Q4 2021 One Stop Systems Inc Earnings Call
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Today's discussion of one stop Systems' financial results for the fourth quarter and full year ended December 31, 2021 at this time, we were assembling our audience and will be underway in about one minute. We thank you for your patience in holding enough that you. Please remain on the line.
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Good afternoon.
And thank you for joining us today to discuss one stop systems' financial results for the fourth quarter and full year ended December 31st 2021 with US today are the company's President and Chief Executive Officer, David Raun, and Chief Financial Officer, John Morrison as well as the company's chief sales and marketing officer, Jim Ice and following.
Their remarks, we will open the call to your questions.
Then before we conclude today's call I will provide some important cautions regarding the forward looking statements made by management during the call I would like to remind everyone that the call will be recorded and made available for replay at the investors section of the company's website now I would like to turn the call over to Oss's, President and CEO David Raun. Please go ahead Sir.
Thank you Jenny and good afternoon, everyone in.
In 2021, we successfully set new records on many financial crime.
Nearly 20% growth for the year.
Our second and third largest customers and the high margin military space grew over 50% each while.
While our largest customer in the media and entertainment space more than doubled year over year.
Freshener, our European Division contributed 29%, bringing our total annual revenues to a record $62 million.
In the fourth quarter, our largest customer outperformed by over three times its revenue from a year ago.
This elevated our revenue 700, K overall guidance to $17 8 million.
Representing an increase of 11% over the previous quarter and 28%.
Over the same year ago quarter.
Among all the annual company records that we set fourth quarter revenue.
The good news story with a caveat.
The higher revenue sources temporarily made us overweight on lower margin product mix than in the previous three quarters, yielding a 28% gross margin for the quarter.
Nevertheless, we expect this to return to normal historic margins during the current quarter.
Our 2021 topline performance generated net income totaling $2 3 million.
Compared to about breakeven in the previous year.
And our adjusted EBITDA increased nearly 300% to $4 9 million.
Approximately 8% of total revenue.
These were all company records.
More importantly in 2022, we have seen an acceleration of AI transportable activity.
Before I provide additional information on our exciting progress and our outlook for the rest of the year I'd like to turn the call over to John Morrison, who will take you through the financial details for the quarter and the year.
Bye John followed by Jim.
Who will provide insight into some of our major program will discuss our edge AI products and our marketing efforts focused on our AI transportable story.
John .
Thank you David and good afternoon, everyone. Thank you for joining us today.
Earlier today, we issued a press release with our financial results for the fourth quarter and year ended December 31, 2021. The release is available in the Investor Relations section of our web site at one stop systems Dot com.
We achieved fourth quarter revenue was $17 8 million, which was up 11% from the third quarter and up 28% from the same year ago period.
Our core Oss business revenue increased 29% to $11 5 million as compared to the same year ago quarter with revenue from <unk>, Our European Division.
Increasing 25% to $6 3 million the increase for Brashear was tied to capitalizing planned strategic inventory purchases during that time.
It's constrained product availability.
Gross profit in the fourth quarter of 2021 totaled $5 million as compared to $4 8 million in the year ago quarter.
Gross margin for our Oss business decreased eight eight percentage points from the same year ago quarter to 33, 2% due to the increase in media.
In entertainment revenue as David previously mentioned.
<unk> gross margin decreased to 19, 4% in the fourth quarter compared to 21, 3% in the same year ago quarter due to increases in fourth quarter reserves.
Overall gross margins were 28, 3% in the fourth quarter compared to 34, 5% from the same year ago quarter, We expect quarterly gross margins to return to normal this quarter.
Our overall quarterly operating expenses increased 19% to $5 1 million, while operating expenses as a percentage of revenue decreased to 29% compared to 31% in the same year ago quarter.
This increase in operating expenses was primarily due to the addition of key sales and marketing personnel focused on AI transportable.
Accelerating trade show activity and related travel.
As referenced by David though the company had record profits for the year. There was a loss from operations was $71000 in the fourth quarter compared to income from operations of 513000 in the same year ago quarter net.
Net loss for Q for Q4 on a GAAP basis totaled $386000 or a loss of <unk> <unk> per share. This compares to prior year Q4, net income of 244000 or <unk> <unk> per share.
On a non-GAAP basis, net income was 71000 or zero cents per basic and diluted share in the fourth quarter as compared to 636000 or four cents per basic and diluted share in the same year ago period.
Adjusted EBITDA another GAAP non-GAAP metric was 620000.
Or three 5% of quarterly revenue as compared to $1 1 million or 8% of quarterly revenue in the same year ago quarter.
Now turning to our results for the full year 2021.
Revenue increased 19, 4% to a record $62 million.
Our core Oss business increased 14% contributing $38 5 million of total revenue with Brezhnev contributing revenue of $23 5 million, an increase of 29% for the year.
Overall gross profit improved $3 2 million to $19 6 million or 31, 7% of revenue. This compares to $16 4 million or $31 $7 million of revenue.
A year ago.
Gross margin for our core Oss business decreased slightly to $36 9 million in 2021 as compared to 37, 3% in the prior year. Meanwhile, pressure in gross margin increased to 23, 1% as compared to 21, 2%.
In the prior year.
Our total operating expenses for 2021 increased 6% to $17 9 million. This increase is primarily due to increased marketing and selling expense, which was partially offset by decreased research and development expense due to the application of labor cost and cost.
The cells as well as lower general and administrative expenses.
This was expected as we invested in sales trade shows and marketing.
Operating expenses as a percentage of revenue decreased 28, 9% compared to 32, 5% in the prior year, reflecting auto optimization of expenses and ongoing cost containment efforts.
Income from operations increased $2 2 million to $1 7 million compared to a loss from operations of 424000 in the same year ago period.
Net income on a GAAP basis was $2 3 million or <unk> 12 per diluted share compared to a loss of 7000.
Or zero cents per share last year net income included $1 5 million in PPP loan interest and forget it.
<unk> and interest forgiveness.
non-GAAP net income totaled $3 1 million or <unk> 16 per diluted share as compared to $1 4 million or eight cents per share in 2020.
Adjusted EBITDA totaled $4 9 million or seven 9% of revenue compared to $1 8 million or three 5% of revenue in 2020. Both of these non-GAAP measurements exclude the PPP loan and interest forgiveness.
Now turning to our balance sheet.
On December 31, 2000, 22021, cash and cash equivalents totaled five one.
$1 million with short term investments of $14 5 million for a combined total of $19 6 million in capital reserves.
Cash provides us the ability and flexibility to be responsive to changes in the business climate, including strategic invest inventory investments during supply chain constrained.
This compares to cash and cash equivalents and short term investments totaling $18 5 million on September 32021.
This completes our financial review.
I would like to now turn the call over to our chief sales and marketing Officer, Jim <unk>.
Jim.
Thank you John and good afternoon, everyone.
During 2021, we Fortunately began to migrate away from virtual meetings to some in person event, enabling us to better interact with our target customers.
In Q4, we exhibited at <unk> with a focus on U S army customers and prospects using AI and rugged edge environment.
We also exhibited at SCE 'twenty, one where we targeted both commercial and government AI transportable prospects and launched our flagship platform Rigel.
Our rugged rigel edge supercomputer isn't the most compact air cooled GPU accelerated server solution and is ideally suited for deployment and confined mobile spaces within the AI transportable market.
These include the cabin of autonomous vehicles within mobile command centers under seats of helicopters or in an aircraft equipment base.
In the fourth quarter, we recorded six new major program wins each of these program wins are expected to yield at least $1 million in revenue within the first four years and.
And they include medical commercial Aerospace and mobile command center applications.
In addition.
Based on the expertise of our design and engineering teams, we want our first PCI Express Gen five program, which will springboard our core product lines into the new PCI Express Gen. Five ore later this year.
These wins brought our total major program wins to 14 in 2021 of.
Of which five were for AI transportable solution.
The 14 wins contributed revenue in 2021 of $8 5 million.
About 25% greater than the previous year.
Complementing our new product lineup, John mentioned, our investments in additional marketing and salespeople. These enhancements and a team of well positioned manufacturers reps are paying off our pipeline of major programs has expanded to a record 29 pending wins.
More than 50% of these opportunities our new AI transportable application with strong activity in autonomous trucking and military aircraft.
I am more excited about the current sales trajectory of Oss and at any time in its history.
Now I'd like to turn the call back over to David.
Thank you John and Jim I share your enthusiasm.
When I took over this role as the CEO two years ago I recognized there were changes that needed to occur to strengthen our cash position accelerate our growth and profitability in 2020. After the leadership change we successfully improved the balance sheet for sustainability stock out new independent members.
Or our board of directors and established a culture of accountability to drive performance, resulting in a stronger foundation.
In March of 2021, we announced our multi year AI transportable strategy focused on a fast growing segment of edge computing.
As part of the market Leverages, our core engineering technologies and manufacturing strengths as we deliver performance without compromise.
Some of the most challenging environments.
Our unique capabilities enable AI applications and autonomous vehicles and other mobile platforms.
If it moves on land.
The air OFC and these high performance according to our growing customer base, we fulfill that need better than anyone else.
In that regard I would like to provide an update on the execution of our strategy. We previously identified 16 vertical markets within the commercial and military segment today I'd like to highlight one of these.
Economists trucks.
There was a significant activity in our space because of the compelling economics. Unlike a personal autonomous car autonomous trucks, Kevin immediate measurable ROI.
This combined with a growing shortage of 60000 truck drivers is fueling billions of dollars of investment by companies like Amazon Walmart.
In long haul shippers.
This demand is attracting attracting entry of many other well known players in the industry.
Similar to an airplane, which only makes money when its wine a truck needs to be on the road to do the same.
Trucking companies want to keep their trucks carrying loads up to 24 hours a day rather than the current average of 11 hours.
Initially this will cut the number of required drivers in half.
Shortened the time to traverse the country from four to two days lowering cost and increasing profitability.
The current demand is such that our fully autonomous truck is not required for trucking companies to begin to reap the economic benefit.
Several companies have started with a human guided condor that involves one driver and two trucks.
One lead and the other ones Paul Autonomous fleet and.
In other words, the second one does not have a personnel.
Resulting in the doubling of the cargo.
The autonomous level four level four and five the first deployments are referred to as hub to hub in which autonomous trucks are only driven on the highway but ultimately they will dry dock to dock, including city streets.
One of the reasons I share Jim's enthusiasm.
Is that our products have already enabled autonomous trucks to drive hundreds of thousands of miles to date.
So we initially started with just one customer we immersed ourselves and the marketing requirements tied to AI transportable and responded with new products, leading to recent engagements of multiple key players.
This is a perfect example of an escalating market.
The demands performance without compromise leveraging our latest AI technologies in the harsh environment, requiring brothers Ruggedized nation unique power and cooling form factors and quality.
Based on our multiple engagements our customers have confirmed not only we have the best solution, but they've told US we are the only solution.
These rewarding discussions validate our vision of providing superior ruggedized compute and storage products for these demanding environments quite.
Quite frankly in addition to the revenue opportunities we're excited to be in a position to positively affect a strategic national need.
With that as a backdrop our objective is to be the leader of Ruggedized compute storage products for autonomous trucks further validating that.
The AI transportable strategy.
This market is extremely attractive to one stop systems because it is developing quickly with estimates of over 16000 level more trucks next year 100000, 2025, growing 10 fold to 1 million trucks, a year by 2030 <unk>.
Resulting in over $500, a tam of over $500 million next year growing to 75 billion.
By 2030, it is expected of autonomous trucks will be the majority.
A typical system for these trucks includes cameras and sensors around the vehicle high and rugged and storage platforms in the cab and the former sleeping area.
Along with all the AI software, which tends to be the greatest value add and differentiation between the different autonomous truck company.
Along with this kind of significant challenges with power supplies and cooling in addition to making sure the systems survive this harsh environment.
As you can see this opportunity it could be a company changer for Oss, we have multiple engagements where major players in the market are taking delivery of compute and storage systems. Today, we expect the prototype quantities alone will drive multiple new top 10 accounts in the short term later this year and that.
Our intention is to leverage our growing presence.
From the experts in the market build additional barriers of entry and do everything we can to be the leader and supplier of systems or production.
This opportunity is much larger than anything the company has pursued before but we have the right people skill sets products and knowhow.
To say the least it's an exciting time at one top one stop systems I'm getting a little choked up.
Moving on.
Two Q1 and.
And consistent with prior years, the first quarter reflects some seasonality.
Our revenue outlook is $16 8 million for the first quarter, which represents 26% growth over the first quarter of last year.
One of the things you'll notice in the chart is that over the last two years, we've been able to eliminate some of the seasonality and creates more predictability.
Now with that I would like to open up the call to address your questions John .
Jenny.
Thank you if you'd like to ask a question at this time. Please press star followed by the number one on your telephone keypad and if youre, calling from a speaker phone. Please make sure. Your mute function is turned off to ensure your signal can reach our equipment again star one to ask a question and we'll go first to Scott Searle with Roth capital.
Hey, good afternoon. Thanks for taking my questions really nice to see the autonomous vehicle opportunity developing so quickly.
Thanks.
Maybe to jump right in John in terms of I wanted to zero in on the comment on gross margins returning to normal I just wanted to clarify what that means in the first quarter. Because there has been seasonality in the past you guys had been smoothed out the model a little bit so that there's less seasonality. So when you say.
Normalized gross margins is that from two years ago or one year ago, where we were kind of in the first quarter and then I guess as part of that kind of how youre thinking about the mix both with <unk>.
And some of the other tier one accounts that you have.
So we believe the FERC first quarter, thanks to Scott by the way.
Appreciate you participating in the call today are our gross margin percentages will be consistent with our annual margin.
For last year.
The first quarter with an opportunity to grow over the year.
Much of this margin change was attributable in the fourth quarter to the dominance of our media and entertainment customer who typically we have a one to one nearly a one to one ratio between our lower cost lower margin customers in our higher margin customers are lower margin media and.
Customer outperformed one seven times, what they normally debt compared to our other revenue base and so that was the consequence of the margin for the fourth quarter, but we do anticipate there will be more consistent with our annual.
Gross margin percentage for.
For the first half of 2022.
Perfect. So we're <unk>.
Some write back up over 30%.
Then.
We didn't really talk about this guys, but just I.
I guess, a little bit on the mundane front, there disguise is really being driven driven.
I guess in 2020 in 2021 by more virtual opportunities when do you see live events coming back for that to drive a larger core base. If you will on that front.
They are starting to see that now so we're starting to so it's finally starting to happen Scott.
Great and then lastly, if I could just kind of dig in a little bit more on the autonomous vehicle opportunity. Dave I wanted to clarify are you still had a couple of numbers. There I think next year, you said, a $500 million Tam and then 1 million trucks as we get closer to 2030, the Tam that you're talking about is specific to you and your dollar content opportunity within within that.
Is that correct.
Now this is third party data, it's really what.
It's really what the total solution will sell for.
But if you look at what that will sell for like if somebody buys a $150000 tractor pulls.
Pulls a truck tenant will be like an option that they pay for and that'll be a pricy option that can be justified because the return on investment. So, but then the cost and are things going in there. The big ones really are the sensors Lidar radar and then the compute and storage systems and so while we're so excited about it.
It's a very large number you do any of the math with it.
And we're getting very positive feedback. So we just have to drive this one heart.
Great and lastly, just maybe if you could talk a little bit about that just.
In terms of the gross margins that you expect in some of the autonomous vehicle applications with a greater or less than kind of where your you had corporate the corporate average for 2021.
And when you expect this to become I'll call. It more meaningful I think Jim indicated that new opportunities were $8 5 million last quarter, maybe you can give us some sort of indication of how youre thinking about both new opportunities in 2020 to accrue it sounds like it grew 25% or so in 'twenty, one how big that could be in 'twenty, two and how large of a component.
We will see autonomous vehicles contributing on that front. Thanks.
So I think it's a material amount in 2022 and it could be something that.
Right It really changes the profile of the company in future years.
Just by the dynamics of it as far as the.
Content and the Tam related just to our business I am working on that I did not.
Providing that type of borrowers totally comfortable with it but it is a big number the big numbers Scott.
Got you Hey, maybe it with us.
I was going to clarify the $8 $5 million was about last quarter that was last year's wins contribution to last year's revenue.
So we're getting immediate revenue from these wins and the continued.
Year after year, the same crystal most of our things last four years or more.
So maybe David if I could throw one more out there the guidance for the first quarter is.
25, 26% growth year over year granted it's coming off of somewhat depressed numbers, but should we be thinking about growth for the year.
I think you talked about 15% in the past is it closer to the 15% or is there an opportunity for that to be inflicting as we get into the latter portion of 'twenty two.
Yes, I think that number should use right now, it's 15 and hopefully we'll beat that and the second half of the year, we could have some nice surprises in it.
Our objective as you know to get that up quite a bit in 2023.
Great. Thanks, so much.
Thank you thanks Chuck.
Yeah.
We will go next to Eric <unk> of Lake Street capital.
Yes, congrats on the quarter I wanted to ask about your greater than 10% customers just on an annual basis, how many did we have.
At 10% would be three three.
302.
Great.
Okay.
And then the.
The gross margin mix that you had in Q4, obviously it was skewed towards that media and entertainment is that.
The expectation for Q1, we've got a good solid revenue number here that bounce back is that to say that we have less media and entertainment or a more normalized mix.
I would say a more normalized mix.
Okay.
Okay.
And then as far as the <unk>.
Impact.
World events military budgets is that anything that would impact thus.
As far as.
Just to redeployment of budgeted dollars or are you kind of advanced platforms advanced programs that are relatively immune to any shifting of.
Military budget.
So far we haven't seen anything that would be negative, but there are some signs maybe with some positive because of <unk>.
Equipment is being used.
And then the whole thing on AIG transportable rock, that's priority number one with all of the armed forces. So budget cuts are hitting that.
Sure.
Okay.
The if I look at the 29 opportunities that we've got here for the current pipeline.
Your comment was over 50% of them are AI trends portables.
Those AI trans portables as that.
What can you tell me about the use cases here.
Let's call it 15 opportunities.
But I would say that the biggest number of them are in autonomous trucks and in military aircraft.
Got it.
Drops down after that but what we're finding is just some suppliers truck market. For example by itself could be huge but we're seeing a similar thing materialize and farming and mining, but we're not anywhere near as far along with those.
But.
They could be large markets down the road ports also as they go to this level of sophistication.
Mhm.
Okay, and then as I look back on 2021, we had roughly eight 8% adjusted EBITDA margins on the $62 million of revenue for the year.
You talked about growth.
Roughly 15% what should we be thinking about growth for full year.
Profit margin on that incremental revenue.
Yes, I mean longer term our target is in the 15% area I think this year because.
Investments that were making in AI transport out, especially in the areas. We've talked about it's probably going to stay in the 8% area.
We looked at this hard thought about getting to 10, but we'd be starving.
That could be very large if we did that so.
Everybody.
Okay, Alright, that's very helpful. Thanks for taking my questions.
Thank you Eric.
We'll go next to Joe Gomes of noble capital.
Thanks.
Wondering maybe you could talk a little bit.
Reznor, John maybe you could clarify what you were talking about on the reserves.
And also that segment had a lot of good growth in 'twenty. One are you expecting that similar Rd for 'twenty two are for that segment to have a grow at a lower rate in 'twenty two.
So in the past, we've always positioned pressure has as a value added race reseller and typically those types of business throughout our four 5% typically however pressures continuing to be repurposed and refocused on adding products such.
Chad the Oss product line in Europe , and we now have some dedicated personnel there who are selling oss products as well as the management. There has been moved from the legacy manager two are.
New our manager it's been there a long time, but he has been unleashed and he is really growing revenue and also tasked with growing margins there.
So we anticipate that he will grow at a.
Clifton that can access.
10% growth target that he has for next year and he will be.
Focusing on increasing the margins there with respect to the fourth quarter. Some of this had to do with inventory reserves that you have to take a look at make sure you don't have anything of obsolescence and also an increase in warranty reserves.
We took a look at the fourth quarter and wanted to make sure. We had everything true up to have a good closing on the year, if I just add to that.
One of your questions, we expect for the plan and look at the forecast.
As part of the business would grow more in the <unk> part from 2002.
Okay.
Thanks for that.
Yeah.
You talk.
Been attending a number of major trade shows here and wondering if you could give us a little color as to you know.
How that is.
Translating into interest or new contracts, new programs I'm, just trying to get a little better understanding as you get back to these live events.
What.
<unk> that may have going forward.
So we're really focusing on.
The autonomous truck market autonomous vehicle market. So youll see the trade shows we do in this year.
<unk> Si Adas, those or autonomous driving type things really too.
We've penetrated this market and really expand our presence in that market.
Since we've.
Really focused on hunting those particular customers. This is going to just accelerate that and it's really to keep the current.
Relationships fresh where even leveraging some of them to do co.
Cooperative.
Events inside of those shows and that will just lend more credibility to all of our validation to our strategy and where we're going with other potential customers.
Yes, I would add to that.
In the spirit of hunting a lot of the autonomous truck expansions happen from US just identify who's in the space and go on and talking to them and we're just finding that they really need what we have.
No.
It's been very exciting.
Okay.
Thank you for that.
And pardon.
Pardon me.
Obviously one of the.
The topics. These days remains the supply chain and supply chain challenges.
Just wondering how you guys are dealing with that where you stand in terms of inventory are you able to get you there.
No still products in a timely manner or is there any particular issue.
<unk> that youre seeing out there on the supply chain.
Always every day every minute of the day.
So we've faced this all year long I think has done a pretty good job of managing through we'll continue to do the best we can but we haven't seen any let up we started to a little bit and then the Ukraine more broke out and we're getting.
Comments about the industry.
Supply issues of semiconductor some of the key.
Gases in the processing will be a shortage because of it so there could be more dynamics coming down the road for the whole world.
So we're just doing the best we can we purposely are running higher inventory levels, which we have the cash to do that and Thats helped us a lot.
But I can tell you you know yesterday, we talked about three different deals right.
Good news bad news and all over the place maybe to clarify just to again more detail on that we are probably looking at probably an additional $2 $5 million investment in the inventory to ensure that we have the supply chain available to fulfill orders.
So we're doing what is necessary that are strategic buys that are tied to orders. So these are not speculative buys but it is to ensure that we are able to fulfill the backlog that we have in place.
Okay. Thanks for that clarification, and one more if I may.
In the past.
You guys did do some M&A and kind of step back as you were implementing the new new.
Playbook here, just wondering kind of what what's your thoughts on our outlook here again in terms of the M&A space in the M&A environment.
Where you would be looking.
Yes, you are.
Kind of areas would you be looking at to potentially expand through that.
Yes, so when we talk last time, which was four months ago.
I believe what I've told people is that we're starting to pick that up primarily.
Primarily driven by myself looking at it.
I guess one of the questions, we're still doing that but one of the questions that come to mind with me is that distracts getting totally immersed in this market that looks very attractive.
So.
If we do anything we're going to do a real careful the focus may shift a little bit, but we don't we're not working on anything thats eminent.
Okay. Thanks for that thanks for taking my questions guys.
Thanks, Joe really appreciate it.
We'll go next to David Williams with benchmark.
Hey, good afternoon, and I appreciate the time and congrats on the progress.
Thanks.
Hey, I wanted to ask first maybe just about the customer base and CES the trucking industry at least the autonomous side was on full display seemed like that's an area that's getting a lot of activity.
Just kind of curious if you can maybe talk us through any of your customer base or these.
Are they at the OEM level ODM level, just kind of maybe where you're seeing that demand and then how youre thinking about that your ability to meet the demand that you see in front of you.
Yes, so I would say.
We're engaged with like I said multiple players well engaged these are some of the big names that Youll hear if you do a search on it and.
And they tend to be companies a lot of them are new comp named companies.
They are focused on that and almost all of them have partnerships with somebody that partnership might be with peterbilt another partnership might be with the <unk>.
Large trucking manufacture another ones with say, an Amazon and Walmart has got their partner. So that is the quality of these companies. We are engaged with these are guys and they're getting orders even for the future.
This is these are real companies.
And there is a different business models.
One of the most common ones would be that they ultimately left the.
Pay a peterbilt or somebody like that offer this as an option when.
The truckers buying is trucks and.
That's what we're seeing.
Okay fantastic. Thanks.
Any way to maybe size up the unit asps on the trucking side as we kind of think about the volumes there in dollar figure that we should be thinking about.
Well, let me ask I'll answer it this way our systems our systems typically range that we sell the companies from 10000 to $1 million and.
Not at the bottom of that we're surely not at the high end of it but there.
There is enough zeros, there that makes it very attractive.
We're not competing in some low end.
Server Sotheby's is the highest and things so they command a pretty high price debt.
At this point I don't want to expand too much more on that but I am planning on providing more color eventually on that.
Okay.
What I'll say right now.
It's more it's more than 10, and it's less than $100000 per truck.
Okay, but less than 100 over that's perfect. Thanks for the color there.
And then maybe from from a gross margin perspective, and I understand the impact this quarter from the media and entertainment and you noted this segment was strengthening a bit and as we just kind of think about that segment. What's your comfort level that may be through this year, we will have another outsized kind of pull in from that segment.
We could see another maybe a margin impact like we saw this quarter do you have ability I guess to optimize that and what are you doing maybe internally to control that that potential.
The potential of the growing two big growth potential there is shrinking.
No I'm sorry, the potential for it to have an outsized impact and we see another reflection in the gross margin.
Well I mean.
The company that the space is doing well.
Continuing to grow we expect them to continue to grow but we also expect our their business too.
It is true that they have a blowout quarter and maybe we're just a little bit off on some of the other ones the mix could be a little odd, but I think.
I would hope what people would see through that is what do we do an overall the overall numbers look like and what our progress we're making on the AI <unk> portable front so.
So theres always a risk if we had a really big blowout quarter.
Sure.
How do you think about that business over time is that something that you might be able to limit maybe a little bit there pulled the gross margin up some that might help eliminate some of that.
Third quarter volatility in mix.
Our objective is to get the business to 40%.
Which means that.
New business, we're taking.
Transportable and stuff is more aligned with that.
Okay, that's fair.
And then one just one last one from me quickly is this trucking opportunity. It seems like a developed very very quickly and you guys have done a good job of capitalizing on that and I'm. Just wondering if there's other trends out there similar to this that youre seeing that maybe we're not thinking of that youre seeing in front of you that could have a similar I guess revenue upside or opportunity for you.
Yes.
There is definitely multiple one.
But the one that.
Kind of analysis to this one in my opinion is what I mentioned earlier and Thats farming and mining.
These industries have.
They might have a $200 to $1 million piece of equipment.
And you can benefit the same comment I made about trucks and airplanes.
Can have an autonomous mode that $1 million tractor for example, running 24 seven.
And the mining equipment.
Our thing there.
There are some autonomous features with these things now that they're not to the levels that we're talking about they're more like somebody's in a room with a steering wheel driving it kind of like a remote control car.
But where their ultimate with garners full autonomy.
And in those markets. So we're trying to learn on them, but I'm also not trying to I don't want to waste too much time, there I've got one that we need to just get our hands all around real quick.
Thanks, so much for the color.
Yes, real quick on that last one.
Something that just came out of the woodwork I mean, as you know we announced the strategy on AI transportable.
March of last year. So we have been developing this over a year period of time, establishing our expertise and products to respond to this marketplace and right now we just need to land the fish and we want to stay focused and we've always talked that we're going to carve out a niche that we could own and we believe that this is a place to do it.
We arent going to get distracted it's Todd.
It's about execution and really keeping our eye on the ball, which we believe is quite a be a good market for us and very profitable market.
Hey, Ken.
I apologize.
One of the comments I just make on that is I go back to the economics. It's just when you get a market like this got a lot of tailwind the economics justify.
And the numbers on them are very impressive what happens in these companies and their profitability.
And then.
Fortunately, its where were really good.
One of the customers offers asset.
I'm so excited about using your products I'm tired of going on babysitting are our products every week as a rattling apart and it is just a.
A truck is not a data center building, that's a very different environment.
And we'll go next to Brian <unk>.
<unk> Global partners.
Great. Thanks.
In terms of business developing trends.
The contract wins trends for both AI teens portables in million dollar deals in the March quarter since we're basically doing.
Then you mentioned the 29.
Pieces of business that are pending.
Have you been given.
To award notice that just to wait signatures.
I'm curious what those 29 ancillary represent or they just pipeline.
So on the.
On the current quarter wins.
We are.
Two months away from from announcing that so well.
But your six days away from the quarter being done right.
We don't usually provide the data ahead of time Thats why he is looking at me and said, let's address it at the next call which will be in two months. We can just tell you. The activity is very strong. So how about the 29 29 received Pinta award or 29 opportunities.
<unk> been bidding on that you are looking forward to hearing about contract awards.
Yes, Theres 29 pending wins as.
As we went into this year.
Those pending wins are all over $1 million within four years.
Of those 15 of the 29, our AI transportable, so the percentage of AI transportable.
<unk> has grown as we're targeting this market for the last year. So that's the dynamic in the pipeline, but the definition of what he is really what's the definition of <unk>.
Oh, 60%, depending when you win it already David you just need to see.
So we tend to be pretty conservative when we claim a win for example, we're shipping some products to autonomous truck guys and we haven't even claimed it was a win there is still on the Penguin category, but what it basically is that the if we haven't claimed it and it's in that category. It means we have a confidence of at least 60% that we will close.
Beyond that we have targeted accounts, we have opportunities. We are engaged with a bunch of people put that that doesn't go in that bucket yet.
So it's like a qualified pipeline of with a high degree of winning.
Yes, I mean, if we looked at all opportunities that hundreds of millions of dollars worth of opportunities that we're looking at.
But there can be anywhere from 60%.
Two 5%, where it's a long shot.
Yes, okay.
<unk> you talked about.
You provided an answer yet, yes, youre always having issues with the supply chain managing inventory youre investing $2 5 million.
Specifically has the issues with the supply chain is it does it lead to lower margins in any way.
And just talk about how youre able to pass along any cost score increased supply used it.
Or being charged deal.
In general we are trying to path.
Expenses on to the customer but.
But sometimes there is a lag effect to that.
And different dynamics. So there is there is no doubt supply issues have impacted our margins.
We try to minimize it but it's definitely it's not as material of a number as.
The next thing that we talked about.
Okay. Thank you.
Thank you.
And we have no more questions I'd like to turn the conference back to our speakers for closing remarks.
Thank you Jenny and thank you everyone for joining us today. Thanks again.
We continue to believe that the best is yet to come and we look forward to meeting with you again in March while it should not say March doesn't my sheet. It should be may and reporting our progress as we pursue the many opportunities ahead.
The meantime, please continue to stay safe and healthy and feel free to reach out to John Jim or myself anytime.
Jenny go ahead and wrap it up.
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 are not a description of historical facts are forward looking statements. These statements are based on company's current beliefs and expectations such forward. Looking statements include those regarding the company's expectations for revenue growth generated by new products design wins or M&A activity the inclusion of such forward looking.
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Okay.
Yes.
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