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One Cease Methods, Inc. (NASDAQ:OSS) This fall 2023 Earnings Convention Name March 21, 2024 5:00 PM ET
Firm Members
Mike Knowles – President & Chief Government OfficerJohn Morrison – Chief Monetary Officer
Convention Name Members
Scott Searle – ROTH MKMBrian Kinstlinger – Alliance International PartnerDavid Williams – BenchmarkEric Martinuzzi – Lake StreetJoe Combs – Noble Capital
Operator
Good afternoon, and thanks for becoming a member of us at present to debate One Cease Methods Monetary Outcomes for the Fourth Quarter and Full 12 months Ended December 31, 2023.
With us at present are the corporate’s President and Chief Government Officer, Mike Knowles, and its Chief Monetary Officer, John Morrison. Following their remarks, we’ll open the decision to your questions.
Earlier than we conclude this name, I’ll present some necessary info concerning the forward-looking statements made by administration through the name. I wish to remind everybody that the decision will likely be recorded and made accessible for replay within the Buyers part of the corporate’s web site.
Now, I wish to flip the decision over to OSS President and CEO, Mike Knowles. Sir, please go forward.
Mike Knowles
Thanks, Ina. Good afternoon, everybody, and thanks for becoming a member of at present’s name.
That is an thrilling time at OSS as we accomplished the strategic transition away from lower-margin media income, established a brand new administration crew and refocused our strategic progress priorities on giant and quickly evolving world markets.
All through 2023, we demonstrated continued progress in our efforts to pursue technique targeted on AI-centered high-performance computing on the edge, the place platforms require knowledge middle degree compute, storage and switching options. These options help AI and machine studying, sensor fusion, sensor processing and autonomy purposes. We coined this market AI Transportables.
We are going to proceed these efforts all through 2024, backed by the robust affect of AI and ML demand in each the industrial and protection markets. Current wins in each markets, mixed with a rising pipeline of alternatives, proceed to validate our strategic focus. Now we have additionally continued our efforts to strengthen our government crew and our Board of Administrators, including expertise and expertise that can assist facilitate our technique and allow the corporate to scale for progress.
Financially, we have been capable of additional offset income from our former media buyer with higher-margin income aligned with our technique.
So, with this introduction, I wish to present an replace on the expansion methods we’re pursuing, our rising pipeline and up to date wins that we consider will create lasting worth for OSS and our shareholders.
Business adoption of synthetic intelligence and machine studying benefiting from superior sensor fusion and sensor processing is dramatically transferring to the sting throughout virtually all enterprise segments. Sensor methods and autonomous purposes can rival these in trendy protection implementations. We consider that our product portfolio and future roadmap place us to uniquely make the most of this evolving expertise setting.
Strategically, we’re focusing our efforts to increase the variety of clients and platforms in our rugged edge processing portfolio and growing our multiyear backlog by securing new long-term contracts. These efforts are supported by alternatives in each industrial and protection markets, the place robust dynamics and progress are being pushed by AI/ML adoption, sensor fusion, sensor processing and autonomy.
The Division of Protection is making important investments in next-generation capabilities that require edge computing. Whereas the general protection budgets within the U.S. are anticipated to stay secure, we count on to see elevated spend, particularly for autonomy, synthetic intelligence and machine studying. Actually, these symbolize a number of the quickest areas of progress because the army appears to enhance present platforms with new sensors, platforms and weapon methods to keep up a technical and tactical benefit over our adversaries.
We’re persevering with to pursue alternatives in each industrial and army segments the place we will leverage OSS’ differentiated and technologically superior capabilities by bringing enterprise and knowledge center-class compute, storage and switching capabilities to essentially the most difficult environments, delivering low latency, excessive throughput scalable options in real-time environments, delivering configurable off-the-shelf and customized high-performance options, and offering excessive expertise readiness-level product availability to allow first-to-market AI on the edge. We consider a balanced portfolio of business and army clients can function a strategic profit as we concentrate on creating long-term worth for our shareholders.
our pipeline and up to date wins in additional element, we made progress all through the fourth quarter penetrating protection and industrial markets. We had three main new wins in composable infrastructure, aerospace and protection that totaled $2.7 million through the quarter. These wins mirror our continued management in high-speed PCIe interconnect expertise and scalable AI GPU compute methods.
Turning to a significant protection win, we introduced a multimillion-dollar program with Leidos’ Dynetics, a major contract of mission essential options for the U.S. Authorities. Beneath this multi-year program, we’ll present our proprietary transportable compute and storage expertise designed to energy an rising specialised cell AI sign assortment software. The award is the primary multi-year win OSS has secured with Leidos, highlighting the expansion, belief and confidence in OSS and our progressive expertise and superior engineering capabilities. We’re additionally happy to see the growth of mission software and platform integration in keeping with our progress methods.
Early this month, we introduced a pilot undertaking to offer a liquid immersion cool knowledge storage system to be used on a deployable floor station that was additionally contracted by Leidos. This undertaking, for a significant authorities intelligence company, expands our market alternative into the intelligence group. Because the pilot progresses over the approaching quarters, we count on this program will result in follow-on manufacturing orders.
This program additionally demonstrates our progressive thermal administration applied sciences for cooling rugged high-performance computing options. Our cooling options allow the very best degree of GPU efficiency, which our clients must help their AI and ML mission aims. We anticipate this preliminary design win will result in further deployments with this buyer and different clients sooner or later.
Through the fourth quarter, we additionally booked an extra award from the U.S. Military Floor Automobile Methods Heart, growing our scope within the 360-degree situational consciousness program to incorporate the sensor processing for the video knowledge enter into the system. Inside our industrial markets, we obtained an order from Daimler Truck associate Torc Robotics to develop a cooling answer for his or her present compute system, increasing our relationship throughout the autonomous trucking software program vendor. We additionally finalized a multi-year cope with Thales in help of their inflight networking system for industrial airways.
With rising curiosity in AI and ML options, we’re shortly increasing our outreach efforts. We count on that 2024 will likely be a yr marked by pipeline growth and conversion as demand will increase and we execute on our strategic plan. Actions underway embrace: submitting a bid to offer a rugged high-performance compute answer for a categorised program throughout the sector that’s advancing AI implementation on the edge; establishing a sponsorship and collaborative relationship with Andretti Racing and Zapata AI, selling edge purposes for AI/ML and industrial and protection markets; partaking with firms in composable infrastructure market marked by leveraging our growth chassis product line and our UBMC software program functionality for system management and monitoring; and persevering with to advance our engagement and attain with giant prime organizations reminiscent of Booz Allen Hamilton, BAE Methods, Leidos, Basic Dynamics, Lockheed Martin and Basic Atomics.
Because the Pentagon prioritizes incorporating superior applied sciences into their gear, we count on engagements for our merchandise within the army area overlaying numerous autonomy, sensor fusion and AI/ML purposes for plane, drones, ships, helicopters and land automobiles will improve. Though we’re seeing progress, it’ll proceed to take time to pursue, safe and switch goal alternatives into elevated bookings and income.
A technique that we have been working to speed up the alternatives with the U.S. Division of Protection is thru lobbying efforts in Washington to advance the progressive options provided by OSS. Lastly, we proceed including industrial and protection commerce present — attending industrial and protection commerce exhibits to advance the OSS model available in the market and establish new and associate alternatives.
The results of our efforts has enabled us to increase our five-year unfactored pipeline to an extra of $1 billion. This progress displays the preliminary success from our new gross sales infrastructure and expertise in addition to the speedy growth throughout our industrial and protection markets for AI and ML options. We’re actively engaged with present and potential clients to execute towards these alternatives and convert our rising pipeline into multiyear, multimillion-dollar orders.
Given our expanded engagements and rising pipeline, I am happy to announce that now we have added Craig Powell as Enterprise Improvement Government. Craig served as an armored infantry officer within the Royal Canadian Armoured Corps and brings 22 years of expertise within the high-performance compute, protection and industrial markets, having held senior positions at Systel, L3Harris, Rheinmetall, Haivision and Teledyne. We consider his expertise will help our efforts to increase gross sales into the Canadian market along with its major concentrate on supporting gross sales efforts within the U.S.
Turning to latest progress on the product and program entrance. At the start of 2024, we shipped our first AI transportable compute system for the motorsport trade to legendary motorsport champion, Andretti International. The system contains OSS’ 3U SDS GPU accelerated server, powering superior AI race analytics for Andretti, utilizing Zapata AI’s industrial generative AI platform for the cloud and edge referred to as Orquestra. The answer represents a brand new software of OSS expertise and our first foray into the $5 billion motorsports trade. This milestone demonstrates our distinctive capabilities for powering generative AI expertise on the edge.
Additionally in the beginning of this yr, we introduced graduation of a multi-year design and manufacturing collaboration for FLYHT Aerospace’s automated flight info reporting system, Edge household, together with its new AFIRS Edge+. The expanded relationship ensures that FLYHT has entry to OSS’ scaled capabilities because it launches the aviation trade’s first-to-market 5G-enabled avionics options. For OSS, the design and manufacturing settlement with FLYHT is valued at a minimal of $6 million over the preliminary five-year time period. In This fall, we obtained $500,000 in income from the brand new FLYHT contract. Now we have efficiently handed the essential design overview and are coming into the check section of this system. We count on to finish testing and count on to start manufacturing and shipments of AFIRS Edge+ as early because the second quarter of 2024.
This multi-year engagement expands our place in industrial aerospace and additional strengthens our expertise improvement and manufacturing platform. This chance additionally underscores our dedication to aviation security and delivering mission-critical efficiency.
We have additionally seen progress on a number of fronts within the protection trade. The Raytheon P-8 program has funded a number of improvement initiatives to include {hardware} and software program expertise refresh and improve that can prolong our product place and lifecycle by 2028. In consequence, we count on annual income of $6 million in 2024 associated to this program, which is at an analogous degree from 2023.
We delivered our first shipments of the brand new Gen 5 short-depth server to Dynetics, a Leidos firm, for the C4ISR Cellular Command Facilities and to Thales for submarine, sonar and AI processing on a European Navy Submarine. As well as, we obtained a contract modification so as to add further functionality for time-sensitive networking, or TSN, to our 360-degree situational consciousness answer for the Military Floor Automobile Methods Heart. This functionality provides to the essential timing factor required for contested setting operations and is an built-in functionality for Joint All-Area Command and Management, or JADC2, nodes.
We proceed to focus assets and capital to help our expertise roadmap and preserve our robust market differentiation. As I’ve famous earlier than, a key functionality of ours is the power to convey the most recent and highest performing compute, storage and switching options to the market and facilitate the demanding necessities of AI/ML, sensor fusion, sensor processing and autonomy. We have seen that our first-to-market technique is vital to our capacity to win alternatives. In consequence, we proceed to develop new state-of-the-art merchandise throughout a variety of high-performance compute demand, offering a novel worth proposition for our clients within the focused areas.
In November, we unveiled our newest rugged Gen 5 short-depth server at Tremendous Compute 23, the worldwide convention for high-performance computing. Powered by NVIDIA H100 Tensor Core GPUs and high-performance NVMe storage, the OSS Gen 5 SDS addresses the rising demand for extra highly effective and decrease latency rugged compute, storage and networking functionality on the edge. This new OSS Gen 5 SDS server demonstrates our continued management in AI computing and high-speed PCIe interconnect expertise.
We anticipate this hyperconverged knowledge center-class computing server will likely be extremely sought-after for demanded rugged edge, real-time AI purposes and is already proving to be the workhorse of the OSS product portfolio. Actually, in February 2024, we showcased our specialised high-performance AI computing options at SCOS 2024, the premier naval convention and exposition on the West Coast, the place we gained the Greatest In Present award for our liquid cooled model of the rugged edge short-depth server.
Since I joined over eight months in the past, now we have targeted on enhancing our administration crew and Board of Administrators. Current efforts embrace within the third quarter of 2023, we appointed trade veteran Robert Kalebaugh as VP of Gross sales, bringing greater than 36 years of award successful achievement in enterprise improvement, gross sales and advertising within the industrial protection market. Robert’s impression is already being seen in our market outreach, elevated alternatives and progress. Within the fourth quarter of 2023, we appointed retired U.S. Navy 3-star Vice Admiral Michael J. Dumont to the Board, bringing background and expertise insights into expertise and army operations. Mitchell Herbets was additionally added to our Board, bringing in depth strategic and technical expertise as a C-suite government serving expertise and protection industries. Lastly, we additionally appointed Joseph Manko to our Board, who’s affiliated with one in all our largest shareholders and brings in depth monetary, capital markets, investor and governance expertise to OSS. All these additions have considerably re-profiled our Board and enhanced their impression on supporting technique, driving progress and delivering shareholder worth.
Along with enhancing our administration crew and the Board, we even have added expertise to our rising program administration capabilities with the addition of two seasoned professionals who convey over a decade of protection and industrial program administration expertise. I consider their expertise will permit us to pursue even bigger packages for improvement, manufacturing in protection and industrial markets.
I am extraordinarily inspired by the profitable ongoing transformation now we have accomplished to our enterprise in 2023. In consequence, we entered 2024 with robust momentum supported by a brand new highly-experienced management crew, re-profiled Board of Administrators and enhanced margin profile and a rising pipeline of great income alternatives that we consider will help our enterprise for a few years to come back. I wish to thank our crew for his or her continued arduous work and dedication as we pursue compelling progress methods aimed toward creating lasting worth for our shareholders.
With this overview, I would like to show the decision over to our CFO, John Morrison, to overview our fourth quarter and the complete yr 2023 monetary leads to extra element. John, please go forward.
John Morrison
Thanks, Mike, and good afternoon, everybody. I’m notably excited by the extent of exercise underway, the path we’re headed and the methods we’re pursuing to create worth for our shareholders.
We started 2023 with two aims. The primary was to considerably substitute $18.5 million of low-margin legacy media income with higher-margin AI transportable product income. This was necessitated by our media buyer transferring away from ruggedized gear to a much less rugged cloud answer. Complete media income in 2023 was $4.8 million, representing a distinction of $13.7 million from final yr.
The second goal we had was to develop Bressner annual income. Though OSS technique was applied to switch the media enterprise, through the yr, we skilled a common hesitation by industrial clients to put orders due to the financial situations. We additionally skilled timing delays in some authorities packages. This all resulted in OSS being unable to completely substitute the misplaced media income in 2023. Nonetheless, I’m happy to report that Bressner met their annual goal by rising annual income by 10.1%. Bressner additionally improved each margins and profitability regardless of a difficult economic system in Germany and all through Europe.
Our firm’s enterprise is absolutely comprised of two segments: OSS, which is positioned and operates in the US; and Bressner, which is in Munich, Germany and operates all through Europe. OSS is primarily targeted and concerned within the design and manufacture of high-performance ruggedized edge processing, compute, storage, and connectivity methods. Bressner operates as a methods integrator with normal and customized all-in-one {hardware} methods and parts. In addition they function the channel for OSS merchandise to the European and Center East markets.
The next feedback are primarily based upon comparability of fourth quarter 2023 outcomes as in comparison with fourth quarter 2022.
For the fourth quarter, we reported consolidated income of $13.2 million. Of this, OSS contributed $6.4 million and Bressner contributed $6.8 million, inclusive of OSS product content material of $597,000. Consolidated quarterly income displays a discount of $5.1 million or 27.9%. Of this quantity, OSS had a lower of $4.9 million or 43.5% of OSS quarterly income, of which roughly $3.1 million of the lower was attributable to a income discount from the previous media buyer and from whom we don’t count on any additional income. Bressner had a lower of $175,000 or 2.5%.
Consolidated gross revenue within the fourth quarter decreased $544,000 to $4.4 million with total gross margins bettering and growing to 33.7% from 27.3% attributable to decreased media income price and a shift in product combine to our higher-margin rugged edge processing merchandise. The gross margin for OSS enterprise improved 14.5 proportion factors to 45.9%, which is attributable to the absence of lower-margin media income and prices and the upper mixture of the rugged edge processing merchandise. Bressner’s gross margin proportion improved 1.6 proportion factors to 22.2%, largely attributable to product combine, the sale of higher-margin OSS merchandise, and having sought-after merchandise readily bought at a premium.
Total, quarterly working bills elevated 3% to $4.8 million, which was attributable to further CEO transition and Board reprofiling prices.
Loss from operations totaled $331,000 in comparison with earnings from operations of $353,000 in the identical interval in 2022.
Web loss on a GAAP foundation was $278,000 or $0.01 per share as in comparison with a internet lack of $3.3 million or $0.16 per share. Web loss within the fourth quarter of 2023 included a provision for earnings taxes of $42,000 as in comparison with a tax provision of $4.1 million within the fourth quarter of 2022 that included a big improve in taxes being attributable to a write-down of our deferred tax asset of $3.8 million in 2022. Now, non-GAAP internet earnings for This fall 2023 was $177,000 or $0.01 per diluted share in comparison with non-GAAP internet loss within the prior yr of $2.7 million or $0.14 per diluted share.
Adjusted EBITDA, a non-GAAP metric, was favorable $353,000, a lower from the adjusted EBITDA of $1.6 million within the prior yr.
The next feedback are primarily based upon a comparability of the annual outcomes for 2023 as in comparison with the annual outcomes for 2022.
Consolidated income was down $11.5 million or 15.9% from $72.4 million to $60.9 million, predominantly attributable to a lower of $13.7 million in media income. OSS had income of $28.8 million or 47% of whole income. And Bressner had a income of $32.1 million or 53% of whole consolidated income. OSS skilled a lower of $14.5 million or 33.4% with the — which lower was offset by a rise by Bressner of $2.9 million or 10.1%. Through the yr 2023, revenues for OSS have been pretty evenly balanced between industrial and protection purposes.
Through the yr 2023, consolidated gross margins have been 29.5% versus the prior yr of 28.2% attributable to much less lower-margin media enterprise being offset by a rise in higher-margin AI transportable merchandise. OSS gross margin was 35.6% as in comparison with 32.7%, an enchancment of two.9 proportion factors. Bressner margin was 24% in comparison with 21.5%.
Excluding the goodwill impairment cost of $5.6 million and CEO transition and Board re-profiling price of $1.7 million, our working bills truly decreased 1.5% from the prior yr.
Different earnings and expense, together with — excluding a one-time government-funded worker retention credit score of $1.7 million, resulted in internet different earnings of $417,000 in comparison with $626,000.
Web loss was $6.7 million, or a lack of $0.32 per share, in comparison with $1.7 million — of which was inclusive of the $1.7 million worker retention credit score in comparison with a lack of $2.2 million or lack of $0.11 per share in 2022. Non-GAAP internet loss was $415,000 or lack of $0.02 per share as in comparison with a lack of $175,000 or $0.01 in 2022.
Adjusted EBITDA, a non-GAAP metric, was optimistic $1.1 million as in comparison with $5.2 million in 2022.
Loss earlier than the supply for earnings taxes on a professional forma foundation, which excludes the impairment of the goodwill, the CEO transition and Board re-profiling prices, and the good thing about the worker retention credit score leads to a professional forma loss earlier than earnings taxes of $165,000 as in comparison with earnings earlier than taxes of $2.2 million within the prior yr.
Now, trying on the stability sheet, on December 31, 2023, money and money equivalents totaled $4 million, with short-term investments of $7.8 million, for a mixed whole of $11.8 million. In comparison with the prior yr, this represents a lower of $1.4 million, which represents money being deployed in working capital. As the corporate continues to transition and evolve its enterprise from being largely depending on media-derived income, the corporate will operationally concentrate on maximizing gross revenue contribution. Within the close to time period, this will likely embrace accepting lower-margin enterprise that incrementally contributes to gross earnings however could also be inconsistent with our long-term goal of accelerating our consolidated gross margin proportion. The target of this effort is to have sustainable money move as the corporate bridges its income mannequin.
Trying ahead to the primary quarter of 2024, influenced by seasonal and U.S. Authorities persevering with resolutions, we count on income of roughly $12.5 million, which represents an approximate 5% sequential lower from This fall 2023 and a year-over-year lower of roughly $4.3 million or 25%. Of that lower, $1.5 million of that’s anticipated decline which is attributable to lack of media income.
This completes our monetary overview for the quarter. Now with that, we might like to show the decision again — flip the decision and speak in confidence to your query. Operator? Ina?
Query-and-Reply Session
Operator
Thanks. Girls and gents, we’ll now start the question-and-answer session. [Operator Instructions] Your first query comes from the road of Scott Searle from ROTH MKM. Please go forward.
Scott Searle
Good afternoon. Thanks for taking my questions. Good to see the persevering with progress on the chance pipeline in addition to the gross margins. Possibly that is a superb place to start out. On the gross margins for the fourth quarter, John, I am questioning, are there any one-time advantages that you simply noticed on that? I believe you mentioned the quantity was 45%, 46% within the core OSS enterprise. Are you able to assist us perceive from a blended standpoint what is going on on and the way we must always take into consideration the development all through 2024? You additionally had some feedback by way of maximizing gross revenue contribution. So, it appeared to suggest that there is going to be some volatility there. Are you able to stroll us by that somewhat bit?
John Morrison
Thanks, Scott. So, within the fourth quarter, it was very closely weighted in direction of AI transportable merchandise, particularly to the protection trade and within the sale of our knowledge storage items, which are likely to have a better margin. So, that is what skewed that within the fourth quarter. With respect to making sure that we preserve our money place, there may be some pass-through income that we’ll be accepting on an agent foundation that has low margin however gives good money alternatives for us.
Scott Searle
Acquired you. Okay. Thanks. And Mike, by way of the chance pipeline, it looks as if it is persevering with to construct. The message that you simply’re getting on the market by way of AI/ML and sensor fusion continues to appear to get traction. I am questioning when you may assist for us body close to time period after we begin to see selections getting made, how that can begin to filter into the outcomes? It sounds prefer it’s extra geared in direction of 2025.
And as a part of that, I am questioning when you may couple within the present dialogue across the persevering with decision across the finances and the way that impacts you guys over the course of 2024.
Mike Knowles
Yeah, certain. Thanks, Scott. Yeah, we have continued to develop and increase that pipeline. And actually what it’s, is absolutely aligning — particularly within the protection market, aligning our alternatives up with present platforms which might be going by tech refresh cycles or upgrades, in order that we’re current for people who assist develop and decide our timing, after which additionally on new begins being a part of these, that are usually the longer runway approaches to these.
So, we’ll use the 2024 to construct again by the misplaced media income changing with industrial and protection alternatives. Anticipating the second half of the yr, except the media enterprise, proper, will begin to see the momentum actually begin to decide up. For us, that entire effort will all be concerning the pipeline conversion, proper? We have these alternatives on the market. Now we have to convert them and doubtlessly transfer them to the left. And that is why I spoke, particularly within the protection market, the place now we have alternative to make use of our lobbying efforts to assist transfer and ensure packages are funded and transfer out on time.
After which, the second a part of your query was what once more, Scott?
Scott Searle
Sorry, associated to the finances decision.
Mike Knowles
Oh, the finances decision. Yeah, so, properly, a big quantity of our income is not tied as much as authorities new begins, which may’t begin below a CR. We do have a pair that bids at present that now we have out which might be being held up by steady decision. Not a big quantity, however nonetheless some nonetheless. I simply assume I acquired a word from our lobbyists at present that the final bid of CR protection budgets, we’ll make it by approval. So, that ought to untie the logjam. Now, we’ll must undergo the interval that often follows that the place the cash strikes after which the acquisition professionals must put it on contract. That isn’t a quick tempo both itself. It should take some weeks and months for that to move by, nevertheless it’s optimistic that that is made it by. And that is one thing that we’ll proceed to cope with in quarters and years to come back. Nevertheless it’s not unusual anymore within the protection market. And now we have pipeline and alternatives. We’ll plan for that and have a tendency to attempt to replace our forecasts round that additionally.
Scott Searle
Okay. Nice. And one final one, if I may. Simply by way of transferring the AI technique alongside, I am unsure when you talked about all of it about numerous software program companions and go-to-market technique on the entrance. I am questioning when you may articulate the place we stand on that entrance now and the way that is trying all through the course of 2024. Thanks.
Mike Knowles
Thanks, Scott. So, I discussed final yr throughout 2023 we had expanded our outreach to a number of AI software program firms actually round two causes. One, in order that we had alternative the place our clients wanted it to offer a extra built-in answer fairly than only a pure compute or storage or switching answer. And we wished to determine these partnerships to offer some extra discriminating functionality to our answer. As well as, as we began partaking with a variety of these AI software program firms, lots of them have been seeking to discover methods to standardize on {hardware} in order that they may promote their software program instantly. So, we wished to open up the pipeline for these discussions the place we may develop into an ordinary supplier to some AI software program firms.
Now we have expanded that attain and proceed to take action. Over the course of 2024, I believe we must always see a pair alternatives the place now we have aligned with a pair particular firms and a few seize approaches and a few collaborations available in the market for each industrial and protection that we must always begin to see the fruits of a few of these labors. I famous one within the earnings name that we’re doing with Zapata AI by works with Andretti. There’s some cross correlation to some protection markets and prime contractors who’re very desirous about a variety of the work that Andretti and Zapata are doing in automobiles and knowledge analytics, they usually’re all working that off of our compute methods. So, much like that, we have got a number of situations like that throughout each markets that we expect may assist construct future options.
Scott Searle
Nice. Thanks a lot.
John Morrison
Thanks, Scott.
Mike Knowles
Thanks, Scott.
Operator
Thanks. And your subsequent query comes from the road of Brian Kinstlinger from Alliance International Companion. Please go forward.
Brian Kinstlinger
Nice, thanks a lot for taking my questions. Within the protection market, it is lengthy been characterised as having lengthy gross sales cycles, and you’ve got talked concerning the late, each of these are frequent. You talked about you count on a return to progress within the second half of the yr. Possibly when you may speak about how you concentrate on gross sales cycles for a few of your new merchandise and simply a few of your merchandise basically and the way does that ponder in anticipating a return to progress within the second half of the yr?
Mike Knowles
Certain. Thanks, Brian. So, on the industrial aspect, with our normal product strategy in plenty of areas, these phrases have a tendency to come back somewhat bit faster. We’re seeing some elevated exercise in that composable market — composable knowledge middle market that I used to be speaking about. The contract, the five-year settlement with FLYHT was a superb transfer for us. They have been advancing a brand new product line primarily based on projected future progress they see. So, that was one other one which we’ll be creating a product and roll by to them.
The protection aspect, it’ll proceed to leverage our excessive expertise readiness degree merchandise. That offers us a extremely good functionality the place we see a expertise refresh cycle or improve alternative on any car or platform for us to have the ability to readily bid a extremely mature and available answer. So that offers us some aggressive edge in any of these competitions, or permits us if now we have a novel discriminating functionality to justify a sole supply acquisition to OSS.
So, these cycles, once more, will show to be quick or lengthy relying on when the car improve cycles are, however we have begun to plot these into the timing into our pipeline so we will begin to see these. And now, we’re beginning to see the image begin to paint on after we’d count on the alternatives to come back to market, which is why we’re feeling the second half of 2024, we must always begin to see — you may begin to see some early bookings wins after which that’ll roll into income will increase. So, as we begin to exit Q3 into This fall, we must always see consolidated revenues improve over the place now we have been within the final two quarters.
Brian Kinstlinger
Acquired it. Okay. After which, you have been there now for, I do not know, what’s it, 5, six months?
Mike Knowles
9 months.
Brian Kinstlinger
9 months, wow. So, now that is loads of time to have a look and consider the enterprise of the place you might want to improve your investments to drive progress. Possibly speak about new product alternatives. You already talked about your elevated pipeline. How do you bid on extra, so to talk, or seize extra of the market, possibly wherever you see funding alternatives to seize that?
Mike Knowles
Yeah, Brian. So, as John talked about, proper, and a part of the explanation to usher in the lower-margin packages was to assist to ensure we may facilitate preserving our merchandise line going ahead and maintain secure money in this system and the corporate. So, now we have plenty of product improvement parts deliberate for the yr that can proceed to maintain us on the forefront of compute storage and switching expertise. We did simply launch our Gen 5 SCS and our Gen 5 storage merchandise. So, these are each new available in the market, in order that they’ll have a product life cycle run right here for a little bit of time. We’ll be capable to leverage that.
After which the second half of your query once more, Brian, was on…
Brian Kinstlinger
Simply on proposals, like how — the bidding proposal, how are you going to, with that rising market alternative, go after extra enterprise, bid on extra work, so to talk?
Mike Knowles
Yeah, no, I respect that. So, that is a part of the explanation why we take our pipeline and we assess the chances as we do, so we will decide the place to focus our assets on our highest chance of successful. And so that really has been fairly helpful for us. We have sort of restructured and reprocessed how we use a few of our instruments internally to assist facilitate getting extra proposals out the door extra effectively and extra successfully. After which, as I famous, we had the chance so as to add Craig Powell to our gross sales power. That may considerably improve not solely our alternative progress, however extra capacity of a seasoned veteran by way of having the ability to reply to and conduct captures on packages within the protection market. After which exterior of that, different areas by way of simply common product line progress, there’s curiosity in transferring to a number of the worldwide protection and industrial alternatives. Craig will present us the chance to increase moreover into Canada with an present gross sales power — with gross sales functionality that now we have. So, I believe we’re properly located with priorities of our assets and a crew to have the ability to sort out it.
Brian Kinstlinger
Okay. Thanks.
John Morrison
Thanks, Brian.
Operator
Thanks. And your subsequent query comes from the road of David Williams from Benchmark. Please go forward.
David Williams
Hey, good afternoon, and thanks for letting me ask the query.
John Morrison
Certain.
David Williams
So, Mike, possibly begin off on the funnel. You’ve got acquired over $1 billion pipeline right here that you simply talked about. Are you able to assist us perceive the way you’re qualifying these packages and the way do you count on that to possibly materialize over the following a number of years? How a lot of — what’s that conversion price and simply possibly what does it take to transform and the way you concentrate on that funnel total?
Mike Knowles
Yeah, thanks on your query, David. So, what we have achieved is — and that pipeline quantity is a five-year view. So, what we do is we establish alternatives, we assess it in two possibilities. The primary chance is what we name [PGO] (ph), and that’s the chance that a chance will emerge and really go to acquisition or to the market. One thing that we won’t readily management, however we will monitor and we will affect, particularly on the protection aspect as I discussed, the lobbying efforts in Congress, our engagements with senior protection executives will help affect the funding and the timing of these efforts. The second chance we issue the pipeline by is chance to win. That’s one thing we management. That determines, proper, our capabilities, merchandise, and companies that we will ship for options that lead us over our opponents.
Once we multiply these two collectively, we get what’s referred to as a chance of award, and it actually units a degree at which we all know above a sure degree of proportion that it is extremely seemingly that we must always win and we improve our efforts there to tug these ahead. After which there is a mid-area the place we will decide whether or not the hassle must be extra on influencing a high-probability of successful product to emerge or if now we have to extend our P to win on a program that can undoubtedly emerge and we will establish assets, belongings, or help to go try this. After which, something beneath that usually will likely be one thing we both have to find out, is it a future roadmap functionality we have to develop, is it a market we’re totally desirous about working by, and people are usually longer-term views of find out how to transfer these possibilities of award up and better in evaluation.
Due to the way in which we have got began, 2024, final a part of 2023 and 2024, we’re doing a good quantity of positioning into these markets. The near-term ones, as I discussed, have been about entering into the improve cycles and protection clients, after which discovering industrial clients in related conditions who have been seeking to transition to higher-end course of compute and storage. After which moreover, what it is achieved by way of conversion is allow us to establish future begins that may be sooner or later, for which you wish to begin early on the seize, search and affect necessities to extend your chance of win. So, we have now transitioned these into captures and campaigns inside the corporate. That’ll improve our focus the place we go on these, and we’ll be seeking to capitalize in changing that pipeline to alternative. And that is actually the place our measure will likely be on seeing the bookings changing to income and changing that pipeline.
David Williams
Nice. Thanks for the colour there. After which possibly, John, when you may speak about your stock ranges. You talked about money simply now and having the working capital and possibly taking some lower-margin enterprise. However you have acquired, it appears like, fairly important days of stock. How do you concentrate on working these down and simply that working capital that you might return for different investments? Thanks.
John Morrison
Thanks. Clearly that is at all times been a priority of ours as we constructed stock through the COVID interval and afterward as firms required us to have generally a 52-week lead time and demanded sure minimal order necessities with a purpose to preserve pricing. So, throughout that time period, it was necessary for us to safe stock, and we made sure non-cancellable, non-returnable commitments for stock. That stock nonetheless continues by the state to come back in. Now we have nonetheless roughly about $3.4 million of stock that will likely be coming within the door for which the orders have been positioned in 2001, 2002.
Nonetheless, now we have gone by, now we have analyzed all of that stock. We consider that we will truly unlock about $2 million in working capital this yr by the present plan that now we have. We consider all the stock is sellable. We don’t see any of the stock being designed out, with a purpose to see it in a state of affairs of being out of date or out of date. So sure, we do acknowledge that now we have extra stock on the stability sheet than we wish, however we might assume we’ll be capable to unlock about $2 million of that as we go all year long and produce it right down to a extra manageable degree. Thanks.
David Williams
Thanks.
Operator
Thanks. And your subsequent query comes from the road of Eric Martinuzzi from Lake Road. Please go forward.
Eric Martinuzzi
Yeah. I wished to make clear the contribution out of your media buyer that is now not with you. I’ve — for 2022, I had them at $18.8 million, after which in 2023, I had them at $5.1 million. Are these two numbers appropriate?
John Morrison
$18.5 million and $4.8 million.
Eric Martinuzzi
$18.5 million and $4.8 million, okay. All proper. After which — go forward.
John Morrison
Yeah, it is $18.504 million and $4.858 million.
Eric Martinuzzi
Okay. After which the information for Q1, and I’d count on the expectation for 2024, there’s nothing in there for that media buyer?
John Morrison
No, sir. We might — do not need any ongoing income in any respect.
Eric Martinuzzi
Okay. And the second query is across the gross margins. It is actually good to see that step up not just for the complete yr at 130 bps, however for This fall, only a large step up with the 640 bps. How ought to we be fascinated by both tackle a full yr foundation for 2024 or possibly even simply Q1? A yr in the past you had a 30.2% gross margin in Q1. Ought to we expect one thing related, one thing higher? What are you able to inform us about gross margin?
John Morrison
Gross margins will proceed to develop simply as a consequence of getting lower-margin enterprise from the median buyer go away. They have been operating about 19.7% gross margin. Now we have been changing that constantly with gross sales of between 30% to 40%. That is just about our bottom-line goal is 30%. And it truly is totally different once you’re combine. So, relying on how a lot of our knowledge storage product we’re promoting in any given quarter, that tends to have a better margin, which is definitely what we noticed within the fourth quarter. We had almost $2.5 million of knowledge storage and knowledge storage substitute components, that are very worthwhile for us to drive that margin. Long run, we consider that we’ll be extra constant this yr with what you noticed in 2022 of the 32% to 33% margins on a consolidated foundation.
Eric Martinuzzi
Okay. Full yr. Acquired it. After which final query, actually extra on the product aspect. At a excessive degree, Mike, what’s the lag time between anyone like NVIDIA kicking off their newest and best chip and your clients anticipating you to have designed that in and have it accessible for cargo for them? I am speaking particularly to this week’s announcement concerning their new Blackwell chip GPU versus the prior technology the Hopper? What is the lag time there on your product design?
Mike Knowles
Yeah. Eric, usually inside a yr, lower than a yr, we will go from product availability from NVIDIA to our product [indiscernible] short-depth server with storage added, we will transfer to accessible product inside the yr. Now we’ll additionally must work the lead occasions. There’s a variety of main firms on the market who’re shopping for up the GPUs. So, our clients are conscious of that. And so, truly we — distinctive to in all probability OSS on this respect is due to our experience and engineering capabilities, we’re truly capable of sit down with the shopper and work by two eventualities. If they’ve a transparent demand and want for the most recent and the newest and the best they usually perceive the lead occasions on that, we will try this. On the protection aspect, we will use their protection scores to assist speed up the availability chain on their orders.
Alternately, what we have achieved in some circumstances is we work with clients on what their actual AI or sensor fusion, sensor processing implementation is and we’ll assist them with their compute storage and switching wants and efficiency parameters. And in some circumstances, we have truly been capable of suggest different NVIDIA GPUs whose lead occasions may be measured in six to 12 weeks and we will nonetheless implement functionality that exceeds their demand. We will supply them a sooner lead time to get both preliminary functionality that they may improve to later with the higher-end GPUs or in the event that they’re proud of that choice then they will stick with it with that configuration.
Eric Martinuzzi
Acquired it. Thanks for taking my questions.
Mike Knowles
Thanks.
John Morrison
Thanks, Eric.
Operator
Thanks. And your final query comes from the road of Joe Combs from Noble Capital. Please go forward.
Joe Combs
Good night. Thanks for taking the questions. I wished to return for a second to a few of this lower-margin pass-through income you have talked about. Did any of that present up within the income for the fourth quarter or is any of it projected for the primary quarter of $12.5 million steering?
John Morrison
There was nothing within the fourth quarter and there may be nothing proper now deliberate or included within the steering quantity in Q1.
Joe Combs
Okay. Pardon me. Thanks for that. After which…
John Morrison
And after we do, we’ll disclose it individually. So, we’ll be very seen as to what these numbers are.
Joe Combs
Nice. And on the pilot program for the deployable floor station, you talked about that you simply assume you will get some future manufacturing orders from that. And I used to be questioning possibly you might speak somewhat bit concerning the timing you consider these manufacturing orders and the scale that might probably be there by way of income?
Mike Knowles
Sure, Joe. So, in two circumstances, proper, on the sort of the bottom station one the place we’re delivery our compute functionality. These preliminary forays as they get instantiated and used are within the [mid-$100,000] (ph) vary by way of worth. We might count on that follow-on orders could possibly be double that for a few years in that implementation. After which relying on the way it grows into different related sort packages throughout the firm or others, that is the place we search for the add-on impact.
The liquid immersion cooled one additionally very related by way of software. That might be one other one. That first one in all $200,000 for the primary foray, however we might count on implementations double that, possibly somewhat bit greater than double that after they’ve gone in and validated their first fielding, if you’ll, blissful and cozy with the answer, then we might count on to see multiples of these values in later this yr 2025, 2026.
Joe Combs
Okay. Nice. And only one extra fast one for me. I do know within the final quarter, you talked about you bought the location facility clearance. Simply questioning, have you ever been capable of see that clearance flip into any new alternatives for you or something explicit extra which you can inform us about that?
Mike Knowles
Proper. It’s opening up our alternative for placement proper now. So, what it is allowed us to do is on some present packages the place we have simply been offering a product to satisfy a compute requirement. We have been capable of go in now and have a broader dialogue on the operational drawback that the platform is making an attempt to unravel. And that gives us a larger understanding of what the structure on the platform is doing. After which that enables us now to have the ability to suggest a broader implementation of OSS merchandise that might assist facilitate, when you have been on a car that was broadly a sensor integrating car, proper, the power to maneuver our processing as much as the sensor for speedy processing on the sensor, that knowledge wants to come back again and be fused collectively into a typical image. Once more, that is one other want for high-end processing. And if there’s any generative studying off of that or autonomy primarily based off that, they get one other degree of compute.
So, proper now, it is opened that up. As well as, as I discussed, with a few categorised packages we have delivered to, up to now, we might have simply delivered to these set of necessities. Now we will truly determine and perceive as I mentioned extra broadly what is going on on in this system. After which a few prime contractors that we have spoken to within the final quarter have opened up entry to us into their categorised groups which might be pursuing packages. So, now we’re beginning to really feel the preliminary forays into {our capability} and we’re in a position to reply to these now in a categorised setting.
Joe Combs
Nice. Thanks for that. Recognize it.
Mike Knowles
Thanks, Joe.
John Morrison
Thanks.
Operator
Thanks. Now we have no extra questions. I would like to show the convention again to our audio system for closing remarks.
Mike Knowles
Thanks, Ina. And we respect having loved sharing our newest progress with everyone at present. We consider the corporate’s technique is strong and the long run is vibrant. OSS administration appears ahead to talking with you once more in Could, if not sooner. Within the meantime, as at all times be happy to achieve out to John or myself at any time.
With that, let’s go forward and wrap up the decision. Ina?
Operator
Thanks. Now, earlier than we conclude at present’s name, I wish to present the corporate’s protected harbor assertion that features necessary cautions concerning forward-looking statements made throughout at present’s name. One Cease Methods cautions you that statements within the presentation that aren’t description of historic info are forward-looking statements. These statements are primarily based on firm’s present beliefs and expectations.
Such forward-looking statements embrace, for instance, these concerning the corporate’s expectations for income progress generated by new merchandise, penetration of the protection and AI transportable sectors, future adjustments to its enterprise aims, design wins, amongst different issues. The inclusion of such forward-looking statements and others shouldn’t be considered a illustration by OSS that any of its plans will likely be achieved.
Precise outcomes might differ from these set forth within the presentation because of the dangers and uncertainties inherent in our enterprise, together with, with out limitation, that the marketplace for our merchandise is creating and will not develop as we count on. Navy conflicts, world pandemics, or different disasters or public well being considerations and financial instability in areas of the world the place now we have operations, clients or supply materials or promote merchandise might have an effect on such market.
Our working outcomes could possibly be negatively impacted by inflationary pressures, provide chain constraints, elevated rates of interest, U.S. Authorities, persevering with decision or different financial situations. Our working outcomes might fluctuate considerably, which might make our future working outcomes tough to foretell and will trigger working outcomes to fall beneath expectations or steering. In case you are unable to offset lack of income in our prior media and leisure area with different enterprise, our working monetary outcomes could also be adversely affected.
Our merchandise are topic to competitors, together with competitors from the shoppers to whom we might promote and aggressive stress from new and present firms might hurt our enterprise gross sales, progress charges, and market share. Our future success is determined by our skills to develop and efficiently introduce new and enhanced merchandise that meet the wants of our clients. The chance of our design proposals turning into design wins is unsure, and income might by no means be realized.
Our merchandise fulfill specialised wants and capabilities throughout the expertise trade, and such wants or capabilities might develop into pointless or the traits of such wants and capabilities might shift in such a means as to trigger our merchandise to now not fulfill such wants or capabilities. New entrants into our market might hurt our aggressive place. We depend on restricted variety of suppliers to help a producer design course of. And if we can’t defend our proprietary design rights and mental property rights, our aggressive place could possibly be harmed or we may incur important bills to implement our rights.
Our worldwide gross sales and operations topic as to further dangers that may adversely have an effect on our working outcomes and monetary situation. We might not be capable to precisely report our monetary outcomes and different dangers and described in our prior press releases and in our filings with the Securities and Change Fee, or SEC, together with below the heading Danger Elements in our annual report on Kind 10-Okay and any subsequent filings with the SEC.
You might be cautioned to not place undue reliance on these forward-looking statements, which communicate solely as of the date of the convention name, and we undertake no obligation to revise or replace this info to mirror occasions or circumstances after at the present time hereof. All forward-looking statements are certified of their entirety by this cautionary assertion, which is made below the protected harbor provision of the Personal Securities Litigation Reform Act of 1995.
Earlier than we finish at present’s convention, I wish to remind everybody that this name will likely be accessible for replay beginning later this night by April 4, 2024. Please discuss with at present’s press launch for dial-in and replay directions accessible through the corporate’s web site at ir.onestopsystems.com.
Thanks for becoming a member of us at present. This concludes our convention. It’s possible you’ll disconnect.
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