OSS Q2 2026 Earnings: Revenue Rose 62% as a Legal Settlement Widened the Loss

One Stop Systems (Nasdaq: OSS) reported Q2 2026 revenue from continuing operations of $9.35 million, up 62.3% year over year, while diluted EPS from continuing operations was a loss of $0.29 versus a loss of $0.11. Record quarterly bookings of $15.1 million contrasted with a wider GAAP loss caused primarily by a $6.25 million legacy legal settlement. Released on August 5, 2026, the results cover the quarter ended June 30, and the comparisons below exclude the discontinued Bressner operations.

Core earnings data

Revenue growth came from production ramps and new customer programs. A medical imaging customer moved liquid-cooled servers from prototypes into production, while new customers added demand for military servers and computing products used in autonomous construction and mining equipment.

Gross profit increased, but gross margin declined as customer-funded development, prototypes and low-rate initial production represented more of the mix. The legal settlement accounted for most of the increase in operating expenses and the wider GAAP loss.

Business mix and bookings

Product revenue increased about 56% to $8.41 million from $5.38 million. Customer-funded development revenue rose about 145% to $0.94 million from $0.39 million, reflecting greater activity on programs that remain in development or early production phases.

Quarterly bookings reached a company record of $15.1 million, producing a book-to-bill ratio of 1.6 times. The year-to-date ratio was 1.7 times. Management also highlighted a new U.S. Department of Defense intelligence platform expected to generate approximately $44 million over the next four years.

The mix of activity spans defense applications such as C5ISR, sensor fusion and autonomy, alongside medical imaging, data center, robotics and autonomous equipment uses. Several programs that began as development projects are transitioning toward larger, multi-year production orders, although their contribution will depend on execution and delivery schedules.

The legal settlement obscured improving adjusted results

The $6.25 million charge related to a legacy commercial dispute drove most of the 129.8% increase in reported operating expenses. OSS said the settlement does not constitute an admission of liability, is unrelated to current operations and fully resolves the dispute.

Excluding the settlement, operating expenses were $5.1 million, up only 2.9% as revenue grew 62.3%. Higher general and administrative and selling expenses were partly offset by lower research and development spending. This cost behavior helped the adjusted EBITDA loss narrow substantially, even though the company remained slightly unprofitable on that basis.

Non-GAAP results also exclude stock-based compensation, which increased to $0.86 million from $0.48 million. Investors should therefore distinguish the improvement in adjusted measures from the larger GAAP loss and note that gross-margin pressure remained despite higher production volume.

Cash flow and balance sheet

Cash-flow figures were provided for the first six months rather than Q2 alone. Net cash used in continuing operations improved to $0.63 million from $2.77 million in the comparable six-month period, even as inventory used $8.23 million of cash.

The cash-flow result reflected a $3.18 million reduction in accounts receivable, a $4.46 million increase in accounts payable and a $6.00 million increase in accrued expenses and other current liabilities. Inventory reached $13.86 million at June 30, 2026, up from $5.42 million at the end of 2025.

Cash, cash equivalents and short-term investments totaled $31.4 million, compared with $31.2 million at December 31, 2025. The composition changed as OSS held $14.13 million in short-term investments at quarter-end. Working capital declined to $38.1 million from $45.3 million.

Full-year guidance

Supported by first-half growth, record bookings and expanding program activity, OSS raised both ends of its 2026 revenue growth range by five percentage points. The company continues to expect an approximately 40% gross margin and positive EBITDA and adjusted EBITDA, including planned investments in personnel and research and development.

The outlook assumes continued growth in defense and commercial markets and more customer-funded development revenue than in 2025. Management identified component supply constraints, including memory availability, and the federal government budget as variables that could change the outcome.

Recent insider transactions

The supplied six-month insider summary categorizes 404,274 shares across nine purchase transactions and 21,000 shares across three sales, resulting in 383,274 net shares purchased. It reports total insider holdings of 4.16 million shares and a net-purchase percentage of 10.10%; these figures do not establish the purpose of the transactions.

The latest ten reported entries include three director sales followed mainly by stock grants or gifts. The $0 entries are awards or gifts rather than reported open-market purchases, and the supplied data does not provide their share counts.

Risks investors should monitor

• Gross-margin pressure: Q2 gross margin fell 2.2 percentage points as development, prototype and low-rate production work affected the mix. Continued pressure could make the approximately 40% full-year target and positive EBITDA harder to achieve.
• Program execution and customer concentration: Much of the growth came from specific customer production ramps and new multi-year programs. Delays in scaling production or meeting delivery schedules could slow the conversion of bookings into revenue.
• Working-capital requirements: Inventory increased by $8.44 million from year-end, while working capital declined. Further production expansion could require additional cash before customer payments are collected.
• Component availability: Management is monitoring potential supply constraints for components including memory, which could affect production and deliveries.
• Federal budget timing: The company’s growing defense activity leaves results sensitive to changes or delays in the U.S. federal budget.

Summary

OSS delivered rapid Q2 revenue growth and record bookings as medical, defense and autonomous-equipment programs expanded. A legacy settlement drove the wider GAAP loss, while non-GAAP EPS and adjusted EBITDA moved close to break-even as underlying expenses grew slowly. The next tests are whether bookings convert into scheduled production revenue, gross margin stabilizes near 40%, and inventory investment remains manageable while the company pursues positive full-year EBITDA.

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