One Stop Systems(US:OSS)2023-11-10 09:18Financial Data and Key Metrics Changes - In Q3, the company reported consolidated revenue of $13.7 million, a decrease of $5.1 million or 26.9% compared to the same period in 2022, primarily due to the loss of a former media customer and delays in defense applications [6][36] - Gross profit decreased to $3.7 million, with an overall gross margin percentage decreasing 40 basis points to 26.6% [35] - The net loss on a GAAP basis was $3.6 million or $0.18 per share, compared to net income of $133,000 or $0.01 per share in the same period in 2022 [36] Business Line Data and Key Metrics Changes - OSS contributed $5.5 million to the revenue, while Bressner contributed $8.2 million, including $377,000 from OSS products [6] - Bressner's gross margin percentage improved by 40 basis points to 22.6% due to a favorable product mix [13] - OSS's gross margin improved by 1.7 percentage points to 32.4%, attributed to the absence of lower-margin sales to the former media customer [35] Market Data and Key Metrics Changes - The company is experiencing a slowdown in commercial markets, which has led to delays in customer orders and reduced awards [6][39] - The defense market remains active, with the company engaged in multiple proposal and program pursuits, including opportunities in the commercial aerospace market [9][10] Company Strategy and Development Direction - The company is focusing on expanding its presence in rugged Edge and defense market opportunities, moving away from low-margin media customers [5][10] - There is a commitment to securing new prime contractors and multiyear contracts, both domestically and internationally, to bolster the pipeline [10][19] - The company aims to maximize gross profit contribution, even if it means accepting lower-margin business in the short term [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential in the rugged Edge processing market, driven by artificial intelligence and sensor fusion [8] - The company anticipates challenges due to the defense budget continuing resolution, which may delay funding and awards [39] - Management noted a general malaise in the commercial market, but there is significant interest in technology adoption from technical engineers [81] Other Important Information - The company received its site facility clearance, enabling it to pursue additional market opportunities in classified programs [19] - The company showcased its products at major industry events, enhancing its visibility and engagement with potential customers [21][42] Q&A Session Summary Question: Can you quantify the pipeline? - The pipeline structure of opportunities is around $850 million, with a 5-year unfactored pipeline in excess of $900 million [25][46] Question: What is the addressable or biddable portion of the pipeline? - The pipeline includes both commercial and defense markets, with a mix likely close to 50-50 [27] Question: What should be expected regarding core OSS gross margin? - The core OSS gross margin is expected to be in the 35% to 40% range [29] Question: What hurdles exist between now and production in the defense industry? - The continued resolution of the defense budget is causing delays, but there are opportunities for technology refresh cycles that could expedite contracts [55] Question: How is the company addressing hiring challenges for security clearances? - The company can utilize its own personnel for current projects, and there is a plan to build out the team as needed [84] Question: What is the status of the defense work pushed out into 2024? - The estimate remains around $5 million to $6 million of defense work pushed out into 2024 [82]