Greetings. Welcome to the TSS Inc. Second Quarter 2025 Financial 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. Thank you for joining us for TSS' conference call to discuss the company's second quarter 2025 results. Joining me today on this call are Darryll Dewan, President and CEO of TSS; 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, August 6, 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.

Thank you, James, and good afternoon, everyone. Thank you for joining us today for our second quarter 2025 earnings conference call. The demand for complex high-performance computing systems, particularly those enabling AI applications, continues to accelerate at a remarkable pace, and we are squarely positioned to address that demand. This past quarter marked a major transformative milestone in our company's journey and positions us for what we expect will be a record year. I'm pleased to report that we are successfully operating in our new facility, state-of-the-art 213,000 square foot facility in Georgetown, Texas, and is now fully operational. It's also less than 100 degrees today. The build-out is a testament to detailed planning, teamwork and the team's ability to execute. It is more than just additional square footage. This facility is a strategic asset, purpose-built to support rapid scaling of integration services of the most advanced and complicated computing solutions. The facility became operational across all capabilities late in the second quarter. With systems now validated and capable of running at full capacity, we're beginning to capture tangible benefits. We continue to produce faster delivery cycles, greater operational efficiency and increased ability to support larger, more complex customer deployments. The completion and activation of this facility marks a turning point, and we are incredibly bullish about what lies ahead. In terms of our financial results, we delivered on our commitment of revenues in the first half of this year, exceeding the revenues in the second half of 2024. And comparing the first half of this year to the first half of last year, we tripled our diluted earnings per share and more than tripled our adjusted EBITDA. We are on track for what we believe will be a record year for our company. Our momentum is accelerating. The market…

Thanks, Darryll. Consolidated total revenue increased by 262% in the second quarter of 2025 to $44 million, up from $12.2 million in the second quarter of '24. As Daryll mentioned, the increase was driven by significant year-over-year growth in our 2 largest service lines, procurement and systems integration. Revenue from procurement services totaled $33 million, up 572% compared to $4.9 million in the year ago quarter, driven primarily by purchases from the federal government, combined with a mix shift with a greater proportion of revenues coming from gross deals as opposed to net deals. As a reminder, revenue in this segment represents a mix of gross and net deals whose revenue recognition method varies based on the contractual terms of whether we modify the product in some way or just act as an agent in the transaction. The gross value of all procurement transactions regardless of how accounted for, increased 213% from the prior year quarter to $65.7 million this quarter. Based on recorded GAAP values, procurement gross margins were 7.7% in the current quarter compared to 14.7% in the prior year quarter. When viewed using the non-GAAP gross value of all transactions, which we see more as apples-to-apples comparison because it ignores the gross versus net difference, gross margins improved from 3.4% in the prior year quarter to 3.9% in the current quarter. The margin expansion worked in concert with the 213% increase in the gross value of procurement transactions, driving 251% growth in procurement services gross profit to $2.5 million, up from $700,000 this quarter last year. Revenue from the Facilities Management totaled $1.5 million, down 35% from $2.3 million in the same quarter last year. Although currently the smallest segment of all our businesses, Facilities Management holds significant strategic potential. We're actively pursuing new opportunities while maintaining…

Thanks, Danny. I appreciate it. I commented earlier that our Georgetown facility is a strategic asset, and I'd like to expand on that before turning the call over to questions. I've described in previous calls how the amount of compute power in each rack is growing as a result of advancements in chip technologies such as GPUs from leading providers. Our close relationship with the leading IT OEM provides us an operational view of the road map ahead for chips and resulting rack densities. As a couple of years ago, a rack might have required 30 kilowatts of power. We are now preparing to integrate racks with 300 kilowatts of power on our way to a megawatt of power possibly within the next year. The layout and capabilities of our facility that integrates 300 kilowatt racks is very different to a facility that integrates 30 kilowatt. We have invested in a new facility beyond our initial expectation because racks of greater density are approaching faster than we expected. More availability of electrical power is certainly the case, and we're targeting in a year more than double the current availability of electricity. We have also invested in cooling infrastructure, including direct liquid processing required to address racks of dramatically higher power. The point to all of this is we are seeing great growth opportunity as the new facility comes online. Looking out over the next 12 to 24 months, our facility will become more and more critical for IT OEMs to deliver the product road map. Interestingly, we also expect to see more investment in the enterprise marketplace as the AI rollout continues and small, very dense compute resources are located closer to the end user. In summary, we expect continued strong performance for the remainder of this year. Given the strength of our first half and our increasingly visible -- visibility into the second half of the year, we are raising our full year 2025 adjusted EBITDA outlook, as we've said previously, from at least 50% growth to at least 75% growth compared to 2024. We remain focused on driving long-term profitable growth and delivering lasting shareholder value. So with that, let's open up the line for Q&A.

[Operator Instructions] The first question comes from Bradley Stevenson with Breakout Investors.

I've got a few questions, and we'll see how you feel about answering those. One of the things that I -- we've never talked about or at least I've never heard you talk about it is how -- where does TSSI stand in the priority order for Dell for rack integration projects? We know they have in-house rack integration sites as well. And then we also know they use you and I believe maybe another vendor or 2 as well, possibly. But can you comment on that at all?

Bradley, I think the way I would answer that is we -- our desire is to make it really easy to pick TSS to do the total solution. We've positioned ourselves for the more complex future and to be the cheaper, better, faster alternative than anything else in the marketplace. So in terms of a priority, in our world, we are never satisfied. We want to be the top priority. We're working hard to be the top priority. And in the scheme of things, I probably can't go into any more detail on that, top percentages or whatever. But rest assured, we want our unfair share of the business, and we're making it as easy to do that as possible.

Okay. You talked a little bit about growing organically in your press release and also exploring strategic alternatives. I think that comment was about expanding beyond Bill. Am I reading that correctly? And if so, can you talk a little more about that or provide any more detail on that?

Yes. So organic growth is doing more with what we've got with our existing relationship. And I think that's pretty obvious. We're doing everything we can to grow organically, and we -- so far, so good. Every day is a new day, and we strive to be better every day. So we want to continue to grow organically. On the -- outside of that, there's a number of different ways that we can expand. We talked about some of that in the past by doing some on-site rack integration, for example, in a customer facility. But there's a if you will, a respect involved where people that we have working with our existing customers are not going to put somewhere else. I mean we're just on a competitive environment. We're just not going to do that. But that means -- that doesn't mean we can't have other teams dedicated to other technologies, and we're exploring doing that. So that's one way to grow in a customer facility. Another way is to grow through providing our kind of solution to the channel, the channel market out there that actually resells current customer technology and other technology wants someone or a firm to do the integration work that we have invested a lot of money in, $25 million, $35 million as we talked in our world, there's a lot of money. So we want to make sure that we invest and use that. Why would a channel partner be faced to have to make that kind of investment to satisfy the customer. They can route the technology through us. We'll do the integration. We have the facility in Round Rock, which we could use for that if that ever comes up. So that's an opportunity. And then third, there's a whole another level of technology that's out in the marketplace that I think our existing relationship would be okay with if we were to partner in and with. And I can't go into a whole lot more detail here, but let's put it this way, I think we're interested in anything that works, that helps us grow that doesn't damage our existing relationship and that is done fairly and profitably.

Okay. Procurement, it's a big number. It's a lot smaller than last quarter, a whole lot bigger than the year ago quarter. I is there any way to to correlate that with anything else in your operation? I guess what I'm trying to say, I find myself -- like I was surprised with the $90 million last quarter. I didn't expect to see a number that big. This quarter, $33 million. I won't say that was a surprise. I just didn't really know -- I find myself not having really any idea of knowing what to expect. Is there any guidance you can give on that?

Well, if you -- yes, there is. We inspect our pipeline frequently. And if you were surprised by the $90 million, so were we in the respect that it was such a big number and a big quarter for us. If you recall, we did $60 million in Q3 last year, and that was an eye- opener. And we traditionally haven't had that kind of a large procurement quarter in the beginning of the year. And we've felt and we still feel there's a little bit of a propensity to dial closer to the federal buying cycle, which usually is the third quarter of the calendar year. I can tell you that we're optimistic about the full year. I think you'll hopefully be pleasantly surprised again someday, and we're working hard to make that happen. So the corollary to anything other than the federal buying cycle and the fact that we put more muscle behind working transactions than we ever did before, I think it's paying off. So in other words, internal resource allocated to go after opportunities that drive revenue for procurement. That also leads into business that we're driving in our configuration services business. And we put -- we've realigned our team internally to place, if you will, more attention and talent into the config Services business, which really is connected to the procurement business. And eventually, and hopefully, very soon, we'll see the benefits of that.

Yes. To be clear on that, Bradley, while it's -- while the configuration services is -- gets a lot of that volume fed from the current activity, those numbers for configuration services are classified in the Systems Integration segment.

Bradley, I mean, I can tell you that I've been here almost now 3 years. And what Danny just said is something we always kind of go, now how does that work? It is what it is. But at the same time, Danny is completely right. They feed each other and they work closely together. And in the -- we can also grow config services without procurement, which is what we're trying to do. And in order for that to happen, we had to change some people, and we're continuing to invest in a software platform and technology to automate the process that makes it a lot easier to deliver the end result. And we're doing that from operational money. It's not a lot of money, but it just takes time.

Got you. And I wasn't trying to say I was disappointed in $33 million. I just didn't know what to expect. That's what I was really saying.

I was just trying to figure out where you're coming from because next time you ask a question, I might not take the answer question.

So I'm going to call what you said about EBITDA guidance. You can correct me if you don't want to refer to as guidance. But if I've done my math right, if to do 75% more than last year, that would basic -- that would mean breaking even with the quarter we just finished over the next 2 quarters on average. Do you -- while that's a good number, do you see upside potential beyond that scenario?

We lately view that as the floor, right? If you think about -- you may not have picked up on the exact words that used in communicating that, but it was -- we see at least 75% uptick.

So last year, we did $10 million.

Okay. So if you do -- and I guess what I'm trying to say -- maybe I misunderstood what you meant. But if you hit, say, $4 million in the third quarter, $4 million fourth quarter that gets you about a 75% uptick, I think.

Yes. I think your math is somewhat close to the first half of this year, Danny, correct me if I'm wrong, I think first half, we did about $8.2 million in EBITDA. Last year, we did $10 million. We're saying at least 75%.

First half of this year was $9.2 million.

$9.2 million?

Yes.

What's $1 million amongst price, $9.2 million, $8.2 million -- $9.2 billion. So I think the -- so there's your -- hopefully, that answers your question. If we're looking at the full year, we're increasing the guidance to at least 75%.

[Operator Instructions] The next question comes from Kris Tuttle with Blue Caterpillar.

I was hoping there would be more coverage on this call. In the old days, analysts would introduce companies with this kind of growth and fundamentals. But anyway, a couple of quick ones just for me. In terms of Georgetown, where -- what -- did you say you were completely 100% operational there or at capacity with? I just want to clarify what you said about that. And if it's not 100% sort of what's your time frame on getting there?

We are now 100%, Kris, good to talk to you, by the way. We're now at 100%. We started the transition around the early part of May, and we segue into 100%. So we're full capacity -- full production capability right now.

[Technical Difficulty]

Sorry, Kris, you're pixelating a little bit.

[Technical Difficulty]

Operator, we can't pick them up.

The next question comes from Maj Soueidan with Geoinvesting.

One quick question, and I might have missed it because I missed the prepared remarks. So if I did, it's excuse me for asking again, If have been already answered. But did you address anything going on the Round Rock facility, like any kind of movement there in terms of opportunities? Or are you just 100% concentrating in the Georgetown facility ow? I just wanted to know if you addressed that at all?

The opportunity is in sublease or as in doing additional business there.

Yes. I guess both. I mean, I'm assuming too, that's kind of that facility allows you to maybe to do stuff that's none also potentially as an assumption also.

You're right. Maj, it is available. We've had some interested parties to sublease too. It's also something on our list to go expand our configuration services business. It's got adequate power for that and some DLC capability, direct liquid cooling, which is obviously what we used to do there. But it's 110,000 square feet. And we're working angles to try and figure out how to best use it. It does open up opportunity for us to grow beyond our existing relationship in a way that doesn't upset our existing relationship. So -- but nothing yet that we can talk about here, but we're working it.

This concludes the Q&A portion of our call, and I'd like to turn the floor back over to Darryll Dewan for our closing remarks.

Thank you, sir. Folks on the call, we're really grateful and glad to be in our new facility. It's been an effort and an extreme amount of work by a great team to get here. So the execution to get here is quite amazing. We're doing everything we can to position the company to scale and be ready to address these advanced technologies by the investments we're making and by the people that we've got here. I can tell you that we're focused daily and quarterly and on an annual basis to continue to execute and to produce shareholder value. In a big picture, this is an exciting space. The AI world is just amazing. We appreciate you, our investors, for your commitment and your support. We're doing everything we can to give you a good return on your investment. And my phone and my door is always open as a management team here. So I appreciate any of your feedback or questions. As we've said before and I've said before in the previous call, wish us a luck. So thank you. Have a good day.

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