• Consolidated Revenue: $13.7 million, exceeding guidance of $13.3 million.
• OSS Segment Revenue Growth: 17.5% year-over-year.
• Gross Margin (OSS Segment): 43.2% excluding a $6.1 million inventory charge.
• Inventory Charge: $6.1 million, impacting gross margin, net income, and adjusted EBITDA.
• Operating Cash Flow: Over $900,000 for the quarter.
• Customer Funded Development Revenue: $2.8 million year-to-date, up from $877,000 last year.
• Consolidated Gross Margin: Negative 12.5%, impacted by inventory charge; 32% excluding the charge.
• Operating Expenses: Decreased 34.3% to $5 million.
• GAAP Net Loss: $6.8 million or 32 per share.
• Non-GAAP Net Loss: $6.4 million or 30 per share.
• Adjusted EBITDA: Loss of $6 million, including inventory charge.
• Cash and Short-term Investments: $12.6 million as of September 30, 2024.
• Fourth Quarter Revenue Guidance: Approximately $15 million.

• Warning! GuruFocus has detected 4 Warning Signs with OSS.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• OSS segment revenue grew by 17.5% year-over-year, indicating strong performance in this area.
• The company reported a gross margin of 43.2% in the OSS segment, excluding a significant inventory charge.
• OSS achieved positive operating cash flow of over $900,000, demonstrating financial stability.
• The company has a robust $1 billion pipeline, with 70% comprising multi-year opportunities, suggesting future revenue stability.
• Customer funded development revenue increased significantly to $2.8 million year-to-date, up from $877,000 the previous year, indicating successful strategic initiatives.

Negative Points

• The company took a $6.1 million inventory charge, negatively impacting gross margin and net income.
• Consolidated gross margin was negative 12.5% due to the inventory charge, compared to 26.6% a year prior.
• The Bressner segment experienced a $1 million revenue reduction due to sluggish economic activity in Europe.
• The company reported a GAAP net loss of $6.8 million, a significant increase from the previous year's loss.
• There is continued economic uncertainty in European markets, which may impact future performance.

Q & A Highlights

Q: What is driving the strengthening trends in bookings and book-to-bill ratios in the core OSS segment, and how much of this is government versus commercial? A: Brian Kinstlinger, Alliance Global Partners - Analyst, explained that the strengthening trends are driven by both defense and commercial markets. The broadening of the company's scope and reach, particularly in defense markets, has contributed to this growth. The adoption of technologies like autonomy, artificial intelligence, and machine learning is also driving demand. Approximately 55% to 60% of bookings are from defense markets.

Q: Are you continuing to see these trends in the fourth quarter, and is there any impact from the change in administration on business development with the Federal government? A: Brian Kinstlinger stated that they expect similar themes in bookings for Q4. While government timing can be affected by holidays, the company has planned for these. The change in administration is not expected to have a significant impact, and there might be a positive effect with a greater focus on defense.

Q: Can you quantify the addressable percentage of the $1 billion pipeline for 2025, and does it break down similarly to your bookings? A: The pipeline is approximately 55% to 60% defense, similar to bookings. About one-fifth of the pipeline is addressable in 2025, and the company uses probability weightings to prioritize elements in the pipeline.

Q: What type of gross margin is reasonable to assume for investors over the next 18 months for the core OSS segment? A: Brian Kinstlinger noted that the company expects to drive gross margins up to 35% or better over the next 18 months as they balance products and customer-funded development.

Q: What is getting OSS to the table and positioning them for wins in the pipeline? A: The company's enterprise-class computing solutions offer significant performance advantages at similar price points, allowing for more AI algorithms in the same volume. This capability is driving interest and positioning OSS for wins against older architectures.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.