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Greetings. Welcome to the TSS Inc. Second Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I will now turn the conference over to your host, James Carbonara with Hayden IR. You may begin.

Thank you, operator, and good afternoon, everyone. Joining me today on this call are the company's President and CEO, Darryll Dewan and its CFO, Danny Chism. As we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, August 13, 2026. TSS expressly disclaims any obligation to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or the replay to reflect events or circumstances that may change or arise after the date indicated, except as otherwise required by applicable law. For a list of the risks and uncertainties that may affect the company's future performance, please refer to the company's periodic filings with the SEC.

In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. With that, Darryll, I'll turn the call over to you.

James, thank you, and good afternoon, everyone. Our second quarter results reflect how our company is growing its higher-margin business lines while relying less on lower-margin Procurement. Demand for our Systems Integration capabilities remain strong, and our revenue mix continues to shift in that direction. This shift improves the quality of our earnings. This is by design. The market for AI and high-performance computing infrastructure continues to expand dramatically. Customers are deploying increasingly sophisticated computer environments and are looking for partners who are flexible and capable and who can integrate, deploy and manage that infrastructure efficiently. That's where TSS has built a strong position. That's where we continue to see healthy demand and volume growth ahead.

Continued growth in our higher-margin Systems Integration and Facilities Management business drove a favorable shift in our revenue mix during the second quarter. The shift towards our higher-margin offerings is an underlying trend we continue to emphasize in the business, and it's one that gives us confidence in our long-term direction. Our higher-margin Systems Integration business delivered strong growth during the quarter, increasing 46% year-over-year and representing 39% of total revenue compared with just 22% of the total in the second quarter of last year. This is the important story behind the quarter.

Our highest-margin Facilities Management business also had an excellent quarter, growing 84%. Historically, Procurement revenue has been our most variable, generating at times high-volume revenue on relatively few large customer orders. Customer purchasing patterns and the timing of infrastructure deployments can create significant swings from quarter-to-quarter. We saw that again this quarter with Procurement revenue of $18.2 million compared to $33 million a year ago. We are forecasting Procurement revenues in the third quarter to return to our historical range of $30 million to $40 million, though that also can vary with last-minute order adjustments.

With our higher-margin Systems Integration and Facilities Management revenue streams representing a larger portion of our revenue and other income mix, profitability improved during the quarter with consolidated gross profit up 11% and adjusted EBITDA up 12%, even as total revenue declined 20% due to the expected pullback in Procurement. This is the kind of progression we'd expect to see as our business continues to shift towards higher-margin offerings.

We opened our newest integration facility here in Georgetown, Texas in mid-2025. Improving the efficiency of our integration processes and procedures is a primary focus for our operations team in order to deliver better value to our customers. We speak regularly about the constant and rapid evolution of data center and rack design driven by new chip releases. Compute density in each individual rack has increased in a short time, driving significant changes in power and cooling. The rack integration process is similarly evolving along with rack densities. We plan the site for increased power needs, and we work diligently with the local power utility authorities to have ample current power available plus the capacity to grow.

That said, there are numerous choke points in the integration process. NVIDIA currently drives the process with rollout of new chip families, each driving more compute power than the last. We have been integrating H100, H200 and the Blackwell families. Currently, we're seeing significant GB300 volume. We are in the midst of investing approximately $17 million to build the capacity to support NVIDIA's new Vera Rubin platform. We began this latest round of investment in Q2, and we should be completed in mid-September. As we discussed, such investments drive meaningful increases in recurring, high-margin revenue. Over the time period, the assets are used to complete rack integrations. It's an important step because it strengthens our recurring revenue earnings base while expanding our relationship with our marquee customer.

We are very encouraged by these accelerating trends. Customer engagement remains high. The pipeline for higher-margin Systems Integration continues to grow. The demand for our integration capabilities remains healthy and robust. Effective May 1, we also began providing warehousing and logistics services to our largest customer at their request, fully utilizing our integration facility in Round Rock, Texas, which has been vacant. We expect the second half of 2026 to be stronger than the first half. And for the time being, we are maintaining our full year adjusted EBITDA outlook towards the upper end of the previously announced $20 million to $22 million range.

So in summary, the higher-margin segments of our business continue to grow, recurring revenue continues to expand, and we're executing well for our customers in a market that continues to present significant long-term opportunity. We are excited about these results and the direction of our business. So with that, let me turn the call over to Danny to review the financial results.

Thanks, Darryll. Good afternoon, everyone. Before reviewing the financial performance, I want to highlight a change in the presentation and the results beginning in the second quarter. In May, we began using our previous integration facility in Round Rock, Texas to provide warehousing and logistics services to our largest customer, as Darryll mentioned. We consider this an operating lease for GAAP purposes and the lease operations are reported within our Systems Integration segment. Details of the accounting treatment are included in the 10-Q, which was filed just a few minutes ago.

With that, let's go into the results. Total revenues for the second quarter were $35.1 million compared with $44 million in the second quarter of 2025. We saw dramatic year-over-year growth in our higher-margin business lines while reducing the dependence on lower-margin procurement activities. Systems Integration revenues increased 46% year-over-year, while Facilities Management revenue increased 84%. As we've mentioned on prior calls, Procurement Services remains an important part of our business. It carries the lowest margin among the 3 operating segments, but can produce wonderful incremental income and carries very little fixed costs in periods with lower volumes. Activity in this business is largely driven by the timing and scale of customer infrastructure purchases and deployment schedules. As a result, Procurement revenue can fluctuate meaningfully from quarter-to-quarter depending on customer ordering patterns and the supply chain.

Taking a closer look at each segment. Revenue from Procurement Services was $18.2 million, a decrease of 45% compared to the prior year quarter. As Darryll mentioned, orders received for Q3 already exceed Procurement revenues in Q2, likely returning to more of our typical $30 million to $40 million range per quarter. Revenue from our Systems Integration segment increased 46% from $9.5 million in the second quarter of 2025 to $13.9 million in Q2 of this year, reflecting continued customer demand for our integration capabilities, supporting AI and high-performance computing infrastructure deployments.

As we've discussed previously, Systems Integration continues to be the primary driver of growth for TSS and represents a structurally higher-margin business compared to Procurement Services. During the second quarter, that dynamic played out with Systems Integration representing 39% of total revenues compared to 22% in the prior year period. As this business continues to scale and leverage its relatively fixed cost base, we expect it to be an increasingly important contributor to gross profit growth and overall profitability.

Revenue from Facilities Management increased 84% to $2.7 million, reflecting the continuation of ongoing maintenance agreements, combined with a spike in discrete project work in the period, similar to the increase we saw in Q1. Maintenance revenues in this segment decreased from $1 million in the prior year quarter to $746,000 in the current quarter as certain customers opted not to renew maintenance agreements on some of the older MDCs. That was more than offset by discrete project work increasing from just under $0.5 million this quarter last year to almost $2 million this quarter. Our Facilities Management team has done a great job helping end customers extend the useful lives of their MDCs by refreshing the infrastructure in them. The refresh of these units provides enhanced confidence in those customers' continued use of our preventative maintenance services.

Moving down the income statement a bit. Gross profit increased 11% year-over-year to $8 million and reflecting the shift to higher-margin lines of business. Our blended gross margin improved 640 basis points from 16.4% this quarter last year to 22.8% in the current quarter. The Procurement Services group gross margin improved to 11% in the second quarter compared to 7.7% this quarter last year. When viewed using non-GAAP gross value of all transactions, which we believe provides a more comparable view of procurement economics, the gross margin was 6% in the current quarter compared to 3.9% in the prior year period.

Facilities Management gross margin was 57.1% in the second quarter compared with 74.3% in the prior year period. As the margins in this line of business are typically near 50%, the current quarter results represent a return to more normal expectations, whereas the prior year quarter carried an unusually high margin tied to the expiration of certain maintenance agreements in which we incurred less costs in that period than what would normally be expected. As a result of the revenue growth in this segment, Facilities Management gross profit increased from $1.1 million this quarter last year to $1.6 million in the current quarter.

Systems Integration gross margin was 31.6% (sic) [ 31.3% ] in the second quarter compared to 37.5% in the prior year quarter. The overall change was expected as a result of the increased depreciation charges we recognized in the current period related to our Georgetown, Texas facility, which was not fully operational during this time last year, so it didn't have comparable depreciation in that period.

SG&A costs were $5.6 million in the second quarter compared to $4.7 million in the prior year period. The increase was primarily driven by higher noncash equity compensation, head count and related compensation costs to support the growing scale of the organization. We continue to maintain a disciplined approach to managing our cost structure while investing in the resources necessary to support long-term growth. With the growth in gross profit outpacing operating expense growth, we turned an 11% increase in gross profit into a 16% improvement in operating income from $1.4 million in the prior year quarter to $1.6 million in the current quarter.

Interest on our bank loan was all capitalized this quarter last year as we were still wrapping up the buildout of our new Georgetown integration facility in that period, so the interest charges were being capitalized. That compares to $322,000 of interest expense in the current period as we continue to service the debt that we borrowed to finance that buildout. Interest expense continues to decrease each period as our debt amortizes down.

As a result of higher cash on hand, interest income increased to $565,000 in the second quarter compared to $175,000 this quarter last year. Our effective tax rate in the second quarter reflects the full impact of income taxes following the removal of the valuation allowance on our deferred tax assets in the fourth quarter of 2025. As we discussed previously, prior periods benefited from the partial release of the valuation allowance each period, absorbing any federal taxes and a portion of our state taxes in that period. Following the release of that valuation allowance in Q4 2025, we're now recognizing income tax expense at the applicable statutory rates net of discrete tax benefits, which impacts year-over-year comparisons of net income and earnings per share. Income tax expense was $413,000 for the second quarter of 2026 compared with $69,000 in the prior year period. As a result, net income for the quarter was $1.4 million, or $0.05 per diluted share compared to $1.5 million, or $0.06 per diluted share in the second quarter of last year.

Adjusted EBITDA improved 12% year-over-year to $4.5 million in the current quarter. Year-to-date, adjusted EBITDA improved 5% to $9.8 million. Combined with our expectation that the second half of 2026 will be stronger than the first, as Darryll discussed, this gives us confidence in reaffirming our full year adjusted EBITDA outlook towards the upper end of our $20 million to $22 million range.

Taking a quick look at the balance sheet. We ended the quarter with $67.7 million in cash and cash equivalents and total debt of $16.1 million. With a strong cash balance and a leverage ratio below 1x, we believe we have the financial flexibility to continue investing in our Systems Integration capabilities, support customer growth and execute on the opportunities we're seeing in the market.

To summarize, our second quarter financial results demonstrate the continued progress we're making in shifting our business mix towards higher-margin Systems Integration and Facilities Management revenues. While total revenues were impacted by lower Procurement activity, our higher-margin business continued to grow, driving improved gross profit and adjusted EBITDA. And we expect Procurement revenues to revert to a more typical range in Q3. The investments we've made in our higher-margin Systems Integration capabilities and the executive talent, combined with the expansion of our recurring revenue opportunities, are strengthening the quality of our earnings and positioning us for continued growth.

With that, I'll turn the call back over to Darryll.

Great. Thank you, Danny. Well said. We've said we're encouraged by the progress we're making, and we operate in an exciting business segment. The demand for AI and high-performance computing infrastructure remains strong, and we continue to see that translate into opportunities across our higher-margin Systems Integration and Facilities Management business. And as an example, we will install a new MDC, Modular Data Center, in September-October and another in mid-2027. Interest in modular is increasing.

The shift in our revenue mix is improving the quality of our earnings. We're maintaining a disciplined approach to execution and investing in the capabilities our customers need today while positioning TSS for continued long-term growth. Looking ahead, we remain confident in our 2026 outlook. Our customer engagement remains strong. Our pipelines continue to grow. We expect the second half of the year to be stronger than the first. Much of our excitement is factored into our annual outlook, and we're also planning to drive more integration business in the second half as the demand signal continues to accelerate.

I would add, from a business development standpoint, we have reorganized our sales team, and we are actively deploying and exploring how we can broaden our business in terms of customers' capabilities and capacity. Our core Systems Integration capability is a strong starting point. It provides us the visibility into what is happening in a data center as compute capacity and densities grow. Our team's number one priority is to provide great service to our existing customers with rapid time to value, and we are concurrently making investments to assess capacity plan and capabilities extension to enhance our offerings to customers. I expect to have more to report on that in the coming months and quarter.

Before we open the call for questions, I'd like to thank our team members for their continued hard work and dedication, our customers for their trust and their partnership, and many of you, our shareholders, for your continued support. So thank you. Operator, we're ready to take questions.

[Operator Instructions] Our first question is from Matt Calitri with Needham.

This is Matt Calitri over at Needham. We want to make sure we're clear here on the small sequential downtick in Systems Integration revenue. So is the idea here that you're seeing more demand for the GB200 racks and those take longer to test so they can't ship as fast? And then is that part of this $17 million investment in AI readiness and enhanced testing?

Yes, the second part of that question, I'll take first, Matt. The $17 million is really investment in additional power infrastructure and cooling capability. There's a little more to it, but that's primarily it, specifically to be ready for NVIDIA's Vera Rubin configuration. So that requires more power, which then in turn requires more cooling. So that's really what that investment is directed towards, but that should directly drive incremental revenues in future periods.

The second part of the question, Darryll, I don't know if you want to jump in on that. The sequential downtick, we've been rolling right around that $14 million to $14.2 million per quarter last 3 quarters. This is in line with that same range. I think it's just barely down at $13.9 million. We are anticipating increases in that as we move forward. We'll start seeing the contribution from the investment in Vera Rubin readiness, as well as we'll start to see a little more contribution from the warehousing work that we just started doing that rolls into that as well.

Matt, there's a little bit more data there I'll share with you. It's a good question on quarter-to-quarter on the revenue. The mix of the rack integration business, we refer to it here internally as AI racks and mainstream, which is the high-performance computing capabilities, networking racks and compute racks. We had a downturn in Q2 over Q1 in the mainstream business segment. It was significant enough to have a little bit of impact, but I can tell you from an outlook going forward, that's not going to be an issue. The AI rack business that we all have spent a lot of time talking about was up quarter-over-quarter.

Yes. I add a little bit more color, I guess, on the mainstream piece there, too. Some of what we're seeing, Matt, is a resurgence of demand, specifically on network racks. As you deploy a lot of compute, you then also need the network racks to help with that. Those network racks typically go through our mainstream line, and that's where we're seeing a pretty good increase in demand coming through on those for Q3, Q4.

Good to know on the mix there. So what is left on the build-out for the power and cooling requirements for Vera Rubin? And how should we think about how much of a benefit this could be, I guess, both starting in 3Q and through the rest of the year?

Yes. So you'll see on the statement of cash flows, you probably haven't had a chance to look through the full 10-Q yet, but I think we've got something like $4.5 million, $4.7 million of CapEx. But really, you need to look at that in combination with the incremental CapEx funded with AP that's down at a supplemental disclosure at the bottom of the cash flow statement. So we've completed $7 million to $8 million as of quarter end of that buildout. As Darryll mentioned, we plan on that being completed by September, and we'll start putting that to use pretty quickly. So I would anticipate that will start driving incremental revenue, some in Q3, primarily in Q4. And as far as specific timing, we've not put out the specific timing of our agreement, but you can pretty well assume that would get recognized fairly ratably over the term of our multiyear agreement for AI rack integration.

Got it. That makes sense. And then maybe just one more on -- so we talked about how the AI rack business was up quarter-to-quarter and there's the nuance with the mainstream. What trends are you seeing in order volumes for Dell? And is there any way to think about how close you're getting to that weekly minimum commitment on the average week or anything like that?

Matt, that's a really good question. We really can't go into detail because it would be out of order for us to go talk about the pipeline in any more granular detail because it's outside of our house. But we refer to the outlook as very strong. And the -- if you look at our key customers' public statements, they're pretty robust. They've increased their outlook for AI server in their fiscal year '27. So we're doing everything we can to get as much of that growth as we possibly can. And that means that we've got to be really, really good at operating and that we've got to be really good at providing value.

So we are full speed ahead to get as much of that as we can. Our outlook for the second half of the year is pretty strong compared to the first half. And going back to your minimum question, it is all of our desire to get over the minimum, and that works on a weekly basis, the way it's calculated. And I think we've gone over once or twice year-to-date. But the outlook is exciting, and we all want to get over the minimum, we all want to do as much as we can to take care of our key customer and what they're doing in the market.

[Operator Instructions] The next question is from Alex Fuhrman with Lucid Capital Markets.

The Systems Integration revenue here, it sounds like there's a lot of potential for that to accelerate from the $14 million per quarter plateau it looks like we've been on for a couple of quarters. Can you talk just longer term, bigger picture, what is the potential for growth in this business, assuming demand for AI servers remains strong? What's the gating factor to how fast you can grow and how much revenue you can generate in that business?

Well, Alex, it's a good question. I think there's a couple parts to the answer. One is we have got to be stellar in our operational efficiency. Number two is we need to make sure that we stay out in front of the technology curve, which is what we're doing right now with some of the enhancements to handle the new technology coming down from the new platform, and we're preparing for the one after. And then you get into constraints around how much power do you have and how much space do you have. We happen to be in a very good labor market. We've got a good labor force. We think we can dial that up and down depending on the nature of the demand. I think we've got headroom that is significant over the minimum in this particular facility here. I have gone public, and I said I think we've got 2x to 3x capability over the bare minimum in the contract. And in order for us to do that, we've got to be real tight operationally, and we've got to do and deliver when we say we're going to deliver.

And I'd add really the limiting factor has not so much been demand as much as it is supply chain. I think that's kind of universal. One quarter it may be memory, another quarter it may be a certain cable. There are so many parts that goes into these that as that aligns, that opens the floodgates for us to be able to do more. But I think that will continue to be a little bit of a gating item.

Another part -- I probably should just shut up, right? But another part of the answer is, we're talking about integration of racks. We're seeing an increase in conversation around the modular data center offering, getting closer to the edge, removing latency, given some of the environment around data center expansion and growth. It's a time-to-market value kind of proposition. And the way we are looking at taking advantage of that growth is by partnership, and where appropriate, investing in skills that are needed to go promote and deliver a MDC solution like engineering skills and some potential sales skills. So we're looking at that as we speak.

We have no further questions in the queue. I'd like to turn the floor back to Darryll Dewan for our closing remarks.

Okay. Thank you so much. I appreciate it. Everybody on the call, much appreciate your attention and time today. And thank you for your continued support. We are blessed and pleased with the shift to our higher-margin Systems Integration business. We're excited about the continued growth in this segment. We talked a lot about where we've been, where we're going. We're optimistic about the business acceleration in the second half of the year, and our progress reviewing strategic growth options remains high on our list. So thank you, and see you again soon.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good afternoon, and welcome to the TSS Inc. First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, James Carbonara, Investor Relations at Hayden IR. James, the floor is yours.

Thank you, operator, and good afternoon, everyone. Once again, thank you for joining us for TSS conference call to discuss the company's first quarter 2026 financial results. Joining me today on this call are Darryll Dewan, President and CEO of PSS; and Danny Chism, the company's CFO.

As we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, May 7, 2026. TSS expressly disclaims any obligations to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or the replay to reflect events or circumstances that may change or arise after the date indicated, except as otherwise required by applicable law.

For a list of the risks and uncertainties that may affect the company's future performance, -- please refer to the company's periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation of the difference between those measures and the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. With that, Darryll, I will turn the call over to you.

Thank you, James, and welcome, everyone. We are off to a fast, strong start in 2026. Our first quarter results reinforce continued execution of our growth plan and accelerating momentum in our systems integration business. Our performance continues to benefit from strong demand for AI-related infrastructure, where customers are scaling deployments to address demand for AI services and servers. We're executing effectively against our customers' demand with expanded capacity to create sustainable long-term value and making strategic investments to set the stage for future growth. Revenue of $55.3 million in the first quarter was driven by the strength in our higher-margin systems integration business. It increased 88% year-over-year and represents a larger portion of total revenue at 25% compared to 8% in the prior year period when we had an outsized contribution from procurement.

Adjusted EBITDA was $5.3 million, up 1% year-over-year, reflecting a more favorable sales mix and the impact of growth investments related to our new facility. Systems integration remains the primary driver of growth and margin expansion in our business and our ability to execute consistently in an increasingly complex operating environment is a key differentiator. Demand for AI infrastructure remains at an all-time high and is showing no signs of abating. Based on reports from many participants in the AI supply chain from frontier model companies and hyperscalers to the equipment OEMs and down to the chip providers, it is clear demand is far outstripping supply. There are strong indications that frontier model companies' revenues are limited by the amount of compute they have access to and the deals between large companies to secure data center capacity continue to make weekly headlines.

We've been working to reconsider our definition of the markets we serve. Currently, we have 3 primary offerings: systems integration, facilities management, which includes our modular data center services business and procurement. In systems integration, we're experiencing very rapid growth in the higher-margin offerings. Our primary customers in the past have been computer equipment OEMs. These have been and continue to be wonderful customers who themselves are experiencing very rapid growth. However, there's a large part of the market the OEMs currently do not serve. We are working to understand the potential for us to serve the rack integration requirements of the rest of the overall market.

Further, the complexity of data centers being built today is far greater than those built just a few short years ago. The amount of power required to serve more dense compute environments and the systems to cool dense compute are changing data center designs. Beyond that, the networking requirements within the data center are rapidly evolving. In AI training data centers, all the GPUs are connected and the amount of data flow is pushing the industry towards optical networking. NVIDIA announced substantial investments in this area in recent months. And all of this is done to achieve greater efficiency as frontier model companies rushing to IPOs are measured on cost per token basis.

There are two meaningful consequences for our company. One, first, the technical burden is being disseminated out from primary technology providers like NVIDIA to the supplier community. Rack design, server configuration, networking solutions still have reference designs from OEMs, but the details of the solutions for deployment are done by suppliers like TSS. Second, we believe the pace of change lends itself to opportunities to both expand how we perform rack integration and to consider offering additional services beyond Rack integration. For these two reasons, we have made important additions to our leadership team that I'm proud to expand on in just a few minutes. Importantly, we are scaling our operations along this demand.

Let's recall, our Georgetown, Texas facility opened the doors less than a year ago and really began flowing orders 6 to 7 months ago. We have expanded our capacity and execution capabilities, including scaling Rack integration throughput, optimizing our facility footprint and increasing operational readiness to support higher volume. As a result, within this month, we will have completed more Rack integrations in 2026 than we delivered all of last year. And importantly, we have remaining capacity within our existing footprint to support additional growth as demand requires. In other words, we are executing in line with our expectations and remain on track with our internal plan for the year.

In addition, we're continuing to optimize our operational footprint. Since we moved rack integration operations 9 miles north from Round Rock to Georgetown, our Round Rock facility has been idle. In line with our 2026 operating plan, we have now dedicated the entire Round Rock facility to warehousing AI rack material for our largest OEM customer. We began providing this service May 1 of this year, and the contribution from this activity is included in our adjusted EBITDA guidance for the year. Last week, we announced a significant strengthening of our leadership team to support our next phase of growth.

I'm pleased to announce and proud to have Matt Wallace appointed to the Chief Strategy Officer and as well David Ho appointed to the Chief Technology Officer. Matt brings deep experience in corporate strategy, business transformation and strategic partnerships with a track record of driving growth initiatives across the infrastructure technology sector. David brings extensive engineering and infrastructure leadership experience, including scaling technical organizations and developing integration capabilities for large-scale deployments. Both of these executives bring established industry relationships to TSS that enhance our ability to engage across customers and partners. Most importantly, these additions are aligned with our focus on disciplined growth, both organic and strategic. These roles are intended to strengthen execution, expand our partnerships and support long-term scaling of the business.

So as we look ahead, we are well positioned for another record year. Our outlook for adjusted EBITDA in the range of $20 million to $22 million for the full year is supported by a multiyear agreement that provides both revenue visibility, downside protection, expanding capacity and capabilities and a strengthening leadership team. We expect our full year results to be at the high end of the previously set range. Importantly, we operate in an addressable market that is massive and growing rapidly, and we remain focused on disciplined execution across the business. We are working on strategies to position the company in 2026 to address a wider market of customers with an expanded set of services. So with that, let me turn the call to Danny for a more detailed discussion of our financial results. Danny?

Thanks, Darryl. Consolidated total revenue in the first quarter was $55.3 million, down from $99 million in the year ago quarter. The decrease was driven primarily by the lower level of procurement services activities with systems integration revenues up 88% and facilities management revenues in line with the prior year. It was encouraging to see strong year-over-year growth this quarter in our systems integration business, which carries richer margins than the procurement business.

As you may recall, procurement service revenue is a meaningful yet inherently variable component of our business with the narrowest margins of all our business lines. with volume variances driven primarily by the timing and scale of customer infrastructure purchasing. While periods of elevated procurement activity like we experienced in the first quarter of last year can occur in response to large-scale deployment cycles, the revenue stream is not linear and can fluctuate significantly from quarter-to-quarter depending on customer ordering patterns and program timing.

Revenue from procurement services totaled $40 million, down 56% year-over-year from $90.2 million. This represented a return to a more typical level of procurement activity compared to the extraordinarily high record level seen in the first quarter of last year. Revenue from our Systems Integration segment increased 88% year-over-year from $7.5 million in the first quarter of 2025 to $14.1 million in Q1 of this year, reflecting continued strong demand and execution across large-scale infrastructure deployments. This also reflects the positive impact of the renegotiation of our long-term AI rack integration agreement in Q4 2025, taking into account our full CapEx investment and increased electrical power availability. We've also continued to see an increase in the number of AI racks coming to us for integration.

Systems integration is a core growth and value driver for our business. As customers continue to move towards increasingly complex and higher volume infrastructure deployments, we continue to see a corresponding and sustained shift in demand and revenue mix towards integration services, which are higher value, more scalable and more directly linked to the long-term growth and margin expansion. Sequentially, the current quarter systems integration revenues looked relatively flat at $14.1 million compared to $14.2 million in the fourth quarter of 2025.

If you recall my comments from last quarter, the fourth quarter systems integration revenues included approximately $1 million related to costs that we had incurred and recorded in periods prior to Q4 before which we could not invoice or recognize revenue until the amendment was signed to our long-term agreement. It also included approximately $800,000 of accelerated recognition of enablement costs reimbursed to us by one of our customers, which we originally anticipated amortizing into revenues mostly in 2026. Excluding those 2 amounts from the Q4 systems integration revenues, the current quarter's $14.1 million represents a $1.7 million or 14% increase compared to Q4 2025.

Revenue from Facilities Management totaled $1.3 million, in line with the prior year quarter. Maintenance revenue in this segment decreased by $166,000 or 19% as certain customers opted not to renew maintenance agreements on some older MDCs, offset by $158,000 or 37% increase in discrete project work in the quarter. Consolidated gross margin was 15.9% in the current quarter, up from 9.3% in the first quarter of last year. The improvement was primarily due to a measurable shift in our revenue mix compared to the prior year with less reliance on lower-yielding services. As Darryll mentioned, at 25%, systems integration revenues represented a much larger percentage of our total revenue in the current quarter compared to only 8% in the prior year quarter.

Systems integration is the key growth driver for the company and represents a structurally higher-margin business relative to procurement. As this segment continues to scale and represent a larger share of our total revenue, we expect it to remain a primary contributor to both margin expansion and overall profitability. This mix shift reflects not only strong demand for our integration services, but also the increasing complexity and value of the work we're performing for customers as they deploy larger and more sophisticated infrastructure environments. Blended margins will continue to fluctuate a bit from quarter-to-quarter, depending on the level of procurement activity in any individual quarter. So it makes the most sense to evaluate the margins of each business line individually.

Procurement gross margin was 6.7% in the current quarter, down 110 basis points from the prior year quarter. When viewed using the non-GAAP gross value of all transactions, which we see as more of an apples-to-apples comparison, gross margin likewise decreased 110 basis points from 6.6% in the prior year quarter to 5.5% in the current quarter. The prior year quarter included a large sale with a larger margin than is normal in the business, whereas the current quarter is more in line with normal expectations. Sequentially, the 5.5% margin in the current quarter compares favorably to the 5.2% in the fourth quarter of last year and 5.4% for the full year 2025, all when viewed on a gross basis.

At 64.7%, the gross margin in Facilities Management represents a substantial improvement from 40.9% in the prior year quarter. This reflects a greater use of internal resources rather than subcontractors, particularly on the discrete projects in the period. As a result, gross profit from the FM business was $835,000 compared to $531,000 in the first year quarter -- first quarter of last year, even on slightly lower total revenues. Systems integration gross margins increased more than 1,500 basis points from 22.1% in the first quarter of last year to 37.5% in the current quarter.

As mentioned in our last earnings announcement, we renegotiated our agreement in December 2025, covering most of our AI Rack integration services, increasing the rate we now charge to recapture incremental investments we made last year in CapEx and additional power availability. We also earn a higher margin with the increased volume of AI racks built as we saw this quarter compared to Q1 of last year. We anticipate the higher volumes and wider margins to continue into future periods. SG&A expenses in the first quarter of 2026 were $5.5 million, an increase of $635,000 or 13% over the prior year period. Approximately $130,000 of the increase relates to noncash stock-based compensation, with the remainder related primarily to higher headcount and related compensation costs to support our growth.

Depreciation and amortization expenses not allocated to COGS were $306,000 compared to $210,000 in the prior year. This increase is related to depreciation of assets added over the last year to support the overall growth of the business. Bank factoring fees decreased from $1.5 million in the first quarter of 2025 to $704,000 in the first quarter of '26 due to favorable shifts in interest rates compounded by a lower volume of receivables factored. As a percentage of GAAP revenues, these fees improved 20 basis points from 1.5% in the prior year quarter to 1.3% in the current quarter. As these fees are charged on the non-GAAP gross value of all transactions, we find reviewing these fees as a percentage of those gross sales values as more meaningful. On that basis, factoring fees improved from 1.3% of gross transaction value in Q1 of last year to 1.1% in the first quarter of this year. As a net result of these factors, operating income decreased 14% from $2.6 million in the prior year quarter to $2.3 million in the first quarter of 2026.

Interest on our bank debt was all capitalized in Q1 2025 during the construction period of our Georgetown facility. So we recorded no interest expense on our income statement in that period. This compares to $333,000 in the current quarter, reflecting primarily the interest cost on our fully amortizing bank loan. Reflecting the higher average cash balance on hand this quarter compared to Q1 last year, interest income increased from $383,000 this quarter last year to $725,000 in the current quarter.

Following the Q4 2025 reversal of the valuation allowance on our deferred tax asset, our tax expense now reflects federal and state income taxes net of discrete items, where prior periods taxes represented almost exclusively the Texas gross margins tax. The income tax expense in the current quarter was $391,000 or 14.7% of pretax income compared to $49,000 or 1.6% of pretax income in the prior year quarter. The current quarter effective tax rate is comprised of federal and state income taxes of 28.2% of pretax income, net of a large discrete tax benefit in the period related to the vesting of employee stock. We expect the effective tax rate in the second through fourth quarters to be approximately 26%, yielding a full year effective tax rate of approximately 22.7%. This could be affected by large discrete items in future periods.

The net result of these key items is a net income for the first quarter of $2.3 million, down 24% from $3 million in the year ago quarter, driven primarily by the more normalized level of procurement activity in the current quarter and higher recorded income tax expense. Our diluted EPS was $0.08 per share compared to $0.12 per share last year. Adjusted EBITDA was $5.3 million, a 1% increase compared to $5.2 million in the prior year quarter.

Now taking a quick look at a few things from our balance sheet. Our net working capital improved by over $2 million in the current quarter, ending at $48.1 million, primarily due to the $2.3 million net income in the current period. We used roughly $20 million of cash to pay off accounts payable and accrued expenses in the period, while reductions in inventories and costs in excess of billings on work in process at year-end roughly offset the reduction in deferred revenues. Also reflected in the ending cash balance is the use of $1 million to repay long-term debt and $1.4 million to repurchase stock from employees upon the vesting of their restricted stock as a means for them to meet their tax obligations upon vesting.

In summary, our results for the quarter reflect the impact of a meaningful shift in revenue mix in line with our long-term strategy. While total revenue was affected by a challenging comparison to record level procurement revenues in Q1 last year, the increasing contribution from systems integration and facilities management all but offset that dynamic from a profitability standpoint. As systems integration represented a larger share of total revenue in the quarter, there was a corresponding expansion in both gross margin and adjusted EBITDA. This highlights the underlying strength of the business and reinforces the importance of systems integration as the primary driver of both growth and profitability going forward.

Lastly, I'll mention that our primary customer recently requested that we invest roughly another $17 million into CapEx to support the next generation of AI racks. We've just started that process and expect to add those assets between now and the third quarter. Once that investment is complete and the assets are put in use, we expect the revenues we earn from our primary AI systems integration customer to once again increase over the next several years, reflecting our recapture of these investments, the related cost of capital and related profit. With that, I'll turn the call back over to Darryll for some closing comments.

Great. Thank you, Danny. Well done. I'd like to summarize our call by reinforcing three key points. First, the quarter reflects continued execution and a business that is evolving in the right direction. Systems integration continues to scale. And as it becomes a larger part of our business, it is driving both margin expansion and overall profitability. Second, our demand remains strong. We are operating in an environment where customers are deploying increasingly complex infrastructure at greater scale, and we are well positioned to support that demand, and we're working hard to do that. Just as importantly, we have built the operational capacity and capabilities to continue scaling alongside our customers. And third, we are being very deliberate in how we position the business for the next phase of growth. We expanded capacity, optimized our footprint, strengthened our leadership team with additions that bring both experience and industry connectivity. These investments are directly aligned with our focus on disciplined execution and long-term growth. So operator, I'll hand the call back to you for questions.

[Operator Instructions] And the first question today is coming from Matt Calitri from Needham & Company.

Matt Calitri from Needham here. Danny, you kind of buried the lead there on us, but awesome to hear on the increased CapEx investment. Can you give a little more color there? Like -- is that going to be a new facility or expansion of existing? And then what did you say the time line was there?

No, not a new facility. It's really in recognition of technology moving to [indiscernible]. So higher power, more cooling requirement. So it's going to require an investment. And I said we're expecting about $17 million. That may move a little bit up or down as we go through that process, but we anticipate that being completed at some point in the third quarter and starting to put that into use relatively quickly at that point. Generally, the way we structure that with our customers, we spend that money upfront. It's part of why we raised the money last year was to be able to make strategic investments like this, both organic and inorganic. But we anticipate that returning a pretty healthy return on that investment over the next several years as we recapture that through higher pricing.

Awesome. Awesome. Yes, and plenty of cash on the balance sheet, like you said. So it's -- like you said, it's related to the [indiscernible] some new technology. Will you get increased capacity out of this, too? Or it's the same amount of capacity, but it requires a higher load to support?

Matt, Darryll, good question. I think it will be a TBD, to see how it plays out. Increased capacity potential above and beyond what we have today with the technology that's coming through the doors today. it's a very powerful solution, as you know. And we're positioning ourselves to make sure that we continue to compete for that increased technology advancement. And I think that it will be determined whether or not it eats into the existing business line. I don't think it will. I think it will be net incremental in some degree, but we'll see. So there's -- I know there's a lot of demand for it. And I know that we wouldn't be chasing it if we didn't make these investments. So we're all in.

Got it. No, that's great. And then I guess, like -- so in the meantime, with the capacity you do have, you noticed that -- you had noted that there's still -- you still have excess capacity in Georgetown. Is there any way to think about like how much capacity that is and like what that could translate to in revenue?

I don't think we're going to go on the revenue side at the moment. But we've said before, Matt, that we can scale in this facility, given the current mix of technology, the current validation test times, which we're working on reducing the time that it takes to validate a rack. We reduce the time, we get more throughput. And we can grow multiples over where we're at today. in this facility.

Matt, one to remember there, too, as you think about the financial impact of that. Remember, we've got an agreement that gives us some pretty good downside protection when volumes fall off a bit. So until we hit kind of guaranteed minimums, you don't see a huge uplift in the revenue. There is some, but that gets really much more dramatic as we get over those minimums.

And that's where that starts getting pretty exciting. And so to be clear, you have not cleared those minimums yet?

Yes, Matt, there are opportunity -- the answer is, without going into a whole lot of detail, we have on occasion, and it's measured on a weekly basis. And we are prepared, and we're doing everything we can to drive more business volume. And that means making sure we have the right people in the factory, making sure we have the right process from receiving all the way to shipment, making sure we're doing the right thing in QA, making sure that we're optimizing the validation test time, making sure we've got the right, as I mentioned earlier, the right team. And I think we've come a long way. So the -- I don't know if that helps any. I just want to make sure you heard that.

Your next question is coming from Alex Fuhrman from Lucid Capital Markets.

Congratulations on a strong start to the year. Something you guys mentioned in your prepared remarks that integration demand is continuing to exceed the volume that's incorporated into your outlook. Can you help us understand that a little bit more? Is the takeaway here just that the guidance is more likely conservative? Or is there demand out there that you're not able to meet because of availability of components or labor or some other constraints out there?

Alex, this is Darryll. I'm going to let Danny handle that one. I'm just a sales guy. He's the numbers guy.

I'm running number not a punter. Yes. So it's not so much a capacity limitation. Really, it's trying to be conservative in the forecasting. The last thing I want to do is get out over our skis and create disappointments. So we try to remain conservative and provide opportunity to exceed that guidance. And some of that is not getting the market ahead of itself in productivity as well. So it's really more reflective probably of just the conservative nature of trying not to stick the neck out too much on guidance and always set it up to where we cannot disappoint. Okay.

That's really helpful. And then I think you guys have talked about taking a prudent view on the availability of some components. Is there anything in particular that is either pressuring margins or just any components that you want to make sure to get ahead of any potential shortages of?

Alex, our key customer handles that better than anybody. And they are constantly moving amongst their supply chain to go capitalize on product availability, the best price. And we're the recipients of that good work. So we're not really out there negotiating or trying to influence that. We just do the best we can that when all of that gets to our facility, we put it together as fast as with as much quality as we can to get it out the door. So there's a lot of stuff that's a challenge in the market. Everybody knows that there's supply and there's an incredible amount of demand. But our customers do a really good job of managing that.

Okay. That's really helpful. And then, Darryl, just curious, you said something towards the end there that if you could get the testing of your racks done faster, it sounds like you got a pretty substantial increase in output. I think you even mentioned maybe doubling in some areas. Can you help unpack that a little bit more? Is that just because power is a bottleneck here and how much power it takes to test the racks? Just can you help me understand that a little bit more?

Yes. I try to come up with an analogy, and I'm not sure it's a good one. But if you've got a V8 engine, you're testing the engine to make sure all the cylinders are working at the right time in concert with one another. So the validation testing that goes on is similar to that. When you have a rack all put together with all the GPUs and all the servers and everything cabled and labeled, -- we run -- and our customer is responsible for providing the test sequence to validate that everything is working as advertised and as planned. And that sometimes can take longer than we'd like and they would like. So if we could arguably cut that in half, think about it, we could push more volume through the business and get to maybe even 2x the volume with current load. It's just -- it's really that simple. And we're working hard with that, by the way. We're engaging a lot of latest and greatest AI technology to find ways to make that -- accelerate that evaluation test time.

Your next question is coming from Mac Furst from Singular Research.

This is Mac Furst with Singular Research. Congratulations on the quarter. Thanks, Matt. Yes. My background is more IT than accounting, but I do have an accounting question for Danny. You said that the federal taxes increased eightfold. Can you give us a little bit of background and color on why they increased eightfold, please?

Yes, absolutely. So we previously had a full valuation allowance on our deferred tax asset. Our DTA is close to $8 million. And up until the fourth quarter of last year, we kept a full valuation allowance on it. So any -- other than Texas franchise tax, which runs around 2% as an effective tax rate. Other than that, any federal income taxes that we would have had or other state income taxes were largely offset by utilization of a deferred tax asset. But because we had a full valuation allowance on it, we would just relieve a piece of that valuation allowance every period. So what actually hit our income statement was really just the Texas franchise tax.

In the fourth quarter of last year, we made the determination that we now have a long enough earnings trend, taxable income trend and expected taxable income in the future that we remove that full valuation allowance. So that's why you saw net income spike. Almost half of our net income last fiscal year was recorded in the fourth quarter as a reversal of that valuation allowance. So now every period going forward, we no longer have that valuation allowance to absorb the federal income tax. So now we're actually recording that in the income statement. So not really a change in the cash taxes that we're paying. It's just a change in what gets recognized in the income statement now.

And there are no further questions in queue at this time. So this does conclude our question-and-answer session. I would now like to pass the floor back to Darryll Dewan for closing remarks.

Okay. Thank you for that. Thanks, everybody, for being on the call. We really appreciate your continued interest and your support. We're expanding the margins in our growing business, especially in our systems integration business, and we're continuing to shift a greater proportion of our total revenues to that segment. Combined with the continued increase in rack volumes, we're going to carry a strong momentum into Q2 and beyond. While we're excited about all of this and the organic growth, we're also excited to get to work with our new executives to explore how to further diversify our revenues and opportunities to take the company to the next level. As I've said in the past, I'm very proud of the team, I thank our Board. I appreciate the investor community that's following us and know that we're very committed to continued execution and profitable growth. So with that, I thank you, and I guess we're done for today, right?

Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. Thank you once again for your participation.

Greetings, ladies and gentlemen, and welcome to the TSS Inc. Fourth Quarter 2025 Earnings Results Conference Call. And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. James Carbonara of Hayden IR. Sir, you may begin.

Thank you, operator, and good day, everyone. Thank you for joining us for TSS' conference call to discuss the company's fourth quarter and full year 2025 financial results. Joining me today on this call are Darryll Dewan, President and CEO of TSS; Danny Chism, the company's CFO.

As we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, March 11, 2026. TSS expressly disclaims any obligation to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or the replay to reflect events or circumstances that may change or arise after the date indicated, except as otherwise required by applicable law.

For a list of the risks and uncertainties that may affect the company's future performance, please refer to the company's periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation to the difference between these measures and the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release.

With that, Darryll, I will turn the call over to you.

Thank you, James. I appreciate it. Thanks, everyone, for joining us today. I'm pleased to report a very strong fourth quarter that caps a transformational 2025 for TSS.

During the year, Rack integration volumes in our new Georgetown, Texas facility came online and grew late in the year, setting us up for an exciting 2026 as industry demand continues to grow. In the fourth quarter, we delivered year-over-year growth in both revenue and profitability with sequential improvement over our third quarter. Adjusted EBITDA for the full year reached approximately $18.6 million, ahead of our guidance range of 50% to 75% from a foundation of $15 million to $17 million and up from $10.2 million last year. That represents rapid growth resulting from both higher AI volumes and continued operating discipline across our entire business. As we exited the year, the run rate of our business improved meaningfully from midyear levels.

Higher rack integration output better absorbed fixed costs in our facility. The step-up in Q4 gives us confidence that the structural investments we've made in capacity, systems and talent can scale to meet increased demand for our AI infrastructure. The market environment and customer momentum. So the environment in which we operate is dynamic, but one thing is clear, AI demand is not slowing. Hyperscalers and large enterprises continue to invest in accelerated computing, next-generation servers and the associated power and cooling infrastructure.

Recent results and outlooks from OEMs in the AI infrastructure market underscore this trend with strong growth in servers and networking driven by AI and traditional server demand and an expectation of continued revenue and EPS growth in the fiscal '26 or in the year '26 or fiscal '27. Customer adoption of AI is broadening beyond early adopters into mainstream enterprise. Multiple independent studies now indicate that a substantial majority of medium and large enterprises are actively piloting or planning to implement AI and production workflows for inferencing with adoption rates commonly cited in the 70% to 80% range or higher across larger revenue tiers. As these initiatives move from experimentation into scale deployment, customers are seeking trusted partners who can deliver even more complex, power dense technology at speed with high quality, and that is exactly where we, TSS are positioned.

We were pleased to extend and expand our relationship with our primary customer under a multiyear contract. We view this modification and extension as both validation of our execution and a key pillar of our growth strategy. The agreement was amended to address certain circumstances that were not expected in the original version, such as additional fixed costs associated with power infrastructure required on site and a few other items.

Our partner agreed this amendment provided an opportunity to reset the agreement's term, a very positive signal as to the strength and durability of the relationship. Fiscal '25 was truly a year of transformation for TSS. We scaled our new Georgetown facility, upgraded the IT systems and refined processes to support much higher volumes of AI-related rack integration. We worked through the operational challenges of bringing a new facility online. And by Q4, we made substantial progress improving speed, quality and time to market for our customers. 2026 will be about the next chapter of growth for TSS. We are constantly improving the operations of our facility. That job is never done. 2026 is about seizing market share in AI rack integration, extending our modular data center capabilities into the AI world and strategically expanding our service offering to capture broader opportunity in AI data centers. The progress of the AI chip market plays directly to our capabilities. Racks are larger, heavier, more complicated, require more power and more cooling. Our Georgetown facility is purpose-built to integrate racks of this nature. Paired with rapid delivery time lines, growing rack complexity should drive more market share for TSS. This market is extremely dynamic.

Deal sizes can be enormous. The supply chain can be challenging and the latest and primary example being the memory shortages that are rapidly driving price increases for memory and delays in overall data center deployment time lines. This all makes forecasting rack integration volumes more difficult to predict with precision. We began '26 with an internal forecast based on near-term visible deals in our pipeline, driven by our customers' pipelines and already we are seeing volume forecast surpassing our plan. In fact, we have begun discussions about potentially expanding our capacity even further. That is how quickly this market is moving.

So with that, let me turn the call over to Danny for a much more detailed discussion of our financial results. Danny?

Thanks, Darryll. Appreciate it. This was another record quarter and full year for TSS as we continue to raise the bar of our financial and operational performance. We also have a few unique items affecting this quarter's results. So let's jump into the details.

I'll focus my comments primarily on the full year with some specific highlights from Q4. If you look towards the bottom of the income statement, you'll see that we recorded an income tax benefit this period of $7.6 million, comprising about half of the net income for the full year. By the way, that's half of a net income figure that's up 153% over the prior year's net income.

So still a strong double-digit growth in pretax income even without that. So why the big income tax benefit? Several years ago, we established a full valuation allowance on our DTA or deferred tax asset due to our history of net operating losses in past years. With a significant improvement in pretax income over the last 2 years, punctuated by the amendment to our long-term AI rack integration agreement that Darryll mentioned just a second ago, signed in December, management now has a high degree of confidence in utilizing the DTA in future periods.

Accordingly, we removed the valuation allowance on almost all of the DTA, essentially coming in as a onetime gain this period. Future income statements will show an income tax expense more in line with what you typically expect. This will vary some, but currently, we expect our 2026 effective tax rate to be approximately 21% to 22%. As part of reversing the valuation allowance on the DTA, you'll also see a $7.9 million DTA on our balance sheet, representing the future reduction in cash taxes we expect to realize as we utilize our accumulated net operating losses to offset future taxable income.

Excluding the large income tax benefit, this quarter was still quite strong. In fact, the $7.9 million adjusted EBITDA this quarter was 50% higher than the prior record adjusted EBITDA we posted in the first quarter of 2025. And full year adjusted EBITDA of $18.6 million is 83% higher than last year's $10.2 million, topping the high end of our prior guidance, as Darryll mentioned.

Let's jump into the details of what drove the strong performance. Consolidated total revenue increased by 66% in 2025 to $245.7 million up from just over $148 million last year. That increase was driven by significant year-over-year growth in our 2 largest service lines, procurement and systems integration, with facilities management revenues very near the prior year level for the full year.

Full year revenue from procurement services totaled $197.5 million, up 68% from the $117.5 million in 2024. With gross profit margins on procurement expanding 100 basis points from 6.7% in the prior year to 7.7% in the prior year -- in the current year, sorry. Gross profit growth from procurement grew at a faster pace than revenues, up 94%. Even when viewed on a non-GAAP gross basis, regardless of whether procurement deals were accounted for as gross or net, total transaction values increased 65% to almost $280 million, and gross profit margins increased from 4.6% to 5.4%.

To be clear, those margins and gross value transactions are non-GAAP, but we find them useful internally as they allow us to analyze the underlying economics of the procurement business ignoring the U.S. GAAP requirement to record only our agent fee on net deals. Revenue from facilities management comprised of typically annual maintenance contracts and some discrete or onetime project work totaled $7.9 million, down 1% from $8 million last year.

Our maintenance revenues in the segment were down 12% for the full year, driven primarily by year-over-year decreases in the first 2 quarters. Maintenance revenues in Q3 and Q4 were up 9% and 8%, respectively, over the prior year. In addition to the maintenance revenues, the Facilities Management segment also earns revenues from discrete or nonrecurring project work.

I mentioned last quarter that through the first 3 quarters of the year, discrete project work was a bit behind the prior year and that we expected a reversal of that trend in the Q4. That's exactly what we experienced. Revenues from discrete projects in the fourth quarter were $2.5 million, up 263% from $700,000 in the fourth quarter of last year.

Including those strong Q4 results, the full year discrete project revenues increased 12% from $3.6 million to $4 million. For the full year, revenue from the Systems Integration segment increased 78% year-over-year to $40.3 million. In the fourth quarter, revenues in this segment increased from $7.9 million last year to $14.2 million in the fourth quarter of this year.

While a good portion of that increase relates to strong organic growth in rack integration volumes in the current year and more recent quarter, there are a couple of items included in that uptick that I want to point out for a more thorough understanding of the drivers of the lift. First, if you recall, I mentioned last quarter that in response to our customers' increasing needs, the Q3 results reflected incremental costs related primarily to depreciation of additional fixed assets we added beyond our initial plans and investments in securing and maintaining additional electrical power at the building now at 15 megawatts. But that our revenue stream would not likely reflect the benefit of those incremental investments until Q4.

In December 2025, we signed an amendment to our long-term AI rack integration agreement with our largest customer, taking into account these incremental investments we've made as well as updating pricing for current rack configurations. As a result, Q4 results include approximately $1 million of additional revenue related to activities and expenses we incurred in Q2 to Q3 2025. The contract amendment also extended the agreement for an additional 2 years beyond the initial multiyear term, giving us enhanced visibility of expected revenue growth.

Second, when we first began ramping our AI rack integration volumes in 2024, we received a reimbursement from one of our customers to enable our former integration facility in Round Rock, Texas to integrate AI racks. We were recognizing related revenues over a 36-month estimated useful life of those assets with roughly half of that recognized to date.

With our integration operations now fully moved to our Georgetown facility, we determine it's no longer likely we'll use those assets to perform AI rack integration activities in our Round Rock facility. As a result, we accelerated recognition of the remaining $800,000 of the reimbursement in the fourth quarter of 2025, pulling forward most of the revenue we expected to be recorded in 2026. This has no impact on cash flows as the cash was all received in 2024.

Related directly to this, you'll also see on the income statement a charge of $658,000 for a loss on disposal of assets in 2025. Just like the reimbursement from our customer was being amortized into revenues over a 36-month period, the related fixed assets we added with those funds in 2024 to enable us to integrate AI racks in our Round Rock facility were also being depreciated over that same 36-month period.

Commensurate with the determination that we needed to accelerate recognition on the reimbursement, this loss on disposal represents the acceleration of depreciation we would have otherwise recognized mostly in 2026. As part of the amendment to our long-term rack integration agreement signed in December, we extended the agreement for an additional 2 years beyond the initial multiyear term, giving us enhanced revenue visibility even further into the future.

Consolidated gross margin was 18.6% in the current quarter, up from 14.4% in the fourth quarter of last year, heavily influenced by the impact of significant -- sorry, the impact of signing the amendment to our long-term AI rack integration agreement. For the full year, consolidated gross margins were 13.2% compared to 15.1% in 2024. In '25, we first started allocating the operations-related depreciation of our Georgetown facility to cost of revenues, accounting for more than half of the difference in gross margin.

With procurement revenues bearing a smaller gross margin than our other revenue streams, the outsized growth in our procurement business in 2025 drove much of the remaining year-over-year consolidated blended margin decrease. Breaking our gross margin down by segment. Based on recorded GAAP revenues, procurement gross margins improved to 7.7% in the current year, up 100 basis points from the prior year. When viewed using non-GAAP gross values of the transaction, which we see as more apples-to-apples comparison, gross margins improved 80 basis points to 5.4% in the current year.

Facilities Management gross margins were down slightly at 60% compared to 62% in the prior year, reflecting a slight decrease in higher-margin maintenance revenues seen in the first and second quarters of the year. As a result, gross profit from the FM business was $4.8 million compared to $4.9 million in 2024. Systems Integration gross margins decreased from 42% in 2024 to 31% in the current year.

As I mentioned a moment ago, we first started allocating operations-related depreciation to this segment in 2025, accounting for 7 percentage points or more than half of the overall decrease in SI margins. If you recall, I also mentioned last quarter that we spent more than we originally planned on capital expenditures in our new Georgetown facility and significantly increased the available power at the new building, both in response to changing needs from our customer. The higher cost per power included not only capital investments in equipment, but also higher period costs related to charges from the local power company.

The revenues to which we were entitled under our long-term AI rack integration agreement we had in place did not yet reflect those additional investments and costs. The amendment to the agreement signed in December not only amended future pricing to incorporate those additional costs and those incurred in the December quarter, it also allowed us to recapture roughly $1 million of costs incurred earlier in the year.

Lastly, as mentioned earlier, the current quarter and full year revenues for the Systems Integration segment reflect the accelerated recognition of approximately $800,000 of revenue. This represents revenue contemplated in our prior 2026 EBITDA guidance. Importantly, though, we are not lowering 2026 EBITDA guidance. The bar against 2025 EBITDA was just raised on impacts to 2025 results from the amended agreement.

SG&A expenses of $20.7 million in 2025 increased 56% or $7.4 million over last year. Over 1/3 or $2.7 million of the increase relates to noncash stock compensation with the remainder related to higher headcount and related compensation costs to strategically support the growing scale of the organization, combined with higher accruals for incentive compensation tied directly to the year's improvement in sales and earnings.

Also included in the current year are incremental costs for the 2025 annual audit and SOX control work. Depreciation and amortization expenses not allocated to COGS were $1.1 million compared to $608,000 last year. That increase is related to amortization of our ERP implementation costs and depreciation of other assets related to the overall growth of the business. To provide greater transparency and ability to forecast future results, we've now broken out separately in our income statement, bank factoring fees, which were previously grouped with our interest expense.

Bank factoring fees increased from $2.7 million in the prior year to $3.7 million in 2025, reflective of a higher level of billings on which those fees are charged. As a percentage of recorded revenues, those fees are 1.5% in the current year, down from 1.8% in the prior year. As a net result of the above factors for the full year, operating income increased 10% from $5.8 million in the prior year to $6.3 million.

The change driven primarily by $10 million increase in gross profit, net of the $7.4 million increase in SG&A expenses and other items discussed. Now we've broken out separately the bank factoring fees, the $651,000 of interest expense represents exclusively interest on our outstanding bank loan net of amounts capitalized earlier this year, while we were building out our Georgetown integration facility through around May.

Interest income this year increased from $562,000 last year to $1.7 million this year, primarily due to the higher average cash balance held this year. The net result of these items is a net income for the year of $15.1 million, up 153% from 2024's net income of $6 million. Our diluted EPS improved 133% from $0.24 per share to $0.56 per share.

Adjusted EBITDA was $18.6 million, an increase of 83% compared to $10.2 million in the prior year. Excluding the $800,000 accelerated recognition of the customer's reimbursement, which we previously expected to recognize in 2026, adjusted EBITDA would have been $17.8 million, up 75% over the 2024 adjusted EBITDA.

Now taking just a quick look at a couple of things from our balance sheet. We ended 2025 with $85.5 million of unrestricted cash and cash equivalents, a $62.3 million increase from year-end 2024. In August, we raised $55.3 million of net proceeds in a secondary offering to fund future strategic growth opportunities.

Cash flow from operations increased significantly from $15.3 million in 2024 to over $30 million in 2025. This, together with $9.8 million of net borrowings and $6.8 million received from our landlord in Q4 for tenant improvements funded $32.7 million of CapEx and the repurchase of $4.9 million of treasury stock as employees net settled upon vesting in restricted stock and option exercises.

Net working capital also improved from $1.3 million at year-end 2024 to $46.1 million at the end of 2025. In the fourth quarter alone, net working capital improved by $11.7 million. As you can see, there was a lot going on throughout 2025 and the fourth quarter in particular. After normalizing for the nonrecurring benefits and costs and the impact of the DTA valuation allowance reversal, this remains our strongest EBITDA quarter ever, and net income and EPS showed a nice increase.

This, combined with significant increases in demand publicly announced by our largest customer, sets a great foundation for continued growth in 2026 and beyond.

With that, I'll turn the call back over to Darryll for some closing comments.

Okay. Thanks, Danny, for the financial detail and update. Folks, we love these market dynamics. We are very highly optimistic about our business outlook for '26. Our Q4 results demonstrate that we can handle record systems integration volumes. And given the excitement of recently reported record demand projections, we are ready to deliver more.

The added visibility provided by our long-term customer agreement gives us an additional optimism about the future of our business. We are forecasting continued growth in earnings in '26 with adjusted EBITDA expected in the $20 million to $22 million range. We believe this to be a conservative estimate, reflecting supply chain volatility, the timing of deal closing and a robust demand forecast from industry leaders. Over time, we see this potential to grow well beyond the guidance.

Our strategic planning process is well underway with a clear mandate to evaluate multiple routes to market, including deepened partnerships, selective acquisitions and potential JVs, joint ventures that can expand our capabilities, diversify our revenue base and enhance our position in the AI infrastructure ecosystem. We are focused on both organic growth and strategic growth that is complementary to our existing business relationships. This is important to us. We expect to share more about this plan soon and how the capital we raised will support the long-term value creation.

So to summarize, we're proud we delivered solid results in the fourth quarter and for the full year. We exceeded our EBITDA guidance and exited '25 with strong momentum in a market where AI demand continues to accelerate. It has been a great year of transformation for the company, marked by improved operational excellence, deeper strategic alignment with key customers and a sharper focus on speed, quality and time to value is our key differentiators.

I'd also like to recognize the good work performed by our factory team. They are in the trenches making all of this happen. We are very excited and optimistic about the future, customers' modernization journeys are occurring at historic rates and the adoption of AI is expanding rapidly and enterprises increasingly recognize the need for trusted partnerships to help them implement these complex power-intensive infrastructure solutions. TSS is well positioned to deliver.

So thank you all for joining us on this journey. Operator, I'll turn it back to you for questions.

[Operator Instructions]

Our first question is coming from Matt Calitri with Needham & Company.

This is Matt Calitri over at Needham. Can you give any more color on the amended agreement with your largest customer? Was there any change in the minimum order volume attached to that? Or is it more focused on recouping those fixed investments like you talked about? Anything there would be helpful.

Matt, Darryll. Thanks for the question. Really, it's a combination of adjustments. One is the term length, which is encouraging. That's always a good sign. Two is we're investing in infrastructure, power, water, so to speak, direct liquid cooling capabilities or thermal management. and the opportunity to scale volume.

So from a foundation standpoint, the base structure of the, if you will, volume commitments is the same. The term is extended. The investments that we're making are being rewarded, so to speak, financially in the agreement. So we're getting more support that way, which is always a good thing. And what that ultimately means is that we're just -- we're working more closely together on how do we scale and do more. We're very optimistic about our systems integration business and the rack volume demand increase, and we're uniquely positioned because of these investments to have more power, to have more liquid capability. And frankly, the weight of the future technologies coming down the pike is going to get a lot heavier, and that speaks to some of the things that we've done here locally. So hopefully, that answers your question.

Yes, Matt, this is Danny. I'd add just a little bit to Darryll's point, right? A lot of that was recognition of the capital expenditures that we put in and needing to recapture that cost over time. The other piece of that is also that we are incurring or have been incurring throughout a good portion of this year, some fixed power costs as well that weren't originally contemplated in the agreement. That has now been contemplated in the agreement so that we've got much better comfort that those costs are covered as we move forward. So not just recapture of past costs, but being able to cover the recurring costs moving forward.

Awesome. Very helpful. And great to see the growth in systems integration or clearly, these investments are coming through.

And one other thought, too. Our key customer has recently gone public and talked about their increase in pipeline and outlook. It's a massive increase year-over-year. And we're well positioned to do everything we can to get our fair share of that growth, and we want to get as much of that as we can.

Absolutely. I guess like on that same thread, can you help us contextualize how the Rack order volume this quarter compared with internal expectations? And then like how should we be thinking about the amount of catch-up volume you saw this quarter compared to what you think the steady-state growth rate is there?

Well, I'm going to grin when you say steady state. We wish it was steady state. It's a crazy state is what it is. Our Q4 rack volume almost exceeded what we did for Q1 through Q3. Our expectation for '26, calendar year '26 is that we will double the business that we did in '25. In fact, we've got a first half outlook. Our short-term forecasts are actually exceeding our plan. So we're very optimistic about where we're going to go with volume, okay, of the racks that go through the factory.

Okay. Awesome there. And I guess, like is there any sort of rule of thumb for how we should be thinking about modeling like volume increases and how that translates to revenue?

That's a great question. Given the fact that we've got the minimum commitments until we get over that minimum, building more racks does benefit. Once we get over that minimum commitment, the improvement in revenue contribution is roughly 4x what it is below that. So there is incremental benefit as we build more racks. But until we get over those minimums in any given period, the positive impact is muted a little bit. And frankly, I'd say it not even that the positive side is muted, more that we've got some really good downside protection in periods when there's less volume. We've not put out specific guidance around the division between those 2. And frankly, from a competitive standpoint, probably don't want to go into too much detail on that.

That makes sense.

I hope I'm not putting my foot in my mouth. But when we talk individually, we can share what we think about the opportunity, and then you can do your math and figure out how to go model it and we'll help as much as we can.

Awesome. Yes. No, it makes a ton of sense. And maybe just one more on the procurement side, which also grew during the quarter despite the supply chain volatility you mentioned. I'm wondering what you're seeing on the -- in the U.S. federal business with the government shutdown and continuing resolution being resolved. Is there any sort of catch-up in deals getting done? Or do you kind of expect to see everything slide based on those earlier delays?

Well, we commented that in previous quarter that we thought that was going to be disruptive, and it was to a degree. I'm not that concerned right at the moment. We -- the procurement business is a really good business for us. We're really proud to have that business. And yes, it's largely fed, a major percentage. We are involved in opportunities that we think can play out in this year. And the unique part of the procurement business is that it can happen literally overnight. So it might not be in the pipeline today, but it could be next week. So right now, we're optimistic about it. We're just being conservative in our outlook because of -- we had such a great year, and we're rebuilding pipelines, and we're trying to be a little bit more cautious for the reasons you talked about. But we'll see what happens. I mean we're well positioned either way, but we're involved in some really good things, and I'm more optimistic about the procurement than we're probably showing on paper.

Our next question is coming from Alex Fuhrman with Lucid Capital.

Congratulations on what was really a big breakout year last year. Darryll, I wanted to ask you about -- you alluded to in your prepared remarks, the memory chip shortage that we've all been reading about and how a lot of data center projects has been delayed as a result of that. But it sounds like your integration business year-to-date has been going as good or better than you thought it would at the beginning of the year. Can you just talk more about why you haven't been impacted to that by the memory chip shortage? And are there any bogeys that we should potentially be looking out for, for the rest of the year?

Sure, Alex. Thanks for the question. On one hand, we're somewhat isolated from that because our key partner is masterful at managing a global supply chain. I mean they're really, really, really good and effective with it. And while we pay attention to it, and we have considered some of that variances in our model, especially in how we forecast the future. But it's one of the reasons why we've been more conservative.

But given the announcements and the pipeline outlook that people have publicly stated, I'm not so concerned about that at the moment. Downstream could be different, but our business is somewhat insulated from that level of complexity.

Okay. That's really helpful. And then one other thing I just wanted to ask about here is, I mean, it seems like definitely one of the biggest themes going on in your business is that these AI server racks are getting bigger, heavier, they consume more power. I imagine that trend is going to continue throughout the year and into next year. How do your economics change as these server racks keep getting bigger? I mean is it ultimately a similar markup to labor and things like that? Or does the model start to change as these racks get 2, 3, 4x the size?

So good question. We've modeled to a certain configuration size, which drags a certain amount of power requirement, which drags a certain amount of direct liquid capability and testing capability and we're in the conversations now of anticipating where it's going to go next. So from an economic standpoint, it's all about getting the product out the door as fast as we can. And the model that we have, financial model pays us well to go do that. The future is to be determined. When you start talking about 300 kilowatts to 600 kilowatts to 1 megawatt of rack, you're talking about a different complexity, and we're working together on that. And I'm sure that if it involves an opportunity for us to make more money as it gets more complex, we'll have a good conversation with our partner.

So right now, we're not at that point where we have to change things, but we're all open about how we do the best we can to get things done, if you will, and renegotiating is always an opportunity.

Our next question is coming from David Marsh with Singular Research.

Congrats on the quarter. It's a really great result, great outcome, good job.

I want to start, if I could, with just a couple of housekeeping questions. I noticed on the balance sheet, it looks like restricted cash has gone. Is that -- is there something behind that? Am I reading that correctly?

Yes, you are. In fact, in the fourth quarter, we had the right under our credit agreement to ask the bank to apply those restricted funds as a paydown in principal. So you'll see also the 10-K should get filed next week. You'll see on there on the statement of cash flows, a paydown of almost $7 million of debt this year. So we had the bank apply that restricted cash as basically a $5 million paydown on the debt. So restricted cash is gone and the debt is down.

Got it. Yes. That was going to be my next balance sheet question was on the debt reduction. So that's great. Good job there. That's good progress. So just turning to the kind of more of the operational side. I mean, I guess one of the things that really jumped off the page to me was the increase on the facilities management, especially sequentially. Can you just give us a little bit more color there? And is that a sustainable run rate going forward? I mean I know that's a core area of focus with the kind of recurring nature of that business.

Yes. So that business, to your point, has one piece that's very predictable and recurring, which is the kind of the manual maintenance agreements. Those are highly predictable. There is another part that is discrete projects. So if you think about major rework of containers that were previously deployed. The batteries and those things for backup are pretty expensive. So a complete battery replacement or filter media replacement, those can be what I call discrete projects or kind of onetime projects.

I think I had even mentioned in our Q3 call that Q1 through Q3, we saw less of those in the first 3 quarters of the year, but we expected a spike in that in Q4. And that's exactly what drove the difference. We had about $2.5 million of those discrete projects in Q4 compared to about $700,000 this quarter last year. That is an unusually large amount for one particular quarter, but I would expect periodic spikes like that as we have more discrete projects.

That's really helpful. I appreciate that.

Unfortunately, those are a little less predictable.

Yes. Yes. Understood. Understood. And then just following up on that earlier question about the amendment. I think the previous caller asked about kind of guaranteed minimum volumes. I mean I didn't -- I may have missed your response to that part of that question, but is there a change to your guaranteed minimum volumes in the new agreement?

No. No, we did update the pricing to take into account the current complexity of racks. Again, right, most of what we get paid for is the work that we put into it and the power that we consume in doing that and then the cost of a fixed facility. But the actual minimum commitment didn't change. We just updated the pricing and the length of the agreement.

As we have no further questions in queue at this time, I would like to turn it back over to Mr. Dewan for any closing remarks.

Okay. Thank you so much. Folks, thanks for joining us. As stated in previous calls, we're again pleased after reporting another quarter, a strong quarter and a great year, but we're not satisfied. So all I can say is at this point, on your behalf, we can -- you can count on us to do our part to help customers modernize and transform using advanced technologies. We're in this to win, and we thank you for your time.

Thank you. Ladies and gentlemen, this concludes today's conference, and you may disconnect your lines at this time, and we thank you for your participation.

Greetings. Welcome to the TSS, Inc. Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I will now turn the conference over to your host, James Carbonara. You may begin.

Thank you, operator, and good afternoon, everyone. Joining me on this call are Darryll Dewan, President and CEO; and Danny Chism, the company's CFO.

As we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, November 13, 2025.

TSS expressly disclaims any obligation to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or the replay to reflect events or circumstances that may change or arise after the date indicated, except as otherwise required by applicable law. For a list of the risks and uncertainties that may affect the company's future performance, please refer to the company's periodic filings with the SEC.

In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release.

With that, Darryll, I will turn the call over to you.

James, thank you very much. Good afternoon, everyone. Thank you for joining us today for our third quarter 2025 earnings conference call. The past 1.5 years and especially the past couple of quarters have been transformational for TSS as we scale our business and rack integration and strengthen our position as a leading integrator of AI and high-performance computing infrastructure.

Through the first 9 months of '25, we delivered exceptional growth with revenues up 88% and adjusted EBITDA up 59% compared to the same period last year, and we generated positive cash flow from operations of $18.5 million. These results highlight both the strength and momentum of our business.

That said, our third quarter revenues were down year-over-year, primarily due to lower revenues from procurement services. This business segment contributed over $30 million in revenue this quarter, but the exceptionally high revenue attainment in Q3 of last year created an unusual challenging year-over-year comparison.

As we have discussed in prior calls and filings, procurement can fluctuate wildly from quarter-to-quarter, depending on the timing, the size and the revenue recognition method of the customer order. These effects can create quarterly variability, but they do not reflect changes in customer demand or the underlying strength of our business outlook.

Year-to-date, revenues from procurement services have more than doubled. The bulk of our procurement business is with the Department of Defense. In the last 30 days, we have felt the impact of the government shutdown. Early in the shutdown, when its duration was uncertain, processing of certain deals stopped, although we remained optimistic we would close more business in Q3 and Q4.

Now with Congress voting to reopen the government after a longer-term shutdown, the question is how long will it take to process the pipeline of paperwork on deals that were in motion. There is ample demand, and we do not expect deals to be lost in this process. However, without any information on the timing of closing of these jobs, we are going to be slightly more cautious about our Q4 forecast in this business segment.

So now let's turn to our Systems integration business, where we provide AI rack integration services for many of the world's largest AI data centers. We delivered another quarter of solid revenue growth of 20%, fueled by growing demand for AI-enabled infrastructure. This segment continues to be a key driver of our higher-margin revenue and demonstrates the expanding footprint of TSS in AI and high-performance computing solutions.

We opened up our new facility in Georgetown in May of this year after a very rapid build-out. We accelerated the build-out based on customer demand. While the full suite of capabilities was ready in June, we learned in Q3, there was more service and systems process work needed to complete before our primary OEM customer is ready to move larger volumes of racks to us.

These improvements range from reworking certain shop floor process, integration with our ERP system with our customers, hiring of additional resources than previously believed would be needed, even working through physical security additions given the value of customer-owned equipment flowing through our 4 walls. These steps were all addressed in Q3.

As a result, our rack volume processed in Q3 were well below what we had expected. It is important to note, however, this is not the result of a lack of customer demand, but rather more of a timing issue. I consider it a quarter of delay in ramping with significant learning by us along the way.

Our constant focus is to deliver the best service possible to our OEM customer, and we are fortunate to have customers who truly view us as a partner and are very active participants in determining our operational requirements. I will elaborate further in a moment, but let me say we are seeing Q4 rack volumes significantly greater than we saw in Q3.

On the cost side, we are again asked by our primary OEM customer to add more electricity capacity to the building to serve the next generation of chip technology. We have reached a point where the amount of equipment on site from our utility has caused higher monthly fixed charges irrespective of usage. There were some significant unabsorbed costs in the quarter as a result. Danny will provide more detail. But we must continue to make these investments to position ourselves to meet the trending demand of customers.

In our Facilities management business, which includes our modular data center operations, revenues declined 19% year-over-year, but were sequentially up 7%. This segment represents the smallest portion of our overall business, approximately 4% of total revenue in the quarter, but it continues to drive and deliver high-margin contribution.

We believe this business can grow. We're making strategic investments in it and are seeing early signs of new demand. We expected one more significant delivery in Q3, but that was delayed due to supply chain issues. We expect that business to flow in Q4.

The AI data center market is expanding at a very rapid pace, well noted in all the business news. Over the past 2 years, our growth, operational excellence and deep relationships with key partners have positioned us extremely well to capitalize on this first wave of AI-driven investment. It seems to be accepted that we are in using my favorite metaphor, the first quarter of the AI game. There has been so much focus on AI training infrastructure and hundreds of billions and trillions of dollars being spent. Broad focus is beginning to shift to how AI infrastructure will evolve to include competing technologies serving various purposes. The market is seeing new blends of traditional, hybrid and edge systems.

With our new facility purpose-built for AI integration, meaning very dense computing with extreme cooling requirements, we at TSS are well positioned to support the architectural evolution. We will continue to invest in facilities and expertise to meet the growing demand for the infrastructure to support new racks and systems that are designed for high-density compute and more efficient cooling and power consumption, aligning with our partners and industry trends.

Certainly, the extended focus in AI is toward how we will ultimately be deployed and how those investing in AI software technology as well as required infrastructure will profit from their investments. This second quarter of innovation is extremely exciting. We expect it will bring new opportunities to the company.

We at TSS have to remind ourselves how far we've come in a short period of time. Financial stability and strength to invest further in our capabilities and people is critical to our customers. Over 18 months, we have grown dramatically in terms of revenue, but also importance and our OEM customers want to see we have the wherewithal to invest alongside them.

The successful completion of our recent secondary offering strengthening our balance sheet and provides us with additional capital to pursue and invest in strategic new opportunities and services that enhance shareholder value and improve consistency of revenue growth.

As for the remainder of '25, we are on track for what we believe will be a record year for the company. We expect to set a strong rebound in adjusted EBITDA in Q4, reflecting higher rack volumes in SI. Given the lower Q3 revenues in SI and procurement, combined with the investments we made in additional electrical power to fuel continued future growth, we now expect full year '25 adjusted EBITDA outlook of 50% to 75% growth compared to '24. I will comment further on 2026 outlook in a few moments.

At the same time, we're actively exploring strategic acquisitions, new partnerships and portfolio expansion, particularly in AI, edge computing and modular, which we believe can drive new and potentially faster organic growth in quarters and years ahead. Despite this speed of innovation and adoption, we believe we are still in the early days of AI and demand for high-performance computing and hybrid systems continues to accelerate.

Our capabilities and partnerships are expanding, our pipeline is strengthening, and we are successfully executing the business strategy that has driven our success while planning and investing in a strategy that will drive our future. We are scaling our operations and positioning the company to capture a meaningful share of the rapidly growing and complex AI infrastructure market.

With that, let me turn the call over to Danny for a more detailed discussion of our financial results. Danny?

Thanks, Darryll. I'll start with a look at the income statement for the quarter and year-to-date period, then provide a few brief thoughts on the balance sheet and liquidity. Consolidated total revenue in the third quarter of '25 was $41.9 million, down from $70.1 million in the same period last year. As Darryll mentioned, the decrease was primarily driven by variability in our procurement service line with non-procurement revenues up $1.2 million, or 13%.

Revenue from procurement services totaled $31.1 million, compared to $60.5 million in the year ago quarter. Revenue in this segment is driven primarily by purchases from the federal government. As a reminder, revenue in this segment reflects a mix of gross and net deals with revenue recognized based on whether we modify the product or act solely as an agent.

Revenue from Facilities management totaled $1.6 million, down 19% from $2 million in the same quarter last year. Facilities management continues to have strong strategic potential despite remaining our smallest segment. As Darryll mentioned, we see new opportunities emerging and expect to see a year-over-year increase in Facilities management revenues and gross profit in Q4, driven by discrete projects we foresee in the quarter's pipeline.

Revenue from systems integration totaled $9.2 million, up 20% from $7.6 million in Q3 2024, driven primarily by the continued integration of AI-enabled racks for our largest customer. As Darryll mentioned, this growth was lower than we originally planned for the quarter. However, we expect this segment's revenue to grow substantially in Q4 and in 2026.

Consolidated gross margin was 11.1% this quarter, roughly unchanged from 11.3% in the third quarter of last year. In the current quarter, we first started allocating the operations-related depreciation of our Georgetown facility to cost of revenues impacting the margin reported in the current quarter.

Breaking our gross margin down by segment. Based on recorded GAAP values, procurement gross margins improved to 8.3% in the current quarter from 6.1% in the prior year quarter. When viewed using the non-GAAP gross value of all transactions, which we see as more of an apples-to-apples comparison because it puts gross and net deals on an even playing field, gross margins improved from 4.7% in the prior year quarter to 5.3% in the current quarter.

Facilities management gross margins improved from 37% in the year ago quarter to 55% in the current quarter. As a result, gross profit from the FM business increased to $881,000 from $726,000 this quarter last year, even on 19% less total revenues.

Systems integration gross margins decreased from 45% in last year's -- in the year ago quarter to 13% in the current quarter. As mentioned a moment ago, we first started allocating operations-related depreciation to this segment in the current quarter, accounting for 11 percentage points or about 1/3 of the overall decrease in margins in this segment.

Additionally, in anticipation of higher volumes in future periods, we made incremental investments in CapEx this year beyond our original expectations. This is reflected in our $1 million operations-related depreciation expense this quarter. Looking forward, we expect operations-related depreciation in future periods to be at roughly this level as this represents a full quarter's depreciation of the new factory. It will increase in future periods if and when we make further investments, which we would make primarily with line of sight on any such investments further enhancing revenues and earnings.

We also significantly ramped up the available electrical power in the building, which was 12 megawatts during Q3 2025 and now stands at 15 megawatts compared to just 6 megawatts when we first moved into the new Georgetown facility in May. This compares to only 2.7 megawatts we had available in our prior Round Rock facility.

We anticipate the enhanced power availability will enable us to integrate future generations of rack technology, further driving incremental revenues in future periods. During Q3 2025, electrical power costs were just over $900,000 with almost $800,000 of that being fixed costs regardless of the power actually consumed.

We anticipate revenues in future periods will more than offset the incremental power costs. But in the current quarter, we estimate only about 20% of those costs were recouped through charges to our customer.

Our contract with the City Power Company stipulates the quarterly fixed power costs of the 15 megawatts currently available to us will increase to approximately $866,000 quarterly beginning in the fourth quarter plus the variable rate of power actually consumed.

SG&A expenses of $5.2 million in the third quarter of 2025 increased 35%, or $1.4 million over this quarter last year. Just over half of that increase relates to noncash stock compensation with the remainder related to higher headcount and related compensation costs to support the growing scale of the organization, combined with higher accruals for incentive compensation tied directly to the year-to-date improvements in sales and earnings. Also included in the current quarter are incremental costs for the 2025 annual audit and ongoing SOX 404(b) implementation.

Depreciation and amortization expenses not allocated to COGS were $328,000, up only about $120,000 compared to $208,000 this quarter last year. The increase is related to amortization of our ERP implementation costs, along with depreciation in other assets related to the overall growth of the business.

In the third quarter of 2025, we reported an operating loss of $931,000 compared to operating income of $3.8 million in the year ago quarter. The change was driven primarily by the $3.3 million decrease in gross profit, including the impact of higher ops-related depreciation and power costs discussed a moment ago, combined with the $1.4 million increase in SG&A expenses. Even after absorbing the cost of incremental operations-related depreciation and power expansion, we continue to expect operating income for the full year to exceed last year's operating income of $8.2 million.

Interest expense decreased to just under $1 million in the third quarter of 2025, compared to $1.3 million in the year ago quarter. The decrease was due primarily to the lower factoring costs on our receivables, which scales directly with gross billings. Looking ahead to the fourth quarter, we expect interest expense on the bank debt to tick up as the $5 million borrowed in the middle of Q3 will be outstanding for the full quarter plus higher factoring costs related to what we expect to be additional revenues in Q4. Most of the Q3 interest on the bank loan was capitalized into construction costs during the quarter. Because construction was completed in Q3, Q4 will show a full quarter of just over $400,000 of interest expense related to the outstanding debt plus any cost from the factoring of our receivables.

The net result of these key items is a net loss for the third quarter of 2025 of $1.5 million and a diluted loss per share of $0.06, which compares to net income of $2.6 million and diluted EPS of $0.10 in the year ago quarter. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization and stock-based compensation, was $1.5 million compared to $4.3 million in the prior year quarter.

Now let's take a brief look at the year-to-date results. For the 9 months ended September 30, '25, total revenues were up 88% to just under $185 million, compared to $98 million in the year ago period. By segment, procurement revenues increased by 100% and Systems integration revenues increased by 78%. These increases were somewhat offset by a 32% year-to-date decrease in revenue from Facilities management, primarily due to the timing of discrete projects and a smaller decrease in ongoing maintenance revenues.

Gross profit for the first 9 months of 2025 increased 39% to $21 million, including the effect of absorbing $1.6 million of operations-related depreciation in the current year-to-date period, which we did not see this period last year. SG&A costs were 74% of gross profit in the 2025 year-to-date period, compared to 62% in the same period a year ago. Just over 1/3 of the increase in SG&A is related to noncash stock compensation for the year-to-date period.

After a $650,000 increase in net interest expense, year-to-date net income was $3 million, compared to $4.1 million in the first 9 months of 2024. Year-to-date diluted EPS was $0.11 in the current period, compared to $0.16 last year.

Now taking a quick look at the balance sheet. As of September 30, 2025, we had $70.7 million of unrestricted cash and cash equivalents, plus another $5 million of restricted cash securing our bank loan, up from just $23.2 million at year-end 2024.

[Audio Gap] $3 million from a stock offering, which we anticipate will allow us to make strategic investments to grow and diversify our business, as Darryll mentioned. And year-to-date, we've drawn down $16.3 million on our construction loan, including $5 million in the current quarter when we exercised the accordion feature on our bank loan.

Combined with $18.5 million of cash flow from operations, these sources of cash funded the $32.2 million of CapEx year-to-date, primarily for the build-out of our state-of-the-art integration facility in Georgetown, Texas, along with $4.9 million of treasury stock repurchases pursuant to employees' net settlement upon investing in restricted stock and option exercises.

Net working capital significantly improved from $1.3 million at the end of 2024 to $34.3 million at September 30, 2025, primarily reflecting the capital raise just mentioned and operating cash flows, net of cash used to fund long-term capital assets and treasury stock repurchases. Due to the conversion of our debt to a term loan in July 2025, $5 million of cash that is a deposit securing our loan was reclassified from a current asset to a noncurrent asset restricted cash.

As of September 30, 2025, we met all obligations to receive $6.8 million of tenant improvement funds from our landlord, reimbursing us for CapEx we've already invested to date. We anticipate receiving those funds this month, further enhancing our liquidity and working capital.

For the first 9 months of 2025, we generated net cash inflows from operations of $18.5 million, compared to $36.9 million provided in the first 9 months of last year. The most significant driver of the change was a $5.3 million paydown of accounts payable and accrued liabilities in the current year-to-date period compared to a $37.6 million increase in payables year-to-date 2024, partially offset by higher cash flows in the current period related to outstanding inventory balances and deferred revenues.

With that, I'll turn the call back over to Darryll for some closing thoughts.

Danny, thank you very much. In summary, while we are pleased with the overall trajectory of our business, year-to-date revenues have more than doubled, highlighting strong underlying demand. Our balance sheet is stronger. Our pipeline is growing. Our customer relationships are deeper. We're not satisfied, and we know we've got work to do.

Our investments in our facility and people have positioned us well to capture more share of the accelerating demand of the AI marketplace and high-performance computing infrastructure, and we're exploring new ways and paths to accelerate even more quickly. The additional funds we raised this quarter enable us to move quickly to act on opportunities they arise and invest strategically for our long-term growth and diversification.

A press release went out a little while ago announcing that Vivek Mohindra has joined our Board. We are very excited about Vivek joining. Vivek is a visionary industry. He has led strategy at Dell Technologies, and he currently serves as Strategic Advisor to the Chief Operating Officer and Vice Chairman of Dell, focusing on the trends and direction of the AI infrastructure market. As you know, Dell is leading the industry, providing solutions to modernize data centers and is committed to delivering AI innovation. Vivek will be an incredible resource for us as we work towards broadening our capabilities and our customer base.

Turning to our outlook for Q4 and '26. As I said earlier, as a result of the lower rack volumes and incremental investments we made in Q3, our annual EBITDA growth may be modestly lower than we previously guided. Again, ramping a new facility is imperfect, and I'm pleased we are now seeing volumes climbing quickly. Based on the current pace of rack volumes in SI, we expect full year 2025 EBITDA growth of 50% to 75% over last year. This still represents a very healthy quarter -- fourth quarter for an SI, although it also reflects a more conservative approach to procurement as we wait to see how the government gets back to work.

As the Q4 strength carries us into the New Year, we expect organic growth to result in another record year in 2026, and we are providing initial guidance of 40% to 50% organic growth on EBITDA year-over-year, compounded on top of what we expect already to be a record year this year. This guidance reflects strong but realistic growth in annual rack volumes and modest growth in procurement.

We will actively pursue inorganic options, including strategic acquisitions, partnerships and portfolio expansion to drive future performance beyond this level. And we recently raised capital will help us specifically give us the ability to seize such opportunities.

As always, we appreciate your support, and we thank you for your time today. I'm very proud of our team, and we remain committed to executing our game plan. Thank you for joining us on this journey.

Operator, we can now open the call up for questions.

[Operator Instructions] Our first question comes from Kris Tuttle with Blue Caterpillar.

Congratulations on all the work that you did this quarter. I know that the financial results were not what you wanted, but you accomplished a lot in the quarter with the new facility. A couple of questions. One of them is just in terms of what you're seeing in your end markets, that is the customers you're delivering the servers to. There's been a lot of discussion around a shift to more inference away from training and more enterprise demand from companies other than the hyperscalers. So I'd be interested in your commentary around that.

And then the second question is, I apologize for not getting this, but congratulations on your new Board member, but you also mentioned that, that was something you expected to help you grow and diversify your customer mix. And obviously, you have a pretty good customer in Dell already. So maybe you could give some additional color on that.

Yes, happy to, Kris. Good to hear from you. Thanks for the questions. On your first question, it's -- we've been blessed that we've been very focused on the more complex, larger CSP solution providing. And that demand has not gone away. But we are experiencing and we expect to see more enterprise activity. And we're starting to see some of that as we speak.

The AI industry and how the technology is moving from GenAI to agentic, the whole transition is underway. I think like I said earlier, we're still kind of early in the game to really understand what that end user customer is going to do, but there's clearly an uptick in the interest and demand on technology. So that's number one.

Number two, as it relates to Vivek, if you look at his background coming from McKinsey and Freescale and M&A and venture world, Vivek presents an incredible experience level that frankly goes beyond his current assignment with Dell. There's no inference in between what we're doing here. If you can read between the lines, we're very serious about expanding our routes to market. We've done some preliminary planning with Vivek already, and we're going to do more soon. And I think what this really underscores is very candidly, we've been talking about growing and doing some strategic things. We've tried a couple of things. We are now positioned better than ever to take the steps to go make that happen. And I'm excited about Vivek helping us not only with our current customer but beyond.

Okay. All right. Great. Well, listen, like I said, a lot accomplished this quarter. It's all about the numbers. So I'll follow-up with you later on, and I'll get off the soapbox here and let other people ask questions.

The next question comes from [ Chris Benjamin ], private investor.

I've been a shareholder now for the better part of a year. And I realize that basically, you're a Dell client. What I'd like to know is you've mentioned in your conference call that you have clients, how many clients do you have would be the first question.

The second question I have is that related to the first question, when you -- if you win a new client, why don't you announce or make a public announcement that you have a new client on board, I think that would help the stock price.

And the last question I have is, do you plan on any more capital raises?

Chris, good questions. The first one on -- if I can answer that is we really -- we have other clients. We don't really talk about our clients even though they're non, if you will, other than Dell. And we've got multiple lines of our business. If you recall, we've got our rack integration business, the systems integration business. We have the modular business, and we also have the procurement services business. We do a lot of business in procurement services directly with a channel partner, if you will, who's related to Dell, but it goes to an end-user customer. And still quasi, if you will, not quasi. It is a Dell transaction.

The facilities management business, the modular data center business, we actually work with other OEMs. And -- but we don't talk about it. We don't -- I mean, it's a good question why we don't broadcast it. We really don't broadcast a whole lot of anything to be quite blunt. We just stay focused and try and do our job. I mean that's right now where we're at. But at the same time, as we strategically grow and do the things we're talking about doing, i.e., M&A or joint ventures or expanding, you will hear more about that activity. That's in the game plan.

So I don't know if that answers all your questions, but I think I did. You're talking about Dell and new customers. We will definitely speak more loudly as we grow and gain new routes to market.

I appreciate that. I realize that -- well, as far as the stock price is concerned, it just seems that -- and I know I'm just an individual investor, but I've got a couple of thousand shares. It just seems that someone else is pushing the stock price around. And if there was just more talk on your side, just announcing anything, maybe it would just help the total lack of information coming out of the company with the exception of your quarterly conference calls. And the only other question I have was, do you plan on any more capital raises?

Right now, the answer to that is no. We think we're well positioned with what we've done for the short period. Eventually, maybe. But right now, we don't have any plans. And I've said before that I'm very conscious of our investor base. And the last thing I want to do is dilute our investors. But at the same time, we want to grow and we want to take strategic -- make strategic decisions to grow. And the converse is if we didn't do what we're doing here, we go out of business, period end of story. So we wouldn't even have a story. So I think where we're going is we could raise more money, but there's nothing planned at the moment.

And by the way, going back to your question, if I can add one more thing about speaking more loudly, we would love to do that, and we plan to do that. And I don't think any of us sit here during the day and let's go figure out how we can -- we don't worry about the stock price. We worry about the long game and what we're trying to do to create value.

We have a follow-up question coming from Kris Tuttle with Blue Caterpillar.

One thing I just neglected to ask about is, could you talk about your -- the mixed vendor rack integration that you do? I know it's a small part of the business today, but could you talk about what it was in the quarter and what your expectations are for that going forward?

Sorry, Kris, your questions, you expired to the number of questions you could ask. Call back next quarter.

Jump back on, but I felt like I got a little tiny bit of a window here.

I'm not sure I understand what you mean by the mix of the...

Mixed vendor.

...vendor.

Rack integration, where it's a -- it's not all Dell, it's other stuff. So it's -- I think it's a small part of the business today, single-digit millions, but something we talked about when I was down there. So maybe I'm mistaken, but you had that business that seemed like an interesting part, small though it is, that could expand.

Yes. We don't talk about it because it's really kind of confidential to the company. I mean it sounds like I'm trying to hide behind a wall, but I mean we just don't talk about it. And it's as you know, this facility is a very secure facility. It's very tight with our existing customer, and we don't want to do anything that would jeopardize our relationship in that way, and we don't.

So the configuration services business is a little bit more in the multiple providers, but largely, it's all done with the teamwork and collaboration with our customer, our key customers. So there's not much else going on in terms of the other technology that you're asking about.

Yes. The other one, Kris, that I'd point out, when you think about, particularly with the AI rack integration, there aren't that many companies -- that many computer OEMs out there doing that, right? So while we deal primarily with one customer, we are integrating racks that end up at many different companies. So we're directly contracting with them, but yet our -- what we touch, what we integrate ends up in a lot of different places. So there's actually a little more diversification just by virtue of that, even though we have to formally disclose that our business is technically with one customer.

Yes. That's helpful. I didn't mean to put you guys on the spot, and that is helpful.

[Operator Instructions] The next question comes from [ Brad Stevenson ] with Breakout Investors.

So I had a couple of questions. I saw -- you talked about operational requirements or unforeseen operational requirements in Q3 that affected your rack volumes. Can you -- I guess a couple of things around that. Could you elaborate a little bit more about what that means? Is it just strictly related to -- I would assume it's not strictly related to power availability, but maybe something else. But then kind of a second part to that question, do those volumes get pushed into a future quarter? Or were they handled somewhere else? Or do you know?

So 2 parts to your question. The first part is it's a little embarrassing to say this, but it's fact. We -- its power did play into it. We needed more juice, and we made that investment in Q3 to get out in front of things.

Number two is as we were integrating our ERP system here, the ability to better manage and tightly manage our inventory and reporting did play a factor. So we've got that fixed, and that did get in the way of volume.

Third is we had a lot of new people, and we were -- we just fixed that by hiring a Director of Operations that reports to Todd Marrott, our Chief Operating Officer, to expand his management team. And that's been -- we've got a new fell on Board, and he's done a phenomenal job in a very short period of time.

Another piece, which we didn't have -- soon enough, if you will, was a communications vehicle where we put everybody that needed to be in the room at the same time. And we relied a little too much on the presumption that everybody that needed to know knew, and they didn't. That's a nice way of saying, now we've got that fixed. We do a daily morning and a daily afternoon session with all the people involved, not only with our company, but our key customer, and that's proven to be phenomenally beneficial.

So it's like the old story, the little things make the big things. It wasn't one thing, but we needed to improve and we've taken steps to go do that. So we lump that into procedures and process improvements, and we're good. So it's a learning opportunity for us. And unfortunately, it did get in the way of some volume. And where that volume went and went -- I can't tell you where it went, but it didn't come to us. I can tell you that much. And we're going to do everything we can to prevent that from happening again.

Okay. Well, that's good news. That's solves things that can be corrected, right?

Yes. And I'll say that I know you're going to probably probe at this one, and we were having a conversation about how far you're going to let me talk today. We will do more rack opportunities and integrations in Q4 than we've ever done before. So we're on the right track.

Awesome. I appreciate that. That's great color. I was -- I want to say pleasantly surprised that you -- I think I heard you give guidance for the full year 2026, 40% to 50%.

You're right. Yes, sir.

And so -- of course, in my brain, it caused me to automatically think has visibility gotten that much better? Or what would you say would allow you to be able to forecast that far out now?

If you go by segment, the answer to your question across the board is yes. We're very good and we've improved significantly on our communications and our visibility in each business segment. And so the answer is yes.

I mean I can -- there's no magic to it other than we've got a little bit -- we got a lot more visibility going on. And I think if you go to a month ago when marquee customer did their analyst meeting in New York City, they raised their guidance, their pipeline. You've heard their executives talk about the visibility they have in the number of customers that are buying servers and ultimately racks. And I think it's going in the right direction for all of us, and we're happy about that.

Awesome. And then I've got one more. The equity raise using it for expansion for growth outside of Dell, I think, is the general theme there. Do you see or kind of fast forward or looking at your crystal ball, do you see a time when we're going to -- when you'll release a PR telling us, hey, we've done this deal or that deal, and this is what some of this money is being used for. Will we get that kind of an answer to that? Or will we just sort of see it over the course of quarterly results on a go-forward basis?

That's a very good question. And the answer in a short answer is yes. And we expect -- we expect to make things happen sooner than later. There's multiple different paths that we're exploring M&A in a way that's complementary to what we do today. Joint venture is another discussion. And expanding into areas that -- I don't want to give away too much here, but expanding into ways that we can leverage what we do to the benefit of our current customer also to others, to the end user customer directly is of interest to us.

So we're going to map that plan out. I'm pleased that -- I mean, I'm very excited. We are very excited about Vivek joining the Board. He's a great addition to the Board that we have today. We're blessed that we've got a good team. And Vivek brings an exceptional amount of focus on the strategic planning part and understands our industry. So there's things we can do. There's things we shouldn't do. And someone once told all of us that you start off by building a strategy by deciding what you're not going to do. And there are certain things we know we're not going to do. I know we're not going to put somebody on the moon. So we can go plan from there. But we're very serious about doing the expansion, as we talked about to get new routes to market, new revenue. And I would expect that you'll see something sooner than later.

Okay. Great. Great. And then do you -- I said that was my last question, but your answer caused me to have a follow-up on that. Do you see being able to use the current facility for others, maybe for some of that expansion besides Dell? Or is that going to have to take place in another location? Or do we know that yet?

It really depends -- good question. It really depends on what the opportunity is. Remember, we also have the other facility in Round Rock that you're probably going to ask another question, what do you plan to do with it? Well, we can sublease it, and we're talking to people about doing that. And I have a feeling that we're going to use some of that space to broaden our go-to-market footprint.

So we're not rushing out the door to go rent that out and sublease it. But more than likely, it would involve doing something somewhere else.

Okay. Well, I appreciate that, and that's -- those are great answers. I'm going to go through -- I didn't have time to go through your 10-Q and all that yet, but I'm going to do all that and then send you a whole bunch more questions probably, but I appreciate it.

You couldn't consume 40 pages of detailed documents in an hour? Come on, Brad.

I mean, well, AI does help with that. You can't -- yes -- but yes, I like to read it myself, so.

The next question comes from David Bastian with Kingdom Capital Advisors.

So looking at your guide here, kind of what you're saying about the fourth quarter and then about 2026, it seems like you're basically saying the run rate on this facility is somewhere in the $5 million to $7 million of EBITDA per quarter. Am I interpreting you correctly?

Yes.

Okay. And I guess, does that represent running mostly at full capacity? I think a lot of us were expecting this is kind of going to be our first quarter to see what full capacity look like. Obviously, there's been a few weeks of delays here, but you're talking about Q4 and the guidance you're giving suggests that, that is going to be what we're seeing here once that quarter is finished.

No. It's not full capacity. I'm not being feisty with you. I'm just trying to answer your question.

No, I just want to understand how much -- go ahead.

No, Darryll's point is spot on. We've got significant additional capacity that we could grow into.

Okay. So yes, because I mean again, the 40%, 50%, are we thinking about that as growth off of this full year or off of Q4? Again, just to make sure I'm not misinterpreting what you're saying here.

Full year.

Full year. Okay. And so then based on that, if you guys are going to go do M&A, are there opportunities in the market right now that are available to you that would be accretive to -- if you're around $25 million to $30 million of EBITDA next year on what is right now, roughly $300 million, $350 million market cap. I mean that's -- are there opportunities out there that are accretive for you guys at that valuation? Or do you think you can grow that incrementally by doing M&A here?

What I've learned, David, is that there's a lot of work that needs to go on to do a deal. It's not easy, but it's doable, and it happened all the time. So we're prepared for that.

And the answer to your question is yes. We've got some line of sight. And yes, accretive and yes, exciting. And it's -- I think going back to a comment earlier, it's the little ones that add up. I mean, a little bit here, a little bit there, given the size of our company and the money we've raised, I think it's -- there are some -- there's a couple that are really exciting to us. So the answer is yes.

I would now like to turn the floor back to management for any closing remarks.

Okay. Thank you, everybody. It's Darryll. I think what I want to say is over the period of time recently, we've taken some very methodical steps intentional and designed to position us to scale and grow. As many of you know, we uplisted on NASDAQ. We raised money. We've had some very powerful people to our Board. We've invested in our facility and infrastructure. And we're playing the long game, but we're playing to win.

And what we're trying to do is make sure that we're as open as we can be in these calls. But I just want to make sure that everybody knows that we are very optimistic about our future. We're very focused on execution. At the end of the day, it doesn't matter if you don't put points on the board as we know, as we're sitting here today having this conversation.

We've got a long-term view, but we know that we're growing, and we need to keep ahead of what's going on in the marketplace, and we need to move quickly. So we're very committed to that. And I just want to make sure that everybody on the call knows that we thank you for your support and glad you're coming on this journey with us. So thank you for your time.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.