One Stop Systems(OSS) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue in Q2 2020 totaled $11.6 million, down from $14.9 million in Q2 2019, primarily due to lower sales from custom servers for media and entertainment production impacted by COVID-19 [11][19] - Year-to-date revenue for the first half of 2020 was $25 million, essentially even with the same period last year, despite a $4.1 million reduction from the two largest customers [11][19] - Gross profit for Q2 was $3.3 million, representing a gross margin of 28.6%, down from 36.4% in the same year-ago quarter [14] - Net loss on a GAAP basis was $12,000 in Q2, compared to a loss of $1.6 million in the same year-ago period [19] Business Line Data and Key Metrics Changes - The core OSS business contributed $6.9 million or 60% of consolidated revenue in Q2, down from $10 million or 67% in the same year-ago period [12] - Bressner, the European subsidiary, contributed $4.3 million or 37% of consolidated revenue in Q2, up from $4 million or 27% in the same year-ago period [12] - CDI subsidiary contributed $386,000 or 3% of revenue in Q2, down from $895,000 or 6% in the year-ago quarter [12] Market Data and Key Metrics Changes - The company experienced significant revenue decline from its top customer, which serves large gathering events, down $3.1 million compared to the same quarter last year [8] - New customers from program wins over the past 18 months helped offset the overall impact of the pandemic on revenue [8] Company Strategy and Development Direction - The company is focusing on improving its vision and value proposition, executing the full integration of CDI, and reducing operating expenses by $2.5 million to $3 million [7] - The management aims to diversify the customer base to reduce dependency on a few larger accounts, which has been underscored by the revenue decrease from the two largest customers [31] - The company plans to introduce three additional PCI Express Gen 4 standard platforms before the end of the year, indicating a focus on innovation and product development [24] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that COVID-19 has impacted revenue and will likely continue to do so for the rest of the year, but they are working to minimize the impact and build a solid foundation for the future [29] - The company provided a minimum baseline revenue guidance of $11.8 million for Q3, indicating a cautious but optimistic outlook [29] - Management expressed confidence in the potential for a stronger, high-margin military component in the second half of the year, which could drive revenue and margins up [31] Other Important Information - The company raised $2.4 million in a senior secured convertible debt offering and received a Paycheck Protection Plan loan of approximately $1.5 million, strengthening its balance sheet [21] - Cash and cash equivalents totaled $4.7 million at June 30, 2020, up from $3 million at March 31, 2020 [21] Q&A Session Summary Question: Supply chain situation regarding PCB boards - Management confirmed that issues with PCB boards have been resolved, and while there are longer lead times for some components, there are no significant impacts on revenue [35] Question: Status of business with Raytheon - Management indicated that orders typically come in the back half of the year, and the year has been back-end loaded as expected [36] Question: RFPs status from last quarter - Out of 27 RFPs referenced last quarter, 10 have been resolved, with eight wins in the first half of the year [37] Question: Baseline revenue guidance for Q3 - Management clarified that the $11.8 million guidance is based on a thorough review of the customer base and backlog [42] Question: Expected gross margins for the back half of the year - Anticipated gross margins for Q3 are approximately 33%, with Q4 expected to be around 36% [44] Question: Transition time for RFPs to revenue-generating opportunities - The typical sales cycle for commercial opportunities is six to nine months, while military opportunities take 12 to 18 months [45] Question: Supply chain dependence on China - Management stated that while there are some products sourced from China, the dependence is not overwhelming, with more reliance on Taiwan [58] Question: Profitability on a GAAP basis - Management indicated that non-cash expenses related to amortization of intangibles will decline, potentially leading to profitability in future quarters [80]