Good afternoon, and thank you for joining us today to discuss One Stop Systems' financial results for the second quarter ended June 30, 2019. With us today are the company’s President and Chief Executive Officer, Steve Cooper; and its Chief Financial Officer, John Morrison. Following their 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 the 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, Steve Cooper. Please go ahead, sir.

Thank you, Christy, and good afternoon, everyone. I’m very pleased to report that Q2, we generated record revenue, increasing margins, solid non-GAAP earnings, all well ahead of expectations. In addition, we signed a major long-term contract and won a number of design-ins that we expect will continue to drive our growth and profitability for the foreseeable future. Financially, we strengthened our balance sheet and ended the quarter with $4.9 million cash on hand. Our revenue for Q2 increased 153% with organic growth of 70%. Our Q2 revenue did include shipments that were delayed from the first quarter into the second. So I think a better way to look at our growth rates is to look at the full first half of 2019, which balances out this revenue shift. So for the first half of the year, our revenue grew 92% overall with organic growth of 17%. Our margins were also particularly strong in Q2 at 36.4%, which raised our first half margins to 31.4%. The combination of strong revenue, higher margins and moderate expenses allowed us to generate solid earnings for the quarter with non-GAAP EPS of $0.06 per share, which more than offset our Q1 loss. We also made accounting adjustments to our intangible assets and goodwill relating to last year’s acquisitions. John will go through these non-cash adjustments and show how they affected our GAAP statements in just a moment. Our high-value contract was a $60 million, five-year OEM agreement with Disguise for video display servers. This major OEM contract builds upon our long-standing collaboration and provides confidence for a continued long-term relationship. And earlier today, we announced that OSS was awarded another major contract. This one is a five-year agreement valued at $36 million to provide MIL-SPEC flash storage arrays to Raytheon, a prime contractor for the U.S. Navy. These systems are being deployed within the P-8 Poseidon surveillance aircraft, where they deliver the benefits of our award-winning flash array technology, including ultrahigh performance, small size, lightweight and media portability. As the scale and market presence of our company has grown, we’re seeing a significant increase in major OEM opportunities. We’re also converting an increasing number of these opportunities into design-ins. These wins provide the foundation for our organic growth going forward. For the first half of 2019, we won 11 new design wins with multiyear values over $1 million each. We also currently have 18 additional major account design-in opportunities that we’re actively pursuing. At this point, I’d like to turn the call over to our CFO, John Morrison, who will take us through the financial results for the quarter. Afterward, I’ll return to discuss the key technology trends within our market space and our outlook for the remainder of the year. John?

Thank you, Steve, and good afternoon, everyone. Thank you for joining us today. Earlier today, we issued a press release with our results for the second quarter ended June 30, 2019. The earnings release is available on the Investors Relations section of our website at onestopsystems.com. Starting with the statement of operations included in the release. Our revenue in the second quarter of 2019 increased 153% to $14.9 million. The revenue in Q2 included two large shipments valued at $3.2 million that were delayed from the first quarter. In addition to these shipments, the Q2 increase in revenue was driven by sales increases to our traditional OSS customers as well as contributions from acquisitions. Our traditional OSS business represented 67% or $10 million of our Q2 revenue, an increase of $4.1 million or 70% as compared to the same period in the prior year. This organic growth was driven by both our flash array and media server products. Acquisitions contributed 33% of our quarterly revenue with Bressner, which was acquired in October 2018, contributing $4 million; and CDI, which was acquired in August 2018, contributed $895,000 for the quarter. For the first half of 2019, our revenue grew 92% overall with the organic growth of $2.3 million or 17%. Our gross profit in the second quarter totaled $5.4 million or 36.4% gross margin. This compares to $1.6 million or 27.8% gross margin in the same year ago quarter. The increase in gross margin percentage is due to increased sales of our military flash array products. Looking at the first half of the year, gross profit totaled $7.8 million or 31% of revenue. This compares to $3.8 million or 29.6% for the 6-month period ended June 30, 2018. As Steve mentioned, in Q2, the company made accounting adjustments to intangible assets…

Thank you, John. We believe a great deal of our design-win success is due to the technological leadership in areas that are emerging as industry trends. I want to talk about two of those. Two of those trends that work to our advantage are the shift to PCI Express Gen 4 and the shift to deploy artificial intelligence level of computing out of the data center into the field. The significance of the transition to PCI Express Gen 4 within the computer industry is huge. Nearly every element of computing technology interfaces with PCI Express. This includes CPU chips, motherboards, flash memory, GPU chips, add-in cards. They all interface via PCI Express, so all of these items are being redesigned with Gen 4 versions and will be moving into the market later this year and throughout 2020 and 2021. The rationale for the transition to Gen 4 is obvious. Gen 4 doubles the data transfer performance at nearly identical costs. So who doesn’t want that? The OSS strategy related to PCI Express Gen 4 is to once again lead the market with innovative products, including PCI Express over cable adapters, IO expansion systems, flash arrays and GPU compute accelerators. We’ve already made the needed capital equipment investments and are in process with several engineering projects to produce these breakthrough products, some of which we’ve already announced and will begin shipping in the second half of this year. OSS is pushing the bleeding edge of this technology transition, often working with early prototype components and systems that have yet to be announced to the general public. This leadership strategy is more difficult than if we were to take a follower strategy, but we believe the rewards of being early to market with breakthrough performing products far outweigh the challenges. The second…

[Operator Instructions] And we’ll go first to Ruben Roy from Benchmark Company. Your line is open.

Thanks very much. Steve and John, congratulations on the solid results and the announcement of the extended contract with Raytheon today. I guess, Steve, I wanted to kind of get your thoughts on PCI Gen 4. I hate to jump the gun here, given that we’re just starting to ramp some of the new PCI Express Gen 4 products out to market. But I’m wondering, first of all, with new server products coming from – we saw AMD release their second-generation EPYC 7-nanometer platform today. Intel has got some server stuff coming out, new server chips coming out next year. Does that accelerate the adoption of as PCI Express 4 as those products hit the market? Or do you think that you’re going to see some linear traction for the technology ahead of those server CPU shipments?

The CPU chips, in particular, are probably the most important element to get the market shifted over to Gen 4. As you mentioned, AMD is about nine months ahead of Intel in getting their first Gen 4 chips out. AMD announced just today. And in fact, OSS was part of the announcement. What that means is we’ve been working with AMD for a number of months prior to the announcement, making sure all our systems are working together, and we’re really pleased with that. Intel will be coming out early 2020, we believe, with their Gen 4 chips. But it’s not just those two. It’s also NVIDIA with GPU chips. It’s flash memory chips. It’s a lot of other, call it, the ecosystem of Gen 4. That kind of all has to come together for you to put together an early system. And that is all coming together. This is sort of the year of announcement. And kind of the first year, people are beginning to ship limited quantities of Gen 4. That will grow rapidly, I believe, over the next 2 or 3 years. And probably within two-or three-year time frame, no one will not be selling Gen 4 or Gen 3. The current rev will be completely obsoleted over the next three years. So you move earlier or you move late, but you will either move or go out of business.

Steve, as a quick follow-up on that, and then I’ve got a quick one for John. But I believe that the Gen 4 spec was finalized a little bit late in terms of when the market was expecting the spec to get finished up. And wondering if you had thoughts on sort of the time in market for Gen 4 as it seems like the Gen 5 spec is already nearing finalization, I believe?

Yes. There was an unusually long gap in time between Gen 3 stack and the products being deployed and now Gen 4 specification and products beginning to be deployed. That was about an 8-year time period. That’s unusually long for a doubling of performance within these kind of things. As you mentioned, Gen 4 will give way to Gen 5, and it’s also the time frame where also following is Gen 6. Each one is a doubling in performance. It’s expected at this point that the shift to Gen 5 and to Gen 6 will be more on 3-year time delays. So in three years from now, you’ll expect us to be announcing shipping Gen 5 products, three more years; Gen 6 products. We already have those in our strategic planning and are working on those. But one thing to note, kind of the premise to your question was there – going forward, we anticipate a more condensed speed of transition from one gen to the next. We believe that actually plays to our advantage in the treadmill sort of concept, the companies that are very good at adopting to rapid change, that are pushing the leadership side, have significant advantages if the technology is turning over more quickly. So we believe this will allow us to be even more competitive. And the companies that take the more follower strategies, take the safe road, if you will, get pushed off the end of the treadmill because they can’t keep up.

Thanks a lot, thanks for that, Steve. And then a quick follow-up for John. You have the pushout of the Raytheon business into Q2, and then it sounds like you have potentially some large flash shipments coming up in September. How do you think gross margins play out sort of for the back half of the year? And then I guess on top of that, as you start closing these deals and then a bunch of design wins coming up and the business is scaling up, you’ve talked about, John, sort of the core business, gross margin, kind of projecting out to 33% to 34%. As you scale higher, where do you think gross margins end up from a longer-term perspective? That’s all I had. Thank you very much.

Thank you. Well, we’re currently right now – on a consolidated basis for 2019, we are currently projecting an overall gross margin percentage of 33% for the company as a whole. And we believe that’s consistent with the performance we’ve had in the first half and with the goals that we have with the second half. So I would look at it as a pretty solid 33%.

And next we’ll go to Joe Gomes from NOBLE Capital. Your line is open.

Again, let me add my congratulations to a really nice quarter. So the first question I had, you talked about the $1 million deal pipeline and that you had won 11 of these in the first half. And you were talking about an increasing win rate. I think in the last quarter, you were almost at or if not had 100% win rate. So just curious as to what the win rate was in the second quarter? And if you did lose one of your competitions, what was behind the loss?

Unfortunately, our 100% batting average is no longer valid. We did lose actually three design wins now in the first half of the year. Historically, we went about 30% of the total. But having won 11 and lost three, you can say we’re – see clearly that we’re way ahead of that this year. We don’t want to get too cocky, but we believe the higher hit rate is that we’ve become a better company with scale, having more technological advantages and pricing advantages to win these deals. So we hope that trend continues. Let’s see. Your other question, if you could repeat that for me, please?

Yes. On the three that you lost, was there a consistent theme as to why you were not selected? Or what was behind the not choosing OSS?

Yes. Three is such a small number. It’s not particularly statistically valid. But usually, the reason we lost, and in fact, in every one of these three, the reason we lost is the customers decided they really didn’t need anything specialized, whereas they started thinking they did need a specialized computer. They decided they could get by with a standard off-the-shelf computer. And when that happens, we lose a lot of the advantages that OSS provides. And in each of these, one of them was a flash array for a data center, kind of out of our target market, but we had thought we could win that and turned out we didn’t. Another was a compute accelerator, again, for a data center, not out in the field that had very little specialization. And the third was something similar as well. So we lost those two, what I would call commercial-grade standard data center computer companies.

Okay. And then a couple for John here, if I may. I think in the first quarter, we noted that accounts receivable balances were a little bit higher than expected. And you thought they would come down hopefully by the end of the second quarter. And it doesn’t appear, as my quick look at the balance sheet, that they – there’s really been any big movement. I wonder if you could talk a little bit about that? And then also talk a little bit about how you guys see the cash burn through the rest of the year, especially with the business being built out.

So with respect to the accounts receivable balances, you do not see a significant change in the balances. The reality is that if you look at the aging of the accounts receivable, you would see a significant improvement. Some of those older receivables, we did collect, which had been contributing to the outstanding balance. The reason for the AR balance at quarter end is due to shipments later in the quarter, which then increased the AR balance. But rather than being in the 60 or 90-day outstanding, it’s in the current balance. So it actually had to do with the timing of shipments rather than a delay in receiving payment on those accounts receivable. With respect to our cash burn, we actually see improvement in the second half of the year. We had in the initial – in the first half of the year, you will notice that we made significant investments into capital assets, particularly improvement in our manufacturing facilities and into an ERP system, that was in excess of $1 million of investments there. That will not be continuing in the second half. We also see continued growth in sales as well as that continued improvement in gross margins, that as I mentioned in our first six months, our gross margin was about 31.4%. We believe that overall for the year will be about 33%. In order to get there, obviously, we’re going to have a little bit better margin for the second half. So we believe that will generate additional cash and that you won’t see a cash burn for the second half of the year.

Okay, great. Thanks guys.

And next, we’ll go to Michael Potter from Monarch Capital Group. Your line is open.

Congratulations on a really much improved quarter. Just a couple of questions. Steve, I guess, first, we’ll start with you. On the operational highlights, we talk about the design-in for the next-generation autonomous vehicles. What does that – I guess, how large can this opportunity be for the company? And is there a way for us to find out who or what team where, I guess, we’re working on? It seems like there’s a whole bunch of different teams out there that are developing this technology.

Yes. So we’ve won actually two autonomous vehicle programs. The one is with Lyft in the Bay Area, and the second is with BMW over in Germany. The two together will represent probably about $4 million to $5 million in revenue over the next two years. And this is just what I would call the prototyping proof-of-concept over the experimentation phase of self-driving cars, where they’re building 50 or 100 or 150 vehicles and driving them around. This is not the end-all system where a Ford or a BMW actually builds a car that you can buy that self-drives. This is several steps in front of that. But for us, it’s still substantial revenue and will be multiple years. I don’t know where the eventual electronics that Ford buys to put in their car will come from. We may make a play for that. That may be out of our league, depending on when and how exactly they do that. But I would think the potential deployed production is really a different animal than these earlier, very well-funded but these early – earlier proof-of-concept demonstration vehicles we’re doing.

Okay. All right. Terrific. And then can you explain – give us a little bit more color on today’s announcement with Raytheon. I was under the impression that we already had a contract with Raytheon with deliveries – with a delivery schedule. How does this – today’s announcement differ from the prior Raytheon agreement?

Yes. We’ve been working with Raytheon for several years and, in fact, to this program, have shifted over $10 million worth of products over the last two years. So that part – and that since it isn’t new, there have been a variety of contracts and purchase orders supporting that, all the way from the original development to the limited production agreement that we’ve been working under. This now is what they call a long-term agreement, or LTA, which stretches out the time frames, locks in the pricing, locks in some different volume expectations and articulates a lot of the terms and conditions of the business arrangement. Once this LTA is in place or since this LTA is now in place, they continue to issue purchase orders for each individual delivery. So within the LTA that has been signed, they simply have yearly volumes of which kinds of models they expect to purchase, but it’s really the purchase orders that will nail down the shipments to a month or a quarter. And those are all – those will all come out in smaller pieces, either a six – every six months or every year, they should be issuing a separate purchase order. So we’ll be seeing those going forward as well.

Okay. So it’s really – is it just some – it more formalizes our existing agreement or existing relationship on the P-8 then.

Yes. Yes. And it goes out in a longer period of time.

Got it. Got it. Understood. Okay. John, I guess, the next question I have for you – is for you. You explained the goodwill charge. I guess, $1.2 million of the almost $2 million was due to CDI. And where was the balance?

Actually, there was a $1.2 million reallocation of the intangibles from intangible assets to goodwill within CDI. Then the goodwill with respect to CDI was reviewed for impairment, and the $2 million charge, $1,988,000, is all attributable to CDI. So it’s a two-step process: Reallocation from intangibles to goodwill, and then an analysis as to the impairment of goodwill. So it’s a two-step process.

Understood, okay. Okay, thanks guys I’d get back in with you.

[Operator Instructions] We’ll go next to Keith Gil from Carter, Terry & Company. Your line is open. [Operator Instructions] And we have no more questions. I’d like to turn the conference back over to our speakers for closing remarks.

Thank you, Christy, and thank you, everyone, for participating, joining us today. We look forward to talking to each of you in the future and reporting our progress. Meanwhile, feel free to reach out to me or John at any time. Christy?

Thank you. 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 that are not a description of historical facts 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 2019 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; 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 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 is uncertain and revenue may never be realized; our products fulfill specialized needs and functions within the technology industry, and such needs or functions may become unnecessary or the characteristics of such needs and functions may shift…