Q1 2022 One Stop Systems Inc Earnings Call
Okay.
Good afternoon, and thank you for joining us today to discuss one stop systems financial results for the first quarter ended March 31st 2022.
With us today are the company's President and Chief Executive Officer, David Raun, and Chief Financial Officer, John Morrison, That's why I left the company as Chief sales and marketing Officer G mice and.
Following their remarks, we will open the call for 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 in the investors section of the company's website now I would like to turn the call over to Oss President and CEO David Waldman. Please go ahead Sir.
Thank you Laura.
The company continued to make strong financial progress.
Revenue grew 28% year over year setting a record for Q1 $17 1 million.
The second year in a row, we minimized the seasonality from Q4 to Q1 to about 4%.
Sure.
Plus percent drops in prior years.
This strong year over year growth included a record first quarter for our top customer.
Media and entertainment space.
They are large gathering business.
Impacted significantly by Covid starts to layer back on top.
Our newer virtual product success.
Net revenues greater than the pre COVID-19 environment.
With an expectation that we will see continued growth throughout the year.
Right.
Our European team also performed exceptionally well with revenue growth at 37%.
Growth increased our gross profit of $5 1 million.
From $4 4 million.
While also pushing our gross margins back over the 30% Mark.
While revenue increased 28% our operating expenses increased only eight.
Execution to the plan and the quarterly performance just outline.
Increased GAAP net income to 579 K non.
non-GAAP net income to almost $1 million.
And adjusted EBITDA to $104 million.
All significant improvements over last year, John will provide additional color on shortly.
It seems that there is no one in the industry thats been untouched by the disruption of the critical supply chain.
And we are no exception.
Lead times.
Price increases supply shortages.
Our shipping costs and missed shipments by our suppliers continue to make the business more challenging.
Our procurement and our engineering teams have been working closely with our sales team to ensure we anticipate our production needs on a cost basis and <unk>.
If needed final alternatives.
Or pursue other options to meet our revenue objectives.
Fortunately, we have been able to leverage our strong cash limited debt and positive cash flow position to bring in the right products to support our continued growth.
Yeah.
More importantly, we have continued to see an acceleration in multiple verticals within the AI transportable market.
Further validating our strategy implemented last year, including the development and introduction of more scalable standard products.
Our flagship Rigel project product.
Compact and rugged supercomputer introduced last year and our recently introduced Centauri storage accelerator have been well received.
Although these products have generated interest in multiple AI transportable markets.
Atari was co define multiple autonomous truck partners to help address a need in the fast growing market.
It was only seven weeks ago, we provided additional color on the autonomous truck opportunity.
Progress in this area include four confirmed program wins in Q1, bringing the total to five for Oss storage and compute platforms developing multibillion dollar vertical.
We are currently shipping products to three of the market leaders and we hope to expand that number as the year progresses.
Thomas trucking is a perfect example of an excellent market the demands performance without compromise.
And where we can leverage our superior technology.
For AI deployed in harsh environments.
Before I get into the outlook of the rest of the year and provide additional color on further validation of the air transportable strategy.
I'd like to turn the call over to our CFO , John Morrison, who will take us through the financial details for the quarter.
Our chief sales and marketing officer, Jim <unk>.
We will provide additional insight into our new product introductions.
Program wins and building pipeline.
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 first quarter ended March 31, 2000 22022.
The release is available in the related Investor Relations section of our website at one stop systems Dot com.
As David mentioned for the first quarter, we reported revenue of $17 1 million, which was up 28% from the prior year period.
Our core <unk> SaaS revenue increased 23% to $10 6 million, representing 62% of current quarterly revenue with revenue from Brashier, our European subsidiary, increasing 37% to $6 5 million.
Representing 38% of total quarterly revenue.
Gross profit in the first quarter of 2022 increased 708 to $5 1 million.
The gross margin for our core Oss business sequentially improved from 33, 2% in Q4 2021.
235.
7%.
A decrease of two two percentage points from the prior year due to continued growth and success of our media and entertainment customer.
<unk> gross margin percentage sequentially improved from 19, 4% in Q4, 2021% to 21%.
We reduced from 24, 9% in the prior year due to exchange rates and increases in material and transportation cost.
Overall gross margins were 31% for the quarter a sequential improvement from 28, 3% in Q4 2021, but at three two percentage point decrease compared to the prior year of 33 three.
Collection of these changes in margins were primarily attributable to the strength of the media AD breaks your business and due to the timing of shipments to our large military customers.
Historically, the predominance of the shipments has occurred occurred in Q3, and Q4 and will be consistent with our shipping schedule for this year. However in the prior year. There were strong shipments in Q1 2021 due to due to deferred shipment from <unk>.
Q4 2020.
Although the margin percentage is lower profitability is higher.
We are continuing to take actions to improve margins through price increases.
Improved quoting capabilities, reflecting real time parts pricing menu.
Manufacturing efficiencies.
Introduction of higher value staggered products and management's focus on this company imperative.
Quarterly revenues increased 28% with our overall quarterly operating expenses, only increasing 8% to $4 5 million.
Operating expenses as a percentage of revenue decreased to 26, 3% compared to 31, 1% in the same year ago quarter.
The marginal increase in operating expenses was primarily due to a return to a more normal business environment with fewer COVID-19 restrictions.
As such the company has returned to participate in trade shows business travel marketing activities and certain and adding certain strategically employee hires.
GAAP net income totaled 579000.
Dollars or <unk> <unk> per basic and diluted share increasing from net income of 41000.
<unk> zero cents per basic and diluted share.
Now on a non-GAAP basis, net income was 978000 or <unk> <unk> per basic and diluted share for the quarter.
From 643000, or <unk> <unk> per basic and diluted share.
Adjusted EBITDA, a non-GAAP metric was $1 4 million or eight 3% of quarterly revenue as compared to $1 1 million or 8% of quarterly revenue in the prior year. All three of these profitable metrics were company records.
For the first quarter of the year.
Now turning to our balance sheet.
On March 31, 2022, cash and cash cash equivalents totaled $2 2 million short term investments of $13 6 million combining for $15 8 million.
This compares to cash and cash equivalents and short term investments totaling $19 6 million on December 31 2021.
Well Oss is cash flow positive, we're purposely putting our strong cash position to work with carefully thought out inventory investments cash provides us stability and flexibility to be able to be responsive to changes in our business and to issues imposed by <unk>.
External global economic influences.
This completes our financial review and now I would like to turn the call over to our chief sales and marketing Officer, Jim <unk> Jim.
Thank you John and good afternoon, everyone.
In Q1, we generated six new major program wins, including floor and autonomous trucking further validating the value Oss brings to this market.
We also added 10, new pending major program during the quarter, which is the largest increase ever in a single quarter.
Six of these 10 opportunities our AI transportable programs for autonomous trucks military aircraft and maritime applications.
For reference our pending major programs have a 60% or greater expectation of closing.
Our current pipeline of pending major programs has expanded to a record 34 with 20 involving AI transportable applications because of our focused efforts on this market.
Now turning to our thought leader products, our flagship Rigel edge supercomputer continues to provide pool, an autonomous truck and military applications.
Adding opportunities at the high end, where according to our customers only our products have both the AI performance and ability to survive at the edge.
To complement our rigel compute system, we have recently introduced the Centauri rugged storage accelerator designed in lock step with the needs of our autonomous trucking customers.
While an autonomous truck is on the road vast amounts of data generated from the numerous sensors deployed around the vehicle, including Lidar radar telemetry and video.
This information is analyzed by the autonomous driving system to learn or improve it self driving capability.
Centauri as a rugged storage accelerator system that uses the highest performance PCI Express Gen. Four nvme memory, while providing high capacity and a compact hot swappable canister that slides into the Centauri tested.
Sentara connects to an Oss rugged Sds server in the truck cab via PCI Express Gen four and stores AI data.
Since <unk> is designed to be remote melted and externally accessible compartment or the saddle bag of a long haul autonomous truck. The data canister can be quickly removed replaced and transported to the truck depot keeping the truck on the road as much as possible.
The previously mentioned products are currently based on Gen. Four PCI Express technology.
We are well underway with the next generation.
PCI Express Gen five will bring product advancements in 2022, so our core accelerator technology that allows us to bring the latest products to the rugged edge without compromise.
PCI Express Gen five double the bandwidth of our current leading edge Gen four products for compute nvme storage and accelerator systems, such as Rigel inventory.
We recently posted through social media channels. The industry's first known successful Gen. Five PCI express over two meter copper cable data transfer test and look forward to up official product releases demonstration and product shipments of this leading edge technology throughout the year.
Our ability to lead with technology like PCI Express Gen. Five is one of our differentiating capabilities that distinguishes us from the highly fragmented competitive landscape.
Our talented engineering team is progressing on multiple advancements and system management power and disruptive liquid cooling technologies, allowing our products such as rigel at our Sps product line to be deployed in more AI transportable application.
On the marketing front, we have exhibited at the Navy Sea Aerospace show and the <unk> BSI exponential autonomy tournaments vehicle conference this quarter, where we also moderated and expert autonomous truck panel.
The panel address the challenges and market dynamics dynamics of the truck market.
Many of the same challenges exist in our other AI transportable verticals, including mining drones and watercraft. We're Oss can help customers in these markets generate an immediate and strong ROI.
I am excited about our growing successes breakthroughs and increasing activity in AI transportable now.
Now I would like to turn the call back over to Dave.
Thank you John and Jim.
I believe we have demonstrated we have continued to execute providing solid results primarily from our traditional customer base and applications.
Our value proposition and some of these historic businesses like media and entertainment as well as pressure in Europe may not generate the margin percentages that we seek in the future years, they generate positive margin dollars and income for Oss.
We are pleased as part of the business continues to grow and help pay for AI transportable investments.
We identified.
Put together, a new strategic plan and have more recently been able to validate this multibillion dollar opportunity.
While remaining cash flow positive profitable and not taking on debt.
<unk> done this during a crazy time in history, and our cash position has allowed us to invest in higher inventory levels to assure growth and prosperity for Oss.
Our objective is clear leadership in the fast growing AI transportable market.
This includes enabling many of these new verticals with performance without compromise.
And some of the most challenging environments, where the fragmented competitive landscape struggles to participate.
This enablement is just the beginning.
As we have we have every intention and were starting to lay the foundation to be the supplier not only in the early stage, but also when the market develops and high volume shipments are made.
I look forward to sharing with you on future call our progress on this front.
I have personally found immersing myself in the autonomous truck market has been an exciting and rewarding journey.
Like my box prior to this crash course, MBA on autonomous trucks.
Most new to the story assume that autonomous trucks or some futuristic looking thing that may or may not ever developed.
And surely will be after autonomous automobile market develops.
Okay fine.
It's just the opposite for one fundamental.
It'll reason.
Peer economics of the autonomous.
Eponymous truck market.
Simon.
Right.
Hottest market.
Oh My gosh.
So everyone likes the compulsion kickstart happening now.
Like a commercial airline where it only makes money when it is in the air a truck.
Makes it money being on the road.
Sitting in front of the remodel again, when it's driver sleeping.
The autonomous enabled truck is expected to double its potential return on investment.
Unlike your autonomous automobile.
These strong economics create pull for solutions to be implemented as soon as possible.
Even if not fully autonomous level five capability.
For example.
Ill hub to hub model being deployed by several of our customers only tackles, the autonomous capabilities on the highway.
Many are surprised to learn that the use of autonomous enabled 40 ton vehicles have logged hundreds of thousands of miles on the same highways you may travel one is.
It is likely that you have pass one on the road.
Although we elected not to provide too much information on this front until our earnings call seven weeks ago Oss products have also travel over 100000 miles as the compute <unk> storage functions and some of these trucks.
Our products provide the hardware needed to perform the autonomous compute and storage working in conjunction with our customers' AI software.
While these extremely innovative companies focus on enormous demand of the software to enable a truck to go coast to coast.
Without a human in the driver's seat.
Our mission is to make make sure we're bringing the right hardware solutions to the market today and down the road with $1 million of these trucks are hitting the road in production.
Our compute storage solutions work directly with autonomous trucking software to gather data from multiple sensors embedded around the embedded around the vehicles include lidar radar telemetry and cameras.
Such software is combined with Oss technology vast amounts of data can be captured from the sensors processed analyzed and stored on versus compute or storage platforms.
Although these innovative market leaders with names like Kodiak torque embark to simple may or may not be familiar to you. They are backed by some of the largest and wealthiest companies that can benefit benefit from this deployment.
Over $10 billion have been invested in this market for this reason.
Although the cost of compute and storage systems. These trucks today is very high we expect the volume eventual competitive pressures and normal market dynamics will drive the overall solution down in price as with any market like this.
Even with these lower price point the market size for.
For these type of products.
We'll offer will range between a half a billion and $10 billion over time per year.
As I said earlier it is our intent and are planning to beat a leading supplier to this market.
Now looking forward to Q2, our revenue outlook is $17 3 million for the second quarter, which represents 15% growth over Q2 of last year.
We would like to remind our investors of our upcoming shareholder meeting on Wednesday may 18th at 11, a M Pacific daylight time.
Courage you to vote by proxy for the proposals outlined in the notice of the annual meeting of stockholders.
And proxy statement.
We also encourage you to also visit our IR website page after this call or tomorrow to view, our just released latest corporate presentation with more information and color on the topics we covered today.
There'll be two versions one won't be your standard PDF.
And the other has my voice over it.
<unk> file.
A link to these two presentations can be found on today's earnings press release as an alternate as an alternative you can go to our standard webpage at one stop systems Dot Com followed by selecting investors section in the menu the top of the page and then clicking on presentations.
Now with that I'd like to open the call to address your questions.
Correct.
Thank you.
If you would like to ask a question at this time. Please press star followed by the number one.
Key pad.
Calling from mistake said, please make sure your mute function is turned off.
Sure you signal can wait till equipment again.
Again.
Star one to ask a question.
We'll go first Jay Joe Gomes.
With noble capital.
Okay.
David John and Jim Nice quarter.
Okay.
Thank you.
Thanks, Joe.
Sure.
So I wanted to start off with your.
Nice quarter.
You talked about the Sky now running at.
Pre pandemic levels.
Shneur up very nicely.
Kind of what does that mean.
I mean for the rest of the business in terms of its revenues.
Outside of those <unk> and entertainment clients.
How are the rest of the business holding up there you see organic growth there.
The defense just waiting for the third and fourth quarters, maybe a little more color on <unk>.
Some of the other parts of the business would be appreciated.
Our business in our backlog is very strong and there is no.
Business segment I can think of is decreasing.
It's really as you said the timing of the military primarily and it's just a matter of time of getting the AIG transportable newer business.
So that's really the bottom line.
We.
We touched on margins and things like that and what I want to stress there is that.
We wish they were higher but the bottom line is we're making money and its funding this AI transportable.
The strategy that we feel really good that we're validating so.
Those are my thoughts.
Okay. Thanks, Thanks for that and just again on profitability.
Anything new in terms of contracts or awards there.
Any update you can give us on that side of the aisle.
Yes, let me first of all.
We're working on a number of different things in there, but what I'd like to focus on is personally they are transportable stuff and that's where we're seeing that vertical.
To open up a little premature to give you a lot of details, but we're doing some exciting and disruptive things on that front.
And then Jim do you want to add anything to that.
We just have.
We had additional shipments to the some of these diverse raytheon programs that fall under Raytheon GPU based systems things like that that are.
Not as a.
Under a I'd say, a five year contract, but do get funded as they go.
Let me just add a little color about my comment on the vertical is that.
There are multiple markets and multiple very large well known opportunities in the market that we have not been able to participate in but the presence and the ability to deliver a rigel.
And the road map, we have and our capabilities really getting noticed.
And so we're feeling good about that because again people that did not talk to us before we couldnt get in.
We're inside the door and now it's our job we need to continue to execute like we've done on the autonomous truck products.
Okay.
Economists truck front.
You said Youre shipping I think two to three.
Any color on what kind of.
The sale price for our system is there today and as there are major differences between the systems that you're shipping to the various clients.
Or are they pretty much all standard.
On that side and any timing as to when you think some of the ones that Youre speaking with now will go begin to make orders.
Yes, so first of all the three were shipment to us and we're not waiting for orders and it is a it's multiple products and it's kind of like.
This guidance two or three of our products here in the next one it might be one of the same products or two going on maybe one that's a little different but theres a lot of similarity between them.
All focused in compute and storage.
And we're talking to other ones that we hope to be able to even see revenue later this year and just for clarity.
So we have a total of five wins. So that's five wins among those three customers that were shipping too. So it's not by customers who are working with additional lines.
Okay. Thanks for the clarity there.
Maybe if I could just get one more in here.
You talk about the entertainment customer again, and we're seeing that return to some of the the outdoor events or in person events, let's call them and that's being layered upon their other products.
Youre thinking that you could still see continued growth through the rest of the year.
What's giving you confidence that you will consider and continue to see.
Growth.
At at the entertainment customer and maybe can you talk about maybe how big of a growth are we talking about here.
First of all I'd say, it's steady growth thats, not like double or triple your or anything like that but they're doing extremely well with the bottom line and the fact that the virtual product lines, which range anything fronts.
Creating a virtual like news room to FERC.
Virtual music videos to doing some filming or whatever.
That continues to do well.
And then with the large gathering coming back that gives us a lot of potential for growth.
That's why we're very comfortable it looks like what we really have two vectors driving it the rest of the year.
And so.
That looks attractive to us and we feel good about it.
Great. Thank you great quarter look forward to see you.
Going forward here and I will get back in queue.
Thank you Joe.
Thank you we will go next to David Williams with the benchmark company.
Hey, good afternoon, everyone. Thanks for let me ask the question and congrats on the good quarter.
Thank you.
I guess not to beat this into the ground here, but just kind of thinking about the margin side I know last and you talked about this in your prepared remarks, but last quarter you seemed a little more confident in the snapback of the margin thinking that business might level off some after the very strong <unk>.
I'm just trying to understand maybe the puts and takes here and if I recall correctly. The media business was about a 600 basis point impact to the margin you recovered about 180 <unk> how should we think about the meeting that that progress going forward and then perhaps just kind of given the value brought forth through your products do you have an opportunity to improve the margin pro.
File in that media and entertainment businesses as we move forward.
We've done some work on that and we have some opportunities by being more efficient basically in the production line and we are putting things in place to do that so that'll help us, but it's not going to radically change if thats the bottom line that businesses, what it is and we can't drive it up significantly, but like I said, it's a good business for the company.
Other than when you put a percent.
Mark next to some number.
So I mean, that's that's really.
I missed part of the question Tom.
I'm.
I've got the I don't know if I got some.
To some degree I don't have a comment.
Oh, I'm, sorry, I'm a little after that.
Understandable.
Yes. The one portion there is that obviously as our media and entertainment customer becomes a greater proportion of our revenue. It does put downward margin pressure. So I think as we've shared in the past that we basically have three segments of our business. We have a brochure that typically represents about one.
One third of our media and entertainment and represents one third and then we have our AI transportable more military type business that represents one third but when youre looking at 66% of your business or two thirds that are operating more on those lower margins of 20%, 23%. It has an effect.
On an aggregate basis.
Reducing that margin on an overall basis, however that one third portion of the business is where we're really focusing on where we look like we have margin expansion and so they have that the other thing is as were consistent with our historical performance.
<unk>.
Military App portion of the business is not really kicking in until Q3 and Q4. Those are purchase orders that are in hand, but you won't see the margin improvement significantly until you see that rather.
Revenue coming into Q3 and Q4, yes.
Head on purely or in your question, which I kind of fumbled on.
Yes, we said we thought we had snapped back to above the annual level, which are annual level last year was I think 31, 7%. So we did fall short of that.
But part of that we did have assumption that.
That was going to be a little military on narrow we were wrong on that so I mean, that's the bottom line.
Great color I certainly appreciate that thanks, so much.
And then maybe just kind of thinking.
The the platforms on the autonomous vehicles do you think theres, an opportunity to maybe drive a little deeper integration with some of the sensor platforms and work maybe either co developer work together with with some of the other platforms to help really drive the value of your of your products.
You are already looking at that and we're already engaged in having conversations on many different fronts with many potential different partners and also maybe down the road M&A targets.
We're we're very serious about this market, we're not sitting still we're looking at and trying to be the thought leader and.
B, one that can offer a lot of value and where that's headed and do things like you just said.
Yes fantastic.
And then maybe just.
Longer term on the replacement cycle is just kind of think about the lives of the units in the vehicle is this something you think would require replacing once in the life of the vehicle or would this be maybe every two years or three years, how do you think maybe about the replacement cycle potential.
Yes.
Depends on the advancements most of the time, when you're putting a system in a vehicle.
Doing several things not just driving I mean, <unk> doing fuel economy, and things like that as those applications get larger you could see maybe a three year cycle.
You'd need refreshes.
The technology as it moves forward and adding more of those capabilities in there plus just the lifecycle of the Gpus and nvme drives and technology inside the <unk>.
<unk>.
But one of the things we're doing is trying to understand that.
More so what can we do extend those lives can be.
Better at it than anyone else I mean, we have a lot of focus in that area.
And just one more if you don't mind I just wanted to see if maybe you could talk a little bit about the development cycle. You had mentioned earlier that youre in discussion with three different.
Different customers.
How quickly can that move from early conversations to shipping product and receiving revenue.
You're talking about the autonomous truck space.
Yes.
Trucking please.
Well just to be clear I, maybe misinterpreting your question, but we are shipping today to three of them.
Our engaged with two more pretty seriously meeting proposals back and forth multiple meeting good dialogue and we've reached out in early discussion with another handful. So what I'm, saying is we're already on revenue.
Three of them and we will have most likely multiple autonomous truck people be in our top 10 list in 2022.
Yes, I think to add to that kind of the standard.
It usually takes from a from a wind to a production of about 12 months to 18 on the military side on the on the commercial side, it's more of that six to nine months and some of these are happening really fast to get to its.
Preproduction, but that six to nine months as appropriately.
Stays steady with this market as compared to a rest of their commercial market, but.
The one dynamic is there.
That would be the normal things that the tonnage mark.
Truck market.
No.
They are expecting that something like a 1 million trucks in 2030 right in that 100000 in 2025, but those are more of a production volumes.
But the model modeling, we've done and looked at.
Business looks very attractive between now and then but that's when we could if we do this all right we could have explosive type growth.
Okay.
Thanks again for the color going to help I appreciate it best of luck on the quarter.
Thank you David.
Once again.
If you'd like to ask a question press star one.
We'll go next to Brian Kingston.
With Alliance Global partners.
Hello, This is <unk>, calling in for Brian .
And thank you for taking our questions.
So regarding your <unk>.
So regarding the company's already within your pipeline can you just please quantify how many of those companies actually already in both be autonomous trucking plus the autonomous vehicles within the agriculture market and regarding that May also please provide a bit of insight on the estimate sales cycle time.
Yes, so first of all I can say.
We view, both agriculture and mining.
Future verticals.
That are not quite developed and ready for that kind of sophistication. We have so we could see a repeat of what we're seeing the autonomous trucks, but we see it out in time that doesn't mean, we're not engaged with them, but we just think that type of level of economy that they're going to want us further out what would.
Would you say to that Jim.
On those particular markets, yes, I think so.
Nothing current on the agriculture has contributed to any of the wind so yes, it's more of a.
Of 2023.
Type target.
Got it got it and.
And also as a follow up and you touched a bit on this previously with past question.
How many of the autonomous vehicle companies are currently past the testing phase.
Related to your technology and I know, it's been moving towards or are presently in the rent revenue generating or the production.
And so as we acquire.
Yes, I would say what youre looking forward, we're not in the tens of thousands or tens of thousands of trucks and production type space.
So that's how you define that we're doing.
It's when you say testing, we're doing actually on the road testing on the road.
Autonomous driving with.
In fleets so it's a.
Called the production.
Wherever you want to draw the loan yeah to give you an idea it might be they're deploying 25 trucks next month kind of thing in the plan to do 25 more several months from now.
They're primarily doing is continue to build their database and understand that.
And.
To start negotiating contracts with potential partners to use our technology.
Alright got it. Thank you yes. Thank you all for your insights and congratulations so far on your conference accomplishments for this past quarter.
Thank you very much Laura.
Thank you and finally.
Hey, Scott.
That's capital.
Hey, good afternoon, thanks for taking the questions Hey, guys I appreciate all the color on the call as it relates to AI transportable, So I'll back clean up here and just get a couple of clarifications.
In terms of the media and entertainment customer I am not sure if I heard correctly, but it sounds like did you say it would be a record year for them or is it returning to normal levels just to kind of clarify on that front and it sounds like Dave Youre not seeing much if any cannibalization with live events versus virtual is that correct.
Yes, so we.
We don't see any and I've asked that exact question there just different markets. So they're not really don't cannibalize each other.
Maybe they would say it is a 5% overlap for something that's a wild number but it's not.
Not obviously, that's anything greater than that as far as the year I mean, they are on track that we will do more with them than any previous year.
Okay, great very helpful.
John on the gross margin front, just wanted to clarify I know theres some near term headwinds I don't know if you quantified the impact in the quarter. If there was revenue that was left on the table as a result of supply chain issues. I'm wondering if you could comment on that and then just as it relates to the overall gross margin profile for core Oss, how youre thinking about this.
Year.
Thank you.
It's still a good quarter kind of cut it in any of our president and even with the contribution from disguise is it in line with the last couple of years or are you able to actually increase because it seems like youre doing good despite the difficult environment.
Okay.
The first question on where we are on the revenue I will tell you we have probably one of the strongest backlog we've ever had and we are having to pull or push out things in order and.
And consistent with when these supplies are available we are having.
Supply chain issues were high but we are resolving those but there are times, where we have to pull something in our pushed something out based upon the availability of parks.
We are taking that in consideration when we do provide expectations on revenue for the next quarter. We do look at our parts availability, but we do get surprised and we know those surprises that come so we do have.
Things that we have to look at in our backlog the see if we can pull those then to replace that revenue. So it is an active management on a daily basis on a weekly basis based upon availability of product, yes, Scott I would add to it I think I've said, it before that going into the quarter with extremely good visibility on backlog.
The supply we have it looks like we have really good visibility on supply, but whats getting companies like US is all of a sudden out of the blue and doesn't show up and then they say you're going to see it in three months.
That's the issue so.
We have a heart to heart discussion before we provide guidance, we say look guys. We love it all come in this way, but we're going to assume that like every other quarter, we're going to get surprises. So we baked that into what we communicate to you guys and I think thats been the responsible thing to do at this time.
Dave.
<unk> been to the minutiae, but in terms of then product redesigns to try and mitigate the impact from those problematic components have you been able to do that or does that create recertification problems with your existing customer base.
It always does.
The customer base is more flexible on that than they've ever been in the history of my Soma too many years in this industry right because they know if they don't they're not going to get it.
Yes.
What's crazy about it it can be a.
50, <unk> connector and it's holding up a shipment of a 10000 dollar system right and up but there's times, where you just can't get it and so one of the things we'll do identify it get engineering start working on that connector start talking to the customer and look at Theres a deal either ship at four months from now or a month from now let US know what you want to do and when you put it in that perspective.
<unk>.
We get a lot more cooperation.
Okay great.
On your second question about margin so what we shared with you today that.
That the pressure business grew at 37% we have shared with you that the media and entertainment.
Business is growing at an exponential rate will be actually a record for this year. So what's happening is is they it's two components are on an aggregate basis there are.
And a percentage calculation on margin is having an impact.
If you were to look consistently.
The volume appeal, if you left volume static you would see growing margins, but you are not seeing that on an aggregate basis, because theres more and more as a proportion of this 20% to 23% business coming into the company.
So I don't anticipate that our margins on an annual basis are going to be.
Significantly different than they were in prior years.
Thanks.
Media and entertainment and Brazier business, because so many of you Scott there's so many dynamics for example.
One of the things that hit cost of goods.
What are some of our shipping cost tripled.
On the portion that we bring in because of the dynamics in the Ukraine and all of the different things in China.
Well Theres only one way to get the product may be shipped by air rather than normally borne by ship or because they can't fly over it can't go through training and has to go somewhere else. So those things we don't get into lot of detail on them, but there is so many of those are all the dynamics that we deal with every day.
Very helpful and lastly, if I could on the AI transportable front I really appreciate all the color David Jim.
Autonomous trucking.
It sounds like.
I guess, maybe to clarify in terms of the design wins and engagements you ultimately expect that youre going to have both edge compute.
And ruggedized storage in most of these customers and design wins I know, it's early and inventory just came out but is the expectation that largely you can occupy both of those slots and then Dave you had indicated you expect multiple.
Autonomous trucking companies to be 10% plus customers. This year, that's a pretty big ramp that's pretty impressive number I was wondering thinking to 2023, what's the magnitude of the potential contribution of range of outcomes or at least at the lower end of the expectation of what autonomous trucking to be in 'twenty three thanks, so much.
Yes.
Yes.
I don't want to give you a number on that I guess study it more it's just it's really some of these guys to say theyre going into higher volume in 'twenty three.
And then you talked to someone else and they say it's 25, so I am still trying to get my arms around that part of your question.
The other part.
The other part okay.
Yes.
No.
If you just take autonomous trucking, but this can go to military vehicles and things like that there's at least five different places that we can wind up into the autonomous truck whether it be the compute that connects to the sensors. The compute that does the autonomous driving so that's the compute acceleration so theres too.
Compute elements. There is also two storage element.
The same inside the truck when we show you the server and the Centauri that.
That can be they remove ability, but that also lease once you have a removable canister now you need the depot. So we have opportunities where we're putting the centauri in the truck and also getting the truck depots and there could be 2030 40 depots around the country.
Systems that need to put that.
Storage into a server so there's about five different places that we can go in the autonomous trucks.
Great very helpful. Thanks, so much guys.
Alright, thank you.
Yes.
Thank you, we'll now take our last question from Max with Lake Street capital.
Hey, guys nice quarter Nice guide.
Thank you good afternoon Max.
So yes, most of my questions have been answered I guess I just got two quick ones.
You guys. It looks like you had a couple of nice major wins during the quarter I guess I just had a question on what your expected contribution for these wins are going forward.
So the top line.
Well I guess I'll leave it to what I said before which is in the autonomous truck wins some of those will pop into our top 10 this year.
This should all be much larger in 'twenty, three and at some point.
Assuming everything goes as planned and we're the leading guy, which we expect to be we could see some explosive growth that happens somewhere late 'twenty three to 'twenty five.
Because of the size of this market is.
<unk> so much larger than we are at the company.
And then and then the other ones.
<unk> already got pretty good revenue from those wins from last quarter right. Jim. So we're already seeing revenue from those guys. We've seen revenue than we have.
Millions in orders.
One point I think I I'd like to clarify is that right. Now we are in the prototype and test space. We are also ensuring that our products that we have have the capability and the price points to be in the production phase. So we aren't here just to look at revenues for a prototype testing, we're looking to be able to be the.
The option of choice.
We go into the production phase and that we can share in that long.
Long term revenue stream.
Okay.
Alright, Thanks, guys and then just last one I know you guys were looking to invest in head count after last quarter I was wondering what your current head count is and what your expectations are for the year.
Well, we haven't added a lot of people.
We're planning on adding two or three a quarter kind of thing, but we will adjust that.
Accordingly.
For example, if we see an opportunity we're hiring some people would accelerate the stuff we're working on I won't hesitate to do that with back without going crazy.
From a P&L upside down.
Alright, that's it from me guys nice quarter.
Thank you.
Thank you we have no more question I'd like to turn the conference back to David Cohen for closing remarks.
Thank you Laura and thank you everyone for joining us today and we continue to believe the best is yet to come for sure.
And we look forward to meeting with you again or the annual stockholder meeting next week and reporting our progress again in August .
As we pursue the many opportunities.
It's funded chat with you guys can tell you about the successes that we're seeing Meanwhile, up please continue to stay safe and healthy and feel free to reach out to John Jim.
Self anytime and my apologies for my stumbling.
I'm going to go take a nap.
[laughter].
Go ahead and wrap it up.
Thank you.
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