Good afternoon, and thank you for joining us today to discuss One Stop Systems' financial results for the second quarter ended June 30, 2021. With us today are the company's President and Chief Executive Officer, David Raun; and Chief Financial Officer, John Morrison. Also joining today is the company's Chief Sales and Marketing Officer, Jim Ison. Following the remarks, we will open the call to your questions. Before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made by management during this call. I would also like to remind everyone that today's call will be recorded and will be made available for replay via the instructions in today's press release in the Investors section of the company's website. Now I would like to turn the call over to OSS President and CEO, David Raun. Please go ahead.

Thank you, Christie, and good afternoon, everyone. I'm happy to report that OSS achieved record revenues for the first half of 2021. Advancements across the company are the result of further execution on our growth strategy. During the second quarter of 2021, we exceeded our Q2 revenue expectations by over $500,000, closing the quarter with $14.9 million in total revenue, an increase of 12% over last quarter and up 28% over the same quarter last year. The growth reflects a broader number of customers, additional programs with major accounts and at least a few indications of return to normalcy. The strong top line performance in Q2 was backed by solid bottom line improvements, with net income increasing $1.7 million year-over-year and adjusted EBITDA up by $1.3 million, reaching 9% of the total quarterly revenue. Year-over-year gross margin improved 2.6 percentage points for the quarter and was up 5.3 percentage points for the first half of 2021, attributable to a refined product mix and a focus on increased efficiencies across our business segments. Additionally, executing on our long-term strategic vision and product road map continues to be a company priority. This plan includes strengthening our value proposition in the fast-growing edge computing industry and becoming nothing less than the market leader in the AI transportable space. As you may recall, the target market requires the highest performance computing in a challenging mobile environment. We believe our execution to this plan, company reorganization and improved Board composition has contributed towards a tripling of shareholder value over the past 2 years. There is significant focus these days on diversity in the boardroom and the SEC recently approved NASDAQ's proposal to include gender and race requirements as they relate to directors in its listing rules. We applaud this effort and thought you might be interested in knowing that 3 of our directors are women and 2 of our directors are from racial minorities far surpassing the new NASDAQ requirements. As a company, we remain committed to and find strength in our diverse and talented staff and directors. We'll provide operational highlights and our outlook for the rest of the year in a moment. But first, our CFO, John Morrison, will take you through our financial performance in the second quarter and the first half of the year. And then following John, our Chief Sales and Marketing Officer, Jim Ison, will provide insights into our AI transportable strategy and related customer activities. John?

Thank you, David, and good afternoon, everyone. Thank you for joining us for this call. Earlier today, we issued a press release with our results for the second quarter and first half ended June 30, 2021. The release is available in the Investor Relations section of our new company website at onestopsystems.com. Reviewing our statement of operations. We achieved second quarter revenue of $14.9 million, which was up 12% from the $13.3 million in the first quarter and up 28% from the $11.6 million in the same year ago period. The revenue increase for Q2 over the prior year quarter was a result of proportionate growth from both OSS and Bressner, our European subsidiary. This growth was primarily driven by improvements in the sale of ruggedized servers into the media and entertainment markets, our differentiated military AI transportable data processing and storage products as well as continued expansion of our customer base and new applications within key accounts. There was a notable increase in product orders and revenues from our media and entertainment customer with new virtual -- with their new virtual products gaining adoption and momentum. Our core OSS business increased 25% to $9.1 million as compared to the $7.3 million in the same year ago quarter. Bressner revenue increased 34%, contributing $5.8 million in the second quarter as compared to $4.3 million in the same year ago period. OSS gross profit in the second quarter of 2021 was $4.7 million as compared to $3.3 million in the second quarter of 2020. This is an increase of $1.3 million in gross profit on a revenue growth of $3.3 million. Overall, we had a strong gross margin of 31.2%, an increase of 2.6 percentage points versus the same year ago period. The improvements in our quarterly gross margin were attributable…

Thank you, John, and good afternoon, everyone. Over the last year, as COVID shuttered practically all in-person events, we adapted our marketing efforts to virtual outreach and events. For example, in April, we hosted a webinar called Turning Large Data Set IP into AI Gold, which featured speakers from OSS and KIOXIA. The webinar discussed collecting, encrypting and creating value quickly from large AI data sets in defense, aerospace, autonomous vehicles and security applications at the edge. With an improving business environment, our marketing efforts can now again include in-person events. We kicked off the return to in-person events with our demonstration last week of a long-range visual observation system utilizing AI at the Sea-Air-Space 2021 Conference that was sponsored by the U.S. Navy. We were pleased with the attendance and the presence of decision-makers, Navy leaders and senior management. At the event, we also demonstrated our market-leading AI on the Fly, high-speed PCI Express interconnect, NVMe storage and scalable GPU compute systems that are required by the most demanding military and aerospace applications. We expect the return to live interaction and face-to-face selling will be more productive and help fuel our future revenues. In the second quarter, we won 3 new major opportunities. As a reminder, major program wins are those expected to yield $1 million or more of revenue within 4 years. These new wins include a medical control system; an edge flash storage program primarily targeting edge data recording, storage and transportation applications; and lastly, a GPU accelerated training and inferencing system with a major vehicle supplier in Germany, increasing our footprint in the autonomous vehicle market. These successes brought our total wins year-to-date to 6. Regarding our pipeline, in addition to the confirmed wins, we have 17 major pending opportunities we are focused on closing. On the product front, we shipped 2 major products earlier this year into the AI transportable marketplace, including our flagship GAS-R GPU accelerator that has been in airborne trials with the Navy. We are also shipping this quarter our latest SDS rugged server that was designed into a military mobile data center application. Our sales team is eagerly anticipating the introduction of additional next-generation standard products currently under development and testing. Now with that, I'd like to turn the call back over to David for our Q3 outlook.

All right. Thank you, John and Jim. In summary, we have made better-than-expected top and bottom line progress. With adjusted EBITDA at 9% of revenues for the first half, we are making solid inroads towards our adjusted EBITDA objective of no less than 10%. We continue to validate our AI transportable market focus through wins and product introductions. And we have received positive feedback on our product road map with key customers under NDA. And we plan to introduce a number of innovative next-generation platforms later this year and next. While we expect the effects of the pandemic will continue through 2021, we are seeing improving customer demand. Even our commercial aerospace customers, which were severely affected by COVID, are reengaging with us on new programs as well as bringing back programs previously put on hold. And although product demand is increasing, the supply chain continues to be a challenge with price increases and longer lead times. Our team is managing the fluid landscape on multiple fronts, including qualifying additional vendors, implementing extended purchase planning and other strategic and tactical activities. For example, advanced purchases of the parts have minimized the adverse impact on revenue but have also increased inventory levels temporarily. We continue to proactively manage the challenges imposed by the pandemic. And in doing so, our team has become adept at optimizing engineering and manufacturing processes, shipping products on time and not only protecting but increasing margins. Looking forward, we are providing revenue guidance of $15.9 million for the third quarter, which would represent 8% growth over Q2, 23% growth over the same quarter last year and a new record for the company for Q3 revenues. Thank you to all our shareholders for your support and joining us on this journey of growth and innovation. I'd also like to invite all prospective investors to reach out to us to become more acquainted with our story. Finally, my appreciation to our entire OSS team for their dedication to the success of One Stop Systems and their commitment to quality and productivity. Now with that, I'd like to open it up to questions. Christie?

[Operator Instructions]. We'll go first to Scott Searle from ROTH Capital.

Nice job, guys, in a very difficult environment. Maybe for starters, I'm not sure if I heard this in the opening remarks, but on the gross margin front, certainly, a lot of issues as it relates to the overall global supply chain. It seems like you guys have been doing pretty well. I was wondering your thoughts in terms of what the impact was in the quarter and how you're seeing that impact in terms of gross margins going forward? I know you've beefed up your inventory a little bit on the balance sheet. But what was the second quarter impact? What are you seeing for the second half of this year?

Frankly, I think the following is the dynamic. First of all, as far as the question is, are we leaving revenue behind because we didn't have the product. Sure, we have supply issues, but I think the demand that we're shipping reflects the real demand in the market. And so if anything was held up a little bit, it's really more of a reflection of somebody building inventory. So we feel good about that. We've had dynamics where we've pulled stuff in, pushed stuff out to stay on track. As far as the margins go, because we're so focused with the culture of the company and every aspect of the company to be more efficient and focused on margins, that's helped us offset price increases. In addition to that, we have actually reduced our costs by continuing to ask for cost reductions. And so we're doing all these things together to really offset that, including price increases to our customers.

Got you. And maybe if I could as well, on the OpEx front, it seems like you guys continue to do a very good job on that front. Is that -- the reported pro forma number in the second quarter, is that what we should be using as a baseline going forward? I know the PPP loan was removed from that as well. But given the road map and the investments that you're making, should we expect that to be moving up in any sort of a material fashion over the next couple of quarters?

No. I mean, it's going to go up a little bit with like additional trade shows, a little more travel. We're hiring a few people, but we are really -- just on the hiring front, for example, we get together on the executive group and really evaluate the requests on hires and make decisions based on the return on investment. So we're being real careful about it. So it will be up a little bit, but not too much.

And lastly, if I could, just kind of shift into the RFP pipeline. I think you said the number is now 17 meaningful opportunities. I wonder if you could give a little bit more color in terms of some of the end market dynamics there. Maybe the timing, it seems like you've been hitting 2 or 3 a quarter. Is that the same sort of level we should be thinking about? And maybe the gross margin profile as well on some of those newer wins. I think you continue to refine your go-to-market, which should certainly help out on that gross margin front. Does that contribute to a more favorable mix going forward? And how are you thinking about getting to a 40% kind of gross margin out there? What sort of time line should we be thinking?

So I'll take the first part of that. Our pipeline is continuing to be and hopefully expanding to 50% of AI transportable type markets. So as we're focusing on those markets, those are the types of accounts that we're adding to that pipeline. That tends to be -- when you focus more higher margin as well. So that's a good rule of thumb. We've continued to have about a 60% or better success rate. If you look at the last 3 years, we've been tracking this metric. So we've been pretty good at putting the ones in there that we know we have a good shot at winning.

Scott, I would just add that I'm hoping with us getting back to trade shows and meeting customers live, we can drive that number upward. And in the process, we're weeding out lower margin opportunities and focusing on the higher.

One last question, if I could, Dave. Given the recovery in some of your customers, particularly in the entertainment front, I just want to get better insight into the sustainability of that. I think that, that customer has shifted very much online into a virtual environment, but we started to see live concerts come back before second wave of Delta is kind of crossing the country now. Is there any risk in terms of -- I guess, what is built in for the entertainment vertical, if you will, like into the second half of this year? Do you have pretty good comfort and visibility on the front given pretty fluid dynamics in the U.S. right now and globally?

Yes. So the dynamic that's happened really is that what we're seeing and what we're shipping, which has come up quite a bit is primarily all their virtual products. And so we're excited about the fact we're doing those kind of numbers and yet it's not bringing back the large gathering events, which eventually will happen. We understand that they're well engaged with the large and gathering people now again. So we expect to see that later in the year, maybe it's late this year or next year, but the number is safe because -- the number appears to be in pretty good shape because of the success of the virtual products. I think what that means is that in 2022, we probably have a customer that's stronger than ever.

And next, we'll go to Eric Martinuzzi from Lake Street.

Congrats as well on the quarter, both on the revenue side but as well on the EBITDA, the positive swing in the profits, just you get to see the advantages of an efficient organization with that revenue growth just being amplified down in the EBITDA line. So nice work there. I had a question regarding revenue concentration. The -- in 2020, you had 2 customers that were 24% of the company's total revenue. Do you have any color that you can give us either on the quarter or on the 6 months for the impact that those 2 customers have had on your top line?

Both those customers have come back pretty strong. And as a result, the percentage of our total business has increased back up, but I'm not wishing that they -- I'm happy that they've showed up strong, but we continue to develop the other customers. Do you want to add anything to that, Jim, or John?

Yes. Even though you're referring to one of those that is a government contractor, we are actually participating in a greater number of programs. So even though it's within one name of a customer, we're actually selling into more programs within that customer.

Yes, that's a good point to raise because I know there are different buckets of money, so to speak. Okay. And then to your -- you were kind of headed towards elaborating a little bit on the expanding and broadening of the customer base, David, interested to know if you're seeing any trends whether geographically, vertically, you do serve such disparate parties, but anything showing up in the new customer numbers?

Not from a geographic standpoint, definitely more military type applications as we focus towards the AI transportable market. So that market space is pretty hot right now and especially with the budgeting and everything geared towards AI applications for the government continue to expand, and we expect to capture as much of that as we can.

And that is a focus to increase that portion of the business.

Okay. Now looking at your profit margins a year ago, the second half, you were pretty strong double-digit EBITDA margin despite some of the challenges that the business had, if I look at it on kind of a back half in its entirety. You're coming into the stronger part of your year when it comes to demand from defense and military and those have historically been higher gross margin. You also talked about a goal of north of 10% on the adjusted EBITDA margin. Is that to say we're kind of locked in there? Or could we still dip below that?

Well, first of all, one of the dynamics that we've tried to point out is that in 2021, because of the expansion of the programs and the additional customers we have in the military space, we've had that show up in the first half. So that percentage has actually more than doubled from 2020 to 2021. And so that's helped us on the margins and spread it out. So that's an addition to all the other things we're doing, but also in a dynamic world with the supply challenges. The second half, we would expect to be strong on margins like historic -- historically, they are, probably nothing probably in the similar range as you've seen before from us in that area.

Okay. All right. And then just on the pipeline, the 17 major opportunities in the pipeline, is this also skewing towards military DoD in line with the wins that you've knocked down?

Higher percentage is in military and over 50% is in AI transportable, which, by definition, is higher margin.

And next, we'll go to Joe Gomes from Noble Capital.

Nice quarter. So I just wanted to go back to the gross margin for a second. They were down sequentially. I was just wondering is that product mix. Or is there anything else there that would cause the gross margins to decline sequentially?

It's mostly product mix and then also we had some costs associated with the military program that brought the margins down a little bit. But if you look at us year-over-year for the first half, we're up, what is it, 5 percentage points, John? Yes. So we're pretty pleased with that.

Right. Okay. Just wanted a little clarification. And you talked a little bit about some of the commercial aerospace guys reengaging. I don't know if you could give us a little color what they were kind of doing pre-COVID either on a revenue type basis? Or what could -- if this continues and we start to get some of these customers back, what could that kind of add to the top line? And where are those margins on those products compared to the core margin?

Yes. So that business primarily came from the acquisition of CDI a number of years ago and back when they were stronger, that was more -- it wasn't a huge number, but it was in the say, the $3 million kind of range. That has dried up to a pretty small number in recent quarters. So really, the challenge there is because that's really part of AI transportables, is how do we take that to a whole another level. And that's one of the areas we're definitely engaged with. More focused, though, less on, say, entertainment systems for the aircraft more on data centers in the sky. We are -- where we're at with that really today is we're not seeing a whole lot of revenue show up yet, but where we had programs that were put on hold, we're starting to discuss them, starting to talk terms. And so we hope to start seeing orders from them. And the second thing is that they're reengaging on new programs that they're targeting either be things like data center in the sky or different communication or safety-type products.

Okay. And then just I hate to keep going back. But on the RFPs and the wins. So you've got 6 wins year-to-date last year. Year-to-date, you had 8 including 5 that you won in the second quarter. I mean, is this just timing still thinking you're on that path that in the last two years, you've won 16 of these that you'll still be in that same range by the end of the year?

Yes. So yes, you're right. We're a little off where we've been, but I do not believe that is an indication of the activity moving forward. We've put a lot of focus on the AI transportable space. That creates a little bit of disruption because we're refocusing people on the higher-margin business, and we've been selling in this virtual world for about 18 months. So I think it's really those dynamics, but we feel good about where we're headed and the things we're going to be able to do. So yes, but in absolute numbers, you're right, they're down a little bit. But hopefully, will get stronger in the coming quarters and be really strong next year.

Right, right. Okay. And one more, if I may. I mean, you talked about the supply chain issues and some of the inflationary pressures. The other big issue that a lot of people companies seem to be having is in staffing. And just wondering, are you guys seeing any issues there? Are you fully staffed and happy with where you are today?

Yes, we're okay on that front. We have found that searching for people is more challenging. We do tend to -- one of the reasons geographically where we're at since we're outside of San Diego in a more affordable area, people don't tend to move. And then also, we're seeing a lot of people moving from the Bay Area to Southern California. So those different dynamics are helping us. But we are staffed where we want to be today. And we have -- we just closed on another salesperson we've been looking for a while and we plan to do another one on that front.

And next, we'll go to David Williams from Benchmark Company.

Just wanted to dig in on maybe the typical design cycle as we think about some of the major customer wins or -- here. What does that typical, I guess, design cycle or win cycle look like from maybe first engagement to revenue?

Yes. So the -- on the commercial side of things, it's typically in the 6 to 12 months to design in and get them to the win category. On the military side, it could be anywhere from 12 to 24 months typically, but you're designed in for a longer period of time.

I would comment, though, we have multiple lists in the company that we're focused on. We have targeted list and all the stuff. So the target list would take that type of time frame. When Jim talks about the 17 pending opportunities, those are well down that funnel and that time -- in that time period.

And then maybe if you kind of think about the demand trends that you're seeing and maybe even through the quarter, where are you seeing the largest growth opportunities maybe outside of your focused AI transportables? But what other opportunities are you seeing? And where are you seeing the greatest level of demand, do you think?

Other opportunities outside.

We come across them, but we're really trying to focus on the AI transportables. I mean that's one of the things I'm really trying to drive with the organization. That's our focus. Now we do have other opportunities, and we can't just turn the ship too quick. So we continue to look at different things. Do you want to add to that, Jim?

So because of our innovation in the PCI Express Gen 4, generally quickly adopting that, going to Gen 5 when that's available. We get a lot of OEMs that may be not our $1 million accounts, but they do come to us for those technologies to be able to scale out GPU solutions or their own OEM I/O or instrumentation like test equipment, things like that for the early adopters. That tends to be very lucrative, and we've reported that in previous years as our PCIe Gen 4 business. So that's still a solid underlying business that really just takes its parts from our AI transportable strategy. So we won't lose that going forward.

[Operator Instructions]. We'll go next to Brian Kinstlinger from Alliance Global Partners.

Nice results. You mentioned a win rate has held up pretty steady on these major programs at 60% when you get to the point of putting them in this bucket. Are these RFP types, I think of the government, at least is where you're bidding against a number of competitors. And if so, then describe the competitive landscape and/or feedback you get when you're not selected.

Yes. So most of those accounts that we have there are usually firm fixed price agreements single source. So that includes the 5 different programs we have with our largest military customer. I believe maybe one of those is a bid for bid type of situation. We do get feedback from those customers as to why we weren't selected for, say, a bid for bid type of situation. But I'd say a good 60% to 75% of our contracts have been firm fixed price and are that sole source.

All right. So when you do Louise, is it because they went with another solution? Did they not award the contract? I'm just trying to understand since you win so often as to high win rate. What's the feedback when you don't win? Someone else had a better solution or price?

Yes. Particularly, on the military side, it's been -- we compete against in-house resources. So we have seen a loss where the customer wanted to go with our PCI Express. We bid it. They won the program and then decided that they want to keep it in-house and change the technology. So those type of things are the kind of feedback that we get. It's not really been on price. We win things even when we're higher priced. We have a pretty good service track record that keeps our customers coming back to us.

Great. And just one follow-up. On the military side, are you always going direct as a prime? Or is there an opportunity to partner with larger either system integrators or prime contractors that you can be part of a bigger solution?

Yes. The biggest piece of our business is with the prime contractors. So we don't go direct to the military on, I'd say, 80% of our projects. Most of them are through VARs or a prime contractor. We do have some direct Navy business that we do with them, also with the Army. But typically, you'll see us going through there the main military primes like Raytheons, Lockheeds, General Dynamics, those type of companies.

And now I'll turn it back to David Raun for closing remarks.

Thank you, Christie, and thank you, everyone, for joining us today. We believe the best is yet to come and we look forward to meeting with you again and reporting our progress as we pursue the many opportunities ahead. Meanwhile, please stay safe and healthy and feel free to reach out to John, Jim or me at any time. Christie, please go ahead and wrap up the call.

Thank you. And now we before -- now 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 the statements in the presentation are not a description of historical facts or forward-looking statements. These statements are based on 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 we expect, global pandemics or other disasters or public health concerns, including COVID-19, in regions of the world where we have operations, customers or source material or sell products that may affect such market. Our operating results may fluctuate significantly, which would make our future operating results difficult to predict and could cause operating results to fall below expectations or guidance. Our ability to successfully integrate the operation systems, technologies, product offerings and personnel with acquired companies may prove difficult and adversely affect our financial results. Our products are subject to 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 becoming design wins…