segment driven continue over defense really thanks be few markets. commercial revenue we Yes, in and both OSS question. and to on quarters. for seeing the it the the positive

Robert to see the Some been of I reach the when Kalebaugh. effect company new the almost the of of of Sales since we scope the and of joined XX that we're VP starting Development, really months ago the of on has now brought broadening Business pickup

to has So in more prework started defense actions. now and where into as into those the point position now able products the turned frame solutions and those to through receiving point reach request for proposals, to processes based we acquisition extended our to available on for respond our start time move information and request or the orders where to responses is that markets, is turning we're

artificial continued we've fashion, around I outreach autonomy, just And and go general markets today similar application. outreach on trend in addition, side In in then for general capabilities. adoption a the deliver to the broader intelligence processing commercial the underlying We've pickup our and the to need machine in just just the of the on and technologies for learning. and of seen those the them compute those and integration enterprise the

bookings, is as just numbers. ball XX%? the And first of parking, ballpark, Is of giving Just not it us government percentage XX-XX? X a months exact

we're XX% say, I Yes. probably to XX%, ballpark, around would defense . commercial.

with change impact, or And to in development federal continuing Great. there see And those is are -- any there fourth the with Is the quarter? negative seasonality? administration, on business government? in positive trends any then the you

same Yes. plan government processing in fourth the big we at QX. timing themes as see bookings and There of our We frames. go would We're expect in quarter. behest the the are through kind X holidays always time to of

generally be to holidays. affected in not on the try to to we those So move orders actions push by

it's bit if so the because in times, that and processing of holidays the seen government though markets . The for slight increase we can we've the we've change general, surprised on little even and to generally commercial contract the market of that some beginning occurring and impacts. the of the at bookings, throughout be the be have in awards. Some And about defense But a sometimes side in more for AIML. can year. thing of about assessment is the on administrative demand in in administration the talking segment, on impervious long timing seasonality at will OSS those the generally or for take been how autonomy, interesting part the economic the company, our you're new planned

potentially able storms overall, be But in the administration and been and change the I find to we've think some bookings might have performance under So If -- will to able those. side drive defense weather impact. a I continue to big think focus general, would with some a despite don't more the new positive the anything, be on have should greater it administration. on

across we board. I have would . a also add, CRs have full maybe Republican ticket we if won't the

we starts and control a point the If And through any that a have a or up. small you on be procurement wouldn't placement bring CR business cent rolls of any clearly the short that CR allowed funding new our house would and would faster. have positive effect because

help of the market programs. we and have the bookings in that So would of some bids timing already. with which

a if positive house a would across the and be would that thing So and for allow current the presidency Senate CR. shorter control

me. X more for

-- is similar at to government? the XXXX? your one to And quantified pipeline in quantify bookings, in percentage a it is first The of you billion that you XX% couple what of XX% Can few $X least times the addressable quarters. roughly is last breakdown

total it took any maybe our if years. we pipeline. then be we that -- a in the in out any the say We're X% direction around X/X is modify in to percentage. we and close over given X-year breaks it's XX% that processing plus as minus of to pipeline would total, probably it unfactored. XXXX And generally or will XX-XX, continue in year same I that Yes, or in

the will us. in our that process element to So against have to all approach. that addressable is factored pipeline really a ability to large of And .

pipeline for assign us we probability elements to probability will in the drive helps win that calls, backlog. opportunity resources prioritize bookings earlier that probability we those those to in mentioned and our effectively in put happen the weightings I'd the the the As

One back Great. me, I'll and for last get the then in queue.

You touched abnormally margin the on was OSS in the high gross segment.

a You said focus due and mix higher on margin. to

funded However, was well. customer as low-margin high development abnormally

gross to some can segment? margin give is just based XX us for type of core So reasonable investors bookings, on months you detail on more over the And for what this? assume next your

Yes.

server quarter, storage some higher our generally product we So and carried on saw higher mix that and saw our gross of systems, stronger mix we margins margin. development in a a the product a

quarter, that we margin. a just you those as large is, amount the noted, of which fairly had gross good So orders for in

Depending customer implementation can company little a Oftentimes, the margins. position. it's less development. On incumbent that, reach the we funded as we normal on of a bit secure an

production development over time, then look that we product. build is development . So the a good programs almost into a over always at way lifetime to the as those is support customer and what of

case, the net our gross as our that efforts take our achieve the by business on a normal a as product be you at end. a overcome If deliveries that eventually whole, of And there will case business as margin. production those margins

is So the setting fund run we're early that the stage and development, growing for contracts. longer development seeing now customer the really production

as our example X support in early been continue for refresh years are development with started So to and that X the and been support to have X tech over that some production in well and program on program PA program. years, X last We've another we over years. that contracted to for

So that up the development front of our those early is the leading are kinds customer to. programs and

margin segment that to able XX up to so, OSS volume. continue should to start grow products expectation or to the and they balance the or we development as in the drive Our area in XX% the be out as months better next gross customer-funded we the is in

ROTH Scott Searle from with comes Capital question Next Partners.

questions. the up follow to maybe margin Mike, prior gross on quickly

that on wanted net development, Is to is OSS get want the correct? The calibrated range. XX% Just which of running the front. in that customer-funded more XX% get some is to clarification. Just

include the development -- Yes. to customer margin we've work done Yes. date. on The margin XX% gross the would

is and mix then on with can't like depending little contribution I'll quarter get about gross -- get And bit margin to to you're OSS. overall current a as it, the from blended in you you. saw XX%, we correct? call better talking more, contracts upscale funded Is some start that about customer Got the

. Yes.

Okay. Very good.

customer-funded a in years. thumb multiplier time maybe customer-funded about conversion front, you then X development. line follow-up of $XXX,XXX think said think the about the I there on be I to thinking rule production about development of So X you talked a Is 'XX a effect to of to

revenue a setting? to start of year? $X we convert to does into think fully it $X 'XX, it in extrapolate dollar-for-dollar Is basis? trying about As terms commercialized on should a per the what year, fraction that get get really that. rate into to that what's we mathematically Like in a how of Is run calibrated that? per Just

to the dollars Scott, you're how customer-funded contracted. extrapolate talking be that would about development

of Yes, they're kind be exactly. contribution a And understand little production, of to into thinking bit annualized that wide Once of an sure but we translates a I'm each what those. trying for what about it's one into. should basis just range,

end usually quantity additional really Yes. every through production, development rate low shorter average, years, your of and a support solution, is It year, really a by that really, generally, a on how a of the brand-new start are X.X generally full years, of then large development number initial that to look if that those development, frames more your the year cycle, of And whole could And a tech the years an about depending refresh X scope that's run and or but that X development the compared less cycles followed to is depending an to to on it's it's the the at X and tied much then . Depending -- X-year X production And long production if again product goes system platforms LRIP period be on how that wide available. usually period, time. kind X or range. X a on on could the and back sustainment you to time size, cycle rate then development. a years. after the

amounts And of So vehicles if inventory. are years. number aircraft right, the can the in case, in inventory. that those that number what solution, solution, spread what out If of a vehicle it's an are over aircraft the it's

general LRIP tech of XX% production. rolls more in a As amount platform. program And through order right, support additional to usually the development general decade a of oftentimes on whole and refresh as and thumb, is just it that, or for is XX% logistics rule then after the a of

core that's just the table you. on guys a addressable There in it's What maybe to an whether of different on you but really bringing you capabilities I what's in the are the you the of win? basis. is ML getting -- to it's maybe win. that lot bear helpful. [indiscernible] and excelling positioning the now with Very across And a are table going dive even in have sounds a applications, you big there's finish that like and AI, these pipeline. you get into to guys and what's to line know number. autonomy, terms Got annualized getting It for then [indiscernible] where of guys a

Yes. question, Scott. Great

today. lot last trucking is chassis. the more using X on in seeing or or is X given And stronger finding And at basically though today top that to is defense and market, a those or what or in can effective applications. years, and drive commercial to they're applications machine customers what's are more I out on means and autonomous artificial X out trying autonomy, defense of sensors, artificial is implementation inferences information that X or it data more the architectures fuse manner the more a and if it sensor the autonomy . What or pull sensor a intelligence in really, solution So platform. algorithms, is instead the And AI driving where inferences AI to trying level, what given in X their for a X to vehicles XX XX run even in computing to and on of algorithms, XX algorithms volume, sensors run and X that the given AI are do AI platform, at simplify a the is embedded algorithms given with derived a XX in AI and the offer same the using defense ability same of what limited do that to that's in we're for the taking those platforms, say, really can't volume in learning. computing algorithms embedded and card centers we you enterprise to autonomous it, What AI volume XX that aircraft, a to to that single or the through for ability essentially running out technology demand that data class on architecture they in and to form to running of factor same and gives X to or a coming same the is is inside XX point massive more that potential we're an even inside capability want technology put seen applications. price growth we've current intelligence, we're

generally PCI technologies, And ability Express our our some solution tie a backplane and or X,XXXx perform those through able to how than to less chassis then a other compute together faster is we inside of or solutions. and and that that we're use current second close that the latency fabrics to

the the been interest early And the increased that's positioning what's why and in solutions. and see to table competing customers. against architectures has and performance driving at old over we're to we're revenue. to starting and new the our And capability returns autonomy and what on prices bringing similar the generally, company So bookings ability what's applications to been the is give advantage AI generally significant versus us

into the the but you're north and range the lastly, thinking like of Great. last outcomes early in or headwinds, it this about translate outlook going factors to about you're downside? over macroeconomic XX the it's could, then XXXX had the that in if your Europe, some year X.X% of upside OSS us X growth, like that Bressner think, shifting taking XX sounds and And and I quarters. seems pipeline I talking help Very of book-to-bill to XXXX, but just general What now the in has what softness swing helpful. frame does you to the for kind that could

of No, quarters XXXX. Scott. that. yes, into ratio And We Yes, X.XX. segment, the carry appreciate that anticipate on with kind OSS X last I around book-to-bill a the of will running

contemplating the some to OSS may starting side, So Europe in we're slowly initial Germany. some slowly, indicators on order that of and see that We're growth be economic revenue turnaround XX%. on

turnaround predicting to it as we on are will that So because the capture emerges Bressner chains take some catch hope the have economists it. supply to while to up a or will segment, if

And the supply chains X- in are XX-week in range. the to the

have Bressner it into QX, start optimistic likely some that back Bressner QX maybe but we've be see will think So on we the the single scale, views we upper to I digits. would more got that, before in could that segment on growth

these to then year. end generally New early bit see but U.S. quarter We'll the slow and book-to-bill see the would So maybe into a lower XXXX, the seasonally as the QX performance Chinese holidays we've back as probably Year others, Bressner, QX at we QX And some see that we're is we of roll little seasonality bit really looking for to where I that's some start little period. in a here of the think got and ratios QX, impact turn. the defense markets and out the of

Next comes from with question Martinuzzi Lake Eric Street.

could follow I as the correct? up expectation anticipate QX. -- on potentially to wanted to we Bressner put Bressner to in the that is point growth on soon as that question, segment here ask finer Is a just just so

start that the as some and stuff delivery around We're could QX potentially factors, to early time to looking a into XXXX, these of European can at that then earliest, convert in we the as can supply QX. of frame they Bressner if rebound economy then see for at hold to likely continue chain, see Yes. as some in the

kind here, -- we you've All QX outlook of adjusted And that breakeven the investments that the that might given out step-up on for on adjustment, right. in QX? that anticipates it assume adjusted are of step-up just wind a that we fair in net Or were have in inventory the a Is guide revenue Okay. EBITDA we expenses essentially you're QX. to that? got then the QX, an were in the of there in take EBITDA for planning

Yes. think impact that. would Eric. additional investments in a on in time QX have negative . that no No, planned I

Okay. All comment. right. And as his working enjoyed Daniel well, to to and with John, a in role. his then retirement not I you, actually, my wanted my just last new John to -- on best even question best wish wishes it's

Thanks much that. . for

think can I a questions the to Operator, we there, call the the Okay. with of close. end bring

conference today's Ladies and this call. participation. concludes you gentlemen, Thank for your

now You may disconnect.