One Stop Systems Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 7 speakers on the call.

Operator

And thank you for joining us today to discuss One Stop Systems Financial Results for the Q3 Ended September 30, 2023. With us today are the company's President and Chief Executive Officer, Mike Knowles and its Chief Financial Officer, John Morrison. Following their remarks, we will open the call to your questions. Before we conclude this call, I will provide some important information regarding the forward looking statements made by management during this call. I would like to remind everyone that the call will be recorded and made available for replay in the Investors section of the company's website.

Operator

Now, I would like to turn the call over to OSS President and CEO, Mike Knowles. Sir, Please go ahead.

Speaker 1

Thank you, Morgan, and good afternoon, everyone. I've successfully completed my 1st full quarter as CEO, and I'm pleased with the Building momentum and confidence in the rugged edge processing market. We're well positioned for future growth at OFS. My engagement with customers and participation in global trade shows over this past quarter reaffirmed our unique position in the robust growth markets driven by artificial intelligence and sensor particularly in rugged high performance compute demand at the edge. In many instances, OSS is recognized as an expert in these markets.

Speaker 1

And in fact, in October, I participated on a panel at the aerospace event in Washington DC regarding the technical demand for high performance compute for artificial intelligence applications in commercial and defense markets. In Q3, we secured several significant wins across commercial and defense markets. These successes align with our strategy to broaden the number of prime and customer contracts, increase our presence on more platforms and pursue multi year contracts that can boost our pipeline and future revenue. These key wins include a liquid cooled service solution for a foreign Navy Submarine class, a follow on win and hardware buy for an additional storage system product for the P-eight, A new contract with an existing defense prime contractor for a new classified platform, a commercial order and win in the dynamic racing industry encompassing our product at this new OSS customer. The award from the Foreign Navy Summary Program is special noteworthy and how it exemplifies our key objectives.

Speaker 1

We successfully established a new military customer, a new defense prime and a new international customer while securing a position on a new platform. We believe this will lead to a multi year product and support contract commencing as early as 2024. This sale was cultivated, captured and enclosed by our Bresner sales team with support from our OSS team validating Bresner as a channel to market for OSS product. In addition to the key words noted, our teams are actively engaged in multiple proposal and program pursuits. We're currently responding to an exclusive opportunity to design, Develop, produce and support a rugged edge compute solution for the commercial aerospace market.

Speaker 1

This effort would add a new product through an existing customer and establish a multiyear contract. OSS is engaged in 2 potential exclusive opportunities in the commercial data center market with our latest PCI Express Gen 5 4UP and internally developed UBM software. These efforts would broaden our customer base and provide for a multiyear hardware and software demand opportunity. The team is working to close a large competitive opportunity for design, development, production and support for a rugged compute and storage system in autonomous trucking market That would expand our platform, position in the market and lead to another multiyear demand opportunity. We're responding to a competitive opportunity for a rugged edge solution for a military classified program.

Speaker 1

This capture involves a new prime, a new platform and provides a multiyear production and support opportunity. Also on the defense side, we are well engaged with the potential sole source opportunity for rugged edge processing and storage for our multi vehicle platform support activity. This opportunity would be of the new organization within a branch of the U. S. Armed Forces.

Speaker 1

These represent a sample of the increased activity and pursuits our teams are diligently working. For competitive reasons, I haven't provided specific technical information or contract value. Looking ahead, we remain committed to expanding our efforts to secure New prime contractor, vehicle platforms and multiyear contracts both domestically and internationally. Our broad market activity is already increasing the number Customer engagements and requests for information and proposals bolstering our confidence in our strategy and our ability to grow a robust multiyear pipeline. Financially, our results in Q3 reflect the continued transition we embarked upon last year to focus more on rugged edge and defense market opportunities.

Speaker 1

We successfully shifted away from our former low margin media customer and we're concentrating resources on growth opportunities in edge computing driven by sensor processing, sensor fusion, artificial intelligence and machine learning. Despite the expected challenges, We achieved $13,700,000 in revenue in Q3, while effectively executing our cost containment plan. There's more to discuss, but before I go further, I'd like to turn the call over Our CFO, John Morrison, to provide the financial details for the quarter. John?

Speaker 2

Good afternoon, everyone. Thank you for joining us today. Earlier today, we issued a press release with our results for the Q3 ended September 30, 2023. A copy of the release is available in the Investor Relations section of our website at onestopsystems.com. For the Q3, we reported consolidated revenue of $13,700,000 Of this, OSS contributed $5,500,000 Embraer's contributed $8,200,000 inclusive of $377,000 of OSS product.

Speaker 2

Quarterly revenue reflects a reduction of $5,100,000 or 26.9 percent compared to the same period in 2022. Approximately $4,300,000 of such reduction was attributable to the loss of our former media customer For who we do not expect for the revenue? The balance of the revenue reduction was associated with delays in certain customer orders For defense applications, lack of revenue from a bankrupt autonomous truck customer as well as a slowdown in general mileage As most of you are aware, our segment results are comprised of 2 segments: OSS, which is located in Munich, Germany. OSS is involved in the design and manufacture of high performance ruggedized edge processing and storage systems and connectivity. Grainger operates as a system integrator with standard and custom all in one Hardware systems and components, they also serve as a channel for OSS products to the European and Middle Eastern markets.

Speaker 2

Gross profit in the 3rd quarter decreased to $3,700,000 with overall gross margin percentage decreasing 40 basis points to 26.6 percent due to a higher mix of revenue. The gross margin for OSS Business improved 1.7 percentage points to 32.4 which was attributable to the absence of lower margin sales to the customer's former media customer and a higher mix of its rugged However, the improvements in margin were offset by underutilization and absorption of production fixed costs due to excess capacity resulting from lower revenue. Graduation's gross margin percentage improved 40 basis points to 22.6%, largely due to product mix, the sale of higher margin OSS product and having sought after products readily Available and sold at a premium. The company reduced operating expenses by 4.3% to 40 $4,700,000 through cost containment efforts implemented in the quarter. This is exclusive of a $2,900,000 write down attributable to an impairment of goodwill resulting from the overall financial performance As compared to plan, our increased focus on the defense industry and revised timing For our forecast of certain revenue opportunities, loss from operations totaled 4,000,000 compared to income from operations of $163,000 in the same period in 2022.

Speaker 2

This reduction was predominantly attributable to lower revenue and the write down associated with the impairment of goodwill. Loss before income taxes in Q3 also included a one time benefit of 418,000 attributable to the receipt of funds under the government's employee retention credit program. Net loss on a GAAP basis was $3,600,000 or $0.18 per share as compared to net income of $133,000 or $0.01 per share in the same period in 2022. Non GAAP net loss was $5.97 or loss of $0.03 per share as compared to non GAAP net income of $691,000 or $0.03 in the same period in 2022. Adjusted EBITDA, a non GAAP metric, was negative $248,000 a decrease from positive adjusted EBITDA of $1,000,000 in the year ago quarter.

Speaker 2

Each of these non GAAP metrics exclude the $2,900,000 Impairment of goodwill and the $418,000 for the employee retention credit. Now moving to our Year to date metrics. Our highlights as compared these highlights are compared to the same period in 2022. They include consolidated net noting consolidated revenue was down 11.9% from $54,200,000 to $47,700,000 predominantly due to a decrease of $10,500,000 Gross margins were 28.3% compared to the prior year of 28.5 Operating expenses, including the charge for goodwill impairment is up $1,300,000 inclusive of approximately 1,500,000 attributable to 2023 CEO transition costs. Other income and expense includes $1,700,000 for employee retention credit resulting in net other income of Loss before taxes excluding the goodwill impairment charge and the employee retention credit benefit was 1,600,000 in contrast to income before taxes of $1,300,000 in the prior year.

Speaker 2

Non GAAP net loss was $592,000 or $0.03 per share. Adjusted EBITDA, a non GAAP metric was 768 Now I look at the balance sheet. On October 30, 2023, cash and short term investments equaled $13,200,000 This combined total represents a decrease of $2,200,000 as compared to Q2 2023. This decrease is primarily due to an increase in working capital requirements for inventory. Inventory continues to increase Due to non cancelable non returnable inventory orders placed in previous periods, which are now being delivered.

Speaker 2

We expect this inventory increase to be released in 2024. As the company continues to transition and evolve its business from being largely dependent on media derived revenue, The company will operationally focus on maximizing gross profit contribution. In the near term, This may include accepting lower margin business that incrementally contributes to gross profits, but may be inconsistent with our long term objective of increasing consolidated gross margin percentage. The objective of this effort is to have sustainable cash as the company bridges our revenue model. Now looking forward to the Q4 of 2023, We expect revenue of approximately $13,000,000 We are witnessing some impact from the Defense Budget Continuing Resolution Manifested late funding and awards on full source opportunities.

Speaker 2

We could experience further impacts We also continue to see a commercial slowness Our general malaise that has manifested delayed and or reduced awards. We have not seen signs of overall improvement I do not know when we may be able to see those. This will complete our financial review for the quarter. I would now like to turn the call back over to Mike. Mike?

Speaker 1

Thank you, John. Last quarter, we announced the departure of 2 OSS Directors as well as the appointment of Vice Admiral Mike DeMonte and myself to the Board of Directors. We also reconfirmed our commitment to continue the re profiling of the Board to align with the strategic As noted in the 8 ks and earnings release, Joe Manko, Managing Member and Senior Principal at Horton Capital Management Has been selected and appointed to serve on the Board effective November 10, 2023. Mr. Manko has been serving as a Managing Member and Senior Principal of Horton Capital Management Investment Fund since 2013.

Speaker 1

This prior asset management and investment banking experience having served an executive position at DZ Fund Management, Deutsche Bank and Merrill Lynch and also legal experience having served as Corporate Finance Attorney at Skadden, Arps, Slate, Magran and Plumb. Mr. Minko also serves as the Director on the Board of Safeguard Scientific and Koru Medical Systems and has previously served as the Director on the Board of Creative Reality And Wireless Telecom Group. The One Stop Systems Board unanimously voted to temporarily increase the size of the Board from 7 to 8 at this time And appoint Mr. Mako to fill the vacancy created by the increase.

Speaker 1

The Board intends to further temporarily increase the size of the Board to no more than 9 And add one additional Board member with relevant defense experience during the Q4 timeframe. There are candidates actively in review to fill this position. The director slate is presented for election by the company's shareholders at its 2024 Annual Shareholder Meeting in May will be a 7 person slate. This director slate will be chosen by the Board prior to filing the 2024 Annual Meeting proxy. We are adding the additional Board members at this time to take advantage of the unique skill, And fresh perspective that these individuals will bring.

Speaker 1

Aligned with our pursuit of greater defense revenues, which many times include classified programs, I'm pleased to announce that we recently received our site facility clearance. This is key to our strategy and now there's a way for us to Address additional market opportunities in the classified space. In addition to all the opportunities and engagements I shared earlier on the call, We continue to increase our market engagement exposure through participation in several industry events for both commercial and defense markets as we broadly disseminate OSS unique messaging and move to identify opportunities and expand our pipeline. In this September, we showcased our specialized high performance AI computing solutions at Defense and Security Equipment International, also known as DSCI. The trade show held in London is the world's largest land, sea and air biennial defense and security exhibition.

Speaker 1

The team and I attended the event at the Accel London Exhibition Center, where we displayed our full line of rugged edge processing products for AI sensor processing and sensor fusion application. Rigel, our flagship rugged supercomputing edge processor won best in show, while our 3 USPS server, CERNIE's and Denati products received a vast amount of interest. With the largest attendance the show has seen, we were able to engage with military prime contractors and service customers from multiple countries around the world, expanding from our primarily focused U. S. Market.

Speaker 1

In addition to solidifying relationships with current customers, we were able to expand our engagement within countries in Asia, Europe and the Middle East. We were able to leverage our Resonant team in these engagements to strengthen our channel to market for OSS products in Europe and the Middle East. Fresno continues to do a better job of promoting a higher margin OS S product. Also in September, we exhibited at ADAS, The Autonomous Vehicle Technology Expo and Conference at the Santa Clara Convention Center in California. We showcased our latest solutions in autonomous vehicle technology, including Rigel, as well as rugged edge storage and compute solutions such as EV4400 and 3 USPS.

Speaker 1

We did notice an increased level of interest in activity in the autonomous And received some additional requests for information and proposal. We remain vigilant in this market space and continue to monitor it. In October, we showcased our specialized high performance rugged edge processing solutions at the Association of the United States Army Annual Meeting, AUSA. This show is considered the largest land power exposition in North America and had in excess of 40,000 people in attendance. The event was held at the Walter E.

Speaker 1

Washington Convention Center in Arlington, Virginia. It was clear across all venues of the show that sensor fusion and artificial intelligence We're driving the future of Army weapon systems. Our display of a rugged line of high performance compute products from Rigel through Sermis and Donati Resonated in relation to the themes and demands presented at the show. As with DSCI, we were able to advance existing efforts and establish new pursuit opportunities with new prime and new divisions within the U. S.

Speaker 1

Army. For example, we were able to establish a meeting with the new prime and 2 of their business unit BPs and 3 directors. Outcome of these efforts has led to receipt of a first RFP and a multi business unit engagement at the customer site in November. In addition, we established connection with a new major defense prime with key product offerings for the U. S.

Speaker 1

Army in the armored vehicle market, building off our success on Cerny's Endnight. While the DC region, we also held an off-site meeting with an Armed Forces Service unit operating a classified mission with focus on high performance compute at the rugged edge. We're looking forward to attending the Supercomputing 23 Conference being held in Denver next week. It's the world's largest international conference for high performance computing. We will be showcasing our latest and greatest with advanced cooling solutions that are ideal for bringing data center class performance to the mobile edge.

Speaker 1

It will incur a lineup of rugged edge servers, storage accelerated and innovative flash storage rate, some of which use Disruptive technologies such as cold plate, direct to chip liquid cooling and liquid emerging cooling technologies. We expect to release more information about this in our new product Release and a press release we're planning to issue next week. Last quarter, we introduced Robert Kalebaugh as our new VP of Sales and Business Development And spoke about efforts to increase our market engagement across commercial and defense markets. We also highlighted the efforts to re image our pipeline to address probability weighting and timing and update our Application of sales force to align with sales and capture execution. Our efforts have proceeded to date as planned.

Speaker 1

We are in the final stages of testing and validating sales 1st update to enhanced operations and reporting, we also have been able to complete an initial instantiation of a 5 year pipeline. While there's still more work to do to mature our pipeline model, we are pleased to see that we have a robust and growing set of opportunities. At this point, we supported unfactored 5 Pipeline in excess of $900,000,000 Efforts continue to utilize our research to not only expand our pipeline, but to transition opportunity to achievable high probability awards with accurate time. We expect that we will continue to see longer defense timelines characteristic of this market, So we are seeing near term opportunities where we can intersect platform architecture upgrades. We believe there is continued room for expansion more broadly internationally.

Speaker 1

We also will be looking to identify and address opportunity in the classified space, leveraging our recently granted facility clearance. We're encouraged that the deep pipeline opportunities across Commercial defense market will go a long way to replace the low margin media business and support growth. Now with that, we'd like to open the call to your questions.

Operator

On your telephone keypad now. If you're calling from a speakerphone, please make sure your mute function is off to ensure your signal can reach our equipment. We'll go to Brian Kinstlinger with Alliance Global Partners. Your line is open.

Speaker 3

Hi, guys. Thanks for taking my questions. Is there any way, Mike, to quantify the pipeline, I'm not sure if I heard it, in defense today compared to either When you joined, which I think was a little bit depleted or versus a year ago, I'm just trying to gauge How well you're building pipeline since you've joined?

Speaker 1

Yes. Prior announcements had the pipeline Structure of opportunities around $800,000,000 that's about $850,000,000 So with some of the additional work in the last quarter With validation and going through each of those efforts line by line, we're comfortable now that our 5 year Un factored pipeline is in excess of $900,000,000

Speaker 3

How much of that it's such a big number and it's such It's so far away. How much of that do you think is addressable or biddable day through next year?

Speaker 1

Yes, Brian, when I say a 5 year plan, so what we do is we build out 5 years of pipeline opportunity broken out So the sum of those 5 years is the $900,000,000 So there are elements of that that are biddable in as early as 2023 growing through 2024. So that 5 years I discussed was really 24 through 28.

Speaker 3

Thanks. And then maybe you talked pipeline within defense, but what about for your AI transportables in commercial? I know you talked about maybe some slower decisions right now on the commercial side, but how do you see that opportunity there In the near term.

Speaker 1

So the pipeline that I discussed was across both our commercial and defense markets. So it's all of the AI transportable rugged edge processing capabilities and products that we're doing. I don't have the percentage mix between commercial and defense Here with me, it's probably fairly close to fifty-fifty based on last time I scanned through. And then the second part of your question again, Brian?

Speaker 3

No, that was it. It was going to be just on that. But I guess now you've been there a full quarter. As you evaluated your business, is there any investments you think are necessary To fill visible holes that you think are necessary to help you return to growth?

Speaker 1

Yes. So as I mentioned earlier with the engagement, the number of increased engagements we're going and I also mentioned seeing some more broad opportunity internationally. One of the areas we'll be looking to augment and invest will be to kind of continue to build out our sales team So we can get to capturing and executing against that the resources against that $900,000,000,000 pipeline. We need the resources to help execute and convert that from pipeline into actionable, capturable programs and elements that we can get. And then our product lines, as I mentioned, we released Rigel recently, Cerny's and Donati has just come on the scene.

Speaker 1

So 3 USPS has been strong. So from a product perspective, we're in a good place right now. We will be making investments in 2024 As we look to the next generation of our product lines, so we continue to stay at the front end of the market in terms of technology. And then as I had mentioned, I think it was last earnings call, we will be looking to augment the team. We're starting to get more discrete We'll look to augment the team with some contract support, probably part time to start.

Speaker 1

And then also we've you'll Here's talk about adding some additional program management support to support running the programs as we win them And also to support our capture of these bigger, broader multiyear contracts.

Speaker 3

Okay. Last one for me. This one is probably for John. The core OSS gross margin recovered nicely. I assume the T and L without your media customer was the major driver there.

Speaker 3

But then I also heard your comments on potentially taking on some lower priced or lower margin business to improve the cash flow even if it's just a little bit. So how should we think about where you are today Or just reported in the core OSS gross margin, should we expect it will be softer in the coming quarters given your comments or Given the mix, it's indicative or even stronger as you book new business, just help us from this new point without that immediate customer?

Speaker 2

I would at this point, we're thinking it's going we are projecting it's going to be flat, largely because we are dealing with underutilization in our production facility On revenue, we need to get back to more of it in line of doing about $9,000,000 a quarter From OFS side to be fully utilized, many of these resources are resources that are involved in the Planning, purchasing and management of inventory as well as obviously the production for people, But we have already gone through a reduction in force back in April of 2023. We believe that As we recover these resources, we'll be fully utilized, but until then, it's weighing down on the overall margin for OFS. And obviously then the proportion to the version revenue that's increasing is having a significant impact on the consolidated margin

Speaker 3

Sorry, I said I'd be done, but one more. At $9,000,000 fully utilized and just core OSS, That gets you back to approaching 40% gross margin for that segment or is that a little too optimistic?

Speaker 2

I would, it's more of the 35% to 40% range.

Speaker 3

Great. Thank you, guys.

Speaker 1

Thank you, Brian. Thanks, Brian.

Operator

Your next question comes from David Williams with Benchmark. Your line is open.

Speaker 4

Hey, good afternoon. Thanks for letting me ask the question. I guess maybe Mike on just thinking about the defense industry and seems to held in well during this down cycle and it seems to suggest that spending still remains favorable. I know you touched on this in the script, but Outside of the timing of the budgets and some of the approvals, it feels like you're gaining some really good momentum. But could you talk maybe a little bit about the hurdles Between here and going into production and just what does that timing look like so we have a better understanding on how we should think these progress through the channel here?

Speaker 4

Thank you.

Speaker 1

Yes, sure, David. I think if you're in one part here referencing the continuing resolution or the CR, We have a couple of sole source awards we've been looking to get and to be able to provide proposals on that have been held up for the CR. So we Expect those near term to come across as soon as the CR is resolved. That's an issue it seems every year now that defense companies have to deal with. I think if you look at how is the defense elements come alive As we build out, a lot of the efforts and all we're doing now, we'll see we'll find homes on new procurements in Late 2024, 2025 and 2026.

Speaker 1

However, there are opportunities in there we're finding where if you can intercept a platform upgrade for tech refresh cycle, You have opportunity to make things happen a little bit faster. An example is the foreign Navy submarine program that I talked about. They happen to be in a tech refresh cycle that we caught early and we were able to get in there with our technology. And from the time we identified that opportunity through our President unit, through contract award was less than a year. That's probably usually a lot of times unheard of in the defense market, but it is doable when you catch those timeframes.

Speaker 1

There are a number of prime contractors and vehicles and platforms that we're talking to and defense services, both in the U. S. And globally, where we have in those discussions seen where their Technology refresh upgrades are and we've positioned ourselves to be in those competitions and then those discussions for the architecture upgrades. And those start to span the years from 2024 through 2026 and beyond. And then we've those are ones where we would have identified, Put into our pipeline and now have assigned a resource into capture those going forward.

Speaker 4

Great. Thanks for that. And I intended to just say congrats earlier, but just on the success and acceleration, It seems like you're gaining a lot of interest here and it's great to hear the enthusiasm and see the progress. I guess on that, Mike, just Kind of given your time in the seat now, you've had some time to settle in and look through things. Is there anything today that you see that's different than previously, either more positive or things that are just different than you had thought.

Speaker 4

Anything that gives you, I guess, more optimism today than you might have had as you came into the role? Thank you.

Speaker 1

Yes, great David. So probably 2 things. First is we call it a little bit of the new norm around here. As I mentioned, the number of proposals we're working on, I would say there's a heightened level of energy excitement, activity and sense of urgency in the business But to grow and address the opportunities, we're seeing them come in the defense market as we've expected With the addition of Robert Kalbaw and myself as we increase focus in doing so, but we're seeing ample elements inside the commercial market too That are raising some interest in some activity for us. So I'm excited about the new normal, the pace that we're working at here to Good effort growth, which is why I mentioned augmenting the team to continue to try to build upon that momentum.

Speaker 1

And I guess maybe another example from the defense side, I had the opportunity to spend a week on the capital in DC interfacing with Congress, House Appropriations Committee, the House Armed Services Committee and be able to tell the OSS story. And I was quite enthused to find the how well our story resonated with the opportunity to bring advanced high performance compute, Artificial intelligence, machine learning to the battlefield. And you can see given what's going on in the world today, The opportunity to be able to arm war fighters right is something that resonates in the services, it's resonating through the HAC and HAC And being able to tell our story there and see it resonates so well, again, gives me optimism that we're on a good track. We're going to have

Speaker 3

Thanks so much for the color. Thanks.

Operator

Your next question comes from Joe Gomes with Noble Capital. Your line is open.

Speaker 5

Good evening. Thanks for taking my questions.

Speaker 2

Hey, Joe. So

Speaker 5

just in your press release, you talked about an All delay in deployment of the technology.

Speaker 1

I was wondering if you

Speaker 5

can get some more color on that statement. Is that More just due to the economy or is that potential customers just having Concern about applying leading edge technology, is there something else going on there? Just wondering if you could add a little more color to that.

Speaker 1

Yes, Joe. And I think we talked earlier that in the statements about the kind of general malaise in the commercial market. We've seen the defense market move out short of the continuing resolution effects. On the commercial market side, I would say it's absolutely not the slow adoption of the technology. There is from the technical engineers and the applications, there's Plenty of interest and discussion going on about how to move forward and utilize the benefits of the compute and artificial intelligence machine learning, get it out to the edge.

Speaker 1

The malaise really comes along when you try to convert into getting a request for proposal and a funded program out the door to make a purchase and a buy. And what we've seen there is the kind of just general tendency to not have the sense of urgency to make it happen this month. It's okay if it happens next month or next quarter. We don't see people or companies or efforts Looking to push things out by years, but there's just been kind of a malaise and general Ability to wait or delay another month or quarter or 2 for things to align, if that makes sense.

Speaker 5

Okay. And then last quarter you talked about you thought somewhere in the nature of $5,000,000 to $1,000,000 of defense work had been pushed out into 2024. Has that number grown since then?

Speaker 1

It will be about that number. We'll see how Q4 ends, but we'll be in that it will be that general range.

Speaker 5

Okay. Thank you for that. And congrats on getting the security clearance for the facility. Again, one of the issues that seems to be a repeating is the Difficulty in finding and hiring people with security clearances, just there's a big demand and Limited supply it appears. I'm just wondering how you guys are finding that and if that is an issue at all?

Speaker 1

Yes, Joe, thanks for the question. So the I think one of the benefits we have today is the kind of work we're doing right now It doesn't require us to have the cleared individuals that would that you might Align with the market you're talking about, people with staff or SCI clearances, We're operating here in the near term. We can get our own people cleared And or the workforce, especially in San Diego or remote, you guys are remote, You can find we can find individuals to fill that. And the reason is, though, for right now with the products and the work we're doing, The use of the clearance for us is really more about being able to get inside the understanding of the mission and the Application of the technology and that allows us to explore the ability to broaden our scope on an effort. We've had 2 such, actually more than 2 meetings probably in the last two months where Myself, Robert both have clearances where we've been able to explore more broadly what a platform does.

Speaker 1

And in doing so, we were able to come back and identify broader scope of work or effort that OSS could do and could bring with Our technology and that's where we're going to see the benefit here in the near term over the next couple of quarters. As we build out into the years And established position, use of a GIF, a computer classified information facility and people at the clearances I discussed, They would come along, but we'll have some runway to be able to identify that.

Speaker 5

Okay, great. And one more for me, if I may. Historically, you guys have given the quarter end pipeline in terms of the number of opportunities for those $1,000,000 plus. And I think in the last quarter, you were 33 opportunities. Do you have that same number for the end of the third quarter?

Speaker 1

Joe, we don't have that number. In part, we're transitioning from the kind of those prior definitions. We're going to evolve our pipeline Information and data here to start to give you insight into awards and we'll be aligning along some of the themes I mentioned earlier in the earnings call Where we're really key strategic for us is adding new customers, new primes and then getting on additional platforms and getting Multi year contracts. So we'll look to engage across all those elements a way to be able to provide enough information To give you maybe even a more in-depth sense of how we're doing on securing orders.

Speaker 5

Okay, great. Thank you.

Speaker 2

Thank you.

Speaker 1

Thank you, Joe.

Operator

Your next question comes from Max Michaels with Lake Street Capital. Your line is open.

Speaker 6

Hey, guys. Thanks for taking my questions. Just Looking at the slowing economy in Germany, how has this impacted your outlook on the Bresner business?

Speaker 1

So to date, we haven't seen a major impact of it slowing the business. We We're at the end of the quarter and the move we're seeing some timing or alignment, but we haven't seen the cancellation of orders Or a down tick, the bookings are continuing to be generally online quarter to quarter. So at this We're still seeing them able to work through any slowness in Germany.

Speaker 6

Okay. And then last one for me. Just given the push out in orders in the autonomous trucking space, more of a stick to the commercial market, Maybe what are some areas you can highlight? I know you talked about, mainly auto racing industry, but maybe some area other areas in the commercial market What are your sales force too that you're seeing maybe pockets of strength? Thanks.

Speaker 1

Sure, Max. Thanks. And I mentioned 2 of them in the earnings release there on Commercial side that we're quite excited about. 2 were in the data center space using our 4 UP Expansion Chassis, with the onslaught of the hyperscalers and others buying large massive GPUs, those GPUs need to go somewhere in areas where some niche areas in the data centers where they're looking to Manage the utilization of those GPUs and amend them into servers. There's some interesting areas with a couple of companies we're finding Some good traction with.

Speaker 1

So we see that as a nice area for us to go and work through. In addition, I mentioned the multiyear contract that we're working to finalize here in the commercial aerospace market where we'll be able to bring some edge processing into that market. So we'll be looking to provide more insight on both of those efforts. We see those as potentially good ones on the commercial side. And then as I mentioned, we are working RFP now for autonomous trucking.

Speaker 1

We're seeing vigil in that market. It's had a lot of promise. It's had some slowing. So I use the cautious optimism on it. We Can you respond?

Speaker 1

We worked through these. Luckily for us, the design and efforts and solutions we use for autonomous trucking are the same ones we use in a lot of the defense work. So we're not having to invest special product development or anything in that market. So we can be quick to respond. And if anything, we're finding a lot of the work we're doing in defense market creates more Flexibility in our offerings for the autonomous truck market.

Speaker 1

So we'll continue to monitor them, but we like I said, we use cautious optimism on that one.

Operator

At this time, we have no further questions. I'd like to turn the conference back to our speakers for any closing remarks.

Speaker 1

Morgan, thanks for that. And we look forward to speaking with you again when we report in March. And we hope everybody has a great day.

Operator

Thank you. Now before we conclude today's call, I would like to provide the company's Safe Harbor statement that includes important cautions regarding forward looking statements made during today's call. One Stop Systems cautions you that statements in the presentation that are not a description of historical facts are forward looking statements. These statements are based on the company's current beliefs and expectations. Such forward looking statements include, for example, Those regarding the company's expectations for revenue growth generated by new products, future changes to its business objectives and members of management and the Board design wins and M and A activity, amongst other things.

Operator

The inclusion of such forward looking statements and others should not be regarded as a representation by OSS that any of its plans will be achieved. Actual results may differ from those set forth in the presentation due to the risks and uncertainties inherent in our business, including, without limitation that the market for our products is developing and may not develop as we expect. Military conflicts, global pandemics or other disasters or public health concerns and economic instability in regions of the world where we have operations, customers or source material or sell products may affect such markets. Our operating results could be negatively impacted by inflationary pressures, supply chain constraints, increased interest rates, U. S.

Operator

Government Continuing Resolution, CR, or other economic conditions. Our operating results may fluctuate significantly, which would make our future operating results difficult to predict and could cause operating results to fall below expectations or guidance. If we are unable to offset anticipated future decreases in revenue in our media and entertainment space with other business, our operating financial results may be adversely affected. Our ability to successfully integrate the operation systems, technologies, Product offerings and personnel with acquired companies, if any, may prove difficult and adversely affect our financial results. Our products are subject to competition, including competition from the customers to whom we may sell and competitive pressures from new and existing companies may harm our business sales, growth rates and market share.

Operator

Our future success depends on our abilities to develop and successfully introduce new and enhanced products that meet the needs of our customers. The likelihood of our design proposals becoming design wins is uncertain and revenue may never be realized. Our products fulfill specialized needs and functions within the technology industry, and such needs or functions may become unnecessary or the characteristics of such needs and functions may shift in such a way as to cause our products to no longer fulfill such needs or functions. New entrants into our market may harm our competitive position. We rely on the limited number of suppliers to support a manufacturer design process, and if we cannot protect our proprietary design rights and intellectual property rights, our competitive position could be harmed or we could incur significant expenses to enforce our rights.

Operator

Our international sales and operations subject us to additional risks that can adversely affect our operating results and financial condition. We may not be able to accurately report our financial results and other 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 Annual Report on Form 10 ks 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 of this conference call. And we undertake no obligation to revise or update this information to reflect events or circumstances after this date hereof. All forward looking statements are qualified in their entirety by this cautionary statement, which is made under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Operator

Before we end today's conference, I would like to remind everyone that this call will be available for replay starting later this evening through November 23. Please refer to the company's press release for dial in and replay instructions available via the company's website at ir. Dotonestopsystems.com. Thank you for joining us today. This concludes our conference.

Operator

You may now disconnect.

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Earnings Conference Call
One Stop Systems Q3 2023
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