TSS, Inc.

Greetings. Welcome to the TSS Inc. Fourth Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, James Carbonara, with Hayden Iyar. James, you may begin.

Thank you, Operator. And good afternoon, everyone. Thank you for joining us for TSS's conference call to discuss the company's fourth quarter and full year 2024 financial results. Joining me today on this call are Daryl Doohan, President and CEO of TSS, and Danny Chisholm, 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 27, 2025. TSS expressly disclaims any obligations to update, amend, supplement, or otherwise review any information or forward-looking statements made on this conference call or replayed to reflect events or circumstances that may change or arise after the date indicated on 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, Daryl, I'll turn it over to you.

James, thank you very much. Good afternoon, everyone. Thank you for joining us today in our fourth quarter and full year 24, 2024 earnings conference call. 2024 was an exceptional year for TSS by all accounts. The soaring demand for AI RAC integration and procurement services propelled our business to new heights. We delivered outstanding financial results driven by strong operational execution. and our unwavering commitment to customer service. Our strong performance demonstrates that we are successfully executing our business strategy, delivering growth in revenue, earnings, and cash flow while scaling our business and operations and positioning for continued success. For the full year, we delivered organic revenue growth of 172%, an incredible accomplishment that highlights the growing demand for our offerings, the strength of our customer relationships, and the attractiveness of the market in which we operate. We grew diluted earnings per share from just better than break-even in 2023 to 24 cents, a staggering increase, and generated positive cash flow from operations of more than $15 million. These results underscore the effectiveness of our strategic initiatives and the dedication of our team. Notably, growth was broad-based, spanning all of our service offerings. So let's break down a performance-wise segment. Procurement services. This is where we source third-party hardware, software, and services. We delivered robust growth of 205% for total revenue of $117.5 million. Last year, we achieved $36.5 million, last year being 2023. As expected, We experienced some quarter-to-quarter fluctuations throughout the year. However, the overall trajectory of the business is positive, and we are very optimistic about where it's heading in 2025. Facilities management, primarily referred to as our modular data center or MDC business, performed well, growing 13%, which was in line with our expectations. As a reminder, this business represents a small portion of our overall business, approximately 5% of our total revenue in 2024, and importantly, is a fairly predictable revenue stream with gross margins generally exceeding 50% of revenue. Given accelerating adoption of AI-enabled technology, we expect demand for MDCs to be an important driver of revenue growth in 2025 and beyond. Our integration services business, including AI RAC, saw a tremendous surge fueled by increasing demand for AI-enabled infrastructure. Revenue grew by 157% to $22.6 million in 2024. I will comment further in a few moments, but I think most people recognize we are in early stages of AI infrastructure build-out, and as a result, we see our SI business growing rapidly as AI demand is fulfilled in coming quarters and years. A significant milestone in 2024 was the signing of a multi-year agreement with our largest customer, further solidifying our role as a strategic partner and their technology roadmap. This agreement enhances revenue visibility, mitigates operational risk for each of us, and supports our investment in capacity and capabilities that is needed, thereby greatly strengthening our long-term growth outlook. To support this long-term customer service agreement and meet rising demand, we signed a multi-year lease for a 213,000 square foot facility nearby in Georgetown, Texas. This expansion increases our operating space by just over 100% and provides significantly greater power capacity to accommodate AI-driven infrastructure. Difficult to appreciate the pace of change in the data center industry as a result of the AI boom. I wanted to spend a few minutes on this topic as it highlights our value proposition to OEM customers. A couple of weeks ago, NVIDIA's CEO laid out a detailed outlook regarding that company's product roadmap over the next three years. The development of AI chips processing greater and greater amounts of data in an increasingly dense environment impacts all of the downstream decisions from rack integration to data center design. Both power and cooling implications have been well publicized conceptually, but let me provide a more tangible example. Our new facility, our building, was originally intended to have 4.5 megawatts of electricity. We will now begin with 6 megawatts. The pace of development has made it so that we have gone back to the city planners, and will get 15 megawatts in early summer, and a commitment to get to over 40 megawatts over time. Our request, by the way, was granted. Municipalities are recognizing that power provision is a key part of their intention to attract business. But you can imagine the impact of this type of change in the design of a facility, and this occurred in the space of a month or two while our building is in its final stages of its fit-out. Cooling is in a similar situation. When we began the fit-out of our facility, it was anticipated we would integrate a mix of chilled air and direct liquid cool technology. However, the adoption of emerging chip families so quickly has resulted in an accelerated shift to direct liquid cool. This impacts everything from our chiller capacity to the diameter of the pipes coming into the facility and distributing water within the facility. And again, this rethinking has all occurred in weeks. Beyond power and cooling, there are other numerous changes required to accommodate rapidly evolving requirements, from forklift capacity to the grading of ramps leading into the loading bays. Fortunately, we're in a competitive position with our labor force. Our current headcount and skill levels are very strong, and we're fortunate to operate in a robust Texas human resource market. The combination of our human capital with our strong partner relationships provides us great optimism we're developing a facility built to stand the test of time and adaptable in a rapidly moving environment. In addition to the challenges of increasing rack requirements, there are numerous open questions how racks will be deployed in data centers. Concepts being considered include prefabricated solutions ranging from small IT-focused units with multiple racks to larger units to incorporate power and cooling elements. We're engaging in all these discussions with customers, industry insiders, and technology experts to ensure our future. We were selected by OEM partners because of our flexibility and commitment to quality and our ability to support the roadmaps in this demanding environment. Our facility will begin initial production in April. We will support programs on various levels of IT technology at that time. We should reach full production capacity in June. Our plans for the facility include investment of approximately $25 to $30 million for these improvements, a small portion of which will be funded by tenant improvements provided by our landlord. The financial impact of the investment in our facility will evolve over time. Pricing for RAC integration services will evolve as RAC's complexity and value increase as new deployment methods gain traction in the market. We considered the long-term profit impact and so ROI from the investment prior to embarking on it. The structure of the relationship with our largest OEM supports our investment by reducing risk. As volumes grow, we can envision extremely high returns on invested capital into the facility, perhaps as high as a two-year payback. We ended the year with a strong momentum, delivering Q4 revenue of $50 million, a 105% increase year over year. Diluted earnings per share for the quarter reached $0.08, reflecting a 300% year over year growth. These results underscore the scalability of our business and the growing demand for our services. The AI infrastructure market continues to evolve rapidly, with companies raising significant capital to deploy AI-driven compute environments. While hyperscale data centers and cloud technology companies have been early adopters, the broader market will soon include medium and large enterprises building high-performance compute environments for AI applications deployment beyond large language models and training. We are actively collaborating with our key customers and partners to understand how hyper-dense AI compute will be implemented across the vast majority of data center sites. This will be a key area of focus in the quarters ahead, and we look forward to providing further updates. So with that, let me now turn the call over to Danny, who will discuss our numbers in a bit more detail. Danny?