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.

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 2 factors: continued strength of our customer and media and entertainment space, the revenue from which grew 135% to a record $6.4 million, and our European unit Bressner, also performed exceptionally well. Bressner continues to leverage strong inventory investments, driving market share increases with revenue up 31% to $7.6 million. If you've been following our growth, you likely noticed that we have variability in our margins from quarter-to-quarter, primarily based on the revenue and product mix from the top 3 customers within a 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. That resulted 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%. So 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, in both the commercial and military markets throughout the world, including additions to the 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 of items in assembly to delay a shipment. Compact this, our inventory management team constantly reviews the status of component availability, making strategic buys to ensure availability or…

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. Bressner increase was attributable 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. As David mentioned previously, our 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. We are enhancing our quoting capabilities that reflect real-time parts…

Thank you, John, and good afternoon, everyone. In Q2, we added 4 new major program wins, including 2 AI Transportable wins, one for a mobile shelter application and the other for an autonomous surface ship program. The remaining 2 program wins were in commercial aerospace and medical imaging markets. We also added 5 new pending major programs during the quarter, 2 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 4 years with a 60% or greater expectation of closing. Our current pipeline of pending major programs totals 32 with 1/2 of these involving AI Transportable applications due to our focused efforts in this market. During the quarter, we also participated in 4 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, that is 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. This includes 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 in white papers in Q2. Topics included AI Transportable design, autonomous driving and PCI Express acceleration for high-performance applications. In 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 Dave.

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 of the established businesses like, media and entertainment and Bressner in Europe, may not generate the margin percentages that we seek in the future years. These generate positive margin dollars and income for OSS. We are pleased that this part of the business continues to grow and helps pay for 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. We have done this during an unprecedented time in history, and 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 storage -- and/or storage solutions to 3 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 3 of these customers could end up being our top 10 customer list in 2022 and over time, could be some of our largest accounts. Although our relationship and what we supply varies, 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 have commented in the past that we expect the opportunity for AI Transportables to be significant in the armed forces…

[Operator Instructions]. We'll take the first question from Joe Gomes, Noble Capital.

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, have that strong availability, but you're not able to get some of the other products for some of -- 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 -- will give us a little more color or detail into that, please?

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 do for us in OSS, they're able to pick up market share. So that's what's helpful. When we make an investment, we can put products there that other distributors might be able to sell whatever. In the case of One Stop Systems, they're either buying our product or they're buying phone else's entirely. So it's not like if we build a product that you can go buy from somebody else. So that's the one dynamic. So that gives us an ability to grow the business by stealing market share basically and really good sales. In our case, I think for the most part, we've been able to continue to grow every quarter. We've beaten guidance, and that's because we've had a good inventory in place. We don't ship everything. That's for sure. And we know that going into the quarter. But at the end of the day, we get enough of the door to hit the numbers.

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?

Yes. So on that, first of all, on the design front, we have more military activity than we've ever seen, which is just very exciting. These are very large programs we're proceeding on. But as far as revenue today, paying the bills today, in the first half of the year, we had kind of a normal military type revenue profile. What we normally have is a stronger second half. And going into the year, we had some of our large military customers very strong, but some of that forecast has gone out in time. Fortunately, we haven't lost the business and we expect next year to be a very strong military year. But the rest of this year, it's going to be kind of more like what we've had the rest of the first 6 months, and that reflects in John's comments about the margins being similar for the rest of the year.

Okay. And you talked last quarter and John, you mentioned it about production line efficiencies. Just wondering what exactly are you talking about there? What are you being able to do where kind of do you stand on those and implementing those to help drive efficiencies on the production line?

So we're going to be doing subassemblies basically doing some of the manufacturing in Mexico. One of the reasons for that is there are other opportunities elsewhere, but we are concerned on making sure that it gets delivered with the constraints of shipping and restrict and air travel and the high cost of transportation, we will be doing these subassemblies in Mexico.

Okay. And then one more, if I may here, also last quarter on the AI Transportables, you had mentioned or it was mentioned about the ag space and the mining verticals. Didn't mention anything really heard today. Can you kind of give us an update on those 2 verticals?

Yes. I mean we've commented on them, I think, really as being potential verticals in the future that could leverage of actually, what we're learning in the autonomous truck space. They haven't progressed any since that last meeting nor we focusing on them much, it would be with the number of resources we have, we're focused on things that are happening today. In the case of the mining one, we're starting to engage with it, but that's really early, and I don't have really much to comment on. I think the big thing that is blossoming in the last 90, 100 days is the military of these big programs. So that's where we're really excited right now.

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

[Operator Instructions]. We will take the next question from Brian Kinstlinger, Alliance Global Partners.

Sorry if I am repeating as I joined a little bit late. I heard, I think, that you have 3 customers, I think I heard right on the Level 3 and Level 4 or Level 4 and Level 5, sorry, autonomous vehicle space that are generating revenue and in some form, is it pilot or testing? First of all, can you talk about how much revenue has been generated in the second quarter from those? And then moreover, maybe you can talk about over the next 12 to 18 months, how many customers do you think will progress to move forward to be in a similar space? And maybe how you see that line of sight over the next 18 months in terms of goal points?

Yes. So first of all, we've elected not to specify the exact revenue from that part of the business, but I will say that it's increased quarter-over-quarter. We expect it to continue too. We'll do more in the second half than we did in the first half. And I go back to my statement that we could have possibly all 3, maybe 2, maybe 3 of them end up in our top 10 list. That means -- top 10 list means that we believe the $1 million approximately, maybe more. And they all have the potential that when these go to higher volumes. So these are very low volumes generating those dollars, there could be an inflection point somewhere on time, whether it be later in '23 or '24, where they could become our largest accounts in the company bigger than the ones we talk about today. As far as additional ones, we're pursuing, additional ones having this ongoing discussion with others. And I believe we will add some. I don't know how many, but there's definitely other ones to pursue than the 3 we have.

Okay. And then I think, you and I had a lot of conversations over time about some of your -- one of your top customers, who generate a little bit lower margin revenue. First, with that customer, are you able to increase pricing as material costs are going up? And then second, how do you think about over time? And when might you have the opportunity to think about renegotiating price with them?

So first of all, we do have a contract. The contract has dynamics as far as price increases and price decreases. There's a lag effect with it. And so we are able to do that and we have done that, where we've done other things just try to be more efficient at building their product. And I want to stress that one of our strategies when we implement this AI Transportable strategy was we wanted to stop just taking any business that showed up. And if a business is not strategic to our future, we are passing on most of it. In the case of this large customer, the engineering and R&D requirements are very low, the revenue is good and the profitability overall, of course, is solid. So eventually, that contract will come up. There's probably an opportunity to push it to some degree. But our value to them is probably not as high as what we will be selling to an AI Transportable where we're much more complete solution. We have software layering in a number of things to bring our value up over time.

Great. My last question related to government. Is there a theme that's causing a few projects to get delayed, such as a continuing resolution? I just like to understand better why the second half of the year won't be a material pickup based on delays what the possible theme is there?

Yes. So first of all, it's not 100% clear that it's due to budget or economic reasons. What we do know is that one of the key customers will make up a significant part of the business. We have a multiyear contract. The multiyear contract is coming to close this year. And their initial plan was to buy everything they expected to within that contract, but they didn't have all the orders from their end customer like the Navy and Air Force. But we are in the process of getting the new contract. The good news is it looks like the remaining business is still somewhere between everything we've ever shipped to doubling that. So we're talking about a new contract coming in place that will extend this one. And as a result, they'll be catching up from this year and also kicking off next year. So as of right now, it looks like next year could be a really good year for us with that particular customer. And then on top of that, the activity I told you about in the military space, a number of those are in a position where if things go as expected, they might buy a couple of units from us, but that could be a $1 million order here and there where they're putting them in their labs. So even though they're not in production yet, that could be very sizable and good margin for us also.

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

Correct. Yes. So that's not something we have a risk of losing or whatever. It's really a timing thing. It hasn't gone away. They still plan to implement it in all these aircraft. And it's unfortunate it looks like it's moved out. I will say, there's other military programs that we're pursuing that we're trying to turn for the year, and that's our objective. But we want to be conservative in our position with you guys.

[Operator Instructions]. We will take the next question from David Williams from Benchmark.

Congrats on the progress in the revenue growth. And forgive me, I jumped on a little bit late, but I wanted to ask a little bit just about your big contract or excuse me, your big customer in the media and entertainment space. And just kind of how long do you think that, that will -- that strength will remain in terms of just kind of the top line? Should we see that maybe trim down a bit next year? And just how do you think about that revenue for Q3?

They're doing very well. We had an exceptionally large quarter this past quarter and we purposely shared it with the market, which we normally don't to help explain the dynamics of the quarter. And -- but we expect them to remain strong the rest of the year, but we'd say that quarter is an anomaly probably go back more to the kind of things we've seen in the quarters before that.There -- I will give you a little more color on it as we understand it, their virtual products, which was driving all the revenue last year, it continues to be the strongest growth. They started selling the large gathering products this year, but they've had some false starts because of different dynamics in the world. The U.S. market is pretty good. Japan is pretty good, but places like China, Russia, Europe have not been as good, but we're still doing pretty good numbers without much of that.

Okay. And then just color, I know that I heard a little bit earlier about Bressner and just the inventory investments there to end the market share expansion. But is there any color maybe just around that? Anything in particular you think that's driving that business and the growth for Bressner?

Well, I'll say one thing. We've got a very talented team there, a very good leader, positioned well in the marketplace, a good name. And we've spent a lot of time working with the group to do these strategic buys and put these positions in. And hopefully, this is market share that we can continue over the long term. Anything else you want to add to that, John?

There was one large long-term contract that takes them through 2024, which we made strategic investment fund to make sure we're able to fulfill that order through 2024.

Because they require the same product or something right [indiscernible]

All right. Great. And then maybe from a market perspective, just kind of give us some of the dynamics where we've seen -- it seems like at least the end market demand is slowing on the consumer side, are you starting to see maybe a little better availability of products and maybe just how you think about how that's going to play out the rest of the year for you.

Yes. I mean it's an interesting question. You read in papers like I read the other day about DRAM and stuff, but that doesn't tend to be the type of products we need. And our products tend to be the GPUs, the PCI Express switches, a number of those products are some of the big things, and they're still running the long lead times. And we haven't seen a change on those front -- that front. Most of my career has been in the semiconductor space. So we've seen cycles. So -- but we haven't really seen much of it yet. We keep watching. And that's all I can really say in that process. Yes. We're watching it very closely, though.

All right. Very good. And are GPUs the primary area? Or what other areas are you seeing the biggest, I guess, hurdles?

Well, I think the switches are one of the biggest for us because we have a switch in almost every product of ours. If you think about our core and our strength above what fragmented competitors is we're very good at PC Express and be linked from NVIDIA and those type of technologies. And as a result, pretty much every product we ship has a switch on it, and these are high ASP, high demand products and they're sitting at the 52-week lead time. So that's one of the big ones. Any other ones you asked about.

Is that big one?

Yes.

[Operator Instructions]. We will take the next question from Max Michaelis from Lake Street Capital Market.

Nice job on the quarter, nice job on the outlook. A few questions here. First one is just on your major opportunities that are pending. Can you share the mix of that of which is autonomous trucking and where you expect that to trend?

So of the 32 outstanding projects that we have right now, there's 4 in autonomous trucking that are in the pipeline. Those are ones that have not closed. That doesn't include the ones that did. So everything is about 50-50 from the AI Transportables, so about half of our pipeline right now.

Okay. And then just kind of on the Advisory Board. I'm wondering if you could go just a layer deeper, maybe some of the things you're hoping to accomplish? And then some of the strength you're seeing, I know you guys are kind of going into different industries. I'm just wondering maybe some areas that you guys are seeing, you can highlight the strengths and just go a little deeper into the Advisory Board.

Yes. So when we put this together, the #1 priority was the navigation of the armed forces. And that's why I brought on some very highly ranked people there and people with background. So I think 7 of the 9 actually have backgrounds in the military that are helping us in that front. And that ranges anything from identifying places that we were not aware of that are making some decisions like think tank areas to looking at advanced technologies that are influencing maybe some of the people we're talking to. It is to getting to -- maybe we're selling something to a Raytheon, but we didn't know who they were selling to, the Air Force, some of these guys know that. So it's connecting that type of thing. And then just general navigation, making introductions, saying things like I'm aware of this going on, you should go check it out. One of the interesting things about this group, but just to give you a little color, is that a number of them are extremely passionate about getting technology into the military. In fact, one of them commented the fact that he oversaw 600 marines, 5 of it didn't come back because the military wasn't using technology that was available in the commercial segment. So these guys have a lot of motivation to see our product, which they also recognize, boy, this is the high performance we need. And so it's been a good experience in the military then we have a guide from the oil and mining area that's helping us. And we don't have anybody on that group when the autonomous truck, but I have somebody on the side on that space also. Do I miss anything else? I mean it's been a great group refreshing to work with, and they take calls from anybody on the sales team, marketing team, myself, of course, and just been a great thing. It's definitely helping us.

Okay. And then just my last one, going to the outlook for Q3, I don't know if I misheard you, but what is driving that outperformance next quarter?

Outperformance, so it was driving the 18.3%.

I mean 18.5% is that pricing will remains strong. Our large media and entertainment guy is strong, but not at the level currently, but we're -- the rest of the customer base looks pretty good for the quarter. So where we were a little light in some of the rest of the customer base in Q2, some of that was tied to a number of supply issues. So a number of our key customers outside of those 2 segments, it's Bressner and the media and entertainment, some of those got pushed into the quarter because of supply issues but will ship in the quarter.

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

Sorry, I misunderstood you. 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 and reporting on our progress as we pursue these many opportunities ahead. Meanwhile, please continue to stay safe and healthy, and please reach out to Jim, John or myself at any time. So Nash, why don't you wrap up the call?

Thank you, sir. 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 statements in the presentation are not a description of historical facts but are 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; military conflicts, global pandemics and 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 may affect such market. Our operating results could be negatively impacted by inflationary pressures, supply chain constraints, increase interest rates or other economic conditions. 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 operating systems, technologies, product offerings and personnel with acquired companies, if any, 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…