TSS, Inc.
For the period ended Dec 31, 2025. Filed Mar 18, 2026.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 18, 2026
TSSI$6.70+12.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-04-15.
0001654954-25-004295
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationCurrent report: 10-K
Period ended 2025-12-31; filed 2026-03-18.
0001654954-26-002342
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 134 previous paragraphs and 125 current paragraphs.
39 unchanged; 42 reworded; 43 added; 53 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 5 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (43)
Current report
In this section, we discuss the results of our operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.
Current report
The following table presents our revenues disaggregated by timing of revenue recognition (in ’000’s)
Current report
The following table presents our revenues disaggregated by contract type (in ’000’s)
Current report
The 66% growth in total revenues, combined with the slight decrease in blended gross margins, translated to a 45% increase in gross profit from 2024 to 2025. Net of an increase in operating costs, primarily administrative costs, operating income increased by $0.6 million, or 10%. Due to our continued positive earnings, we determined it was more likely than not that we would be able to utilize our deferred tax assets and released almost all of the previously recognized valuation allowance. This release drove the $7.6 million income tax benefit, and in combination with our increased operating income and $1.1 million increase in interest income, contributed to a total growth in net income in 2025 of 153%. Net income for the year ended December 31, 2025 was $15.1 million compared to $6.0 million net income in the prior year. In prior periods, we reported our bank factoring fees in the “interest expense” caption on our income statements. In the current period, we began reporting bank factoring fees separately as a deduction when computing operating income, and interest expense now reflects only the interest expense related to our bank debt.
Current report
The amendment to this agreement signed in December 2025 adjusted pricing primarily to compensate us for the incremental capital investments and power costs that we incurred to meet the customer’s needs and extended the agreement by an additional two years past what was already a multi-year term, and automatic one year renewals after that unless either party elects to terminate it at the end of the initial term.
Current report
Equipment sales
Current report
Remaining Performance Obligations and Deferred Revenue
Current report
Contract liabilities consisting of deferred revenues were $3,384,000 on December 31, 2024, and $3,370,000 on December 31, 2023. Substantially all of the recorded deferred revenues at December 31, 2024 and December 31, 2023 had been earned and recorded as revenues in the one year periods following those dates.
Current report
Depreciation of production-related fixed assets
Current report
Depreciation of fixed assets that are related specifically to revenue-generating activities is reported as a separate component of cost of revenues. As these amounts were immaterial in prior years, these costs were excluded from cost of revenues and included in Depreciation and Amortization in prior year presentations.
Current report
Allowance for Credit Losses
Current report
Inventory Valuation
Current report
Inventory is stated at the lower of cost or net realizable value on a first-in, first-out basis and specific identification. The cost basis of our inventory is reduced for any products that are considered excess or obsolete based on assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required, which could have a material adverse effect on the results of our operations.
Current report
Income Taxes
Current report
Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets that are not more likely than not to be realized. We monitor the realizability of our deferred tax assets taking into account all relevant factors at each reporting period. In completing our assessment of realizability of our deferred tax assets, we consider our history of income (loss) measured at pre-tax income (loss) adjusted for permanent book-tax differences on a jurisdictional basis, volatility in actual earnings, excess tax benefits related to stock-based compensation in recent prior years, and impacts of the timing of reversal of existing temporary differences. We also rely on our assessment of the Company’s projected future results of business operations, including uncertainty in future operating results relative to historical results, volatility in the market price of our common stock and its performance over time, variable macroeconomic conditions impacting our ability to forecast future taxable income, and changes in business that may affect the existence and magnitude of future taxable income. Our valuation allowance assessment is based on our best estimate of future results considering all available information.
Current report
We are required to file income tax returns in the U.S. which requires us to interpret the applicable tax laws and regulations. Such returns are subject to audit by the various federal and state taxing authorities, who may disagree with respect to our tax positions. We believe that our consideration is adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. We review and update our estimates in light of changing facts and circumstances, such as the closing of a tax audit, the lapse of a statute of limitations or a change in estimate. To the extent that the final tax outcome of these matters differs from our expectations, such differences may impact income tax expense in the period in which such determination is made.
Current report
In this section, we discuss the results of our operations for the year ended December 31, 2025 (the “current year” or “2025”) compared to the year ended December 31, 2024 (the “prior year” or “2024”). For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.
Current report
Total revenues in 2025 increased 66% to $245.7 million. Procurement revenues increased by $80.0 million (68%), and systems integration revenues increased by $17.7 million (78%), while facilities management revenues decreased by $0.1 million (1%) from 2024.
Current report
To meet our customers’ evolving requirements for more powerful AI racks and greater cooling capabilities, we invested more in our facility than initially estimated and have increased the electrical power now available in our facility, which substantially increased minimum monthly charges from the local utility provider. From May through December 2025, we were charged a total of approximately $1.5 million of fixed power costs regardless of power actually consumed, plus variable charges for actual power consumption, and are currently incurring monthly fixed power charges of approximately $192,000, plus variable rates for power consumed. We made these additional capital and power investments during the current year with the expectation that they will help us generate greater revenues by increasing volume in future periods.
Current report
Among other things, the recent amendment to our long-term agreement allowed us to collect approximately $1.0 million of additional revenues in the fourth quarter of 2025 related to power and infrastructure costs we incurred primarily in the second and third quarters of 2025, but to which we did not previously have a contractual right, so such revenue recognition was deferred until the amendment was signed in December 2025.
Current report
Non-GAAP Revenue, Gross Profit and Gross Margins
Current report
In prior years, our depreciation related to equipment and other fixed assets used in revenue-generating activities was minimal. Following the significant capital investments recently made in our new Georgetown, Texas integration facility, we began in the current year reporting as a component of cost of revenues the depreciation related to revenue-generating activities. That depreciation classified as cost of revenue amounted to $2.7 million in the current year, with zero reported in the prior year.
Current report
Depreciation and Amortization Outside of Cost of Revenues
Current report
Depreciation and amortization not allocated to cost of revenues increased from $0.6 million in 2024 to $1.1 million in 2025 in line with the overall growth in the business and the larger Georgetown facility now fully operational.
Current report
Bank Factoring Fees
Current report
Bank factoring fees increased from $2.7 million in the prior year period to $3.7 million in 2025. As a percentage of recorded revenues, factoring fees improved from 1.8% in 2024 to 1.5% in 2025. However, the basis on which we are charged factoring fees is the gross billings factored, which includes the amount of procurement revenues “netted” out for GAAP-basis procurement revenues, as presented in the table in theNon-GAAP Revenue, Gross Profit and Gross Margins section above. Calculated as a percentage of those gross billings on which we are charged, our bank factoring fees improved from 1.4% in 2024 to 1.1% in 2025. That is due primarily to lower prevailing interest rates in 2025 on which the charges are based, combined with a negotiated one-time $0.3 million reduction of 2025 fees for a bank system issue not expected to recur. During 2025, the bank that factors these receivables encountered a system issue that delayed certain payments to us. In an effort to maintain a good relationship with us, the bank agreed to waive $0.3 million of the factoring fees to which it was otherwise entitled. Excluding the benefit of that negotiated one-time credit which we do not expect to recur in future periods, factoring fees improved from 1.5% of factored billings in 2024 to 1.2% in 2025.
Current report
Loss on Sale or Disposal of Assets
Current report
As discussed above, we were reimbursed in 2024 approximately $1.7 million to enable our Round Rock facility to integrate AI computer racks for our largest OEM customer, and were amortizing that reimbursement into our systems integration revenues over the estimated three-year useful life of the assets. We were also deprecating the related fixed assets over that same three-year estimated useful life. At December 31, 2025 and following the move to our new integration facility, we determined it is no longer likely we will perform any integration activities in our Round Rock facility, and accordingly that there was no remaining utility to the majority of the reimbursed assets. Therefore, the remaining $0.7 million net book value of the fixed assets was charged as a “loss on sale or disposal of assets” at December 31, 2025. In the same period, we also accelerated recognition of approximately $0.8 million of the related reimbursement which is included in the 2025 systems integration revenues. We do not currently expect any similar loss on sale or disposal or acceleration of reimbursement recognition in future periods. Our Round Rock facility is currently idle, as we seek additional business to utilize the space or to sublease the space if not otherwise used in our operations.
Current report
Operating income was $6.3 million in 2025 compared to $5.8 million in 2024. While total operating costs grew 57% and gross profit grew 45%, operating income increased by 10%, or $0.6 million. The lesser growth in operating income was due in part to increased depreciation on the Georgetown facility and an impairment of assets held at the Round Rock facility that are no longer expected to be used.
Current report
The 66% growth in total revenues in 2025 compared to 2024, combined with the slight decrease in blended gross margins and $2.7 million of depreciation related to revenue-generation in 2025, drove a 45% increase in gross profit from 2024 to 2025. Net of an increase in operating costs, primarily administrative costs, combined with an increase in bank factoring fees on higher revenues and a loss on disposal of assets that was more than offset by incremental revenues, operating income increased by $0.6 million, or 10% for the full year.
Current report
Interest expense
Current report
In 2025, we recorded interest expense of $0.7 million related to the bank debt we incurred to finance a portion of the build-out of our new Georgetown facility. We had no such interest expense in 2024, as a smaller amount of debt was outstanding for only a single day in 2024 following signing of the construction loan on December 31, 2024 which converted into a term loan on July 5, 2025.
Current report
Interest income
Current report
Interest income increased from $0.6 million in 2024 to $1.7 million in 2025 primarily due to the larger cash balances held during the year. The larger cash balance held was driven by the $55.3 million net proceeds we realized from a public offering of our common stock in August 2025 combined with the growth in revenues in 2025. While we incurred additional bank factoring fees related to the increased revenues, the use of that factoring program also accelerates our collection of accounts receivable such that we typically receive payment from our largest customer (via the factoring program) 30-45 days before we are required to pay our vendors, providing us short-term use of incremental working capital on which we earn interest income.
Current report
Other expense (income)
Current report
In the current period, we recorded $0.2 million of other income, compared to $0.2 million of other expense in 2024. As part of our move to Georgetown, Texas, we negotiated a one-time grant of $0.2 million from the local economic development committee tied to a variety of factors including the signing of a 10-year lease, adding a minimum amount of capital expenditures to that leased facility, and employing a certain number of individuals at a minimum compensation level. In the fourth quarter of 2025, the economic development committee verified our satisfaction of those obligations and paid us the one-time grant of $0.2 million, which was recorded as other income in the current year. We do not expect this credit to recur in future periods. However, in addition to the $0.2 million one-time grant, we also negotiated and were awarded certain tax incentives related to our move to Georgetown. For the next 10 years, the city agreed to reduce by 25% the real property taxes otherwise due on the capital improvements we made to the property, and to reduce buy 50% the taxes otherwise due on tangible personal property. We expect the benefit of these tax abatements will be reflected in future periods in our cost of revenues, where we currently record the majority of our property tax expenses.
Current report
Due to a history of consolidated net operating losses, we had previously recorded a full valuation allowance against our deferred tax asset (“DTA”). The minimal income tax expense recorded in recent periods represented primarily Texas state franchise tax, with any federal taxes offset by a partial utilization of the DTA and related release of the offsetting valuation allowance. In light of our improved financial performance and expectation of continued generation of taxable income in future periods such that we now believe it is more likely than not that we will utilize the majority of our net DTA in future periods, we reversed in the quarter ended December 31, 2025 the majority of the valuation allowance we had previously recorded against our DTA. The small remaining valuation allowance relates primarily to DTAs for state taxes in states in which we no longer generate substantial revenues, such that we expect those state DTAs may expire before we are able to utilize them. Our current year income tax benefit of $7.6 million is comprised of a $7.9 million increase in the net recorded deferred tax asset driven by the release of the valuation allowance, partially offset by $0.3 million of income tax expense related to the current period operations. The tax expense related to current period operations is well below the federal 21% rate that might otherwise be expected primarily due to the immediate deduction allowed for much of the fixed asset additions in the current period as allowed under the “One Big Beautiful Bill Act” enacted in 2025.
Current report
As discussed above, we moved to a new facility in 2025 and invested approximately $40 million in capital expenditures to build out that facility, $32.7 million of which was added in 2025. We financed those investments with cash on hand and two related loans from Susser Bank, totaling $25 million. Of that total, $8.7 million was drawn down in 2024, with the remaining $16.3 million borrowed in 2025. In the fourth quarter of 2025, the bank approved us repaying approximately $5 million of the loan balance with previously held restricted cash. Following the initial construction period during which we were required to pay only accrued interest, in July 2025, the loan converted to a fully amortizing term loan with a maturity date roughly approximating the original term of the long-term AI rack integration agreement we signed with our OEM customer in 2024 prior to extending that agreement in 2025. We anticipate receiving funds from our customer that offset the debt service for the full term of this debt and the majority of the costs to operate the new facility as most of that facility is dedicated to that activity.
Current report
Cash provided by operating activities was $34.9 million in 2025, compared to $15.3 million of cash provided by operating activities in 2024. This change in cash provided by operating activities is due in large part to the timing of large AI rack integration and procurement deals near the end of 2025 which were not completed and that resulted in a net change in deferred revenues of $10.5 million. The next largest contributor to the growth in 2025 cash flow from operations was the improved net income, net of the non-cash reversal of the valuation allowance on our deferred tax asset, and $6.8 million of tenant improvement funds received from our landlord in November 2025.
Current report
Investing activities consisted of $32.7 million in 2025 primarily for the buildout of our leased integration facility and headquarters in Georgetown, Texas.
Showing the first 40 of 43 passages. Open the source sections for the rest.
Removed paragraphs (53)
Previous report
In some cases, in the performance of procurement services, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party. However, we have no control of the goods or services before they are transferred to the customer. In these instances, we are acting as an agent in the transaction. These procurement services allow us to develop relationships with new hardware, software and professional service providers and allow us to generate higher profits on integration projects by broadening our revenue and customer base.
Previous report
With all expense lines growing at a rate slower than the growth in revenues, we leveraged the 172% growth in consolidated revenues in 2024 into a 386% increase in operating income and 7,976% growth in net income compared to 2023.
Previous report
Equipment and Material sales
Previous report
Sales taxes
Previous report
Sales (and similar) taxes that are imposed on our sales and collected from customers are excluded from revenues.
Previous report
Shipping and handling costs
Previous report
Costs for shipping and handling activities, including those activities that occur subsequent to transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. We accrue costs for shipping and handling activities that occur after control of the promised good or service has transferred to the customer.
Previous report
Remaining Performance Obligations
Previous report
Allowance for Doubtful Accounts
Previous report
Comparison of 2024 to 2023
Previous report
Unless otherwise noted, all comparisons in this section are between the twelve months ended December 31, 2024 (the “current year” or “2024”) and the twelve months ended December 31, 2023 (the “prior year” or “2023”). Based on our current structure and ways in which the business is managed and viewed at an executive level, we determined that effective in the fourth quarter of 2024, we now have three reportable segments rather than two reportable segments as historically reported. The new procurement reportable segment was previously aggregated with the remainder of the systems integration segment. The systems integration segment and procurement segments are now separated into two reportable segments, with the third reportable segment remaining Facilities Management. Prior year segment information has been recast to conform to the current year presentation.
Previous report
Total revenues in 2024 increased 172% to $148.1 million, with each major revenue stream contributing to the improvement. Procurement revenues increased by $79.0 million (205%), systems integration revenues increased by $13.8 million (157%), and facilities management revenues increased by $0.9 million (13%) from 2023.
Previous report
Depreciation expense
Previous report
Depreciation expense increased to $0.6 million in 2024 compared to $0.2 million in 2023, representing 3% of gross profit in each period. The increase relates almost exclusively to depreciating the incremental $1.7 million of capital expenditures added in the second quarter of 2024 to support the growing AI rack integration business. Our OEM customer that required the AI rack integration services reimbursed us for this cost, and that reimbursement is being amortized into income over the same three-year estimated life over which we are depreciating these additional assets.
Previous report
Operating income was $8.5 million in 2024 compared to $1.8 million in 2023. With total operating costs growing 50%, or just under half the 103% growth rate of gross profit, operating income increased by 386%, or $6.8 million due to effectively leveraging our expense structure.
Previous report
Interest expense, net
Previous report
In 2024, we recorded net interest expense of $2.2 million compared to $1.6 million in the prior year quarter. The increase in interest expense was due directly to the increase in the gross value of procurement transactions and other revenues from our primary customer in 2024 compared to the prior year. The factoring charge we incur is based on the total gross value of transactions, including the gross value of procurement deals whether we account for such deals as gross or net deals. Included in net interest expense is $562,000 of interest income earned in 2024 compared to $355,000 earned in 2023. Interest income resulted from quickly obtaining cash under the factoring program and investing surplus funds until required to pay our vendors. While the factoring program costs us interest expense, interest earned on excess funds helps offset that cost.
Previous report
Due to a history of consolidated net operating losses, we have not recorded any income tax expenses other than minimum or statutory costs, primarily the Texas Franchise Tax. As of December 31, 2024, our accumulated net operating loss carry-forward was $37 million. We anticipate that these loss carry-forwards may offset future taxable income and future tax liabilities. However, because of uncertainty regarding our ability to use these carry forwards, we have established a valuation allowance for the full amount of our net deferred tax assets. We will reconsider this in 2025 and future periods, assuming we continue to report significantly improved earnings and see positive movements on other positive and negative evidence we considered in making this assessment.
Previous report
Comparison of 2023 to 2022
Previous report
Revenue
Previous report
In 2023, we concentrated our sales efforts towards maintenance and integration services where we had traditionally earned higher margins. Historically we performed design, construction and project-management services in a concentrated number of high-value contracts for the construction of new data centers, but we transitioned our business away from this market. We also focused on providing maintenance services for modular data center applications as this market matures. We continued to focus on increasing our systems integration revenues through more consistent revenue streams that will better utilize the assets in that business, and through adding additional services such as procurement services and data center moves, to help drive volume through the facility. This includes adapting our integration services to stay abreast of emerging technologies such as immersion computing, liquid-cooled computing, and edge-based technology, so that we can help our customers succeed in these new markets.
Previous report
Our total revenue in 2023 was $54.4 million, a $23.8 million or 78% increase from our 2022 revenues of $30.6 million. The majority of this increase came from growth of $25.3 million in our procurement business and from growth of $1.6 million in our systems integration business, offset by a $3.1 million decrease in our facilities management revenues as the number of MDC deployments decreased compared to 2022.
Previous report
We had a substantial increase in the number of procurement transactions we completed in 2023 compared to 2022, including a large increase in net deals, that allowed us to increase revenues from procurement activities from $13.2 million in 2022 to $38.5 million in 2023.
Previous report
Cost of Revenue
Previous report
The cost of revenue as a percentage of revenue was 80% for the year ended December 31, 2023, compared to 71% for 2022. This increase is primarily due to the higher proportion of our total revenue that is from procurement services in 2023. Absent the procurement business, the cost of revenue as a percentage of revenue on our traditional integration and maintenance businesses was 64% in 2023 compared to 63% in 2022.
Previous report
Our procurement revenues were 71% of total revenue in 2023 compared to 43% of total revenues in 2022. We earn much lower margins from our procurement services, unless we are acting as an agent in the transaction, than we do with our traditional maintenance and integration services. As the percentage of revenues derived from procurement services increases, we would anticipate that cost of revenue as a percentage of sales will also increase, and result in lower gross profit margins.
Previous report
Gross Profit
Previous report
Our gross profit margin for 2023 was 20% compared to a gross profit margin of 29% for the year ended December 31, 2022. This decrease in gross profit margin as a percentage of revenue compared to 2022 was primarily from the higher percentage of our total revenue in 2023 that came from procurement services. As the percentage of total revenue from procurement services increases, our gross profit margin will decrease as the cost of sales is higher for this revenue than our traditional integration and facilities management revenues. Absent the impact from our procurement services, the gross profit margin on our traditional integration and facilities management revenues was 36% in 2023 compared to 37% in 2022.
Previous report
The growth in our total revenues in 2023 compared to 2022 allowed us to increase our overall gross profit by 23% or $2 million to $11 million in 2023 compared to gross profit of $9 million in 2022.
Previous report
Our ability to maintain and further improve gross profits will depend, in part, upon our ability to continue increasing sales of our higher-margin services including maintenance and integration services, improve our service margins by passing our higher operating costs on to our customers through increasing pricing, improving the operating efficiency of the integration business including utilization of our direct labor, and increasing the total revenues to a level that will allow us to increase and improve the utilization of our integration and service operations. Our gross profit margin is also likely to fluctuate based on the proportion of our total revenues that comes from our procurement activities.
Previous report
Selling, General and Administrative Expenses
Previous report
For the year ended December 31, 2023, our selling, general and administrative expenses of $8.9 million increased by $1.2 million, or 16%, compared to 2022. The increase was primarily due to higher labor costs as we made a number of strategic investments during 2023 in our sales, marketing, production and support organizations, to enable us to expand our capabilities and to position us to capitalize on future growth opportunities.
Previous report
Operating income
Previous report
Because of the higher absolute gross profits, even with the higher level of selling, general and administrative expenses, we were able to improve our operating profit by $0.8 million or 91% from 2022 and recorded an operating income of $1,750,000 in 2023 compared to operating income of $914,000 in 2022.
Previous report
Interest expense, net
Previous report
For 2023, we recorded net interest expense of $1,616,000. This compares to interest expense, net of interest income, of $931,000 for the year ended December 31, 2022. The increase in interest expense was due to both higher interest rates in 2023 compared to 2022 and to an increase in the value of transactions that were factored, which was approximately $137 million in 2023 compared to approximately $87.8 million in 2022. The increase in amounts factored was because of the higher number of procurement projects, including agent-type transactions, that we processed in 2023. This increase in interest expense attributable to factoring was partially offset in 2023 when there was no interest expense for related party debt which was extinguished in July 2022. We were also able to offset this increase with an additional $322,000 of interest income during 2023 as we managed cash flows from our procurement transactions and were able to invest surplus funds until required.
Previous report
Income tax expense
Previous report
Due to a history of consolidated net operating losses, we have not recorded any income tax expenses, other than minimum or statutory costs, primarily the Texas Franchise Tax. As of December 31, 2023, our accumulated net operating loss carry-forward was $40 million. We anticipate that these loss carry-forwards may offset future taxable income that we may achieve and future tax liabilities. However, because of uncertainty at that point regarding our ability to use these carry forwards and the potential limitations due to ownership changes, we established a valuation allowance for the full amount of our net deferred tax assets.
Previous report
Net income (loss)
Previous report
After net interest and income taxes, we recorded net income of $74,000, or $0.00 per share for the year ended December 31, 2023. This compares to a net loss of $73,000, or $(0.00) per share we recorded for the year ended December 31, 2022.
Showing the first 40 of 53 passages. Open the source sections for the rest.
Reworded paragraphs (42)
Previous wording
TSS, Inc. ("TSS”, the "Company”, "we”, "us” or "our”) provides a comprehensive suite of services for the planning, design, deployment, maintenance, refresh and take-back of end-user and enterprise systems, including the mission-critical facilities in which they are housed. We provide a single source solution for enabling technologies in data centers, operations centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services consist of technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT procurement services. Our systems integration services have recently been enhanced to include integration of Artificial Intelligence (AI) enabled data center server racks. TSS was incorporated in Delaware in December 2004. Our corporate offices and our integration facility are located in Round Rock, Texas.
Current wording
TSS, Inc. ("TSS”, the "Company”, "we”, "us” or "our”) provides a comprehensive suite of services for the integration of complex Artificial Intelligence (AI) technologies, planning, design, deployment, maintenance and refresh of end-user and enterprise systems, including the mission-critical facilities in which they are housed. We provide a single source solution for enabling technologies in data centers, operations centers, network facilities, server rooms, security operations centers, communications facilities and the infrastructure systems that are critical to their function. Our services consist of technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT procurement services. Beginning in 2024, our systems integration services have been enhanced to include integration of AI enabled data center server racks. TSS was incorporated in Delaware in December 2004.
Previous wording
We support a broad range of enterprise customers who utilize our services to deploy solutions in their own data centers, in modular data centers (MDCs), in colocation facilities or at the edge of the network. This market remains highly competitive and is subject to constant evolution as new computing technologies or applications drive continued demand for more advanced computing and storage capacity. In 2023, these enterprises shifted their investment priorities towards AI and accelerated computing infrastructure initiatives. Enterprise and data center operators are facing immense pressure to rapidly integrate and deploy the latest generative AI equipment and GPUs (Graphics Processing Units) and will need to adapt these next-generation servers and custom rack-scale architectures to quickly and successfully compete in the market. Ensuring adequate power and thermal management systems are implemented to support these new technologies while meeting increasingly stringent sustainability requirements is critical to a successful deployment. TSS exists to assist these operators in achieving these benefits over the life cycle of their IT investments.
Current wording
We deliver complex solutions to a broad range of enterprise customers who utilize our services to deploy solutions in their own data centers, in modular data centers (MDCs), in colocation facilities or at the edge of the network. This market remains highly competitive and is subject to constant evolution as new computing technologies or applications drive continued demand for more advanced computing and storage capacity. In recent years, these enterprises have shifted their investment priorities towards AI and accelerated computing infrastructure initiatives. Enterprise and data center operators are facing immense pressure to rapidly integrate and deploy the latest generative, inferencing and agentic AI equipment and GPUs (Graphics Processing Units) and will need to adapt these next-generation servers and custom rack-scale architectures to quickly and successfully compete in the market. Ensuring adequate power and thermal management systems are implemented to support these new technologies while meeting increasingly stringent sustainability requirements is critical to a successful deployment. TSS exists to assist these operators in achieving these benefits over the life cycle of their IT investments.
Previous wording
Over the last ten years we have focused our business on providing world-class integration services to our customer base. As computing technologies evolve, and as we see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our rack and systems integration business to support these new products. We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM (original equipment manufacturer) customer to win contracts and to provide business to us under a Master Relationship Agreement. The loss of or material decline in volume of business from this OEM customer would have a material effect on our results. Our operational focus is to ensure this doesn’t happen.
Current wording
Over the last ten years, we have optimized our business by providing world-class integration services to our customer base. As computing technologies evolve and as we see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our systems integration business and capabilities to support these new products. We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM (original equipment manufacturer) strategic customer to win contracts and to provide business to us under a Master Relationship Agreement. A material decline in volume from, or loss of this OEM customer would have a material effect on our results. Our operational focus is to ensure this does not occur.
Previous wording
Most of the components used in our systems integration business are consigned to us by our largest OEM customer or its end-user customers. Thus, our revenues reflect only the services we perform, and the consigned components are not reflected in our income statement or on our balance sheet. We also offer our customers procurement services whereby we procure third-party hardware, software and services on their behalf. Our configuration and integration service businesses often integrate these components to deliver a complete system to our customers.
Current wording
Most of the components used in our systems integration business are consigned to us by our largest OEM customer or its end-user customers. Thus, our revenues reflect only the services we provide, and the consigned components are not reflected in our statement of operations or on our balance sheet. We also offer procurement services whereby we procure third-party hardware, software and services on their behalf. Our configuration and integration services businesses often integrate these components to deliver a complete system to our customers.
Previous wording
In October 2024, we signed a multi-year agreement with our largest customer to provide systems integration services for AI-enabled computer racks at an expected minimum monthly volume. To support this level of production, and to be able to provide increased volumes over our existing facility, we are moving our headquarters and production facility to a new location in early 2025 and anticipate capital expenditures of approximately $25 million to $30 million for improvements to that facility, primarily to significantly increase the available electrical power and related cooling capabilities for both air-cooled and direct liquid cooled (“DLC”) computer racks. We are financially responsible for all fixed and variable costs related to this activity, including debt service requirements related to the planned capital expenditures, direct and indirect labor related to this activity, and all facility and related costs for the portion of our facility allocated to this activity. While there may be some variability in the number of racks built in any given period, we believe the structure of the agreement with our customer provides reasonable assurance to us that absent our material breach of the agreement or our termination of the agreement, the revenues we earn from this arrangement will consistently be sufficient to cover the aforementioned costs we expect to incur in fulfilling our obligations. Our customer could terminate the agreement if we were to materially breach the agreement, leaving us with the financial obligations of the lease and debt service regardless of whether we had revenues sufficient to cover those costs. Likewise, if we were to terminate the agreement other than due to the other party’s material breach of the agreement, the other party would be relieved of any further obligation. Funding sources for the build-out costs at the new facility include approximately $6.8 million contributed by our landlord, $20 million from a construction loan from Susser Bank, and cash on hand for the remainder of the costs. The construction loan is expandable up to $25 million with bank approval.
Current wording
In October 2024, we signed a long-term agreement with our largest customer to provide systems integration services for AI-enabled computer racks at an expected minimum monthly volume. To support this level of production, and to be able to provide increased volumes over our prior facility, we moved our headquarters and production facility to a new location in May 2025. Through December 31, 2025, we have invested approximately $40 million in improvements to that leased facility, primarily to significantly increase the available electrical power and related cooling capabilities for both air-cooled and direct liquid cooled computer racks. This is greater than the $20 million - $25 million we initially expected to invest in the facility, primarily in response to requests from our primary customer to increase the available power and cooling capabilities beyond the initial scope. We are financially responsible for all fixed and variable costs related to this activity, including debt service requirements related to the capital expenditures, direct and indirect labor related to this activity, and all facility and related costs. In December 2025, we signed an amendment to the long-term agreement whereby both parties agreed to extend the term of the agreement for an additional two years beyond its original multi-year term, with automatic one-year renewals if not earlier terminated, and to provide pricing updates to account for increased power consumption and capital expenditures. While there may be some variability in the number of racks built in any given period, we believe the structure of the agreement with our customer provides reasonable assurance to us that absent our material breach of the agreement or our termination of the agreement, the revenues we earn from this arrangement will be sufficient to cover the aforementioned costs we expect to incur in fulfilling our obligations. Our customer could terminate the agreement if we were to materially breach the agreement, leaving us with the financial obligations of the lease and debt service regardless of whether we had revenues sufficient to cover those costs. Likewise, if we were to terminate the agreement other than due to the other party’s material breach of the agreement, the other party would be relieved of any further obligation. Funding sources for the build-out costs at the new facility include approximately $6.8 million contributed by our landlord, $25 million from two related bank term loans, and cash on hand. We borrowed the final $5 million under the term loan in the third quarter of 2025 and we received the $6.8 million of tenant improvement funds from our landlord in the fourth quarter of 2025. Those funds reimbursed us for capital expenditures we had previously funded using cash on hand. We paid down $5 million of our outstanding debt using previously restricted cash which was released in December 2025 pursuant to our debt agreement.
Previous wording
The volume of transactions we engaged in with our strategic procurement services grew substantially in 2023 and again in 2024. Customers value our ability to source disparate hardware, software and services and provide a single-source solution for their IT needs. In some cases, we merely act as agents in these transactions, and so the reported revenues will reflect only our fees earned in the transaction (“net deals”). If the procurement activities include integration services or other value-add work beyond just the procurement activity, the transactions is recorded at its gross value (“gross deals”), and revenue and costs are allocated to the procurement and systems integration segments based on the value created in each and the effort involved to fulfill the contracts. Overall, we were able to increase our recorded revenues from procurement transactions, representing only the revenues allocated to the procurement segment, by $79.0 million or 205%, compared to 2023. The aggregate gross value of all procurement transactions, regardless of whether they were recorded as gross deals or net deals increased from $123.2 million in 2023 to $169.1 million in 2024. Integration work related to these procurement activities is recorded separately in the systems integration segment.
Current wording
The volume of our strategic procurement services grew substantially in the year ended December 31, 2025 compared to the prior year. Customers value our ability to source disparate hardware, software and services and provide a single-source solution for their IT needs. In some cases, we merely act as agents in these transactions, and so the reported revenues will reflect only our fees earned in the transaction (“net deals”). If the procurement activities include integration services or other value-add work beyond just the procurement activity, the transaction is recorded at its gross value (“gross deals”), and revenue and costs are allocated to the procurement and systems integration segments based on the value created in each and the effort involved to fulfill the contracts.
Previous wording
Our total revenues in 2024 were $148.1 million, a $93.7 million or 172% increase from our 2023 revenues of $54.4 million. Improvement was seen in all three of our major revenue streams, with the majority of this increase coming from $79.0 million (205%) growth in our procurement business and $13.8 million (157%) growth in our systems integration businesses. The systems integration business growth was driven primarily by the significant increase in rack integration of AI-enabled computer racks. Our efforts in this were rewarded by winning a multi-year agreement with our largest OEM customer to continue AI rack integration for them at an expected minimum weekly volume. We also saw a 13% growth in revenues from the facilities management segment, from $7.1 million to $8.0 million in 2024.
Current wording
Our total revenues in 2025 were $245.7 million, a $97.6 million or 66% increase from our 2024 revenues of $148.1 million, with the majority of this increase coming from $80.0 million (68%) growth in our procurement business and $17.7 million (78%) growth in our systems integration businesses. The systems integration business growth was driven primarily by the significant increase in rack integration of AI-enabled computer racks. These increases were partially offset by a $0.1 million (1%) decrease in revenue from the facilities management segment, primarily due to a decrease in maintenance revenues largely offset by an increase in discrete projects.
Previous wording
Our gross profits increased by $11.4 million or 103% compared to 2023, mainly due to the higher volumes of activity in our procurement and systems integration businesses, including our AI rack integration activity. In addition to earning revenue for completing AI rack integrations, our multi-year agreement includes weekly volume commitments as well as certain fixed fees, which we believe will be sufficient to cover our fixed and variable costs incurred in fulfilling our obligations under the agreement. Specifically, we believe the fees received under this agreement will be sufficient to cover all of our direct labor, labor training, power consumption and other variable costs, as well as indirect labor, rent and related facility costs for the portion of our factory allocated to this activity, debt service for the assets added to support this business, and other smaller fixed costs that we will incur to perform our obligations under this agreement. If we experience periodic lulls in demand or if our customer has extended periods of inability to secure parts, we have agreed to seek opportunities to scale back a portion of our direct labor and temporary employees used in this activity, primarily in positions that can be refilled and retrained fairly quickly as demand or supply chain issues are resolved, and to in turn reduce the variable fees charged to our customer under this agreement. We believe this structure demonstrates our desire to help control the customer’s costs while protecting our financial results by reducing our fee to them only if our own internal labor costs also are reduced. Our gross profit margin as a percentage of sales decreased to 15% in 2024 from 20% in 2023. The primary cause of the decrease in gross profit margin percentage was the increase in volume of our procurement business as a proportion of our total revenue, where we generally earn much lower margins on product purchase/resell services than we do with our traditional maintenance and integration services. As more fully discussed below, we saw improvements in the margins for both the facilities management line of business and the systems integration businesses, and when viewed on a gross value basis, also improved our margins in the procurement business. The driver of the decrease in the overall blended margin was the fact that a greater portion of our procurement activity in 2024 was “gross deals” whereas the majority of the 2023 procurement activity was from “net deals.”
Current wording
Our gross profits increased by $10.0 million or 45% compared to 2024, mainly due to the higher volumes of activity in our procurement and systems integration businesses, including our AI rack integration activity, combined with margin expansion on our procurement activities. In addition to earning revenue for completing AI rack integrations, our long-term agreement includes weekly volume commitments as well as certain fixed fees for multiple years, which we believe will be sufficient to cover our fixed and variable costs incurred in fulfilling our obligations under the agreement. Specifically, we believe the fees received under this agreement, and subsequent amendment, will be sufficient to cover all of our direct labor, labor training, power consumption and other variable costs, as well as indirect labor, rent and related facility costs for the portion of our factory allocated to this activity, debt service for the assets added to support this business, and other smaller fixed costs that we will incur to perform our obligations under this agreement. If we experience periodic lulls in demand or if our customer has extended periods of inability to secure parts, we have agreed to seek opportunities to scale back a portion of our direct labor and temporary employees used in this activity, primarily in positions that can be refilled and retrained fairly quickly as demand or supply chain issues are resolved, and to in turn reduce the variable fees charged to our customer under this agreement. We believe this structure demonstrates our desire to help control the customer’s costs while protecting our financial results by reducing our fee to them only if our own internal labor costs also are reduced. Our blended gross profit margin as a percentage of sales decreased to 13% in 2025 from 15% in 2024. The primary cause of the decrease in blended gross profit margin percentage was the increase in volume of our procurement business as a proportion of our total revenue, where we generally earn much lower margins on product purchase/resell services than we do with our traditional maintenance and integration services. While gross profits in the systems integration business grew by 30%, the margins realized in that line of business decreased from 42% in 2024 to 31% in 2025. Margins in the facilities management segment remained robust and relatively constant at 60% in 2025 compared to 62% in 2024.
Previous wording
We ended 2024 with $23.2 million of cash on hand, an increase of $11.4 million from the balance at the end of 2023. This increase was driven by the $6.0 million net income during 2024 and timing differences stemming from the procurement business increasing near year-end, due to us being paid more quickly than we must pay our vendors. These inflows were somewhat offset by $4.5 million of cash used to repurchase shares from employees as a means for them to satisfy tax withholding requirements or pay the exercise price upon the vesting of restricted stock and exercise of stock options. The taxes due on such activities increased significantly in 2024 in direct relation to the increase in our prevailing stock price.
Current wording
We ended 2025 with $85.5 million of cash on hand, an increase of $62.3 million from the balance at the end of 2024. This increase was driven by the $34.9 million of cash flow from operations during 2025, $9.8 million of net financing obtained from debt proceeds less payments made during the year, and $55.3 million from our public offering of common stock completed in August 2025. The increase in cash flow from operations was tied to the $15.1 million of net income, combined with timing differences on receipts from customers net of payments to vendors specifically in relation to an elevated level of procurement activity ongoing at year-end. These inflows were somewhat offset by $32.7 million cash used in investing related primarily to the build-out of our new integration facility, and $4.9 million of cash used to repurchase shares from employees as a means for them to satisfy tax withholding requirements or pay the exercise price upon the vesting of restricted stock and exercise of stock options.
Previous wording
We generate maintenance services revenues from fees that provide our customers with as-needed maintenance and repair services on modular data centers during the contract term. Our contract terms typically are one year in duration, are billed annually in advance, and are non-cancellable. As a result, we record deferred revenue (a contract liability) and recognize revenue from these services on a ratable basis over the contract term. We can mitigate our exposure to credit losses by discontinuing services in the event of non-payment. However, our history of non-payments and bad debt expenses has been insignificant.
Current wording
We generate maintenance services revenues from fees that provide our customers with as-needed maintenance and repair services on MDCs during the contract term. Our contract terms typically are one year in duration, are billed annually in advance, and are non-cancellable. As a result, we record deferred revenue (a contract liability) and recognize revenue from these services ratably over the contract term. We can mitigate our exposure to credit losses by discontinuing services in the event of non-payment. However, our history of non-payments and bad debt expenses has been insignificant.
Previous wording
In 2024, we signed a multi-year agreement to maintain a facility and trained staffing levels to integrate AI-enabled racks for a key customer. In addition to the fixed monthly fees to which we are entitled under that agreement, we also receive payments that scale depending on the volume of AI racks integrated and for which we are prepared to integrate. To mitigate the impact of demand fluctuations and supply-chain issues on our growing AI-enabled rack integration business that are largely out of our control, our customer has committed to pay us for maintaining staffing levels to support an agreed minimum weekly quantity of racks. To the extent we cannot meet the minimum weekly volume due to our inefficiency, such as production down time or labor shortages compared to agreed-upon levels, we will reduce the fee and bill only for the quantity of racks that we actually configured or could have configured, given the actual staffing levels. We contractually agreed to use commercially reasonable efforts to mitigate our customer’s costs for under-utilized staff, including during periods of extended lulls in demand or supply chain issues experienced by our customer. Under this agreement, we recognize revenue monthly for maintaining the facility and trained staffing levels to support the weekly quantity of racks our customer has contractually requested we be ready to integrate, with the staffing fees reduced for any intentional or unintentional under-staffing. The fee for staffing is not variable consideration because the customer’s usage is known weekly and is not contingent on the occurrence of any future events or subject to any estimation.
Current wording
Pursuant to a long-term agreement signed in 2024 and subsequent amendment signed in December 2025 and effective November 1, 2025, we also recognize revenue monthly at contractually based amounts for certain billable fixed and facility costs and trained staffing levels to support the weekly quantity of AI-enabled racks, with staffing fees reduced for any under-staffing. The fee for staffing is based on defined services as transferred to the customer and is not variable consideration because the customer’s usage is known weekly and is not contingent on the occurrence of any future events or subject to any estimation.
Previous wording
We typically extend credit terms to our integration customers based on their creditworthiness and generally do not receive advance payments. As such, we record accounts receivable at the time of shipment, when our right to the consideration becomes unconditional. Accounts receivable from our integration customers are typically due within 30-105 days of invoicing. An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness. As of December 31, 2024, and 2023, our allowance for doubtful accounts was $7,000.
Current wording
We typically extend credit terms to our integration customers based on their creditworthiness and generally do not receive advance payments. As such, we record accounts receivable at the time of shipment, when our right to consideration becomes unconditional. Accounts receivable from our integration customers are typically due within 30-80 days of invoicing. An allowance for credit losses is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ credit worthiness. As of December 31, 2025, we had no allowance for credit losses, compared to $7,000 recorded as of December 31, 2024. In 2025, we were successful in collecting the $7,000 that was reserved in 2024, resulting in the removal of that reserve.
Previous wording
We generate revenues from fees we charge our customers for other services, including repairs or other services not covered under maintenance contracts; installation and servicing of equipment, including modular data centers; and other fixed-price services including repair, design and project management services, or the moving of equipment to a different location. In some cases, we arrange for a third party to perform warranty and servicing of equipment, and in these instances, we recognize revenue as the amount of any fees or commissions that we expect to be entitled to. Other services are typically invoiced upon completion of services or completion of milestones. We record accounts receivable at the time of completion when our right to consideration becomes unconditional.
Current wording
We generate revenues from fees we charge our customers for other services, including repairs or other services not covered under maintenance contracts; installation and servicing of equipment, including MDCs; and other fixed-price services including repair, design and project management services. In some cases, we arrange for a third party to perform “break-fix” and servicing of equipment upon customer request, and in these instances, we recognize revenue as the amount of any fees or commissions to which we expect to be entitled. Other services are typically invoiced upon completion of services or completion of milestones. We record accounts receivable at the time of completion when our right to consideration becomes unconditional. In an effort to further diversify our revenue streams, we offered the service of project-managing the movement of data center equipment in portions of 2024 and 2025. During 2025, we ceased offering this service as it proved to not meet our profit expectations.
Previous wording
We generate revenues from fees we charge our customers to procure third-party hardware, software and professional services on their behalf, some of which are then used in our integration services as we integrate these components to deliver a completed system to our customer. We recognize our procurement services revenues upon completion of the procurement activity. For any procurement activities in which we somehow transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of sales for any costs we incur to procure the related goods (“gross deals”). In some cases, we arrange for the purchase of third-party hardware, software or professional services that are to be provided directly to our customers by another party and we have no control of the goods before they are transferred to the customer and do not transform the product in any way. In these instances, we are acting as an agent in the transaction and recognize revenue on a net basis, recording only the amount of any fee or commissions that we expect to be entitled to after paying the other party for the goods or services provided to the customer (“net deals”). Accounts receivable from our procurement activities are typically due within 80 days of invoicing. The majority of the procurement activities generally involve us transforming the product, and as such the majority of these transactions are recorded as gross deals. In order to accelerate the time period in which we receive payment, we generally factor the procurement services receivables utilizing a program that we estimate has an effective annualized interest rate below the rate at which we could borrow funds. Regardless of whether the transaction is recorded as a gross transaction or a net transaction, the interest we are charged through the factoring program is based on the gross value of the transaction.
Current wording
We generate revenues from fees we charge our customers to procure third-party hardware, software and professional services on their behalf, some of which are then used in our integration services as we integrate these components to deliver a completed system to our customer. We recognize our procurement services revenues upon completion of the procurement activity or delivery of the completed product depending on the performance obligation. For any procurement activities in which we transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of revenues for any costs we incur to procure the related goods (“gross deals”). In some cases, we arrange for the purchase of third-party hardware, software or professional services that are to be provided directly to our customers by another party, we have no control of the goods before they are transferred to the customer, and we do not transform the product in any way. In these instances, we are acting as an agent in the transaction and recognize revenue on a net basis, recording only the amount of any fee or commissions to which we expect to be entitled after paying the other party for the goods or services provided to the customer (“net deals”). Accounts receivable from our procurement activities are typically due within 80 days of invoicing. The majority of the procurement activities generally involve us transforming the product, and as such most of these transactions are recorded gross. To accelerate the time in which we receive payment and optimize our working capital, we generally factor the procurement services receivables utilizing a program that we estimate has an effective annualized interest rate below the rate at which we could borrow funds. Regardless of whether the transaction is recorded as a gross deal or a net deal, the factoring fees we are charged are based on the gross value of each transaction.
Previous wording
Remaining performance obligations include deferred revenue and amounts we expect to receive for goods and services that have not yet been delivered or provided under existing, non-cancellable contracts. For contracts that have an original duration of one year or less, we have elected the practical expedient applicable to such contracts and we do not disclose the transaction price for remaining performance obligations at the end of each reporting period and when we expect to recognize this revenue. As of December 31, 2024, deferred revenue of $3,384,000 includes $1,476,000 of our remaining performance obligations for our maintenance contracts, all of which are expected to be recognized within one year, and $1,908,000 relates to procurement and integration services where we have yet to complete our services for our customers. Of the $1,908,000 deferred revenues related to procurement and integration services, $1,137,000 is expected to be recognized within one year, and $771,000 is expected to be recognized beyond one year. Contract liabilities, consisting of deferred revenues were $3,370,000 on December 31, 2023, and $2,080,000 on December 31, 2022.
Current wording
Remaining performance obligations include deferred revenue and amounts we expect to receive for goods and services that have not yet been delivered or provided under existing, non-cancellable contracts. For contracts that have an original duration of one year or less, we have elected the practical expedient applicable to such contracts and we do not disclose the transaction price for remaining performance obligations at the end of each reporting period and when we expect to recognize this revenue. As of December 31, 2025, total remaining performance obligations and deferred revenue, were $129 million. The remaining performance obligations include:
Previous wording
We recorded goodwill and intangibles with definite lives, including customer relationships and acquired software, in conjunction with the acquisition of various businesses. Intangible assets with finite lives are amortized based on their estimated economic lives. Goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and it is not amortized. The recorded goodwill is allocated to the reporting unit to which the underlying transaction relates.
Current wording
We recorded goodwill and intangible assets with definite lives, including customer relationships and acquired software, in conjunction with the acquisition of various businesses. Intangible assets with definite lives are amortized based on their estimated economic lives. Goodwill represents the excess of the purchase price over the fair value of net identified tangible and intangible assets acquired and liabilities assumed, and it is not amortized. The recorded goodwill is allocated to the reporting unit to which the underlying transaction relates.
Previous wording
We perform an impairment test of goodwill annually as of December 31, or whenever events or circumstances make it more likely than not that impairment of goodwill may have occurred. As part of the annual impairment test, we review for indicators of impairment as “Step Zero” of the annual impairment test as defined by U.S. GAAP and if any exist, we compare the fair value of the reporting unit with its carrying amount. If that fair value exceeds the carrying amount, no impairment charge is required to be recorded. If the carrying value exceeds the reporting unit’s fair value, we would recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. If necessary, the fair value of a reporting unit will be determined using a discounted cash flow, which requires the use of estimates and assumptions. Significant assumptions that may be required include forecasted operating results, and the determination of an appropriate discount rate. Actual results may differ from forecasted results, which may have a material impact on the conclusions reached.
Current wording
U. S. GAAP requires us to perform an impairment test of goodwill on an annual basis or whenever events or circumstances make it more likely than not that impairment of goodwill may have occurred. As part of the annual impairment test, we review for indicators of impairment as “Step Zero” of the annual impairment test and if any exist, we compare the fair value of the reporting unit with its carrying amount. If that fair value exceeds the carrying amount, no impairment charge is required to be recorded. If the carrying value exceeds the reporting unit’s fair value, we would recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. If necessary, the fair value of a reporting unit will be determined using a discounted cash flow analysis, which requires the use of estimates and assumptions. Significant assumptions that may be required include forecasted operating results, and the determination of an appropriate discount rate. Actual results may differ from forecasted results, which may have a material impact on the conclusions reached.
Previous wording
We have elected to use December 31 as our annual assessment date. As circumstances change that could affect the recoverability of the carrying amount of the assets during an interim period, we will evaluate our indefinite lived intangible assets for impairment. The Company performed a quantitative analysis of our indefinite lived intangible assets on December 31, 2024, and 2023 and concluded there was no impairment. The valuation results indicated that the fair value of our reporting units was greater than the carrying value, including goodwill, for each of our reporting units. Thus, we concluded that there was no impairment on December 31, 2024, or 2023 for our goodwill and other long-lived intangible assets. On December 31, 2024, and 2023, the carrying value of goodwill was $0.8 million.
Current wording
We have elected to use December 31 as our annual assessment date. As circumstances change that could affect the recoverability of the carrying amount of goodwill during an interim period, we will evaluate our goodwill for impairment. The Company performed a qualitative analysis of our goodwill on December 31, 2025, and 2024 and concluded there was no impairment. The valuation results indicated that the fair value of our reporting units was greater than the carrying value for each of our reporting units. Thus, we concluded that there was no goodwill impairment on December 31, 2025, or 2024. On December 31, 2025, and 2024, the carrying value of goodwill was $0.8 million.
Previous wording
We also review intangible assets with definite lives for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, a loss is recognized for the difference between the fair value and carrying value of the intangible asset.
Current wording
In any period with a reported value of intangible assets with definite lives, our policy is to review those intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, a loss is recognized for the difference between the fair value and carrying value of the intangible asset. Our recorded intangible assets with definite lives were fully amortized at December 31, 2025 and 2024; accordingly, no such impairment review was necessary during 2024 or 2025.
Previous wording
We estimate an allowance for doubtful accounts based on factors related to the specific credit risk of each customer. Historically our credit losses have been minimal. We perform credit evaluations of new customers and may require prepayments or use of bank instruments such as trade letters of credit to mitigate credit risk. We monitor outstanding amounts to limit our credit exposure to individual accounts. We continue to pursue collection even if we have fully provided for an account balance.
Current wording
We estimate an allowance for credit losses based on factors related to the specific credit risk of each customer. Historically our credit losses have been minimal. We perform credit evaluations of new customers and may require prepayments or use of bank instruments such as trade letters of credit to mitigate credit risk. We monitor outstanding amounts to limit our credit exposure to individual accounts. We continue to pursue collection even if we have fully provided for an account balance.
Previous wording
We account for stock-based compensation using a fair-value based recognition method. Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized ratably over the requisite service period of the award. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop our estimates based on historical data and market information that can change significantly over time. A small change in estimates can have a relatively large change in the estimated valuation.
Current wording
We account for stock-based compensation using a fair-value based recognition method. Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized ratably over the requisite service period of the award. For grants with performance requirements, expense recognition begins only once the achievement of the performance criteria is deemed probable. Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the grant date requires considerable judgment, including estimating stock price volatility, expected option life and forfeiture rates. We develop our estimates based on historical data and market information that can change significantly over time. A small change in estimates can have a relatively large change in the estimated valuation.
Previous wording
Revenues consist of fees earned from the planning, design and project management for mission-critical facilities and information infrastructures, as well as fees earned from providing maintenance services for these facilities. We also earn revenues from providing system configuration and integration services, as well as procurement services, to IT equipment vendors. In the quarter ended June 30, 2024, we invested approximately $1.7 million in our Round Rock facility to expand our capacity to integrate generative AI-enabled server racks, including both air cooled and direct-liquid cooled systems. We received a reimbursement from one of our customers for the majority of those investments and are amortizing that reimbursement into service integration revenues over the expected useful life of three years. We began integration services on AI racks in June 2024 and have continued that activity to date. Currently we derive substantially all our revenue from the U.S. market, with an immaterial amount derived from Canada in service of a U.S. based customer.
Current wording
Revenues consist of fees earned from the planning, design and project management for mission-critical facilities and information infrastructures, as well as fees earned from providing maintenance services for these facilities. We also earn revenues from providing system configuration and integration services, as well as procurement services, to IT equipment vendors. We began integration services on AI racks in June 2024 and have continued that activity to date. Currently we derive substantially all our revenue from the U.S. market.
Previous wording
We contract with our customers under five primary contract types: fixed-price service and maintenance contracts, time and material contracts, cost-plus-fee, guaranteed maximum price and fixed-price contracts. Cost-plus-fee and guaranteed maximum price contracts are typically lower risk arrangements and thus yield lower profit margins than time-and-materials and fixed-price arrangements which generally generate higher profit margins, relative to their higher risk. Certain of our service and maintenance contracts provide comprehensive coverage of all the customers’ equipment (excluding IT equipment) at a facility during the contract period. Where customer requirements are clear, we prefer to enter comprehensive fixed-price arrangements or time-and-materials arrangements rather than cost-plus-fee and guaranteed maximum price contracts.
Current wording
We contract with our customers with various contract types: service and maintenance, time and material, and guaranteed maximum price contracts, all of which are fixed-price exclusive of time and material contracts. Guaranteed maximum price contracts are typically lower risk arrangements and thus yield lower profit margins than time-and-materials arrangements which generally generate higher profit margins, relative to their higher risk. Certain of our service and maintenance contracts provide comprehensive coverage of all the customers’ equipment (excluding IT equipment) at a facility during the contract period.
Previous wording
Most of our revenue is generated based on services provided either by our employees or subcontractors. To a lesser degree, the revenue we earn includes reimbursable travel and other costs to support the project. Since we earn higher profits from the labor services that our employees provide compared with use of subcontracted labor and other reimbursable costs, we seek to optimize our labor content on the contracts we are awarded to maximize our profitability. Occasionally, our revenues will reflect certain reimbursements received from customers for expanding our capacity, typically through capital expenditures, or for adding headcount to support specific customer requests.
Current wording
Most of our revenue is generated based on services provided either by our employees or subcontractors. To a lesser degree, the revenue we earn includes reimbursable travel and other costs to support the project. Since we earn higher profits from the labor services that our employees provide compared with use of subcontracted labor and other reimbursable costs, we seek to optimize our labor content on the contracts we are awarded to maximize our profitability. Occasionally, our revenues will reflect certain reimbursements received from customers for expanding our capacity, typically through capital expenditures, or for adding headcount to support specific customer requests. In 2024, we invested approximately $1.7 million in our Round Rock facility to expand our capacity to integrate generative AI-enabled server racks, including both air-cooled and direct-liquid cooled systems. One of our customers reimbursed us for the majority of those investments. Prior to December 2025, we were amortizing that reimbursement into service integration revenues over the expected useful life of three years; the same period over which we were depreciating the related fixed assets. As the production of AI racks has now fully moved to our Georgetown facility and we no longer expect to utilize the assets installed in our Round Rock facility, we accelerated the revenue recognition and depreciation of those assets in the fourth quarter of 2025. The acceleration of recognition of the reimbursement amounted to approximately $0.8 million which is included in the 2025 systems integration revenues; the acceleration of depreciation of these assets amounted to $0.7 million, and is reported on the face of our income statement as “loss on sale or disposal of assets.” Our Round Rock facility is currently idle, as we seek additional business to utilize the space or to sublease the space if not used in our operations.
Previous wording
Our maintenance and integration services traditionally earn higher margins and maintenance contracts typically renew annually, providing consistency and predictability of revenues. In past years, we performed design and project-management services in a concentrated number of high-value contracts for the construction of new data centers. In addition to contributing to large quarterly fluctuations in revenue depending upon project timing, these projects required higher levels of working capital and generated lower margins than our maintenance and integration services. We re-focused our design and project management services towards smaller scaled jobs typically connected with addition/move/retrofit activities rather than new construction, to obtain better margins and a more predictable pattern of earnings. We have also focused on providing maintenance services for modular data center applications as this market has expanded. We continue to focus on increasing our systems integration revenues through more consistent revenue streams that will better utilize our assets in that business, and through adding revenue streams such as procurement services to help drive volume through the integration facility. The expansion into AI-enabled rack integration services which began in June 2024 bolstered both our revenues and our earnings, helping move the systems integration segment from a $1.0 million segment pre-tax loss in the year ended December 31, 2023 to a $5.0 million segment contribution to pre-tax income in 2024. These amounts exclude certain corporate expenses, such as selling, general and administrative costs as well as facility costs and interest income that are not allocated to segments.
Current wording
Our maintenance and integration services traditionally earn higher margins and maintenance contracts typically renew annually, providing consistency and predictability of revenues. We focus our design and project management services on smaller jobs typically connected with addition or retrofit activities to obtain better margins and a more predictable pattern of earnings than are typically seen when such efforts are concentrated in fewer high-value contracts for the construction of new data centers, which would otherwise require greater levels of working capital and tend to yield lower margins. We have also focused on providing maintenance services for MDC applications as this market has expanded. We continue to focus on increasing our systems integration revenues through more consistent revenue streams that will better utilize our assets in that business, and through adding revenue streams such as procurement services to help drive volume through the integration facility.
Previous wording
The $13.8 million (157%) increase in systems integration revenues was due primarily to the growth in integration of AI-enabled computer racks, which began with significant volume in June 2024 and continued at similar volumes throughout the remainder of 2024. With the October signing of a multi-year agreement to continue integrating AI-enabled racks at similar volumes, we expect systems integration revenues to remain significantly above the historical trend for several years. This agreement calls for certain minimum monthly payments to us, which we believe will be sufficient to cover the majority of the costs for the facility and debt service payments tied to the build-out of that factory for which we are responsible. While those payments are required under the terms of this agreement, our customer could terminate the agreement if we were to materially breach the agreement, leaving us with the financial obligations of the facility and debt service regardless of whether we had revenues sufficient to cover those costs. Likewise, if we were to terminate the agreement other than due to our customer’s material breach of the agreement, they would be relieved of any further obligation. If the customer were to terminate the agreement for convenience, they would continue to be obligated to pay us for the monthly fixed charge, but would no longer have any minimum volume commitments, as discussed below.
Current wording
The $17.7 million (78%) increase in systems integration revenues was due primarily to the growth in integration of AI-enabled computer racks, which began with significant volume in June 2024 and continued at similar volumes throughout the remainder of 2025. In December 2025, we amended the long-term agreement signed in 2024, to continue integrating AI-enabled racks at similar volumes, and expect systems integration revenues to remain significantly above the historical trend, or consistent with the past year for the foreseeable future. This agreement calls for certain minimum monthly payments to us, which we believe will be sufficient to cover the majority of the costs for the facility and debt service payments tied to the build-out of that factory for which we are responsible. While those payments are required under the terms of this agreement, our customer could terminate the agreement if we were to materially breach the agreement, leaving us with the financial obligations of the facility and debt service regardless of whether we had revenues sufficient to cover those costs. Likewise, if we were to terminate the agreement other than due to our customer’s material breach of the agreement, they would be relieved of any further obligation. If the customer were to terminate the agreement for convenience, they would continue to be obligated to pay us for the monthly fixed charge, but would no longer have any minimum volume commitments, as discussed below.
Previous wording
In addition to the fixed monthly fees to which we are entitled under that agreement, we also receive payments that scale depending on the volume of AI racks integrated and for which we are prepared to integrate. To mitigate the impact of demand fluctuations and supply-chain issues on our growing AI-enabled rack integration business, our primary customer has committed to pay us for maintaining staffing levels to support an agreed minimum weekly quantity of racks. To the extent we do not meet the minimum weekly volume due to our production down time or labor shortages in compared to agreed-upon levels, we will reduce the fee, billing only for the quantity of racks we actually configured or could have configured given the actual staffing levels. We contractually agreed to use commercially reasonable efforts to mitigate our customer’s costs for under-utilized staff, including during periods of extended lulls in demand or supply chain issues experienced by our customer. While any reduction in available staff reduces the revenues to which we are entitled under this agreement, we believe our long-term partnership with our customer is strengthened as we help them mitigate a portion of the costs for which they are responsible. The periodic reduction of revenues has a muted impact on our overall results, as we also reduce our labor costs in line with the reduced revenues.
Current wording
In addition to the fixed monthly fees to which we are entitled under that agreement, and subsequent amendment, we also receive payments that scale depending on the volume of AI racks integrated and for which we are prepared to integrate. To mitigate the impact of demand fluctuations and supply-chain issues on our growing AI-enabled rack integration business, our primary customer has committed to pay us for maintaining staffing levels to support an agreed minimum weekly quantity of racks. To the extent we do not meet the minimum weekly volume due to our production down time or labor shortages compared to agreed-upon levels, we will reduce the fee, billing only for the quantity of racks we actually configured or could have configured given the actual staffing levels. We contractually agreed to use commercially reasonable efforts to mitigate our customer’s costs for under-utilized staff, including during periods of extended lulls in demand or supply chain issues experienced by our customer. While any reduction in available staff reduces the revenues to which we are entitled under this agreement, we believe our long-term partnership with our customer is strengthened as we help them mitigate a portion of the costs for which they are responsible. The periodic reduction of revenues has a muted impact on our overall results, as we also reduce our labor costs in line with the reduced revenues.
Previous wording
The increase in procurement revenues, which was unusually large this year, was driven primarily by an increase in purchases from the federal government including several individually large sales, combined with a mix shift with a greater proportion of the revenues coming from gross deals, as opposed to net deals. As much of our procurement business is ultimately related to federal government buying, we believe this can contribute to some seasonality of these revenues. As the federal government budget ends on September 30 each year, we believe this may generally lead to an increase in procurement revenues in the quarter ending September 30 each year and again in the quarter ending December 31 as federal agencies receive their budgets for the new year. However, we cannot accurately predict when other large procurement activity will occur, such as large purchases from our customers’ enterprise clients.
Current wording
The 68% increase in procurement revenues, from $117.5 million in 2024 to $197.5 million in 2025, was driven primarily by an increase in purchases from the federal government including several individually large sales, combined with a mix shift with a greater proportion of the revenues coming from gross deals, as opposed to net deals. As much of our procurement business is ultimately related to federal government buying, we believe this can contribute to some seasonality of these revenues. As the federal government budget ends on September 30 each year, we believe this may generally lead to an increase in procurement revenues in the quarter ending September 30 each year and again in the quarter ending December 31 as federal agencies receive their budgets for the new year. However, we cannot accurately predict when other large procurement activity will occur, such as large purchases from our customers’ enterprise clients. Periodic government shutdowns also impact procurement activity. While the military continues to operate during periods of government shutdown, the placement of purchase orders often requires approval by civilian employees of the federal government who do not continue to work during shutdowns. We do not believe this causes a material loss of sales, but rather decreases our ability to predict when such revenues might be realized.
Previous wording
Due to the lighter effort required to execute procurement transactions, the gross margins are thinner in that line of business. As a result, increases and decreases in that business have a smaller impact on our overall margins and profitability compared to increases in the facilities management or systems integration lines of business. The following table presents the results of our procurement activities, both in terms of the gross value of the transactions, regardless of whether they were recorded as gross deals or net deals, along with the recorded values, to aid in an analysis of the underlying economics (in thousands, except percentages):
Current wording
Due to the lighter effort required to execute procurement transactions, the gross margins are thinner in that line of business. As a result, increases and decreases in that business have a smaller impact on our overall margins and profitability compared to increases in the facilities management or systems integration lines of business.
Previous wording
The following table provides a reconciliation of the non-GAAP figures presented above to the most closely related GAAP figures presented. We review these non-GAAP figures not as a substitute for the GAAP figures, but to help in our internal analysis of the underlying economics of each transaction as we do not believe the GAAP figures are as useful for that purpose as are the non-GAAP measures.
Current wording
The following table provides a reconciliation of the non-GAAP figures presented above to the most closely related GAAP figures presented. We review these non-GAAP figures not as a substitute for the GAAP figures, but to help in our internal analysis of the underlying economics of each transaction as we do not believe the GAAP figures are as useful for that purpose as are the non-GAAP measures. We believe presentation of the gross value of procurement revenues is also helpful in forecasting and analyzing bank factoring costs of the related receivables, as the factoring fee is calculated based on the gross value of the transactions.
Previous wording
The gross value of all procurement transactions increased 37% from 2023, from $123.2 million to $169.1 million in 2024. The majority of the 2024 procurement transactions were gross deals, whereas the majority of the 2023 transactions were net deals, in which we record only our agent fee as revenues. As a result, the recorded revenue increased from $38.5 million in 2023 to $117.5 million in 2024. Gross profit recognized on all procurement transactions increased 49% from $5.3 million to $7.8 million before interest charges. After netting out related interest charges, the procurement segment’s contribution to pre-tax income increased 57% from $3.5 million to $5.5 million.
Current wording
The gross value of all procurement transactions increased 65% from 2024, from $169.1 million to $278.7 million in 2025. Under net deals we record only our agent fee as revenues, and as the total mix of deals has shifted more towards gross deals, the recorded revenue increased 68% from $117.5 million in 2024 to $197.5 million in 2025. Gross profit recognized on all procurement transactions increased 94% from $7.8 million to $15.2 million. These gross profit figures are exclusive of any related bank factoring charges.
Previous wording
Cost of revenue includes the cost of component parts for our products, labor costs expended in the production and delivery of our services, subcontractor and third-party expenses, equipment and other costs associated with our test and integration facilities, excluding depreciation of our manufacturing property and equipment, shipping costs, and the costs of support functions such as purchasing, logistics and quality assurance. Our consolidated gross margin was 15% for the year ended December 31, 2024 compared to 20% for 2023. The blended decrease was driven by the outsized increase in the lower margin procurement business in relation to the remainder of the organization. Gross margins for 2024 were 7% for the procurement business, 42% for the system integration business, and 62% for the facility management activities. In 2023, gross margins were 14% for the procurement business, 19% for the systems integration business, and 57% for the facilities management activities. As seen in the tables above, while the recorded margins for procurement activities decreased from 14% to 7%, when viewed on a gross transaction value, they improved from 4.3% to 4.6%. Viewed on that basis, margins improved in each line of business with the most significant improvement in the system integration activities, reflecting the impact of a significant increase in the revenues from AI rack integration. We anticipate margins in that line of business will improve further in 2025, as 2025 will reflect a full year’s activity at more elevated levels of AI rack integration, whereas 2024 reflected that impact for roughly the last seven months of the year.
Current wording
Cost of revenue includes the cost of component parts for our products, labor costs expended in the production and delivery of our services, subcontractor and third-party expenses, equipment and other costs associated with our test and integration facilities, depreciation of our manufacturing property and equipment, shipping costs, and the costs of support functions such as purchasing, logistics and quality assurance. Our consolidated gross margin was 13% for the year ended December 31, 2025 compared to 15% for 2024. Gross margins for 2025 were 8% for the procurement business, 31% for the system integration business, and 60% for the facility management activities. In 2024, gross margins were 7% for the procurement business, 42% for the systems integration business, and 62% for the facilities management activities.
Previous wording
We anticipate costs allocated to the system integration business to increase in 2025 due to our new, larger integration facility with greater rent and related expenses, paired with an increase in the fees we earn from our primary AI rack integration customer in recognition of our greater expense structure. While we began recognizing rent expense of approximately $251,000 monthly for the new facility in December 2024 in accordance with GAAP, we do not anticipate paying cash rent for the new facility until April or May 2025, at which point we will begin paying monthly cash base rent of approximately $222,000 plus related lease costs including insurance, property taxes and common area maintenance. Until we either sublease or find another productive use for or our current facility, we will bear facility rent and related costs at two facilities.
Current wording
We anticipate costs to increase in 2026 due to having a full year of operations at our new, larger facility with greater rent and related expenses, paired with an increase in the fees we earn from our primary AI rack integration customer in recognition of our greater expense structure and the recently signed amendment to our AI rack integration agreement. Until we either sublease or find another productive use for our Round Rock facility, we will bear facility rent and related costs at two facilities. The annual cost of rent and related triple-net costs at the Round Rock facility approximate $1.4 million.
Previous wording
Since we earn higher profits when using our own labor, we expect gross margins to improve when our labor mix increases relative to the use of subcontracted labor or third-party labor. Our direct labor costs are relatively fixed in the short-term, and the utilization of direct labor is critical to maximizing our profitability. As we continue to bid and win contracts that require specialized skills that we do not possess, we would expect to have more third-party subcontracted labor to help us fulfill those contracts. In addition, we can face hiring challenges in internally staffing larger contracts. While these factors could lead to a higher ratio of cost of services to revenue, the ability to outsource these activities without carrying a higher level of fixed overhead improves our overall profitability by increasing income, broadening our revenue base and generating a favorable return on invested capital. In periods when we increase the level of IT procurement services, we anticipate that our overall blended gross margin percentages will be lower in those periods, even as our gross profits increase, as the normal margins on procurement activities are lower than the margins from our traditional facilities and systems integration services.
Current wording
Since we earn higher profits when using our own labor, we expect gross margins to improve when our labor mix increases relative to the use of subcontracted labor or third-party labor. Our direct labor costs are relatively fixed in the short-term, and the utilization of direct labor is critical to maximizing our profitability. As we continue to bid and win contracts that require specialized skills that we do not possess, we would expect to have more third-party subcontracted labor to help us fulfill those contracts. In addition, we can face turnover and hiring challenges in internally staffing larger contracts. While these factors could lead to a higher ratio of cost of services to revenue, the ability to outsource these activities without carrying a higher level of fixed overhead improves our overall profitability by increasing income, broadening our revenue base and generating a favorable return on invested capital. In periods when we increase the level of IT procurement services, we anticipate that our overall blended gross margin percentages will be lower, even as our gross profits increase, as the normal margins on procurement activities are lower than the margins from our traditional facilities and systems integration services.
Previous wording
Selling, general and administrative expenses consist primarily of compensation and related expenses, including sales commissions and other incentive compensation for our executive, administrative and sales and marketing personnel, as well as related travel, selling and marketing expenses, professional fees, facility costs, insurance and other corporate costs. As a percentage of gross profit, SG&A fees improved from 81% in 2023 to 59% in 2024, effectively leveraging this cost in relation to the overall growth in the Company’s operations. In dollar terms, our SG&A expenses increased by $4.3 million (48%) due 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 improvements in sales and earnings.
Current wording
Selling, general and administrative expenses consist primarily of compensation and related expenses, including sales commissions and other incentive and equity-based compensation for our executive, administrative and sales and marketing personnel, as well as related travel, selling and marketing expenses, professional fees, facility costs, and insurance. As a percentage of gross profit, SG&A fees increased from 59% in 2024 to 64% in 2025, primarily due to higher non-cash equity-based compensation in the current year. In dollar terms, our SG&A expenses increased by $7.4 million (64%) due to higher non-cash equity based compensation, headcount and related compensation costs to support the growing scale of the organization combined with higher accruals for incentive compensation tied directly to the improvements in sales and earnings.
Previous wording
After net interest expense and income taxes, we recorded a net income of $6.0 million, or $0.24 per diluted share for 2024, compared to a net income of $0.1 million, or $0.00 per diluted share in 2023.
Current wording
As a result of our increased operating income, improvements in net interest expense and other income, combined with the release of the valuation allowance on our DTA, net income for the year ended December 31, 2025 was $15.1 million, or $0.56 per diluted share compared to $6.0 million net income, or $0.24 per diluted share in the prior year.
Previous wording
Our primary sources of liquidity on December 31, 2024 are our cash and cash equivalents on hand, funds available under our construction loan and projected cash flows from operating activities.
Current wording
Our primary sources of liquidity on December 31, 2025 are our cash and cash equivalents on hand and projected cash flows from operating activities. In August 2025, we sold 3,450,000 shares under this shelf registration statement for a gross value of $55.7 million ($16.15 per share), resulting in net proceeds to the Company of $55.3 million after deducting $0.4 million of related issuance costs and substantially increasing our available liquidity and capital resources.
Previous wording
The majority of the Company’s receivables are from a single customer with 80-day payment terms. We generally factor our receivables from that customer through a bank factor, so that we are paid within 2-3 days of invoicing rather than needing to wait the full term to receive funds. We believe this is an efficient program, as we estimate the effective annualized interest rate to utilize that program is less than the rate at which we could borrow funds. We hold excess funds in an interest-bearing account so that we can earn some interest income on the funds we receive immediately from the factoring program but do not have to pay to our vendors for 30-45 days on typical payment terms.
Current wording
The majority of the Company’s receivables are from a single customer with 80-day payment terms. We generally factor our receivables from that customer through a bank factor, so that we are paid within 2-3 days of invoicing rather than needing to wait the full term to receive funds. We believe this is an efficient program, as we estimate the effective annualized interest rate to utilize that program is less than the rate at which we could borrow funds. We hold excess funds in interest-bearing accounts so that we can earn some interest income on the funds we receive immediately from the factoring program but do not have to pay to our vendors for 30-45 days on typical payment terms.
Previous wording
As of December 31, 2024, and 2023, we had cash and cash equivalents of $23.2 million and $11.8 million, respectively. Of the cash held at December 31, 2024, $5.0 million is held in a money market account as collateral against our outstanding bank debt, and therefore is not immediately accessible other than to use for repayment of the debt.
Current wording
As of December 31, 2025, and 2024, we had cash and cash equivalents of $85.5 million and $23.2 million, respectively. Of the cash held at December 31, 2024, $5.0 million was held in a money market account as collateral against our outstanding bank debt and therefore was not immediately accessible other than to use for repayment of the debt. This restriction was released in 2025 and applied as a paydown of the outstanding balance of our debt.
Previous wording
Cash provided by operating activities was $15.3 million in 2024, compared to $8.3 million of cash used in operating activities in 2023. This change in cash from operating activities was primarily attributable to the significant increase in contribution from the AI-rack integration services combined with the financial impacts of our procurement services and the large increase in procurement services near the end of 2024 for which we have already been paid under our factoring program but for which we have not yet had to pay our vendors. Related primarily to the lease for our new integration facility, our operating cash flows are also reflective of large increases in the lease right-of-use asset of $20.2 million, largely offset by an increase in operating lease liabilities of $20.2 million.
Current wording
The $15.3 million of cash flow from operating activities in 2024 was primarily attributable to the significant increase in contribution from the AI-rack integration services combined with the financial impacts of our procurement services and the large increase in procurement services near the end of 2024 for which we had already been paid under our factoring program but for which we had not yet paid our vendors. Related primarily to the lease for our new integration facility, our operating cash flows in 2024 also reflected large increases in the lease right-of-use asset of $20.2 million, largely offset by an increase in operating lease liabilities of $20.2 million.
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Current report — wording carried from elsewhere
The following table presents the results of our procurement activities, both in terms of the gross value of the transactions, regardless of whether they were recorded as gross deals or net deals, along with the recorded values, to aid in analysis of the underlying economics (in thousands, except percentages):