One Stop Systems, Inc.

Good afternoon and thank you for joining us today to discuss One Stop System financial results for the second quarter ended June 30th, 2022. With us today are the company's President and Chief Executive Officer, David Rohn, and Chief Financial Officer, John Morrison, as well as the company's Chief Sales and Marketing Officer, Jim Eisen. Following their remarks, we will open the call to your questions. Then before we conclude today's call, I will provide some important questions regarding the forward-looking statements made by management during the call. I would like to remind everyone that the call will be recorded and made available for replay in the investors section of the company's website. Now, I would like to turn the conference over to OSS President and CEO, David Ron. Please go ahead, sir.

Thank you, Nash, and good afternoon, everyone. Q2 was another good quarter for One Stop Systems as we achieved record Q2 revenue of $18.3 million, up 7% sequentially, and up 23% over the same year-ago quarter. The strong growth of Q2 was largely attributable to two factors, continued strength of our customer and media and entertainment space, the revenue from which grew 135% to a record $6.4 million, and our European unit, Brezhner, also performed exceptionally well. Breschner continues to leverage strong inventory investments, driving market share increases with revenue up 31% to $7.6 million. If you've been following our growth, you likely noticed that we have a variability in our margins from quarter to quarter, primarily based on the revenue and product mix from the top three customers within a given quarter. The first half of the current year was marked by a higher volume of lower margin products in both our U.S. and European markets. That resulted in gross profit from the quarter totaling $5.2 million, which is up 12% from a year-ago quarter, yielding a gross margin percentage of 28.4%. Though our aggregate margin percentage was down by a few points, the higher overall revenue and margin dollars enabled investments in increased R&D and marketing for our higher margin businesses, namely AI transportables, in both the commercial and military markets throughout the world, including additions to the sales team and our new advisory board made up of industry experts. Supply chain constraints affecting our entire industry continue to be a challenge, occasionally impacting the profile of the product we ship in any given quarter. It only takes one inaccessible component out of hundreds of items in an assembly to delay a shipment. Compact this, our inventory management team constantly reviews the status of component availability, making strategic buys to ensure availability or fulfillment of customer orders, and to hedge against cost increases, all within the context of reducing risk to the business in both the short and long term. on some of the key components. Though we are mitigating the constraints imposed by supply chain issues, we expect these challenges to continue through the remainder of the year and likely into the first half of next year. Yet, despite the supply chain issues impacting the timing of many of our shipments, to the credit of our strong OSS team, our overall revenue growth has remained on track. Though we continue to invest in AI transportables, we have remained cautious regarding spending. This has resulted in operating expenses as a percentage of revenue improving to 26.2% versus 27.7% a year ago quarter. Being cash flow positive, we have been putting our cash to work with strategic and resourceful inventory purchases. At the end of the second quarter, we had approximately 20.4 million in inventory, of which 11.6 million is designated for our core OSS business and about 8.8 million for Brezhner. I am glad to be able to report that firm customer orders are associated with the vast majority of this inventory. Due to supply chain constraints, the higher inventory levels are expected to last at least through the end of the year. Now, before I review the outlook for the rest of the year, including an update on our autonomous truck and AI transportable strategies, I'd like to turn the call over to our CFO, John Morrison, who will take you through the financial details of the quarter. Then our Chief Sales and Marketing Officer, Jim Eisen, provide some additional insight into our new product introductions, program wins, and growing sales pipeline. John?

Thank you, David, and good afternoon, everyone. Thank you for joining us today. Earlier today, we issued a press release with our financial results for the second quarter ended June 30, 2022. The release is available in the investor relations section of our website at onestopsystems.com. As David mentioned, our second quarter revenue was $18.3 million, which was up 23% from the same year-ago period. Our core OSS business revenue increased 18% to $10.7 million in the second quarter, representing 59% of total revenue. Revenue from Breschner, our European subsidiary, increased 31% to $7.6 million, which represented 41% of total second quarter revenue. Breschner's increase was attributable to increased market share made possible by strong sales efforts and strategic inventory buys. Gross profit in the second quarter increased $548,000 to $5.2 million, The gross margin for our core OSS business decreased 3.7 percentage points from the same year ago quarter to 33%. This was largely due to the strength of our record media and entertainment revenue, which was lower margin. Bresher's gross margin percentage also decreased slightly to 21.9% in the second quarter compared to 22.6% in the same year-ago quarter primarily due to increased material and transportation costs. Overall, our gross margin was 28.4% in the second quarter compared to 31.2% from the same year-ago quarter. As David mentioned previously, our aggregate 2.8 percentage point decrease from the prior year quarter was primarily due to increased revenue from our lower margin media and entertainment customer and strong Brezhne revenue. It is important to note that in addition to focusing on increasing revenue from higher margin product sales, we are working to improve our margins through providing more standard products with unique OSS value-added content, we are increasing prices, we are enhancing our quoting capabilities that reflect real-time parts pricing and greater manufacturing efficiencies. Our overall quarterly operating expenses increased 16% to $4.8 million, while operating expenses as a percentage of revenue improved to 26.2% compared to 27.7% in the same year-ago quarter. This increase in operating expense was primarily due to our investment in pursuing the AI transportable market, resulting in increases of $246,000 in marketing and selling, $244,000 in R&D, and $173,000 in G&A. GAAP net income totaled $323,000 or two cents per diluted share. decreasing from net income of $1.7 million, or $0.09 per diluted share, in the same year-ago period. That included a one-time benefit of $1.5 million, or $0.08 per diluted share, for forgiveness of our PPP loan and related interest. On a non-GAAP basis, net income was $871,000, or $0.04 per diluted share for the quarter up from $812,000 or $0.04 per diluted share in the same year-ago period. Adjusted EBITDA, a non-GAAP metric, was $1.2 million or 6.5% of quarterly revenue as compared to $1.4 million or 9.3% of quarterly revenue in the same year-ago quarter. Both of our non-GAAP net income and adjusted EBITDA excluded the PPE loan and interest forgiveness. Now, turning to the results for the first half of 2022 as compared to the first half of 2021. Revenue increased 25% to a record $35.4 million. Our core OSS business increased 20% contributing $21.3 million of total revenue and Breszner contributing $14.1 million, an increase of 34%. Our overall gross profit improved $1.3 million to $10.3 million or 29.2% of revenue. This compares to $9.1 million or 32.2% of revenue in the first half of 2021. Gross margin for our core OSS business decreased to 34.3% as compared to 37.3%. This is largely due to the 80% year-over-year revenue increase from our media and entertainment customer. Bresher's gross margin decreased to 21.5% due to a higher transportation and material cost as compared to 23.6% a year ago. For the second half of 2022, we expect margins to be slightly above, but substantially consistent with the first half. Our total operating expenses increased 12% to $9.3 million. This increase is primarily due to an increase of $549,000 in selling and marketing expense resulting from marketing, trade shows, and travel, and an increase in R&D expense of $656,000 for the development of new standard products for the AI transportable market. And these expenses were partially offset by a decrease of $210,000 in G&A expenses. Operating expense as a percentage of revenue decreased to 26.3% compared to 29.4% reflecting ongoing cost containment efforts. Income from operations increased $260,000 to $1.1 million compared to $792,000 in the first half of 2021. Net income on a GAAP basis was $902,000 or 4 cents per diluted share compared to $1.7 million or $0.09 per diluted share, which included a one-time benefit of $1.5 million, or $0.08 per diluted share, due to forgiveness of our PPP loan and related interest. After giving effect to this one-time benefit on a pro forma basis, this results in a year-over-year increase of $618,000. Non-GAAP net income totaled $1.8 million or $0.09 per diluted share as compared to $1.5 million or $0.08 per diluted share in the same year ago period. Adjusted EBITDA totaled $2.6 million or 7.3% of revenue compared to $2.5 million or 8.7% of revenue in the first half of 2021. Both non-GAAP net income and adjusted EBITDA excluded the PPP loan and interest forgiveness. Now, turning to our balance sheet. On June 30, 2022, cash and cash equivalents totaled $2.9 million with short-term investments of $11.5 million for a combined total of $14.4 million. This compares to $15.8 million on March 31, 2022. During the second quarter, we invested an additional $4 million in inventory. Our cash position provides the stability and flexibility to be responsive to supply chain issues with investments in inventory, changes in our business, and issues imposed by external global economic influences such as inflationary pressures and the Federal Reserve's interest rate increases. This completes our financial review for the quarter and the first half of the year. I would like to now turn the call over to our Chief Sales and Marketing Officer, Jim Isen. Jim?

Thank you, John, and good afternoon, everyone. In Q2, we added four new major program wins, including two AI transportable wins, one for a mobile shelter application, and the other for an autonomous surface ship program. The remaining two program wins were in commercial aerospace and medical imaging markets. We also added five new pending major programs during the quarter. Two of these opportunities are AI transportable programs for telecommunications and military data storage units. For reference, we expect our pending major programs to generate revenues of $1 million or more over four years with a 60% or greater expectation of closing. Our current pipeline of pending major programs totals 32, with one half of these involving AI transportable applications due to our focused efforts in this market. During the quarter, we also participated in four industry events focused on autonomous trucks and AI transportable applications in military and commercial aerospace. Aligned with our strategy to bring more standard products to the AI transportable market, we shipped Centauri systems that we announced in April to one of our autonomous truck customers. Centauri is a PCI Express Gen 4 NVMe rugged storage solution offering high capacity in a proprietary compact hot swappable canister that is ideal for capturing and transporting the vast amounts of data generated in autonomous vehicles. Also on the technology front, we are one of the first developers to ship PCI Express Gen 5 technology, key to our AI transportable and technology leadership strategy. This advancement doubles the performance of PCI Express Gen 4 and is expected to be deployed in multiple additional OSS products over the coming quarters. This includes our next innovative product to be announced at the ADAS and Autonomous Vehicle Technology Expo, and San Jose, California in September. On the thought leadership front, we released several AI transportable expert articles and white papers in Q2. Topics included AI transportable design, autonomous driving, and PCI Express acceleration for high performance application. An industry magazine, Aerospace and Defense Technology, featured our article entitled Designing Transportable High Performance AI Systems for the Rugged Edge in their June 1st issue. Now I'd like to turn the call back over to Dave.

Thank you, John and Jim. Our teams at OSS continue to execute, generating solid results primarily from our traditional customer base and applications. Although our value proposition in some of the established businesses like media and entertainment in Brazil and Europe may not generate the margins, percentages that we seek in future years, These generate positive margin dollars in income for OSS. We are pleased that this part of the business continues to grow and helps pay for our investments in AI transportables. This year, we validated the multi-billion dollar opportunity for AI transportables while remaining cash flow positive, profitable, and not taking on domestic debt. and our cash position has allowed us to invest in higher inventory levels, additional sales personnel, and industry leaders on our new advisory board to ensure growth and prosperity for OSS. Our objective is clear, leadership in the fast-growing AI transportable market. Currently, OSS is supplying compute and storage solutions to three of the leaders in the Level 4 and 5 long-haul hub-to-hub autonomous truck market. Our products work in conjunction with their software to gather, store, and or process data from multiple sensors embedded around the vehicle, including LIDAR, radar, and cameras. We believe that all three of these customers could end up being our top 10 customer list in 2022, and over time, could be some of our largest accounts. Although our relationship and what we supply varies, we continue to learn and lead the market as we define next generation products. Beyond autonomous trucks, we've also seen interest and activity with other vehicles including shuttles, buses, and ships. We have commented in the past that we expect the opportunity for AI transportables to be significant in the armed forces throughout the military theater. These applications will take significant time to close and even more time to generate revenue, but we are now engaged with multiple high-profile programs, which include drones, aircraft, ships, and land vehicles. These applications are perfect for disruptive solutions from OSS, where we provide the highest performance without compromise in compact, rugged form factors.

We look forward to sharing more on this front in the future as these become wins.

Whether it's a military theater, autonomous truck, or other AI transportable application, OSS takes the technology and the highest performance normally found in the environmentally protected data center out to the very edge. This is in contrast to the common approach of bringing rugged, lower performance embedded solutions to the space. Although there are many solutions in high performance computing, at the high end, bringing performance without compromise to these demanding AI and autonomous applications in some of the most harsh environments within AI transportables. To help navigate and accelerate the progress in the multi-billion dollar AI transportable space, especially with the complexity of the armed forces, we mentioned earlier that we formed a strategic advisory board during the past quarter. The advisors include retired high-ranking military officers and corporate executives with decades of experience in AI and unmanned vehicles technology, high-performance computing, cooling technology, and M&A. The advisory members are now providing us valuable insight into product and market strategy, as well as helping us create relationships and gain access within targeted organizations and the armed forces. Now looking to the outlook, the revenue outlook for the third quarter of 2022 is 18.5 million. This represents 16% growth over the same quarter a year ago. We believe that future growth of OSS will be driven by our focus on AI, high performance AI transportable platforms for commercial, military, and industrial applications. The strength of our balance sheet enables us to invest in new product development, and secure the stability of our business while affording us the flexibility to be responsive to changes in business climate. I would like to extend my appreciation to all of our OSS team members for their contribution and unwavering commitment to quality, productivity, and strong financial performance. I would also like to thank our stockholders and customers for their continued support as we continue to focus on this large opportunity.

Now with that, I'd like to open up the call to address your questions. Nash?

Thank you, sir. If you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. If you are calling from a speakerphone, please make sure your mute function is off to ensure your signal can reach our equipment. Again, star one to ask a question. We'll take the first question from Joe Gomez, Noble Capital. Your line is open. Please go ahead.

Good afternoon, gentlemen. Thanks for taking my question.

So the first one I want to lead off here is on the inventory. You know, you mentioned, you know, since I think the middle of last year, you know, Bresner's performance because of the availability to inventory. Just maybe you can, you know, square the circle, so to speak, as you know, why Bresner seems to be able to get all the inventory, have that strong availability, but you're not able to get some of the other products for some of inventory for some of your other products. I mean, is the supply chain that different for the type of inventory that you're getting there for Bresner versus the other, you know, core OSS? I mean, maybe you could just give us a little more color or detail into that, please.

Yeah, this is Dave. Thanks for the question. I think the first thing to keep in mind is that since Bresner is more of a value-added reseller in addition to what they do for us in OSS, they're able to pick up market share. So that's what's helpful. When we make an investment, we can put products there that other distributors might be able to sell, whatever. In the case of One Stop Systems, they're either buying our product or they're buying someone else's in that's the one dynamic so that gives us an ability to grow the business by stealing market share basically and really good sales in our case I think you know for the most part you know we've been able to continue to grow every quarter we've beaten guidance and that's because we've had a good inventory in place we don't ship everything that's for sure and we know that going into the quarter but at the end of the day we get enough out the door to hit the numbers

Okay. Thank you for that.

And, you know, maybe you can talk a little bit. You know, it looks like, you know, we haven't been seeing much on the military, your military customers doing much in the way of sales this year. Is that accurate? And do you expect that to be a second half of the year event?

Yeah. So on that, first of all, on the design front, we have more military activity than we've ever seen, which we're proceeding on, but as far as revenue today, paying the bills today, the first half of the year, we had kind of a normal military-type revenue profile. What we normally have is a stronger second half, and going into the year, we had some of our large military customers, very strong, but some of that forecast has gone out in time. Fortunately, we haven't lost any of the business, and we expect next year to be a very strong military year. But the rest of this year, it's going to be kind of more like what we've had the rest of the first six months. And that reflects in John's comments about the margins being similar for the rest of the year.

Okay. Okay.

And you talked last quarter, and John, you mentioned it about, you know, production line efficiencies. Just wondering, what exactly are you talking about there? What are you being able to do? Where do you stand on those and implementing those to help drive efficiencies on the production line?

We are going to be doing sub-assemblies, basically doing some of the manufacturing in Mexico. One of the reasons for that is there are other opportunities elsewhere, but we are concern of making sure that it gets delivered with the constraints of shipping and air travel and the high cost of transportation, we will be doing these sub-assemblies in Mexico.

Okay.

And then one more, if I may here. You know, also last quarter on the AI transportables you had mentioned or it was mentioned about the ag space and the mining verticals. Didn't mention anything really I heard today. Can you kind of give us an update on those two verticals?

Yeah, I mean, we commented on them, I think, really as being potential verticals in the future that could leverage off actually what we're learning in the autonomous truck space. They haven't progressed any since satellites meeting, and nor are we focusing on them much. It would be, you know, with the number of resources we have, we're focused on things that are happening today. In the case of the mining one, we're starting to engage with that, but that's really early, and I don't have really much to comment on. I think the big thing that is blossoming in the last 90, 108 days is the military and these big programs.

So that's where we're really excited right now. Great. I'll get back in queue. Thanks for taking the questions. Thank you, Joe.

Again, press star one to ask a question. We will take the next question from Brian Kinslinger, Alliance Global Partners. Your line is open. Please go ahead.

Great. Thanks so much for taking my questions. Sorry if I'm repeating as I joined a little bit late. I heard, I think, that you have three I think I heard right on the level three and level four or level four and level five, sorry, autonomous vehicle space that are generating revenue and in some form either pilot or testing. First of all, can you talk about how much revenue has been generated in the second quarter from those? And then moreover, maybe you can talk about over the next 12 to 18 months, how many customers do you think will progress to move forward to be in a similar space? and maybe how you see that line of sight over the next 18 months in terms of goal points.

Yeah, so first of all, we've elected not to specify the exact revenue from that part of the business, but I will say that it's increased quarter over quarter, expected to continue to. We'll do more in the second half than we did the first half. And I go back to my statement that we could have two maybe three of them end up in our top ten list that means top ten list means that we release the million dollars approximately maybe more and they all have the potential that you know when these go to higher volumes but these are very low volumes generating those dollars there could be an inflection point you know somewhere on time whether it be later in 23 or 24 where they could become our largest accounts in the company bigger than the ones we talk about today As far as additional ones, we're pursuing additional ones, having ongoing discussions with others, and I believe we will add some. I don't know how many, but there's definitely other ones to pursue than the three we have.

Okay. And then I think you and I have had a lot of conversation over time about one of your top customers who generate a little bit lower margin revenue. First, with that customer, are you able to increase pricing as material costs are going up? And then second, how do you think about over time and when might you have the opportunity to think about renegotiating price with them?

So first of all, we do have a contract. The contract has dynamics as far as price increases and price decreases. There's a lag effect with it, and so we are able to do that and we have done that. Where we've done other things is try to be more efficient at building their product. And I want to stress that one of our strategies when we implemented this AI transportable strategy was we wanted to stop just taking any business that showed up. And if a business is not strategic to our future, We are passing on most of it. In the case of this large customer, the engineering and R&D requirements are very low. The revenue is good, and the profitability overall for us is solid. So eventually that contract will come up. There's probably an opportunity to push it to some degree, but our value to them is probably not as high as what we will be selling to an AI transportable, where we're a much more complete solution. We have software layering in, a number of things to bring our value up over time.

Great. My last question related to government. Is there a theme that's causing a few projects to get delayed, such as a continuing resolution? I'd just like to understand better why the second half of the year won't be a material pickup based on delays, what the possible theme is there. Thank you so much.

Yeah, so first of all, it's not 100% clear that it's due to budget or economic reasons. What we do know is that one of the key customers that make up a significant part of the business, we have a multi-year contract. The multi-year contract is coming to close this year, and their initial plan was to buy everything they expected to within that contract, but they didn't have all the orders from their end customer like you know, the Navy and Air Force. But we are in the process of getting the new contract. The good news is it looks like the remaining business is still somewhere between everything we've ever shipped to doubling that. So we're talking about a new contract coming in place that will extend this one. And as a result, they'll be catching up from this year and also kicking off next year. customer and then on top of that the activity I told you about in the in the in the military space a number of those are in a position where if things go as expected you know they might buy a couple units from us but that could be a million dollar order here and there and where they're putting them in their labs so even though they're not in production yet that could be very sizable and good margin for us also

There is another point just on that. We are the sole source provider on that contract.

Correct. Yeah, so that's not something we have risk of losing or whatever. It's really a timing thing. It hasn't gone away. They still plan to implement it in all these aircraft, and it's unfortunate. It looks like it's moved out. I will say there's other military programs that we're pursuing that we're trying to turn for the year, and that's our objective, but we want to be conservative in our you know, in our position with you guys.

Great. Thank you. Thank you, Brian.

Again, star one to ask a question. We will take the next question from David Williams from Benchmark. Your line is open. Please go ahead.

Hey, guys. Thanks for letting me ask the question, and congrats on the progress and the success. the revenue growth. And forgive me, I jumped on a little bit late, but I wanted to ask a little bit just about your big contract, or excuse me, your big customer in the media and entertainment space, and just kind of how long do you think that that strength will remain in terms of just kind of the top line? Should we see that maybe trimmed down a bit next year? And just how do you think about that revenue trajectory?

They're doing very well. We had an exceptionally large quarter this past quarter, and we purposely shared it with the market, which we normally don't, to help explain the dynamics of the quarter. But we expect them to remain strong the rest of the year, but we'd say that quarter is an anomaly. Probably go back more to the kind of things we've seen in the quarters before that. To give you a little more color on it, as we understand it, Their virtual products, which was driving all the revenue last year, continues to be the strongest growth. They started selling the large gathering products this year, but they've had some false starts because of different dynamics in the world. The U.S. market's pretty good. Japan's pretty good. But places like China, Russia, Europe have not been as good, but we're still growing. doing pretty good numbers without much of that.

Okay. And then just color, I know that I'd heard a little bit earlier about Bresner and just the inventory investments there to end the market share expansion. But is there any color maybe just around that? Anything in particular you think that's driving that business and the growth for Bresner?

Well, I'll say one thing. We've got a very talented team there, a very good leader. positioned well in the marketplace, a good name, and we've spent a lot of time working with the group to do these strategic buys and put these positions in, and hopefully this is market share that we can continue over the long term. Anything else you want to add to that?

There was one large long-term contract that takes them through 2024, which we made strategic investments on to make sure we're able to fulfill that order through 2024.

because they require the same product from the same lot or something, right? That is correct.

All right, great. And then maybe from a market perspective, just kind of given some of the dynamics where we've seen it seems like at least in-market demand is slowing on the consumer side, are you starting to see maybe a little better availability of products and maybe just how you think about how that's going to play out the rest of the year for you?

Yeah, I mean, it's an interesting question. You read in papers, like I read the other day, about DRAM and stuff, but that doesn't tend to be the type of products we need. Our products tend to be the GPUs, the PCI Express switches. A number of those products are some of the big things, and they're still running along lead times. And we haven't seen a change on that front. So we haven't really seen much of it yet. We keep watching. And, you know, that's all I can really say on that topic.

Switch chips. Yeah. We're watching it very closely, though.

All right. Very good. And are GPA GPUs the primary area, or what other areas are you seeing the biggest, I guess, hurdles?

Well, I think, you know, the switches are one of the biggest for us because we have a strength above what fragmented competitors is very good at PCI Express and be linked from NVIDIA and those type of technologies. And as a result, pretty much every product we ship has a switch on it. And these are high ASP, high demand products, and they're sitting at the 52-week lead time. So that's one of the big ones. Any other ones you guys want to mention?

That's the main one.

Yeah.

Okay, great. Thanks so much for the help, guys.

Certainly appreciate it. Best of luck on the quarter. Thank you.

Again, Star 1 to ask a question. Right now, we will take the next question from Max Michaelis from Lake Street Capital Market. Your line is open. Please go ahead.

Hey, guys, and nice job on the quarter. Nice job on the outlook. A few questions here. First one is just on your major opportunities that are pending. Can you share the mix of that, of which is autonomous trucking? and where you expect that to trend?

So of the 32 outstanding projects that we have right now, there's four in autonomous trucking that are in the pipeline. Those are ones that have not closed. That doesn't include the ones that did. So everything is about 50-50 from the AI transportables, about half of our pipeline right now.

Okay.

And then just kind of on the advisory board, I'm wondering if you could go just a layer deeper, maybe some of the things you're hoping to accomplish and then some of the strengths you're seeing. I know you guys are kind of going into different industries. I'm just wondering maybe some areas that you guys are seeing you can highlight as strengths and just, yeah, go a little layer deeper into the advisory board.

Yeah. So when it, When we put this together, the number one priority was the navigation of the armed forces. And that's why I brought on some very highly ranked people there and people with backgrounds. So I think seven of the nine actually have backgrounds in the military that are helping us in that front. And that ranges anything from you know, identifying places that we were not aware of that are making some decisions like think tank areas to look at advanced technologies that are influencing maybe some of the people we're talking to. It is to getting to, you know, maybe we're selling something to a Raytheon, but we didn't know who they were selling to at the airport. Some of these guys, you know, know that. You know, so it's connecting that type of thing. And then just general navigation, making introductions, saying things like, you know, I'm aware of this going on. You should go check it out. One of the interesting things about this group, but just to give you a little color, is that a number of them were extremely passionate about getting technology into the military. In fact, one of them commented on the fact that, you know, he oversaw 600 Marines. Five of them didn't come back because the military wasn't using technology. that was available in the commercial segment. So these guys have a lot of motivation to see our product, which they also recognize, boy, this is the high performance we need. And so it's been a good experience in the military. Then we have a guy from the oil and mining area that's helping us. And we don't have anybody on that group on the autonomous truck, but I have somebody on the side on that space also. Do I miss anything else? I mean, it's been a great group, refreshing to work with, and they take calls from anybody on the sales team, marketing team, myself, of course, and just been a great thing. It's definitely helping us.

Okay. And then just my last one, going to the outlook for Q3. I don't know if I misheard you, but what is driving that outperformance next quarter?

Outperformance.

So what's driving the 18.3?

18.5. I mean, 18.5 is that Breschner remains strong. Our large media entertainment guy is strong, but not at the level currently. But the rest of the customer base looks pretty good for the quarter. So where we were a little light in some of the rest of the customer base in Q2, Some of that was tied to a number of supply issues. So a number of our key customers outside of those two segments of Breschner and the media entertainment, some of those got pushed into the quarter because of supply issues that will shift in the quarter.

Okay. That's it for me, guys. Thank you.

It appears that we have no more questions. I'd like to turn the conference back to our speakers for closing remarks.

Mr. Speaker, there are no more questions.

I will send the conference back to you for closing remarks.

Sorry, I misunderstood you. Thank you, Nash, and thank you, everyone, for joining us today. We believe the best is yet to come, and we look forward to meeting with all of you again in November and reporting on our progress as we pursue these many opportunities ahead. Meanwhile, please continue to stay safe and healthy, and please reach out to Jim, John, or myself anytime. So, Nash, why don't you wrap up the call?

Thank you, sir. Now, before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. One subsystem's cautions you... It questions you that statements in the presentation are not a description of historical facts but are forward-looking statements. These statements are based on companies' current beliefs and expectations. Such forward-looking statements include those regarding the company's expectations for revenue growth generated by new products, design wins or M&A activity. The inclusion of such forward-looking statements and others should not be regarded as a representation by OSS that any of its plans will be achieved. Actual results may differ from those set forth in the presentation due to the risk and uncertainties inherent in our business, including, without limitation, that the market for our products is developing and may not develop as we expect. Military conflicts, global pandemics and other disasters or public health concerns, including COVID-19, in regions of the world where we have operations, customers or source material or sell products may affect such markets. Our operating results could be negatively impacted by inflationary pressures, supply chain constraints, increased interest rates or other economic conditions. Our operating results may fluctuate significantly, which would make our future operating results difficult to predict and could cause operating results to fall below expectations or guidance. Our ability to successfully integrate the operating systems, technologies, product offerings and personnel with acquired companies if any, may prove difficult and adversely affect our financial results. Our products are subject to competition, including competition from the customers to whom we may sell and competitive pressure from new and existing companies, may harm our business sales, growth rates, and market share. Our future success depends on our abilities to develop and successfully introduce new and enhanced products that meet the needs of our customers. The likelihood of our design proposals becoming design wins is uncertain, and revenue may never be realized. Our products fulfill specialized needs and functions within the technology industry, and such needs or functions may become unnecessary or the characteristics of such needs and functions may shift in such a way as to cause our products to no longer fulfill such needs or functions. New entrance into our market may harm our competitive position. We rely on a limited number of suppliers to support a manufacturer design process, and we cannot protect our proprietary design rights and intellectual property rights. Our competitive position could be harmed or we could incur significant expenses to enforce our rights, our international sales and operations subjects as to additional risks that can Adversity affect our operating results and financial conditions and we fail to remedy material weaknesses in our internal controls or financial reporting. We may not be able to accurately report our financial results and other risks described in our prior press release and in our filings with the Securities and Exchange Commission, SEC, including under the heading risk factors in our annual report on Form 10-K and any subsequent filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the conference call, and we undertake no obligations to revise or update this information to reflect events or circumstances after this date hereof. All forward-looking statements are qualified in their entirety of this questionary statement, which is made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Before we end today's conference, I would like to remind everyone that this call will be available for replay starting later this evening through August 25, 2022. Please refer to today's fresh release for dial-in and replay instructions available via the company's website at ir.onestopsystems.com. Thank you for joining us today. This concludes our conference. You may now disconnect.