One Stop Systems: Fiscal 2Q23 Financial Results

One Stop Systems, Inc. reported results for the second quarter ended June 30, 2023.

2FQ23 Financial Highlights

• Revenue totaled $17.2 million, up 2.3% sequentially.
• OSS Europe revenue increased 17.7% to $8.9 million compared to 2FQ22, with OSS Classic revenue declining 22.8% to $8.3 million primarily due to the anticipated winding down of the company’s legacy media and entertainment business as it transitions to higher margin AI Transportables, loss of revenue due to exit of an autonomous trucking customer and delay in the receipt of military orders.
• Gross margin was 27.9%, compared to 28.4% in the same year-ago quarter.
• Net loss on a GAAP basis totaled $2.4 million or $(0.12) per share, as compared to net income of $323,000, or $0.02 per share, in 2FQ22. The loss included a goodwill impairment charge of $2.7 million and $1.3 million received from the federal employee retention credit program.
• Non-GAAP net loss was $84,000 or $(0.00) per share, versus non-GAAP net income of $871,000 or $0.04 per share in 2FQ22.
• Adjusted EBITDA, a non-GAAP term, totaled $487,000, compared to $1.2 million in 2FQ22.
• Cash, cash equivalents and short-term investments totaled $15.4 million on June 30, 2023, as compared to $12.7 million on March 31, 2023.

1FH23 Financial Highlights

• Revenue totaled $34.0 million, with OSS Europe revenue up 21.5% to $17.1 million, partially offsetting a decrease in OSS Classic revenue of 20.6% to $16.9 million.
• Gross margin was 29.0% compared to 29.2% in 1FH22.
• Net loss on a GAAP basis totaled $2.8 million or $(0.14) per diluted share, compared to net income of $0.9 million or $0.04 per diluted share in 1FH22.
• Non-GAAP net income totaled $6,000 or $0.00 per diluted share, as compared to $1.8 million or $0.09 per diluted share in 1FH22.
• Adjusted non-GAAP EBITDA totaled $1.0 million, as compared to $2.6 million in 1FH22.

“In 2FQ23, revenue climbed 2.3% sequentially to $17.2 million, but was lower than expected and declined from the year-ago quarter due to a convergence of a number of factors,” stated president and CEO, Michael Knowles. “We estimate about $3.3 million of the decline was due to the final wind down of our legacy media business that has yet to be replaced with AI Transportable revenues.

“We have also seen changes in the autonomous trucking industry, where there have been consolidation and departures of players from the market and an overall delay in deployment of autonomous truck solutions. Further, we experienced unexpected delays in orders from our defense and other commercial customers that totaled around $5-6 million that we now expect to be pushed into 2024.

“Despite these headwinds, our customer win rate remained at historical levels due to our competitive advantages in AI Transportables, with this boding well for future revenue growth. Our pipeline of pending major programs at the end of 1FQ23 also remained robust and increasingly global in scope, with 19 out the 33 of these involving AI transportable applications in the U.S., AsiaPac, and Europe.

“Our opportunities with AI and sensor fusion for military defense applications increasingly require workforce security clearances and a specially secured facility. We expect to receive such security clearance by the end of the year and see this not only opening up valuable new opportunities but also providing a competitive edge.

“As we continue to transition the business toward these higher value opportunities, we have implemented a number of organizational changes designed to revitalize our efforts and better address the substantial market opportunities in defense and AI Transportables. This includes my appointment as the company’s new president and CEO in June and the recent appointment of Robert Kalebaugh to the new position of VP of sales.

“Robert has brought to OSS more than 30 years of business development, domain experience, and an impressive record of sales success in the defense and commercial markets. Having previously worked alongside Robert for several years, I am confident we will be able to leverage the collective strengths of our team to enhance our sales and marketing efforts and accelerate our growth strategy. Robert has already been fast at work, updating our methods and processes for greater efficiency and effectiveness, and building our sales pipeline.

“Today we also announced key board changes to better align with our strategy. We are deeply appreciative of the contributions of our departing board members who have helped guide the company through the challenging times of the global pandemic and their support of our greater focus on defense opportunities. This was reflected in our appointment of Vice Admiral Dumont as a new independent director, effective as of the end of the third quarter, who brings many key strengths to our board.

“Over the last several weeks, I have had the opportunity to engage with our customers and prospective customers in the defense and commercial markets. I believe I have been able to strengthen their confidence in OSS and reaffirm our strategy and opportunity in the AI Transportable space.

“We are also fortunate to possess an exceptionally talented and motivated operational team with strong technical and product expertise. They have created an innovation-driven environment that continues to deliver market-leading products that meet the demanding requirements for rugged datacenter-class processing at the edge-or as we say, deliver performance without compromise.

“Overall, we believe we have the right team, strategy and products that will continue to build a robust pipeline and enable us to succeed in the growing global marketplace for AI Transportables.”

Outlook
The company anticipates factors related to delays in defense and commercial program orders will continue to impact its financial performance through 2FH23. As such, revenue is expected to total approximately $13.5 million in 3FQ23.