• Consolidated Revenue: $15.1 million for Q4 2024, a 15.1% year-over-year increase.
• OSS Segment Revenue: Expected approximately $30 million for 2025, over 20% year-over-year growth.
• Customer-Funded Development Revenue: Increased by 118% in 2024 to $3.7 million.
• Gross Margin: 15.7% for Q4 2024; excluding one-time charges, 23.8%.
• OSS Segment Gross Margin: 9.4% for Q4 2024; excluding one-time charges, 26.8%.
• Bressner Segment Gross Margin: 21.2% for Q4 2024, a 1 percentage point decrease from last year.
• Operating Expenses: Increased 15.1% year-over-year to $5.5 million for Q4 2024.
• GAAP Net Loss: $3.1 million or $0.15 per share for Q4 2024.
• Non-GAAP Net Loss: $2.6 million or $0.12 per share for Q4 2024.
• Adjusted EBITDA: Loss of $2.3 million for Q4 2024.
• Cash and Short-term Investments: $10 million as of December 31, 2024.
• Cash from Operating Activities: Used $108,000 for the 12 months ended December 31, 2024.
• Book-to-Bill Ratio: 1.14 for OSS segment in 2024; expected to be 1.2 for 2025.

• Warning! GuruFocus has detected 3 Warning Signs with OSS.

Release Date: March 19, 2025

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

Positive Points

• One Stop Systems Inc (NASDAQ:OSS) achieved consolidated year-over-year revenue growth for the fourth quarter and sequential growth for every quarter in 2024.
• The company increased customer-funded development revenue by 118% in 2024, indicating potential for larger future revenues.
• OSS's annual book-to-bill ratio improved to 1.14, with expectations to reach 1.2 in 2025, suggesting strong future order prospects.
• The company is pursuing transformative opportunities in both commercial and defense markets, including a $200 million pipeline in composable infrastructure for data centers.
• OSS expects to achieve EBITDA breakeven for the full year of 2025, with revenue and profitability anticipated to improve in the second half of the year.

Negative Points

• OSS incurred a $1.2 million charge related to contract losses and $7.1 million in inventory charges in 2024, impacting financial results.
• Consolidated gross margin declined to 15.7% in Q4 2024, compared to 33.7% in the prior-year quarter, due to less profitable revenue mix.
• The company reported a GAAP net loss of $3.1 million for Q4 2024, compared to a net loss of $278,000 in the prior year.
• Order delays and budget uncertainties are expected to persist in the first half of 2025, potentially impacting revenue timing.
• The OSS segment's gross margin was significantly pressured, dropping to 9.4% in Q4 2024 from 45.9% a year ago, due to a less profitable product mix.

Q & A Highlights

Q: What factors contributed to the pressure on OSS's core segment gross margin, and what gives confidence in improvement for 2025? A: Daniel Gabel, CFO, explained that the variability in gross margin is due to the mix of products, with some being lower margin. Despite this, the full-year 2024 gross margin was stable at around 36.4%, similar to 2023. The company expects improvement in 2025 as product mix stabilizes.

Q: How are order delays affecting OSS's pipeline and addressable market for 2025? A: Michael Knowles, CEO, noted that while there are delays due to budget processes, the pipeline remains stable. The company is seeing increased interest in its products, and the addressable market for 2025 is still expected to be around $200 million, with no significant shifts in the pipeline.

Q: What is the market opportunity for server extension box orders and similar sales to AI infrastructure companies? A: Michael Knowles highlighted a broad $200 million opportunity, with increased interest from multiple customers for GPU accelerator and expansion boxes. The company is engaging with OEMs and presenting new technologies at trade shows, positioning itself as an early adopter of high-wattage GPU accelerators.

Q: Where is OSS seeing more growth between commercial and defense markets for 2025? A: Michael Knowles stated that growth is balanced between both markets. The company is pursuing opportunities in data centers, medical imaging, and aerospace on the commercial side, and has renewed long-term contracts with defense contractors, expanding its reach within large prime contractors.

Q: Are there any unexpected areas of strength in the commercial segment for 2025? A: Michael Knowles mentioned that the medical imaging sector is growing faster than anticipated, driven by the adoption of AI in imaging processing. This aligns with OSS's capabilities in real-time sensor processing, leading to quicker adoption and growth in this area.

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