Q1 2024 One Stop Systems Inc Earnings Call

Operator: Please stand by. Your program is about to begin. If you need assistance during your conference call today, please press star zero. Good day, everyone, and welcome to today's One Stop Systems 2024 Quarter 1 conference call and webcast.

Please standby your program is about to begin if you need assistance during your conference today. Please press Star zero.

Operator: Good day, everyone and welcome to today's one stop system 2020 for quarter, One conference call and webcast.

Operator: At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note this call is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to President and CEO, Mr. Mike Knowles. Please go ahead, sir.

Operator: At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session.

Michael Knowles: You May register to ask a question at any time by pressing the star and one on your telephone keypad.

Operator: [noise] withdraw yourself from the queue by pressing star and two please note. This call is being recorded I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to President and CEO. Mr. Mike knows. Please go ahead Sir.

Michael Knowles: Thank you, Jennifer. Good afternoon, everyone, and thank you for joining today's call. Since they joined the company as CEO almost a year ago, we have focused on transitioning our business away from legacy media and niche enterprise customers to pursue emerging opportunities within large and growing defense and commercial markets. As early adopters of applications that will utilize artificial intelligence, or AI, machine learning, or ML, and sensor processing at the edge, we believe defense and commercial markets support significant opportunities for the company's market-leading rugged enterprise class compute product.

Michael Knowles: Thank you Jennifer and good afternoon, everyone and thank you for joining today's call.

Michael Knowles: He joined the company as CEO almost a year ago, we are focused on transitioning our business away from legacy media and niche enterprise customers to pursue emerging opportunities within large and growing defense and commercial markets as early adopters of applications that will utilize artificial intelligence or AI machine machine learning, our ml and sensor processing.

Michael Knowles: At the edge, we believe defense and commercial markets support significant opportunities for the company's market, leading rugged enterprise class compute products.

Michael Knowles: I've also had the opportunity to engage with current and prospective customers and continually hear positive feedback on the value of OSS's products as well as our engineering and support capabilities. I continue to believe our existing products and future roadmap align extremely well with growing market trends and technology adoption. With strong product offerings, our efforts over the past 12 months have focused on building a team of proven sales, business development, and program management associates. This first phase of our transformation created the necessary infrastructure to identify new opportunities and rebuild our sales pipeline to serve new defense and commercial applications and customers.

Michael Knowles: I've also had the operator the opportunity to engage with current and prospective customers and continually hear positive feedback on the value of oss's products as well as our engineering and support capabilities.

Michael Knowles: Continue to believe our existing products and future roadmap aligns extremely well with the growing market trends and technology adoption.

Michael Knowles: With strong product offerings, our efforts over the past 12 months have focused on building a team of proven sales business development and program management associates.

Michael Knowles: This first phase of our transformation created the necessary infrastructure to identify new opportunities and rebuild our sales pipeline to serve new defense and commercial applications and customers.

Michael Knowles: I'm extremely pleased with the progress we have made throughout my first year at OSS as we have assembled a strong sales organization, expanded our five-year unfactored pipeline to over $1 billion, and entered new multi-year and large-scale platform-based sales opportunities with new and existing customers. In addition, approximately 70% of our current pipeline is comprised of platform opportunities, which we believe will help contribute predictable multi-year revenue and backlog to OSS. We have also pursued a second phase of our transformation aimed at creating a growth-focused, multi-year strategic plan.

Michael Knowles: I am extremely pleased with the progress we have made throughout my first year as we have assembled a strong sales organization expanded our five year on factor of pipeline to over $1 billion and enter new multi year and large scale platform based sales opportunities with new and existing customers. In addition, approximately 70% of our current pipe.

Michael Knowles: Line is comprised of platform opportunities, which we believe will help contribute predictable multiyear revenue and backlog to Oss.

Michael Knowles: We've also pursued a second phase of our transformation aimed at creating a growth focused multi year strategic plan, our new strategic plan was presented to our board of directors in early May and we are now incorporating their feedback.

Michael Knowles: Our new strategic plan was presented to our Board of Directors in early May, and we are now incorporating their feedback. Once our plan is finalized in the next month or two, we plan on including the growth strategies we are pursuing to achieve our five-year financial targets in an updated presentation and subsequent quarterly conference call. The third phase of our transformation will focus on executing against our five-year strategic plan to profitably scale our business and build greater long-term value for our customers, associates, and shareholders.

Michael Knowles: Their plan is finalized in the next month or two we plan on including the growth strategies, we are pursuing to achieve our five year financial targets and an updated presentation in subsequent quarterly conference calls.

Michael Knowles: The third phase of our transformation will focus on executing against our five year strategic plan to profitably scale, our business and build greater long term value for our customers associates and shareholders.

Michael Knowles: So with this overview, I'd like to review the progress we made during the first quarter of 2024 and our expectations for the remainder of the year before turning the call over to John to provide additional information on our first quarter results and balance sheet.

Michael Knowles: With this overview I would like to review the progress we made during the 2020 for first quarter and our expectations for the remainder of the year before turning the call over to John to provide additional information on our first quarter results and balance sheet.

Michael Knowles: Overall, I'm encouraged by our performance during the 2024 first quarter as consolidated revenue, bookings, gross margin, and EBITDA met or exceeded our plan. This is a testament to the focus and investments we have made over the past year within our sales and product teams and the diverse sales pipeline we are building. I want to thank everyone at OSS for their continued hard work during the quarter.

Michael Knowles: Overall I'm encouraged by our performance during the 2024, our first quarter as consolidated revenue bookings gross margin and EBITDA met or exceeded our plan. This is a testament to the focus and investments we've made over the past year within our sales and product teams and the diverse sales pipeline. We are building I want to thank everyone had to Oss for their continued hard.

Michael Knowles: Work during the quarter.

Michael Knowles: Our first quarter results also reflect the early days of a multi-year investment cycle for the rugged AI, ML, and edge computing solutions we provide. The recent explosion in overall AI and ML investments has primarily benefited hardware, data center, and select software companies. While we believe these trends will benefit OSS in the coming quarters and years, many of the opportunities we are pursuing are still in the development, testing, and concept phases. The near-term focus of our sales organization is to identify customers, prioritize resources, and pursue strategic platform-based opportunities that are funded or have a high likelihood of getting funded and require our rugged enterprise-class compute solutions at the edge.

Michael Knowles: Our first quarter results also reflect the early days of a multi year investment cycle for the rugged AI ml and edge computing solutions, we provide the recent explosion in overall AI and ml investments if primary benefited hardware datacenter and select software company.

Michael Knowles: While we believe these trends will benefit Oss in the coming quarters and years. Many of the opportunities. We are pursuing are still in development testing and concept phases. The near term focus of our sales organization is to identify customers prioritize resources and pursue strategic platform based opportunities that are funded or have a high likelihood of getting funded and <unk>.

Michael Knowles: Our rugged enterprise class compute solutions at the edge.

Michael Knowles: Discovering opportunities at the design phase allows OSS to get spec'd in early on a platform, which we believe solidifies our position once a project moves to commercialization. In addition, this approach creates a moat around our business as we offer highly engineered solutions that not only meet current technology requirements but also provide the compute power needed to meet future technology requirements, thus creating a protected incumbent position. This is a multi-year approach that we expect to create significant value as programs are developed and commercialized.

Michael Knowles: Discovering opportunities yet the design phase allows the Oss to get specced in early in a platform, which we believe solidifies our position once a project moves to commercialization and.

Michael Knowles: In addition, this approach and this approach creates a moat around our business as we offer highly engineered solution that not only meet current technology requirement, but also provide the compute power needed to meet future technology requirements, thus, creating a protected incumbent position. This is a multiyear approach that we expect to create significant value as programs are developed and.

Michael Knowles: Commercialized.

Michael Knowles: A recent example of our potential was the order we announced in the first quarter to design and manufacture a new ruggedized liquid cooling system for cooling self-driving technology in a commercial autonomous truck deployment. The initial $300,000 order was for new design and prototypes.

Michael Knowles: A recent example of our potential was the order we announced in the first quarter to design and manufacture new ruggedized liquid cooling system for cooling self driving technology in a commercial autonomous truck deployment. The initial $300000 order was for new designs and prototypes more importantly, this reflects the progress we are making building valuable relationships with our customers engineering.

Michael Knowles: More importantly, this reflects the progress we are making building valuable relationships with the customer's engineering teams and pursuing opportunities that provide integrated solutions on a platform. While this customer is still years away from final configuration and production, we believe our current development work supports a significant multi-year revenue opportunity for OSS in the future. We are actively pursuing similar relationships, and we started to break out separate revenue and cost lines in our financial results associated with customer-funded development projects to show our potential and track new wins more easily.

Michael Knowles: <unk> and pursuing opportunities that provide integrated solutions on our platform.

Michael Knowles: This customer is still years away from final configuration of production. We believe our current development work supports a significant multi year revenue opportunity for Oss in the future.

Michael Knowles: We are actively pursuing related similar relationships and we started to break out separate revenue and cost lines in our financial results associated with customer funded development project.

Michael Knowles: So our potential attract new wins more easily.

Michael Knowles: We have defined program-related development work as customer-funded development on our financial statement. Through customer-funded development programs, we are typically providing a more integrated solution compared to the company's historic offerings. In addition, it establishes OSS as an incumbent on what is almost always a multi-year contract. As a result, we expect our business model to benefit from a higher mix of annual recurring revenue and contracted multi-year backlogs in the future. Development relationships are expected to take one to two years before leading to production orders.

Michael Knowles: We have defined program related development work is customer funded development on our financial statements.

Michael Knowles: Through customer funded development programs, we are typically be providing a more integrated solution compared to the company's historic offerings. In addition, it establishes the Oss is an incumbent on what is almost always a multi year contract. As a result, we expect our business model the bet to benefit from a higher mix of annual recurring revenue and contracted multiyear backlogs in the future.

Michael Knowles: Development relationships are expected to take one to two years before leading to production orders. So as our business scales, we expect to benefit from steady quarter on quarter revenue growth, while building a solid foundation of potential large scale program opportunities.

Michael Knowles: As our business scales, we expect to benefit from steady quarter-on-quarter revenue growth while building a solid foundation of potential large-scale program opportunities. Additional customer momentum in the quarter included a pilot project to provide a liquid immersion cooled data storage system for use on a deployable ground station. This project has begun and is expected to lead to follow-on production orders in the coming quarter. We started shipping our latest Gen 5 4U Pro accelerator system to a large composable infrastructure provider, with expected shipments to total between $4 million and $6 million over the next three years.

Michael Knowles: Additional customer momentum in the quarter included a pilot project to provide a liquid emerging pooled data storage system for use in a deployable ground station. This project has begun and is expected to lead to follow on production orders in the coming quarters.

Michael Knowles: Already shipping our latest Gen. Five four you pro accelerator system to a large compose will infrastructure provider with expected shipments of total between $4 million or $6 million over the next three years.

Michael Knowles: It's important to note that we are early in our transformation as we grow revenues to more customers within the defense and commercial markets. At the same time, we will continue to feel the impact in the second quarter from the transition of a former media customer. Finally, we are not immune from softer European demand impacting our Brezner business and the prolonged U.S. government budgeting process resulting from an extended continuing resolution for fiscal year 2024, which affected certain contracts in the first quarter.

Michael Knowles: It's important to note that we are early in our transformation as we grow revenues to more customers within the defense and commercial markets at the same time, we will continue to feel the impact in the second quarter from a transition of our former media customer.

Michael Knowles: Finally, we are not immune from softer European demand impacting our president of business and the prolonged U S government budgeting process, resulting from an extended continuing resolution for fiscal year, 2024, which affected certain contracts in the first quarter as.

Michael Knowles: As we successfully transform our business and navigate a more fluid operating environment, we are focused on controlling the items under our control and maintaining a strong balance sheet. Near-term priorities include converting our growing pipeline into new bookings, maintaining a positive book to bill ratio, investing in product development, and supporting our expanding customer base. I'm also pleased with the progress we've made over the past three months in improving our working capital efficiency.

Michael Knowles: As we successfully transform our business to navigate a more fluid operating environment. We are focused on controlling the items under our control and maintaining a strong balance sheet.

Michael Knowles: Near term priorities include converting our growing pipeline of new bookings, maintaining a positive book to bill ratio investing in product development and supporting our expanding customer base.

Michael Knowles: I'm also pleased with the progress we've made over the past three months improving our working capital efficiency. These efforts allowed oss to generate $2 million in positive operating cash flow during the quarter, which we used to pay down term loans at <unk> and increase our cash position.

Michael Knowles: These efforts allowed OSS to generate $2 million in positive operating cash flow during the quarter, which we used to pay down term loans at Bresner and increase our cash position. As a result, we ended the quarter with a stronger balance sheet that included net cash and short-term investments of $12.9 million, compared to $11.8 million at December 31, 2023. We believe our balance sheet provides us with significant flexibility to support our long-term growth strategies, and we are committed to being good stewards of the company's capital.

Michael Knowles: As a result, we ended the quarter with a stronger balance sheet that included net cash and short term investments of $12 9 million compared to $11 8 million at December 31, 2023, we believe our balance sheet provides us with significant flexibility to support our long term growth strategies and we are committed to being good stewards of the company's capital.

Michael Knowles: As we look to the remainder of 2024, we are excited by the long-term strategies we are pursuing to scale our business and drive profitable growth. Our OSS segment ended the first quarter with a book to bill ratio of 1.1, and we anticipate positive order trends will continue throughout the remainder of the year as our growing pipeline successfully converts to orders and backlog. We continue to invest in the future, and we are finalizing a new multi-year strategy that I look forward to sharing with you on our next call.

Michael Knowles: As we look to the remainder of 2024, we are excited by the long term strategies, we are pursuing to scale, our business and drive profitable growth. Our Oss segment ended the first quarter with a book to Bill ratio of one one and we anticipate positive order trends will continue throughout the remainder of the year as our growing pipeline successfully converts to orders and backlog we continue to.

Michael Knowles: In the future and we are finalizing a new multi year strategy that I look forward to sharing with you on our next call I want to thank our team for their continued hard work and dedication as we pursue compelling growth strategies aimed at building greater value for our shareholders.

Michael Knowles: I want to thank our team for their continued hard work and dedication as we pursue compelling growth strategies aimed at building greater value for our shareholders. With this overview, I'd like to turn the call over to our CFO, John Morrison, to review our 2024 first quarter financial results in more detail. John, please go ahead.

Michael Knowles: With this overview I would like to turn the call over to our CFO John Morrison to review, our 2024 first quarter financial resorts in more detail John. Please go ahead.

John W. Morrison: Thank you, Mike, and good afternoon everyone. I believe OSS has a clear path to deliver strong financial returns over the coming years, and I look forward to updating investors on the progress we are making on future calls. Turning to our financial results for the first quarter ended March 31, 2024, our first quarter results reflect the continued transformation of our business model, as well as the effects of a fluid operating environment. Despite these impacts, I am pleased to report that our consolidated revenue, gross margin, and EBITDA met or exceeded our plan.

John W. Morrison: Thank you, Mike and good afternoon, everyone. I believe all SaaS has a clear path to deliver strong financial returns over coming years, and I look forward to updating our investors on the progress we are making on future call.

John W. Morrison: Turning to our financial results for the first quarter ended March 31, 2024, our first quarter result reflect.

John W. Morrison: The continued transformation of our business model as well as the effects of the fluid operating environment.

John W. Morrison: Despite this impact I am pleased to report that our consolidated revenue gross margin and EBITDA met or exceeded our plan.

John W. Morrison: As a reminder, the company operates in two operating segments. Our OSS segment operates in the United States and is primarily focused and involved in the design and manufacture of high-performance, rugged-edge processing, compute, storage, and connectivity systems. Our Brusher segment operates throughout Europe and is a system integrator with standard and custom all-in-one hardware systems and components.

John W. Morrison: As a reminder, the company's operating to operating segment.

John W. Morrison: All our Oss segment operates.

John W. Morrison: And it's primarily focused and involved in the design and manufacture high performing rugged edge processing compute storage and connectivity system.

John W. Morrison: Our Brasher segment operates throughout Europe and Asia.

John W. Morrison: Peter.

Andrew: Hey, Andrew.

John W. Morrison: All in one hardware system and component right.

John W. Morrison: Brezhnev also served as a channel for OSS products to the European and Middle East markets. The following comments are based upon a comparison of first quarter results in 2024 as compared to the first quarter of 2023. For the first quarter, we reported consolidated revenue of $12.7 million, which exceededs our guidance of $12.5 million. The 24.6% year-over-year reduction in consolidated revenue was primarily due to the timing of orders for data storage components from our large defense customers.

John W. Morrison: <unk> also serves as a channel for our products to the European and Middle East market.

John W. Morrison: The following comments are based upon comparison to first quarter results 2024, as compared to the first quarter of 2023.

John W. Morrison: For the first quarter, we reported consolidated revenue of $12 7 million.

John W. Morrison: This exceeds our guidance of $12 5 billion.

John W. Morrison: 44, 6% year over year reduction in consolidated revenue was primarily due to the timing of orders for data storage.

Speaker Change: Calling in from our largest defense customer.

John W. Morrison: Our orders from this customer can fluctuate on a quarterly basis by millions of dollars, which during the first quarter resulted in an approximately $4.4 million swing on a year-over-year basis. For 2024, we anticipate a similar amount of annual order volume for this customer as compared to the prior year.

John W. Morrison: Our orders from this customer can fluctuate on a quarterly basis.

John W. Morrison: Dawn, which during the first quarter resulted in approximately $4 $4 million swing on a year over year basis.

John W. Morrison: 2024, we anticipate a similar amount annual order volume for this customer as compared to the prior year.

John W. Morrison: In addition, we experienced a $1.5 million year over year reduction in revenue related to our former media customer. However, this was offset by approximately $1.9 million in incremental revenue to an existing aerospace customer and $600,000 in additional revenue to an existing autonomous truck customer. Our Brezhnev segment revenue decreased 12.7% to $7.1 million, as expected, and primarily due to the discontinuance and delay in certain programs. As Mike mentioned, in our first quarter financial statement, we started to break out separate revenue and cost line items associated with customer-funded developmental work. Customer-funded development typically represents non-reoccurring design and development work associated with the introduction of new products paid for by our customers.

John W. Morrison: In addition, we experienced a $1 $5 million a year over year reduction in revenue related to our former media customer.

John W. Morrison: It was offset by approximately $1 9 million in incremental revenues in 2008.

John W. Morrison: Iran, Aerospace customer and 600000 and additional revenue.

John W. Morrison: Tom.

John W. Morrison: Customer.

John W. Morrison: Our pressure pressure segment revenue decreased 12, 7% to $7 1 million as expected and primarily due to the discontinuance and delayed program.

John W. Morrison: As Mike mentioned in our first quarter financial statement, we are starting to break out separate revenue and cost line item associated with customer funded development work.

John W. Morrison: Customer funded development typically represent non reoccurring design and development work associated with the introduction of new product paid for by our customer.

John W. Morrison: We expect our customer-funded development revenue to grow throughout 2024, benefiting from the strategies we are pursuing to provide more integrated solutions to our growing customer base. Consolidated growth profit in the first quarter was 29.4% compared to 30.2% for the same period last year. This slight decline in our consolidated growth margin was primarily due to under-absorption of our production capability, but that was particularly offset by a more profitable mix of revenue at our Brezhnev segment.

John W. Morrison: We expect our customer funded development revenue to grow throughout 2024 benefiting from the strategies we have pursued.

John W. Morrison: To provide more integrated solution to our growing customer base.

John W. Morrison: Consolidated gross profit in the first quarter was 29, 4% compared to 32% same period last year.

John W. Morrison: This slight decline in our consolidated gross margin was primarily due to under absorption of our production capability.

John W. Morrison: Particularly offset by a more profitable mix.

John W. Morrison: Revenue at our <unk> segment.

John W. Morrison: Compared to the fourth quarter, our consolidated growth margin was down 430 basis points, primarily due to manufacturing absorption. Total first quarter operating expenses decreased 5.4% to $5 million, which was attributable to the elimination of prior year costs associated with our organization restructuring and outside professional services, as well as reduced R&D expenses, which were primarily offset by higher marketing and selling expenses during the quarter. For the first quarter, the company reported a net loss of $1.3 million, or $0.06 per share, compared to a net loss of $401,000, or $0.02 per share, in the prior year.

John W. Morrison: Compared to the fourth quarter, our consolidated gross margin was down 430 basis points, primarily due to manufacturing absorption.

John W. Morrison: Total first quarter operating expenses decreased five 4% $5 million, which was attributable to the elimination of prior year costs associated with our organization restructuring.

John W. Morrison: <unk> professional services as well as reduced R&D expenses, which are primarily offset by higher marketing and selling expenses during the quarter.

John W. Morrison: For the first quarter the company reported a GAAP net loss of $1 3 million or <unk> <unk> per share compared to a net loss of 401000 or.

John W. Morrison: Or two cents per share in the prior year.

John W. Morrison: The company reported a non-GAAP debt loss of $931,000 or $0.04 per share compared to a non-GAAP net income of $90,000 or $0.00 per diluted share. The adjusted EBITDA, a non-GAAP metric, was a loss of $456,000 compared to a positive EBITDA of $633,000 in the prior year's first quarter. Now, looking at the balance sheet in more detail, as of March 31, 2024, OSS had cash, cash equivalents, and marketable securities of $12.9 million and total working capital of $34.3 million compared to total cash and cash equivalents and marketable securities of $11.8 million and total working capital of $30.6 million on December 31, 2023.

John W. Morrison: The company reported a non-GAAP net loss of 931000 or four cents per share compared to non-GAAP net income of 91.

John W. Morrison: Sure.

John W. Morrison: Adjusted EBITDA, a non-GAAP metric was a loss of 456000 compared.

John W. Morrison: Compared to a positive EBITDA of 633000 in the prior year first quarter.

John W. Morrison: No.

John W. Morrison: Looking at the balance sheet in more detail as of March 31, 2024.

John W. Morrison: <unk> had cash cash equivalents and marketable securities of $12 9 million and total working capital of $34 3 million compared to total cash and cash equivalents and marketable securities of $11 8 million and total working capital of $36 million I missed.

John W. Morrison: Remember 31 2023.

John W. Morrison: OSS had no borrowings outstanding on its $2 million working revolving line of credit on March 31, 2024, and December 31, 2023, respectively. The company's Brezhnev operation had a consolidated balance outstanding on its term loans on March 31, 2024, of $1.4 million, down from $2.1 million on December 31, 2023 and $3.2 million as of March 31, 2023. For the three months ended March 31, 2024, OSF generated $2 million in cash from operating activities compared to $24,000 for the three months ended March 31, 2023. Looking forward.

Speaker Change: Oh no.

John W. Morrison: No borrowings outstanding under its 2 million dollar working revolving line of credit on March 31 2024.

John W. Morrison: December 31 2020.

John W. Morrison: The company's pressure operation at our consolidated balance sheet.

John W. Morrison: On a term loan on March 31, 2024 of $1 4 million down $2 1 million on December 31, 2023, and $3 2 million as of March 31 2023.

John W. Morrison: For the three months ended March 31, 2020 for Oss share generated $2 million in cash from operating activities compared with 24000 or three months ended March 31 2023.

John W. Morrison: Looking forward.

John W. Morrison: We expect revenue of $13 million in the second quarter of 2024. Our revenue guidance for the second quarter of 2024 includes expected program delays from certain defense customers as a result of the prolonged government budget process and continuing resolution for the fiscal year 2024 and softer European customer demand for the near term. While we expect revenue in the second quarter to be down on a year-over-year basis, we believe we will continue to experience sequential revenue growth throughout the year.

John W. Morrison: We expect revenue up $13 million in the second quarter of 2024.

John W. Morrison: Our revenue guidance for the second quarter of 2024 includes expected program.

John W. Morrison: Certain defense.

John W. Morrison: Customers as a result of the Pearl on government budget process, and continuing resolution and the physical year 2024.

John W. Morrison: Ed.

John W. Morrison: Softer European customer demand.

John W. Morrison: In the near term.

John W. Morrison: While we expect revenue in the second quarter weighed down will be down on a year over year basis. We believe we will continue to experience sequential revenue growth throughout the year. This will be supported by a continued positive book to bill ratio absolutely execute.

John W. Morrison: Burden on converting our growing opportunity pipeline.

John W. Morrison: In addition, European demand is expected to improve in the second half of 'twenty for April 2024, and higher bookings in our core business to help support year over year revenue growth and positive consolidated EBITDA in the coming quarter.

John W. Morrison: This will be supported by a continued positive book-to-bill ratio as we execute on converting our growing opportunity pipeline. In addition, European demand is expected to improve in the second half of 2023 and 2024, and higher bookings in our core OSS business to help support year over year revenue growth and positive consolidated EBITDA in the coming quarter. This completes our financial review for the quarter, and we'd like to now open the call to questions.

John W. Morrison: This completes our financial roughly for the quarter I would like to now open the call question.

John W. Morrison: Jennifer.

Operator: At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star and two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue, and we'll take our first question from Max Michaelis with Lake Street Capital.

Speaker Change: At this time, if you would like to ask a question. Please press the star and one on your telephone keypad you may remove yourself from the queue at any time by pressing star and to once again that is star one to ask a question, we'll pause for a moment to allow question.

Maxwell Scott Michaelis: Thank you.

Maxwell Scott Michaelis: And we will take our first question from Max <unk> with Lake Street capital markets.

Maxwell Scott Michaelis: Please go ahead. Hey guys, thanks for taking my questions. First one for me: It's nice to see Booking make some kind of return to growth here. I was wondering if you could share a percentage increase from this quarter and maybe a bookings growth number for Q3.

Maxwell Scott Michaelis: Hey, guys just go ahead.

Maxwell Scott Michaelis: Hey, guys. Thanks for taking my questions first one for me and it's nice to see bookings and a return to growth here I was wondering if you could share a percentage increase from this quarter and maybe a bookings growth number for Q2.

Maxwell Scott Michaelis: Thanks for the question, Max. I was thinking you were asking if we had a percentage growth year-on-year for bookings? Yeah, maybe.

Maxwell Scott Michaelis: Thanks for your question, Matt I would think Youre asking if we have the <unk>.

Speaker Change: Percentage growth year on year for bookings yes.

Maxwell Scott Michaelis: Yeah, maybe for this quarter and then maybe what your expectation is for Q2.

Max: Yes, maybe for this quarter and then maybe what are your expectations for Q2.

Michael Knowles: I don't, unless John might have had those numbers handy, but we're expecting to continue to see positive or book-to-bill ratios greater than one as we go into Q2 and the following quarters in the fiscal year.

Speaker Change: I don't know John has had those numbers handy, but we're expecting that to continue to see positive book to bill ratios greater than one.

Michael Knowles: We go into Q2 and the following quarters in the fiscal year.

Speaker Change: Alright, Thanks, guys and then a couple more from me.

Maxwell Scott Michaelis: Thanks, guys. And then a couple more from me.

Maxwell Scott Michaelis: Gross margin seem to outperform I think correct me if I'm wrong prior expectation was for 32% to 33% and the Oss segment. I think you guys came in little over 34% and what should we be expecting for maybe the outer quarters are Q2 Q3 Q4.

Maxwell Scott Michaelis: The outperformance can continue or you guys expect to return to the mall.

Maxwell Scott Michaelis: Gross margin seemed to outperform. I think, correct me if I'm wrong, prior expectation was for 32 to 33% in the OSS segment. I think you guys came in a little over 34%. What should we be expecting for maybe the outer quarter or Q2, Q3, Q4? Is this outperformance going to continue, or do you guys expect it to return to the norm?

Maxwell Scott Michaelis: So you're going to be turning to a norm of about 32, 5% for <unk> standalone and for pressure, you'll see more in the 23% to 24% range as we go throughout the year and as E C.

John W. Morrison: So you're going to be returning to a norm of about 32.5% for OSS stand-alone, and for Brezhnev, you'll see more in the 23-24% range as we go throughout the year and as you see our revenue increase over the period of time.

John W. Morrison: Our our revenue increase over the period of time.

Maxwell Scott Michaelis: Alright, and then last one for me. I know you guys are seeing some delays on the defense side, but I was wondering if you've seen any order cancellations.

Speaker Change: Alright, and then last one I know you guys are seeing some delays on the defense side I'm wondering if you've seen any order cancellations.

Michael Knowles: On our side, we have not seen any order cancellations, Max. Realistically, the biggest impact has been because of the CR. So there's a few bids that we have in that are tied to new programs. The government's not allowed to release new programs or award new programs under CR. So that CR for the Defense Department, I believe it was April, mid-April, when it was finally lifted, or the budget was approved. So the government has now been spending the last few weeks and months aligning and getting money flowing and awarded. So there are no cancellations in the forecast or in our pipeline.

Speaker Change: On our side, we have not seen order cancellations match.

Michael Knowles: Let's say the biggest impact has been because of the CR. So theres a few bids that we have in that are tied to new programs. The government has not allowed to release new programs.

Michael Knowles: Award new programs under CR.

Michael Knowles: CR for the Defense Department.

Michael Knowles: I believe it was April mid April when it was finally lifted or other budgets approved so the government now has been spending the last few weeks and months.

Michael Knowles: Aligning and getting money flowing in awarded so no cancellations in the in the forecast are in our pipeline.

Maxwell Scott Michaelis: Okay, and then maybe other uses outside of the defense in other commercial markets?

Michael Knowles: Okay, and then maybe other outside of the defense and other commercial markets.

Michael Knowles: Yeah, we have not seen cancellations in commercial either. Just some softness, if you will, as we mentioned in Fresno with the European economy. But as we've checked in with experts and data there, right, there's still an expected recovery in the second half of the year.

Maxwell Scott Michaelis: Yes, we have not seen cancellations.

Michael Knowles: And commercial are either just some softness if you will as we as we mentioned in prisoner with the European economy, but.

Michael Knowles: But as we've as we've checked in with experts and data there right. There is still an expected recovery in the second half of the year.

Maxwell Scott Michaelis: Alright guys, thanks for taking my questions.

Speaker Change: Alright, guys. Thanks for taking my questions.

Maxwell Scott Michaelis: And thanks for having me.

Speaker Change: Thanks, Craig.

Operator: Once again, if you would like to ask a question, please press star and one on your telephone keypad. We will take our next question from Joe Gomes with Noble Capital. Please go ahead, sir.

Speaker Change: Once again, if you would like to ask a question. Please press star and one on your telephone keypad.

Operator: We will take our next question from Joe Gomes with Noble capital. Please go ahead Sir.

Joseph Anthony Gomes: Good afternoon, and thanks for taking the question. Thank you. So when you talk, I wonder if you could kind of size possibly when you're transitioning away. I understand, you know, we all do for how big the legacy media customer was. But when you talk about the niche enterprise customers, what size of that or that type of business you're transitioning away from?

Joseph Anthony Gomes: Good afternoon, and thanks for taking the questions.

Speaker Change: Hi, Jeff.

Joseph Anthony Gomes: So.

Joseph Anthony Gomes: When you when you talk about I Wonder if you could kind of size, possibly when you're transitioning away I understand you know, we all do for how big the legacy media customer wise, but when you talk about the niche.

Joseph Anthony Gomes: Enterprise customers what size of that or is that type of business you're transitioning away from.

Joseph Anthony Gomes: I think you're asking though, what was the size of the media customer business we're moving away from?

Speaker Change: Thanks, Joe I think you were asking what was the size of the.

Joseph Anthony Gomes: The media customer business, we're moving away from.

Joseph Anthony Gomes: Now, we all knew that when you also say niche enterprise customers that you're transitioning away from, just trying to determine what size of revenue contribution those customers were making to the company.

Joseph Anthony Gomes: No. We all we all knew that when you're off you also say niche enterprise customers that you're transitioning away from it.

Joseph Anthony Gomes: I'm just trying to get what size of contribution revenue contribution those customers we're making.

Joseph Anthony Gomes: To the company.

Michael Knowles: Yeah, they were minimal compared to the media customer.

Speaker Change: Yes. They were they were they were minimal comparative to the media media customer.

Michael Knowles: Okay.

Michael Knowles: And then.

Joseph Anthony Gomes: Amen. You know, it sounds like there is a lot of opportunity there. You guys think, you know, you're going to see some after the second quarter, you know, some sequential growth, but really, what's going to give you that confidence? You know, there just seems to be, we've seen many delays, a lot of fits and starts, you know, historically. And so, just trying to get a better handle on what's going on. What is giving you that confidence that we're actually going to start to see, you know, sequential revenue growth here in the back half of the year?

Michael Knowles: You know it sounds you know a lot of opportunity. There do you guys think you're going to see some after the second quarter now some sequential growth, but really what's going to give you that confidence yeah. There just seems to be you know we've seen many did.

Joseph Anthony Gomes: <unk> a lot of fits and starts.

Joseph Anthony Gomes: Historically, and so just trying to get a better handle on what is what is their giving you that confidence that we're actually going to start to see some.

Joseph Anthony Gomes: Sequential revenue growth here in the back half of the year.

Michael Knowles: Yeah, thanks, Joe, for that question. I think it's a couple of things.

Joseph Anthony Gomes: Yeah, Thanks, Joe for that question.

Michael Knowles: I think it's a couple of things. So right now we have we have multiple bids that are out for some of these are customer funded development programs.

Speaker Change: And a couple other multiyear contract opportunities that we have out there. So that we will expect to see from Q2 on to see those awards are those are the ones that will start to lay in.

Michael Knowles: So right now, we have multiple bids that are out for some of these customer-funded development programs, and a couple other multi-year contract opportunities that we have out there. So we'll expect to see those awards from Q2 onwards. Those are the ones that will start to lay in the ability to have a backlog built in. So that gives me confidence. When I joined the company over a year ago, we did not have the scope or scale of these kinds of programs that we already had proposals out and we're pursuing.

Michael Knowles: On quarter ability to have have backlog built in so that gives me confidence.

Michael Knowles: When I joined the company over a year ago, we did not have that.

Michael Knowles: Scope or scale of these kinds of programs that we already had proposals out and were pursuing so that gives me. Some good confidence. The other one is I'll take you back to the comment I made as we've gone through and kind of reorganized and reestablished our pipeline.

Michael Knowles: So that gives me some good confidence. The other one is, I'll take it back to the comment I made, as we've gone through and kind of reorganized and reestablished our pipeline, you know, around 70% of our pipeline is built out on customers that would be bringing multi-multi-year type programs and opportunities to the company. And as we pursue those, it just continues to build the floor of consistent available quarter on quarter, year on year revenue that allows us to build off and drive that growth.

Michael Knowles: Around 70% of our pipeline is built out on.

Michael Knowles: Customers that would be bringing more multiyear type.

Michael Knowles: Programs and opportunities to the company and as we prosecute those it just continues to build a floor of a consistent available quarter on quarter year on year revenue and that allows us to build off and drive that growth. So.

Michael Knowles: So given the bids that we already have out and the ones that we have forecasted will be submitting between Q2, three, and four this year, that's what's giving me the confidence that we can drive the sequential growth for this year and establish that kind of firm foundation for that kind of multi-year revenue opportunity.

Michael Knowles: Given the given the bids that we already have out and.

Michael Knowles: The ones that we have forecasted will be submitting between Q3 and four this year. That's just giving you the confidence that we have to drive a sequential growth for this year and establish that kind of a firm foundation of of kind of multi year revenue opportunities.

Joseph Anthony Gomes: Great, thanks. Thanks for that. And then I know it's very early days, but just maybe a little bit of color on, you know, you hired Craig and are looking at international defense and opportunities and some international commercial opportunities, and just maybe kind of give us an update on progress to date.

Speaker Change: Okay, great. Thanks, Thanks for that and then I know, it's very early days, but just maybe a little.

Joseph Anthony Gomes: Color here on you know you hired Craig and looking at that international defense opportunities in some international commercial opportunities.

Joseph Anthony Gomes: Maybe kind of give us an update on <unk>.

Joseph Anthony Gomes: Progress to date.

Michael Knowles: Yeah, we're making steady progress, I think, on that effort. Craig was a key addition. There's a lot just in the USDOD space that he's bringing to bear and into the pipeline given his experience in the markets. So we're really excited about leveraging that. He's already making an impact in just the few short weeks that he's been here.

Joseph Anthony Gomes: Yes.

Joseph Anthony Gomes: Steady progress I think on that effort. So Craig was a key addition, there is a lot just in the U S. D O D space that he's bringing to bear into the pipeline given us has experienced in the market. So we're.

Michael Knowles: Really excited about leveraging that he is already making an impact in just a few short weeks that he's been here.

Michael Knowles: But in addition, his reach into Canada and some other areas has started to open up some avenues for us to procure and pursue and look at to build our pipeline and our opportunities to go after, given his experience in those markets. And I'd say the other thing is we've really spent a lot of time in the last year continuing to utilize our Bresner facility as an opportunity for a channel to market for a lot of the products we're developing out of the US site here.

Michael Knowles: But in addition, as his reach into Canada, and some other areas starting to open up some some avenues for us to procure and pursue and look at to build our pipeline and our opportunities to go after given his experience in those markets and I'd say the other thing is we've really spent.

Michael Knowles: In the last year, a lot of time continuing to.

Michael Knowles: Utilize our <unk> facility as a as an opportunity for channel to market for a lot of the products, we're developing out of the.

Michael Knowles: And they've done a really good job, year on year, growing the amount of product they pull through and sell. We've been able to use that channel by training them and supporting their technical ability and their technical ability to operate with that in our products in Europe. But we've really expanded through trade shows and outreach all across Europe, the UK, and into the Middle East with our reach in just the last year. So that's another way we're expanding our international reach with the existing resources that we have. As we continue to grow the company, and as it becomes affordable, we'll look to expand upon that even more.

Michael Knowles: U S site here and they've done they've done a really good job year on year growing the amount of product they pull through in itself.

Michael Knowles: We've been able to use that channel through training them.

Michael Knowles: And supporting their technical ability and their technical ability to operate with that and our products.

Michael Knowles: In Europe, but we've really expanded through trade shows and outreach all across Europe. The U K.

Michael Knowles: And to the Middle East with our reach in and just the last year. So that's another way, we're finding our expanding our international reach with the existing resources that we have.

Michael Knowles: As we continue to grow the company and as affordable, we'll we'll look to expand upon that even more.

Joseph Anthony Gomes: Great. Thanks for taking the question.

Speaker Change: Great. Thanks for taking the questions.

Joseph Anthony Gomes: Thank you, Joe. Once again, thank you for tuning in.

Speaker Change: Thank you Joe and thank you Jeff.

Operator: Once again, if you would like to ask a question, please press star N1 on your telephone keypad. We will pause for a moment to allow questions to queue. It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Speaker Change: Once again, if you would like to ask a question. Please press star and one on your telephone keypad, we will pause for a moment to allow questions to queue.

Operator: Okay.

Operator: It appears that we have no further questions at this time I will now turn the program back over to our presenters for any additional or closing remarks.

Michael Knowles: No additional remarks, Jennifer. We thank you for your support, and we can transition to ending the call.

Speaker Change: No additional remarks, Jennifer we thank you for your support and we can transition to earnings call.

Operator: Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

Speaker Change: Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

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