One Stop Systems, Inc.

Good afternoon and thank you for joining us today to discuss One Stop Systems financial results for the third quarter ended September 30th, 2022. With us today are the company's president and chief executive officer, David Rahn, and chief financial officer, John Morrison. Following the remarks, we will open the call to your questions. Then before we conclude this call, I will provide some important cautions 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 investor section of the company's website. Now, I would like to turn the conference over to OSS President and CEO, David Rahn. Please go ahead, sir.

Thank you, James, and good afternoon, everyone. Q3 was another solid quarter at $18.8 million in revenue, setting a record for any quarter in company history. Growth was 18% over the same year-ago quarter. And our year-to-date revenue of $54.2 million was also a record for the first nine months of any year, with growth over the same period of last year of 23%. Our strong performance in Q3 was primarily attributable to the continued strength of our European unit Brezhner, increased business in the media and entertainment space, as well as solid growth on the commercial side of our AI transportable business. Shipments to customers in the autonomous trucking space, a strategic target of ours, was the key contributor for the AI transportable growth in Q3. In fact, two of our autonomous trucking customers now rank in our top 10 customer list. While the autonomous truck market has continued to progress, including hundreds of thousands of miles driven to date using our products, it still must deliver a driverless solution to realize the full potential of the strong economics of this disruptive technology. We believe the market leaders in the best position to get to market first are those intent at utilizing as much compute and storage performance as possible at the challenge. During the past quarter, we invested considerable time focused on the compute and storage needs of the autonomous trucks in production. Although there is some commonality between the various market leaders On the roadmap to production, they continue to search for the ideal solution. To this end, we have been developing and sharing a proposed production roadmap that we believe provides a superior, cost-effective path. We believe we are uniquely well-positioned to deliver solutions that can leverage our innovative PCIe, NVLink, ruggedization, and cooling technologies for use in the space. In addition to the potential for the great growth in the autonomous truck market, we believe the products, the skills, and proficiency we are building will also open up other AI transportable protocols to us. Now, before I provide additional insight into our program wins, sales pipeline, as well as an outlook for the remainder of the year, I'd like to turn the call over to our CFO, John Morrison, who will take you through the financial details of the quarter. John?

thank you david and good afternoon everyone thank you for joining us today today we issued a press release with our results for the third quarter and nine months ended september 30 2022. the release is available in the investor relations section of our website at onestopsystems.com the following our results are our results for the third quarter ended september 30 2022 as compared to the same year ago quarter. During the third quarter, OSS recognized revenue of $18.8 million, which was up 18% over the prior year quarter. Core OSS revenue was up 15%, contributing $10.7 million. This was largely due to the growth of our AI transportable business, including autonomous trucks, as well as our media and entertainment business. Revenue from our European subsidiary Breschner increased 21%, contributing a record 8.1 million, which was marginalized by a quarterly year-over-year devaluation of the euro of 14%. This exceptional growth for Breschner was attributable to increased market share that was made possible by strong sales efforts, customer expansion, and strategic inventory buys. Gross profit decreased $439,000 to $5.1 million. Overall, our aggregate gross margin was 27% for the third quarter, a decrease of 7.5 percentage points. This was due to strong lower margin revenue from Breschner and our media and entertainment business, as well as a temporary decrease in our high margin military business. we experienced a deferral of military customer shipments due to a transition to a new storage product version. However, these products are now being shipped. Gross margin for our core OSS business decreased 10.3 percentage points from the same year ago quarter to 30.7%. This decrease was attributable to the concentration of lower margin product sales to our media and entertainment customer and the delayed shipments of military storage products. For the fourth quarter of 2022, we expect a return to a higher mix of military storage business to improve our overall gross margin, both sequentially and as compared to the fourth quarter of 2021. Reznor's gross margin percentage decreased 3.4 percentage points to 22.2% in the third quarter. This decrease was primarily due to increased material and transportation costs, as well as increased sales of a lower margin product line. Overall, quarterly operating expenses increased by $424,000 to $4.9 million. while operating expenses as a percentage of revenue decreased to 26.1% compared to 28.1% in the same year-ago quarter. The dollar increase in operating expense was primarily due to our expenditures in marketing and selling activities and investments in the technology for the AI transportable market. Income from operations decreased to $163,000 compared to $1 million in the third quarter of 2021. Net income on a GAAP basis was $133,000 or one cent per diluted share, a decrease from net income of $981,000 or five cents per diluted share in the prior year quarter. On a non-GAAP basis, Net income was $691,000, or $0.03 per diluted share for the quarter, down from $1.5 million, or $0.08 per diluted share. Adjusted EBITDA, a non-GAAP metric, was $955,000, or 5.1% of quarterly revenue, as compared to $1.8 million, or 11.3% of quarterly revenue. The following results. are for the nine-month period ended September 30, 2022, and are compared to the same year-ago period. Revenue for the nine months totaled $54.2 million, a new company record which was up 23%. OSS core revenue increased 18.5%, contributing $32 million. Bresner contributed $22.2 million of revenue, an increase of 29%. Gross profit improved $817,000 on incremental revenue of $10 million to $15.4 million or 28.5% of revenue. This compares to $14.6 million or 33% of revenue in the prior year period. Gross margin for our core OSS business decreased to 33.1% as compared to 38.5% in the prior year period. This is largely due to a temporary decrease in military revenue and revenue increases from our lower margin business. Residence growth margin decreased 21.8% due to higher transportation and material costs, as well as increased sales of a lower margin product line. as compared to 24.4% a year ago. Operating expenses increased 11% to $14.2 million. This increase is again primarily due to investments we have made in marketing and sales activity and the development of new standard products for the AI transportable market. The increase in expenses was partially offset by a decrease in general and administrative expenses. Operating expenses as a percentage of revenue decreased to 26.2% compared to 28.9% a year ago. Income from operations was 1.2 million compared to 1.8 million from a year ago. Net income on a GAAP basis was $1 million, or $0.05 per diluted share, compared to $2.7 million, or $0.14 per diluted share, which included a one-time benefit of $1.5 million, or $0.08 per share, due to the forgiveness of our PPP loan and related interest. After giving effect to this one-time benefit on a pro forma basis, there was a year-over-year decrease of $170,000 of net income. Non-GAAP net income totaled $2.5 million, or 12 cents per diluted share, as compared to $3 million, or 15 cents per diluted share. Adjusted EBITDA, a non-GAAP measure, totaled $3.5 million or 6.5% of revenue compared to $4.3 million or 9.6% of revenue. Non-GAAP, net income, and adjusted EBITDA both exclude the $1.5 million PPP loan and interest forgiveness. Now, turning to our balance sheet. On September 30, 2022, cash and cash equivalents totaled $3.2 million and short-term investment totaled $9.5 million, totaling $12.7 million in capital resources. This represents a decrease of $1.7 million compared to our balances on June 30, 2022, primarily due to increases in working capital requirements. We believe the current financial resources available to OSS provides us the stability and flexibility to be responsive to changes in business demands, and particularly those which require investments and working capital to be successful. This completes our financial review. Now, I'd like to turn the call back over to David.