OSS earnings call analysis

NASDAQ:OSS Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Julie | Conference Call Operator: Good day and welcome to the One Stop Assistance Four Quarter 2025 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. As a reminder, this call is being recorded. As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results, including those relating to revenue growth, as well as business plans, bookings, the company's notary year strategy, business objectives, and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSS that any of its plans or expectations will be achieved. Please be advised that these forelooking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and that OSS desires to avail itself of the protections of the harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forelooking statements due to certain risks and uncertainties, including those described in the company's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, current reports on Form 8-K, and recent press releases. Please read these reports and other future filings that OSS will make with the SEC. OSS disclaims any duty to update or revise its forelooking statements. except as required by applicable law. It is now my pleasure to turn the conference over to OSS President and CEO, Mr. Mike Knowles. Please go ahead, sir.

Mike Knowles | President and CEO

Thank you, Julie.

Mike Knowles | President and CEO

Good morning, everyone, and thank you for joining today's call. I'm pleased to report that 2025's positive momentum has carried into 2026, and we are off to a strong start with significant year-over-year growth in both revenue and profitability. These results reflect discipline execution by our team and suggest accelerating demand for our enterprise-class, ruggedized compute platforms across both defense and commercial markets. Importantly, we believe these trends further validates OSS's position as a critical enabler of next-generation AI, autonomy, and sensor-driven applications at the edge, markets that we expect to drive sustained long-term growth for years to come. Before we review the specifics of the first quarter, I want to remind everyone on today's call that our first quarter results reflect the opportunistic sale of our wholly owned subsidiary, Bresner, in December of 2025 for proceeds of $22.4 million, subject to final closing working capital balances. As a result, Bresner's historical financial results are now reported as discontinued operations, and the results we are discussing today reflect the performance of the remaining core OSS business. The sale of Bresner was a strategic transaction that we believe unlocked value for shareholders, simplified our operating structure, strengthened our balance sheet, and sharpened our focus on higher margin, higher growth opportunities within our core business. We believe our first quarter performance is already demonstrating the benefits of this transition and reinforcing the earning power of our go-forward strategy. Today, OSS is a pure play provider of ruggedized AI compute platforms for edge applications. As a result, we entered 2026 as a more focused and scalable company, fully aligned around delivering market leading enterprise class compute solutions to both defense and commercial markets. And I'm very pleased with our strong start to the year. Looking at our operational performance in the first quarter, we delivered strong results with revenue increasing 55% year over year to $8.1 million, reflecting growth across both our defense and commercial businesses. Highlights in the defense market include increased shipments to support the PA Poseidon aircraft, a long-range multi-mission maritime control aircraft used for anti-submarine warfare, surveillance, and reconnaissance operations. In addition, we benefited from increased activity related to the design, development, and delivery of prototype compute systems for next-generation enhanced vision systems for U.S. Army combat vehicles. These programs highlight our role supporting mission-critical applications and our ability to scale alongside large multi-year defense platforms. On the commercial side, we experienced increase in demand from a medical imaging OEM, including shipments of our liquid-cooled server platforms, reflecting the growing adoption of our solutions in high-performance, data-intensive environments. Taken together, these drivers demonstrate both production-level demand and early-stage program engagement, which we believe will position us well for continued growth. As our sales grow, we are seeing increased market awareness and stronger customer engagement with a growing number of organizations turning to OSS for enterprise-class deployable compute solutions. During the quarter, we generated nearly $15 million in new bookings that we expect to deliver in 2026 and 2027. I am pleased to report that this was one of the strongest quarters in our history and resulted in a book-to-bill ratio of 1.8, supporting our goal to maintain a trailing 12-month book-to-bill ratio above 1.2. Bookings during the quarter were driven by several key program wins across both defense and commercial markets. First, we announced aggregate new awards of $10.5 million from the U.S. Navy and a leading U.S.-based prime defense contractor in support of the PA Poseidon reconnaissance aircraft, $7.5 million of which was booked during the first quarter, with the remainder falling in last year's fourth quarter. With these latest wins, OSS has secured more than $65 million in total contracted revenue associated with this mission-critical aircraft to date, including over $23 million awarded since the beginning of 2025. Second, we received a new $1.1 million initial order from a top-tier commercial aerospace prime contractor to support next-generation in-flight entertainment systems, which is expected to be delivered by the fourth quarter of 2026. We believe this platform has the potential to generate more than $6.5 million in total revenue over the next five years. Third, we secured a new engagement with a commercial robotics customer manufacturing autonomous construction and mining equipment. We expect this program to generate approximately $2 million in orders in 2026 with a five-year opportunity in the range of an aggregate $10 million to $15 million. Importantly, we displaced an incumbent solution to win this business, we believe highlighting the strength of our technology. More recently, in April 2026, we announced a new relationship with a company building a network of autonomous energy nodes for emerging alternative energy-powered data centers. While the initial order was valued at over $500,000, we expect this customer to scale to an aggregate $10 million opportunity over the next five years. We believe this opportunity reflects how our solutions are increasingly being deployed in next generation data center architectures, where power efficiency, scalability, and enterprise class compute are critical to supporting AI and data intensive workloads. Recent program wins reflect both expansion within existing platforms and new customer additions, underscoring the breadth and durability of demand we are seeing across our markets. We are also seeing a clear shift in the size and composition of our bookings. Orders are becoming larger, more programmatic, and increasingly tied to multi-year deployments across a broader set of customers. In fact, our first quarter bookings of $15 million nearly equal the total bookings we generated for the full year of 2023. In addition, our average order size has increased nearly three times since 2023. And over the past 12 months, we have added a growing number of new programs and projects, further strengthening our long-term growth profile. Supporting the momentum we are seeing in both sales and bookings is the continued expansion of our pipeline of opportunities. Three years ago, we believed our pipeline lacked structure, consistency, and alignment with our long-term strategy. Since then, we have made a deliberate effort to build a more strategic and disciplined pipeline, one that is closely aligned with our commercial and defense go-to-market strategy, our technology roadmap, and applications that we can believe can scale across both markets. I am pleased with the progress we have made, And more companies across our core defense and commercial end markets are pursuing the company's rugged enterprise class compute solutions. As a result, we believe our pipeline has expanded significantly from roughly $1 billion previously. These opportunities are primarily concentrated in North America. However, we are starting to see more international opportunities emerge. This has the potential to further increase the size and diversity of our pipeline materially over time. We believe that underlying this growth are strong and durable market dynamics. Demand for enterprise-class compute is accelerating as AI, machine learning, and sensor fusion applications increasingly move from data center to the edge. This shift is driving a new generation of mission-critical applications across both defense and commercial market areas, where OSS is well-positioned given our expertise in ruggedized compute platforms. Alongside the growth in our pipeline, we are continuing to invest in advancing our technology platform to support the next generation of AI-enabled systems operating at the edge. R&D remains a critical component of our strategy, and we are increasingly working alongside customers on customer-funded development programs that allow us to design and deploy purpose-built compute architectures for emerging applications. These engagements are a key driver of our long-term growth. We believe they position OSS early in the lifecycle of next-generation platforms, deepen our relationship with key customers, and create a clear pathway to the future of production programs. as these technologies move from development to deployment. We are seeing growing traction within U.S. Army labs, defense research organizations, and large defense primes as they reassess current requirements and plan for future compute architectures. And OSS is becoming increasingly embedded as a trusted provider of enterprise class compute solutions supporting next generation warfighting capabilities. These efforts span a range of applications, including advanced vision systems, sensor and data processing, autonomy, and AI-enabled situational awareness. While these development programs typically take multiple years to mature, we are encouraged by our expanding role within the Department of War ecosystem and we believe these engagements position OSS to participate in a growing number of future production programs. Many of the programs we discussed earlier today began as development efforts where we worked alongside customers to design highly specialized compute solutions for demanding applications. As those systems mature and transition into production platforms, we believe they can create multi-year revenue opportunities for OSS. Customer-funded development increased 145% year-over-year in the first quarter, and we expect additional growth through 2026, supported by new defense and commercial development efforts. At the same time, we continue to advance our core technology roadmap. During the fourth quarter of 2025, we led the way in our market with the introduction of our next generation PCIe Gen 6 product portfolio that is designed to address the rapidly increasing bandwidth and data processing requirements associated with artificial intelligence, machine learning, and sensor-driven workloads. PCIe Gen 6 significantly expands data throughput capabilities and will play an important role in enabling the next generation of AI accelerators and GPUs, high-speed storage systems, and advanced compute architectures required for AI applications at the edge. We continue to believe these technology investments position OSS well to support the growing demand for high-performance compute infrastructure as AI-enabled systems continue to expand across both defense and commercial platforms. We believe that OSS is well positioned for long-term growth, and we are encouraged by the strong start to 2026. As we move through the year, we are focused on helping provide the compute and storage needs of our customers, supporting our customers' development efforts, and converting our pipeline to sales. We also continue to closely manage several operational factors, including supply chain dynamics. In particular, we are seeing longer lead times for certain components, including memory, which may impact the timing of certain shipments throughout the year. As a result, we are maintaining our guidance for 2026, and we expect revenue growth in the range of 20% to 25%, supported by our growing pipeline and platform opportunities, increasing customer engagement, higher customer-funded development activities, and the continued transition of development programs into production deployments. We expect gross margins of approximately 40%, reflecting product mix and an increasing contribution for customer-funded development programs, which is an important component of our strategy to advance new technologies alongside our customers. At the same time, we expect to generate positive EBITDA and adjusted EBITDA while continuing to invest in key areas of the business, including sales expansion and customer support resources that support our growing pipeline and deepen relationships with strategic customers. With a strong balance sheet, expanding customer relationships, and a growing pipeline of opportunities driven by the adoption of AI-enabled systems, We believe OSS is well positioned to continue building momentum and delivering long-term value for our shareholders. We also believe our strengthened balance sheet provides the flexibility to make strategic investments in our business and pursue selective strategic acquisitions that could complement our technology platform, expand our customer base, and enhance our capabilities over time. Finally, I want to thank our entire team for their dedication, innovation, and relentless focus on delivering results for our customers and shareholders. So with this overview, I'd like to now turn the call over to Dan.

Dan | Chief Financial Officer

Thank you, Mike, and good morning to everyone on today's call. Financial performance in Q1 exceeded our expectations, reflecting both strong customer demand and disciplined operational execution. Q1 results reflect a number of key accomplishments. First, we achieved strong top-line growth of 55%. Second, we achieved robust bookings of nearly 15 million for the first quarter. Third, gross margin of 51.6% remained above our expectations, reflecting favorable mix in pricing, operational improvement, and showcasing the strong value that we provide to our customers. Third, higher sales, strong gross margin, and disciplined expense management produced positive adjusted EBITDA in the first quarter. And finally, strong collections and working capital management drove a record amount of free cash flow from continuing operations. We believe that the company has never been in a stronger position and with a strong cash position, a solid backlog and a robust pipeline, we believe we're on track to achieve our 2026 guidance and to execute on our growth and profitability objectives. Now for a quick overview of Q1, 2026 financial performance. For the first quarter, we reported total revenue of 8.1 million compared to 5.2 million last year. The 55% year over year increase in total revenue was primarily due to higher sales to a defense prime customer of data storage products to support the P-8 aircraft, higher sales to a medical imaging OEM of liquid-cooled server products, and sales to a defense prime customer related to the design, development, and delivery of prototype compute systems for an enhanced vision system for combat vehicles. Gross margin in the first quarter was a first quarter record of 51.6%, compared to 45.5% in the prior year quarter. The 6.1 percentage point increase from the prior year was primarily due to a more profitable mix of products shipped this year, engineering efficiencies in customer funded development programs, and improved manufacturing absorption due to higher production volume. We continue to expect some level of variability in gross margins quarter to quarter based on absorption, product mix, and program life cycle. On a sustaining basis, we continue to target margins in the mid-30s to mid-40s. We expect that second quarter gross margins will normalize into this range. Total first quarter operating expenses increased 2.5% to $4.8 million. This increase was predominantly attributable to higher general and administrative expenses, partially offset by lower marketing and selling and R&D expenses. For the first quarter, the company reported a GAAP net loss from continuing operations of $0.4 million or $0.01 per diluted share, compared to a net loss from continuing operations of $2.3 million or $0.11 per share in the prior year quarter. The company reported non-GAAP net income from continuing operations of $0.3 million or $0.01 per diluted share, compared to non-GAAP net loss from continuing operations of $1.7 million or $0.08 per share in the prior year quarter. Adjusted EBITDA from continuing operations, a non-GAAP metric, was $0.2 million compared to an adjusted EBITDA loss from continuing operations of $1.6 million in the prior year first quarter. Turning to the balance sheet, cash flow from continuing operating activities was a record for a three-month period as we saw a robust quarter of collections and prudently managed inventory levels. Net cash provided by continuing operations for the three months ended March 31, 2026 was $4 million, compared to net cash used in continuing operations of $1.5 million in the prior year period. As of March 31, 2026, OSS had total cash, cash equivalents, and short-term investments of $34.4 million, restricted cash of $2.2 million, and no debt outstanding. Working capital was $44.7 million as of March 31, 2026, compared to $45.3 million at December 31, 2025. As Mike mentioned, we're reaffirming our guidance for the full year, including revenue growth in the range of 20% to 25%, gross margin of approximately 40%, and positive EBITDA. We believe our strong performance in Q1 supports our planned ramp in the second half of the year. We're seeing strong demand, and our first quarter performance establishes strong operational momentum. At this time, we are maintaining our guidance as we continue to navigate a dynamic supply chain environment. As we enter the second quarter, we remain focused on disciplined execution, including managing our supply chain to convert customer demand into revenue, profit, and cash. We also remain focused on continuing to drive growth by investing in our technology pursuing M&A opportunities, and securing new platforms that may provide sustained multi-year revenue streams. As always, we look forward to updating you on our success. This completes our prepared remarks. Julie, please open the call for questions.

Julie | Conference Call Operator

Thank you, ladies and gentlemen. If you'd like to ask a question, please press star one on your telephone keypad. If you'd like to withdraw a question, press star two. One moment, please, for your first question. Your first question comes from Scott Searle from Roth Capital.

Please go ahead. Scott Searle | Analyst, Roth Capital Partners

Hey, good morning. Thanks for taking the questions. Congrats on the quarter and the outlook. Hey, maybe just for starters, hey, Mike, Dan, could you give us a little bit of an idea of the mix of business in the quarter between defense and commercial, and then maybe to dig in a little bit on the supply chain front. It sounds like there are some headwinds. I'm wondering if you could dig in a little bit more in details, give us some color in terms of You know, where does memory fit in the bomb? Is it a cost issue from a bomb standpoint in gross margins or just general availability as you look out into the second half of this year? And is that the primary constraint? And Mike, as well, ongoing military activities, I think there have been some concerns that potentially it's a distraction in terms of the ability to, you know, progress existing opportunities. Based on your comments, it doesn't sound like that's been the case as you started to move forward on a couple of different fronts and expand that pipeline. I'm wondering if you could just expand on that a little bit, and then I had a follow-up.

Mike Knowles | President and CEO

Great. I'll let Dan start with the mix, and then I'll jump in with the supply chain and the ongoing defense activities.

Dan | Chief Financial Officer

Yeah, thanks, Mike. So starting on the mix, so in Q1, we saw growth across multiple areas. So customer-funded development was up. Production was also up. In production, we did see a higher mix of some of our more mature production programs, and those tend to carry higher margins. So that's part of what you're seeing. But on the bookings front, we also announced some new wins, including on the commercial side, that are expected to scale over time as we go through the year and into future years. I'll comment briefly on supply chain before I turn it over to Mike. So what we're seeing there, primarily memory, extended lead times for other components, including CPU, but certainly the critical path for many of our deliveries runs through that memory supply chain. You know, lead times are longer than what we saw last year. Pricing has certainly moved up. I think there's still some volatility, but relative to three months ago, I think that volatility has moderated, you know, sort of plateaued at a higher level. From a pricing perspective, in general, we don't aim to absorb those price increases. We pass them along to our customers. And this is certainly a market-wide dynamic, not unique to OSS. So generally, we've been successful in doing that. But every bid has its own customer and competitive dynamics. And so we evaluate those bids individually. Turn it over to Mike.

Mike Knowles | President and CEO

Yeah, no, great, Dan, summary on the supply chain. Scott, I would just add that it really, the biggest long-term impact has really been on the memory. And it's a moderate portion of the BOM. We've been able to manage the rest of the building material in our products, whether standard or purpose-built with supply chain quite well. So it's really just in those components. And we've got a number of risk mitigation actions we've been working to help mitigate the risk of those delivering timeframes. So we will assess and continue to work that as it goes through. And as Dan mentioned, we've been able to pass the price on, so financially we've been able to manage that impact. And now we'll just continue to work the timing impact across our systems. And it really is just one component. Unfortunately, it's a fairly standard component in server memory. On the change in the defense environment with the ongoing operations in the Middle East and around Iran, given that the budget for 2026 on the defense side was already passed and people are executing against obligations, We really haven't seen an impact on bookings or planned orders for the year. We built into the plan and anticipated there may be some slight delays in award timing, and that is just based on the fact that there is an increased overall movement to move standard logistics and material that's needed in support of the forces over in the Middle East. That has to get contracted and put out, so there is a time factor. But to date so far, we have not seen a big impact on timing or elements of programs or plans that were already budgeted or planned for 2026. In these kinds of experiences, we've also seen that as These protract, there generally starts to be indications back from the conflict on what are the technology benefits applications that could be used to better facilitate execution of the battle plans in the area and to become more efficient in the very specific battle or environment that's being fought. And we generally, being in the lab in some of the places we're positioned, we are looking for that to hopefully turn to opportunity for us into this year and next year as we have the opportunity to leverage high-performance computing, commercial-based solutions to readily support any of those applications. Generally, we'll come in and around software or sensors capabilities. And to go with that, you'll need the right level of compute and low latency, which is where we sit. So we monitor those into the labs, and we'll keep an eye out for them. But oftentimes, this starts to create opportunity for specific solutions that would enable the current conflicts operation and execution.

Scott Searle | Analyst, Roth Capital Partners

Very helpful. And if I could, you know, to just follow up on the opportunity, the unfactored opportunity pipeline, I think you indicated that it's up significantly from the prior number you guys had talked about it being 1 billion. And it sounds like there are growing size opportunities within that. I'm wondering if you could expand on that a little bit. And as it relates to some of the near-term opportunities, particularly the advanced vision systems for military vehicles, kind of a timeline for that to convert maybe into production. And then as we look to 27, I think the long-term targets you guys have talked about for growth of 20 to 30%, given all the activity that's going on in the pipeline, given how you're starting to convert some of that into orders, do we see an inflection in 27 towards the higher end of that long-term target range?

Thanks. Mike Knowles | President and CEO

Yeah, thanks, Scott. So talking about the pipeline, yes, we continue to monitor that. That's our source of identification of opportunities. As we have spoken before, we rate those on probabilities of go, that they'll be funded, awarded, and happen, and probability of win, probability that we win. And that helps identify our orders of priority in terms of where we'll be addressing opportunities. So we continue to see elements moving into the pipeline. I'm probably most encouraged that, you know, we're seeing, you know, a diversity across that pipeline that would include, you know, a multitude of new customers, new opportunities, all at moderate values comparative to when we started the pipeline three years ago, as I noted in my comments, just the growing number of booking size and multi-year programs. The other thing I would say that's starting to appear in that pipeline is we're seeing probably an increased number of potential transitional or transformational opportunities that we have factored down appropriately, but creating more opportunities for us to find potential transformational organic growth out of things that we're doing. And that's leading us to have that, as we move through the factored elements of that, is what's continuing to strengthen our positive feeling about the ability to grow at that 20% to 30%. 30% range. But as I mentioned, there are those transformational opportunities and some long programs of record that were we to see those come to fruition would represent substantially greater growth than what we're seeing in the probability weighting factors today. Some of those, as we had mentioned in the past, are in and around Army programs. The current elements we had talked about in the past with the 360-degree situation awareness system, that architecture solution still remains under testing evaluation by the U.S. Army. They will make decisions as appropriate in timing and priority for them. This is the... The joy of working in the Defense Department, sometimes these things can happen fast, sometimes they can be protracted, sometimes they can come in multiple phases. The benefit we stand is that we have a solution that is present under test, available, and is the only solution that can provide the capabilities that were written to the requirements that we delivered against. That architecture is now expanded into multiple additional sensor-based processing applications where the demand for the high-performance compute and sensor processing and the demand for low latency to move that data has become a requirement across a couple other areas. capabilities. We mentioned one in our press release about the enhanced vision system, and we continue to work some additional opportunities where that compute infrastructure is starting to form the basis for sensor distribution at extremely low latency. So we continue to prosecute those. We're seeing them across opportunities across the other services where we could find these potential larger transformational programs of record, but no distinct timing on any of those quite yet.

Scott Searle | Analyst, Roth Capital Partners

Great. Thanks so much. Congrats on the quarter and outlook again. I'll get back in the queue.

Mike Knowles | President and CEO

All right. Thanks, Scott. Thanks, Scott.

Julie | Conference Call Operator

Your next question comes from Eric Martinuzzi from Lake Streets.

Please go ahead. Eric Martinuzzi | Analyst, Lake Street Capital

Yeah, I wanted to ask sort of a guidance philosophy question. It sounds like if there were not the supply chain issues, there's a chance you could have actually bumped up your outlook for 2026. Am I reading that the right way?

Dan | Chief Financial Officer

Yeah, I think that's right, Eric. We're definitely seeing strength on the demand side. You can see that in our bookings. As we look towards guidance, we're remaining cautious as we navigate this dynamic supply chain environment. The other thing I'd add, you know, our guidance was back half-weighted for the year. I think the strong performance in Q1 helps to moderate that ramp, certainly increases our confidence in the guidance. But we have seen and we're continuing to see extended and variable lead times for components, including memory. So the timing of revenue conversion remains our biggest risk for the year. It's a risk that our guidance takes into account. We'll continue to drive that supply chain, and I think we'll have increasing visibility into that as we move through Q2.

Eric Martinuzzi | Analyst, Lake Street Capital

And is there, with the booking success you had in Q1, was any of that kind of I don't know, Q2 or Q3 over a pull forward, or was it just normal course?

Dan | Chief Financial Officer

Yeah, I think it was a combination. I think there was probably some pull forward that we saw, and I think there were also some new wins that we had factored, and maybe the initial awards weren't huge, but those will grow over the time. So overall, I think Q1 bookings were a very positive story for us.

Mike Knowles | President and CEO

Yeah, I'd agree exactly what Dan said. Across the board, it was a good bookings quarter for us.

Eric Martinuzzi | Analyst, Lake Street Capital

Got it. Thanks for taking my questions.

Mike Knowles | President and CEO

Thank you, Eric.

Julie | Conference Call Operator

Your next question comes from Brian Kinslinger from Alliance Global Partners.

Please go ahead. Kevin | Analyst, Alliance Global Partners

This is Kevin for Brian. Thanks for taking our questions. First, can you provide updates On both the autonomous robotics for construction and mining, as well as the aerospace programs for passenger cabin systems, when do you expect each might move into production from LRIP?

Mike Knowles | President and CEO

Yeah, thanks, Brian.

Mike Knowles | President and CEO

So on the robotics front, we've successfully completed prototype and early prototype build and delivery test and validation in the environment, and we'll be transitioning – that program to production here in 2026. So we'll start to see news on that coming in the coming months and quarters as that program starts to transition into production. The commercial aerospace now has actually transitioned into production. Deliveries have started this year, 2026, and will continue through this year.

Mike Knowles | President and CEO

And then we'll look to 2027.

Brian Kinslinger | Analyst, Alliance Global Partners

Thanks.

Kevin | Analyst, Alliance Global Partners

And then are there any, can you provide any updates on the liquid cooling system for medical imaging where a tech refresh is pending? How will a tech refresh impact this production program?

Mike Knowles | President and CEO

Yeah, well set on production forecast for the year with the medical imaging company on the liquid cold server. So we have that laid in. We saw a ramp in production demand from last year. So we're positive about the momentum of that program. It's where it's going. And we do continue to explore the opportunity where we can in our systems. In our configurations, while they're based on a lot of commercial open system architectures, the ability for tech refresh and upgrades, being able to put in even additionally more compute or lower latency can help with the overall performance of systems. So we always continue, much like with this customer, with all our customers, to engage in the opportunity where and if needed to be able to provide quick updates in compute and latency to further enhance the performance of those systems.

Brian Kinslinger | Analyst, Alliance Global Partners

Great, thanks.

Kevin | Analyst, Alliance Global Partners

And then lastly, could you provide an update on the Autonomous Maritime application? Has testing been completed, and do you still expect production orders this year?

Mike Knowles | President and CEO

Yeah, on the Autonomous Maritime systems delivered under test and evaluation in discussions with the customer, we would expect to see production orders this year. Given that the production orders are received early enough, we should be able to generate revenue on that this year.

Brian Kinslinger | Analyst, Alliance Global Partners

Great, thanks.

That's all from us. Mike Knowles | President and CEO

All right. Thanks, Brian.

Julie | Conference Call Operator

And there are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you. jsPDF 3.0.3 D:20260606090335-00'00'

NASDAQ:OSS Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Thank you. ... ... Thank you. Thank you. Thank you.

Thank you. Thank you. Sylvie | Conference Operator

Good day and welcome to the One Stop Systems, Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will have the opportunity to ask questions during the question and answer session. As a reminder, this call is being recorded. As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results including those relating to revenue growth, as well as business plans, booking, the company's multi-year strategy, business objectives, and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSF that any of its plans or expectations will be achieved. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and that OSS desires to avail itself of the protections of the safe harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in the company's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10Q, current reports on Form 8K, and recent press releases. Please read these reports and other future filings that OSS will make with the SEC. OSS disclaims any duty to update or revise its forward-looking statements except as required by applicable law. It is now my pleasure to turn the conference over to OSS President and CEO, Mr. Mike Knowles. Please go ahead, sir.

Mike Knowles | President and CEO

Thank you, Sylvie. Good morning, everyone, and thank you for joining today's call. 2025 was a defining year for one-stop systems and reflects a successful execution of a multi-year strategy to reposition the company around high-performance, ruggedized compute platforms that enable artificial intelligence, machine learning, and sensor processing at the edge. During the year, we saw that strategy translate into meaningful financial and operational progress. The strength of our performance throughout 2025 also created an opportunity to take an important strategic step for the company. In December, we completed the opportunistic sale of our wholly owned subsidiary, Bresner, and received proceeds of $22.4 million, subject to final closing working capital balances. OSS acquired Bresner on October 31, 2018, for approximately $5.6 million, and we believe this transaction unlocked significant value for OSS's shareholders. While Bresner had been an important part of our history, the progress we made across OSS's core business positioned us to evaluate this asset from a position of strength. When we received an attractive offer for the business, we viewed it as a compelling opportunity to unlock that value, simplify our operating structure, strengthen our balance sheet, and concentrate our resources on the higher margin, higher growth, rugged enterprise class compute opportunities that are driving the next phase of OSS's growth. As a reminder, following the transaction, Bresner's historical financial results are now reported as discontinued operations, and the results we are discussing today reflect the performance of the core OSS business. This transition effectively positions OSS today as a pure play provider of ruggedized AI compute platforms for edge applications. As a result, OSS enters 2026 as a more focused company centered entirely on delivering high-performance compute solutions for both defense and commercial markets. With that strategic foundation in place, we exited 2025 with a strong fourth quarter performance, including revenue growth of more than 70% year over year, record quarterly gross margins of 58.5%, and positive net income from continuing operations of $2 million. These results reflect growing demand for our technology across both defense and commercial markets. as well as the benefits of operational improvements and product focus we have implemented over the past several years. So with that context, I'd like to walk through several of the key developments that drove our performance in 2025 and discuss why we are excited about the opportunities ahead in 2026 and beyond. Turning to the operational progress we've made during the year, we continue to see strong momentum as customers increasingly adopt our rugged enterprise-class compute platforms. As a result of our strong fourth quarter performance, full year 2025 revenue came in above the high end of our previously communicated guidance range of $30 to $32 million. The quarter benefited from favorable customer demand and strong operational execution, which allowed us to complete several shipments earlier than originally anticipated, contributing to a stronger than expected finish to the year. Overall demand for high performance computing at the edge continues to expand. as AI, ML, autonomy, and sensor fusion become central to next-generation defense and commercial systems. OSS is uniquely positioned at the intersection of these trends, where customers require powerful compute solutions that can operate reliably in demanding environments outside of traditional data centers. One example of this is the continued development of our solutions on the P-8 Poseidon aircraft, a long-range, multi-mission maritime patrol aircraft used for anti-submarine warfare surveillance and reconnaissance operations. To date, OSS has secured more than $65 million in total contract revenue associated with the PA program, including over $23 million awarded since the beginning of 2025. These awards reflect the continued expansion of the platform and the growing role of our rugged storage solutions play in enabling the aircraft's critical mission systems. Most recently, we announced $10.5 million in new awards from the U.S. Navy and a leading U.S. defense prime. which represent the largest aggregate orders we have received to date tied to the P8 program. Importantly, these awards are expected to contribute to revenue in 2026 and continue into 2027, providing continued visibility into future program revenue. The P8 remains one of several multiyear programs that demonstrate the durability of OSS's platform strategy and the increasing demand for rugged high performance compute infrastructure supporting next generation defense systems. Another example of our expanding defense relationships is our growing partnership with Safran Federal Systems, one of the world's leading high-technology defense contractors. During the fourth quarter, we received a $1.2 million follow-on production order from Safran for rugged 4U short-depth servers supporting naval and aircraft military applications. This order followed an earlier award in 2025 and brought the current aggregate order value to approximately $1.9 million. Based on the early success of the program and expanding platform requirements, we now expect this relationship to generate more than $7 million in cumulative production orders over the next five years, highlighting the potential for continued growth as the program scales. More importantly, we believe there are additional opportunities to deploy our solutions within Saffron as the requirement for compute power grows across their defense system. The last defense program I want to highlight today involves next-generation enhanced vision and sensor processing systems for U.S. Army combat vehicles. In January 2026, we announced a new agreement with a leading U.S. defense prime contractor to design and develop ruggedized, integrated compute and visualization systems to deliver an enhanced vision system to augment vehicle driving and maneuverability. This program involves GPU-accelerated sensor processing systems designed to ingest and process real-time video and sensor data, enabling improved situational awareness and object recognition for vehicle crews operating and maneuvering in complex environments. Importantly, this engagement deepens our relationship not only with the U.S. Army's research and development labs, but also with a defense prime contractor that we believe further validates our capabilities. Our existing 360-degree situation awareness system remains under testing and evaluation with the U.S. Army, while this enhanced vision system represents a separate development initiative expected to undergo initial testing at the Army Ground Vehicle System Center late 2026. While both programs are in the early stages, we believe they represent two potentially transformative opportunities as the Army continues to modernize its vehicle fleet with AI-enabled sensor fusion and autonomous capabilities. We believe our work supporting both the U.S. Army's Innovation Lab and a leading defense prime to support next-generation vision and sensor processing systems showcases our best-in-class technologies and strong position on this emerging platform. These programs highlight the company's growing role at the intersection of several key trends shaping next-generation defense systems. Modern military platforms are rapidly integrating artificial intelligence, sensor fusion, and real-time data processing to accelerate decision-making on the battlefield. Enabling these capabilities requires powerful, rugged computing infrastructure designed to operate at the tactical edge, often in highly constrained, mission-critical environments. As global defense opportunities continue to emphasize situational awareness, autonomy, and data-driven operations, we believe OSS is well-positioned to support these evolving requirements. Our rugged and scalable enterprise class compute platforms are designed specifically for these demanding environments, and we believe the growing adoption of AI-enabled systems across defense platforms creates a significant opportunity for OSS in the years ahead. Beyond defense, we are also seeing increasing adoption of our rugged enterprise-class compute platforms across a growing number of commercial applications that require the types of powerful capabilities that we provide. In February 2026, we announced a new engagement with a commercial robotics customer manufacturing autonomous construction and mining equipment. For this application, OSS was selected to support advanced robotic systems designed to operate in complex real-world environments. Importantly, we were able to win this program by displacing an incumbent solution, highlighting the strength of our technology and the value customers place in our ability to deliver high-performance compute capabilities in demanding edge environments. Robotics platforms increasingly rely on powerful compute infrastructure to process large volumes of sensor data, enable real-time decision-making, and support autonomous operations. These systems require reliable high bandwidth and low latency compute solutions capable of operating outside of traditional data center environments. We believe this engagement highlights a broader trend we are seeing across the commercial market where emerging autonomous use cases are creating real and growing demand for rugged high performance compute infrastructure at the edge. Another example of our expanding commercial opportunities is our engagement with a Canadian based integrator of passenger cabin systems for the commercial aerospace industry. During the year, we announced an initial $1.5 million order to supply lighting control units and column integration controller units designed for deployment across commercial aircraft platforms. These systems are DO-160 qualified, meaning the stringent environmental and reliability standards required for aviation applications and are expected to support passenger cabin control systems across multiple aircraft deployments. We expect this program to generate approximately $6 million in revenue over the next three years with recurring production orders as the platform continues to scale. Programs like this demonstrate how OSS technologies are increasingly being adopted across regulated commercial platforms where reliability, performance, and long product life cycles are critical. Finally, we continue to expand our relationship with a leading medical imaging, OEM, where our compute platforms support advanced breast imaging systems designed to enable noninvasive cancer detection. During the year, we received a $2 million follow-on production order for our next-generation liquid-cooled compute systems, which have become the standard platform supporting this customer's breast scanning devices. This award represents the transition of the program from a successful development phase into volume production. Based on current production ramp, we expect this engagement to generate more than $25 million in cumulative revenue over the next five years, highlighting the potential for OSS technologies to support next-generation medical devices. Programs like this demonstrate how the same high-performance compute capabilities we've developed for demanding defense applications are increasingly enabling innovation across commercial sectors such as healthcare. New and expanding relationships support the strong demand we experienced throughout 2025 and set the stage for continued growth in 2026. Despite the year-long continuing resolution, delays in defense awards, and extended lead times for certain components, OSS generated a book-to-bill ratio of approximately 1.2x, reflecting continued growth in defense and commercial customer orders. This level of demand provides an important indicator of the momentum we are seeing across our pipeline and supports our expectations for continued revenue growth in 2026 and beyond. Importantly, as we expand our presence across multi-year platform programs, we believe we have greater visibility into future revenue opportunities than we have historically had as a company. Alongside the momentum, we continue to invest in advancing our technology platform to support the next generation of AI-enabled systems operating at the edge. As a result, research and development remains a critical component of our strategy, and we can continue to work closely with customers on customer-funded development programs that allow us to design and deploy new compute architectures tailored to emerging applications. These engagements not only strengthen our relationships with key customers, but also create opportunities for future production programs as those technologies move from development into deployment. Many of the programs we discussed earlier today began as development efforts where we worked alongside customers to design highly specialized compute solutions for demanding applications. As those systems mature and transition into production platforms, they can create multi-year revenue opportunities for USS. We expect higher levels of customer-funded development to occur in 2026, supported by new defense and commercial development efforts. At the same time, we can continue to advance our core technology roadmap. During the fourth quarter, we led the way in our market with the introduction of our next-generation PCIe Gen 6 product portfolio, which is designed to address the rapidly increasing demand for native processing requirements associated with artificial intelligence and machine learning. PCIe Gen 6 is a middle-aged and new-age group of educators who have a capability to promote and develop a role in enabling the next generation of AI accelerators and GPUs. high-speed support systems, and compute architectures required for AI applications at the edge. We believe these technology investments position OSS well to support the growing demand for high-performance compute infrastructures as AI-enabled systems continue to expand across both defense and commercial platforms. As we look ahead to 2026, we believe OSS is entering the year with strong momentum. Demand for high-performance compute at the edge continues to expand as AI, ML, autonomy, and sensor-driven applications become increasingly central to next-generation systems. These trends are creating growing demand for rugged high-performance compute infrastructure capable of operating in challenging environments outside of traditional data centers. Across our defense markets, we're seeing increased interest from government organizations and defense primes as military platforms continue to incorporate AI-enabled sensor processing, autonomy, and real-time decision-making capabilities. At the same time, we are beginning to see similar requirements emerge across commercial industries, such as robotics, aerospace, and healthcare. The platform programs and customer engagements we have discussed today give us confidence that OSS is well-positioned to benefit from these trends as we continue to expand our presence across both defense and commercial markets. As we plan for 2026, we are also closely managing several operational factors, including supply chain dynamics. In particular, we are seeing longer lead times for certain components, including memory, which may impact the timing of certain shipments throughout the year. For 2026, we expect continued revenue growth in the range of 20% to 25%, supported by our growing pipeline of platform opportunities, increasing customer engagements, higher customer-funded development activities, and a continued transition of development programs into production deployment. We expect gross margins of approximately 40%, reflecting product mix and an increasing contribution from customer-funded development programs, which is an important component of our strategy to advance new technologies alongside our customers. At the same time, we expect to generate positive EBITDA and adjusted EBITDA, while continuing to invest in key areas of business, including sales expansion and customer support resources, that support growing pipelines and deepening relations with strategic customers. In closing, 2025 represented an important milestone in the evolution of OSS. We delivered strong financial performance, executed on our strategic plan to sharpen our focus on the OSS platform, and continued to expand our presence across a growing number of defense and commercial platforms that rely on high-performance computing at the edge. With a strong balance sheet, expanding customer relationships, and a growing pipeline of opportunities driven by the adoption of AI-enabled systems, we believe OSS is well-positioned to continue building momentum and delivering long-term value for our shareholders. We also believe our strengthened balance sheet provides the flexibility to pursue selective strategic acquisitions that could complement our technology platform, expand our customer base, and enhance our capabilities over time. Finally, I want to thank our entire team for their dedication, innovation, and relentless focus on delivering results for our customers and shareholders. So with this overview, I'd like to now turn the call over to Dan.

Dan | Chief Financial Officer

Thank you, Mike, and good morning to everyone on today's call. As a reminder, on December 30, 2025, the company closed a definitive agreement to sell our Bresner business. All operations, assets, liabilities associated with Bresner, including the gain recognized on the sale, have been classified as discontinued operations. Our Q4 results reflect a number of important financial milestones and records. First, we achieved robust top line growth of 70.2%, which drove revenue to the second highest quarter in our history. we achieved record gross margins of 58.5%. This reflects favorable mix in pricing, and it showcases the strong value that we provide to our customers. Third, higher sales, record gross margin, and disciplined expense management produced record quarterly net income from continuing operations. And finally, With the December sale of Bresner and the October registered direct offering of Common Stock, we ended the year with the strongest balance sheet in our history, which included only $6.8 million in total liabilities, no debt, and $33.4 million in cash, cash equivalents, and restricted cash. We believe the company is in a strong position, and with a solid backlog and a robust pipeline, we are on track to achieve our 2026 guidance and to execute on our growth and profitability objectives. Now for a quick overview of Q4 2025 financial performance. For the fourth quarter, we reported total revenue of $12 million compared to $7 million last year and $9.3 million for the 2025 third quarter. The 70.2% year-over-year increase in total revenue was primarily the result of higher revenue for the development and production of custom server products for defense customers, higher shipments of data storage projects for a defense prime customer, shipments of server products to a medical device customer, and shipments of compute and server products for an autonomous maritime application. Gross margin in the fourth quarter was a quarterly record of 58.5% compared to 9.4% in the prior year quarter. As a reminder, gross margin in the prior year quarter was impacted by a $1.2 million contract loss. Excluding this charge, gross margin for the 2024 fourth quarter was 26.8%. The 31.7 percentage point increase from the prior year was primarily due to a more profitable mix of products shipped this year. In 2025, gross margin benefited from both operational efficiency and a favorable product mix. We continue to expect variability in gross margins quarter to quarter based on absorption, product mix, and program lifecycle. On a sustaining basis, we continue to target OSS segment margins in the mid-30s to mid-40s. Total fourth quarter operating expenses increased 21.8% to $5.1 million. This increase was predominantly attributable to higher R&D expenditures, reflecting targeted investment in new product development. We expect R&D expenses for 2026 of approximately 10% to 12% of annual sales. For the fourth quarter, the company reported record GAAP net income from continuing operations of $2 million or $0.08 per diluted share compared to a net loss from continuing operations of $3.4 million or $0.16 per share in the prior year quarter. The company reported non-GAAP net income from continuing operations of $2.4 million or $0.09 per diluted share compared to non-GAAP net loss from continuing operations of $2.9 million or $0.14 per share in the prior year quarter. Adjusted EBITDA from continuing operations, a non-GAAP metric, was $2.5 million compared to an adjusted EBITDA loss from continuing operations of $2.8 million in the prior year fourth quarter. Turning to the balance sheet. As of December 31st, 2025, OSS had total cash and cash equivalents of $31.2 million, restricted cash of $2.2 million, and no debt outstanding. Working capital increased to $45.3 million at December 31, 2025, compared to $24 million last year, reflecting a significantly higher cash balance and 176% increase in our AR balance, reflecting revenue growth in 2025. As Mike mentioned, for the 2026 full year, we expect revenue growth in the range of 20% to 25%, gross margin of approximately 40%, and positive EBITDA and adjusted EBITDA. As in prior years, we expect some seasonality in our revenue, with second half revenue higher than first half. However, we expect this ramp to be less pronounced in 2026 as compared to 2025. For 2026, we expect approximately 40% of our full year revenue to be recognized in the first half of the year and 60% in the second half. We also expect negative EBITDA in the first half of the year to be offset by positive EBITDA in the second half of the year. As we enter 2026, we remain focused on disciplined execution, including managing our supply chain to convert customer demand into revenue, profit, and cash. We also remain focused on continuing to drive growth by investing in our technology, pursuing M&A opportunities, and securing new platforms that may provide sustained multi-year revenue streams. As always, we look forward to updating you on our success. This completes our prepared remarks. Operator, please open the call to questions.

Sylvie | Conference Operator

Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, we ask that you please lift your handset before pressing any keys. Please go ahead and press star 1 now if you have any questions. First, we will hear from Scott Searle at Roth Capital. Please go ahead, Scott.

Scott Searle | Analyst, Roth Capital

Hey, good morning. Thanks for taking the questions. Hey, Mike. Hey, Dan. Congrats on the quarter, and congrats on getting the Bresnau deal done.

Mike Knowles | President and CEO

Thank you very much, Scott.

Scott Searle | Analyst, Roth Capital

Maybe for starters, looking at 2026, nice guide. I'm wondering if you could talk a little bit about the visibility that you've got into that number. Maybe... as well, kind of the unfactored opportunity pipeline that you've talked about. And you hinted at this as well a little bit just in terms of some of the timelines. Obviously, with the current military actions ongoing, you know, is that delaying the ability for decisions to get made in the near term? Obviously, you know, it's good in the longer term when you think about autonomy and edge AI being adopted in these types of conflicts, but wondering what that's doing to the near-term decision-making process.

Mike Knowles | President and CEO

Yeah, just as a top level on that, Scott, I think, you know, our visibility in our pipeline is still as strong as we start 2026 as we were in 2025. We continue to expand opportunities, commercial defense, as I noted. Still strong pipeline supporting our growth objectives organically, so we feel good about that and where we're progressing and the momentum we've been building in that area. We're encouraged this year that there's actually a defense budget. As I noted in my remarks, we had the full year continuing resolution and the new administration coming on board, so contracting of awards last year in terms of timing was a little bit challenging at times. But this year, a budget in place, we've seen a little bit better movement in that respect. However, as in past with conflicts like we're seeing today and the quick movement and reestablishment of operational funds to support that, sometimes that will cause a little bit of delay in the contracting system as there are other higher priorities in certain areas. So we'll continue to monitor that as it goes throughout the year. But as of right now, we don't anticipate that'll be an impact on the full year. It just could be, again, impacted on timing from month to month or quarter to quarter.

Scott Searle | Analyst, Roth Capital

Gotcha.

Dan | Chief Financial Officer

And I might just add just a little bit on the timing. So I think as we put together our guide, we feel very strong about the demand environment. I think that some of the bookings that we've already released press on for Q1 support that. So really strong in the demand environment. What we've taken into account in our guidance is some of the supply chain and production lead times. We are seeing extended supply chain lead times. And so that does guide the conversion of those opportunities into revenue.

Scott Searle | Analyst, Roth Capital

Gotcha. So Dan, just to clarify, you are already accounting for memory and other component issues within that 20 to 25% outlook. And then wondering as well, kind of how you're thinking about military government applications versus the commercial mix, you know, for the year?

Dan | Chief Financial Officer

Yeah, I'll start on it. Yes, our guide, you know, we look at a range of risk and opportunities, but certainly that guide takes into account our expectations for longer lead times from the supply chain.

Mike Knowles | President and CEO

Yeah, and as we're looking at the mix, I mean, I'll just reiterate, as we're seeing in that market, that the memory impact has been fairly noticeable. So we have projected that into guidance and continue to monitor that. We have a fairly diverse supply chain of partners we work with, and our designs are somewhat flexible. So we have levers to pull to help to address that moving forward. And then as for a defense commercial, we still remain – well aligned in our ratios, they can change quite a decent amount from quarter to quarter based on opportunities and timings and awards. As we've noted before, we've generally been around the 50-50 area. However, any given quarter or period, we could go 10%, 15%, 20% in either direction. No real impact on the strategy. Both markets need our componentry. Our hardware is generally agnostic to market. We use similar servers and defenses we use in commercial. So we're able to move and adjust quickly to where demand is in either market.

Scott Searle | Analyst, Roth Capital

Gotcha. And if I could, two last ones. On the OPEX front, Dan, I'm wondering, can you calibrate us in terms of the first quarter? Looking at the fourth quarter, I would imagine that's somewhat normalized for seasonality. But just to give us an idea about it, how we go into the first quarter, and that progresses throughout the year. And then, Mike, now with the balance sheet, now with the opportunity set, with you guys getting to sustained positive EBITDA and the balance sheet, M&A starts to come into play, becomes more realistic. How active are you guys on that front? What is the pipeline looking like? And if you could put some parameters around how you're thinking about it in terms of size and timeline to accretion.

Thanks. Dan | Chief Financial Officer

Yeah, I'll start on the operating expenses. Yeah, so we do expect somewhat lower operating expenses in 2026, most of that being driven by R&D. We made some one-time investments in R&D in 2025 that we don't expect to recur. So, you know, I think we mentioned our guidance for R&D expenditures in 2026 will be about 10-12% of revenue, so a bit of a step down from 2025. In terms of the time phasing of that throughout the year, I would expect R&D to be somewhat higher in the first half of the year compared to the second half of the year. So you can think of about 60% of our R&D expenditures in the first half of the year, about 40% in the second half of the year. And that's really driven by the timing of customer-funded R&D efforts, which we deploy our engineering resources towards and away from internal resources, internal investment.

Mike Knowles | President and CEO

And Scott, on the M&A part of the question, so yeah, we have ramped up efforts on our strategy in that area. I've been working a funnel of opportunities since I joined the company, just for the point in time we knew when we would have the levers to be able to be engaged in that kind of activity. And as we've noted in the financial performance, we believe we have some of those levers now to do that. So we have increased our activity on that front. I would say we have a decent funnel of opportunities that we're evaluating across both the hardware adjacent capabilities and potential for software capabilities that we could add to the company that would allow us to provide more integrated solutions and gather larger footprints and capabilities on edge platforms. In terms of timeline, I would just say that we look at this like we want to do the right deal that aligns to the strategy of the company, moves it forward, and makes sense to what we're doing. And so we won't be rushed into doing a deal, but we're actively engaged and we find the right deal, the right value that advances the company along with our strategy and performance, then we will do so.

Scott Searle | Analyst, Roth Capital

Great. Thanks so much. I'll get back in the queue.

Operator | Conference Operator

All right. Thanks, Scott.

Operator | Conference Operator

Next question will be from Eric Martinuzzi at Lake Street.

Sylvie | Conference Operator

Please go ahead, Eric.

Eric Martinuzzi | Analyst, Lake Street Capital Markets

Yeah, Mike, congrats as well on the quarter and the guide for the upcoming year. You talked a little bit about the R&D investment. I'm curious to know on the sales front, are we adding folks in our sales and distribution, sales or marketing, at least as far as the 2026? What's the plan for headcount there?

Mike Knowles | President and CEO

Yeah, with the performance we've had, we're always evaluating our overall staff and sales and where we're going. So we're always making adjustments in capability, access, whether it's through hiring people onto staff or utilizing distributors or consultants in certain areas. So we continue active across all those fronts. And so as we continue to grow, we will always look at what's the best method or approach for us to continue to accelerate pipeline identification and conversion to bookings so we can stay on the growth rate organically that we've indicated our pipeline can support and potentially grow that. So we treat those as opportunistic based on people, markets, et cetera. But our intent is we keep focused on that all the time and are always looking to expand where we can move and continue to grow the company or accelerate its growth.

Eric Martinuzzi | Analyst, Lake Street Capital Markets

So let me ask it a different way. So to support the sales growth of 20 to 25%, does that require additional hiring? If so, are we talking 10 to 15% increase in sales heads?

Mike Knowles | President and CEO

Yeah, we think with the investments now in our sales team, Salesforce, we can support the growth rates that we've noted.

Eric Martinuzzi | Analyst, Lake Street Capital Markets

Okay. All right. And you highlighted in the press release regarding the outlook that the higher customer-funded development sales as compared to 2025. I'm curious to know, is this coming from the same customers? Is this coming from additional customers? In other words, is there potential for new logos? What's the mix kind of between new logos and existing customers in that customer-funded development?

Dan | Chief Financial Officer

Yeah, Eric, I think it'll be a combination. So, you know, even some of the awards that we've already announced, including on the ground combat vehicle opportunity with a defense prime, that does involve some customer-funded developments. We'll see that converting to revenue throughout the year. And then we also have some additional opportunities that are in the pipeline now that would represent new customers.

Operator | Conference Operator

Okay. Thanks for taking my questions. Thanks, Eric.

Sylvie | Conference Operator

Next question will be from Brian Kinslinger at Alliance Global Partners. Please go ahead, Brian.

Brian Kinslinger | Analyst, Alliance Global Partners

Great. Thanks, guys. It's been a great transformation. My first question is, with the partnership with the Defense Prime you announced, I think it was January, to develop the enhanced vision system for Army vehicles, A, what's the addressable market opportunity for a product like this in a production environment? How many vehicles might this be integrated with? And then, is there already an RFP that the prime is bidding on with this technology, or is it just in development phase so that they can bid on RFPs in the future?

Mike Knowles | President and CEO

Yeah, Brian, thanks for the question and joining in. So, it's an early stage development program that, as we mentioned, will complete this year and transition into testing. So there's not a formal RFP for deployment or production of this capability. It will roll through testing, evaluation. The system is somewhat agnostic to combat vehicle type. So there would be opportunities for multiple combat vehicle acquisition offices to evaluate the technology versus their requirements, their funding lines, and any deployment requirements or needs for that. And so we will, as the system moves through testing, of course, engage with those customer sets and follow that as it mows through. You know, the benefits could be in a wide range of scale for depending on how the Army might move that forward in terms of one or multiple combat vehicle classes. The exciting part for us is that the U.S. Army, generally, if they decide to form a program of record and deploy a system across vehicles, uh these are gonna buy things in tens and hundreds that usually can end up in uh in the thousands and uh those would represent the kind of the larger end you know more transformative type of program awards for the company great and then uh as it relates to the low end of revenue guidance i think i think uh one of the analysts asked about visibility how much of the low end of revenue guidance using the uh growth rate Brian Kinslinger | Analyst, Alliance Global Partners: comes from what's already in backlog or orders in contract? I'm not sure if you answered that. And then do you expect traditional revenue seasonality or even more pronounced with the long lead time? Just curious how you think about that.

Dan | Chief Financial Officer

Yeah, I'll jump in on the seasonality. So we do expect, you know, we always kind of see this kind of increase as we go throughout the year. We do expect that in 2026, and you're correct, that's driven largely by supply chain lead times as well as some production lead times in converting some of the orders that we have in backlog as well as some of the orders that we secured in Q1 into revenue. Roughly, though, we expect about 40% of our revenue in the first half of the year, about 60% of our revenue in the second half of the year. So that's somewhat less pronounced than we saw in 2025.

Great. Operator | Conference Operator

Thank you so much. Thank you, Brian.

Sylvie | Conference Operator

Ladies and gentlemen, this does conclude our question and answer session for today, as well as the conference call. We would like to thank you for attending. And at this time, ask that you please disconnect your lines. Enjoy the rest of your day.

Operator | Conference Operator

Thank you. jsPDF 3.0.3 D:20260606090337-00'00'

NASDAQ:OSS Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Operator: Good day and welcome to the One Stop Systems Inc. 3rd Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. As a reminder, this call is being recorded. As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results. including those relating to revenue growth, as well as business plans, bookings, the company's multi-year strategy, business objectives, and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSS that any of its plans or expectations will be achieved. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. and that OSS desires to avail itself of the protections of the safe harbor for these statements. Also, please be advised that the actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in the company's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that OSS will make with the SEC. OSS disclaims any duty to update or revise its forward-looking statements, except as required by applicable law. It is now my pleasure to turn the conference over to OSS's President and CEO, Mr. Mike Knowles. Please go ahead, sir.

Andrew | Investor Relations

Thank you, Andrew.

Mike Knowles | President and CEO

Good morning, everyone, and thank you for joining today's call. OSS delivered a strong third quarter with significant consolidated revenue growth, higher gross margin, and positive EBITDA net income. Our third quarter and year-to-date performance underscored the solid foundation we have built as we capitalized on increasing demand from both defense and commercial customers for our rugged enterprise class compute solutions. Since implementing several strategic actions in 2023 and 2024 to reposition OSS for growth, we have seen continual improvements in our financial and operating results. These actions included strengthening our leadership team of proven defense industry executives, launching a multi-year strategic plan, rebuilding our go-to-market approach, expanding our sales pipeline, and driving higher gross margins. As a result, we have experienced positive booking momentum over the past 12 months, translating into increased sales and positive operating leverage. I'm extremely proud of what our teams have accomplished and believe we're well positioned for continued growth and strong profitability in the remainder of 2025 and into 2026. We continue to pursue strategic growth opportunities that leverage our high-performance edge compute solution to meet the growing demands of AI, machine learning, autonomy, and sensor fusion at the edge. Our pipeline is expanding across leading defense organizations and advanced commercial enterprises that seek trusted, proven partners like OSS. On a trailing 12-month basis, our OSS segment had a book-to-fill ratio of 1.4. After a historic level of bookings in the second quarter, third quarter trends reflected expected quarter-to-quarter variability. Our growing pipeline and customer engagement activities remain strong across both defense and commercial markets. Our second quarter performance also reflects our continued focus on fulfilling recent awards, investing in next-generation product development, and advancing new program opportunities that are expected to contribute to positive booking growth in 2026 and 2027. Overall, we are tracking ahead of our plan and product development milestones, which gives us confidence in our long-term growth trajectory. During the third quarter, we continue to support and increase our exposure on the P-8 Poseidon Recreation Aircraft. To date, we have recognized lifetime contracted revenue over $50 million on the PA platform. In addition, we had previously announced a five-year sole source supply agreement and a five-year extension support, which involves equipping the PA aircraft and ground-based stations with high-capacity flash storage systems, spare flash storage canisters, and related support services. We expect continued orders from both the U.S. Navy and our Defense Prime customer into 2026. Another highlight is our growing relationship with the leading medical imaging OEM, underscoring the growing relevance of our compute and storage solutions in healthcare. We believe there are opportunities to expand our presence with this customer beyond the current five-year expected program value of over $25 million. Additional booking highlights include the September announcement of an initial $500,000 contract with Saffron Federal Systems, with additional orders expected totaling over $3 million. While smaller in size, this award establishes a new relationship with one of the world's leading high-technology defense contractors, and we see meaningful opportunity to expand this partnership over time. In October, we announced an initial $1.5 million order from a Canadian-based integrator of passenger cabin systems for the commercial aerospace industry. We expect this platform to contribute approximately $6 million in total revenue over the next three years. This award highlights the growing demand for high-performance compute in the commercial aerospace sector an increasingly important component of our commercial market strategy. Across our pipeline, demand remains strong, supported by growing interest for our enterprise-class compute solutions. While the ongoing government shutdown may impact the timing of near-term bookings, we view this as a timing issue, not a demand issue, since OSS remains the sole source provider on affected platforms. As a result, we expect defense-related bookings to improve as conditions normalize, though timing may remain uncertain. We also continue to see signs of stabilization in our European markets that are served by our Bresner operating unit. Recent bookings and revenue within our Bresner segment have been in line with our targets, and Bresner remains on track to achieve higher sales and profitability for 2025 as compared to last year's results. Looking ahead, we believe OSS is uniquely positioned to capitalize on multi-year growth opportunities driven by accelerating adoption of artificial intelligence, machine learning, autonomy, and sensor fusion at the edge. As these requirements become increasingly central to defense and commercial innovation, customers are turning to trusted partners like OSS with proven expertise in rugged enterprise class compute solutions. In support of this, we increased R&D investments in 2025 to capitalize on emerging opportunities we see developing within our markets. Our high wattage, high density expansion products, such as Ponto, are currently under evaluation with several potential commercial customers, as we focus on delivering high-density, high-wattage GPU and AI accelerator solutions that address the growing need for performance-intensive compute in data-rich environments. We're also encouraged by recent traction in commercial aerospace, highlighted by our recent award, which underscores how OSS technology is extending into new regulated markets where reliability and compute performance are critical. Looking ahead, we expect to further broaden our commercial product lineup with the planned launch of two new Gen 6 systems in November, designed to bring even greater processing capability and efficiency to our customers. Together, these initiatives demonstrate how we are executing on our strategy to leverage our rugged, enterprise-class engineering heritage into fast-growing commercial segments driven by AI and data-centric workloads. We continue to execute against a growing pipeline in both commercial and defense markets. We recently attended the Association of the U.S. Army, or AUSA, conference in Washington, D.C., and introduced a newly developed portfolio of products that leverage the advanced compute and low-latency advantages of commercial data centers. In addition, we showcased our wide array of scalable AI-ML sensor fusion and autonomy compute solutions, delivering leading compute and latency capability and advantaged size, weight, power, and cost, or SWAP-Cs. These solutions generated strong interest and multiple new engagements across Army and OEM programs. We also recently attended the NVIDIA GTC conference in Washington, D.C., where we highlighted OSS's expanding capabilities in high-performance GPU and AI accelerator expansion systems. Our participation at GTC reinforced OSS's growing presence within the AI compute ecosystem, where our technology complements leading platforms from NVIDIA, Broadcom, and Stereolabs. The conference provided valuable engagement with commercial and government customers exploring next-generation architectures for AI, machine learning, and data analytics at the edge, and further validated the role OSS can play in enabling high bandwidth, low latency compute for commercial applications. The visibility and relationships we're developing through these engagements are creating meaningful opportunities to expand our role on next-generation platforms. For example, our delivery of a rugged compute solution for combat vehicles for the U.S. Army remains under test and evaluation, which is expected to continue for the remainder of the year. We are encouraged by the growing number of multi-year platforms we now support, adding to our portfolio that includes the likes of the P-8 for the U.S. Navy, the medical imaging platform, and the autonomous maritime program for leading defense prime in Asia. Pursuing these types of recurring programmatic opportunities remains central to our long-term strategy. To accelerate our growth initiatives, we strengthened our balance sheet after quarter end through a registered direct offering, raising approximately $12.5 million in gross proceeds. This enhanced financial position combined with improving fundamentals provides the flexibility to fund operations, pursue strategic opportunity, and capitalize on expanding global demand. Looking ahead, our solid execution and year-to-date performance give us the confidence to raise our full year 2025 consolidated revenue guidance range. from $59 million to $61 million to $63 million to $65 million, while reaffirming our expectation to achieve positive annual EBITDA. I'm pleased with how 2025 is shaping up. Our turnaround strategies are progressing faster than expected, reflecting strong demand and operational execution. As we look ahead, we remain focused on accelerating growth, expanding profitability, and creating long-term value for our shareholders. Finally, I want to thank our entire team for their dedication, innovation, and relentless focus on delivering results for our customers and shareholders. So with this overview, I'd like to now turn the call over to Dan. Dan?

Dan | Chief Financial Officer

Thank you, Mike, and good morning to everyone on today's call. Our Q3 results reflect a number of important financial milestones. One, we achieved robust top line growth, increasing revenue year over year by 36.9% at a consolidated level, and by 43.4% for the OSS segment. This growth reflects strong demand for our product, as well as our ability to execute on that demand to meet our customers' needs. Two, we achieved positive quarterly EBITDA in both of our operating segments and positive GAAP net income at a consolidated level. These results were supported by strong gross margins, reflecting the value that customers place on our differentiated technology. After the quarter closed, we also strengthened our balance sheet by securing $12.5 million of gross proceeds through a registered direct offering of common stock. This offering strengthens our balance sheet, provides flexibility around working capital to support our growth, and positions us to pursue a disciplined M&A strategy in 2026 and beyond. We believe the company is in a strong position, and with a solid backlog of orders, we are on track to achieve our increased full-year guidance and to execute on our robust growth and profitability objectives. Now for a quick overview of Q3 2025 financial performance. For the third quarter, we reported consolidated revenue of $18.8 million compared to $13.7 million last year and $14.1 million for the 2025 second quarter. The 36.9% year-over-year increase in consolidated revenue was a result of approximately $2.8 million of higher OSS segment revenue and $2.3 million of higher Bresner segment revenue. Third quarter sales were above our expectations, and we expect continued strength in both revenue and profitability in the fourth quarter of 2025. Consolidated gross margin in the third quarter was 35.7%. As a reminder, gross margin in the prior year quarter included a $6.1 million inventory charge in our OSS segments. Excluding the inventory charge, gross margin for the 2024 third quarter was 32%. On a segment basis, gross margin for the company's OSS segment improved to 45.6% compared to gross margin adjusted for the inventory charge of 43.2% for the same period a year ago. The 2.4 percentage point increase was primarily due to a more profitable mix of products shipped this year. Year-to-date, OSS segment gross margin has benefited from both operational efficiency and a favorable product mix. We continue to expect some level of variability in gross margins quarter-to-quarter based on absorption, product mix, and program lifecycle. On a sustained basis, we continue to target OSS segment margins in the mid-30s to low to mid-40s. In the fourth quarter of 2025, we anticipate OSS segment margins in the upper end of that range. The company's Bresner segment had gross margin percentage of 26% in the third quarter. The 400 basis point increase from the same period last year was primarily due to a more profitable mix of products shipped in the quarter. Total third quarter operating expenses increased 22% to $6.1 million. This increase was predominantly attributable to higher R&D expenditures, reflecting targeted investment in new product developments. For the third quarter, the company reported gap net income of $0.3 million, or $0.01 per diluted share, compared to a net loss of $6.8 million, or $0.32 per share in the prior year quarter. The company reported non-gap net income of $0.7 million, or $0.03 per share, compared to a non-gap net loss of $6.4 million, or $0.30 per share in the prior year quarter. Adjusted EBITDA. A non-GAAP metric was $1.2 million compared to an adjusted EBITDA loss of $6 million in the prior year third quarter. Turning to the balance sheet. As of September 30, 2025, OSS had total cash and short-term investments of $6.5 million, $1 million of borrowings outstanding on our $2 million revolving line of credit, and a consolidated balance outstanding on our term loans of $1.2 million. After the third quarter ended on October 1, 2025, OSS completed a registered direct offering with participation from certain new and existing institutional investors, resulting in gross proceeds of approximately $12.5 million before deducting placement agents, commissions, and other offering expenses. For the nine months ended September 30, 2025, OSS used $4.9 million in cash from operating activities compared to operating cash flow of $2.1 million for the nine-month ended September 30, 2024. The change from prior year period was primarily due to the timing of working capital, particularly receivables associated with our revenue ramp, partially offset by higher net income. As Mike mentioned, the company has increased its 2025 full-year financial guidance due to stronger-than-expected bookings over the trailing 12 months. We now anticipate consolidated revenue of 63 million to 65 million for the full year 2025, compared to prior guidance of 59 to 61 million. We expect OSS segment revenue in the range of 30 million to 32 million, representing a 22% to 30% increase in annual OSS segment revenue. And we expect the company to achieve positive EBITDA at a consolidated level. As we move through the final quarter of the year, we remain focused on disciplined execution, including managing our supply chain and achieving our planned production rank. We also remain focused on continuing to drive growth by investing in our technology and securing new platform opportunities that can provide sustained multi-year revenue streams. I look forward to updating you on our success. This completes our prepared remarks. Operator, please open the call to questions.

Operator | Conference Call Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys.

Operator | Conference Call Operator

One moment please for your first question. Your first question is from Brian Kinslinger from Alliance Global Partners.

Please go ahead. Brian Kinslinger | Analyst, Alliance Global Partners

Great. Thanks so much and solid results. As we think about the uptick of revenue in the second half of the year, how should investors think about the seasonality going forward for core OSS in light of the strong bookings execution, but also as we think about the government shutdown?

Dan | Chief Financial Officer

Yeah, I'll start with the seasonality, and then Mike can talk a little bit more about the government shutdown. So in general, we've seen this consistent pattern where we tend to see higher revenues in the second half of the year, just based on timing of bookings. As the government goes into the holiday period, you tend to see a bit of a slowdown in bookings, and so just the timing of that tends to drive second quarter revenues. or second half revenue higher than first half. We'd expect that to continue as we go into 2026. Probably, you know, a somewhat moderated ramp compared to what we saw in 2025, but still somewhat of a ramp as we go through the year.

Mike Knowles | President and CEO

Yeah, Brian, and, you know, we're with kind of the strong bookings we've had this year, and as we close out the year, we'll expect to be starting next year with a little bit more backlog. So we think while we had a fairly decent-sized ramp this year, as Brian mentioned, or as Dan mentioned, hopefully that backlog and the way we'll prosecute will soften that. A bunch of that will be dependent on the government shutdown here. As we may have noted prior, we have everything in backlog we need to achieve our guidance for 2025, and the bookings that we are making now will further support that and or build into backlog for next year and the Main bookings that are affected for us by the government shutdown are anticipated sole source awards. So we won't be losing opportunity. We'll be affected by time.

Brian Kinslinger | Analyst, Alliance Global Partners

Got it. And then maybe you can update us on the data center market opportunity and the advancements you're making. I mean, that market has seen unprecedented demand in the last few months. And then maybe also at a high level, touch on the situational awareness technology procurement evaluation by the Army. I don't know if that's been able to progress given the government shutdown, but that was something obviously of importance to the company.

Mike Knowles | President and CEO

Yeah, great, Brian. Thanks. Yeah, on the data center side, as we had noted prior and in the remarks here, you know, we launched Ponto, which is a bigger version of our standard 4U program. GPU expansion solution. And so that product's under evaluation by a couple customers, specifically in these kind of data center markets where they're looking for this opportunity for big GPU and compute expansion. So we've got product in that market. We've got outreach. We've got interest. We have people testing. So we'll look through the end of this year and into the first half of next year to likely and hopefully see that transition into awards and backlog. And then as we noted in this call, we will be augmenting that with bringing forward some of the new PCI Gen 6 and some of the other new technologies that will be launching into those data center architectures. So we'll be well positioned with multiple products across that to leverage into that market. On the Army situation awareness side, That testing continues on. As you noted, yes, anything that had been going on now has stalled as a result of the government shutdown. So we'll be losing time on their evaluation as they went through. Things have been progressing and tracking well. The Army has also seen how they could use our distributed compute system for that solution in multiple other ways. So it's created other opportunities that we will look to prosecute coming into 2026 and beyond to leverage our position in the technology across those. So we'll look for hopefully more news on that in the coming year and where that could progress to.

Brian Kinslinger | Analyst, Alliance Global Partners

Great. I got some more questions, but I'll get back in the queue and ask some more after.

Andrew | Investor Relations

All right. Thank you, Brian. Thanks, Brian.

Operator | Conference Call Operator

Your next question is from Eric Martinuzzi from Lake Street.

Operator | Conference Call Operator

Please go ahead.

Eric Martinuzzi | Analyst, Lake Street

Yeah, it was good to see the EOSS segment come back so strong there. That was a terrific recovery. Obviously, that was something that you guys have been, or investors have been patiently waiting for. But actually, I wanted to ask about Bresner. That was outperformance, at least versus what I was estimating for the third quarter. Can you tell us what was behind that? And then were there any pull forwards out of Q4 or maybe point us in a direction for where we expect the final quarter of the year for Bresner?

Dan | Chief Financial Officer

Yeah, Bresner's been performing strong. We've seen some nice recovery in their industrial end markets and expect continued strength as we go through the year. FX has been a tailwind to Bresner's segment revenue. In the third quarter, they grew by about $2.3 million, about $600K if that was due to FX. The other $1.7 million was growth on constant currency basis, just really based on strength in their end markets and some of the larger projects that they've been executing on. And so we continue to see Bresner performing well and see strength as we close out the year and go into 26.

Mike Knowles | President and CEO

Yeah, Eric, I just add, right, the economy hasn't fully recovered across the EU and Germany to the growth expectations they had at the start of the year. But Bresner has been able to find some strength in its markets to keep them on our targets and on our plans for the year. And they've seen some pockets of people generating some bigger orders, which has helped keep them on plan through the year.

Eric Martinuzzi | Analyst, Lake Street

Okay, well, just sequentially then, is your expectation that we're in line to better with the final quarter of the year?

Dan | Chief Financial Officer

Yeah, I would model, so there's a few shipments in Bresner that are going to be right on the cusp between this year and next year. So where those fall will kind of impact Q4, but I would model Q4 as being basically flat to Q3 for Bresner.

Eric Martinuzzi | Analyst, Lake Street

Gotcha. Okay. And then you talked about the registered direct offering that closed on October 1st and the $12.5 million of gross cash raised. Just curious to know how are we, at least here in the near term, how are we deploying the cash? Are you sitting on it? Are you investing in an inventory, sales channel investments? What can you tell us?

Dan | Chief Financial Officer

Yeah, absolutely. So the cash raise did a couple of things for us. One, it supported our working capital ramp as we're going through this growth phase. So you can see that in our results this quarter, particularly in AR. So we have, I think, good visibility towards collecting that AR this year. I expect that as we go into Q4, we'll see positive cash flow. We'll have a number of shipments that'll be going out between the end of November and the beginning of December. So where those shipments fall within that range will somewhat impact where our cash flow is for Q4, but I do expect that it will be positive. And then in terms of the cash rate, so as we support the working capital ramp, we're using it for that, but then companies generating positive EBITDA will be generating positive cash flow, so then we'd look to redeploy that cash rate towards a disciplined M&A strategy as we go into 2026.

Andrew | Investor Relations

Thanks for taking my questions. Thanks, Eric.

Operator | Conference Call Operator

The next question is from Scott Searle from Roth Capital.

Operator | Conference Call Operator

Please go ahead.

Scott Searle | Analyst, Roth Capital

Hey, good morning. Thanks for taking my questions. Congrats on the quarter, guys. Hey, Mike, maybe just to get some clarifications on the government shutdown. I want to understand a little bit better about what's still operating and what isn't. It sounds like some larger sole source opportunities might just be delayed from a timing standpoint. But I'm just kind of wondering, you know, what you're able to do in concert with government entities at the current time. And I think given the backlog you've talked about in the past, you felt pretty good for the next six months or so. I'm wondering if that still holds and when the shutdown becomes a little bit more concerning for you as you start to look into 26.

Mike Knowles | President and CEO

Yes, thanks, Scott, for your question. So what we're seeing today generally is major organizations are shut down and really not responding. So any contract awards or deliveries we need to make, if the government is using a third-party services independent company, we're still able to operate with them. And so we still have some of that ongoing. We still can make deliveries to the customers, and the government is set up to pay for delivery on stuff that's under contract. So deliveries we have planned for this quarter through defense primes and or directly to the end services, we will be able to ship and deliver those, and we should be able to get payment for those under understanding standard payment timings. So the biggest effect for us really at the end of this year is just planned awards we were intended to get. So we'll have some backlog to start in the first half of next year. So that number will be fairly higher if we can get the government bookings in when the government reopens. But as long as realistically, as long as those bookings get in here before the end of Q2 next year. We still have plenty of time and runway to convert that to revenue. So we've got some runway to watch and plan where that goes.

Scott Searle | Analyst, Roth Capital

Great. That great clarification really helps to see that we got visibility then through the first half. Looking to the fourth quarter and the guidance, It really implies, though, that core OSS is either flat to up $2 million. So you're starting to get to new highs in terms of the business, which I guess brings sustained EBITDA profitability with it. So I guess as we're looking into 2026 now, is that sustainable? And are you thinking about the core OSS business now being EBITDA positive for the year, which is, you know, I think well ahead of prior expectations? Just want some clarification on the early thoughts there.

Mike Knowles | President and CEO

Yeah, I'll let Dan follow up on it, too. But yeah, in general, as we've kind of highlighted, we believe, based on our pipeline and everything we've been looking at, that the core OSS segment has this opportunity to grow at 20% to 30% a year. And so the bookings this year, the pipeline for next year, how we've been performing still gives us confidence that we should see growth into 2026 for the OSS segment in that range. Clearly, that opportunity would give us an opportunity to get OSS into the positive EBITDA range next year. That actually would be accelerating our plans a little bit. But given where we are, how we're performing the opportunity, I think it would be our intent that if bookings can play through and the timing can work out correctly, would be to try to accelerate that plan further. and work into that, because we are now kind of at that, we are kind of at that nexus point where the revenue inside of OSS segment would support that kind of outcome. Dan, anything?

Dan | Chief Financial Officer

Yeah, no, the only thing I'd add, you know, just kind of reiterating that, high-level parameters for 26, revenue growth, that 20 to 30% that we've been targeting, gross margins for the OSS segment, we continue to see it in that mid-30s to low to mid-40s range. for the segment. Off-X we would see as being roughly flattish, but we did make some one-time investments to accelerate our R&D in 25, so I think you'll see some moderation or normalization of R&D expenditures as we go into 2026. And then Bresner segment, you know, we model growth in the range of 5% a year and stable gross margin.

Scott Searle | Analyst, Roth Capital

Gotcha. And lastly, if I could, Mike, just, you know, kind of looking at the opportunity pipeline, certainly been a lot of government and military opportunities But commercial as well now, kind of given the slowdown with the current government infrastructure, are some more of those commercial opportunities kind of accelerating to the forefront? I think you referenced some, you know, in-flight entertainment opportunities and commercial aviation. But are there some bigger things that we should be thinking about in the 2026 timeframe on the commercial side?

Thanks. Mike Knowles | President and CEO

Yeah, I think consistent with what we said in the earnings call here was we're seeing that movement. We've got some product placement. That was all about trying to continue to advance the commercial side of the strategy. We're probably a little bit slow to where we thought some commercial opportunity would have showed up. And so we're thinking that hopefully we'll start to see that coming to fruition in 2026, where we thought we might have seen it closer to the back end of 2025. But we're positioned well, I think, now with the products. We've got contacts, engagements across a number of fronts, as we mentioned, not only around data centers, but around medical imaging and some of the work we were doing with commercial aerospace. So we're starting to see some of that expansion. As long as the economy and the investments in those markets continue to go, I think we'll continue to see us be able to operate in those markets.

Andrew | Investor Relations

Great. Thanks so much. All right. Thank you, Scott.

Thank you. Operator | Conference Call Operator

Ladies and gentlemen, as a reminder, should you have any questions, please press the star key followed by the number one.

Andrew | Investor Relations

We will pause a moment for further questions. There are no further questions at this time. Please proceed with closing remarks.

Mike Knowles | President and CEO

Andrew, that completes our remarks for today. We appreciate everybody's support of the company and the questions. You can end the conference call.

Operator | Conference Call Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. jsPDF 3.0.3 D:20260606090338-00'00'