ONE STOP SYSTEMS, INC. Q4 FY2024 earnings call

• Mike Knowles discussed the multiyear transformation plan, noting 2024 progress with consolidated revenue growth each quarter, driven by the OSS segment. Customer-funded development revenue increased 118% in 2024. Book-to-bill ratio for OSS segment was 1.14. Highlighted near-term and longer-term opportunities in commercial and defense markets, including composable infrastructure in commercial space and a rugged situational awareness system for defense.
• Daniel Gabel mentioned joining OSS in November 2023, noted adjustments to legacy inventory and program-related issues in 2024, incurred $1.2 million contract loss and $7.1 million inventory charges, and emphasized focus on driving growth, operational efficiency, and profitability.

In the fourth quarter, consolidated revenue was $15.1 million. The OSS segment saw growth, with customer-funded development revenue increasing 118% in 2024 to $3.7 million. The OSS segment had a book-to-bill ratio of 1.14. The Bressner segment had a gross margin of 21.2%, a 1 percentage point decrease from the prior year. GAAP net loss for the quarter was $3.1 million or $0.15 per share, while non-GAAP net loss was $2.6 million or $0.12 per share. Adjusted EBITDA was a loss of $2.3 million, including onetime charges.

• Projected consolidated revenue for 2025 is $59 million to $61 million, with OSS segment revenue approximately $30 million (over 20% year-over-year growth).
• Expect EBITDA breakeven for 2025, with improvement expected in the second half based on current trends and expanding sales pipeline.
• Acknowledged near-term volatility due to budget delays and tariff impacts but felt good about financial position and potential for 2025.

• Uncertainty related to business and government spending throughout the first half of 2025.
• Impact of budget delays and uncertainty related to impact tariffs on the economy.

Q: Regarding gross margin pressure in the OSS segment, what drives the lower margin mix and what gives confidence in mid- to higher 30% gross margins in 2025 first quarter?

A: Daniel Gabel noted OSS segment gross margin variability based on product mix, with full-year 2024 gross margin excluding impacts at ~36.4% (similar to 2023), and expectation of improvement in Q1 2025 to mid- to upper 30% range.

Q: Talk about order delays and their impact on weighted pipeline and addressable 2025 opportunities?

A: Michael Knowles stated they're seeing increased interest in commercial tech into DoD, but continuing resolution and budget process cause order timing delays, but intent and purchases are stable, with anticipation of broader pickup in 2025 second half.

Q: Discuss server extension box order and market opportunity for similar sales to AI infrastructure companies?

A: Michael Knowles mentioned the $200 million broad term, increased interest in GPU accelerators and expansion boxes, and participation in trade shows to present related technology, with adaptation to new higher end GPUs in the commercial market.

Q: Number of current product programs in development under OSS segment?

A: Michael Knowles stated customer-funded development programs are key to instantiating positions on long-running opportunities, with multiple programs in any given year, and percentage of revenue tied to customer-funded development expected to decrease as production elements hit.