TSS, Inc. Q3 FY2025 Earnings Call

Greetings and welcome to the TSS, Inc. Third Quarter 2025 Earnings Results Conference Call. I will now hand the call 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 unusually 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 processes, integration with our ERP system with our customers, hiring of additional resources than previously thought necessary, even working through physical security additions given the value of customer-owned equipment flowing through our walls. These steps were all addressed in Q3. As a result, our rack volume processed in Q3 was 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 with significant learning for 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 were 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, as 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. The 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 the 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 the 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.

Thanks, Darryll. I'll start with a look at the income statement for the quarter and year-to-date period, then provide some 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. 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 same quarter last year. Revenue in this segment is mainly driven by purchases from the federal government. It reflects a mix of gross and net deals with revenue recognized based on product modifications or acting 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 show strong strategic potential despite being our smallest segment. 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 in the pipeline. Revenue from systems integration totaled $9.2 million, up 20% from $7.6 million in Q3 2024, driven mainly by the continued integration of AI-enabled racks for our largest customer. This growth was lower than we originally planned for the quarter, but 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. We started allocating operations-related depreciation from our Georgetown facility to cost of revenues in the current quarter, which impacted the margin reported. In breaking down our gross margin by segment, 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, gross margins improved from 4.7% in the prior year quarter to 5.3%. Facilities management gross margins improved from 37% in the year ago quarter to 55% this quarter, increasing gross profit from the FM business to $881,000 from $726,000 this quarter last year, despite 19% less total revenue. Systems integration gross margins decreased from 45% in the year ago quarter to 13% in the current quarter due to a new allocation of operations-related depreciation, accounting for about one-third of the overall decrease in margins in this segment. We also made incremental investments in CapEx this year beyond our original expectations, 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 it represents a full quarter's depreciation of the new factory. It will increase if we make further investments, which we would primarily do with a focus on enhancing revenues and earnings. We significantly ramped up available electrical power in the building from 12 megawatts during Q3 2025 to 15 megawatts, compared to just 6 megawatts when we first moved into the new Georgetown facility. This compares to only 2.7 megawatts available in our prior Round Rock facility. We anticipate the enhanced power availability will allow us to integrate future generations of rack technology and drive incremental revenues. During Q3 2025, electrical power costs were just over $900,000, with almost $800,000 being fixed costs. We anticipate revenues in future periods will more than offset the incremental power costs, but for this quarter, we estimate only about 20% of those costs were recouped through customer charges. Our contract with the City Power Company stipulates that fixed power costs for the currently available 15 megawatts will increase to approximately $866,000 quarterly starting in Q4, plus the variable rate for actual power consumed. SG&A expenses of $5.2 million in the third quarter of 2025 increased by 35%, or $1.4 million, over the same quarter last year. Just over half of that increase is related to noncash stock compensation, with the remainder tied to higher headcount and related compensation costs to support the growing scale of the organization, along with higher accruals for incentive compensation directly linked to improvements in sales and earnings. This quarter also includes additional costs for the 2025 annual audit and ongoing SOX 404(b) implementation. Depreciation and amortization expenses not allocated to COGS were $328,000, up about $120,000 compared to $208,000 last year, due to amortization of our ERP implementation costs and depreciation in other assets related to business growth. We reported an operating loss of $931,000 in Q3 2025 compared to operating income of $3.8 million in the same quarter last year. This change was driven mainly by a $3.3 million decrease in gross profit, increased operations-related depreciation, and higher power costs, combined with a $1.4 million increase in SG&A expenses. Despite the increased costs, we still 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 Q3 2025 from $1.3 million in the same quarter last year, primarily due to lower factoring costs on our receivables, which scales directly with gross billings. Looking ahead to Q4, we expect interest expense on bank debt to increase due to a $5 million borrowing in the middle of Q3, which will be outstanding for the entire quarter alongside increased factoring costs related to anticipated revenue increases in Q4. Most of the Q3 interest on the bank loan was capitalized into construction costs, and since construction was completed in Q3, Q4 will reflect a full quarter of just over $400,000 of interest expense related to the outstanding debt, plus costs from factoring our receivables. The net result of these key factors is a net loss of $1.5 million for Q3 2025 with a diluted loss per share of $0.06, compared to net income of $2.6 million and diluted EPS of $0.10 in the same quarter last year. Adjusted EBITDA, excluding interest, taxes, depreciation, amortization, and stock-based compensation, was $1.5 million, down from $4.3 million in the prior year quarter. Now, let’s look briefly at the year-to-date results. For the 9 months ended September 30, '25, total revenues rose 88% to just under $185 million compared to $98 million in the same period last year. By segment, procurement revenues increased by 100% and systems integration revenues increased by 78%. These gains were somewhat offset by a 32% decrease in revenue from facilities management, primarily due to project timing and a smaller decrease in ongoing maintenance revenues. Gross profit for the first 9 months of 2025 rose 39% to $21 million, absorbing $1.6 million of operations-related depreciation in the current year-to-date period that we did not see last year. SG&A costs were 74% of gross profit in the 2025 year-to-date period, up from 62% in the same period a year ago. Over one-third of the SG&A increase 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, down from $4.1 million in the first 9 months of 2024, with diluted EPS at $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, along with $5 million of restricted cash securing our bank loan, up from just $23.2 million at year-end 2024. We raised $3 million from a stock offering, which we believe will aid in making strategic investments to grow and diversify our business, as Darryll mentioned. Year-to-date, we have drawn down $16.3 million on our construction loan, including $5 million in the current quarter when we exercised the accordion feature of our bank loan. Together with $18.5 million of cash flow from operations, these cash sources funded $32.2 million of CapEx year-to-date, mainly for the development of our advanced integration facility in Georgetown, Texas, as well as $4.9 million of treasury stock repurchases from employees' net settlements during restricted stock vesting 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 and operating cash flows after accounting for long-term capital asset funding and treasury stock repurchases. Due to the conversion of our debt to a term loan in July 2025, $5 million of cash securing our loan was reclassified from a current asset to noncurrent asset restricted cash. As of September 30, 2025, we met all conditions for receiving $6.8 million of tenant improvement funds from our landlord, which will reimburse us for CapEx already invested. 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 in the first 9 months of last year. The change was mainly due to a $5.3 million paydown of accounts payable and accrued liabilities in the current year-to-date period, unlike the $37.6 million increase in payables in 2024, which was partially offset by higher cash flows 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 as 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 in the 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 in 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 fourth quarter for 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, which will 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.

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, 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 generative AI to agentic AI, 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 for 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 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 for nearly a year and understand that you're primarily a client of Dell. My first question is how many clients do you currently have? Related to that, when you acquire a new client, why don't you publicly announce it? I believe such announcements could positively impact the stock price. Lastly, do you intend to raise more capital in the future?

Thank you for your questions, Chris. Regarding the first one, we do have other clients, but we tend not to discuss them publicly aside from Dell. Our business has several different lines, including rack integration, systems integration, modular, and procurement services. We conduct a significant amount of procurement services business through a channel partner affiliated with Dell, while still classifying it as a Dell transaction for the end customer. Our facilities management and modular data center businesses involve collaboration with other OEMs, but we generally don't share details about these partnerships. We prefer to maintain a low profile and focus on our work. However, as we pursue strategic growth through M&A or joint ventures, you will hear more about those efforts. To address your question about new customers, as we expand and develop new market opportunities, we will certainly communicate more about our progress.

I appreciate that. I realize that concerning the stock price, it seems that someone else is influencing it. As an individual investor with a couple of thousand shares, it feels like if there were more communication from your side, perhaps anything announced would help address the lack of information coming from the company outside of your quarterly calls. Additionally, do you plan on any more capital raises?

Right now, the answer to that is no. We believe we are well positioned with our recent efforts. Eventually, that may change, but currently, we have no plans for a capital raise. I am very mindful of our investor base, and the last thing I want to do is dilute our investors. However, we are focused on growth and making strategic decisions to achieve that. If we did not pursue our current path, we risk going out of business, which would leave us without a narrative. While we could raise more funds, nothing is planned at this moment. Additionally, regarding your point about improving communication, we would love to do that, and we intend to. Our primary concern is not the stock price; we focus on the long-term goals and how to create value.

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

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

Sorry, Kris, your questions 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 vendor.

The other point I want to make is regarding the AI rack integration. There are not many computer OEMs engaged in this area. While we primarily work with one customer, we are integrating racks that are utilized by various companies. Thus, we contract directly with them, but the results of our integration reach multiple locations. This situation provides a bit more diversification, despite the need for formal disclosure that our business is technically with a single customer.

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

The next question comes from Brad Stevenson with Breakout Investors.

I have a few questions. You mentioned unforeseen operational requirements in the third quarter that impacted your rack volumes. Could you provide more details on what that entails? I'm assuming it's not just related to power availability, but possibly something else. Additionally, do those volumes get deferred to a future quarter, or were they addressed in another way? Do you have any insights on that?

There are two parts to your question. First, it's a bit embarrassing to admit, but the truth is we needed more power, and we made an investment in Q3 to address that. Second, while integrating our ERP system, our capacity to manage and report on our inventory improved, which was a factor. We addressed that issue, though it did impact our volume. Additionally, we had a lot of new personnel, which we have resolved by hiring a Director of Operations to support Todd Marrott, our Chief Operating Officer, in expanding his management team. He has done an excellent job in a short time. Another aspect we lacked was an effective communications platform that brought everyone who needed to be involved together at the same time. We had relied too much on the assumption that everyone knew what they needed to know, but that was not the case. We've rectified that by implementing daily morning and afternoon sessions with all relevant team members and our key customer, which has proven to be very beneficial. This experience illustrates that the small details can lead to significant outcomes. It wasn't a single issue; we recognized the need for improvement and have taken steps to implement changes. We categorize this as enhancements to procedures and processes, and we're on track now. This has been a learning opportunity for us, unfortunately impacting some volume. I can't specify where that volume went, but it did not come to us, and we are committed to ensuring it does not happen 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.

I appreciate that. That's great information. I was pleasantly surprised to hear your guidance for the full year 2026, indicating 40% to 50%.

You're right. Yes, sir.

And so, of course, it made me wonder if visibility has improved significantly. What factors contribute to your ability to forecast that far ahead now?

If you look at each segment, the answer to your question is yes. We have improved significantly in our communications and visibility across all business areas. There's nothing particularly complicated about it; we simply have much better visibility now. For instance, a month ago, when a prominent customer held their analyst meeting in New York City, they raised their guidance and pipeline. Their executives spoke about the strong visibility they have regarding the number of customers purchasing servers and racks. Overall, things are progressing positively for all of us, and we are pleased with that.

Awesome. I have one more question. The equity raise intended for expansion and growth outside of Dell seems to be the overarching theme. Do you envision a time when you will release a press release informing us about specific deals and how this money is being allocated? Will we receive that type of information, or will we only see the impact through quarterly results as we move forward?

That's a great question. In short, the answer is yes. We're aiming to make progress sooner rather than later. We're exploring various paths for mergers and acquisitions that complement our current operations. Joint ventures are also on the table. We're looking to expand into areas that can benefit both our existing customers and new end users, although I can't reveal too much at this stage. We plan to lay out that strategy, and I'm excited about Vivek joining the Board. He's a fantastic addition, bringing a strong focus on strategic planning and a deep understanding of our industry. We know there are certain things we should pursue and others we shouldn't. A wise piece of advice I received was to shape our strategy by identifying what we will not do. For example, we aren't going to aim for the moon. With that understanding, we can move forward. We're committed to expansion as discussed to create new market routes and revenue streams, and you can expect to see developments soon.

Okay, great. I know I said that was my last question, but your answer prompted a follow-up. Do you think the current facility can be used for others, perhaps for some of that expansion besides Dell? Or will that need to occur at a different location? Do we have any clarity on that yet?

It really depends on the opportunity. Remember, we also have the facility in Round Rock, which you might have questions about regarding our plans. We can sublease that space, and we are in discussions with several parties about it. I believe we will use some of that space to expand our market presence. So we are not in a hurry to rent it out or sublease it, but it's likely that it will involve doing something else in a different location.

Thank you for the great answers. I haven't had a chance to review your 10-Q yet, but I plan to go through it and will likely send you more questions afterwards. I appreciate your insights.

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

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 looks 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, 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.

Okay. So based on that, if you are considering mergers and acquisitions, are there currently available opportunities in the market that could be beneficial, given that you expect around $25 million to $30 million of EBITDA next year with an approximate market cap of $300 million to $350 million? Are there accretive opportunities for you at that valuation, or do you believe you can achieve incremental growth through M&A?

What I've learned, David, is that there’s a lot of work involved in making a deal happen. It’s challenging, but it’s achievable and occurs frequently. We are ready for that. Yes, we have some visibility, and it is indeed accretive and exciting. Returning to an earlier comment, it’s the small deals that accumulate. Given our company’s size and the capital we’ve raised, there are a couple of opportunities that are particularly thrilling for 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.