One Stop Systems, Inc. (OSS) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, and thank you for joining us today to discuss One Stop Systems' Financial Results for the First Quarter Ended March 31, 2022. With us today are the Company's President and Chief Executive Officer, David Raun, and Chief Financial Officer, John Morrison, as well as the Company's Chief Sales and Marketing Officer, Jim Ison. Following their remarks, we will open the call for your questions. Then before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that the call will be recorded and made available for replay in the Investors section of the Company's website. Now I would like to turn the call over to OSS' President and CEO, David Raun. Please go ahead, sir.
David Raun: Thank you, Laura. In Q1, the Company continued to make strong financial progress. Revenue grew 28% year-over-year, setting a record for Q1 at $17.1 million. For the second year in a row, we minimized the seasonality from Q4 to Q1 to about 4% as compared to the 30% plus drops in prior years. This strong year-over-year growth included a record first quarter for our top customer in the media and entertainment space as their large gathering business impacted significantly by COVID starts to layer back in on top of their newer virtual product success. Their revenues are now greater than the pre-COVID environment with an expectation that we will see continued growth throughout the year. Bressner, our European team, also performed exceptionally well, with revenue growth at 37%. The growth increased our gross profit to $5.1 million from $4.4 million, while also pushing our gross margins back over the 30% mark. While revenue increased 28%, our operating expenses increased only 8%. Execution to the plan and the quarterly performance just outlined, increased GAAP net income to $579,000, non-GAAP net income to almost $1 million, and adjusted EBITDA to $1.4 million. All significant improvements over last year, as John will provide additional color on shortly. It seems that there is no one in the industry that's been untouched by the disruption of the critical supply chain, and we are no exception. Long lead times, price increases, supply shortages, higher shipping costs and missed shipments by our suppliers continue to make the business more challenging. Our procurement and our engineering teams have been working closely with our sales team to ensure we anticipate our production needs on a constant basis and if needed, find alternatives or pursue other options to meet our revenue objectives. Fortunately, we have been able to leverage our strong cash, limited debt and positive cash flow position to bring in the right products to support our continued growth. More importantly, we have continued to see an acceleration in multiple verticals within the AI transportable market, further validating our strategy implemented last year, including the development and introduction of more scalable standard products. Our flagship Rigel product, a compact and rugged supercomputer introduced last year, and our recently introduced Centauri storage accelerator have been well received. Although these products have generated interest in multiple AI transportable markets, Centauri was co-defined with multiple autonomous truck partners to help address a need in the fast-growing market. It was only seven weeks ago we provided additional color on the autonomous truck opportunity. Progress in this area includes four confirmed program wins in Q1, bringing the total to five for OSS storage and compute platforms in this developing multibillion-dollar vertical. We are currently shipping products to three of the market leaders, and we hope to expand that number as the year progresses. Thomas Trucking is a perfect example of an excellent market that demands performance without compromise and where we can leverage our superior technology or AI deployed in harsh environments. Before I get into the outlook of the rest of the year and provide additional color on further validation of the AI transport strategy, I'd like to turn the call over to our CFO, John Morrison, who will take us through the financial details for the quarter. Then, our Chief Sales and Marketing Officer, Jim Ison, will provide additional insight into our new product introduction, program wins and building pipeline. John?
John Morrison: Thank you, David, and good afternoon, everyone. Thank you for joining us today. Earlier today, we issued a press release with our financial results for the first quarter ended March 31, 2022. The release is available in the Investor Relations section of our website at onestopsystems.com. As David mentioned, for the first quarter, we reported revenue of $17.1 million, which was up 28% from the prior year period. Our core OSS revenue increased 23% to $10.6 million, representing 62% of current quarterly revenue. With the revenue from Bressner, our European subsidiary, increasing 37% to $6.5 million, representing 38% of total quarterly revenue. Gross profit in the first quarter of 2022 increased $708,000 to $5.1 million. The gross margin for our core OSS business sequentially improved from 33.2% in Q4 2021 to 35.7%, but a decrease of 2.2 percentage points from the prior year due to continued growth and success of our media and entertainment customer. Bressner's gross margin percentage sequentially improved from 19.4% in Q4 2021 to 21%, but reduced from 24.9% in the prior year due to exchange rates and increases in material and transportation costs. Overall, gross margins were 30.1% for the quarter, a sequential improvement from 28.3% in Q4 2021, but a 3.2 percentage point decrease compared to the prior year of 33.3%. Much of these changes in margins were primarily attributable to the strength of the Media and Bressner business and due to the timing of shipments to our large military customers. Historically, the predominance of these shipments has occurred in Q3 and Q4 and will be consistent with our shipping schedule for this year. However, in the prior year, there were strong shipments in Q1 2021 due to deferred shipments from Q4 2020. Although the margin percentage is lower, profitability is higher. We are continuing to take action to improve margins through price increases, improved quoting capabilities reflecting real-time parts pricing, manufacturing efficiencies, introduction of higher-value standard products, and management's focus on this company imperative. Quarterly revenues increased 28% with our overall quarterly operating expenses only increasing 8% to $4.5 million. Operating expenses as a percentage of revenue decreased to 26.3% compared to 31.1% in the same year ago quarter. The marginal increase in operating expenses was primarily due to a return to a more normal business environment with fewer COVID-19 restrictions. As such, the Company has returned to participating in trade shows, business travel, marketing activities and adding certain strategic employee hires. GAAP net income totaled $579,000 or $0.03 per basic and diluted share, increasing from net income of $41,000 or $0.00 per basic and diluted share. Now on a non-GAAP basis, net income was $978,000 or $0.05 per basic and diluted share for the quarter, up from $643,000 or $0.03 per basic and diluted share. Adjusted EBITDA, a non-GAAP metric, was $1.4 million or 8.3% of quarterly revenue as compared to $1.1 million or 8% of quarterly revenue in the prior year. All three of these profitable metrics were company records for the first quarter of the year. Now turning to our balance sheet, on March 31, 2022, cash and cash equivalents totaled $2.2 million with short-term investments of $13.6 million, combining for $15.8 million. This compares to cash and cash equivalents and short-term investments totaling $19.6 million on December 31, 2021. While OSS is cash flow positive, we are purposely putting our strong cash position to work with carefully sought out inventory investments. Cash provides us stability and flexibility to be able to be responsive to changes in our business and to issues imposed by external global economic influences. This completes our financial review. And now I'd like to turn the call over to our Chief Sales and Marketing Officer, Jim Ison. Jim?
Jim Ison: Thank you, John, and good afternoon, everyone. In Q1, we generated six new major program wins, including four in autonomous trucking, further validating the value OSS brings to this market. We also added 10 new pending major programs during the quarter, which is the largest increase ever in a single quarter. Six of these 10 opportunities are AI transportable programs for autonomous trucks, military aircraft and maritime applications. For reference, our pending major programs have a 60% or greater expectation of closing. Our current pipeline of pending major programs has expanded to a record 34 with 20 involving AI transportable applications because of our focused efforts on this market. Now turning to our thought leader products, our flagship Rigel edge supercomputer continues to provide pull in autonomous truck and military AI applications, adding opportunities at the high end where according to our customers, only our products have both the AI performance and ability to survive at the edge. To complement our Rigel compute system, we have recently introduced the Centauri rugged storage accelerator designed in lockstep with the needs of our autonomous trucking customers. While an autonomous truck is on the road, vast amounts of data are generated from the numerous sensors deployed around the vehicle, including LiDAR, radar, telemetry and video. This information is analyzed by the autonomous driving system to learn or improve its self-driving capability. Centauri is a rugged storage accelerator system that uses the highest performance PCI Express Gen 4 NVMe memory while providing high capacity in a compact, hot-swappable canister that slides into the Centauri chassis. Centauri connects to an OSS Rugged SDS server in the truck cab via PCI Express Gen 4 and stores AI data. Since Centauri is designed to be remote-mounted in an externally accessible compartment, or the saddle bag of a long-haul autonomous truck, the data canister can be quickly removed, replaced and transported to the truck depot, keeping the truck on the road as much as possible. The previously mentioned products are currently based on Gen 4 PCI Express technology, but we are well underway with the next generation. PCI Express Gen 5 will bring product advancements in 2022 to our core accelerator technology that allows us to bring the latest product to the rugged edge without compromise. PSI Express Gen 5 doubles the bandwidth of our current leading-edge Gen 4 products for compute, NVMe storage and accelerator systems such as Rigel and Centauri. We recently posted through social media channels the industry's first known successful Gen 5 PCI Express over 2-meter copper cable data transfer test and look forward to official product releases, demonstrations and product shipments for this leading-edge technology throughout the year. Our ability to lead with technology like PCI Express Gen 5 is one of our differentiating capabilities that distinguishes us from the highly fragmented competitive landscape. Our talented engineering team is progressing on multiple advancements in system management, power and disruptive liquid cooling technologies, allowing our products such as Rigel and our SDS product line to be deployed in more AI transportable applications. On the marketing front, we have exhibited at the Navy Sea Airspace Show and the AUVSI Exponential Autonomous Vehicle Conference this quarter where we also moderated an expert autonomous truck panel. The panel addressed the challenges and market dynamics of the truck market. Many of the same challenges exist in our other AI transportable verticals, including mining, drones and watercraft, where OSS can help customers in these markets generate an immediate and strong ROI. In all, I'm excited about our growing successes, breakthroughs and increasing activity in AI transportable. Now I'd like to turn the call back over to Dave.
David Raun: Thank you, John and Jim. As we have demonstrated, we have continued to execute, providing solid results, primarily from our traditional customer base and applications. Although our value proposition in some of these historic businesses, like media and entertainment as well as Bressner in Europe, may not generate the margin percentages that we seek in the future years, they generate positive margin dollars and income for OSS. We are pleased that this part of the business continues to grow and help pay for our AI transportable investments. We identified, put together a new strategic plan and have more recently been able to validate this multibillion-dollar opportunity while remaining cash flow positive, profitable and not taking on debt. We have done this during a crazy time in history, and our cash position has allowed us to invest in higher inventory levels to ensure growth and prosperity for OSS. Our objective is clear, leadership in the fast-growing AI transportable market. This includes enabling many of these new verticals with performance without compromise in some of the most challenging environments where the fragmented competitive landscape struggles to participate. This enablement is just the beginning as we have every intention, and we're starting to lay the foundation to be the supplier not only in the early stage, but also when the market develops and high-volume shipments are made. I look forward to sharing with you on a future call our progress on this front. I have personally found immersing myself in the autonomous truck market has been an exciting and rewarding journey. Like my thoughts prior to this crash course NDA on autonomous trucks, most new to the story assume that autonomous trucks are some futuristic looking things that may or may not ever develop and surely will be after autonomous automobile market develops. What they find is just the opposite, for one fundamental reason, pure economics of the autonomous truck market wording stumble. Like a commercial airline, where it only makes money when it is in the air, a truck makes its money being on the road, not sitting in front of the Ramada Inn when its driver is sleeping. The autonomous enabled truck is expected to double its potential return on investment. Unlike your autonomous automobile, these strong economics create pull for solutions to be implemented as soon as possible, even if not at the fully autonomous Level 5 capability. For example, the hub-to-hub model being deployed by several of our customers only tackles autonomous capabilities on the highway. Many are surprised to learn that these autonomous enabled 40-ton vehicles have logged hundreds of thousands of miles on the same highways you may travel on. It is likely that you have passed one on the road. Although we elected not to provide too much information on this front until our earnings call seven weeks ago, OSS products have also traveled over 100,000 miles as the compute and/or storage functions in some of these trucks. Our products provide the hardware needed to perform the autonomous compute and storage working in conjunction with our customers' AI software. While these extremely innovative companies focus on enormous demand of the software to enable a truck to go coast-to-coast without a human in the driver seat, our mission is to make sure we are bringing the right hardware solutions to the market today and down the road when a million of these trucks are hitting the road in production. Our compute storage solutions work directly with autonomous trucking software to gather data from the multiple sensors embedded around the vehicle, including LiDAR, radar, telemetry and cameras. When such software is combined with OSS technology, vast amounts of data can be captured from the sensors, processed, analyzed and stored on OSS' compute or storage platforms. Although these innovative market leaders with names like Kodiak Torque, Embark, TuSimple may or may not be familiar to you, they are backed by some of the largest and wealthiest companies that can benefit from this deployment. Well over $10 billion have been invested in this market for this reason. Although the cost of a compute and storage system for these trucks today is very high, we expect the volume, eventual competitive pressures and normal market dynamics will drive the overall solution down in price as with any market like this. Even with these lower price points, the market size for these types of products will offer a range between $0.5 billion and $10 billion over time per year. As I said earlier, it is our intent and our plan to be the leading supplier to this market. Now looking forward to Q2. Our revenue outlook is $17.3 million for the second quarter, which represents 15% growth over Q2 of last year. We would like to remind our investors of our upcoming shareholder meeting on Wednesday, May 18 at 11:00 A.M. Pacific Daylight Time. I encourage you to vote by proxy for the proposals outlined in the Notice of the Annual Meeting of Stockholders and proxy state. We also encourage you to also visit our IR website page after this call or tomorrow to view our just released latest corporate presentation with more information and color on the topics we cover today. There will be two versions. One will be your standard PDF and the other has my voice over it in an MP4 file. A link to these two presentations can be found on today's earnings press release. As an alternative, you can go to our standard web page at onestopsystems.com followed by selecting the Investors section in the menu at the top of the page and then clicking on presentations. Now with that, I'd like to open the call to address your questions. Laura?
Operator: Thank you. We'll go first to Joe Gomes with Noble Capital.
Joe Gomes: David, John and Jim, nice quarter. I wanted to kind of start off with your nice quarter. You talked about the skies now running at pre-pandemic levels, Bressner up very nicely. Kind of what does that mean for the rest of the business in terms of its revenues outside of those, Bressner, and the entertainment clients, how are the rest of the businesses holding up there? Are you seeing organic growth there? Is defense just waiting for the third and fourth quarters? Maybe a little more color on some of the other parts of the business would be appreciated.
David Raun: Our business and our backlog is very strong and there's no business segment I can think of that's decreasing. It's really, as you said, the timing of the military primarily and then it's just a matter of time getting the AI transport automotive business going. That's really the bottom line. And we touched on margins and things like that, and what I want to stress there is that we wish they were higher, but the bottom line is we're making money and it's funding this AI transportable strategy that we feel really good that we're validating. Those are my thoughts.
Joe Gomes: Just again, on the military, anything new in terms of contracts or awards there? Or any update you can kind of give us on that side of the aisle?
David Raun: Yes. Let me -- first of all, we're working on a number of different things there, but what I'd like to focus on is personally, the AI transportable stuff. And that's where we're seeing that vertical start to open up. It's a little premature to give you a lot of details, but we're doing some exciting and disruptive things on that front. And then, Jim, do you want to add anything to that?
Jim Ison: We just have had additional shipments to some of these diverse Raytheon programs that still fall under Raytheon, GPU-based systems, things like that, that are not under I'd say a five-year contract, but do get funded as they go.
David Raun: Yes, one of the things, let me just add a little color about my comment on the verticals is that there are multiple markets and multiple very large well-known opportunities in the market that we have not been able to participate in. But the presence and the ability to deliver a Rigel and the roadmap we have and our capabilities is really getting noticed. We're feeling good about that because, again, people that did not talk to us before, we couldn't get in, we're inside the door. And now it's our job and we need to continue to execute like we've done on the autonomous truck front.
Joe Gomes: On the autonomous truck front, you said you're shipping I think to three. Any color on what kind of sale price for a system is there today? And is there major differences between the systems that you're shipping to the various clients? Or are they pretty much all standard on that side? And any timing as to when you think some of the ones that you're speaking with now will go begin to make orders?
David Raun: Yes. So first of all, the three we're shipping to, we're not waiting for orders. And it is multiple products, and it's kind of like these guys use two or three of our products here, and the next one might be one of the same products or two of them and maybe one is a little different. But there's a lot of similarity between them all focused in compute and storage. And then we're talking to other ones that we hope to be able to even see revenue later this year on. And just for clarity, we said we have a total of five wins. That's five wins among those three customers that we're shipping to. It's not five customers, but we're working with additional ones.
Joe Gomes: Thanks for the clarity there. Maybe if I could just get one more in here. You talk about the entertainment customer, again, and we're seeing a return to some of the outdoor events or in-person events let's call them, and that's being layered upon other products, and you're thinking that you should still see continued growth through the rest of the year. What's giving you confidence that you will continue to see growth at the entertainment customer? And maybe can you talk about maybe how big a growth are we talking about here?
David Raun: First of all, I'd say it's steady growth. It's not like double or triple or anything like that, but they're doing extremely well at the bottom line. And the fact that the virtual product lines, which range anything from creating a virtual like newsroom to virtual music video, to doing some filming or whatever, that continues to do well. And then with the large gathering coming back, that gives us a lot of potential for growth, and that's why we're very comfortable. It looks like we'll really have two vectors driving it the rest of the year. And so that looks attractive to us, and we feel good about it.
Joe Gomes: Great. Thank you. Great quarter. Look forward to seeing what's going forward here, and I will get back in queue.
Operator: Thank you. We'll go to next to David Williams with The Benchmark Company.
David Williams: Congrats on the good quarter. I guess not to beat this into the ground here, but just kind of thinking about the margin side, I know last -- and you talked about this in your prepared remarks, but last quarter, you seemed a little more confident in the snapback of the margin, thinking that business might level off some after the very strong 4Q. I'm just trying to understand maybe the puts and takes here. And if I recall correctly, the media business was about a 600-basis point impact to the margin. You recovered about 180. How should we think about maybe that progress going forward? And then perhaps just kind of given the value brought forth through your products, do you have an opportunity to improve the margin profile in that media and entertainment business as we move forward?
David Raun: We've done some work on that, and we have some opportunities by being more efficient basically in the production line, and we are putting things in place to do that. So that will help us. But it's not going to radically change. That's the bottom line. That business is what it is, and we can't drive it up significantly. But like I said, it's a good business for the Company other than when you put a percent mark next to some number. I mean that's really -- I missed part of the question. I've got this, I don't know, I've got something, I'm sick to some degree. I don't have COVID. But sorry, I'm a little off today.
David Williams: No, you're good, understandable.
John Morrison: Yes. The one portion there is that obviously as our media and entertainment customer becomes a greater proportion of our revenue, it does put downward margin pressure. I think as we shared in the past that we basically have three segments of our business. We have Bressner that typically represents about 1/3. We have our media and entertainment that represents 1/3, and then we have our AI transportable, more military-type business that represents 1/3. But when you're looking at 66% of your business or 2/3 that are operating more in those lower margins of 20% to 23%, it has an effective on an aggregate basis of reducing that margin on an overall basis. However, that 1/3 portion of the business is where we're really focusing on, where we look like we have margin expansion, and so they have that. The other thing is we're consistent with our historical performance. The military portion of the business is not really kicking in until Q3 and Q4. Those are purchase orders that are in hand, but you won't see the margin improvement significantly until you see that revenue coming into Q3 and Q4.
David Raun: Yes, and hit it head-on earlier in your question, which I kind of fumbled on. Yes, we said we thought we'd snap back to above the annual level, which our annual level last year was I think 31.7%, so we did fall short of that. But part of that, we did have assumption that there was going to be a little military in there, and we were wrong on that. I mean that's the bottom line.
David Williams: Great color. I certainly appreciate that. And then maybe just kind of thinking about the platforms on the autonomous vehicles, do you think there's an opportunity to maybe drive a little deeper integration with some of the sensor platforms and work, maybe either codevelop or work together with some of the other platforms to help really drive the value of your products?
Jim Ison: We're already looking at that, and we're already engaged and having conversations on many different fronts with many potential different partners and also, maybe down the road, M&A targets. We're very serious about this market. We're not sitting still. We're looking at and trying to be the thought leader and be one that can offer a lot of value where that's headed and do things like you just said.
David Williams: Fantastic. And then maybe just maybe longer term on the replacement cycle as you kind of think about the life of these units in the vehicle, is this something you think would require replacing once in the life of the vehicle? Or would this be maybe every two years or three years? How do you think maybe about the replacement cycle potential?
Jim Ison: That depends on the advancements. Most of the time when you're putting a system in a vehicle, there's -- it's doing several things, not just driving. I mean it's also doing fuel economy and things like that. As those applications get larger, you can see maybe a three-year cycle where you'd need refreshes of the technology as it moves forward and adding more of those capabilities in there. Plus, just the lifecycle of the GPUs and NVMe drives and technology inside the system.
David Raun: One of the things we're doing is trying to understand that more so that what can we do to extend those lives and be better at it than anyone else. I mean we have a lot of focus in that area.
David Williams: And just one more, if you don't mind. I just want to see if maybe you could talk a little bit about the development cycle. You had mentioned earlier that you're in discussion with three different customers. How quickly can that move from early conversations to shipping product and receiving revenue?
David Raun: Are you talking about the autonomous truck space?
David Williams: Yes.
David Raun: Well, just to be clear, I may be misinterpreting your question, but we are shipping today to three of them. We are engaged with two more pretty seriously, meaning proposals back and forth, multiple meetings, good dialogue. And we reached out in early discussion with another handful. What I'm saying is, we're already in revenue with three of them, and we'll have most likely multiple autonomous truck people be in our top 10 list in 2022.
Jim Ison: Yes. I think to add to that, kind of the standard -- it usually takes from a win to production about 12 months to 18 on the military side. On the commercial side, it's more like six to nine months. And some of these are happening really fast to get to its preproduction, but that six to nine months probably stays steady with this market as compared to our rest of their commercial market.
David Raun: But the one dynamic is there's -- that would be the normal thing. But the autonomous truck market, they're expecting something like a million trucks in 2030, right, and then 100,000 in 2025. Those are more of the production volumes. But the modeling we've done and looked at, the business looks very attractive between now and then, but that's when we could, if we do this all right, we could have explosive type growth.
Operator: We'll go next to Brian Kinstlinger with Alliance Global Partners.
Brian Kinstlinger: Hello, this is Laura Sorrell calling in for Brian Kinstlinger and thank you for taking our questions. Regarding the companies already within your pipeline, may you just please quantify how many of those companies are actually already in both the autonomous trucking plus the autonomous vehicles within the agriculture markets? And regarding that, may you also please provide a bit of insight on the estimate sales cycle timing.
David Raun: Yes. First of all, I would say we view both agriculture and mining as future verticals that are not quite developed and ready for that kind of sophistication we have. Wo we could see a repeat of what we're seeing in autonomous trucks, but we see it out in time. That doesn't mean we're not engaged with them, but we just think the type of level of autonomy that they're going to want is further out. What else would you say to that, Jim? On those particular markets.
Jim Ison: Yes. I think nothing current on the agriculture has contributed to any of the wins. So yes, it's more of a 2023 type target.
Brian Kinstlinger: Got it. And also, as a follow-up, and you touched a bit on this previously with past questions, but how many of the autonomous vehicle companies are currently past the testing phase as it relates to your technology and are now instead moving towards or are presently in the revenue generating or the production phase?
Jim Ison: Yes, I would say what you're looking for is we're not in the tens of thousands or twenties of thousands of trucks in production type space. It's how you define that. We're doing -- when you say testing, we're doing actually on-the-road testing, on-the-road autonomous driving within fleets. It's called the production wherever you want to draw the line.
David Raun: Yes. To give you an idea, it might be they're deploying 25 trucks next month kind of thing, and they plan to do 25 more several months from now. And what they're primarily doing is continue to build their database and understand it and start negotiating contracts with potential partners to use their technology.
Operator: Thank you. And finally, we'll go to Scott with ROTH Capital.
Scott Searle: I appreciate all the color on the call as it relates to AI transportables. I'll bat cleanup here and just get a couple of clarifications. In terms of the media and entertainment customer, I'm not sure if I heard correctly, but it sounds like did you say it would be a record year for them? Or is it returning to normal levels? Just to kind of clarify on that front. And it sounds like, Dave, you're not seeing much if any cannibalization with live events versus virtual. Is that correct?
David Raun: Yes. We don't see any -- and I've asked that exact question. They're just different markets, so they really don't cannibalize each other. I think maybe they would say it's a 5% overlap or something. That's a wild number, but it's not obviously anything greater than that. As far as the year, I mean they are on track. We will do more with them than any previous year.
Scott Searle: Great. Very helpful. And John, on the gross margin front, I just want to clarify, I know there's some near-term headwinds. I don't know if you quantified the impact in the quarter if there was revenue that was left on the table as a result of supply chain issues. I wonder if you could comment on that. And then just as it relates to the overall gross margin profile for core OSS, how are you thinking about that this year? I think it was still a good quarter kind of netting out Bressner and even with the contribution from the skies. Is it in line with the last couple of years? Or are you able to actually increase it? Because it seems like you're doing good despite a difficult environment.
John Morrison: Okay. On the first question on where we are on the revenue, I will tell you, we have probably one of the strongest backlogs we've ever had, and we are having to pull or push out things in order and consistent with when these supplies are available. We are having supply chain issues where -- but we are resolving those. But there are times where we have to pull something in or push something out based upon the availability of parts. We are taking that into consideration when we do provide expectations on revenue for the next quarter. We do look at our parts availability, but we do get surprised, and we know those surprises that come. We do have things that we have to look at in our backlog to see if we can pull those in to replace that revenue. It's an active management on a daily basis, on a weekly basis, based upon availability of product.
David Raun: Yes, Scott, I would add to that, I think I said it before, that going into the quarter, we had extremely good visibility on backlog. The supply we have -- it looks like we have really good visibility on supply, but what's getting companies like us is all of a sudden out of the blue, something doesn't show up, and then they say, you're going to see it in three months. That's the issue. We have a heart-to-heart discussion before we provide guidance. We say look, guys, we'd love it to all come in this way, but we're going to assume that like every other quarter, we're going to get surprises, so we bake that into what we communicate to you guys. And I think that's the responsible thing to do at this time.
Scott Searle: Dave, not to get too deep into the minutia, but in terms of then product redesigns to try and mitigate the impact from those problematic components, have you been able to do that? Or does that create recertification problems with your existing customer base?
David Raun: It always does, but the customer base is more flexible on that than they've ever been in the history of my too many years in this industry. Because they know if they don't, they're not going to get it. What's crazy about it, it can be a $0.50 connector that's holding up a shipment of a $10,000 system, right? But there's times where you just can't get it. One of the things we'll do, identify it, get engineering to start working on that connector, start talking to the customer and say, look, this is the deal, we can either ship it four months from now or a month from now, let us know what you want to do. And when you put it in that perspective, we get a lot more cooperation.
John Morrison: And your second question about margin, we shared with you today that that Bressner business grew at 37%. We shared with you that the media and entertainment business is growing at an exponential rate and will be actually a record for this year. What's happening is, these two components on an aggregate basis and a percentage calculation on margin is having an impact. If you were to look consistently on the volume -- if you left volume static, you would see growing margins, but you are not seeing that on an aggregate basis because there's more and more as a proportion of this 20% to 23% business coming into the Company. I don't anticipate that our margins on an annual basis are going to be significantly different than they were in prior years. Just because of the media and entertainment and Bressner business.
David Raun: Scott, there's so many dynamics. For example, one of the things that hit cost of goods was some of our shipping costs tripled on the portion that we bring in because of the dynamics in the Ukraine and all the different things in China. Where there's only one way to get the product here, maybe ship it by air rather than normally go by ship, or because they can't fly over, it can't go through Ukraine, it has to go somewhere else. Those things we don't get in a lot of detail on, but there's so many of those little dynamics that we deal with every day.
Scott Searle: Got you. Very helpful. And lastly, if I could, on the AI transportables front, I really appreciate all the color, David, Jim, on autonomous trucking. It sounds like -- I guess maybe to clarify, in terms of the design wins and the engagements, you ultimately expect that you're going to have both edge compute and ruggedized storage in most of these customers and design wins? I know it's early and Centauri just came out, but is the expectation that largely you're going to occupy both of those slots? And then, Dave, you had indicated you expect multiple autonomous trucking companies to be 10% plus customers this year. That's a pretty big ramp. That's a pretty impressive number. I was wondering, thinking to 2023, what's the magnitude of the potential contribution of range of outcomes or at least at the lower end of the expectation of what autonomous trucking could be in '23? Thanks so much.
David Raun: Yes. I'd be -- I don't want to give you a number on that. I've got to study it more. It's just really -- some of these guys say they're going into higher volume in '23. And others, then you'll talk to someone else and they'll it's '25. I'm still trying to get my arms around that part of your question. The other part --
Jim Ison: I have the other part. Inside of -- if you just take autonomous trucking, but this can go to military vehicles and things like that, there's at least five different places that we can wind up into an autonomous truck. Whether it be the compute that connects to the sensors, the compute that does the autonomous driving, so that's the compute acceleration. There's two compute elements. There's also two storage elements, the same, inside the truck when we show you the server and the Centauri that can be the removability. But that also leaves, once you have a removable canister, now you need the depot. We have opportunities where we're putting the Centauri in the truck and also getting the truck depots. And there could be 20, 30, 40 depots around the country full of systems that need to put that storage into a server. There's about five different places that we can go in the autonomous truck alone.
Operator: We'll now take our last question from Max with Lake Street Capital.
Max Michaelis: Nice quarter, nice guide. Most of my questions have been answered. I guess I've just got two quick ones. You guys looked like you had a couple of nice major wins during the quarter. I guess I just had a question on what your expected contribution for these wins are going forward. To the top line.
David Raun: Well, I guess I would leave it to what I said before, which is the autonomous truck wins, some of those will pop into our top 10 this year. They should all be much larger in '23. And at some point, assuming everything goes as planned and we're the leading guy, which we expect to be, we could see some explosive growth that happens somewhere late '23 to '25 because the size of this market is a size that is so much larger than we are as a company even. And then the other ones, we've already got pretty good revenue from those wins from last quarter, right, Jim, so we're already seeing revenue from those guys.
Jim Ison: We're seeing revenue and we have millions in orders.
John Morrison: One point I think I'd like to clarify is that right now, we are in the prototype and test space. We are also ensuring that our products that we have, have the capability and the price points to be in the production phase. We aren't here just to look at revenues for prototyping and testing. We're looking to be able to be the option of choice when we go into the production phase and that we can share in that long-term revenue stream.
Max Michaelis: And then my just last one, I know you guys were looking to invest in headcount after last quarter. I was wondering what your current headcount is and what your expectations are for the year.
David Raun: Well, we haven't added a lot of people. We're planning on adding two or three a quarter kind of thing. But we will adjust that accordingly. For example, if we see an opportunity where hiring some people would accelerate the stuff we're working on, I won't hesitate to do that, without going crazy and throwing the P&L upside down.
Operator: Thank you. With no more questions, I'd like to turn the conference back to David Raun for closing remarks.
David Raun: Thank you, Laura, and thank you, everyone, for joining us today. We continue to believe the best is yet to come for sure. And we look forward to meeting with you again for the Annual Stockholder Meeting next week and reporting our progress again in August as we pursue the many opportunities and it's fun to chat with you guys and tell you about the successes that we're seeing. Meanwhile, please continue to stay safe and healthy and feel free to reach out to John, Jim and myself anytime. And my apologies for my stumbling. I'm going to go take a nap. Laura, you can go ahead and wrap it up.
Operator: Thank you. Now, before we conclude today's call, I would like to provide the Company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. One Stop Systems caution you that statements in the presentation are not a description of historical facts, are forward-looking statements. These statements are based on company's current beliefs and expectations. Such forward-looking statements include those regarding the Company's expectations for revenue growth generated by new products, design wins or M&A activity. The inclusion of such forward-looking statements and others should not be regarded as a representation by OSS that any of its plans will be achieved. Actual results may differ from those set forth in the presentation due to the risks and uncertainties inherent in our business, including without limitation, that the market for our products is developing and may not develop as we expect. Global pandemics or other disasters or public health concerns, including COVID-19 in regions of the world where we have operations, customers or source material or sell products may affect such market. Our operating results may fluctuate significantly, which would make our future operating results difficult to predict and could cause operating results to fall below expectations or guidance. Our ability to successfully integrate the operation systems, technologies, product offerings and personnel with acquired companies may prove difficult and adversely affect our financial results. Our products are subject to competition, including competition from the customers to whom we may sell and competitive pressure from new and existing companies, may harm our business sales, growth rates and market share. Our future success depends on our abilities to develop and successfully introduce new and enhanced products that meet the needs of our customers. The likelihood of our design proposals becoming design wins is uncertain and revenue may never be realized. Our products fulfill specialized needs and functions within the technology industry and such needs or functions may become unnecessary or the characteristics of such needs and functions may shift in such a way as to cause our products to no longer fulfill such needs or functions. New entrants in general markets may harm our competitive position. We rely on the limited number of suppliers to support a manufacturer design process. And if we cannot protect our proprietary design rights and intellectual property rights, our competitive position could be harmed or we could incur significant expenses to enforce our rights, our international sales and operations objectives to additional risks that can adversely affect our operating results and financial condition, and we fail to remedy material weaknesses in our internal controls or financial reporting. We may not be able to accurately report our financial results. And other risks described in our prior press release and in our filings with the Securities and Exchange Commission, SEC, including under the heading Risk Factors in our annual report on Form 10-K and any subsequent filings with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the conference call, and we undertake no obligation to revise or update this information to reflect events or circumstances after this date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement, which is made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Before we end today's conference, I would like to remind everyone that this call will be available for replay starting later this evening through May 26, 2022. Please refer to today's press release for dial-in and replay instructions available via the Company's website at ir.onestopsystems.com. Thank you for joining us today. This concludes our conference. You may now disconnect.
