Earnings Call Transcript - OSS Q2 2022

Operator, Operator

Good afternoon, and thank you for joining us today to discuss One Stop Systems' Financial Results for the Second Quarter ended June 30, 2022. With us today are the company's President and Chief Executive Officer, David Raun; and Chief Financial Officer, John Morrison, as well as the company's Chief Sales and Marketing Officer, Jim Ison. Following their remarks, we will open the call to your questions. Then before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made by management during the call. I would like to remind everyone that the call will be recorded and made available for replay in the Investors section of the company's website. Now I would like to turn the conference over to OSS' President and CEO, David Raun. Please go ahead, sir.

David Raun, President and CEO

Thank you, Nash, and good afternoon, everyone. Q2 was another good quarter for One Stop Systems as we achieved record Q2 revenue of $18.3 million, up 7% sequentially and up 23% over the same year-ago quarter. The strong growth of Q2 was largely attributable to two factors: continued strength of our customer base in the media and entertainment space, where revenue grew 135% to a record $6.4 million, and our European unit Bressner, which also performed exceptionally well with revenue up 31% to $7.6 million. If you've been following our growth, you likely noticed variability in our margins from quarter to quarter, primarily based on the revenue and product mix from our top three customers within any given quarter. The first half of the current year was marked by a higher volume of lower-margin products in both our U.S. and European markets, resulting in gross profit from the quarter totaling $5.2 million, which is up 12% from the year-ago quarter, yielding a gross margin percentage of 28.4%. Our aggregate margin percentage was down by a few points. The higher overall revenue and margin dollars enabled investments in increased R&D and marketing for our higher-margin businesses, namely AI Transportables, across commercial and military markets worldwide, including additions to our sales team and our new advisory board made up of industry experts. Supply chain constraints affecting our entire industry continue to be a challenge, occasionally impacting the profile of the product we ship in any given quarter. It only takes one inaccessible component out of hundreds in assembly to delay a shipment. To combat this, our inventory management team constantly reviews the status of component availability, making strategic buys to ensure availability or fulfillment of customer orders and acting as a hedge against cost increases, all while reducing risk to the business in both the short and long term. We are still experiencing 52-week lead times and longer on some key components. Though we are mitigating the constraints imposed by supply chain issues, we expect these challenges to persist through the remainder of the year and likely into the first half of next year. Yet, despite the supply chain issues affecting shipment timing, thanks to our strong OSS team, our overall revenue growth remains on track. Although we continue to invest in AI Transportables, we have remained cautious regarding spending, which has resulted in operating expenses as a percentage of revenue improving to 26.2% versus 27.7% in the year-ago quarter. Being cash flow positive, we have been putting our cash to work with strategic and resourceful inventory purchases. At the end of the second quarter, we had approximately $20.4 million in inventory, of which $11.6 million is designated for our core OSS business and about $8.8 million for Bressner. I am glad to report that firm customer orders are associated with the vast majority of this inventory. Due to supply chain constraints, the higher inventory levels are expected to last at least through the end of the year. Now before I review the outlook for the rest of the year, including an update on our autonomous truck and AI Transportable strategies, I'd like to turn the call over to our CFO, John Morrison, who will take you through the financial details of the quarter. Then our Chief Sales and Marketing Officer, Jim Ison, will provide additional insights into our new product introductions, program wins, and growing sales pipeline. John?

John Morrison, Chief Financial Officer

Thank you, David, and good afternoon, everyone. Thank you for joining us today. Earlier today, we issued a press release with our financial results for the second quarter ended June 30, 2022. The release is available in the Investor Relations section of our website at onestopsystems.com. As David mentioned, our second quarter revenue was $18.3 million, which was up 23% from the same year-ago period. Our core OSS business revenue increased 18% to $10.7 million in the second quarter, representing 59% of total revenue. Revenue from Bressner, our European subsidiary increased 31% to $7.6 million, which represented 41% of total second quarter revenue. This increase was due to increased market share, made possible by strong sales efforts and strategic inventory buys. Gross profit in the second quarter increased $548,000 to $5.2 million. The gross margin for our core OSS business decreased 3.7 percentage points from the same year-ago quarter to 33%. This was largely due to the strength of our record media and entertainment revenue, which was lower margin. Bressner's gross margin percentage also decreased slightly to 21.9% in the second quarter compared to 22.6% in the same year-ago quarter, primarily due to increased material and transportation costs. Overall, our gross margin was 28.4% in the second quarter compared to 31.2% from the same year-ago quarter. The aggregate 2.8 percentage point decrease from the prior year quarter was primarily due to increased revenue from our lower-margin media and entertainment customer and strong Bressner revenue. It is important to note that in addition to focusing on increasing revenue from higher-margin product sales, we are working to improve our margins through providing more standard products with unique OSS value-added content. We are increasing prices and enhancing our quoting capabilities to reflect real-time parts pricing and greater manufacturing efficiencies. Our overall quarterly operating expenses increased 16% to $4.8 million, while operating expenses as a percentage of revenue improved to 26.2% compared to 27.7% in the same year-ago quarter. This increase in operating expenses was primarily due to our investments in pursuing the AI Transportable market, resulting in increases of $246,000 in marketing and selling, $244,000 in R&D, and $173,000 in G&A. GAAP net income totaled $323,000 or $0.02 per diluted share, decreasing from net income of $1.7 million or $0.09 per diluted share in the same year-ago period that included a one-time benefit of $1.5 million or $0.08 per diluted share for forgiveness of our PPP loan and related interest. On a non-GAAP basis, net income was $871,000 or $0.04 per diluted share for the quarter, up from $812,000 or $0.04 per diluted share in the same year-ago period. Adjusted EBITDA, a non-GAAP metric, was $1.2 million or 6.5% of quarterly revenue as compared to $1.4 million or 9.3% of quarterly revenue in the same year-ago quarter. Both of our non-GAAP net income and adjusted EBITDA excluded the PPP loan and interest forgiveness. Now turning to the results for the first half of 2022 as compared to the first half of 2021. Revenue increased 25% to a record $35.4 million. Our core OSS business increased 20%, contributing $21.3 million of total revenue, while Bressner contributed $14.1 million, an increase of 34%. Our overall gross profit improved $1.3 million to $10.3 million or 29.2% of revenue, compared to $9.1 million or 32.2% of revenue in the first half of 2021. Gross margin for our core OSS business decreased to 34.3% as compared to 37.3%, largely due to the 80% year-over-year revenue increase from our media and entertainment customer. Bressner's gross margin decreased to 21.5% due to higher transportation and material costs as compared to 23.6% a year ago. For the second half of 2022, we expect margins to be slightly above but substantially consistent with the first half. Our total operating expenses increased 12% to $9.3 million, primarily due to an increase of $549,000 in selling and marketing expense resulting from marketing, trade shows, and travel, and an increase in R&D expense of $656,000 for the development of new standard products for the AI Transportable market. These expenses were partially offset by a decrease of $210,000 in G&A expenses. Operating expense as a percentage of revenue decreased to 26.3% compared to 29.4%, reflecting ongoing cost containment efforts. Income from operations increased $260,000 to $1.1 million compared to $792,000 in the first half of 2021. Net income on a GAAP basis was $902,000 or $0.04 per diluted share compared to $1.7 million or $0.09 per diluted share, which included a one-time benefit of $1.5 million or $0.08 per diluted share due to forgiveness of our PPP loan and related interest. After accounting for this one-time benefit on a pro forma basis, this results in a year-over-year increase of $618,000. Non-GAAP net income totaled $1.8 million or $0.09 per diluted share as compared to $1.5 million or $0.08 per diluted share in the same year-ago period. Adjusted EBITDA totaled $2.6 million or 7.3% of revenue compared to $2.5 million or 8.7% of revenue in the first half of 2021. Both non-GAAP net income and adjusted EBITDA excluded the PPP loan and interest forgiveness. Now turning to our balance sheet. On June 30, 2022, cash and cash equivalents totaled $2.9 million, with short-term investments of $11.5 million for a combined total of $14.4 million. This compares to $15.8 million on March 31, 2022. During the second quarter, we invested an additional $4 million in inventory. Our cash position provides us stability and flexibility to respond to supply chain issues with investments in inventory, changes in our business, and challenges imposed by external global economic influences such as inflationary pressures and the Federal Reserve's interest rate increases. This completes our financial review for the quarter and the first half of the year. I'd like to now turn the call over to our Chief Sales and Marketing Officer, Jim Ison. Jim?

Jim Ison, Chief Sales and Marketing Officer

Thank you, John, and good afternoon, everyone. In Q2, we added four new major program wins, including two AI Transportable wins: one for a mobile shelter application and the other for an autonomous surface ship program. The remaining two program wins were in commercial aerospace and medical imaging markets. We also added five new pending major programs during the quarter; two of these opportunities are AI Transportable programs for telecommunications and military data storage units. For reference, we expect our pending major programs to generate revenues of $1 million or more over four years with a 60% or greater expectation of closing. Our current pipeline of pending major programs totals 32, with half of these involving AI Transportable applications due to our focused efforts in this market. During the quarter, we also participated in four industry events focused on autonomous trucks and AI Transportable applications in military and commercial aerospace. Aligned with our strategy to bring more standard products to the AI Transportable market, we shipped Centauri Systems that we announced in April to one of our autonomous truck customers. Centauri is a PCI Express Gen 4 NVMe rugged storage solution, offering high capacity and a proprietary compact, hot-swappable canister, ideal for capturing and transporting the vast amounts of data generated in autonomous vehicles. Also on the technology front, we are one of the first developers to ship PCI Express Gen 5 technology, key to our AI Transportable and technology leadership strategy. This advancement doubles the performance of PCI Express Gen 4 and is expected to be deployed in multiple additional OSS products over the coming quarters, including our next innovative product to be announced at the ADAS in Autonomous Vehicle Technology Expo in San Jose, California in September. On the thought leadership front, we released several AI Transportable expert articles and white papers in Q2, covering topics such as AI Transportable design, autonomous driving, and PCI Express acceleration for high-performance applications. An industry magazine, Aerospace and Defense Technology, featured our article entitled 'Designing Transportable, High-Performance AI Systems for the Rugged Edge' in their June 1 issue. Now I'd like to turn the call back over to David.

David Raun, President and CEO

Thank you, John and Jim. Our teams at OSS continue to execute, generating solid results primarily from our traditional customer base and applications. Although our value proposition in some established businesses like media and entertainment and the Bressner unit in Europe may not generate the margin percentages that we aim for in the coming years, they still generate positive margin dollars and income for OSS. We are pleased that this segment of the business continues to grow and helps fund our investments in AI Transportables. This year, we validated the multibillion-dollar opportunity for AI Transportables while remaining cash flow positive, profitable, and not taking on domestic debt, all during an unprecedented time in history. Our cash position has allowed us to invest in higher inventory levels, additional sales personnel, and industry leaders on our new advisory board to ensure growth and prosperity for OSS. Our objective is clear: leadership in the fast-growing AI Transportable market. Currently, OSS is supplying compute and/or storage solutions to three of the leaders in the Level 4 and 5 long-haul hub-to-hub autonomous truck market. Our products work in conjunction with our software to gather, store, and/or process data from multiple sensors embedded around the vehicle, including LiDAR, radar, and cameras. We believe that all three of these customers could potentially appear on our top 10 customer list in 2022, and over time, could grow to be some of our largest accounts. Although our relationship and the products we supply vary, we continue to learn and lead the market as we define next-generation products. Beyond autonomous trucks, we've also seen interest and activity with other vehicles, including shuttles, buses, and ships. We've commented previously that we expect the opportunity for AI Transportables to be significant within military applications across various theaters. These applications will take time to close and even longer to generate revenue, but we are engaged with multiple high-profile programs, including drones, aircraft, ships, and land vehicles. These applications are perfect for disruptive solutions from OSS, where we provide the highest performance without compromise and compact rugged form factors. We look forward to sharing more on this front in the future as these programs become wins. Whether in a military arena, autonomous trucks, or other AI Transportable applications, OSS is bringing the high-performance technology commonly found in environmentally protected data centers out to the very edge, contrasting with the typical approach that relies on rugged, lower-performance embedded solutions. Although there are many solutions in high-performance computing, OSS stands out at the high end, providing uncompromising performance for demanding AI and autonomous applications in some of the harshest environments within the AI Transportable domain. To help navigate and accelerate our progress in this multibillion-dollar AI Transportable segment, especially given the complexities involved with military applications, we have formed a Strategic Advisory Board over the past quarter. The advisors include retired high-ranking military officers and corporate executives with decades of experience in AI, unmanned vehicles, technology, high-performance computing, cooling technology, and M&A. Their insights are crucial for our product and market strategies, as well as for establishing relationships within targeted organizations and the armed forces. Now, looking at our outlook, the revenue outlook for Q3 of 2022 is $18.5 million, representing a 16% growth over the same quarter last year. We believe future growth for OSS will be driven by our focus on high-performance AI transportable platforms for commercial, military, and industrial applications. The strength of our balance sheet empowers us to invest in new product development and secure our business's stability while maintaining the flexibility to adapt to changes in market conditions. I would like to extend my appreciation to all of our OSS team members for their contributions and unwavering commitment to quality, productivity, and strong financial performance. I would also like to thank our stockholders and customers for their continued support as we pursue these significant opportunities. Now with that, I'd like to open up the call to address your questions. Nash?

Operator, Operator

We'll take the first question from Joe Gomes at Noble Capital.

Joseph Gomes, Analyst

So the first one, I want to lead off here is on the inventory. You mentioned, since I think the middle of last year, Bressner's performance because of the availability to inventory. Just maybe you can square the circle, so to speak, and why Bressner seems to be able to get all the inventory and have that strong availability, while you're not able to get some of the other inventory for some of your other products? I mean, is that the supply chain that different for the type of inventory that you're getting there for Bressner versus the other core OSS? And maybe you could just give us a little more color or detail into that, please?

David Raun, President and CEO

Yes, this is Dave. Thanks for the question. I think the first thing to keep in mind is that since Bressner is more of a value-added reseller in addition to what they provide for us in OSS, they can pick up market share more effectively. So that's what's beneficial. When we make an investment, we can allocate products to them that other distributors might be able to sell as well. In the case of One Stop Systems, they are either buying our product or purchasing from someone else entirely. So it's not like if we build a product that you can readily buy from another source. That's one dynamic that gives us the opportunity to increase business by gaining market share and driving strong sales. For us, I think we've continued to grow every quarter. We've consistently beaten guidance, and that's because we've maintained adequate inventory. We don’t ship everything, but we know that going into the quarter. Ultimately, we get what we need out the door to meet our numbers.

Joseph Gomes, Analyst

Okay. And maybe you could talk a little bit, it looks like we haven't been seeing much on the military customers doing much in the way of sales this year. Is that accurate? And do you expect that to be a second half of the year event?

David Raun, President and CEO

Yes. First of all, on the design front, we have more military activity than we've ever experienced, which is very exciting. These are substantial programs we're engaged on. However, in terms of generating revenue at present, our military revenue has followed a typical first-half pattern. We usually see a stronger second half. We began this year with some of our major military clients exhibiting strength, but some forecasts have been pushed back. Fortunately, we haven't lost the business, and we expect next year to be robust for the military sector. For the remainder of this year, we anticipate revenue to resemble what we've seen in the first half, which aligns with John's comments about margins being stable for the rest of the year.

Joseph Gomes, Analyst

Okay. And you discussed production line efficiencies last quarter. Could you clarify what specifically you mean by that? What progress have you made in implementing those efficiencies to enhance production?

John Morrison, Chief Financial Officer

We will be executing subassemblies and conducting some of the manufacturing in Mexico. One reason for this choice is that there are opportunities elsewhere, but we are focused on ensuring that products are delivered while balancing constraints in shipping and air travel, as well as the high transportation costs. We will handle these subassemblies in Mexico.

Joseph Gomes, Analyst

Okay. And then, one last question, if I may. Last quarter, there was mention regarding AI Transportables and potential opportunities in the agriculture and mining sectors. I didn’t hear much on them today. Can you provide an update on those two verticals?

John Morrison, Chief Financial Officer

Yes, we've referenced those sectors as potential areas for growth, leveraging what we’ve learned in the autonomous truck space. However, they haven't progressed since our last meeting, as we are focusing our limited resources on areas with active developments. We are beginning engagement with the mining sector, but it's still in the early stages, and I don't have much to say at this moment. The significant excitement in recent weeks has stemmed from military programs.

Joseph Gomes, Analyst

Great. I’ll get back in the queue. Thanks for taking my questions.

Operator, Operator

We will take the next question from Brian Kinstlinger, Alliance Global Partners.

Brian Kinstlinger, Analyst

Sorry if I am repeating; I joined a little late. I heard, I think, that you have three customers in the Level 4 and 5 autonomous vehicle space that are generating some revenue through either piloting or testing. Can you talk about how much revenue was generated from those customers in the second quarter? Moreover, how many additional customers do you expect to progress to a similar status in the next 12 to 18 months?

David Raun, President and CEO

Yes. First of all, we’ve chosen not to specify the exact revenue from that segment, but I can say that it's increased quarter-over-quarter. We expect to see more in the second half than we did in the first half. I reiterate that we could potentially have all three, or at least two of them, end up among our top 10 customers in 2022. These customers could yield approximately $1 million or potentially more. They all have the potential to escalate to higher volumes. Currently, we are engaging with other potential customers, but I cannot predict how many will materialize.

Brian Kinstlinger, Analyst

Okay. You and I have discussed your main customer generating slightly lower margin revenue. Firstly, are you able to increase pricing due to rising material costs? Secondly, when might you be able to renegotiate their pricing?

David Raun, President and CEO

First of all, we do have a contract, which includes pricing dynamics, both increases and decreases. There’s a lag effect we must acknowledge. We have been able to implement price changes, and we've also sought ways to enhance efficiency in our production processes. I want to emphasize that one of our strategies with the AI Transportables initiative is to avoid simply taking on any business that comes our way. If a business isn’t strategic to our future, we are selecting to pass on it. Our large customer requires minimal engineering and R&D involvement, generates solid revenue, and maintains overall profitability. When that contract comes up, opportunities may arise to negotiate, but our value to them isn’t as high as what we can achieve by offering an AI Transportable, where we can provide a more comprehensive solution.

Brian Kinstlinger, Analyst

Great. Lastly, regarding government projects, is there a common theme causing delays, such as a continuing resolution? I’d like to better understand why we may not see an uptick in the second half of the year based on these delays.

David Raun, President and CEO

Yes. First of all, it is not entirely clear that the delays are due to budgetary or economic issues. What we do know is that one of our key customers will account for a significant portion of the business. We have a multiyear contract that is coming to a conclusion this year. Initially, they planned to order everything they anticipated from that contract, but they did not receive all the orders from their end customer, like the Navy and Air Force. Fortunately, we are in the process of securing a new contract. The good news is that the remaining business could be somewhere between everything we have ever shipped to potential doubling that amount. This suggests we will see new contracts that both extend the existing one and result in continuity for next year. As of today, it appears that next year could be quite favorable for us with that customer. Moreover, the activity I've described in the military area may result in reasonably sized orders in labs even if they are not in mass production yet.

Jim Ison, Chief Sales and Marketing Officer

There is another point just on that. We are the sole source provider on that contract.

David Raun, President and CEO

Correct. Yes, that's true. This is not something we are at risk of losing; it's merely a matter of timing. These orders have not disappeared. Their plans to implement these technologies in various aircraft remain in place, but unfortunately, it seems there are delays. I will reiterate that there are other military programs we are actively pursuing, and our objective is to convert those this year, while maintaining a conservative approach to our relationships with you.

Operator, Operator

We will now take the next question from David Williams from Benchmark.

David Williams, Analyst

Congrats on the progress in revenue growth. Forgive me for joining late, but I wanted to ask about your significant customer in the media and entertainment sector. How long do you anticipate that strength will persist in terms of revenue? Should we expect it to decrease a bit next year? Also, how do you see that revenue trend playing out in Q3?

John Morrison, Chief Financial Officer

They are performing exceptionally well. We had an exceptionally large quarter this past period, which we intentionally shared with the market to illustrate the quarter's dynamics. We expect them to maintain strength for the remainder of this year, but we anticipate that this quarter may be somewhat of an anomaly and may be more aligned with previous quarters thereafter. I can provide additional color on this; their virtual products, which drove revenue last year, continue to be their strongest growth area. They commenced selling large gathering products this year, but faced some setbacks due to various external factors. The U.S. market has shown decent performance, and Japan is promising as well, although regions like China, Russia, and Europe have not performed strongly. Nonetheless, we are still achieving solid numbers without substantial contributions from those markets.

David Williams, Analyst

Okay. And regarding Bressner, could you provide more insight into the inventory investments there and what is driving that business growth?

David Raun, President and CEO

We have an extremely skilled team at Bressner, combined with strong leadership, which has placed them well within the marketplace with a good reputation. We have invested significant time working with the team to conduct these strategic buys and secure favorable positions in the market. We hope this will translate into market share that we can consistently maintain over the long term.

John Morrison, Chief Financial Officer

There was one large long-term contract that extends through 2024, for which we made strategic investments to ensure we can fulfill that order through 2024.

David Raun, President and CEO

Because they require the same product or a similar offering.

David Williams, Analyst

All right, great. From a market perspective, I’ve noticed that the end market demand seems to be slowing on the consumer side. Are you seeing a better availability of products, and how do you think this will play out for the remainder of the year?

David Raun, President and CEO

Yes, that is an interesting question. We’re seeing reports about DRAM and similar products, but those typically don’t align with our requirements. Our needs mainly involve GPUs, PCI Express switches, and several other components that continue to experience long lead times. We have not observed any significant changes in those areas yet. We keep a close watch on the situation, and that’s about all I can say with certainty right now.

David Williams, Analyst

Alright. Are GPUs your primary concern, or what other areas are posing hurdles?

David Raun, President and CEO

I would say that switches are among our biggest concerns, as we have a switch in nearly every product we offer. Our core strength compared to competitors lies in our expertise in PCI Express and related technologies from providers like NVIDIA. Consequently, virtually every product we ship incorporates a switch, which is high ASP and in high demand, but they are also enduring 52-week lead times, exemplifying one of our key challenges.

Operator, Operator

We will take the next question from Max Michaelis from Lake Street Capital Markets.

Maxwell Michaelis, Analyst

Nice job on the quarter and the outlook. A couple of questions. First, could you share the mix of your major pending opportunities? How many involve autonomous trucking, and what do you expect in terms of trends?

David Raun, President and CEO

Of the 32 outstanding projects in our pipeline right now, there are four in autonomous trucking that have yet to close. This does not include those that have already closed. So the current breakdown is about 50-50 between AI Transportables and other applications.

Maxwell Michaelis, Analyst

Could you delve a bit deeper into your Advisory Board? What are your goals, and are there particular industries where you’re noticing strengths?

David Raun, President and CEO

When we established the board, our primary focus was on navigating military engagement, which is why we brought on several distinguished individuals with military backgrounds; seven out of nine advisors have experience in this field and are supporting us on this front. Their expertise ranges from identifying potential areas where we might not have visibility into key decisions to providing insights into advanced technologies influencing our discussions. Their connections can aid us in engaging with companies like Raytheon, helping us discover their military clients, such as the Air Force. They assist not only in navigating opportunities but also in making introductions and letting us know about significant trends or events we should monitor. Importantly, many are deeply invested in introducing high-performance technology into the military; a sentiment that stems from personal experiences, some shared stories indicate a strong motivation to ensure our products reach those in need.

Maxwell Michaelis, Analyst

Lastly, for Q3, what is driving the expectation of greater performance next quarter?

David Raun, President and CEO

The anticipated performance improvement reflects a revenue outlook of $18.5 million. Pricing remains solid, and while our large media and entertainment customer continues to perform well, we anticipate growth not just in that segment but also across others. Several key customers' contributions, particularly outside of the major segments like Bressner and media and entertainment, were delayed in Q2. These shipments are now expected to occur during Q3 due to previously mentioned supply chain issues.

Operator, Operator

It appears that we have no more questions. I'd like to turn the conference back to our speakers for closing remarks.

David Raun, President and CEO

Thank you, Nash. And thank you, everyone, for joining us today. We believe the best is yet to come, and we look forward to meeting with all of you again in November to report on our progress as we pursue these many opportunities ahead. Meanwhile, please continue to stay safe and healthy, and feel free to reach out to Jim, John, or myself at any time. So Nash, why don't you wrap up the call?

Operator, Operator

Thank you, sir. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. One Stop Systems cautions you that statements in the presentation are not a description of historical facts but rather forward-looking statements. These statements are based on the company's current beliefs and expectations. Such forward-looking statements include those regarding the company's expectations for revenue growth generated by new products, design wins, or M&A activity. The inclusion of such forward-looking statements and others should not be regarded as a representation by OSS that any of its plans will be achieved. Actual results may differ from those set forth in the presentation due to the risks and uncertainties inherent in our business, including, without limitation, that the market for our products is developing and may not develop as expected; military conflicts, global pandemics, and other disasters or public health concerns, including COVID-19 in regions where we have operations, customers, or supply chains may affect such markets. Our operating results could be negatively impacted by inflationary pressures, supply chain constraints, increased interest rates, or other economic conditions. Our operating results may fluctuate significantly, making future operating results difficult to predict and could cause operating results to fall below expectations or guidance. Our ability to successfully integrate the operating systems, technologies, product offerings, and personnel with acquired companies, if any, may prove challenging and adversely affect our financial results. Our products face competition, including competition from the customers to whom we may sell, and competitive pressure from new and existing companies may harm our business sales, growth rates, and market share. Our future success depends on our abilities to develop and successfully introduce new and enhanced products that meet the needs of our customers. The likelihood of our design proposals translating into design wins is uncertain and revenue may never be realized. Our products fulfill specialized needs and functions within the technology industry, and these needs or functions may shift, potentially rendering our products obsolete. New entrants may harm our competitive position. We rely on a limited number of suppliers to support our manufacturing process, and if we cannot protect our proprietary design or intellectual property rights, our competitive position may suffer, which could also incur significant expenses to enforce our rights. Our international sales and operations subject us to additional risks that can adversely affect our operating results and financial condition. If we fail to remedy material weaknesses in our internal controls or financial reporting, we may struggle to accurately report our financial results and other risks described in prior press releases and filings with the Securities and Exchange Commission, including under the heading Risk Factors in our Annual Report on Form 10-K and any subsequent filings. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the call, and we undertake no obligation to revise or update this information to reflect events or circumstances thereafter. All forward-looking statements are qualified in the entirety of this cautionary statement, made under the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Before we end today's conference, I would like to remind everyone that this call will be available for replay starting later this evening through August 25, 2022. Please refer to today's press release for replay instructions available via the company's website. Thank you for joining us today. This concludes our conference. You may now disconnect.