One Stop Systems, Inc.

Ladies and gentlemen, please be on standby. The call will begin in one minute. Again, ladies and gentlemen, please be on standby. The call will begin in one minute. Thank you. Thank you. Good afternoon and thank you for joining us today to discuss one-stop systems, financial results for the fourth quarter and year ended December 31st, 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 newly appointed Chief Product Officer, Jim Eisen. Following their remarks, we will open the call to your questions. Then before we conclude this 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 investor section of the company's website. Now, I would like to turn the conference over to OSS president and CEO, David Wan. Please go ahead, sir.

Thank you, Lara. And good afternoon, everyone. It's good to be here with you. I'm pleased to report the revenue for OSS in the fourth quarter was up 2.7% over the previous year to $18.2 million. and up 16.8% for the year to a record $72.4 million. Our adjusted EBITDA for the year was also a record at $5.2 million, driven by increased sales and our continued controls on spending. Overall, gross margin for the year was 28.2 due to strong sales of lower margin products and a mid-year temporary reduction in sales to our largest military customer during a successful requalification effort. Having completed this recertification process, these higher margin shipments have now returned to normal. In 2023, we expect a reduction in low margin media entertainment business to be replaced with higher margin military product sales. If you've been following along with us, you're aware of the AI transportable strategy that we put in place in 2021. For those less familiar, OSS designs and manufactures innovative edge computing modules and systems for AI transportable applications, including on-location AI data capture, storage, training, and large-scale inference. These products include ruggedized servers, compute accelerators, flash storage arrays, and data recording software. We take the latest high-performance, commercially available products, normally only used in the state-of-the-art, environmentally controlled data centers, and bring them into these challenging, traditionally embedded edge markets. We are pleased with the progress this past year executing on this strategy, which leverages our unique strengths to enable AI and autonomous capabilities in anything that moves, delivering the absolute highest performance without compromise in rugged, compact form factors to these harsh environments. Earlier in the year, we announced that we partnered with three key autonomous truck companies utilizing our Centauri and SDS product line. This resulted in two of these truck companies rising into the top 10 list for the year. Later in 2022, we announced additional wins, including the deployment of our storage products in vehicles of one of the nation's largest cellular carriers. In parallel to these quicker to market industrial applications, our primary pursuit is that of AI transportable opportunities within the military theater. The Army, Navy, Marines, and the Air Force are all deploying autonomous and or AI capabilities. Although budgets might go off, although budgets might hold off on funding another $10 billion aircraft carrier, we have been advised that demand for the absolute highest performance and compute systems in computes to highest performance storage and compute systems to assure technical and analytical superiority is a top priority for the Pentagon. creating new opportunities and tailwinds for OSS. Having started 2022 with just a few significant military customers, we are now engaged at various levels with eight of the top 10 largest military prime contractors in the US. Several of these expanded engagements have led to multiple bids by the primes to the DoD using our products. During this process, we also work directly with several branches of the military, providing us more visibility into programs, developing relationships with decision makers, and in several cases, we are now in the enviable position of having influence on product specifications for RFQs. Driving this process is our innovative product called Rigel, our new well-positioned sales representatives, our military advisory board added in 2022, and the strengthening of our internal team. When we initially introduced our flagship product Rigel, the most compact supercomputer in the world, we received pushback from the DoD, as it did not conform to the entrenched, slower BPX standard that the military had embraced for years. Recognized for our innovation, and market disruptive solutions, we eventually gained traction as decision makers realized they could not achieve elevated performance levels staying with the old standard. Although most would have followed the VPX crowd, we stuck to our strategy and it is now paying off. Armed with the validation of our military AI transportable strategy, we elected to make some strategic changes to accelerate growth, and increase shareholder value. In February of this year, we announced a reorganization, relocating resources to higher margin opportunities, which previously supported low margin business. We also made some changes in senior management. For example, I asked Jim, who's on the call today, to assume the role of chief product officer. Jim is extremely talented and innovative in this regard. And he's responsible to make sure we continue to design and develop market-leading products for our target customers and drive clear market leadership. Additionally, we have initiated a search for a new VP of sales, as well as two additional salespeople for our military markets. Consistent with our military product strategy and to accelerate company growth around these expanding opportunities, the board and I decided it was time to begin the search for my successor. For this end, we hired a well-known national search firm, and we have some very talented candidates with solid experience and deep connections throughout the DoD and the ecosystems that support them. As a member of the board and a significant shareholder myself, I plan to stay fully engaged, driving our exciting vision with the team, and facilitating a smooth transition. As a board, we are taking the necessary time to make sure we hire the best candidate and we currently expect that this transition will be complete by mid-year. I have told the board I will be flexible on the timing, and they have my full support while I am in the CEO role and on the board. I am proud of what we've accomplished over the past three years, particularly in financial stability, product leadership, and customer development. Prior to my role as CEO, I was an independent director on the board of OSS. In February of 2020, based on my public technology company CEO background, and just prior to COVID outbreak, I accepted the CEO job on an interim basis upon release of the founder CEO. Although it was not my initial intent to seek the full-time CEO role, after seeing a great opportunity taking shape and working with a team, I put my hat in the ring to take OSS to the next level. In June of 2020, we removed the interim part of my CEO title. I believe the company is positioned well to improve shareholder value. The company's future is bright, and the company is poised to accelerate growth and valuation under the right leadership. I look forward to supporting the team and my successor as a member of the OSS board. I've asked John to comment on the financials, and Jim to remark on customer wins and opportunities, after which I will provide additional color and thoughts about 2023 and the future of the company. 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 fourth quarter and the year ended December 31, 2022. The release is available in the investor relations section of our website at onestopsystems.com. The following results are for the fourth quarter and are compared to the same year-ago quarter. As David mentioned, our consolidated revenue in Q4 was up 2.7% to $18.2 million. During the quarter, we saw the entertainment customer fall short of their projections resulting in approximately $1 million less revenue than anticipated. This customer is projected to account for less than 10% of our consolidated revenue in 2023. Our core OSS revenue decreased 1.8% to $11.3 million, representing 62% of our total quarterly revenue. Conversely, revenue from OSS Europe increased 10.8% to $6.9 million, which represents 38% of total quarterly revenue. However, excluding our lower margin media and entertainment business, our core OSS revenue increased 16.8% for the quarter. Overall, gross profit decreased $58,000 to $5 million. Despite the company realizing improved margins over 30%, as a result of starting to ship a greater mix of AI transportable products. However, a fourth quarter increase in our allowance for realization of inventory associated with the customers associated with the company's, excuse me, allowance for realization of inventory associated with the company's transition to higher margin edge AI transportable military products resulted in an overall gross margin of 27.3% compared to 28.3% in the same year-ago quarter. The gross margin for the core OSS business decreased 1.8 percentage points to 31.4 due to the recognition of additional allowances for inventory realization. OSS Europe's gross margin percentage improved 1.1 percentage points to 20.5% compared to 19.4%. Overall, quarterly operating expenses decreased 9.4% to $4.6 million with operating expenses as the percentage of revenue decreasing to 25.3% compared to 28.7%. This decrease in operating expense was primarily due to decreases of $138,000 in general and administrative expenses, $239,000 in marketing and selling expenses, and $105,000 in R&D expense. Income from operations increased $424,000 to $353,000 compared to a loss from operations of $71,000 in the fourth quarter of 2021. Net loss on a GAAP basis was $3.3 million or $0.16 per share, increasing from a net loss of $386,000 or a loss of $0.02 per share in the same year-ago period. The loss in the fourth quarter of 2022 included a write-down of the net deferred tax assets of $3.9 million, which was attributable to allowances for the company's ability to benefit from cumulative tax losses and R&D tax credits. On a non-GAAP basis, inclusive of the aforementioned write-down, the net loss was $2.7 million or 14 cents per share for the quarter, down from non-GAAP net income of $71,000 or 0 cents per share. Adjusted EBITDA, a non-GAAP metric, was $1.6 million, or 8.9% of quarterly revenue, an increase from $996,000. The following results are for the 12-month period ended December 31, 2022, as compared to the results for the year 2021. Revenue increased 16.8% to a record $72.4 million. This increase was primarily due to the growth of the Edge AI transportable and autonomous applications, as well as our media and entertainment business. Core OSS business increased 12.5%, contributing 43.3 million of revenue, with OSS Europe increasing 24%, contributing 29.1 million of revenue. OSS aggregate gross profit improved $758,000 to $20.4 million. Overall gross margin was 28.2% of revenue in 2022 compared to 31.7% in 2021. The reduction in margin was primarily attributable to four factors. Those factors are a higher proportion of sales to our low margin media entertainment customer, Deferment of approximately $3.3 million of higher margin sales of data and storage equipment. Third, an increase in our allowance for realization of inventory. And fourth, an increase in the proportion of revenue derived from OSS Europe, which generally operates at a margin of approximately 22%. Gross margin for the core OSS business decreased 32.7%. decreased 32.7% as compared to 36.9% in 2021. OSS Europe's gross margin decreased to 21.5% due to higher transportation and material costs as compared to 23.1% in 2021. Operating expenses increased 5.2% to 18.8 million. This increase is primarily due to an increase of $605,000 in marketing and selling expenses resulting from additional marketing, trade shows, and travel. And there was also an increase in R&D expenses of $711,000 for the development of new standard products for the AI transportable market. These two increases were partially offset by a decrease of $379,000 in general and administrative expenses. Operating expense as a percentage of revenue improved to 26% compared to 28.9% in 2021. Income from operations decreased $179,000 to $1.6 million due to reduced gross margins with income before taxes decreasing $744,000 compared to the prior year. However, after giving effect to the prior year one-time PPP loan and interest forgiveness, on a pro forma basis, there was a year-over-year increase of $770,000 in income before taxes. Net loss on a GAAP basis was $2.2 million, or a loss of 11 cents per basic and diluted share. This was inclusive of the write-down of the net deferred assets of 3.9 million, which as I explained earlier, was attributable to allowances for the company's ability to benefit from the cumulative tax losses and R&D tax credits. This was compared to 2021 when there was net income of 2.3 million or 12 cents per diluted share, which included the one-time benefit of 1.5 million or $0.08 per diluted share due to the forgiveness of the company's PPP loan and related interest. Non-GAAP net loss totaled $175,000 or a loss of $0.01 per basic and diluted share, which included the write-down for the deferred tax assets as compared to non-GAAP net income of $3.1 million or $0.16 per diluted share in 2021. Adjusted EBITDA, a non-GAAP measure, totaled $5.2 million or 7.1% of revenue compared to $4.9 million or 7.9% of revenue in 2021. For 2021, both non-GAAP net income and adjusted EBITDA excluded the PPP loan and interest forgiveness. Now, let's turn to our balance sheet. On December 31, 2022, cash and cash equivalents totaled 3.1 million with short-term investments of 10.1 million for a combined total of 13.2 million. This represents an increase of approximately half a million dollars compared to our balances as of September 30, 2022. We believe the current financial resources available to OSS provides us with the stability and flexibility to be responsive to changes in business demands and particularly those that require investment in working capital to be successful. This completes our financial review for the quarter and the year. I would now like to turn the call over to our Chief Product Officer, congratulations Jim, to Jim Isen.