OSS Reports Growth Amid Challenges, Eyes Defense Sector

One Stop Systems Reports Mixed Financial Results for Q2 2024

One Stop Systems, Inc., a technology company focusing on AI and edge computing, has revealed its financial performance for the second quarter of 2024, which shows mixed results. The company experienced a sequential revenue increase of 4.3% and reported an 8.3% year-over-year growth in its OSS segment. Despite the economic challenges, One Stop Systems is optimistic about its prospects, particularly in defense and commercial markets, with a promising pipeline exceeding $1 billion. However, the company also indicated a significant year-over-year decline in consolidated revenue of 23.3% and a GAAP net loss of $2.3 million.

Key Takeaways

• OSS segment revenue grew by 8.3% year-over-year, contributing to a 4.3% increase in overall revenue sequentially.
• The company’s robust pipeline, valued at over $1 billion, is primarily driven by platform opportunities.
• OSS is focused on expanding customer-funded development programs.
• New product announcements are anticipated for late 2024 and early 2025.
• Expected consolidated revenue for Q3 2024 is projected to be around $13.3 million.
• Declines in revenue were largely attributed to the loss of a major media customer and reduced Bressner revenue.
• The company reported both a GAAP net loss of $2.3 million and a non-GAAP net loss of $1.8 million.

Company Outlook

• OSS expects sequential growth in customer-funded development revenue throughout 2024.
• A new multiyear strategic plan is being developed to strengthen the company’s market position.
• Confidence remains high in OSS’s enterprise-class compute solutions and team for long-term value creation.

Bearish Highlights

• The substantial year-over-year decline in consolidated revenue was largely due to reduced revenue from a major media customer and lower Bressner sales.
• The company faced a decrease in consolidated gross margin due to underutilized production capacity and higher inventory reserves.

Bullish Highlights

• The company is concentrating efforts on high-opportunity markets such as AI, machine learning, and edge computing.
• Strategic investments are being made in program management personnel, expected to enhance project execution.
• OSS maintains a strong balance sheet with no outstanding borrowings on its credit line and generated $1.2 million in cash from operating activities in the first half of 2024.

Misses

• The company did not achieve revenue expectations owing to the decline in business with a significant media customer and Bressner.
• Adjusted EBITDA registered a loss of $1.3 million, a decline from a positive $520,000 in the previous year.

Q&A Highlights

• Mike Knowles, President and CEO, indicated that OSS segment’s bookings are exceeding revenue by over 20%, with a book-to-bill ratio around 1.26 over the past six months.
• The company is strategically positioned to benefit from the anticipated year-end government budget spending.

One Stop Systems remains committed to capitalizing on growth opportunities within high-potential sectors such as defense and commercial markets. While it faces some challenges, the company’s strategic initiatives and substantial pipeline suggest potential for overcoming obstacles and tapping into new opportunities.

Summary Financial Data

• Market Cap: $42.07 million
• P/E Ratio (Adjusted): -7.49
• Year-over-Year Revenue Growth: -25.76%

The negative P/E ratio reflects the current loss situation and investor sentiment, compounded by the significant drop in revenue over the past year largely due to the loss of a key media client. Nonetheless, the company’s position on the balance sheet, coupled with its focus on defense and emerging technologies, provides a foundation for future growth and value creation.