Q2 2025 One Stop Systems Inc Earnings Call
Please stand by your program is about to begin.
Of these statements, please also be advised that actual results could differ material from those stated or implied by the forward-looking statements due to certain risk and uncertainties including those described in the company's most recent annual report on form, 10K, subsequent quarterly reports on form, 10q current reports on Form 8K. And recent press releases, please read these reports and other future filings. That OSS will make with the SC SEC. OSS disclaims, any duty to update,
OSS disclaims any duty to update or revise its forward-looking statements except as required by applicable law. It is now my pleasure to turn the conference over to OSS President and CEO, Mike Knowles. Please go ahead, sir.
Thank you, Aaron. Good morning, everyone, and thank you for joining today's call. I'm pleased to report another quarter of progress highlighted by year-over-year growth in both revenue, and gross margin for the second quarter. Most notably we ended the quarter with 1 of the highest level of bookings in our history. This strong start to 2025, underscores, the solid foundation. We have built as we capitalize on increasing demand from both defense and Commercial customers for our rugged, Enterprise class compute Solutions,
As a reminder, we implemented several strategic actions in 2023 and 2024 to reposition OSS for growth these included. Strengthening our leadership team with proven defense industry. Executives launching a multi-year, strategic plan rebuilding, our go to market approach expanding our sales Pipeline and during higher growth margins. I'm proud of what our teams have accomplished across each of these initiatives and believe we're well positioned for strong growth and improved profitability in the second half of 2025 and Beyond.
We continue to pursue strategic growth opportunities that leverage our High Performance Edge compute solutions to meet the growing demands of AI, machine learning, autonomy, and sensor fusion at the edge. Our pipeline is expanding across leading defense organizations and advanced commercial enterprises that seek trusted, proven partners like OSS.
As I outlined last quarter, our sales strategy centers on 3 priorities. First, we are pursuing development work with prime platform vendors to design OSS and to key platforms and become the incumbent supplier. We believe this will result in positioning OSS as the best value and provider of choice going forward.
Next we are focused on expanding the number of OSS systems that are integrated into existing platforms and customer systems.
Finally, we are leveraging our integrated compute and storage architecture to deliver, higher value TurnKey Solutions.
Building the success of these priorities. Our OSS segment is generated 1 of the highest levels of bookings in our history, over the first half of the Year, totaling 25.4 million and representing a book to Bill ratio 2.3
In q1, we secured a record 6.5 million contract from the leading defense and technology company for 80, high performance, servers and field programmable Gatorade systems engineered for mobile, tactical, military environments.
This wind represents the first large-scale success from our strategy aimed at our goal of establishing OSS as an incumbent supplier on Next Generation. Defense platforms.
We also received a third order from a major defense, contractor in Asia for an autonomous Maritime application. The latest 340,000 order. Follows a $200,000 award in December 2024 and signals the transition from system development to production deployment based on current forecasts, and the expected expansion of our customers product line production, we expect approximately 4 million in cumulative sales between 2026 and 2029,
In Q2, we received new awards from the US Navy and the leading crime defense, contractor to support the p8a, Poseidon reconnaissance aircraft, these awards for 5 million and 3.9 million respectively, showcase our intent, to become the compute and storage provider of choice for Next Generation, AI driven applications at the edge as well as our platform focused growth strategy.
Today we have recognized lifetime, contracted revenue of over 50 million on the PA platform. In addition, we have previously announced that 5 year, sole source, supplier agreement, and a 5 year extension for support which involves equipping, the p8 aircraft and ground base stations with high-capacity flash storage systems, spare flash storage, canisters and related, Support Services.
We also received a million dollar production order from a leading Medical Imaging, OEM underscoring the growing relevance of our compute and Storage Solutions in healthcare. We believe the total value of this program will represent over 25 million of Revenue over the next 5 years.
Across our pipeline demand remains strong supported by growing interest for our enterprise-class compute Solutions, and we anticipate further commercial and defense announcements in the coming months.
Revenue within our browser segments have been in line with our targets and president remains on track to achieve higher sales and profitability for 2025 as compared to last year's results.
Looking ahead. We Believe OSS is uniquely positioned to capitalize on multi-year growth opportunity driven by accelerating adoption of artificial intelligence machine learning, autonomy and Sensor Fusion at the edge.
If these requirements become increasingly Central to defense and Commercial Innovation, customers are turning to trusted Partners like OSS with proven, expertise, in rugged, Enterprise class compute Solutions.
In support of this, we've increased R&D investments in 2025 to capitalize, on emerging opportunities. We see developing within our markets
In July, we announced panto the world's first pcie gen 5 GPU expansion platform. Purpose-built for commercial data centers. This product was designed to address the growing composable infrastructure Market. A market expected to grow from 5.87 billion in 2024 to 28.44 billion by 2031, according to verified market research.
This launch is aligned with our commercial strategy to deliver standard products in addition to customized solution and marks pivotal steps in osszes, evolution toward leaving the transformation of composable infrastructure and Enterprise scale. AI compute. We also generating new commercial opportunities
Panto is engineered to bring high density, Enterprise class, compute optimized, for composable, infrastructure, environments.
It enables dynamic resource pooling and real-time orchestration of compute, storage, and networking to efficiently scale workloads up or down based on application demand.
PTO is ideally suited for space, constrained deployments such as remote data centers, corporate campuses hospitals and research, intensive, universities, where performance density and operational, flexibility are critical.
We're excited about the long-term commercial opportunity. This product and platform represents, we're actively engaged with potential customers about deploying our new data center solution which we expect will begin contributing to revenue in 2026.
Beyond the potential of our kanso product. We are executing against a growing pipeline in both commercial and defense markets.
Our delivery of a rugged compute solution for combat vehicles. For the US Army remains under test and evaluation which is expected to continue for the remainder of the year.
We continue to transform the business and I encouraged by the growing number of multi-year platforms. We are now supporting as demonstrated by the continued growth on the p8 for the US Navy. And recently, they announced ongoing production orders for medical imaging device company and the autonomous Maritime product for a leading defense Prime in Asia.
Pursuing these types of platform opportunities, is an important component of our strategy.
We believe that our booking growth to date in 2025 points to sustained demand for our products. We are receiving a more diverse mix of larger orders that are extending over multiple periods compared to other order Trends in Prior years.
These higher quality orders further, support our strategy to build more predictable, revenue streams, and we are building backlog for 26 2026 as our business scales to meet rising market demand.
Consistent with our expectations for stronger. Second half performance in 2025, we expect OSS segment Revenue, approximately 19 million dollars in the second half of the year compared to 11 million. In the first half of this year at this level of second half Revenue. We would expect positive evida in our OSS segment in the second half of 2025. As a result. We expect full year Revenue within our OSS segment of approximately $30 million representing over 20% year-over-year growth.
On a Consolidated basis. We continue to expect revenue of 59 million to 61 million for the full year of 2025 based on current bookings orders and market conditions. In addition, we expect evid to break even for the full year of 2025
I'm excited about the opportunities ahead and look forward to reporting on continued execution and success in the quarters to come. Finally, I want to take thank our entire team for their dedication Innovation and Relentless focus on delivering results for our customers and shareholders.
So, with this overview, I'd like to turn the call over to Dan.
Thank you, Mike and good morning to everyone on today's call.
In Q2, we achieved strong, operating, performance, and continued to build momentum for sustained growth.
We believe that OSS segment both bill of 2.6 for the second quarter and 1.63 for the trailing. 12 months demonstrates that our technology is resonating with customers and validates. Our strategic focus on securing platforms positions, with differentiated Edge, Computing technology.
With record bookings. In the first half of 2025, we are on track to achieve our full year guidance and to execute on our robust growth and profitability objectives for the second half.
Appointment.
For the second quarter, we reported Consolidated revenue of 14.1 million compared to 13.2 Million last year, and 12.3 million for the 2025 first quarter.
The 6.9% year-over-year increase in Consolidated. Revenue was a result of approximately 239 K of higher OSS segment, revenue and 669, K of higher Gregor segment Revenue.
Second quarter sales were in line with our expectations and as Mike outlined in his prepared remarks, we can continue to expect revenue and profitability to grow at a higher rate in the second half of 2025.
Consolidated gross margin in the second quarter expanded 610 basis points to 31.3% compared to 25.2% in the prior year quarter.
On a segment basis, gross margin for the company's OSS segment improved to 41.3%, compared to 24.9% in the same period a year ago.
The 16.4 percentage Point increase was due to the non-recurrence of an inventory charge recognized in last year's second quarter, as well as a more profitable mix of products shipped this year.
Year to date OSS segment. Gross margin is benefited from both operational efficiency and a favorable product mix.
We do expect some level of variability in Gross margins quarter to quarter based on absorption product, mix and program life cycle on a sustaining basis. We continue to Target OSS segment margins in the mid-30s to low 40s for full year 2025. We now expect OSS segment margins in the 40% range up from our prior guidance of mid to upper 30s.
The companies, Fresno segment had gross margin percentage of 24.3% in the second quarter.
The 120 basis, point decrease from the same period last year was primarily due to product mix.
Total second quarter, operating expenses increased 11.6% to 6.2 million.
This increase was predominantly attributable to higher R&D, expenditures, reflecting targeted investment in new product development.
For the second quarter, the company reported a gap. Net loss of 2 million, or 9 cents per share compared to a net loss of 2.3 million or 11 cents per share in the prior year quarter.
Company reported a non-gaap, net loss of 1.5 million, or 7 cents per share. Compared to a non-gaap, net loss of 1.8 million, or 9 cents per share in the prior year quarter.
Adjusted ebita. A non-gaap metric was a loss of 1 million compared to an adjusted Eva doll loss of 1.4 million in the prior year. Second quarter.
Turning to the balance sheet, as of June 30th, 2025 OSS has total cash and short-term Investments of 9.5 million.
no borrowings outstanding on our $2 million, revolving line of credit,
And a Consolidated balance outstanding on our term loans of 1.2 million.
For the 6 months ended June 30th 2025 OSS used 1.5 million in cash from operating activities compared to operating cash flow of 1.2 million for the 6 months. Ended June 30th 2024
The change from the prior year, period was primarily due to the timing of working capital.
As Mike mentioned, we believe we are on track to achieve our 2025 annual guidance, including over 20% year-over-year revenue growth for the OSS segment and IBA breakeven at a consolidated level.
Our strong first half bookings, give us valuable visibility into our second half, Grant.
As we move through the second half of the year, we are focused on disciplined execution, including managing our supply chains and achieving our planned production ramps.
We also remain focused on continuing to drive growth by investing in our technology and securing new platform opportunities that will provide sustained multi-year, revenue streams.
I look forward to updating you on our success.
This completes our prepared remarks. Operator, please open the call to questions.
Certainly at this time, if you'd like to ask a question, please press the star, then 1 on your telephone keypad, you may withdraw your question Anytime by pressing star then 2 again. It is star then 1 to ask a question and we can take our first question from Scott Sir with Roth Capital. Your line is now open.
Hey, good morning. Thanks for taking my questions. Um, great job on building the backlog and and providing that Outlook into the the second half of this year.
It sounded like things were getting better there or you guys just being conservative and then looking out to uh 2026. I know it's early but you're building a nice uh, Pipeline and and opportunity set. Um, does that mix in terms of OSS and brezner. Continue off of the uh the second half base.
I'll let Dan give you a quick summary of how the president line is coming in, but we've seen we've been happy with their performance compared to last year and, uh, and the growth they're showing. And we have seen, uh, Market recovery in, uh, in the economic Outlook in Germany and Europe. But also, if you've been watching the news, um, the uh, increased interest in the defense Market in Germany, and Europe now has uh, has started to uh pose opportunities that would go into 2026 and Beyond. So we'll be looking to hopefully take advantage of some of those but I'll let Dan give you some color on the mix between OSS and president.
Yes, Scott, what I'd add. So in our guidance we've modeled brezner second half roughly in line with the first half, uh, you know, certainly, as we put our guidance together, we track a range of opportunities and risks and, you know, the strong backlog, strong bookings from the first half of the year. Um, do do give us a lot of opportunity, um, to to drive some upside, but we are, we are remaining cautious in our Outlook at this point. Um, mostly, because of the significant ramp that we have in the second half of the year. Um, and and, you know, all
Of the work that we have to do with our supply chain and with our production to make sure we're able to achieve that. So I I think there's opportunities but we are remaining cautious in our guidance.
Gotcha. And and just in extrapolating, uh the strength in in core OSS of 20% growth, does that continue into 2026 given what you're seeing right now in terms of the early Tea Leaves of wins in the existing pipeline?
Pipeline looks out for for multiple years. Uh, we continue to believe there's opportunity, um, for us to continue to grow OSS at that rate, so the ratio of uh, of Revenue compared to between OSS and brezner will uh will change as time goes forward because of the anticipated larger growth rates in OSS compared to the growth. We'll see in Fresno. Um, the growth rates expected for president will be consistent with historical growth that we've seen in Fresno that they're back in line to to uh, forecast to achieve this year.
Great, uh, very helpful and and Mike, um, on the data center Front, um, you've had some comments on the past. This opportunity is starting to open up to you guys. I'm wondering, if you could, uh, provide us with some some quick thoughts and comments in terms of what you're seeing in that Pipeline and what's going on from an AI partnership standpoint.
Yeah, I think on uh, yeah, we're we're excited about these products. So we've uh, we've seen the data center markets, making a a, a quick shift here recently into higher wattage available gpus and card sets. And so, we've adjusted some of our product lines to quickly, uh, take advantage of that and being able to provide high density GPU and card at the much higher wattage, um, card sets, and so dissipating that heat making available. So we've been able to rush some of those markets. Those products, like, Ponto to the market, to help, uh, some of our customers, and partners in that field. So we're, uh, as I mentioned in the comments, we're looking into 2026 to see those start to, uh, start to move forward along with just some of our standard products that we have aligned to the data center, um, especially around the GPU expansion servers. And then, we'll start to see, um, the next generation of pcie, uh, start to come to the market and, uh, we'll, uh, we'll have products aligned for that also. So,
Uh, we're hopeful to see a pickup in the data center business as we continue through the quarters. We'll we'll keep you uh updated on that. And then uh I'm sorry it's got the last part of your question was oh um a AI a Partnerships uh from the software vendors. I think you've been talking to various guys to help pull you through the channel.
Yeah, exactly. So uh, so we continue those as a normal course of business. Um, we continue to line with new and existing, uh, our partners as they roll through there, um, and, uh, in a line on either more fully Integrated Solutions for our customers and or for our product sets, um, can serve as the base of, uh, compute, uh, for AI companies. Uh, we continue to move through those as we formalize more strategic relationships. Uh, we'll look to announce those
Otherwise, tariff impact. Um, any updated thoughts on that front in terms of limited component availability or pricing headwinds. Thanks
Elements of Technology around AI accelerators and other. And yes, we, uh, we adjust and work, uh, our, our adjusting, our product line and strategy as we go through as that market adopts. We have a number of core customers that, uh, that we keep aligned with and where their product roadmap needs. Go and so our chief product officer and their, uh, their team stay aligned with that. So I think you'll see us continue to make announcements about, uh, the new products and product alignment as we continue through the quarters and well into next year.
Yeah, and on on a supply chain front. Uh, you know, I just add. So uh, certainly with the higher uh, production that we have in the second half of the Year. We're, we're ordering larger volumes from our suppliers and so that is impacting. Lead times we are seeing longer lead times for some of those components we're working really closely with our supply chain driving. Uh, our suppliers make sure we're able to mitigate those lead time risks. And uh, we think that all those risks are kind of captured in our, in our guidance. But it's it's a key Focus. Uh, supply chain execution will be a key driver for our second half performance.
Great. Thanks so much.
Thanks Scott.
And we can take our next question from Eric Martin newsy with Lake Street, your line is open.
Yeah, I just wanted to clarify your comment on the, the broader you talked about kind of uh anticipating normal growth rates. I've just got uh, I'm struggling with what's normal because, you know, we had, we were up 10% in 2023 down 6%, in 2024 and, you know, based on 2025, I'm looking at maybe up 2%, but I thought I've heard you describe it to kind of grow at the, the rate of the overall it rate, which I would put in the kind of 5 to 9% range, so, uh, just help me out there. What is normalized growth for pressner?
Yeah, so for
You know, we've guided Consolidated Revenue 59 to 61 million 30 million for OSS segments, so that that implies, you know, brezner segment at about 30 to 31 million, uh, for the year, you know, a as I, as I said before we we track a range of risks and opportunities to that right now, uh, that that's probably biased towards opportunity. Um, but particularly because of the supply chain lead times, that that, that we've seen on the OSS segment, um, and the significant production ramp that we have, we've we've kind of taken the conservative position and and held our guidance. Um, but we are, we are continuing to drive for for opportunity.
but I'm asking more of a 2026 question I guess for
What is yeah? What
Yeah. So so in general, you know, our our our longer term Outlook. As we look into 26 27, um, you know, we see the OSS segment growing at about 20% a year 2025 percent and the brightener segment, we model in the range of 7 to 9%.
Okay. That's that's what I was looking for. Thanks. Um, uh, Mike, you uh, you know, you've had a chance or I guess maybe your customers have had a chance to digest the the 1, big beautiful, bill act, um, their business. And I'm just curious to know, um, since the passage on the 4th of July and today, what are you hearing about the potential impact to your pipeline in 2026 2027?
Yeah, Eric, um, you know, not seeing the...
Significant change to kind of the pipeline and the way we figured out in the forecast, we're looking at 26 and 27. Uh, the markets inside of Defense are are fairly well aligned, uh, especially, uh, the markets where we pursue that have to do with sensor processing, Fusion, Ai and autonomy. Um, so those markets have held strong continued investment. Um, we've been specifically more aligned to watching the timing of, uh, of when the bills will be, um, released into 2025.
Outlook. Um, because we have seen, um, it existed prior to this Administration, the desire to move into some more commercial applications, uh, under the new Administration. Um, that desire has increased and their hope is really to accelerate some of that timing. So we have seen some early precursor requests for information, requests for architecture thoughts, uh, uh, permeating out. So we'll hopefully that will transition into awards. As I mentioned, uh, it's really the timing I would say that we, uh, keep an eye on more so than the, uh, than our concerns about any, uh, growth or change to the pipeline or scope in the future.
Yeah. Um, you talked about the US Army combat vehicle opportunity that you're kind of, uh, they're kicking the tires on what you guys can offer them, uh, any sense of the size, as well as the timing of of some kind of, I'm just not familiar. It's I know it's a terrific opportunity. I don't know if it would be, you know, a 1 or 2 year, sample set and then you get into full production even if you do win it. So just help help me size that opportunity as well as get into the timing.
Yeah, we're very early stage on this uh, as we had noted in a number of other investor um, presentations. You know, we had identified opportunities in our pipeline that had, uh, had opportunity to be a larger nature than our normal work. Uh, but there was, uh, you know, time to go and we had, um,
Aligned the probability of those accordingly. So uh we're early stages of of opportunity here with uh with the Army, we're in the research Labs, who are sharing the technology in their testing evaluation with the acquisition offices who are evaluating those against their re requirements needs and funding. So uh, as I noted in our comments, I would anticipate uh, from what we're seeing in their schedule. They'll continue testing through the remainder of this year. That will start to inform their requirements definition and, uh, Budget Building for 2026 and Beyond, um, the speed or size, or volume of which those will, uh, will go will be dependent on the need of the demand and, uh, how they want to utilize existing funds or new funds. So it's, it's a little bit early for me to say, uh, how that would, how, how long, or what the scope and value that would be, um, I think we'll know more in the quarters to come as we see the culmination of the testing and uh and the requirements generation on the acquisition side.
Okay. And the last question for me is on another gross margin side. Uh, I was encouraged to see that OSS segment that you're comfortable with the 40% plus on the gross margins there. Uh can we extrapolate that out? You know, given the 2026 we're looking for a faster growth rate on the OSS segment versus Fresno that there's the that that the gross margins for the business would Inc increase in 2026 as well.
Yeah, I think from a growth margin perspective. So we look at gross margin as really being driven by 2 things. Uh, 1 is absorption. Uh, as we as we get better volume, we get better absorption and the other is product mix and program life cycle. Um, so from a product mix perspective, you know, straightforward, we have some products that are higher margins, some products that are lower margins. We see some variability from quarter to quarter. Um, from program life cycle perspective, you know, we typically see early in the program we have customer-funded development that tends to be lower margin. You move maybe to some prototype builds. Those also tend to be lower margin, you don't have as much opportunity for learning curve and and supply chain efficiencies and then you get into low rate, full rate, production, Tech, refresh, and the statement and that's really where you see the expanding margin. So, uh, you know, as we model 26, we kind of weigh all of those factors. I think that for the OSS segment, overall we continue to guide, mid-30s to low to mid-40s, uh, I think that will sustain through through.
2026. But I there, there could be some variability from quarter to quarter on where in that range of mid-30s to low to mid-40s. We we land
got it. Thanks for taking my questions.
Thanks Eric.
And we can go next to Brian Klinger with Alliance Global Partners, your line is open.
Great, thank you, sorry, I joined late. If it's already been discussed. Um, several companies have been sharing that
Government. Short-term Awards have been hurt by an uncertain, uh, Government funding year, which I know, you know, uh, as we discussed that, what was the mix of government commercial bookings in the first half, that's been so strong. And then, in terms of your bid and proposal activity, um, how is it being impacted on the government side?
Hey Brian. Um, on the booking side, uh, the percentage has been a little more weighted to defense, uh, over commercial as we've gone through, uh, the first half of the year, uh, and part of that was driven by, we saw a pickup in Defence orders in, uh, the second half of the second quarter, um, of this year. So, uh, it looked, we started to see the government, uh, start to pull out and in, as they got getting closer to the end of their fiscal year, uh, to start aligning and, uh, moving budget and and making Awards. So, uh, we were, uh, we were encouraged by that, that movement, uh, through the year. And, um, as uh, as we look forward our way, our companies build, as we're lining bid and proposals, we're looking at the 2026 and Beyond, um, you know, the opportunity set that's in there. I think we're well aligned, uh, with the, uh, with the teams and the bid and proposal. Uh, budgets we have set to capture the opportunities we're in. So, I think we're still, uh, we're still well aligned, um, as I mentioned earlier, um, you know, for us, we continue
To monitor, uh, the timing, um, on how the government will be able to move, uh, its budgets down to um, award releases.
I mean, how do you think about bid and proposal?
The goal to be bidding 3 times, your kind of Revenue rate is it uh you know do you have a number uh in the pipeline that you think is addressable you know through 2026 maybe anything you can share on that would be helpful maybe compared to where you've been.
uh, you know, in uh, in the 2024 and 2025
yeah, Brian I'll
Let you this, uh, laid out this way, uh, how we work the process. So, you know, you've heard me talk and we have a 5 year factor to unfactored pipeline. So, in in any giving year we have a factored and unfactored forecast or pipeline that we're going after the year. Um, the unfactored and the factored pipeline numbers. Both the factored pipeline number really represents where we've been able to achieve that 20% or or greater growth. And so uh, we have significantly more factored opportunities in a quarter to drive the revenue uh, that we get in any quarter and that same, uh, same holds for the year. So as we, as we process that out, uh, we have that significantly greater opportunity to bid down the ratio of Biden. Proposal of how much we're bidding versus how much we pull in changes quarter to quarter and the and by the year just based on the size and the probability of of of program happening and our probability of wind. Um but I'll say we've been able to convert well, the majority of the stuff that we win is.
Generally, sole source, um, customers. See what we have to offer and there's not a comparative competitor offering the same thing, we usually competing against an incumbent or an existing architecture. Um, so we tend to win our stuff sole source where we are competing head-to-head. Uh, we've been winning a little bit more than 70 to 75% of the programs that we've bid. So we've been getting a fairly good transition rate out of our Pipeline and, uh, into Revenue. So, uh, you know, our biggest thing, I go back to the thing, we tend to worry about more is uh, what's the probability of the timing? Uh, that something's funded ready to go and is going to be uh, released in the time that uh our customers identify versus when they actually happen?
Just make sure I understand right, heard because I thought it was a big takeaway there. Are you saying that a factor for factored proposals, you're winning 70 to 75% of those?
In the competition.
We're winning 75% or more of those.
Wow, that's really telling. Um, the last question I have is:
Just to be clear is proposal activity and the pipeline near-term.
Kind of steady. Is it rapidly increasing? Is it steadily increasing? Maybe give some uh discussion on the trends? We're seeing in near-term pipeline?
Continues to expand out through the years, uh, each year, um, that our opportunities for bids are also increasing. So, yes, we're seeing a steady increase in the amount of proposals and uh, requests for information quarter to quarter,
Great. Congratulations on the progress, over the last couple of years returning, the business around.
Include our question and answer session. I'd like to turn the program back over to our presenters for any closing, remarks.
No, closing remarks. Aaron, uh, you can close the call.
Thank you for your participation. This does conclude today's program. You may disconnect at any time.