One Stop Systems, Inc. (OSS) on Q3 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and thank you for joining us today to discuss One Stop Systems' financial results for the Third Quarter Ended September 30, 2021. With us today are the Company's President and Chief Executive Officer, David Raun; and Chief Financial Officer, John Morrison. Also joining today is the company's Chief Sales and Marketing Officer, Jim Ison. Following their remarks, we will open the call to your questions. Before we conclude today's call, I'll provide some important cautions regarding the forward-looking statements made by management during the call. I would also 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'd like to turn the call over to OSS' President and CEO, David Raun. Please go ahead, sir.
David Raun: Thank you, Justin, and good afternoon, everyone. It was another strong quarter for OSS, exceeding our earlier stated expectations and closing the quarter with revenue of $16 million. This represents an increase of 23% over the same year ago quarter and 7% over our previous quarter. These results reflect a record for any OSS third quarter with exceptional performance by our European-based Bressner organization and increasing revenue from our large media and entertainment customer. Our revenue for the first nine months was also a record for the Company at $44.2 million. Revenue from our largest customer grew to $3.2 million, quadrupling from its low of $800,000 in the year ago quarter. Most of this growth was from the sales of their new innovative virtual products, and we are seeing indications that revenue from their concert venue products will layer on next year. As noted previously, this business and the Bressner revenue tends to be lower margin, decreasing our margins 3.3 percentage points as compared to the year ago quarter. But our margins were up over the previous quarter by 3.3 percentage points. For the first nine months of the year, our margins increased 2.4 percentage points. This was due in large part to the strong growth in the high-margin military business, a fundamental corporate focus, which is gaining strength and a key emphasis of our newly expanded sales team. Our core OSS business contributed an additional 2.9 percentage points of margin, and our Bressner organization was also up by 3.3 percentage points. While we face increasing supply challenges, as do most companies, our team continues to minimize the impact during this unusual period, working closely with our customers and suppliers and carefully making strategic purchases. Our strong top line performance in Q3 was accompanied by bottom line improvements with a net income of $981,000. Looking at our adjusted EBITDA, we generated $1.8 million or 11% of revenue. In a moment, I'll provide some additional operational highlights and our outlook for the rest of the year. But first, I'd like our CFO, John Morrison, to take us through our financial details for the quarter. Following John, Jim Ison, our Chief Sales & Marketing Officer, will provide some insights into our AI Transportable strategy and related customer activities. John?
John Morrison: Thank you, David, and good afternoon, everyone. Thank you for joining us for this call. Yesterday, we issued a press release with our results for the third quarter and for the nine-month period ended September 30, 2021. The release is available in the Investor Relations section of our website at onestopsystems.com. The metrics that fall are for the three-month period ended September 30, 2021, and as compared to the prior year quarter. Reviewing our statement of operations, we recognized third quarter revenue of $16 million, which was up 23% from the same year ago period, and up 7% from the second quarter of 2021. Our core OSS business contributed $9.3 million, up 3%. As David mentioned, this was attributable in part to a quarterly increase in shipments to our large media and entertainment customer as their new virtual products are gaining momentum. Bressner revenue increased 68%, contributing a record $6.7 million. This unprecedented growth for Bressner is traceable to its maturing leadership and the implementation of preplanned inventory strategies and aggressive sales efforts, resulting in expansion of our European customer base. For our combined business, gross profit was $5.5 million, as compared to $4.9 million, an increase of $615,000, primarily driven by increased sales. We had strong gross margins of 34.5%. This was a decrease of 3.3 percentage points due to the sales mix over the same year ago period, but, an increase of 3.3 percentage points over the second quarter of 2021. Gross margin for our core OSS business was 41%, a decrease of 3.6 percentage points. In contrast, Bressner's gross margin increased to 25.6% as compared to 22.5%. Overall operating expenses increased 14% to $4.5 million, although operating expenses as a percentage of revenue decreased to 28% compared to 30%. The increase in operating expenses was primarily due to increased strategic investments, which included adding personnel to our engineering, product marketing and sales teams to drive our strategic plan. Despite the ongoing supply-related challenges, income from operations improved to $1.02 million compared to $979,000. Net income on a GAAP basis was $981,000 or $0.05 per share. This compares to net income of $858,000 or $0.05 per share. This improvement was predominantly contributed by income before taxes and reduced taxes due to a discrete tax benefit received from stock-based compensation deduction. On a non-GAAP basis, quarterly net income improved $1.5 million or $0.08 per basic and diluted share as compared to $1.2 million or $0.07 per basic and diluted share. Adjusted EBITDA, another non-GAAP metric increased to $1.8 million or 11.3% of quarterly revenue as compared to $1.6 million. The following metrics are for the first nine months - for the first nine months period ended September 30, 2021, and are compared to the same year ago period. Revenue was $44.2 million, a new company record, which was up 16%. Our core OSS business increased 9% and contributed $27 million of revenue as compared to $24.7 million. Bressner contributed $17.2 million of revenue, an increase of 30% compared to $13.2 million. Gross profit improved $3 million on incremental revenue of $6.2 to $14.6 million or 33% of revenue. This compares to $11.6 million or 30.6% of revenue. With the continued focus on gross margins, our core OSS business improved 2.8 percentage points to 38.5% as compared to 35.7%. Bressner's gross margin increased to 24.4% as compared to 21.1%. Our operating expenses increased 2% to $12.8 million. This increase is, again, primarily due to investments we have made in marketing and sales, which costs were partially offset by engineering costs being reclassified to cost of goods sold. Operating expenses as a percentage of revenue decreased to 29% compared to 33% on increasing revenue and success of our expense containment efforts and improved efficiencies. Income from operations improved to $1.8 million, a $2.7 million increase compared to a loss from operations of $938,000. Net income on a GAAP basis was $2.7 million or $0.14 per diluted share. This is compared to a loss of $250,000 or a loss of $0.02 per share. These numbers reflect the net income of - in 2021, which includes a $1.5 million PPP loan and interest forgiveness, which occurred in the second quarter. Non-GAAP net income was $3 million or $0.15 per diluted share as compared to $773,000 or $0.05 per share. Adjusted EBITDA was $4.3 million or 9.6% of revenue compared to or 1.8%. This adjusted EBITDA improvement was due to higher-margin and cost containment efforts. Non-GAAP net income and adjusted EBITDA both exclude the $1.5 million PPP loan and interest forgiveness, which took place in second quarter of 2021. Now turning to our balance sheet. On September 30, 2021, cash and cash equivalents totaled $4 million, with short-term investments of $14.5 million, totaling $18.5 million in capital resources. This was flat to our cash and cash equivalents and short-term investments on June 30, 2021, but are up by $13.2 million compared to the $6.3 million that we ended at December 31, 2020. Our strategic investment balances increased in response to supply chain constraints and product availability. We have elected to make additional investments, leveraging our strong cash position on this front to assure steady product shipments. We will likely continue to experience scarcity in some products, limited supplies, protracted delivery dates for componentry, increasing product costs and changes in minimum order quantities to secure product. Additionally, work in process and finished goods inventory have been increasing as the timing of availability of certain componentry to the production line has varied from vendors previously committed delivery dates. As David mentioned, we are managing our way through this unusual period of supply challenges by working closely with our customers and suppliers, carefully making strategic purchases and raising prices as needed. This completes our financial review. I would like to now turn the call over to our Chief Sales and Marketing Officer, Jim Ison. Jim?
Jim Ison: Thank you, John, and good afternoon, everyone. Over the past 18 months, as COVID shuttered most in-person industry events, we adapted our marketing efforts to virtual outreach and events. This past July, we finally returned to in-person events at the Sea-Air-Space 2021 Conference sponsored by the U.S. Navy. We were pleased with the attendance and the presence of decision-makers, Navy leaders and senior management. In September, we participated in our first in-person international event in almost two years at the AI Summit in London. We showcased our hardware and software solutions for Edge AI and presented on the headline stage of the event. Both third quarter shows yielded several solid AI transportable opportunities, which we are now pursuing. In Q4, we are scheduled to exhibit at four major trade shows, three in the U.S. and one international. In October, we participated in the U.S. Army's AUSA 2021 Annual Meeting and Exposition in Washington, D.C. This event is the largest land power exposition in North America and was ideal for pursuing AI transportable prospects. Next week, we're planning to unveil our exciting flagship platform for the AI transportable market and our biggest show of the year SC21, the international conference for high-performance computing in St. Louis, Missouri. We're also looking forward to participating at the Apex Commercial Aerospace Show in Long Beach, California and IBC in Amsterdam later this year. Given a stronger roadmap of products in place and positive feedback from customers on our AI transportable strategy, we have expanded our sales force internally as well as added third-party sales representatives. The new sales representatives are well positioned at target accounts where we do not yet have a presence. We expect these steps, along with the return to personal interaction and face-to-face sales will fuel future opportunity wins and revenues. In the third quarter, we had two new major program wins. Major program wins are expected to yield at least $1 million in revenue within the first four years. These new wins include AI transportable data acquisition systems for military applications and a Gen 4 PCI Express expansion interconnect for high-performance 3D printer control with a market-leading printer company. These wins bring the total year-to-date to eight. With the return to live trade shows, plus our focus on AI transportables and the additional key investments in sales personnel and channels, we are seeing increased activity building across the opportunity pipeline. Pending wins over $1 million increased by five over last quarter to 22, 11 of which are in AI transportable. With that, I'd like to turn the call back over to David for our Q4 outlook.
David Raun: Thank you, John and Jim. The entire company has worked diligently to exceed expectations with revenue, margins, adjusted EBITDA and net income in Q3. For the first nine months of the year, our adjusted EBITDA was 9.6% of revenues as compared to 1.8% last year. We anticipate supply issues will continue throughout 2022. So we are planning accordingly, strategically managing the business and making critical investments. This may result in higher inventory levels at the time - at times. But in this environment, we see this as a requirement to continue the growth and progress of the Company. While our supply challenges require significant day-to-day attention, given the positive progress on the balance sheet and overall financial performance, we remain focused on pursuing our AI transportable vision. In that regard, we anticipate our exciting new standard platform introduction next week at SC21 will be a big step in the continued transformation of the Company. Based on customer feedback under NDA, we believe this leading edge solution designed for the AI transportable space will be a catalyst for additional customer engagement, wins and accelerated growth. As Jim mentioned, our pipeline has expanded to 22 major pending opportunities that we are focused on closing, half of which are in the AI transformable space, which produce higher margins by leveraging our unique capabilities and expertise. Looking ahead, we are providing revenue guidance of $17.1 million for the fourth quarter. This would represent 7% growth over Q3 and 23% growth over Q4 of last year, with record annual revenue of approximately $61.3 million. Now with that, I would like to open up the call to address your questions. Justin?
Operator: And our first question comes from Eric Martinuzzi with Lake Street.
Eric Martinuzzi: Congratulations on the strong Q3, not just the revenue, but also that profitability, the year-to-date for me is where it really sticks out. So that's great progress. I had a question regarding the outlook for Q4. You highlighted in Q3 that the good revenue performance, it was really kind of Bressner overachieved or outperformed. And then you also had your media and entertainment customer doing a little bit better. As far as the outlook for Q4, is it going to be more of the same? Or are you looking for kind of a shift as far as what's leading the top line?
David Raun: Thanks, Eric. Yes, what we're going to do is see a shift more to the traditional kind of percentages in the fourth quarter. So we're shipping a lot of the OSS Bressner. That will still be strong. But again, we'll see a higher mix of OSS.
Eric Martinuzzi: Okay. And then as far as that, typically, that would translate into a gross margin improvement as well. Any - would you care to color - give some color on what your expectations are for Q4 gross margin?
John Morrison: Yes. We think gross margin will be similar to what we're seeing right now. And then we should be able to improve over next year.
Eric Martinuzzi: Okay. As far as next year goes, I don't want to get too greedy, but I'm looking at your last two quarters and then your guidance for Q4. And in Q2, you grew 28%. In Q3, you grew 23%. You're guiding to 23%. Is this kind of - is this growth the result of a sort of a post-COVID snapback? And we really shouldn't be thinking about this for the foreseeable future that we'll get back to some normalized rates? Or is it sustainable at this level?
David Raun: First of all, our thoughts on next year, we call it a 10 and 10. So we're thinking about 10% growth and 10% EBITDA. So that would say not at the growth rates that we've seen in some of these particular quarters. What - one of the dynamics here, though I'll point out is although we've had this growth over the dip we had during the COVID period, really the business that we lost in COVID has still not returned. So we've made it up in other areas. So that is something we anticipate to layer back on in 2022. Let me explain that a little bit more. That is in the commercial aerospace space where that really went - dropped significantly in 2021. That started to come back live with quotes and activity and RFQS, not a lot of business yet. And the other one is our large media and entertainment guy, although they're up on the virtual products, the business we were enjoying in 2019, for example, that has not returned yet because large gatherings, in general, have not returned. But they're seeing a lot of activity on that front.
Eric Martinuzzi: And then last question for me, I don't want to force you to peel the curtain back too soon, regarding the SC21 platform launch. But I've been around tech companies a long time. Typically, there's evolutionary and there's revolutionary. Just - I haven't been around the story long. How long ago was the most recent sort of platform overhaul? And then how meaningful is this? And then also, I guess, a third part to that, is there a risk of people waiting until that's out and tested and that disrupting a pipeline while we wait for the new rather than buy the old.
David Raun: First of all, the highest in kind of designs we've done in the AI transportable plus space tend to be a lot of more custom designs. And this is more of a standard product that we - so we can scale our business. It's basically putting in a package, extremely high-performance system that's ideal for the space we're targeting. And so we really think that's a generator of revenue for us. We'll see a little bit in '22, but it's a really '23, '24. But that is also the type of product and the activity we're seeing in the transportable space where we can get up into the growth rates of 15% and 20%, which we anticipate to do. We just don't think we'll be there in '22. I don't believe it impacts - cannibalizes the current pipeline and opportunities.
Operator: Our next question comes from Joe Gomes with Noble Capital.
Joseph Gomes: Let me add my congratulations to the quarter.
David Raun: Thank you.
Joseph Gomes: So just kind of a follow-on to the question about the strength in the quarter coming from Bressner and Disguise. So if we look at it, you saw significant revenue from these guys. What, if anything, of the products kind of fell off in the quarter? Was that kind of pushed into the fourth quarter as you're just mentioning, you think that the comp or the sales will go back to a more normal here, a more normal on the OSS side in the fourth quarter? Did you see anything kind of dropping off or being pushed to the right in the third quarter?
David Raun: Yes. So good question, Joe. If you - first of all, if you strip away the overall growth of 23% that we had for the quarter, when you include Bressner and Disguise and you start to look at the Q3 by itself. What you really see in there are some different dynamics. One is that we had three significant accounts from the previous year that were down for the quarter and year-to-date and expect them to be down for the year. So those are three. But that's normal turnover when you have accounts. We had two significant accounts that were down in Q3 versus Q3, but the shipments are taking place in other quarters. So they've either already taken place or they're heavy in the fourth quarter. And then we have four significant accounts that are new that have showed up, they're starting to show up in the quarter or for the year. So I think Q3 is a little bit of an anomaly on the OSS front. And I think you have to really look at the year-to-date and then also how we'll close the quarter. We're just going back to a normal thing. You've also got behind the scenes, different dynamics with supply. We're managing that really well. But we've tried to make sure we hit our numbers. And for example, if we're short on a product for maybe an OSS product, and we had a delay in a month, maybe we found additional customers at Bressner. So a lot of dynamics going on. I don't think it's an overall message. I think what you'll see is the OSS line overall will grow nicely over the year.
Joseph Gomes: Okay. Thanks for that. And just on Disguise, 2019, they signed that five year $60 million contract. Looking forward here, maybe you could remind us what was their run rate in 2019? And do you think with the live events that you get back to - if we were just to do the easy math, a $12 million a year type of rate from that and then layer on the virtual stuff?
David Raun: Yes. So we're up significantly with them this year. We'll close the year up. And with the return of - not as high as what we did in '19, but we're approaching it. If you layer in the large gathering business, which is what all that was, the $14 million or $15 million, you layer it into 2022, you can definitely see that, that could help us significantly on the revenue. So we expect Disguise to grow this year and grow next year again.
Joseph Gomes: And one more, if I may. So I was reading the article this week about NVIDIA, doing a lot more on self-driving or putting a bigger effort into that space. How competitive is it to what we're doing here in the AI transportables? Maybe you can give us a little more color. I know they're - give you guys a lot of product here, a big supplier for stuff for you guys. Do you see any potential issues with them making a bigger push into the self-driving space?
David Raun: Well, I mean, they're looking for companies like us, so as to be able to take it into those harsh environments as a complete system. So we see the moves that they're making is all positive to help us in that objective. Any additional comments, anyone wants to add to that, Jim?
Jim Ison: Yes. I mean what I see from NVIDIA's push into this is in the smaller embedded high-volume automobiles. We tend to have the higher end things like trucks and military equipment and vehicles of that capacity. So it's complementary, in that fact that we're using the high end equipment rather than what NVIDIA is focused on.
David Raun: Yes. Just a reminder, Joe, that although we've had wins and we've sold business into the - what would be a consumer car, we don't anticipate to be in that long term. But in everything kind of outside of that from semi-trucks up into the military space.
Operator: And our next question will come from Scott Searle with ROTH Capital.
Scott Searle: Dave, John, I apologize, I got on the call a little bit late. But I wanted to dive in on the supply chain issues. And I apologize if you're repeating this. But I was wondering if you could take us through your comfort level in terms of where you guys stand from a supply chain standpoint? You've done a very good job in a difficult environment, particularly when I think about components such as graphics processors and flash memory being in short supply for lots of other OEMs out there. I'm wondering how you're managing that. And in the context then of that, did you leave any revenue on the table in the third quarter and kind of the outlook on that front for the fourth quarter? But the gross margins were really impressive, both in Bressner and stand-alone core OSS. And I'm wondering about the sustainability of that going forward. Typically, there's been some seasonality in it. I know its mix dependent from customer-to-customer. But how are you thinking about the future of the gross margins as we start to look forward, particularly as we get into the first quarter, first half of next year?
David Raun: Yes, so multiple things so let me try to tackle them. So on the supply issues really we face issues, every single day than we did last quarter and the quarter before. And we just tackle them. It's a very high priority. Management team gets involved. I think what's working for us, we are so proactive on it, and we're jumping on it and really thinking way ahead, and we're willing to use some of the cash that we have in the bank, to buy product that we think is safe to purchase to put our-self in a good position and put our customers in good position. I think where people get in trouble is they don't have those resources, whatever. If you don't have inventory, you can't build things. So leaving a quarter yes, there's additional business that we could have shipped if we had all the products. But it's not like I'll be doubling the number or anything like that. And so, part of what we're doing is going into the quarter. And I look at the backlog and people tell me what we're going to ship, and I go, look, we get surprised every quarter. So I'm going to assume some of this isn't going to ship and sure enough, it doesn't. So we're building that into our expectations. And I think that's the proper way to be viewing this in the current environment. And I don't see anything changing on our front. We get surprised every day, and we're dealing with it. And then second one was on...
Scott Searle: Sorry, the sustainability of the gross margins, both in Bressner and OSS?
David Raun: Gross margins, so the gross margins in general, I think our objective is to continue to push the gross margins up year-over-year. We will probably always have more of a high-margin in the second half than the first. But as you notice, our gross margin in the first half of the year - were much better than previous years. And that's due to the fact that, one, our military business has expanded, and it's also taking place in the first half of the year. Number two is that overall, it's the culture. I'm adamant about gross margins. It's a powerful thing. And so, the culture is changing and we're looking for ways to bring it up. Three, is Bressner, which is a lower-margin business. They're looking for ways to increase their margins through additional services, being smarter on this inventory, charging more for the inventory, doing more system-level products. So I think what you'll see is a constant upward trend, maybe one or two points a year, maybe a little different in the first quarter, but nothing like we used to do. Hopefully, that answers your question.
Scott Searle: No that's perfect, very helpful thanks. And maybe to follow-up on disguise, it sounds like there was another good quarter with disguise. But again, this is being driven really by the virtual product. It doesn't sound like live events have come back yet. And you alluded to next year, you're starting to maybe come back. So, I'm wondering two things? First of all, you're starting to get visibility to live events coming back. And that used to be a big number for you guys. So does that end up being additive on top of the virtual or does live event start to cannibalize the virtual product?
David Raun: My perspective is, I don't see cannibalization. So the potential for them to grow significantly on paper is pretty good. I would just say that I remember talking this time last year, and we thought the live events are going to come back in the second half of the year and sure enough, we're here. And they're getting a lot of traction and interface. But - and we are shipping some units, but it's not big. So I think it's just a matter of time to see it happen. What we've learned is that one of the things also be aware of is that the U.S., what we've been told is the U.S. is way ahead of the rest of the world. Asia is doing nothing on live events, and Europe is behind the U.S. So what we see is really the leading edge of live events coming back. So I think all in all, we're bullish that we're going to see increased revenues next year in the life event. We just don't have it sized at this point.
Scott Searle: Got you. And lastly if I could, I know you continue to build an active RFP pipeline. I think you're still over 20 deals. And a couple of them fall out positively each quarter. I'm wondering if you'd talk a little bit about what's building in the pipeline. I think you've mentioned a couple of verticals in terms of where that's going AI transportable and otherwise? But I'm wondering if you could talk about the magnitude and the size of those deals. And are we building enough of an opportunity pipeline now that there's a lot of stuff that's starting to get down towards the lower end of the funnel? And what your win rate is on that front? Thanks.
David Raun: Yes, so first of all, on the win front stuff, as Jim alluded to in his speech, we did 18 months of virtual, basically. And that took a little bit of a toll on us. And with the lack of a real clear vision and stuff, we're doing a lot of different things. So since March, when we kicked off the AI transportable, we've made investments in the team. We've gone back to live shows. What I'm really optimistic about is the quality of the very early leads. So the 22 in the pipeline looked good, but what I'm really excited about is the ones that are behind those, because in general, I'm seeing higher volume deals. I'm seeing more exciting things. I think we're seeing a lineup with - if you're familiar with our investor presentation, I think we show eight different applications for military eight for commercial. We're starting to see activity more in more of those. So I guess what I'm saying is the activity we're doing in AI transportables, the success of a new product coming out, the investment we're making, I think that controls our growth a little bit for next year in the 10% kind of range, but then we could be at a whole new level in 2023, 2024 as a result of the stuff because it looks encouraging, it's early though.
Operator: And our next question will come from Brian Kinstlinger with Alliance Global Partners.
Brian Kinstlinger: One follow-up on the new platform you said, if I heard it correctly, this is more of a standard product versus the work you do, which is now more customized. So is this for a different type of customer? Or is it so that when you have a customer, you can more quickly alter it which makes a quicker installation?
David Raun: Yes, it's really the latter. So we're - what customers in general want and how could we create a very compelling platform that's almost what they need or what they fully need, so that we're not starting from scratch. We're taking care of the most challenging things in the standard platform. And we'll sell a lot of them just as it comes out, but then some of the larger customers, I'm sure we'll be doing some customization. That gives us scalability and allows us to drive higher profitability, I believe over time, and that's what we're trying to do. And we're going to continue to do that. We have a road map of products.
Brian Kinstlinger: Great. My only other question is on the defense side of your business, government defense budgets have been very ugly, funding. The government can't pass a budget or in a CR. I guess I'm curious how that business is going as you don't see a lot of new program starts? Are you seeing any impact to your business? And if not, what do you think is different about your business on these programs that's not being impacted by what's going on, on the higher federal budget side?
David Raun: Yes, so I think with our current programs, we haven't seen much of an impact. They're ongoing things with intents of deploying. On the new business, the AI transportable space, we have lots of activity in the military. And the only way I can explain it because we don't see an impact is the fact that. I think what's happening is, yes, you're not going to build that new battleship. You're not going to build maybe another tank even. But you might go spend $1 million to make that thing survive with triple survivability, triple and its ability on an offensive front be much better using AI or some of the autonomous type features. So that's what we see, and that's dead in the middle of where we're focused. That's why we're excited about this, and it lines up with our skill set. And so the answer to you is, as of now, we're not seeing an impact.
Operator: And moving on to David Williams with Benchmark.
David Williams: Congrats on the quarter and thanks for, first let me ask a question. Just wanted to touch, mainly on the shortages that you spoke earlier, if you could maybe elaborate a bit on that, where you're seeing that or perhaps maybe what the impact was in the quarter? Was there anything that was left on the table, perhaps that is perishable or do you think any of that recoverables? Just maybe anything around the shortages, that would be helpful?
David Raun: I got distracted from the beginning. You were talking about in the supply chain and whether or not we really have the impact of that on a given quarter. Was that it? I'm sorry, David.
David Williams: Yes, no, I was just asking about the shortages in the quarter in terms of components specifically and then what impact it had on the quarter?
David Raun: On Q3?
David Williams: Yes.
David Raun: So Q3, definitely had a bunch of them, some we knew going into the quarter, definitely had ones that surfaced in the quarter that impacted ability to ship a particular thing. But again, as I mentioned earlier, we go into the quarter with that assumption. And so, we make sure that we're in a position to do the best job we can in meeting what we tell the street. So yes, we have business that didn't ship, hit the number, and I expect to be saying the same thing to you next quarter that we're targeting the 17.1%. We expect to do that. And that assumes we're going to see problems that we haven't seen yet.
David Williams: Okay, very good. Any particular areas that have been maybe more heavily impacted than others?
Jim Ison: It seems to come and go. We had a printed circuit board material was one of those things that got really hard to find for a while. But now we've got a line on the production, and that seems to have been dissipated. And like David said, it's kind of a new thing every day, but nothing that you can just point to one particular part. You have ranges from ICS, which we've seen lead times as long as 84 weeks and hence of two-year lead times. And then we had a situation where we were ready to ship something and we couldn't get phone to protect the server. So crazy probably there's, 50 manufacturers of home, and we couldn't get any phone to put around the thing, but we got it and shipped it. That's the kind of dynamics we see every day.
David Williams: Okay fantastic, thanks for the color. I appreciate that. And then maybe just when you think about your ASPs between your standard and maybe some of your more custom products, how do those differ? And how do you think about maybe the volumes of your newer platform here that intend to be more standardized? What do you think that that ASP is? I'm trying to get a sense of that volume and how that impacts or we should think about the revenue if we're modeling the volume numbers there?
David Raun: Yes, so first of all, the standard products that we're developing and will introduce are still very high end systems. I mean, that's our strategy. We want to have the highest end system in the market for those products, and that's exactly what this product does. And so these ASPs are very large. They can range from tens of thousands of dollars to hundreds of thousands of dollars and approach $1 million for a system or more. So it doesn't really change with the standard products versus the custom. It's going to be at the high-end part of the market, which plays to our strength.
David Williams: Okay, fantastic. And then just lastly, when do you think maybe that the business picks up a bit and comes back. Do you think that's a 2023 event or is there anything in particular there that's maybe holding that business from being able to regain its strength?
David Raun: Yes, so it's a little unclear right now. They're - the big companies that we're engaged with, which are the market leaders, they've come back. But I'm guessing that 2022 will see some rebound. But also, I would say it's - not a huge part of our business. I think that segment we did something under $3 million in 2019 correct, John.
John Morrison: Correct.
David Raun: So we think we can grow that eventually based on the programs that we're working on, but that's kind of how I would size it. So I don't think it's a big swing factor for us. So maybe in 2022, we see somewhere between, $1.50 to $3 million of business I'd just kind of wing it at that, maybe more.
Operator: And at this time, we have no further questions. I'll now turn the conference back over to our speakers for closing remarks.
David Raun: This is kind of my - this is my specialty. Anyway, thank you, Justin, and thank you, everyone, for joining us today for being partners on this journey. Each day, our teams strive to create growth and value for OSS and our shareholders. And we look forward to meeting with you again in March and reporting on our progress as we pursue many opportunities ahead. Meanwhile, please stay safe, healthy and feel free to reach out to John, Jim or me at any time. Justin, please go ahead and wrap up the call.
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 cautions 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 - may 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 into our market may harm our competitive position. We rely on a 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 subject us to additional risks that can adversely affect our operating results and financial condition. And we felt to remedy material weaknesses in our internal controls or financial reporting. We may not be able to accurately report our financial results and our 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 November 25. Please refer to the company'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.
