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OS

ONE STOP SYSTEMS, INC. (OSS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 returned to year-over-year revenue growth, with consolidated revenue of $15.14M (+15.1% y/y) and sequential growth for every quarter in 2024; however, gross margin compressed on mix and a $1.2M contract-loss charge, resulting in GAAP EPS of $(0.15) and non-GAAP EPS of $(0.12) .
  • Revenue modestly beat S&P Global consensus in Q4 ($15.14M vs. $15.00M*) while Primary EPS missed (+$0.01* cons. vs. $(0.12) actual) as mix and the one-time charge weighed on profitability; similar patterns held in Q2 and Q3 with revenue slight beats and EPS misses due to inventory and mix [GetEstimates]* .
  • 2025 outlook calls for consolidated revenue of $59–$61M, OSS segment ~+$30M (>20% y/y), and EBITDA breakeven, with a stronger 2H cadence; management targets Q1 2025 consolidated GM in the low-30% and OSS segment GM mid-to-upper 30% as mix normalizes .
  • Strategic catalysts: ramp of PCIe Gen5 composable infrastructure wins (initial $2M order) and defense opportunities (U.S. Army vehicle visualization evaluation; Asia USV order in Q4; Navy PA program renewal), alongside accelerating medical imaging engagements announced post-quarter .

What Went Well and What Went Wrong

  • What Went Well

    • Year-over-year growth returned: Q4 revenue +15.1% y/y to $15.14M; both OSS (+10.0% y/y) and Bressner (+19.9% y/y) contributed; 2024 delivered sequential quarterly growth as the transformation took hold .
    • Pipeline and bookings: OSS segment book-to-bill at 1.14 in 2024; management expects ~1.2 in 2025; pipeline remains ~$1B with an addressable subset to drive 2025 growth .
    • Strategic design wins/orders: $2M initial CDI/datacenter order (Ponto Reef, Gen5 4UPro) with expected follow-ons; Asia defense USV order (Dec) with additional 2025/2026 opportunities; Navy PA renewal; multiple DoD/commercial prospects .

  • What Went Wrong

    • Margin compression: Q4 gross margin fell to 15.7% (23.8% ex one-time) vs. 33.7% LY on mix and a $1.2M contract-loss charge; OSS segment GM 9.4% (26.8% ex one-time) vs. 45.9% LY .
    • EPS miss vs consensus: Primary EPS of $(0.12) vs. +$0.01* consensus; one-time charge and lower-margin mix drove a larger-than-expected loss despite revenue beat [GetEstimates]* .
    • Inventory/charges impact 2024: $7.1M inventory charges in 2024 (notably $6.1M in Q3) plus the $1.2M Q4 contract-loss depressed FY gross margin to 14.1% (29.3% ex one-time) and FY adjusted EBITDA to $(10.25)M .

Financial Results

Actuals (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($M)$13.20 $13.70 $15.14
GAAP Diluted EPS$(0.11) $(0.32) $(0.15)
Primary EPS (S&P Global)$(0.09)*$(0.30)*$(0.12)*
Gross Margin %25.2% (12.5)% 15.7%
Gross Margin % (ex one-time)—32.0% 23.8%

Actual vs. S&P Global consensus (Primary EPS and Revenue)

MetricQ2 2024Q3 2024Q4 2024
Revenue – Actual ($M)$13.20 $13.70 $15.14
Revenue – Consensus ($M)$12.98*$13.31*$15.00*
Primary EPS – Actual$(0.09)*$(0.30)*$(0.12)*
Primary EPS – Consensus$(0.045)*$(0.06)*$0.01*

Values marked with * retrieved from S&P Global.

Segment revenue ($M)

SegmentQ2 2024Q3 2024Q4 2024
OSS$5.52 $6.46 $7.04
Bressner$7.68 $7.24 $8.10
Total$13.20 $13.70 $15.14

Key KPIs and balance sheet

KPIQ2 2024Q3 2024Q4 2024
Customer-funded development revenue ($M)$1.45 $1.02 $0.86
Cash + Short-term investments ($M)$11.77 $12.58 $10.01
Working capital ($M)$32.6 $26.7 $24.0
OSS segment GM ex one-time—43.2% 26.8%
FY24 OSS segment book-to-bill——1.14 (FY)

Notes: Q3 included a $6.1M inventory charge; Q4 included a $1.2M contract-loss charge .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ActualChange
Consolidated revenueQ4 2024≈$15.0M (issued 11/6/24) $15.14M actual Slight beat
Consolidated revenueFY 2025—$59–$61M New
OSS segment revenueFY 2025—≈$30M (>20% y/y) New
EBITDAFY 2025—Breakeven for full year New
Consolidated GM %Q1 2025—Low 30% target New (qualitative target)
OSS segment GM %Q1 2025—Mid–upper 30% target New (qualitative target)
2H cadenceFY 2025—Revenue/profitability weighted to 2H New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2, Q3)Current Period (Q4)Trend
AI/CDI & datacenter (PCIe Gen5)Increasing OSS focus; pipeline building (Q2); Q3: strong OSS GM ex. inventory (43.2%) and sequential growth Initial $2M CDI order (Ponto Reef, Gen5 4UPro) with expected follow-ons; composable infrastructure pipeline ~$200M Positive, expanding pipeline/orders
Defense programsQ2: timing delays; Europe softness weighed on Bressner U.S. Army visualization system evaluation (potential >$200M over 3–5 yrs), Navy PA renewal, Asia USV order in Q4 Building momentum; awards delayed by budget timing
Mix and marginsQ2 GM 25.2%; Q3 GM negative on $6.1M inventory charge; ex-charge GM 32.0% Q4 GM 15.7% (23.8% ex one-time); Q1 2025 GM targets: low 30s consolidated, mid–upper 30s OSS Improving trajectory expected in 1H25
Europe macro (Bressner)Q2/Q3: softness in Europe drove Bressner declines Q4 Bressner +19.9% y/y revenue; GM 21.2% vs. 22.2% LY Stabilizing revenue; margin slightly lower
Orders/budget timingQ2: certain orders pushed to Q4 H1 2025 order delays tied to CR/procurement pacing; stronger 2H expected Near-term timing headwinds; 2H recovery

Management Commentary

  • “I am pleased to report a return to consolidated year-over-year revenue growth for the fourth quarter… Throughout 2024 we executed on our multi-year transformation… toward higher-margin, higher-growth markets.” — Mike Knowles, CEO .
  • “Consolidated revenue increased sequentially every quarter throughout 2024… Management expects double-digit consolidated revenue growth in 2025… and consolidated EBITDA break even for the year.” .
  • “We adjusted our legacy inventory and program costs… We believe the progress we made in 2024 strengthened our business, positioning the Company for higher sales and profitability in 2025 and beyond.” — Mike Knowles .
  • “We expect our consolidated gross margin to return to our target range in the low 30% in 2025 first quarter… OSS segment gross margin… to our target range in the mid to upper 30% range.” — Dan Gabel, CFO .

Q&A Highlights

  • Gross margin drivers and outlook: Q4 margin pressure stemmed from lower-margin mix and customer-funded development; management reiterated variability given scale and expects consolidated low-30% and OSS mid–upper 30% GM in Q1 2025 as mix normalizes .
  • Orders and budget timing: DoD procurement under continuing resolution and process friction are delaying awards; management anticipates a stronger 2H 2025 as defense orders convert .
  • Pipeline durability: ~$1B pipeline remains intact, with addressable 2025 subset viewed as sufficient to deliver planned growth; breadth is increasing with more RFIs/RFPs .
  • CDI/datacenter opportunity: $2M initial order for GPU accelerator/expansion boxes; company positioning to support higher-voltage next-gen GPUs; showcased tech at industry events (Embedded World, GTC) .
  • End-market mix and new areas: Growth expected roughly balanced between commercial and defense; medical imaging demand is arriving earlier/faster than initially expected .

Estimates Context

  • Q4 2024: Revenue beat ($15.14M vs. $15.00M*) but Primary EPS missed (+$0.01* vs. $(0.12)); one-time $1.2M contract-loss charge and lower-margin mix were key drivers [GetEstimates]* .
  • Q3 2024: Revenue beat ($13.70M vs. $13.31M*) but Primary EPS missed ($(0.06)* vs. $(0.30)) as a $6.1M inventory charge drove negative GM [GetEstimates]* .
  • Q2 2024: Revenue beat ($13.20M vs. $12.98M*) with EPS miss ($(0.045)* vs. $(0.09)); margin pressure and underutilization cited [GetEstimates]* .
  • Implication: Near-term EPS estimates likely need to reflect GM normalization pacing and mix sensitivity; 2H-weighted 2025 revenue and targeted GM recovery support improving EPS trajectory if conversion timing holds .

Values marked with * retrieved from S&P Global.

Guidance Changes

(See table above.) Management added quantitative FY25 revenue and profitability guardrails and near-term GM targets, signaling confidence in mix recovery and pipeline conversion despite H1 timing headwinds .

Earnings Call Themes & Trends

(See table above.) Narrative continues to pivot to platform wins in CDI/datacenter and defense programs with larger multi-year potential; near-term order timing is the key watch item .

Key Takeaways for Investors

  • Revenue momentum is real; margin normalization is the swing factor. Expect volatility quarter-to-quarter given mix and program timing; watch Q1 GM vs targets (low-30s consolidated; mid–upper 30s OSS) as a leading indicator .
  • 2025 setup is 2H weighted; patience likely required through H1 while defense awards clear budgeting/procurement processes .
  • CDI/datacenter ramp could be a positive surprise if follow-ons arrive faster; monitor conversion beyond the initial $2M order and broader PCIe Gen5 accelerator adoption .
  • Defense pipeline is broadening (Army visualization, Navy PA renewal, Asia USV); any program-of-record wins would be stock catalysts given multi-year scale .
  • Non-GAAP adjustments materially impacted 2024; management does not foresee further significant contract or inventory adjustments beyond historical trends, reducing downside risk to margins/EPS .
  • Liquidity remains adequate (YE cash + ST investments ~$10.0M; working capital $24.0M) with no revolver borrowings; cap structure provides runway to execute .
  • Estimate revisions: Expect modest revenue raises (given consistent beats) but EPS paths depend on mix; near-term EPS could be conservative until GM targets are demonstrated and order delays abate [GetEstimates]* .

References:

  • Q4 2024 8-K and Exhibit 99.1 press release, financials, outlook
  • Q4 2024 earnings call transcript (prepared remarks and Q&A)
  • Prior quarters: Q3 2024 press release ; Q2 2024 press release
  • Other Q4 2024 relevant press releases: Asia USV order (Dec 3, 2024) ; CDI design win (Nov 13, 2024)
  • S&P Global consensus/actuals (Revenue, Primary EPS) [GetEstimates]*

Footnote: Values marked with * retrieved from S&P Global.