One Stop Systems(US:OSS)2022-11-10 21:05Financial Performance - Revenue for Q3 2022 was $18,815,844, an increase of 17.3% from $15,984,293 in Q3 2021[152] - Gross profit for Q3 2022 was $5,077,868, representing a gross margin of 27.0%, down from 34.5% in Q3 2021[152] - Net income for Q3 2022 was $132,533, a decrease of 86.5% from $980,696 in Q3 2021[152] - Total revenue for the three months ended September 30, 2022, increased by $2,831,551, or 17.7%, compared to the same period in 2021, with OSS revenue up by $1,405,449 (15.2%) and Bressner revenue up by $1,426,102 (21.2%) due to improved economic conditions in Europe and increased shipments to media and entertainment customers[155][156] - For the nine months ended September 30, 2022, total revenue increased by $9,966,810, or 22.6%, with OSS revenue up by $4,998,446 (18.5%) and Bressner revenue up by $4,968,364 (28.8%) attributed to strategic product availability and increased shipments[156] Cost and Expenses - Operating expenses for Q3 2022 totaled $4,914,492, an increase of 9.4% compared to $4,490,424 in Q3 2021[152] - Cost of revenue as a percentage of revenue increased to 73.0% in Q3 2022 from 65.5% in Q3 2021[152] - Cost of revenue for the three months ended September 30, 2022, increased by $3,270,386, or 31.2%, with OSS costs up by $1,929,254 (35.3%) and Bressner costs up by $1,341,132 (26.8%) primarily due to higher material costs and changes in product mix[157][160] - The overall gross margin percentage decreased from 34.5% in Q3 2021 to 27.0% in Q3 2022, with OSS gross margin at 30.7% (down 10.3 percentage points) and Bressner at 22.2% (down 3.4 percentage points) due to increased material and transportation costs[158][159] - General and administrative expenses decreased by $30,538, or 1.6%, for the three months ended September 30, 2022, with OSS expenses up by $79,166 (5.7%) and Bressner down by $109,704 (20.7%), resulting in a decrease in expenses as a percentage of revenue to 10.0%[162] - Selling and marketing expenses increased by $294,453, or 18.8%, during the three months ended September 30, 2022, with OSS up by $247,994 (19.5%) and Bressner up by $46,459 (15.6%), reflecting normalized business activities post-COVID-19[164][166] - Research and development expenses increased by $160,153, or 16.0%, during the three months ended September 30, 2022, with OSS up by $155,532 (17.3%), driven by more engineering resources allocated to internal projects[167] Cash Flow and Liquidity - As of September 30, 2022, the company had total cash and cash equivalents of $3,180,175 and short-term investments of $9,543,000, with total working capital of $33,008,079[176] - During the nine-month period ended September 30, 2022, the company used $8,674,894 in cash for operating activities, a decrease of $11,972,019 compared to the same period in 2021[187] - The net cash provided by investing activities during the nine-month period ended September 30, 2022, was $4,717,920, compared to $14,845,282 used in the prior year, resulting in a net change of $19,563,202[191] - The company generated $2,239,846 in cash from financing activities during the nine-month period ended September 30, 2022, compared to $9,228,588 in the same period in 2021[192] - Net working capital requirements for the nine-month period ended September 30, 2022, were $11,991,918, an increase of $10,880,651 compared to the prior year[190] - The company anticipates using liquidity and cash flows from operations to fund growth and may evaluate potential acquisitions, which could require additional financing[178] - The company obtained a domestic revolving line of credit of $2,000,000 in April 2022, which requires maintaining cash and investments balances of at least $4,000,000[183] - The company has not drawn down on its line of credit to date but may choose to do so in the future[183] - The company is committed to conserving cash and securing financing as needed to meet liquidity requirements over the next twelve months[182] Income and Earnings - Adjusted EBITDA for the nine months ended September 30, 2022, was $3,545,011, down from $4,262,896 in 2021, reflecting a decrease of approximately 16.8%[214] - Non-GAAP net income for the three months ended September 30, 2022, was $690,507, compared to $1,543,744 in 2021, indicating a decline of about 55.2%[218] - Free cash flow for the nine months ended September 30, 2022, was $(8,960,393), a significant decrease from $2,983,868 in 2021[221] - Adjusted EPS for the three months ended September 30, 2022, was $0.03, down from $0.08 in 2021, representing a decline of 62.5%[218] - The company recorded stock-based compensation expenses of $542,166 for the three months ended September 30, 2022, compared to $399,148 in 2021, an increase of approximately 36%[218] - Interest expense for the nine months ended September 30, 2022, was $133,710, down from $447,328 in 2021, reflecting a decrease of about 70%[214] - The company expects to continue incurring expenses similar to those reflected in adjusted income from continuing operations and adjusted EPS financial adjustments[216] Market and Economic Conditions - The geopolitical instability and inflation have contributed to economic uncertainty, impacting customer spending and technology investments[136][138] - The company experienced increased product pricing due to semiconductor shortages and inflation, impacting manufacturing and distribution costs[197] - The company is experiencing increased pricing and longer lead times, leading to higher inventory balances to ensure product availability[137] Risk Management - The company utilizes derivatives to manage market risks, specifically through foreign exchange forward contracts, without engaging in trading or speculative purposes[209] - The foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income in the consolidated statement of comprehensive income[208]