One Stop Systems, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Actions: Implemented strategic actions in 2023 and 2024 including strengthening leadership with defense industry executives, launching a multiyear strategic plan, rebuilding go-to-market approach, expanding sales pipeline, and driving higher gross margins.
• Bookings and Wins: Ended the quarter with one of the highest levels of bookings in history, totaling $25.4 million with a book-to-bill ratio of 2.3. Notable wins include a $6.5 million contract from a leading defense and technology company, orders from major defense contractors, and awards from the U.S. Navy and a medical imaging OEM.
• Product Launches: Announced Ponto, the world's first PCIe Gen 5 GPU expansion platform for commercial data centers, aligned with commercial strategy to deliver standard products alongside customized solutions.
• Pipeline and Growth: Strong pipeline in defense and commercial markets. Expect OSS segment revenue of approximately $19 million in the second half of 2025, with consolidated revenue expected to be $59 million to $61 million for full year 2025, targeting EBITDA breakeven.

Segment Performance

• OSS Segment: In the second quarter, OSS segment revenue contributed to consolidated revenue growth. Year-over-year, OSS segment gross margin improved to 41.3% from 24.9% in the prior year quarter, driven by the nonrecurrence of an inventory charge and a more profitable product mix. Year-to-date, OSS segment gross margin has benefited from operational efficiency and product mix. For full year 2025, OSS segment margins are expected in the 40% range, up from prior guidance of mid- to upper 30s. Full year 2025 OSS segment revenue is expected to be approximately $30 million, representing over 20% year-over-year growth.
• Bressner Segment: Second quarter gross margin was 24.3%, a 120 basis point decrease from the same period last year primarily due to product mix. Recent bookings and revenue within the Bressner segment have been in line with targets, and it remains on track to achieve higher sales and profitability for 2025 compared to the prior year.

Guidance

• OSS Segment: Expected revenue of approximately $19 million in the second half of 2025. Full year 2025 OSS segment revenue is projected to be ~$30 million, representing over 20% year-over-year growth. Full year 2025 OSS segment margins are expected in the 40% range.
• Consolidated: Full year 2025 consolidated revenue is expected to be $59 million to $61 million, with EBITDA breakeven targeted.
• 2026 Outlook: OSS segment expected to grow at ~20%, while Bressner segment is modeled to grow in the range of 7% to 9%.

Risks

• Supply Chain: Longer lead times for components impacting production ramp.
• Government Funding Timing: Uncertainty in government funding timing affecting program launches and funding releases.
• Market Variables: Gross margin variability due to absorption, product mix, and program lifecycle.

Question and Answer

• Q: Scott Searle inquired about OSS outlook, Bressner performance, 2026 mix, data center, and AI partnerships.

A: Michael Knowles and Dan Gabel discussed Bressner performance being in line with targets, OSS expected growth, data center product Ponto, and ongoing AI partnerships.

• Q: Eric Martinuzzi asked about Bressner growth rate, impact of the One Big Beautiful Bill Act, and the U.S. Army Combat vehicle opportunity.

A: Michael Knowles spoke about Bressner growth rates modeled at 7%-9% in 2026, impact of legislation on pipeline timing, and the early stage of the U.S. Army Combat vehicle opportunity.

• Q: Brian Kinstlinger questioned government vs commercial bookings and bid and proposal activity.

A: Michael Knowles discussed booking mix with more defense-weighted bookings, bid success rates (winning 75%+ of competitions), and steady increase in bid and proposal activity.