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One Stop Systems, Inc. (NASDAQ: OSS) reported a consolidated revenue of $15.1 million for the fourth quarter of 2024, marking a 15.1% increase from the same period in 2023. This growth was driven by a $1.3 million increase in the Bressner segment and a $642,000 increase in the OSS segment. The OSS segment saw a 10% year-over-year rise, fueled by higher revenues from defense and commercial clients, as well as new customer-funded development orders.
Despite the revenue growth, the company reported a net loss of $3.1 million, or $(0.15) per share, compared to a net loss of $278,000, or $(0.01) per share, in the prior year quarter. The gross margin for the quarter stood at 15.7%, a significant drop from 33.7% in the previous year. This decline was attributed to a $1.2 million charge related to contract losses on a customer-funded development contract initiated in 2022.
Excluding this charge, the gross margin was 23.8%. Segment-wise, the OSS segment’s gross margin fell to 9.4% from 45.9% a year ago, while the Bressner segment’s margin was slightly down to 21.2% from 22.2%. Operating expenses increased by 15.1% to $5.5 million, primarily due to higher general and administrative costs related to sales and program management investments. Adjusted EBITDA showed a loss of $2.3 million, including the aforementioned one-time charges, compared to a positive $322,000 in the prior year period. As of December 31, 2024, cash and short-term investments amounted to $10.0 million, with total working capital at $24.0 million.
One Stop Systems Fails to Meet Expectations in Fourth Quarter
In the fourth quarter, One Stop Systems’ revenue of $15.1 million fell short of the expected $15.97 million. The company also reported a net loss of $3.1 million, translating to an EPS of $(0.15), which was below the anticipated EPS of $-0.036. The revenue shortfall and larger-than-expected losses were influenced by the $1.2 million charge related to contract losses and a broader decline in gross margins due to product mix changes.
Despite the revenue miss, the company’s strategic pivot towards high-growth markets showed positive signs, with both the OSS and Bressner segments contributing to the overall revenue increase. The OSS segment’s 10% revenue growth was particularly noteworthy, reflecting the company’s focus on defense and commercial sectors. However, the sharp decline in gross margins, particularly in the OSS segment, highlighted the challenges faced in managing costs and product mix.
The year-over-year increase in operating expenses also weighed on the financial performance. While the rise in expenses was in line with the company’s strategic investments in sales and program management, it contributed to the wider net loss. The adjusted EBITDA loss of $2.3 million, compared to a positive figure in the previous year, further underscored the financial pressures faced by the company during this transition period.
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One Stop Systems Expects Consolidated Revenue Between $59 Million and $61 Million
One Stop Systems has set an optimistic outlook for 2025, forecasting consolidated revenue between $59 million and $61 million. This projection includes an expected OSS segment revenue of approximately $30 million, representing over 20% year-over-year growth. The company also aims to achieve EBITDA break-even for the full year, with improvements in revenue and profitability anticipated to accelerate in the second half of 2025.
Management’s confidence in achieving these targets is based on current trends and an expanding sales pipeline. The focus on high-growth markets and the strategic shift towards defense and commercial sectors are expected to drive revenue growth. Additionally, the company does not anticipate further significant charges related to the customer-funded development contract or inventory adjustments, which should support margin improvements.
The company’s guidance reflects a commitment to executing its transformation strategy and capitalizing on opportunities in high-margin markets. While challenges remain, particularly in managing costs and product mix, the strategic investments made in 2024 are expected to yield benefits in 2025.
Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.
About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
