TSSI - NASDAQ

Greetings. Welcome to the TSS, Inc. Fourth Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. As a reminder, this conference is being recorded. I would now turn the conference over to your host, James Carbonara with Hayden IR. James, you may begin.

Thank you, operator and good afternoon everyone. Thank you for joining us for TSS' conference call to discuss the company's fourth quarter and full year 2024 financial results. Joining me today on this call are Darryll Dewan, President and CEO of TSS and Danny Chism, the company's CFO. As we begin the call, I'd like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, March 27, 2025. TSS expressly disclaims any obligation to update, amend, supplement, or otherwise review any information or forward-looking statements made on this conference call or replayed to reflect events or circumstances that may change or arise after the date indicated except as otherwise required by applicable law. For a list of the risks and uncertainties that may affect the company's future performance, please refer to the company's periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures with the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. With that, Darryll, I'll turn the call over to you.

James, thank you very much. Good afternoon everyone. Thank you for joining us today in our fourth quarter and full year 2024 earnings conference call. 2024 was an exceptional year for TSS by all accounts. The soaring demand for AI rack integration and procurement services propelled our business to new heights. We delivered outstanding financial results, driven by strong operational execution and our unwavering commitment to customer service. Our strong performance demonstrates that we are successfully executing our business strategy, delivering growth in revenue, earnings and cash flow, while scaling our business and operations and positioning for continued success. For the full year, we delivered organic revenue growth of 172%, an incredible accomplishment that highlights the growing demand for our offerings, the strength of our customer relationships, and the attractiveness of the market in which we operate. We grew diluted earnings per share from just better than breakeven in 2023 to $0.24, a staggering increase and generated positive cash flow from operations of more than $15 million. These results underscore the effectiveness of our strategic initiatives and the dedication of our team. Notably, growth was broad-based, spanning all of our service offerings. So, let's break down our performance by segment. Procurement services, this is where we source third-party hardware, software, and services. We delivered robust growth of 205% for total revenue of $117.5 million. Last year, we achieved $36.5 million, last year being 2023. As expected, we experienced some quarter-to-quarter fluctuations throughout the year. However, the overall trajectory of the business is positive and we are very optimistic about where it's heading in 2025. Facilities management, primarily referred to as our modular data center or MDC business performed well, growing 13%, which was in line with our expectations. As a reminder, this business represents a small portion of our overall business, approximately 5% of our total revenue in 2024, and importantly, is a fairly predictable revenue stream with gross margins generally exceeding 50% of revenue. Given accelerating adoption of AI-enabled technology, we expect demand for MDCs to be an important driver of revenue growth in 2025 and beyond. Our integration services business, including AI racks, saw a tremendous surge fueled by increasing demand for AI-enabled infrastructure. Revenue grew by 157% to $22.6 million in 2024. I will comment further in a few moments, but I think most people recognize we are in the early stages of AI infrastructure build-out. And as a result, we see our SI business growing rapidly as AI demand is fulfilled in coming quarters and years. A significant milestone in 2024 was the signing of a multiyear agreement with our largest customer, further solidifying our role as a strategic partner and their technology roadmap. This agreement enhances revenue visibility, mitigates operational risk for each of us, and supports our investment in capacity and capabilities that is needed, thereby greatly strengthening our long-term growth outlook. To support this long-term customer service agreement and meet rising demand, we signed a multiyear lease for a 213,000 square foot facility nearby in Georgetown, Texas. This expansion increases our operating space by just over 100% and provides significantly greater power capacity to accommodate AI-driven infrastructure. It is difficult to appreciate the pace of change in the data center industry as a result of the AI boom. I wanted to spend a few minutes on this topic as it highlights our value proposition to OEM customers. A couple of weeks ago, NVIDIA's CEO laid out a detailed outlook regarding that company's product road map over the next three years. The development of AI chips processing greater and greater amounts of data in an increasingly dense environment impacts all of the downstream decisions from rack integration to data center design. Both power and cooling implications have been well-publicized conceptually, but let me provide a more tangible example. Our new facility, our building was originally intended to have 4.5 megawatts of electricity. We will now begin with 6 megawatts. The pace of development has made it so that we have gone back to the city planners and we'll get 15 megawatts in early summer and a commitment to get to over 40 megawatts over time. Our request, by the way, was granted. Municipalities are recognizing that power provision is a key part of their intention to attract business. But you can imagine the impact of this type of change in the design of a facility, and this occurred in a space of a month or two while our building is in its final stages of its fit-out. Cooling is in a similar situation. When we began the fit-out of our facility, it was anticipated we would integrate a mix of chilled air and direct liquid-cooled technology. However, the adoption of emerging chip families so quickly has resulted in an accelerated shift to direct liquid-cooled. This impacts everything from our chiller capacity to the diameter of the pipes coming into the facility and distributing water within the facility. And again, this rethinking has all occurred in weeks. Beyond power and cooling, there are other numerous changes required to accommodate rapidly evolving requirements from forklift capacity to the grading of ramps leading into the loading base. Fortunately, we're in a competitive position with our labor force. Our current headcount and skill levels are very strong, and we're fortunate to operate in a robust Texas human resource market. The combination of our human capital with our strong partner relationships provides us great optimism we're developing a facility built to stand the test of time and adaptable in a rapidly moving environment. In addition to the challenges of increasing rack requirements, there are numerous open questions how racks will be deployed in data centers. Concepts being considered include prefabricated solutions ranging from small IT-focused units with multiple racks to larger units incorporate power and cooling elements. We're engaging in all these discussions with customers, industry insiders, and technology experts to ensure our future. We were selected by OEM partners because of our flexibility and commitment to quality and our ability to support the roadmaps in this demanding environment. Our facility will begin initial production in April. We will support programs on various levels of IT technology at that time. We should reach full production capacity in June. Our plans for the facility include investment of approximately $25 million to $30 million for these improvements, a small portion of which will be funded by tenant improvements provided by our landlord. The financial impact of the investment in our facility will evolve over time. Pricing for rack integration services will evolve as racks complexity and value increase as new deployment methods gain traction in the market. We considered the long-term profit impact and so ROI from the investment prior to embarking on it. The structure of our relationship with our largest OEM supports our investment by reducing risk. As volumes grow, we can envision extremely high returns on invested capital into the facility, perhaps as high as a two-year payback. We ended the year with a strong momentum, delivering Q4 revenue of $50 million, a 105% increase year-over-year. Diluted earnings per share for the quarter reached $0.08, reflecting a 300% year-over-year growth. These results underscore the scalability of our business and the growing demand for our services. The AI infrastructure market continues to evolve rapidly with companies raising significant capital to deploy AI-driven compute environments. While hyperscale, data centers, and cloud technology companies have been early adopters of broader market will soon include medium and large enterprises, building high-performance compute environments for AI applications deployment beyond large language models and training. We are actively collaborating with our key customers and partners to understand how hyperdense AI compute will be implemented across the vast majority of data center sites. This will be a key area of focus in the quarters ahead and we look forward to providing further updates. So, with that, let me now turn the call over to Danny, who will discuss our numbers in a bit more detail. Danny?

Thanks, Darryll. It was another great quarter and full year for TSS. Let's first take a look at the financial results for the fourth quarter. Consolidated revenue more than doubled in the fourth quarter of 2024 to $50 million, up from $24.4 million in the fourth quarter of 2023. The increase was driven by year-over-year growth across all of our product lines, including growth of 264% in our higher-margin systems integration business, which includes the AI racks that Darryll was just speaking about. Total revenue from systems integration increased from $2.2 million in the fourth quarter of 2023 to $7.9 million in the current quarter. This growth was driven primarily by an increase in AI-enabled rack integration, which began late in the second quarter. Demand for this business remains robust and the multiyear customer agreement that we signed in the third quarter provides stability by reducing the impact of demand and supply chain volatility. Revenue from facilities management totaled $1.6 million, up 11% from $1.5 million in the same quarter last year. There's generally high visibility into this revenue stream. We continue to anticipate more robust growth in this segment over the next 12 to 18 months as medium and large enterprise clients consider using modular data centers as a cost-efficient way to harness the power of AI technology. Revenue from procurement services totaled $40.5 million, up 95% compared to $20.8 million in the year ago quarter. As a reminder, this represents a mix of gross and net deals whose revenue recognition methods vary based on contractual terms and whether we modify the product in some way or just act as an agent in the transaction. The total gross contract value of all deals in procurement was $48.5 million in the quarter, up 49% on the same basis year-over-year. As we continue to scale and grow, the mix of our revenues and the mix of gross versus net procurement deals will likely drive quarter-to-quarter fluctuations in our blended gross margins. The consolidated gross margin, including all lines of business, was 14.4% this quarter, up 100 basis points from 13.4% in Q4 2023. This improvement is primarily due to growth and margin expansion in our systems integration business. Procurement revenues may remain at elevated levels for the next one to three quarters in comparison to historical trend. Much of our procurement business is ultimately related to federal government buying, which can contribute to seasonality in these revenues. SG&A expenses improved to 59% of gross profit in the fourth quarter of 2024, down from 76% in the same quarter last year. On a dollar basis, SG&A expenses increased to $4.2 million in the fourth quarter of 2024, up from $2.5 million in the year ago quarter. Our SG&A has increased as we've added and invested in people, capacity, and processes. The current quarter SG&A expenses include some non-recurring severance expenses and one month of rent at the new facility in addition to rent on our existing facility. Operating profit margin in the fourth quarter of 2024 was $2.8 million and 38% of gross profit, respectively, up from $724,000 and 22% in the prior year quarter. Calculated as a percentage of recorded total revenue rather than gross profits, our operating income margin was 5.5% in the current quarter compared to 3% in the prior year quarter. During the quarter, we had net interest expense of $533,000. This was comprised of $721,000 of interest expense tied to factoring the receivables from our largest customer, partially offset by $188,000 of interest income earned from cash on hand. This compares to net interest of $374,000 in Q4 2023, comprised of $498,000 of interest expense, partially offset by $124,000 of interest income on bank deposits. As a result of these and other smaller changes, net income for the fourth quarter of 2024 was $1.9 million, more than 5 times the $335,000 of net income in Q4 2023. Diluted earnings per share was $0.08 in the quarter, up from $0.02 in the prior year quarter. Adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, and stock-based compensation, was $3.4 million, up from $923,000 in the prior year quarter. Turning to the results for the full year. For 2024, total revenues were up 172% to $148.1 million compared to $54.4 million in the year ago quarter. As seen in the quarter, this growth came from all three of our business segments. Gross profit for 2024 more than doubled to $22.4 million and our SG&A costs improved to 59% of gross profit, down from 81% in 2023. For the full year, our net income improved to $6 million compared to $74,000 in the prior year, and diluted EPS improved from a bit over $0 in 2023 to $0.24 in 2024. Adjusted EBITDA for the full year was $10.2 million, up 283% from $2.7 million in 2023. Turning to take a quick look at the balance sheet. As of December 31st, 2024, we had cash and cash equivalents and short-term deposits totaling $23.2 million. In conjunction with our ongoing build-out of the new facility as well as the elevated level of procurement activity ongoing at year-end, you'll see a fairly sizable increase in accounts payable with a corresponding spike in inventory as we received goods prior to year-end that will be used in fulfilling those procurement contracts in the first quarter of 2025. In conjunction with our plans to relocate our headquarters and expand our factory to support expected AI rack integration growth, we entered a new credit agreement with our existing bank, Susser Bank, for a $20 million term loan with an option for an additional $5 million with bank approval. The new agreement, which has a floating rate currently at one-month SOFR plus 300 basis points, combined with cash on hand, provides us with all the capital we need to fund our portion of the build-out. I'd like to thank the City of Georgetown, where our new factory is located for being great to work with and seeking ways to assist us beyond just finding creative solutions to our power needs that Darryll mentioned. We really appreciate the city's ongoing support. For 2024, we generated cash flow from operations of $15.3 million, which compares quite favorably to cash used in operations of $8.3 million in 2023 and increased cash overall by $11.4 million. Net working capital, which nets out temporary fluctuations due to timing of payments to vendors and receipts from our customers, increased from $893,000 at the beginning of 2024 to $1.3 million at the end of 2023 -- I'm sorry, at the end of 2023. All-in-all, it was another great quarter and a great year financially. In fact, this was a record year for the company in revenues, net income, EPS, and adjusted EBITDA. With that, I'll hand the call back over to you, Darryll.

Great Danny. Thank you very much. Looking ahead, the year ahead in 2025 will be marked by the completion of the fit-out of our new facility and orders flowing through it. Based on our current visibility, we expect revenue for the first quarter of 2025 to be higher than the fourth quarter of 2024, largely due to another quarter of very robust procurement services revenue. We also expect our SI business, our integration business in Q1 to exceed Q4. Looking past Q1, we expect the total revenue in the first half of 2025 to exceed our total revenues in the second half of 2024 and we expect 2025 adjusted EBITDA to be at least 50% higher than in 2024. We remind everyone in earnings calls that orders for AI infrastructure may be large and may result in quarter-to-quarter fluctuations. We see orders in process with our OEM partners that reflect anticipated AI-driven growth opportunity, and we believe those orders will have a positive impact on us for the year. Our income statement and balance sheet will evolve as our investment in the new facility progresses. We anticipate some near-term impacts on GAAP net income from increased facility cost depreciation and interest expense related to the new facility, particularly as we carry two facilities for some time before either subleasing our existing facility or securing additional contracts to put use in this current facility. However, we remain confident in the strength of our overall business model. Our ability to generate strong cash flows remains a cornerstone of our strategy, and we believe non-GAAP adjusted EBITDA is a key measure of this strength. I'm proud of our team's ability to execute on our operational commitments and our vision and our high level of collaboration, planning and teamwork with our customers. Our focus on the customer and those relationships allows us to innovate, continue to build trust, and execute in ways that have laid the foundation for long-term success for TSS, our customers, and our investors, you. We remain very focused on execution. We're very excited to be an integration services leader in this intersection of advanced computing and AI. So, with that, I'll open up the line to Q&A.

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] We did have a couple of questions come in. The first question is coming from Maj Soueidan from GeoInvesting. Your line is live.

Hi Darryll. Quick question on facilities management, I think you said you expect to see some growth in 2025 from that division. I was wondering if you could maybe expand on where you see that coming from? I mean, do you see it accelerating a little bit in terms of where it was last year, for example, that is a higher-margin part of the business?

Yes, hey Maj, good to hear from you. We do believe there is opportunity for the MDC business. We are working with a variety of opportunities that we think will turn into business for us in the larger container. The reason for some of the -- the length in the sales cycle is largely because of technology changes going from air to direct liquid and requiring a different design point for the actual container. But we're pretty excited that we're going to see some business growth there. We're also very excited about some of the conversations we're having about different design points on the modular unit. And I'd like to go a little bit more detail, but I don't think it'd be appropriate. But I think where we can provide an AI solution to an enterprise to deploy a certain amount of power cheaper, better, faster than their alternative. And that alternative could be a co-lo, could be a hyperscaler, could be expanding their own existing data center space. All of those options have a plus and minus to it. But we're trying to get to a point where in our modular business, we can make it easier to make a cheaper, better, faster decision to deploy modular. And we're working with our partners in that respect. And we're looking for other partnerships, which we had -- we continue to have conversations about how do we shorten that sales cycle to get containers faster and the componentry faster. That's the long pole in the tent, getting the equipment faster to make it a little bit easier to make a decision on modular versus something else.

And did you -- in terms of your kind of your revenue expectations, are you baking that into your expectations? Or would that be additive to what you kind of expressed here today?

No, I mean we -- so as you may know, a good percentage of our FM business, our facilities management business is recurring revenue and its projected enhancements to some service agreements that we have that drives some growth year-over-year. We've been fairly conservative with that growth expectation because of the unknowns on the lead-time of the products and a new sale. However, if we can get some deals done soon and sooner than later, which we're trying to get done, in other words, close, that has an impact on our revenue towards the end of this year. You'd be surprised what a couple of million dollars does to the overall model and that's what we're pushing for. And frankly, that's how we're compensating our people based on that stretch. And that stretch is not that significant, but it's meaningful to us overall.

Great. And can you again just remind us put in perspective of the margins in that business compared to the other parts of the business?

Well, normally, we say in the range of 55%. Q4 was a little of an outlier. I had to challenge Danny, I thought he was using a crayon versus a pencil. But we had better margins in Q4 than we did ordinarily, but 55% for the year.

Okay. And that's certainly higher than your other pieces of the business in terms of margins, right?

Yes, it is. And actually, for the full year, it was just under 62% in that business, up from 57% last year.

Okay, great. All right, thanks guys.

Yes.

Thank you. The next question is coming from Kris Tuttle from Blue Caterpillar. Kris, your line is live.

Okay, hey thanks a lot. Just had a couple of things. I was curious what do you think you might be able to do with the existing facility when you guys are moved over into full production on the new one?

Kris, good to hear from you. We've got a couple of options. One, we could sublease it. A few years ago, when we renewed the lease, we -- in this market, we have very favorable rates. So, we could actually sublease it and make money, not a lot, but we can make some money. We also have some initiatives underway that could expand a portion of our business that we have that I really wish I could go into a little bit more detail, but I can't. But there's an interesting conversation underway that would allow us to take advantage of the extra space with an existing part of our business in the integration space in this existing facility. And that's really our focus right at the moment. We've done some things to enhance the current facility with our key customer to take advantage of the power that we have and some new technology that's coming for rack integration that we can span both facilities for a short period of time. But effectively, our backstop, if you will, is the sublet it. And Danny has built into the model that we have very conservative up until later part of the year that we have to make this decision. So, we have some time to either build out with some functionality or to sublease it.

Yes. And then the EBITDA production projection that Darryll shared, I've assumed that we don't sublease anything until January of next year. So, I think that's relatively conservative.

Okay. Thank you. And then just I was curious, you guys have already done a tremendous job at shortening the turnaround time and the cycle-time on the rack integration business. I'm just curious, do you think you've got more room to improve there? Or you've already got it down to lean and mean? And are there any implications on what you could do in the new facility in terms of the speed with which you could perform integrations?

The way I'd answer that, Kris, is if you've ever met Todd Marrott, you'd know that he's never really satisfied. He's working really hard to make it even better than it's been. I mean we were in weeks before, now, we're in hours and two days. So, there's some room. And as we work with our key customer on technology enhancements, we're looking for ways to optimize and get more throughput and speed. And on one concept around direct liquid, he's got an interesting idea that can make it even faster to get it deployed. So, there's room, but now we're really -- we're going from a couple of days to hours. And the biggest benefit is behind us, but there's always room to improve.

I got it. Well, that's all I've got right now. Really appreciate you taking my questions and just I have to add, looking at those numbers for last year, it's a tremendous achievement. So, keep up the great work.

Thanks buddy, appreciate it. Appreciate it Kris.

Thank you. [Operator Instructions] The next question is coming from Calvin [indiscernible]. Calvin is a private investor. Your line is live.

Hey Calvin.

Yes. I was just having a question about the analyst coverage. I know with the great quarters you had back-to-back, I was wondering if there's been any discussion about having increased analyst coverage for the firm?

Increased what?

Analyst coverage.

Yes, do you want to take that?

Yes, I appreciate the question. Yes, we've had a number of conversations with sell-side analysts over time to try to establish some coverage. As I'm sure you can imagine, whenever we filed our shelf registration statement, we got a whole lot of calls from investment bankers. I think a lot of them were disappointed when we reiterated the same thing that we announced publicly that, hey, we have no plans to issue anything under that currently. But that certainly generated a few conversations from analysts reaching out to us. I think some of them -- I would say we've had some good productive conversations with several that I think may ultimately lead to some of them picking up coverage. But obviously, if you're familiar with that market, they don't charge for that coverage. And if they do, it's always suspect coverage. So, they need to see some path to making some money someday, meaning issuing debt, issuing equity, helping us do M&A activity, something along those lines. So, good productive conversations, but nothing ready to be announced today.

And the next question is coming from Brad Stevenson from Breakout Investors. Brad, your line is live. Brad Stevenson, your line is live, please go ahead with your question.

Hello, thank you. Danny, I'll provide some coverage for you, I won't charge you anything. Does that work?

It's called value pricing, Brad.

I appreciate it.

Hey, I always want to come back to just kind of take the temperature on visibility. So, the comments about what you're seeing in 2025, 2026, how much further out is your actual visibility on orders at this point than it was the last time we talked?

Brad, I worry about it, too. We all do. We've got pretty good visibility. It's improved and it improves over time. We've got great line of communication with our key customer. There's a level of excitement about the pipeline and the opportunity and the ability to deliver. If you listen to Mr. Jensen's speech at his conference a couple of weeks ago and you read some of the articles in the press coming from the leaders in our community, there's no doubt that people are excited about the infrastructure play and delivering technology as soon as they can get it. We've got visibility 90, 120 days out. We're having conversations about get ready for something that's going to happen sooner than later. I'd like to go in a little bit more detail. We had a meeting last night. We, being Todd and myself with our key executive linkage at our partners in our customer relationship and there's an excitement level that hard to translate by talking to a sales guy is going to say, my pipeline is huge, let's convert that pipeline into revenue. And that's what we're working on collectively so that we can deliver sooner than anybody else. The visibility is good. The agreement that we struck gives us some comfort in knowing there's a minimum volume that protects us on our investment. But that's not -- if we could sit back, put our feet up, that's not good enough. That's not where we're at. So, we're doing as much as we can to impact the delivery. We have a bigger impact on revenue on our modular business, which we're working on. We made some investments to make that happen sooner. And on the integration business, we're as good as we can get right at the moment. It's a positive situation.

I would add that to Darryll's comment where we've typically got kind of a 90 to 120-day view. There are also times where even with that view, we may get a one-week or two-week notice on some that they get a last-minute order or somebody wants to accelerate it that there's incremental revenue sometimes that we weren't necessarily counting on.

Okay. On the new facility, are there any -- is there any interesting design changes from which the way the current facility operates that you think will be beneficial to you either with power consumption and/or the speed at which you can turn out work?

Yes. The answer is yes, yes, yes. One, chiller capacity; two, power; three, square footage; four, the design layout of a factory within a factory, which allows us to do our validation in a unique way that we just couldn't do here. The floor space and the dock bays, if you will, are designed that gives us better capacity and throughput for modular construction. Todd gets a bigger office, which is a good thing, not by much. I think he's going to go sit down now than stand up. But all seriousness, we're doubling the square footage, and we've got a better flow. But I think there's some unique things we're doing with respect to cooling, the CDUs and how we embrace CDUs. We have multi-vendor technology in. So, we're pretty agnostic. And the team has come up with some unique ways to take advantage of the CDU station capability and testing. And frankly, it's one of those situations where seeing is believing. I'd invite you to come on down and you'll see it for yourself. So, any time, got an open invite.

I'd add that on validation, I've learned from our Chief Operating Officer, Todd, as well that you need different power setups for different configurations of racks. So, we have validation stations that can accommodate a variety of those different builds. We also, I think, are increasing our validation stations by about 4 times what we've got today, maybe a little bit more, but a pretty significant increase in the number of validation stations to increase the ability with room to continue to expand that if we needed to.

Hey Brad, I think there's something else, too. When I talk about chillers, I'm talking about direct liquid capability and testing. We have 150 tons where we're at today capacity. We're going to 1,650. That's a big jump. The technology is changing so much. If we don't do that, we're done. We have to do it, and we're doing it. And I believe we're going to -- well, I probably shouldn't tell you this, but we're more than doubling our direct liquid cooling lines or validation lines. I don't want to give you a specific number, but it's substantially bigger than it was, if that helps any, 4 times. I said doubling, I'm being conservative. I'm getting a signal that it's more than that. Come and visit. We'll show you around.

Okay. Well, I can't imagine that Todd spends a lot of time sitting in that office. Just from meeting him, I would be surprised about that. But I appreciate the Q&A. Thank you.

Yes, you bet. Thank you.

Thank you. And we have a follow-up coming from Maj Soueidan from GeoInvesting. Maj, your line is live.

Yes. Just one quick question because I meant to ask you earlier. In the fourth quarter, were there any one-time type of costs that were incurred in the quarter related maybe to any maybe move-in kind of costs, new facility, or any other kind of cost on severance costs, any like that at all?

Yes, not so much on move-in costs. Most of those costs are being capitalized. There's a little bit of that, that's not capitalizable. There was some -- what I consider one-time costs for severance that's included in SG&A. I'd rather not put a specific number on that just for confidentiality purposes, but it was six figures.

Okay, cool.

It's related primarily to the elimination of an executive position.

Okay. Okay. So, -- all right, that's fine. So, there was -- so the adjusted EPS would have been a little higher had it not been for that basically?

Correct. And net income came in as well.

Yes, great. Thank you.

You bet.

Thank you. There are no other questions at this time. I would now like to hand the call back to Darryll Dewan for closing remarks.

Okay, everybody, these are very exciting times for us all. We're in a unique space in the marketplace and it's been one heck of a year, and we're very optimistic about the future. This past year, we saw a tightening of our relationship with our key strategic partner in a multiyear agreement. We obtained ISO certification in our facility. We have the new facility. We have a bank loan to get us to the facility and to round it out with higher and better technology. We uplisted on NASDAQ, which was a very exciting experience. I have a great leadership team. We've added new talent to the team, including Danny, our CFO. We continue to focus on our execution and a high level of customer set. We've got a very committed team. I'd like to think that in the term of baseball since today, I think it's opening day, that we're in the early innings of a transition to the new facility and to our future growth. We're excited to be in this game to use a sports analogy. I believe AI is an interesting opportunity for all of us. It will transform how we think and we're in the middle of it, providing the solutions for the infrastructure build-out. And we believe it will unleash the potential for human advancement like possibly never before in technology. And as investors, we appreciate your participation today following the company, and we're very focused and we will continue to be focused on execution and delivering results. So, thank you very much, everybody, for your time and have a great day.