One Stop Systems, Inc. (Nasdaq: OSS), a leader in AI Transportable
solutions on the edge, reported results for the first quarter ended
March 31, 2023. All quarterly comparisons are to the same year-ago
period, unless otherwise noted. The company will hold a conference
call at 5:00 p.m. Eastern time today to discuss the results (see
dial-in information below).
Q1 2023 Financial Highlights
- Revenue totaled $16.8 million.
- Gross profit flat at $5.1
million.
- Gross margin increased 10 basis
points and sequentially by 290 basis points to 30.2%, attributable
to a greater mix of AI transportable products.
- Net loss on a GAAP basis was
$401,000 or $(0.02) per share, as compared to net income of
$579,000 or $0.03 per share.
- Adjusted EBITDA, a non-GAAP term,
totaled $529,000, as compared to $1.4 million (see definition of
this and other non-GAAP measures and their reconciliation to GAAP,
below).
- Cash, cash equivalents and
short-term investments totaled $12.7 million on March 31,
2023.
Q1 2023 Operational Highlights
- Seven new major program wins,
including three wins in AI Transportables. The company expects
these seven wins to yield approximately $5 million in revenues this
year.
- Received a $3 million dollar order
from a prime military contractor to upgrade a radar simulation
system operated by the U.S. Department of Defense Missile Defense
Agency.
- Won a $1.3 million contract from the
U.S. Army for the design, development and prototypes for a vehicle
mounted 360-degree situational awareness system using OSS PCIe Gen
4 switched fabric technology and NVIDIA® Jetson AGX Orin™
system-on-modules.
- Low margin media revenue decreased
$3 million, replaced by AI Transportable revenue.
- Announced pending changes to
leadership and implemented internal organizational changes to
better align the company with its AI Transportable strategy and
growing military business.
Management Commentary
“In the first quarter, our consolidated revenue totaled $16.8
million, slightly above our guidance of $16.6 million,” commented
OSS president and CEO, David Raun. “Excluding our legacy
lower-margin media business, revenue increased 21.8% for the
quarter compared to the same period last year.
“OSS classic revenue, excluding the lower-margin media business,
increased 17.3% for the quarter compared to the same period a year
ago. OSS Europe also had strong revenue growth, increasing 26.0%,
which includes $1.2 million in OSS core product sales as we engage
with more industrial and military AI Transportable European
customers. In contrast, we sold approximately $180,000 of OSS core
products in Europe in the first quarter of 2022. “Our overall gross
margin was 30.2% in first quarter, up from 27.3% last quarter and a
slight increase from the same period a year ago, driven by
increased sales of OSS core products in the U.S. and Europe, as
well as a planned reduction of low-margin sales to our legacy media
customer.
“In February we announced the execution of a $1.3 million
contract directly with the U.S. Army for the design, development,
and prototypes for a rugged 360-degree visualization compute system
for land vehicles, including the Stryker, Bradley, and Abrams. We
expect to start realizing revenue from this contract in Q2. This
program represents a significant revenue opportunity, while also
potentially opening other applications within the Army. “We are
also engaged with several Air Force opportunities, both directly
and through top ten prime contractors. Early proof points include
the $3.5 million U.S. Air Force program win we announced yesterday.
We also recently learned that one of our prime contractor partners
won a program that includes our flagship compact supercomputer,
Rigel Edge Supercomputer™. We expect to announce more about this
opportunity and ship product later this year. In both cases, these
were new prime contractors for OSS that further diversified our
customer base.
“In addition to other defense-related opportunities throughout
the DOD in the U.S. and for Europe military applications, we have
continued to advance in multiple industrial markets, including
autonomous trucks and agriculture. Our pipeline of prospective
major programs at the end of Q1 totaled 34, with 18 involving AI
transportable applications in the U.S., Asia Pacific, and
Europe.
“Looking ahead, we are anticipating growth across several
industrial verticals, including autonomous trucks, cellular carrier
trucks, and agricultural equipment. We also expect growth from
multiple segments within the military as we establish additional
application proof-points. The Army, Navy, Marine Corps, and Air
Force are all deploying autonomous and AI capabilities, which is
creating new opportunities and stronger tailwinds for OSS.
“As with many companies, we identify opportunities and maintain
a pipeline database. In our case, we include wins, pending wins,
opportunities, and targets, many of which we project will generate
revenue. The current total identifiable value of these
opportunities for 2024 through 2026 is approximately $850 million
and growing.
"After we apply weighted and judged probabilities to these
opportunities, the outcome supports solid growth projections for
2024 and beyond, with estimated growth rates in the range of 20% to
30%. These opportunities represent a combination of industrial and
military applications, with the percentage of military applications
growing each year.“As communicated on our last call, 2023 is a
transitional year for OSS on many fronts, ranging from reducing low
margin business, increasing high margin AI Transportable business,
bringing down inventory levels, delivering more military
proof-points and the addition of new talent.
“We are projecting growth from our industrial portion of the
business, including autonomous trucks, cellular carrier trucks,
agricultural equipment, as well as multiple segments within the
military. Our 2023 objective remains the same: to offset the
reduction of our lower-margin media business with AI Transportable
growth and move back into an overall growth mode in
2024.”Outlook
For the second quarter of 2023, OSS expects revenue of
approximately $17.5 million.
Q1 2023 Financial Summary
Consolidated revenue in Q1 declined $271,000 to $16.8 million.
This includes an expected $3 million reduction in revenue from the
company’s low margin media customer, which was mostly offset by
21.8% growth in sales to other customers.
The company defines OSS Classic as all shipments from U.S.
operations delivered throughout the world. Similarly, OSS Europe is
defined as all shipments originating from Europe operations. OSS
Core Products are designed in the U.S. and sold through both
operations and tend to yield higher margins.
OSS Classic revenue decreased 18.4% to $8.6 million for the
quarter, representing 51% of total revenue. Excluding the
lower-margin media customer revenue, OSS Classic revenue increased
17.2%. Revenue from OSS Europe increased 26% to $8.2 million,
including an incremental $1 million of higher-margin OSS core
products. OSS Europe represented 49% of total quarterly
revenue.
Overall gross profit in the first quarter was $5.1 million.
Gross margins increased 10 basis points and sequentially by 290
basis points to 30.2%, which was due to a greater mix of AI
transportable products.
The gross margin for the company’s OSS Classic business
increased 60 basis points to 36.3%, which was also attributable to
the greater mix of AI transportable products. OSS Europe’s gross
margin percentage improved 280 basis points to 23.8% as compared to
21.0%, due to more OSS core products sold in European markets.
Overall quarterly operating expenses increased 17.3% to $5.3
million, with operating expenses as a percentage of revenue
increasing to 31.4% compared to 26.3%. The increase was primarily
due to increases of $510,000 in general and administrative
expenses, with $249,000 attributable to CEO transition costs.
Marketing and selling expenses increased $315,000, with
approximately $100,000 attributable to severance costs associated
with the recent realignment of sales resources designed to support
the company’s AI Transportable strategy. The increase in operating
expenses was partially offset by a decrease of $49,000 in R&D
expense.
Loss from operations was $196,000 compared to income from
operations of $650,000 in the same period in 2022. This difference
was predominantly attributable to higher operating expenses.
Net loss on a GAAP basis was $401,000 or $(0.02) per share, as
compared to net income of $579,000 or $0.03 per share.
On a non-GAAP basis, the net income was $90,000 or $0.00 per
share, down from non-GAAP net income of $978,000 or $0.05 per
share.
Adjusted EBITDA, a non-GAAP metric, was $530,000 or 3.2% of
quarterly revenue, a decrease from $1.4 million.
As of March 31, 2023, cash and cash equivalents totaled $3.5
million with short-term investments of $9.2 million for a combined
total of $12.7 million. This represents a decrease of $547,000
compared to cash, cash equivalents and short-term investments as of
December 31, 2022.
Conference Call
OSS management will hold a conference call to discuss its
results for the first quarter ended March 31, 2023, later today,
followed by a question-and-answer period.
Date: Thursday, May 11, 2023Time: 5:00 p.m. Eastern time (2:00
p.m. Pacific time)Toll-free dial-in number:
1-888-886-7786International dial-in number:
1-416-764-8658Conference ID: 88940744Webcast: here (live and
replay)
The webcast will include a slide presentation viewable via the
webcast link above.
Approximately two hours after the Q&A session, an archived
version of the webcast will be available in the Investors section
of the company’s website at onestopsystems.com. OSS regularly uses
its website to disclose material and non-material information to
investors, customers, employees and others interested in the
company.
Please call the conference telephone number five minutes prior
to the start time. An operator will register your name and
organization. If you have any difficulty connecting with the
conference call, please contact CMA at 1-949-432-7566.
A replay of the call will be available after 8:00 p.m. Eastern
time on the same day and through May 25, 2023.
Toll-free replay number: 1-844-512-2921International replay
number: 1-412-317-6671Replay ID: 88940744Annual General
Meeting
The company has set May 17, 2023 as the date of its Annual
General Meeting of Shareholders to be held at 11:00 a.m. Pacific
time (2:00 p.m. ET). Shareholders may attend the Annual Meeting
virtually via the Internet at www.proxydocs.com/OSS, where you will
be able to vote electronically and submit questions. Holders of
record of the company’s stock as of March 24, 2023 will be entitled
to vote.
About One Stop SystemsOne Stop Systems, Inc.
(Nasdaq: OSS) is a global leader in AI Transportable solutions for
the demanding ‘edge.’ It designs and manufactures the highest
performance compute and storage products that enable rugged AI and
autonomous capabilities without compromise. These hardware and
software platforms bring the latest data center performance to the
harsh and challenging applications, whether they are on land, sea
or in the air.OSS products include ruggedized servers, compute
accelerators, flash storage arrays, and storage acceleration
software. These specialized compact products are used across
multiple industries and applications, including autonomous trucking
and farming, as well as aircraft, drones, ships and vehicles within
the defense industry.OSS solutions address the entire AI workflow,
from high-speed data acquisition to deep learning, training and
large-scale inference, and have delivered many industry firsts for
industrial OEM and government customers.
As the fastest growing segment of the multi-billion-dollar edge
computing market, AI Transportables require—and OSS delivers—the
highest level of performance in the most challenging environments
without compromise.
OSS products are available directly or through global
distributors. For more information, go to www.onestopsystems.com.
You can also follow OSS on Twitter, YouTube, and LinkedIn.
Non-GAAP Financial Measures
The company believes that the use of adjusted earnings before
interest, taxes, depreciation and amortization, or adjusted EBITDA,
is helpful for an investor to assess the performance of the
company. The company defines adjusted EBITDA as income (loss)
before interest, taxes, depreciation, amortization, acquisition
expenses, impairment of long-lived assets, financing costs, fair
value adjustments from purchase accounting, stock-based
compensation expense and expenses related to discontinued
operations.
Adjusted EBITDA is not a measurement of financial performance
under generally accepted accounting principles in the United
States, or GAAP. Because of varying available valuation
methodologies, subjective assumptions and the variety of equity
instruments that can impact a company’s non-cash operating
expenses, the company believes that providing a non-GAAP financial
measure that excludes non-cash and non-recurring expenses allows
for meaningful comparisons between its core business operating
results and those of other companies, as well as providing the
company with an important tool for financial and operational
decision making and for evaluating its own core business operating
results over different periods of time.
The company’s adjusted EBITDA measure may not provide
information that is directly comparable to that provided by other
companies in its industry, as other companies in the company’s
industry may calculate non-GAAP financial results differently,
particularly related to non-recurring, unusual items. The company’s
adjusted EBITDA is not a measurement of financial performance under
GAAP and should not be considered as an alternative to operating
income or as an indication of operating performance or any other
measure of performance derived in accordance with GAAP. The company
does not consider adjusted EBITDA to be a substitute for, or
superior to, the information provided by GAAP financial
results.
|
For the Three Months EndedMarch
31, |
|
|
2023 |
|
|
2022 |
|
Net (loss) income |
$ |
(400,512 |
) |
|
$ |
579,234 |
|
Depreciation and amortization |
|
272,273 |
|
|
|
269,791 |
|
Stock-based compensation expense |
|
474,209 |
|
|
|
382,828 |
|
Interest expense |
|
32,705 |
|
|
|
58,715 |
|
Interest income |
|
(110,266 |
) |
|
|
(51,005 |
) |
Provision for income taxes |
|
261,502 |
|
|
|
165,308 |
|
Adjusted EBITDA |
$ |
529,911 |
|
|
$ |
1,404,871 |
|
|
|
|
|
|
|
Adjusted EPS excludes the impact of certain items, and
therefore, has not been calculated in accordance with GAAP. The
company believes that exclusion of certain selected items assists
in providing a more complete understanding of the company’s
underlying results and trends and allows for comparability with its
peer company index and industry. The company uses this measure
along with the corresponding GAAP financial measures to manage its
business and to evaluate its performance compared to prior periods
and the marketplace. The company defines non-GAAP income (loss) as
income or (loss) before amortization, stock-based compensation,
expenses related to discontinued operations, impairment of
long-lived assets and non-recurring acquisition costs. Adjusted EPS
expresses adjusted income (loss) on a per share basis using
weighted average diluted shares outstanding.
Adjusted EPS is a non-GAAP financial measure and should not be
considered in isolation or as a substitute for financial
information provided in accordance with GAAP. These non-GAAP
financial measures may not be computed in the same manner as
similarly titled measures used by other companies. The company
expects to continue to incur expenses similar to the adjusted
income from continuing operations and adjusted EPS financial
adjustments described above, and investors should not infer from
its presentation of these non-GAAP financial measures that these
costs are unusual, infrequent or non-recurring.
The following table reconciles non-GAAP net income and basic and
diluted earnings per share:
|
|
For the Three Months EndedMarch
31, |
|
|
|
2023 |
|
|
2022 |
|
Net (loss) income |
|
$ |
(400,512 |
) |
|
$ |
579,234 |
|
Amortization of intangibles |
|
|
15,808 |
|
|
|
15,809 |
|
Stock-based compensation expense |
|
|
474,209 |
|
|
|
382,828 |
|
Non-GAAP net income |
|
$ |
89,505 |
|
|
$ |
977,871 |
|
Non-GAAP net income per
share: |
|
|
|
|
|
|
Basic |
|
$ |
0.00 |
|
|
$ |
0.05 |
|
Diluted |
|
$ |
0.00 |
|
|
$ |
0.05 |
|
Weighted average common shares
outstanding: |
|
|
|
|
|
|
Basic |
|
|
20,251,509 |
|
|
|
18,886,939 |
|
Diluted |
|
|
20,380,383 |
|
|
|
19,764,069 |
|
|
|
|
|
|
|
|
Forward-Looking StatementsOne Stop Systems
cautions you that statements in this press release that are not a
description of historical facts are forward-looking statements.
These statements are based on the company's current beliefs and
expectations. The inclusion of forward-looking statements should
not be regarded as a representation by One Stop Systems or its
partners that any of our plans or expectations will be achieved,
including but not limited to, to our management’s expectations for
major program wins, revenue growth generated by new and existing
products, future changes to our business objectives, and other
future financial projections. Actual results may differ from those
set forth in this press release due to the risk and uncertainties
inherent in our business, including risks described in our prior
press releases and in our filings with the Securities and Exchange
Commission (SEC), including under the heading "Risk Factors" in our
latest Annual Report on Form 10-K and any subsequent filings with
the SEC. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof,
and the company undertakes no obligation to revise or update this
press release to reflect events or circumstances after the date
hereof. All forward-looking statements are qualified in their
entirety by this cautionary statement, which is made under the safe
harbor provisions of the Private Securities Litigation Reform Act
of 1995.Media Contacts: Katie RiveraOne Stop
Systems, Inc. Tel (760) 745-9883Email contact
Tim RandallCMA Media RelationsTel (949) 432-7572Email
Contact
Investor Relations:Ronald Both or Grant
StudeCMA Investor RelationsTel (949) 432-7557 Email contact
ONE STOP SYSTEMS, INC. (OSS)
CONSOLIDATED BALANCE SHEETS
|
|
Unaudited |
|
|
Audited |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2023 |
|
|
2022 |
|
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,470,061 |
|
|
$ |
3,112,196 |
|
Short-term investments |
|
|
9,218,870 |
|
|
|
10,123,535 |
|
Accounts receivable, net |
|
|
10,107,413 |
|
|
|
11,327,244 |
|
Inventories, net |
|
|
23,642,494 |
|
|
|
20,775,366 |
|
Prepaid expenses and other current assets |
|
|
1,444,681 |
|
|
|
502,156 |
|
Total current assets |
|
|
47,883,519 |
|
|
|
45,840,497 |
|
Property and equipment, net |
|
|
2,445,005 |
|
|
|
2,570,124 |
|
Operating lease right-of use
assets |
|
|
615,639 |
|
|
|
731,043 |
|
Deposits and other |
|
|
60,243 |
|
|
|
60,243 |
|
Goodwill |
|
|
7,120,510 |
|
|
|
7,120,510 |
|
Intangible assets, net |
|
|
26,346 |
|
|
|
42,154 |
|
Total Assets |
|
$ |
58,151,262 |
|
|
$ |
56,364,571 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable |
|
$ |
5,726,202 |
|
|
$ |
4,592,713 |
|
Accrued expenses and other liabilities |
|
|
3,861,398 |
|
|
|
3,013,869 |
|
Current portion of operating lease obligation |
|
|
541,177 |
|
|
|
536,588 |
|
Current portion of notes payable |
|
|
2,996,157 |
|
|
|
2,952,447 |
|
Total current liabilities |
|
|
13,124,934 |
|
|
|
11,095,617 |
|
Long-term debt, net of current
portion |
|
|
207,452 |
|
|
|
409,294 |
|
Deferred tax liability,
net |
|
|
137,215 |
|
|
|
138,662 |
|
Operating lease obligation,
net of current portion |
|
|
257,714 |
|
|
|
397,249 |
|
Total liabilities |
|
|
13,727,315 |
|
|
|
12,040,822 |
|
Commitments and
contingencies |
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
Common stock, $0.0001 par value; 50,000,000 shares authorized;
20,359,119 and 20,084,528 shares issued and outstanding,
respectively |
|
|
2,035 |
|
|
|
2,008 |
|
Additional paid-in capital |
|
|
45,661,455 |
|
|
|
45,513,807 |
|
Accumulated other comprehensive income |
|
|
863,520 |
|
|
|
510,485 |
|
Accumulated deficit |
|
|
(2,103,063 |
) |
|
|
(1,702,551 |
) |
Total stockholders’ equity |
|
|
44,423,947 |
|
|
|
44,323,749 |
|
Total Liabilities and Stockholders' Equity |
|
$ |
58,151,262 |
|
|
$ |
56,364,571 |
|
|
|
|
|
|
|
|
ONE STOP SYSTEMS, INC. (OSS)
UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
For the Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Revenue |
|
$ |
16,781,894 |
|
|
$ |
17,052,677 |
|
Cost of revenue |
|
|
11,711,132 |
|
|
|
11,912,022 |
|
Gross profit |
|
|
5,070,762 |
|
|
|
5,140,655 |
|
Operating expenses: |
|
|
|
|
|
|
General and administrative |
|
|
2,285,101 |
|
|
|
1,774,689 |
|
Marketing and selling |
|
|
1,786,681 |
|
|
|
1,471,720 |
|
Research and development |
|
|
1,195,328 |
|
|
|
1,244,115 |
|
Total operating expenses |
|
|
5,267,110 |
|
|
|
4,490,524 |
|
(Loss) income from operations |
|
|
(196,348 |
) |
|
|
650,131 |
|
Other income (expense),
net: |
|
|
|
|
|
|
Interest income |
|
|
110,266 |
|
|
|
51,005 |
|
Interest expense |
|
|
(32,705 |
) |
|
|
(58,715 |
) |
Other (expense) income, net |
|
|
(20,223 |
) |
|
|
102,121 |
|
Total other income, net |
|
|
57,338 |
|
|
|
94,411 |
|
(Loss) income before income
taxes |
|
|
(139,010 |
) |
|
|
744,542 |
|
Provision for income
taxes |
|
|
261,502 |
|
|
|
165,308 |
|
Net (loss) income |
|
$ |
(400,512 |
) |
|
$ |
579,234 |
|
|
|
|
|
|
|
|
Net (loss) income per share: |
|
|
|
|
|
|
Basic |
|
$ |
(0.02 |
) |
|
$ |
0.03 |
|
Diluted |
|
$ |
(0.02 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding: |
|
|
|
|
|
|
Basic |
|
|
20,251,509 |
|
|
|
18,886,939 |
|
Diluted |
|
|
20,251,509 |
|
|
|
19,764,069 |
|
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