One Stop Systems Reports $6.7 Million Net Loss and 15.9% Revenue Decline for Fiscal Year 2023

One Stop Systems, Inc. (OSS) reported a net loss of $6.7 million for the fiscal year ended December 31, 2023, compared to a net loss of $2.2 million in 2022. Total revenue decreased by 15.9% to $60.9 million, primarily due to decreased shipments to a former media customer, the bankruptcy of an autonomous trucking customer, and delays in military orders. OSS's cost of revenue also decreased by 17.5% to $42.9 million, resulting in a gross profit margin of 29.5%, up from 28.2% in 2022. This improvement was partially offset by underutilization of production resources due to lower overall revenue.

Operating expenses increased to $25.9 million, a 42.5% of revenue, compared to 26% in 2022. This increase was driven by a $1.98 million (27.3%) rise in general and administrative expenses, largely attributed to restructuring costs and professional services, and a $5.6 million impairment charge on goodwill. Marketing and selling expenses decreased slightly, while research and development expenses fell by 8.7%. The company received $1.7 million in Employee Retention Credits (ERC) for 2020 and 2021.

Significant changes in OSS's leadership and organizational structure occurred during 2023. Michael Knowles replaced David Raun as president and CEO in June, and Robert Kalebaugh joined as vice president of sales in July. Both bring extensive experience in the defense sector, reflecting OSS's strategic shift towards AI Transportables and military applications. The board of directors also underwent changes, with new members appointed to align with this strategic focus. The company amended its bylaws to incorporate SEC Rule 14a-19 requirements and lower the quorum threshold for shareholder meetings.

OSS's product strategy focuses on technology leadership and a first-to-market approach. The company introduced the Rigel edge supercomputer, the highest-performing compact supercomputer designed for demanding environments, and upgraded its Short-depth Servers (SDS) to PCIe 5.0 performance levels. The company also introduced the Cernis and Donati products for compact autonomy and AI/ML applications. OSS highlighted its strong relationships with component manufacturers like NVIDIA, AMD, and Intel, enabling a first-to-market strategy. The company's sales and marketing efforts are concentrated on expanding customer counts and securing multi-year contracts in the AI Transportables market, with a goal of increasing military sales to 50% of total sales over the next few years.

Looking ahead, OSS anticipates accelerated revenue and margin growth driven by its strategic focus on the AI Transportables market and its strengthened position in the military sector. The company acknowledges risks associated with economic uncertainty, competition, cybersecurity, and dependence on a limited number of customers and suppliers. OSS plans to manage growth effectively, improve operational efficiencies, and pursue accretive acquisitions. The company also noted that it has sufficient liquidity to meet its anticipated working capital requirements for at least the next twelve months, but this is subject to the success of its cost reduction efforts and the achievement of its forecasted cash flows.