Executive Summary / Key Takeaways

• One Stop Systems is executing a strategic transformation, focusing on high-performance, ruggedized edge compute solutions for demanding AI, ML, autonomy, and sensor processing applications, particularly in defense and industrial markets.
• The company's differentiated technology offers significant performance advantages in harsh environments, enabling solutions that are faster, more efficient, and capable of running substantially more AI algorithms than traditional embedded systems.
• Strong bookings momentum, highlighted by a 2.0 book-to-bill ratio in Q1 2025 and a 1.33 trailing 12-month book-to-bill, is converting a substantial pipeline of platform and multiyear opportunities into future revenue.
• Recent significant contract wins and renewals, including a record $6.5 million defense award and multiyear defense and medical OEM programs, validate the strategic focus and build a foundation for predictable, recurring revenue streams.
• Despite near-term market uncertainties and timing delays impacting the first half of 2025, management reaffirms full-year guidance for consolidated revenue of $59 million to $61 million and EBITDA breakeven, anticipating accelerated growth and profitability in the second half.

The Edge of Innovation: Forging a Niche in High-Performance Computing

One Stop Systems, Inc. (NASDAQ: OSS) is carving out a specialized position at the forefront of the burgeoning edge computing market. The company designs, manufactures, and markets rugged, high-performance compute, high-speed switch fabrics, and storage systems tailored for demanding applications in artificial intelligence (AI), machine learning (ML), sensor processing, sensor fusion, and autonomy. Unlike traditional datacenter solutions, OSS's products are engineered to thrive in challenging environments – on planes, trucks, ships, submarines, and mobile command posts – where size, weight, power, and environmental resilience are paramount.

The strategic pivot undertaken by OSS in recent years, intensifying its focus on edge computing and penetrating the military and defense sectors, is central to its investment narrative. This shift, supported by a re-profiled leadership team, aims to capitalize on the increasing demand for AI and ML capabilities deployed directly at the source of data generation, minimizing latency and enhancing security compared to cloud-based processing.

In a competitive landscape populated by larger, more generalized players like Super Micro Computer (SMCI), Dell Technologies (DELL), and Hewlett Packard Enterprise (HPE), and component giants like NVIDIA (NVDA), OSS differentiates itself through its deep expertise in ruggedization and its ability to deliver enterprise-class performance in compact, durable form factors. While competitors like SMCI offer scalable AI servers and DELL provides broad IT infrastructure including some rugged devices, OSS focuses on highly specialized, mission-critical applications where standard hardware fails. The company's technology enables solutions that management claims are significantly faster (350%), can run substantially more AI applications (28x), and offer dramatically better computational performance (130x) than older embedded technologies often used at the edge. Furthermore, their use of PCIe and other fabrics results in significantly lower latency, reported to be around 1,000 times faster than competing solutions in certain applications. This technological edge allows OSS to compete not just on price, but on the ability to meet stringent performance and environmental requirements that are critical for defense and demanding industrial use cases. Tariffs, while a supply chain challenge, are also seen by management as potentially providing a competitive advantage against lower-cost Asian manufacturers in U.S. markets, creating opportunities to displace rivals.

The company operates through two main segments: the OSS segment in the U.S., focused on high-performance ruggedized systems, and the Bressner segment in Europe, which acts as a system integrator and channel partner. A third, increasingly important, revenue stream is customer-funded development, where clients fund bespoke engineering work. This is a strategic initiative designed to embed OSS early in program lifecycles, establishing incumbent positions that are expected to lead to larger, multiyear production contracts and long-term support agreements.

Strategic Momentum Builds on a Foundation of Differentiated Technology

OSS's strategy revolves around three core business development initiatives: securing customer-funded development programs to establish long-term platform positions, a "land and expand" approach leveraging their differentiated technology, and providing integrated compute and storage solutions. This strategy is yielding tangible results, reflected in the company's growing pipeline and recent booking trends.

The company maintains an unfactored pipeline exceeding $1 billion, with approximately 70% comprising platform and multiyear opportunities. This pipeline is the engine for future growth, and management is focused on converting these opportunities into orders and revenue. Bookings momentum in the OSS segment has been particularly strong, with orders outpacing revenue in four of the last five quarters. This culminated in a robust 2.0 book-to-bill ratio in the first quarter of 2025 and a trailing 12-month book-to-bill ratio of 1.33, indicating that demand for OSS's solutions is translating into concrete business wins.

Recent contract awards underscore this momentum and the success of the strategic pivot. A record $6.5 million award from a leading defense and technology solutions company for high-performance servers for a mobile intelligence platform, expected to be delivered in 2025, highlights the company's ability to secure significant production orders. Furthermore, contract renewals totaling $6 million for existing U.S. Department of Defense programs – including $4 million for radar processing on the P-8A Poseidon aircraft (with a 5-year support agreement) and $2 million to upgrade sonar processing for the Virginia-class submarine (extending program viability for at least 10 years) – demonstrate the value of established incumbent positions and the potential for recurring revenue. A $500,000 contract with a medical OEM, with anticipated follow-on production orders potentially exceeding $25 million over five years, signals expansion into adjacent high-growth commercial markets.

Customer-funded development is a critical component of this strategy. While representing a smaller portion of current revenue ($410k in Q1 2025, $3.7M in 2024), these programs are designed to transition to production orders within one to two years. Management estimates that the development phase typically represents 10% to 20% of the total value of a program as it moves through initial and full-rate production. The P-8 program, which started with approximately $1 million in development and has since generated over $40 million in revenue, including a recent 5-year sustainment extension, serves as a prime example of the long-term value these early engagements can create.

Potentially transformative opportunities are also on the horizon. The development of a rugged 360-degree situational awareness system for the U.S. Army, currently under evaluation, could lead to over $200 million in production orders over three to five years if fielded across combat vehicle classes. Similarly, the company sees a $200 million multiyear pipeline opportunity in commercial composable infrastructure for data centers, leveraging their high-density GPU expansion capabilities. These opportunities, while subject to funding and fielding decisions, highlight the significant upside potential tied to OSS's core technological strengths.

Financial Performance Reflects Transition and Anticipated Acceleration

One Stop Systems' recent financial performance reflects a company in transition, laying the groundwork for future growth while managing near-term headwinds. For the first quarter of 2025, consolidated revenue was $12.3 million, a 3.1% decrease compared to $12.6 million in the prior year period. This was primarily driven by a 5.9% decrease in the OSS segment revenue to $5.21 million, mainly due to lower volume shipments to a commercial aerospace customer, partially offset by increased shipments to a defense customer. The Bressner segment saw a slight decrease of 0.9% to $7.05 million.

Despite the slight revenue dip, consolidated gross profit increased by 7.5% to $4.0 million, resulting in a significant year-over-year gross margin expansion of 320 basis points to 32.6%. This improvement was largely driven by the OSS segment, where gross margin surged to 45.5% from 34.2% in Q1 2024. This increase was attributed to a more profitable product mix, specifically higher-margin data storage units and componentry for a defense customer, and a $212,000 reduction in inventory reserves due to the use of previously reserved items for a new order. The Bressner segment's gross margin decreased to 23.1% from 25.7% due to product mix.

Operating expenses increased by 19.2% to $5.9 million in Q1 2025 compared to $5.0 million in Q1 2024. This rise was predominantly in general and administrative expenses (up 13.0% to $2.37M) due to higher stock compensation and personnel costs, and research and development expenses (up 39.8% to $1.36M) driven by increased engineering labor for new product development. Marketing and selling expenses also increased (up 15.5% to $2.22M) due to headcount additions in 2024. The increase in operating expenses outpaced gross profit growth, resulting in a loss from operations of $1.94 million, wider than the $1.26 million loss in Q1 2024. Net loss for the quarter was $2.02 million, or $0.09 per share, compared to a net loss of $1.34 million, or $0.06 per share, in the prior year period. Adjusted EBITDA, a non-GAAP metric, showed a loss of $1.1 million compared to a loss of $500,000 in Q1 2024.

Looking back at 2024, the company achieved sequential consolidated revenue growth in every quarter, driven by the OSS segment and higher customer-funded development revenue ($3.7 million, up 118% from 2023). However, 2024 results were impacted by significant charges totaling $8.3 million ($1.2 million contract loss, $7.1 million inventory charges) related to the business model transition and slower market adoption, which management believes are non-recurring.

As of March 31, 2025, OSS maintained a liquidity position with $6.5 million in cash and cash equivalents and $2.6 million in short-term investments, totaling $9.1 million. Net working capital stood at $23.1 million. Cash flow from operations was a use of $1.14 million in Q1 2025, a shift from the $2.04 million generated in Q1 2024, primarily due to the timing of working capital changes, particularly inventory receipts and supplier payments. The company has minimal debt, with $1.08 million in term loans outstanding as of March 31, 2025, and access to undrawn revolving credit lines totaling approximately $4.9 million (domestic and German), subject to covenants. An effective S-3 registration statement provides flexibility for future capital raises if needed. Management believes current liquidity is sufficient for operations for at least the next twelve months.

Outlook and Risks

Management has reaffirmed its 2025 annual guidance, projecting consolidated revenue between $59 million and $61 million and achieving EBITDA breakeven for the full year. This outlook anticipates an acceleration of revenue and profitability in the second half of 2025, with the first half expected to be roughly flat year-over-year. The confidence in the second-half ramp is based on the strong bookings already secured and expected future orders converting into shipments.

The OSS segment is expected to drive this growth, with projected revenue of approximately $30 million in 2025, representing over 20% year-over-year growth. The Bressner segment is anticipated to achieve consistent sales and profitability compared to 2024, with potential for upper single-digit growth and a rebound starting around the second quarter if European economic conditions stabilize as hoped.

However, achieving this outlook is subject to several risks. Economic uncertainty, geopolitical instability (particularly in Europe and the Middle East), inflation, and fluctuating interest rates continue to pose potential headwinds, which could impact customer spending and supply chains. Delays in customer funding and program schedules, particularly within the military and defense sectors characterized by protracted sales cycles and elongated government procurement processes, remain a significant risk that could push orders and revenue into later periods or future years. While management is actively working to mitigate these timing issues and believes the underlying demand remains strong, the conversion of pipeline opportunities into firm orders and timely shipments is critical for the second-half acceleration. The ability to pass on potential tariff cost increases to customers is also dependent on market conditions.

Conclusion

One Stop Systems is executing a clear strategy to transform into a leading provider of rugged, high-performance edge compute solutions, targeting the growing demands of AI, ML, and autonomy in critical applications. The company's differentiated technology provides a competitive edge in niche markets like defense and demanding industrial environments, enabling superior performance where traditional systems falter.

Despite recent financial performance reflecting a period of transition and facing near-term market uncertainties and timing delays, the strong bookings momentum, significant contract wins, and a substantial pipeline of multiyear opportunities underscore the potential for future growth. Management's reaffirmed 2025 guidance, anticipating a significant acceleration in the second half, hinges on the successful conversion of this pipeline and the execution of its strategic initiatives, particularly the transition of customer-funded development programs to production. While risks related to economic conditions, government procurement timing, and supply chain volatility persist, OSS's specialized focus, technological differentiation, and growing traction in key markets position it to potentially capture a larger share of the expanding edge computing landscape and drive long-term value creation for investors.