Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OSS reported sequential revenue growth of 4.3% and year-over-year segment revenue growth of 8.3%, excluding a former media customer.
- The company has a robust pipeline exceeding $1 billion, with 70% comprised of platform opportunities, indicating potential for multi-year revenue.
- Customer-funded development revenue increased significantly to $1.4 million in Q2 2024 from $365,000 in the previous quarter.
- OSS is expanding its product development efforts with five new products under development focused on edge computing for defense and commercial applications.
- The company is strategically investing in program management personnel with experience in large-scale defense programs, positioning OSS for future growth.
Negative Points
- Consolidated revenue declined by 23.3% year-over-year, primarily due to a $3.2 million reduction from a former media customer and a $1.3 million decline in Bressner revenue.
- Consolidated gross profit margin decreased to 25.2% from 27.9% due to underabsorption of production capacity and additional inventory reserves.
- OSS reported a GAAP net loss of $2.3 million and a non-GAAP net loss of $1.8 million for the second quarter of 2024.
- The company faces economic uncertainty and continued weakness in European markets, which may impact consolidated second-half performance.
- The government procurement process is experiencing delays, with contract awards taking longer than expected, impacting the timing of revenue recognition.
Q & A Highlights
Q: Do you feel the company is properly staffed for a tighter focus on defense customers?
A: Michael Knowles, President and CEO, confirmed that the company is well-staffed for focusing on defense customers. He highlighted the addition of experienced personnel, including a VP of Sales and Marketing and program managers with extensive defense experience, which positions OSS well for scaling and executing defense programs.
Q: Is there any risk in terms of revenue concentration with more focus on defense customers?
A: Michael Knowles stated that there is no significant risk of revenue concentration. The company has balanced its focus between commercial and defense sectors, maintaining a 50-50 ratio, which is expected to continue based on their pipeline projections.
Q: Can you speak to the government procurement environment and how it affects your business?
A: Michael Knowles noted that while the demand and technology needs remain consistent, procurement processes have become slower, impacting timing. The company is working closely with customers to mitigate these timing issues and is leveraging lobbying efforts to facilitate program movements.
Q: How do customer-funded development programs transition to larger awards, and what is the typical timeline?
A: Michael Knowles explained that customer-funded development programs typically take 6 to 18 months, followed by initial production and then full-scale production, which can last several years. These programs are crucial for establishing long-term contracts and recurring revenue.
Q: Can you quantify the book-to-bill ratio for the OSS segment?
A: Michael Knowles reported that the book-to-bill ratio for the OSS segment has been over 1.2 for the trailing six months, with the last quarter being slightly higher at over 1.3. This indicates strong booking activity relative to revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
