One Stop Systems, Inc.

Good afternoon and thank you for joining us today to discuss One Stop Systems financial results for the second quarter ended June 30th, 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 Eisen. Following the remarks, we will open the call to your questions. Before we conclude today's call, I'll I will provide some important cautions regarding the forward-looking statements made by management during this call. I would 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 would like to turn the call over to OSS President and CEO, David Rahn. Please go ahead.

Thank you, Christy, and good afternoon, everyone. I'm happy to report that OSS achieved record revenues for the first half of 2021. Advancements across the company are the result of further execution on our growth strategy. During the second quarter of 2021, we exceeded our Q2 revenue expectations by over 500K, closing the quarter with $14.9 million in total revenue, an increase of 12% over last quarter, and up 28% over the same quarter last year. The growth reflects a broader number of customers, additional programs with major accounts, and at least a few indications of return to normalcy. The strong top-line performance in Q2 was backed by solid bottom-line improvements, with net income increasing $1.7 million year-over-year and adjusted EBITDA up by $1.3 million reaching 9% of the total quarterly revenue. Year-over-year growth margin improved 2.6 percentage points for the quarter and was up 5.3 percentage points for the first half of 2021, attributable to a refined product mix and a focus on increased efficiencies across our business segments. Additionally, Executing on our long-term strategic vision and product roadmap continues to be a company priority. This plan includes strengthening our value proposition in the fast-growing edge computing industry and becoming nothing less than the market leader in the AI transportable space. As you may recall, the target market requires the highest performance computing in a challenging mobile environment. We believe our execution to this plan, company reorganization, and improved board composition has contributed towards a tripling of shareholder value over the past two years. There is significant focus these days on diversity in the boardroom, and the SEC recently approved NASDAQ's proposal to include gender and race requirements as they relate to directors in its listing rules. We applaud this effort and thought you might be interested in knowing that three of our directors are women and two of our directors are from racial minorities, far surpassing the new NASDAQ requirements. As a company, we remain committed to and find strength in our diverse and talented staff and directors. We'll provide operational highlights and our outlook for the rest of the year in a moment. But first, our CFO, John Morrison, will take you through our financial performance in the second quarter and the first half of the year. And then, following John, our Chief Sales and Marketing Officer, Jim Eisen, will provide insights into our AI transportable strategy and related customer activities. John?

Thank you, David, and good afternoon, everyone. Thank you for joining us for this call. Earlier today, we issued a press release with our results for the second quarter and first half ended June 30, 2021. The release is available in the investor relations section of our new company website at onestopsystems.com. Reviewing our statement of operations, we achieved second quarter revenue of $14.9 million, which was up 12% from the $13.3 million in the first quarter and up 28% from the 11.6 million in the same year-ago period. The revenue increase for Q2 over the prior year quarter was a result of proportionate growth from both OSS and Brezhner, our European subsidiary. This growth was primarily driven by improvements in the sell of ruggedized servers into the media and entertainment markets, our differentiated military AI transportable data processing and storage products, as well as continued expansion of our customer base and new applications within key accounts. There was a notable increase in product orders and revenues from our media and entertainment customer with their new virtual products gaining adoption and momentum. Our core OSS business increased 25% to $9.1 million as compared to the $7.3 million in the same year-ago quarter. Pressure revenue increased 34%, contributing $5.8 million in the second quarter as compared to $4.3 million in the same year-ago period. OSS gross profit. in the second quarter of 2021 was 4.7 million as compared to 3.3 million in the second quarter of 2020. This is an increase of 1.3 million in gross profit on a revenue growth of 3.3 million. Overall, we had a strong gross margin of 31.2%, an increase of 2.6 percentage points versus the same year-ago period. The improvements in our quarterly gross margin were attributable to product mix, additional sales of high-value products, and increased efficiencies. Gross margin for our core OSS business increased 2.4 percentage points over the same year-ago quarter to 36.7%. Bresner's gross margin increased to 22.6% in the second quarter as compared to 19% in the same year-ago period. Overall, our operating expenses increased 11% to $4.1 million. Our operating expenses as a percentage of revenue decreased to 28% compared to 32% in the same year-ago quarter. This improvement was primarily due to the cost containment programs that were integrated into our new growth strategy we initiated last year and our continued focus on efficiencies. Income from operations improved to $517,000 compared to a loss from operations of $406,000 in the same year-ago quarter. Net income on a GAAP basis totaled 1.7 million or nine cents per diluted share in Q2 2021. This compares to the net loss of $12,000 or basically zero cents per share a year ago. Our net income improvement was due to our favorable gross margin and the debt and interest forgiveness on our PPP loan of approximately 1.5 million. On a non-GAAP basis, Net income improved to a record $812,000 or $0.04 per basic and diluted share in Q2 2021 as compared to $248,000 or $0.01 per diluted share in the same year-ago period. Adjusted EBITDA, another gap metric, increased to $1.4 million or 9% of quarterly revenue. as compared to $73,000 in the same year ago quarter. Non-GAAP net income and adjusted EBITDA excludes the 1.5 million PPP loan and interest forgiveness. Now, looking at the results for the first half of 2021. Revenue total 28.2 million, a new company record. which was up by 13% from 25 million in the same period last year. Gross profit improved 2.4 million on incremental revenue of 3.2 million to 9.1 million or 32% of revenue. This compares to 6.7 million or 27% of revenue a year ago. Gross margin for our core OSS business improved to 6.7 improved 6.7 percentage points to 37.3 in the first half as compared to 30.6 in the prior year. Brezhner's gross margin increased to 23.6 as compared to 20.5 in the first half of last year. Our core OSS business increased 12% and contributed $17.7 million of total revenue as compared to the $15.7 million last year. Breschner contributed $10.5 million of revenue, an increase of 14% compared to the 9.2% of last year. Her total operating expenses decreased 4% to $8.3 million as compared to $8.6 million in the previous year-ago period. This decrease is primarily attributable to the cost containment efforts initiated in April 2020. Operating expenses as a percentage of revenue improved to 29% compared to 35% in the prior year period. This again reflects the increase in revenue and the success of our expense reduction program and improved efficiencies. Our income from operations improved to $792,000 compared to a $1.9 million loss in the same year ago period. Net income on a gap basis was $1.7 million or $0.09 per diluted share compared to a loss of $1.1 million or a loss of $0.07 per share last year. As a reminder, this includes This includes the 1.5 million PPP loan and interest forgiveness. Non-GAAP net income totaled 1.5 million or $0.08 per share as compared to a loss of $466,000 or a loss of $0.03 per share in the same year-ago period. Adjusted EBITDA was 2.5 million or 9% of revenue compared to a negative $885,000 in the same year-ago period. The adjusted EBITDA improvement was due to a higher gross margin percentage and cost containment and shows a path to our EBITDA objective of no less than 10%. Non-GAAP net income and adjusted EBITDA excludes the $1.5 million PPP loan and interest forgiveness. Now, turning to our balance sheet. At June 30, 2021, cash and cash equivalents total $4 million, with short-term investments of $14.5 million, or a combined total of $18.5 million. This compares to cash and cash equivalents of $19.6 million as of March 31, 2021. This completes our financial review. I would like to now turn this call over to our Chief Sales and Marketing Officer, Jim Isen.