third quarter of 2026
Filed Oct 28, 2026One Stop Systems Reports Q3 2026 Results Year-over-year revenue growth for the third quarter of 35.9% driven primarily by expanding commercial customer base across healthcare, aerospace and data center markets
Revenue from continuing operations grew 35.9% year over year, year-to-date revenue grew 48.3%, and management increased full-year revenue growth guidance to approximately 40%. The result also included lower gross margin, a GAAP loss from continuing operations, substantial nine-month operating cash use, and customer-related bad-debt and legal costs.
Key metrics
shortened, hover for the filing’s print| Metric | Value | q/q | y/y |
|---|---|---|---|
| Total revenue from continuing operations, three months ended September 30, 2026GAAP | $12,583,518 | – | 35.9% |
| Product revenue, three months ended September 30, 2026GAAP | $12,353,277 | – | – |
| Customer funded development revenue, three months ended September 30, 2026GAAP | $230,241 | – | – |
| Cost of revenue, three months ended September 30, 2026GAAP | $7,225,359 | – | – |
| Gross profit, three months ended September 30, 2026GAAP | $5,358,159 | – | – |
| Gross margin from continuing operations, three months ended September 30, 2026GAAP | 42.6% | – | – |
| General and administrative expense, three months ended September 30, 2026GAAP | $3,190,639 | – | – |
| Marketing and selling expense, three months ended September 30, 2026GAAP | $1,892,397 | – | – |
| Research and development expense, three months ended September 30, 2026GAAP | $1,109,833 | – | – |
| Total operating expenses from continuing operations, three months ended September 30, 2026GAAP | $6,192,869 | – | 33.7% |
| Loss from operations, three months ended September 30, 2026GAAP | $(834,710) | – | – |
| Loss from continuing operations, three months ended September 30, 2026GAAP | $(593,734) | – | – |
| Diluted loss per share from continuing operations, three months ended September 30, 2026GAAP | $(0.02) | – | – |
| Net (loss) income, three months ended September 30, 2026GAAP | $(593,734) | – | – |
| Diluted (loss) income per share, three months ended September 30, 2026GAAP | $(0.02) | – | – |
| Non-GAAP net income from continuing operations, three months ended September 30, 2026non-GAAP | $315,888 | – | – |
| Non-GAAP diluted net income from continuing operations per share, three months ended September 30, 2026non-GAAP | $0.01 | – | – |
| Adjusted EBITDA from continuing operations, three months ended September 30, 2026non-GAAP | $250,290 | – | 33.7% |
| Adjusted EBITDA excluding bad debt expense and legal fees, third quarter of 2026non-GAAP | $1.2M | – | – |
| Total revenue from continuing operations, nine months ended September 30, 2026GAAP | $30,001,679 | – | 48.3% |
| Product revenue, nine months ended September 30, 2026GAAP | $27,822,538 | – | – |
| Customer funded development revenue, nine months ended September 30, 2026GAAP | $2,179,141 | – | – |
| Cost of revenue, nine months ended September 30, 2026GAAP | $16,824,924 | – | – |
| Gross profit, nine months ended September 30, 2026GAAP | $13,176,755 | – | – |
| Gross margin from continuing operations, nine months ended September 30, 2026GAAP | 43.9% | – | – |
| Total operating expenses, nine months ended September 30, 2026GAAP | $22,354,534 | – | 56.5% |
| Legal settlement, nine months ended September 30, 2026GAAP | $6,250,000 | – | – |
| Loss from operations, nine months ended September 30, 2026GAAP | $(9,177,779) | – | – |
| Loss from continuing operations, nine months ended September 30, 2026GAAP | $(8,275,982) | – | – |
| Diluted loss per share from continuing operations, nine months ended September 30, 2026GAAP | $(0.33) | – | – |
| Net (loss) income, nine months ended September 30, 2026GAAP | $(8,433,256) | – | – |
| Diluted (loss) income per share, nine months ended September 30, 2026GAAP | $(0.34) | – | – |
| Non-GAAP net income (loss) from continuing operations, nine months ended September 30, 2026non-GAAP | $399,981 | – | – |
| Non-GAAP diluted net income (loss) from continuing operations per share, nine months ended September 30, 2026non-GAAP | $0.02 | – | – |
| Adjusted EBITDA from continuing operations, nine months ended September 30, 2026non-GAAP | $80,018 | – | – |
| Adjusted EBITDA excluding bad debt expense and legal fees, first nine-months of 2026non-GAAP | $1.4M | – | – |
| Net cash used in continuing operating activities, nine months ended September 30, 2026GAAP | $(12,448,392) | – | – |
Segments
| Segment | Revenue | q/q | y/y |
|---|---|---|---|
| Product revenue, three months ended September 30, 2026Initial deliveries to a new customer developing a network of autonomous energy nodes, higher production deliveries to a commercial aerospace customer for in-flight entertainment systems, and higher sales to a medical imaging OEM supporting a breast cancer screening application. | $12,353,277 | – | – |
| Customer funded development revenue, three months ended September 30, 2026Customer funded development revenue was reported as a revenue category; no separate driver was provided for the third quarter. | $230,241 | – | – |
| Product revenue, nine months ended September 30, 2026Higher sales supporting the P-8A Poseidon reconnaissance aircraft, medical imaging, military applications onboard naval vessels and aircraft, and initial deliveries to an autonomous energy-node customer. | $27,822,538 | – | – |
| Customer funded development revenue, nine months ended September 30, 2026Higher revenue from customer-funded development programs. | $2,179,141 | – | – |
full year of 2026 outlook
- RevenueRevenue growth of approximately 40%
- Gross marginGross margin of approximately 40%-42%
- NoteAdjusted EBITDA of $0.5 million to $1.0 million
What drove it
- Third-quarter revenue growth was driven by revenue from new customers in 2026 and higher production volumes with certain existing customers.
- Commercial demand contributors included healthcare, commercial aerospace, specialized data center applications, and a medical imaging OEM supporting a breast cancer screening application.
- Nine-month revenue drivers included P-8A Poseidon reconnaissance aircraft sales, military applications onboard naval vessels and aircraft, autonomous energy-node deliveries, and customer-funded development programs.
- Year-to-date book-to-bill was 1.46x.
- Management cited higher average order values and an expanding, more diversified customer base.
- Gross-margin declines were primarily driven by product mix and were partially offset by more favorable manufacturing absorption. Nine-month margin also benefited from higher engineering efficiencies on customer-funded development programs.
Concerns
- Third-quarter gross margin from continuing operations was 42.6%, compared to 45.6% in the prior-year quarter.
- The Company reported a loss from continuing operations of $(593,734) in the third quarter and $(8,275,982) for the nine months ended September 30, 2026.
- Nine-month operating expenses included a $6,250,000 legal settlement, a $0.5 million bad debt expense, $0.7 million of legal fees, and $0.9 million of higher stock-based compensation expense.
- Net cash used in continuing operating activities was $(12,448,392) for the nine months ended September 30, 2026, including a $6.25 million legal settlement and a year-to-date increase of $7.8 million in inventories.
- Management continues to monitor supply chain constraints affecting certain components, including memory, and the outlook for the federal government budget.
- Management stated that third-quarter bookings were influenced by the timing of customer orders.
What to watch
- Whether several large, multimillion-dollar orders expected to close during the fourth quarter convert into bookings and revenue.
- Execution against full-year revenue growth guidance of approximately 40%, gross margin of approximately 40%-42%, and adjusted EBITDA of $0.5 million to $1.0 million.
- The effect of product mix, manufacturing absorption, and customer-funded development efficiency on gross margin.
- Inventory levels and operating cash use as the Company supports expected revenue growth.
- Potential supply chain constraints affecting memory, the federal government budget outlook, and customer-order timing.
Balance sheet and cash flow
- Cash and cash equivalents as of September 30, 2026: $5,637,841.
- Short-term investments as of September 30, 2026: $13,246,688.
- Cash, cash equivalents, and short-term investments as of September 30, 2026: $18.9 million.
- Total working capital as of September 30, 2026: $37.9 million.
- Inventories, net as of September 30, 2026: $13,724,600, compared to $5,420,439 at December 31, 2025.
- Accounts receivable, net as of September 30, 2026: $12,743,025.
- Total liabilities as of September 30, 2026: $9,116,063.
- Net cash used in continuing operating activities for the nine months ended September 30, 2026: $(12,448,392).
- Purchases of property and equipment for the nine months ended September 30, 2026: $(190,872).
- Net cash used in continuing investing activities for the nine months ended September 30, 2026: $(13,487,645).
- Net cash used in continuing financing activities for the nine months ended September 30, 2026: $(1,643,824).
Analysis
OSS reported accelerating growth from continuing operations in the third quarter. Revenue was $12,583,518, compared with $9,262,517 in the prior-year quarter, and the company described the 35.9% increase as driven by new customers and higher production volumes at existing customers. Product revenue was $12,353,277, while customer funded development revenue was $230,241. Management identified autonomous energy nodes, commercial aerospace in-flight entertainment, and medical imaging as specific third-quarter commercial contributors.
Growth came with lower gross margin and higher operating expenses. Gross margin from continuing operations was 42.6%, compared with 45.6%, primarily because of product mix, partially offset by favorable manufacturing absorption. Total operating expenses were $6,192,869, up 33.7%, including $0.5 million of bad debt expense, $0.4 million of legal fees, and higher stock-based compensation expense. The resulting loss from continuing operations was $(593,734), while non-GAAP net income from continuing operations was $315,888 and adjusted EBITDA from continuing operations was $250,290.
Nine-month revenue was $30,001,679, compared with $20,230,038, a 48.3% increase. The nine-month GAAP loss from continuing operations was $(8,275,982), with operating expenses including a $6,250,000 legal settlement. Adjusted EBITDA from continuing operations was $80,018, compared with an adjusted EBITDA loss of $(3,241,573) in the prior-year period. Management said adjusted EBITDA excluding the bad debt expense and legal fees would have been $1.4 million for the first nine months of 2026.
Cash use and inventory investment are significant considerations. Net cash used in continuing operating activities was $(12,448,392) for the nine-month period, with management citing the $6.25 million legal settlement and a year-to-date $7.8 million inventory increase. Cash, cash equivalents, and short-term investments were $18.9 million, and total working capital was $37.9 million as of September 30, 2026. Management increased full-year revenue growth guidance to approximately 40%, from prior guidance of 25% to 30%, while maintaining a gross-margin outlook of approximately 40%-42% and setting adjusted EBITDA guidance at $0.5 million to $1.0 million.
Management, verbatim
Our third quarter results were better than expected and reflect accelerating momentum across our business, supported by growing demand for our Enterprise Class compute solutions and the expanding diversity of our customer base.
Mike Knowles, President and CEO
Our pipeline remains robust, with a year-to-date book-to-bill ratio of 1.46x reflecting strong underlying demand for our solutions. While third quarter bookings were influenced by the timing of customer orders, we expect several large, multimillion-dollar orders to close during the fourth quarter and continue to advance what we believe to be potentially transformative opportunities across our core defense and commercial markets.
Mike Knowles, President and CEO
Third quarter adjusted EBITDA increased 33.7% year-over-year to $0.3 million. In the quarter, we recognized $0.5 million of bad debt expense related to the bankruptcy filing of a former customer and $0.4 million of legal expenses related to a previously disclosed settlement with a former customer. Excluding these two items, third quarter adjusted EBITDA would have been approximately $1.2 million, or nearly 10% of third quarter total revenue, demonstrating the underlying profitability and operating leverage of our business.
Mike Knowles, President and CEO
Not in the filing
stated, not guessed- Previous outlook section or prior earnings release needed for a formal actual-versus-prior-guidance comparison.
- Free cash flow was not reported.
- Quarterly operating cash flow was not reported.
- Debt balance was not reported; operating lease liabilities were reported.
- Share repurchases and dividends were not reported.
- A tax-rate metric was not reported.
- Operating segments were not reported; the release reported product and customer funded development revenue categories.
AlphAI analysis generated from the company’s SEC earnings filing (Form 8-K Item 2.02, or Form 6-K for a foreign private issuer). Every figure was cross-checked against the filing text; consensus estimates, price targets and share-price reactions are not shown because they are not in the filing. AI-generated research, not investment advice.