One Stop Systems, Inc.

Good afternoon, and thank you for joining us today to discuss One Stop Systems financial results for the first quarter ended March 31, 2021. With us today are the company's President and Chief Executive Officer, David Rahn, and Chief Financial Officer, John Morrison. Also joining today is the company's Chief Sales and Marketing Officer, Jim Isen. Following their remarks, we will open the call to your questions. Before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made by management during the call. I'd also like to remind everyone that today's call will be recorded and will be made available for replay via the instructions in today's press release in the investor section of the company's website. Now I'd like to turn the call over to OSS's President and CEO, David Rahn. Please go ahead, sir.

Thank you, James, and good afternoon, everyone. Thank you for joining us today. It's been encouraging to see the state of California and the country finally opening up over the last couple months and life starting to return to normal. Likewise, it's also great to have our business returning to normal, and we have some excellent results for the first quarter of 2021 to share with you today. First, we drove a $2 million improvement in adjusted EBITDA over the first quarter of 2020 on similar revenues. This result was a combination of increased gross margins of 7.9 percentage points, and decreased expenses of $749,000, which generated positive adjusted EBITDA of $1.1 million, a record for OSS in the first quarter. We also produced first quarter gap net income, another first for the company. In addition, we exceeded our top-line revenue expectations for the first quarter by more than $300,000, nearly matching last year's first quarter, which was a record first quarter for OSS unhindered by the pandemic at the time. This was a direct result of continued improvement with some of our largest customers as well as progress on the diversification front. This strong performance was tied to the transformative steps we took last year that laid a new foundation for better bottom line execution and growth. These steps include a new senior leadership and corporate reorganization, reduced spending, focus on margins and enhanced value proposition, while also adding three new independent board members. As shared with you during our previous earnings call, we were also executing on our new long-term strategic vision and product roadmap designed to create greater shareholder value. This multi-year plan will strengthen our market position and value proposition in a fast-growing segment of the edge computing market with the intent of clear leadership in what we call AI transportables. AI transportables are mobile, high-performance computing systems delivering the latest in data acquisition, storage, and accelerated computing for AI applications. particularly where actionable intelligence is required at the very edge. These tend to be applications that are in challenging or harsh environments, which plays to our strength. AI transportable solutions are currently the fastest growing, highest margin segment of our business, and it contributed over 25% of the revenue in Q1. A perfect example is our recent win of a long-haul trucking program for our new AI transportable EB4400 solution. This marks our second significant program win for autonomous vehicles and is an excellent example of the additional products we are developing to address this quickly expanding market. Earlier today, we posted a 15-minute video presentation to our website where I share more on AI transportable strategy and the market opportunities ahead. After today's call, you can find it on the investor relations section of our website at onestopsystems.com. Jim Isen, our Chief Sales and Marketing Officer, will be giving you more insight about our AI transportable strategy and related customer activity later in the call. Before I get into the outlook for the rest of the year, I'd like to turn the call over to our CFO, John Morrison, who will take you through the financial details for the first quarter. John?

Thank you, David, and good afternoon, everyone. I appreciate you joining us today. Earlier today, we issued a press release with our results for the first quarter ended March 31, 2021. The release is available in the investor relations section of our website at onestopsystems.com. As David mentioned, we generated strong revenue and improved profitability. We achieved this by realizing improved gross margins on sales of key products while reducing operating expenses through cost containment and efficiencies. All this resulted in greater profitability and positive cash flow. Overall, it was a quarter where the entire company executed on our CFO's CEOs' focused vision. Now for the details. Looking at our statement of operations, we achieved revenue in the first quarter of $13.3 million, similar to the record first quarter of last year, which was not impacted by the pandemic, as mentioned by David. There was a notable change in customer and product mix that contributed to better overall margins in the current year. For the revenue breakout for our business segments, in Q1, Our core OSS business increased to 8.6 million as compared to 8.4 million in the same year-ago period. Breschner, our European subsidiary, contributed 4.7 million in the first quarter as compared to 4.9 million in the same year-ago period. Our gross profit in the first quarter of 2021 was 4.4 million. as compared to the 3.4 million in the first quarter of 2020, an increase of $1 million. We have strong gross margins of 33.3 percent, an increase of 7.9 percentage points versus the same year-ago period. The significant improvement in quarterly margins were attributable to a higher mix of government business of $2 million generated by three of our 2020 design wins. These products included the Data Center in the Sky, Data Storage Units, and 4U Pro. Gross margins for our core OSS business increased 10.4 percentage points over the same year-ago quarter to 37.9%. Likewise, Breschner's gross margin increased to 24.9% in the first quarter as compared to 21.9 in the same year-ago period. In both cases, this was attributable to predominance of customers purchasing a product mix that has higher gross margins and has an increased focus through the organization on improving margins. Our overall operating expenses decreased 15.3%. to $4.2 million in the first quarter of 2021. Our operating expenses as a percentage of revenue decreased to 31.2 percent in the first quarter compared to 36.7 percent in the same year-ago quarter. These improvements were primarily due to the cost reduction initiative that we implemented in April 2020. including streamlining and reorganizing the company and implementing new cost containment programs. Income from operations grew to $275,000 compared to loss from operations of $1.5 million in the same year-ago quarter. Net income on a GAAP basis totaled $21,000 in Q1 2021. This compares to net loss of $1.1 million or $0.07 per share in the same year-ago period. On a non-GAAP basis, net income improved to $643,000 or $0.03 per diluted share in Q1 2021. This is in comparison to our non-GAAP net loss of $714,000 or $0.04 per diluted share in the same year-ago period. Adjusted EBITDA, which is another non-GAAP metric, increased to $1.1 million in Q1 as compared to negative adjusted EBITDA of $957,000 in the same year-ago quarter. Now, turning to our balance sheet. Our team worked hard to improve our accounts receivable collections and timed our accounts payable more closely to the day's sales outstanding. As a result, $3.2 million in working capital was freed up in the quarter. In March of this year, you may recall, we completed a registered direct equity offering that further fortified our cash position. We also realized significant cash gains through a combination of lower expenses, increased efficiencies, and improvements in working capital. All of this has resulted in a cash and cash equivalents increasing $13.3 million as compared to December 31, 2020. At the end of the quarter, the company had a cash balance of $19.6 million, the highest in company's history. Recently, we also learned that our $1.5 million PPP loan that we received last year has been forgiven. Our strong cash position is enabling us to execute on our plan, investing wisely in strategic initiatives to fuel growth, including research and development of new products and technologies. This completes our financial review. I would now like to turn the call over to our Chief Sales and Marketing Officer, Jim Isen. Jim?