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 31st, 2023. 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 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 information 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 Rohn. Please go ahead, sir.

Thank you, Chris, and good afternoon, everybody. In the first quarter, our consolidated revenue totaled $16.8 million, slightly above our guidance of $16.6 million. Excluding the lower margin media business, our OSS classic revenue increased 17% for the quarter compared to the same period a year ago. OSS Europe also had strong revenue growth, increasing 26%. That includes 1.2 million of OSS core product sales as we engage with more industrial and military AI transportable European customers. In contrast, we sold approximately 180,000 of OSS products in Europe in the first quarter of 2022. Our overall gross margin was 30.2 in the first quarter, up from 27.3 last quarter, and a slight increase from the year-ago period. Driven by increased sales of OSS core products in the US and Europe, as well as a planned reduction of low margin sales to our legacy media customer. As you may recall that in February, we announced the execution of a $1.3 million contract directly with the U.S. Army for the design, development, and prototypes for a rugged 360-degree visualization compute system for land vehicles, including the Stryker, Bradley, and Abrams. We expect to start to realize revenue from this contract in Q2. The program represents a significant revenue opportunity while also potentially opening other applications within the Army. We are engaged with several Air Force opportunities both directly and through top 10 prime contractors. Early proof points with the Air Force include yesterday's announcement, plus we recently learned from another prime that they won a contract that includes our flagship compact supercomputer Rigel. We expect to announce more about this win and ship product later this year. In both cases, these were new prime contractors for OSS, providing additional exposure and visibility to other key programs. Additionally, in Q1, we continued advancing in multiple industrial markets, including autonomous trucks and agriculture, and several other defense-related opportunities throughout the DoD in the U.S. and Europe. Before I comment further on our growth strategy and outlook, I've asked John to comment on the financials and Jim to expand on these customer wins and opportunities. 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 first quarter ended March 31, 2023. The release is available in the investor relations section of our website. at onestopsystems.com. The following results are for the first quarter 2023 as compared to the same period in 2022. Consolidated revenue declined $271,000 to $16.8 million. This included an expected $3 million reduction in revenue from our low margin media customer, which was mostly offset by a 21.8% growth increase in sales to other OSS customers. As clarification, OSS Classic is defined as all shipments from U.S. operations delivered throughout the world. Similarly, OSS Europe is defined as all shipments originated from European operations. References to OSS core products are those products that are designed in the U.S. and sold through both operations and they tend to yield higher margins. OSS Classic revenue decreased 18.4% to $8.6 million for the quarter, representing 51% of total revenue. Excluding lower margin media customer revenue, OSS Classic revenue increased 17.2%. Revenue from OSS Europe increased 26% to $8.2 million, including an incremental $1 million of higher margin OSS core products. OSS Europe represented 49% of total quarterly revenue. Our overall gross profit in the first quarter was $5.1 million. Our margins increased 10 basis points and, sequentially, sequentially by 290 basis points to 30.2%, attributable to a greater mix of AI transportable products. The gross margin for our OSS Classic business increased 60 basis points to 36.3, attributable to a greater mix of AI transportable products. Our OSS Europe's gross margin percentage improved 280 points to 23.8% compared to 21% due to more OSS core product content being sold into European markets. Overall, quarterly operating expenses increased 17.3% to $5.3 million, with operating expenses as the percentage of revenue increasing to 31.4% compared to 26.3%. This increase in operating expenses was primarily due to increases of $510,000 in general and administrative expenses with $249,000 being attributable to CEO transition costs. Marketing and selling expenses increased $310,000 with approximately $100,000 attributable to severance costs associated with the recent realignment of sales resources to support our AI transportable strategy. The increase in operating expenses was partially offset by a decrease of $49,000 in R&D expense. Loss from operations was $196,000 compared to income from operations of $650,000 in the same period in 2022. This difference was predominantly attributable to higher operating expenses. Net loss on a GAAP basis was $401,000 or negative a loss of $0.02 per share as compared to net income of $579,000 or $0.03 per share. On an on GAAP basis, The net income was $90,000 or $0 per share, down from non-GAAP net income of $978,000 or $0.05 per share. Adjusted EBITDA, a non-GAAP metric, was $530,000 or 3.2% of quarterly revenue, a decrease from $1.4 million. Turning to our balance sheet, as of March 31, 2023, Cash and cash equivalents totaled $3.5 million with short-term investments of $9.2 million for a combined total of $12.7 million. This represents a decrease of $547,000 compared to cash equivalents and short-term investments as of December 31, 2022. Our cash decrease was attributable to strategic inventory purchases and working capital requirements. 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 in order for us to be successful. This completes our financial review for the quarter. I would like to now turn the call over to our Chief Product Officer, Jim Eisen.