OSS - NASDAQ

Good afternoon, and thank you for joining us today to discuss One Stop Systems Financial Results for the Fourth Quarter and Full Year Ended December 31, 2023. With us today are the company's President and Chief Executive Officer, Mike Knowles, and its Chief Financial Officer, John Morrison. Following their remarks, we will open the call to your questions. Before we conclude this call, I will provide some important information 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 call over to OSS President and CEO, Mike Knowles. Sir, please go ahead.

Thank you, Ina. Good afternoon, everyone, and thank you for joining today's call. This is an exciting time at OSS as we completed the strategic transition away from lower-margin media revenue, established a new management team and refocused our strategic growth priorities on large and rapidly evolving global markets. Throughout 2023, we demonstrated continued progress in our efforts to pursue strategy focused on AI-centered high-performance computing at the edge, where platforms require data center level compute, storage and switching solutions. These solutions support AI and machine learning, sensor fusion, sensor processing and autonomy applications. We coined this market AI Transportables. We will continue these efforts throughout 2024, backed by the strong influence of AI and ML demand in both the commercial and defense markets. Recent wins in both markets, combined with a growing pipeline of opportunities, continue to validate our strategic focus. We have also continued our efforts to strengthen our executive team and our Board of Directors, adding skills and experience that will help facilitate our strategy and enable the company to scale for growth. Financially, we were able to further offset revenue from our former media customer with higher-margin revenue aligned with our strategy. So, with this introduction, I want to provide an update on the growth strategies we are pursuing, our growing pipeline and recent wins that we believe will create lasting value for OSS and our shareholders. Commercial adoption of artificial intelligence and machine learning taking advantage of advanced sensor fusion and sensor processing is dramatically moving to the edge across almost all business segments. Sensor systems and autonomous applications can rival those in modern defense implementations. We believe that our product portfolio and future roadmap position us to uniquely take advantage of this evolving technology environment. Strategically, we are focusing our efforts to expand the number of customers and platforms in our rugged edge processing portfolio and increasing our multiyear backlog by securing new long-term contracts. These efforts are supported by opportunities in both commercial and defense markets, where strong dynamics and growth are being driven by AI/ML adoption, sensor fusion, sensor processing and autonomy. The Department of Defense is making significant investments in next-generation capabilities that require edge computing. While the overall defense budgets in the U.S. are expected to remain stable, we expect to see increased spend, especially for autonomy, artificial intelligence and machine learning. In fact, these represent some of the fastest areas of growth as the military looks to augment existing platforms with new sensors, platforms and weapon systems to maintain a technical and tactical advantage over our adversaries. We are continuing to pursue opportunities in both commercial and military segments where we can leverage OSS' differentiated and technologically advanced capabilities by bringing enterprise and data center-class compute, storage and switching capabilities to the most challenging environments, delivering low latency, high throughput scalable solutions in real-time environments, delivering configurable off-the-shelf and custom high-performance solutions, and providing high technology readiness-level product availability to enable first-to-market AI at the edge. We believe a balanced portfolio of commercial and military customers can serve as a strategic benefit as we focus on creating long-term value for our shareholders. Looking at our pipeline and recent wins in more detail, we made progress throughout the fourth quarter penetrating defense and commercial markets. We had three major new wins in composable infrastructure, aerospace and defense that totaled $2.7 million during the quarter. These wins reflect our continued leadership in high-speed PCIe interconnect technology and scalable AI GPU compute systems. Turning to a major defense win, we announced a multimillion-dollar program with Leidos' Dynetics, a prime contract of mission critical solutions for the U.S. Government. Under this multi-year program, we will provide our proprietary transportable compute and storage technology designed to power an emerging specialized mobile AI signal collection application. The award is the first multi-year win OSS has secured with Leidos, highlighting the growth, trust and confidence in OSS and our innovative technology and advanced engineering capabilities. We are also pleased to see the expansion of mission application and platform integration consistent with our growth strategies. Early this month, we announced a pilot project to provide a liquid immersion cool data storage system for use on a deployable ground station that was also contracted through Leidos. This project, for a major government intelligence agency, expands our market opportunity into the intelligence community. As the pilot progresses over the coming quarters, we expect this program will lead to follow-on production orders. This program also demonstrates our innovative thermal management technologies for cooling rugged high-performance computing solutions. Our cooling solutions enable the highest level of GPU performance, which our customers need to support their AI and ML mission objectives. We anticipate this initial design win will lead to additional deployments with this customer and other customers in the future. During the fourth quarter, we also booked an additional award from the U.S. Army Ground Vehicle Systems Center, increasing our scope in the 360-degree situational awareness program to include the sensor processing for the video data input into the system. Within our commercial markets, we received an order from Daimler Truck partner Torc Robotics to develop a cooling solution for their existing compute system, expanding our relationship within the autonomous trucking software vendor. We also finalized a multi-year deal with Thales in support of their inflight networking system for commercial airlines. With growing interest in AI and ML solutions, we are quickly expanding our outreach efforts. We expect that 2024 will be a year marked by pipeline expansion and conversion as demand increases and we execute on our strategic plan. Actions underway include: submitting a bid to provide a rugged high-performance compute solution for a classified program within the sector that is advancing AI implementation at the edge; establishing a sponsorship and collaborative relationship with Andretti Racing and

Thank you, Mike, and good afternoon, everyone. I am particularly excited by the level of activity underway, the direction we're headed and the strategies we are pursuing to create value for our shareholders. We began 2023 with two objectives. The first was to substantially replace $18.5 million of low-margin legacy media revenue with higher-margin AI transportable product revenue. This was necessitated by our media customer moving away from ruggedized equipment to a less rugged cloud solution. Total media revenue in 2023 was $4.8 million, representing a difference of $13.7 million from last year. The second objective we had was to grow Bressner annual revenue. Although OSS strategy was implemented to replace the media business, during the year, we experienced a general hesitation by commercial customers to place orders because of the economic conditions. We also experienced timing delays in some government programs. This all resulted in OSS being unable to fully replace the lost media revenue in 2023. However, I am pleased to report that Bressner met their annual objective by growing annual revenue by 10.1%. Bressner also improved both margins and profitability despite a challenging economy in Germany and throughout Europe. Our company's business is really comprised of two segments: OSS, which is located and operates in the United States; and Bressner, which is in Munich, Germany and operates throughout Europe. OSS is primarily focused and involved in the design and manufacture of high-performance ruggedized edge processing, compute, storage, and connectivity systems. Bressner operates as a systems integrator with standard and custom all-in-one hardware systems and components. They also serve as the channel for OSS products to the European and Middle East markets. The following comments are based upon comparison of fourth quarter 2023 results as compared to fourth quarter 2022. For the fourth quarter, we reported consolidated revenue of $13.2 million. Of this, OSS contributed $6.4 million and Bressner contributed $6.8 million, inclusive of OSS product content of $597,000. Consolidated quarterly revenue reflects a reduction of $5.1 million or 27.9%. Of this amount, OSS had a decrease of $4.9 million or 43.5% of OSS quarterly revenue, of which approximately $3.1 million of the decrease was attributable to a revenue reduction from the former media customer and from whom we do not expect any further revenue. Bressner had a decrease of $175,000 or 2.5%. Consolidated gross profit in the fourth quarter decreased $544,000 to $4.4 million with overall gross margins improving and increasing to 33.7% from 27.3% due to decreased media revenue cost and a shift in product mix to our higher-margin rugged edge processing products. The gross margin for OSS business improved 14.5 percentage points to 45.9%, which is attributable to the absence of lower-margin media revenue and costs and the higher mix of the rugged edge processing products. Bressner's gross margin percentage improved 1.6 percentage points to 22.2%, largely due to product mix, the sale of higher-margin OSS products, and having sought-after products readily sold at a premium. Overall, quarterly operating expenses increased 3% to $4.8 million, which was attributable to additional CEO transition and Board reprofiling costs. Loss from operations totaled $331,000 compared to income from operations of $353,000 in the same period in 2022. Net loss on a GAAP basis was $278,000 or $0.01 per share as compared to a net loss of $3.3 million or $0.16 per share. Net loss in the fourth quarter of 2023 included a provision for income taxes of $42,000 as compared to a tax provision of $4.1 million in the fourth quarter of 2022 that included a significant increase in taxes being attributable to a write-down of our deferred tax asset of $3.8 million in 2022. Now, non-GAAP net income for Q4 2023 was $177,000 or $0.01 per diluted share compared to non-GAAP net loss in the prior year of $2.7 million or $0.14 per diluted share. Adjusted EBITDA, a non-GAAP metric, was favorable $353,000, a decrease from the adjusted EBITDA of $1.6 million in the prior year. The following comments are based upon a comparison of the annual results for 2023 as compared to the annual results for 2022. Consolidated revenue was down $11.5 million or 15.9% from $72.4 million to $60.9 million, predominantly due to a decrease of $13.7 million in media revenue. OSS had revenue of $28.8 million or 47% of total revenue. And Bressner had a revenue of $32.1 million or 53% of total consolidated revenue. OSS experienced a decrease of $14.5 million or 33.4% with the -- which decrease was offset by an increase by Bressner of $2.9 million or 10.1%. During the year 2023, revenues for OSS were fairly evenly balanced between commercial and defense applications. During the year 2023, consolidated gross margins were 29.5% versus the prior year of 28.2% due to less lower-margin media business being offset by an increase in higher-margin AI transportable products. OSS gross margin was 35.6% as compared to 32.7%, an improvement of 2.9 percentage points. Bressner margin was 24% compared to 21.5%. Excluding the goodwill impairment charge of $5.6 million and CEO transition and Board re-profiling cost of $1.7 million, our operating expenses actually decreased 1.5% from the prior year. Other income and expense, including -- excluding a one-time government-funded employee retention credit of $1.7 million, resulted in net other income of $417,000 compared to $626,000. Net loss was $6.7 million, or a loss of $0.32 per share, compared to $1.7 million -- of which was inclusive of the $1.7 million employee retention credit compared to a loss of $2.2 million or loss of $0.11 per share in 2022. Non-GAAP net loss was $415,000 or loss of $0.02 per share as compared to a loss of $175,000 or $0.01 in 2022. Adjusted EBITDA, a non-GAAP metric, was positive $1.1 million as compared to $5.2 million in 2022. Loss before the provision for income taxes on a pro forma basis, which excludes the impairment of the goodwill, the CEO transition and Board re-profiling costs, and the benefit of the employee retention credit results in a pro forma loss before income taxes of $165,000 as compared to income before taxes of $2.2 million in the prior year. Now, looking at the balance sheet, on December 31, 2023, cash and cash equivalents totaled $4 million, with short-term investments of $7.8 million, for a combined total of $11.8 million. Compared to the prior year, this represents a decrease of $1.4 million, which represents cash being deployed in working capital. As the company continues to transition and evolve its business from being largely dependent on media-derived revenue, the company will operationally focus on maximizing gross profit contribution. In the near term, this may include accepting lower-margin business that incrementally contributes to gross profits but may be inconsistent with our long-term objective of increasing our consolidated gross margin percentage. The objective of this effort is to have sustainable cash flow as the company bridges its revenue model. Looking forward to the first quarter of 2024, influenced by seasonal and U.S. Government continuing resolutions, we expect revenue of approximately $12.5 million, which represents an approximate 5% sequential decrease from Q4 2023 and a year-over-year decrease of approximately $4.3 million or 25%. Of that decrease, $1.5 million of that is expected decline which is attributable to loss of media revenue. This completes our financial review for the quarter. Now with that, we'd like to turn the call back -- turn the call and open up to your question. Operator? Ina?

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Scott Searle from ROTH MKM. Please go ahead.

Good afternoon. Thanks for taking my questions. Nice to see the continuing progress on the opportunity pipeline as well as the gross margins. Maybe that's a good place to start. On the gross margins for the fourth quarter, John, I'm wondering, are there any one-time benefits that you saw on that? I think you said the number was 45%, 46% in the core OSS business. Can you help us understand from a mixed standpoint what's going on and how we should think about the progression throughout 2024? You also had some comments in terms of maximizing gross profit contribution. So, it seemed to imply that there's going to be some volatility there. Can you walk us through that a little bit?

Thank you, Scott. So, in the fourth quarter, it was very heavily weighted towards AI transportable products, specifically to the defense industry and in the sale of our data storage units, which tend to have a higher margin. So, that's what skewed that in the fourth quarter. With respect to ensuring that we maintain our cash position, there is some pass-through revenue that we're going to be accepting on an agent basis that has low margin but provides good cash opportunities for us.

Got you. Okay. Thank you. And Mike, in terms of the opportunity pipeline, it seems like it's continuing to build. The message that you're getting out there in terms of AI/ML and sensor fusion continues to seem to get traction. I'm wondering if you could help for us frame near term when we start to see decisions getting made, how that will start to filter into the results? It sounds like it's more geared towards 2025. And as part of that, I'm wondering if you could couple in the current discussion around the continuing resolution around the budget and how that impacts you guys over the course of 2024.

Yeah, sure. Thanks, Scott. Yeah, we've continued to grow and expand that pipeline. And really what it is, is really aligning -- especially in the defense market, aligning our opportunities up with existing platforms that are going through tech refresh cycles or upgrades, so that we're present for those that help develop and determine our timing, and then also on new starts being part of those, which are generally the longer runway approaches to those. So, we'll use the 2024 to build back through the lost media revenue replacing with commercial and defense opportunities. Expecting the second half of the year, unless the media business, right, will start to see the momentum really start to pick up. For us, that whole effort will all be about the pipeline conversion, right? We've got these opportunities out there. Now we need to convert them and potentially move them to the left. And that's why I spoke, especially in the defense market, where we have opportunity to use our lobbying efforts to help move and make sure programs are funded and move out on time. And then, the second part of your question was what again, Scott?

Sorry, related to the budget resolution.

Oh, the budget resolution. Yeah, so, well, a significant amount of our revenue isn't tied up to government new starts, which can't start under a CR. We do have a couple that bids currently that we have out that are being held up by continuous resolution. Not a significant number, but still some nonetheless. I just think I got a note from our lobbyists today that the last bid of CR defense budgets, we're going to make it through approval. So, that should untie the logjam. Now, we'll have to go through the period that usually follows that where the money moves and then the acquisition professionals have to put it on contract. That is not a fast pace either itself. It will take some weeks and months for that to flow through, but it's positive that that's made it through. And this is something that we'll continue to deal with in quarters and years to come. But it's not uncommon anymore in the defense market. And we have pipeline and opportunities. We'll plan for that and tend to try to update our forecasts around that also.

Okay. Great. And one last one, if I could. Just in terms of moving the AI strategy along, I'm not sure if you mentioned it all about various software partners and go-to-market strategy on the front. I'm wondering if you could articulate where we stand on that front now and how that's looking throughout the course of 2024. Thanks.

Thanks, Scott. So, I mentioned last year during 2023 we had expanded our outreach to multiple AI software companies really around two reasons. One, so that we had opportunity where our customers needed it to provide a more integrated solution rather than just a pure compute or storage or switching solution. And we wanted to establish those partnerships to provide some more discriminating capability to our solution. In addition, as we started engaging with a lot of these AI software companies, many of them were looking to find ways to standardize on hardware so that they could sell their software directly. So, we wanted to open up the pipeline for those discussions where we could become a standard provider to some AI software companies. We have expanded that reach and continue to do so. Over the course of 2024, I think we should see a couple opportunities where we have aligned with a couple specific companies and some capture approaches and some collaborations in the market for both commercial and defense that we should start to see the fruits of some of those labors. I noted one in the earnings call that we're doing with

Great. Thanks so much.

Thank you, Scott.

Thank you, Scott.

Thank you. And your next question comes from the line of Brian Kinstlinger from Alliance Global Partner. Please go ahead.

Great, thanks so much for taking my questions. In the defense market, it's long been characterized as having long sales cycles, and you've talked about the late, both of those are common. You mentioned you expect a return to growth in the second half of the year. Maybe if you could talk about how you think about sales cycles for some of your new products and just some of your products in general and how does that contemplate in expecting a return to growth in the second half of the year?

Sure. Thanks, Brian. So, on the commercial side, with our standard product approach in a number of areas, those terms tend to come a little bit quicker. We're seeing some increased activity in that composable market -- composable data center market that I was talking about. The contract, the five-year agreement with FLYHT was a good move for us. They were advancing a new product line based on projected future growth they see. So, that was another one that we'll be developing a product and roll through to them. The defense side, it will continue to leverage our high technology readiness level products. That gives us a really good capability where we see a technology refresh cycle or upgrade opportunity on any vehicle or platform for us to be able to readily bid a highly mature and readily available solution. So that gives us some competitive edge in any of those competitions, or allows us if we have a unique discriminating capability to justify a sole source acquisition to OSS. So, those cycles, again, will prove to be short or long depending on when the vehicle upgrade cycles are, but we've begun to plot those into the timing into our pipeline so we can start to see those. And now, we're starting to see the picture start to paint on when we'd expect the opportunities to come to market, which is why we're feeling the second half of 2024, we should start to see -- you'll start to see some early bookings wins and then that'll roll into revenue increases. So, as we start to exit Q3 into Q4, we should see consolidated revenues increase over where we have been in the last two quarters.

Got it. Okay. And then, you've been there now for, I don't know, what is it, five, six months?

Nine months.

Nine months, wow. So, now that's plenty of time to take a look and evaluate the business of where you need to increase your investments to drive growth. Maybe talk about new product opportunities. You already talked about your increased pipeline. How do you bid on more, so to speak, or capture more of the market, maybe anywhere you see investment opportunities to capture that?

Yeah, Brian. So, as John mentioned, right, and part of the reason to bring in the lower-margin programs was to help to make sure we could facilitate keeping our products line going forward and keep stable cash in the program and the company. So, we have a number of product development elements planned for the year that will continue to keep us on the forefront of compute storage and switching technology. We did just launch our Gen 5 SCS and our Gen 5 storage products. So, those are both new in the market, so they'll have a product life cycle run here for a bit of time. We'll be able to leverage that. And then the second half of your question again, Brian, was on...

Just on proposals, like how -- the bidding proposal, how are you going to, with that growing market opportunity, go after more business, bid on more work, so to speak?

Yeah, no, I appreciate that. So, that's part of the reason why we take our pipeline and we assess the probabilities as we do, so we can determine where to focus our resources on our highest probability of winning. And so that actually has been quite useful for us. We've kind of restructured and reprocessed how we use some of our tools internally to help facilitate getting more proposals out the door more efficiently and more effectively. And then, as I noted, we had the opportunity to add Craig Powell to our sales force. That will significantly increase not only our opportunity growth, but more ability of a seasoned veteran in terms of being able to respond to and conduct captures on programs in the defense market. And then outside of that, other areas in terms of just general product line growth, there's interest in moving to some of the international defense and commercial opportunities. Craig will provide us the opportunity to expand additionally into Canada with an existing sales force -- with sales capability that we have. So, I think we're well situated with priorities of our resources and a team to be able to tackle it.

Okay. Thank you.

Thanks, Brian.

Thank you. And your next question comes from the line of David Williams from Benchmark. Please go ahead.

Hey, good afternoon, and thanks for letting me ask the question.

Sure.

So, Mike, maybe start off on the funnel. You've got over $1 billion pipeline here that you talked about. Can you help us understand how you're qualifying those programs and how do you expect that to maybe materialize over the next several years? How much of -- what is that conversion rate and just maybe what does it take to convert and how you think about that funnel overall?

Yeah, thanks for your question, David. So, what we've done is -- and that pipeline number is a five-year view. So, what we do is we identify opportunities, we assess it in two probabilities. The first probability is what we call [PGO] (ph), and that is the likelihood that an opportunity will emerge and actually go to acquisition or to the market. Something that we can't readily control, but we can monitor and we can influence, especially on the defense side as I mentioned, the lobbying efforts in Congress, our engagements with senior defense executives can help influence the funding and the timing of those efforts. The second probability we factor the pipeline by is probability to win. That is something we control. That determines, right, our capabilities, products, and services that we can deliver for solutions that lead us over our competitors. When we multiply those two together, we get what's called a probability of award, and it really sets a level at which we know above a certain level of percentage that it's highly likely that we should win and we increase our efforts there to pull those forward. And then there's a mid-area where we can determine whether the effort needs to be more on influencing a high-probability of winning product to emerge or if we have to increase our P to win on a program that will definitely emerge and we can identify resources, assets, or support to go do that. And then, anything below that generally will be something we either have to determine, is it a future roadmap capability we need to develop, is it a market we're fully interested in working through, and those tend to be longer-term views of how to move those probabilities of award up and higher in assessment. Because of the way we've got started, 2024, last part of 2023 and 2024, we're doing a fair amount of positioning into those markets. The near-term ones, as I mentioned, were about getting into the upgrade cycles and defense customers, and then finding commercial customers in similar situations who were looking to transition to higher-end process compute and storage. And then additionally, what it's done in terms of conversion is let us identify future starts that would be in the future, for which you want to start early on the capture, seek and influence requirements to increase your probability of win. So, we've now transitioned those into captures and campaigns inside the company. That'll increase our focus where we go on those, and we'll be looking to capitalize in converting that pipeline to opportunity. And that's really where our measure will be on seeing the bookings converting to revenue and converting that pipeline.

Great. Thanks for the color there. And then maybe, John, if you could talk about your inventory levels. You talked about cash just now and having the working capital and maybe taking some lower-margin business. But you've got, it looks like, pretty significant days of inventory. How do you think about working those down and just that working capital that you could return for other investments? Thank you.

Thank you. Obviously that's always been a concern of ours as we built inventory during the COVID period and later on as companies required us to have sometimes a 52-week lead time and demanded certain minimum order requirements in order to maintain pricing. So, during that period of time, it was important for us to secure inventory, and we made certain non-cancellable, non-returnable commitments for inventory. That inventory still continues through the state to come in. We have still approximately about $3.4 million of inventory that will be coming in the door for which the orders were placed in 2001, 2002. However, we have gone through, we have analyzed all of that inventory. We believe that we will be able to actually free up about $2 million in working capital this year through the current plan that we have. We believe all of the inventory is sellable. We do not see any of the inventory being designed out, in order to see it in a situation of being obsolete or obsolete. So yes, we do acknowledge that we have more inventory on the balance sheet than we would like, but we would think we'll be able to free up about $2 million of that as we go throughout the year and bring it down to a more manageable level. Thank you.

Thanks.

Thank you. And your next question comes from the line of Eric Martinuzzi from Lake Street. Please go ahead.

Yeah. I wanted to clarify the contribution from your media customer that's no longer with you. I have -- for 2022, I had them at $18.8 million, and then in 2023, I had them at $5.1 million. Are those two numbers correct?

$18.5 million and $4.8 million.

$18.5 million and $4.8 million, okay. All right. And then -- go ahead.

Yeah, it's $18.504 million and $4.858 million.

Okay. And then the guide for Q1, and I would expect the expectation for 2024, there's nothing in there for that media customer?

No, sir. We would -- do not have any ongoing revenue at all.

Okay. And the second question is around the gross margins. It's really good to see that step up not only for the full year at 130 bps, but for Q4, just a big step up with the 640 bps. How should we be thinking about either address a full year basis for 2024 or maybe even just Q1? A year ago you had a 30.2% gross margin in Q1. Should we be expecting something similar, something better? What can you tell us about gross margin?

Gross margins will continue to grow just as a consequence of having lower-margin business from the median customer go away. They were running about 19.7% gross margin. We have been replacing that consistently with sales of between 30% to 40%. That's pretty much our bottom-line target is 30%. And it really is different when you're looking at mix. So, depending on how much of our data storage product we're selling in any given quarter, that tends to have a higher margin, which is actually what we saw in the fourth quarter. We had nearly $2.5 million of data storage and data storage replacement parts, which are very profitable for us to drive that margin. Long term, we believe that we're going to be more consistent this year with what you saw in 2022 of the 32% to 33% margins on a consolidated basis.

Okay. Full year. Got it. And then last question, really more on the product side. At a high level, Mike, what is the lag time between somebody like NVIDIA kicking off their latest and greatest chip and your customers expecting you to have designed that in and have it available for shipment for them? I'm talking specifically to this week's announcement regarding their new Blackwell chip GPU versus the prior generation the Hopper? What's the lag time there for your product design?

Yeah. Eric, generally inside of a year, less than a year, we can go from product availability from NVIDIA to our product [indiscernible] short-depth server with storage added, we can move to available product inside of the year. Now we'll also have to work the lead times. There's a lot of major companies out there who are buying up the GPUs. So, our customers are aware of that. And so, actually we -- unique to probably OSS in this respect is because of our expertise and engineering capabilities, we're actually able to sit down with the customer and work through two scenarios. If they have a clear demand and desire for the newest and the latest and the greatest and they understand the lead times on that, we can do that. On the defense side, we can use their defense ratings to help accelerate the supply chain on their orders. Alternately, what we've done in some cases is we work with customers on what their exact AI or sensor fusion, sensor processing implementation is and we'll help them with their compute storage and switching needs and performance parameters. And in some cases, we've actually been able to recommend alternative NVIDIA GPUs whose lead times might be measured in six to 12 weeks and we can still implement capability that exceeds their demand. We can offer them a faster lead time to get either initial capability that they could upgrade to later with the higher-end GPUs or if they're happy with that selection then they can carry on with that configuration.

Got it. Thanks for taking my questions.

Thank you.

Thank you, Eric.

Thank you. And your last question comes from the line of Joe Combs from Noble Capital. Please go ahead.

Good evening. Thanks for taking the questions. I wanted to go back for a second to some of this lower-margin pass-through revenue you've talked about. Did any of that show up in the revenue for the fourth quarter or is any of it projected for the first quarter of $12.5 million guidance?

There was nothing in the fourth quarter and there is nothing right now planned or included in the guidance number in Q1.

Okay. Pardon me. Thanks for that. And then...

And when we do, we will disclose it separately. So, we're going to be very visible as to what those numbers are.

Great. And on the pilot program for the deployable ground station, you mentioned that you think you can get some future production orders from that. And I was wondering maybe you could talk a little bit about the timing you think of those production orders and the size that could possibly be there in terms of revenue?

Yes, Joe. So, in two cases, right, on the kind of the ground station one where we're shipping our compute capability. These initial forays as they get instantiated and used are in the [mid-$100,000] (ph) range in terms of value. We would expect that follow-on orders could be double that for a couple of years in that implementation. And then depending on how it grows into other similar type programs within the company or others, that's where we look for the add-on effect. The liquid immersion cooled one also very similar in terms of application. That would be another one. That first one of $200,000 for the first foray, but we would expect implementations double that, maybe a little bit more than double that after they've gone in and validated their first fielding, if you will, happy and comfortable with the solution, then we would expect to see multiples of those values in later this year 2025, 2026.

Okay. Great. And just one more quick one for me. I know in the last quarter, you talked about you got the site facility clearance. Just wondering, have you been able to see that clearance turn into any new opportunities for you or anything particular more that you can tell us about that?

Right. It is opening up our opportunity for placement right now. So, what it's allowed us to do is on some existing programs where we've just been providing a product to fulfill a compute requirement. We've been able to go in now and have a broader discussion on the operational problem that the platform is trying to solve. And that provides us a greater understanding of what the architecture on the platform is doing. And then that allows us now to be able to recommend a broader implementation of OSS products that could help facilitate, if you were on a vehicle that was widely a sensor integrating vehicle, right, the ability to move our processing up to the sensor for rapid processing at the sensor, that data needs to come back and be fused together into a common picture. Again, that's another need for high-end processing. And if there's any generative learning off of that or autonomy based off that, they get another level of compute. So, right now, it's opened that up. In addition, as I mentioned, with a couple of classified programs we've delivered to, in the past, we would have just delivered to those set of requirements. Now we can actually figure out and understand as I said more broadly what's going on in the program. And then a couple of prime contractors that we've spoken to in the last quarter have opened up access to us into their classified teams that are pursuing programs. So, now we're starting to feel the initial forays into our capability and we're able to respond to those now in a classified environment.

Great. Thanks for that. Appreciate it.

Thanks, Joe.

Thank you.

Thank you. We have no more questions. I'd like to turn the conference back to our speakers for closing remarks.

Thank you, Ina. And we appreciate having enjoyed sharing our latest progress with everybody today. We believe the company's strategy is solid and the future is bright. OSS management looks forward to speaking with you again in May, if not sooner. In the meantime, as always feel free to reach out to John or myself at any time. With that, let's go ahead and wrap up the call. Ina?