TSSI

Image source: The Motley Fool. Thursday, Aug. 13, 2026 at 5 p.m. ET President and Chief Executive Officer - Darryll Dewan Chief Financial Officer - Danny Chism Investor Relations - James Carbonara Operator: Greetings. Welcome to the TSS Inc. Second Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I will now turn the conference over to your host, James Carbonara with Hayden IR. You may begin. James Carbonara: Thank you, operator, and good afternoon, everyone. Joining me today on this call are the company's President and CEO, Darryll Dewan and its CFO, Danny Chism. As we begin the call, I would like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are accurate only as of today, August 13, 2026. TSS expressly disclaims any obligation to update, amend, supplement or otherwise review any information or forward-looking statements made on this conference call or the replay to reflect events or circumstances that may change or arise after the date indicated, except as otherwise required by applicable law. For a list of the risks and uncertainties that may affect the company's future performance, please refer to the company's periodic filings with the SEC. In addition, we will be referring to non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable financial measures calculated in accordance with U.S. GAAP is included in today's press release. With that, Darryll, I'll turn the call over to you. Darryll Dewan: James, thank you, and good afternoon, everyone. Our second quarter results reflect how our company is growing its higher-margin business lines while relying less on lower-margin Procurement. Demand for our Systems Integration capabilities remain strong, and our revenue mix continues to shift in that direction. This shift improves the quality of our earnings. This is by design. The market for AI and high-performance computing infrastructure continues to expand dramatically. Customers are deploying increasingly sophisticated computer environments and are looking for partners who are flexible and capable and who can integrate, deploy and manage that infrastructure efficiently. That's where TSS has built a strong position. That's where we continue to see healthy demand and volume growth ahead. Continued growth in our higher-margin Systems Integration and Facilities Management business drove a favorable shift in our revenue mix during the second quarter. The shift towards our higher-margin offerings is an underlying trend we continue to emphasize in the business, and it's one that gives us confidence in our long-term direction. Our higher-margin Systems Integration business delivered strong growth during the quarter, increasing 46% year-over-year and representing 39% of total revenue compared with just 22% of the total in the second quarter of last year. This is the important story behind the quarter. Our highest-margin Facilities Management business also had an excellent quarter, growing 84%. Historically, Procurement revenue has been our most variable, generating at times high-volume revenue on relatively few large customer orders. Customer purchasing patterns and the timing of infrastructure deployments can create significant swings from quarter-to-quarter. We saw that again this quarter with Procurement revenue of $18.2 million compared to $33 million a year ago. We are forecasting Procurement revenues in the third quarter to return to our historical range of $30 million to $40 million, though that also can vary with last-minute order adjustments. With our higher-margin Systems Integration and Facilities Management revenue streams representing a larger portion of our revenue and other income mix, profitability improved during the quarter with consolidated gross profit up 11% and adjusted EBITDA up 12%, even as total revenue declined 20% due to the expected pullback in Procurement. This is the kind of progression we'd expect to see as our business continues to shift towards higher-margin offerings. We opened our newest integration facility here in Georgetown, Texas in mid-2025. Improving the efficiency of our integration processes and procedures is a primary focus for our operations team in order to deliver better value to our customers. We speak regularly about the constant and rapid evolution of data center and rack design driven by new chip releases. Compute density in each individual rack has increased in a short time, driving significant changes in power and cooling. The rack integration process is similarly evolving along with rack densities. We plan the site for increased power needs, and we work diligently with the local power utility authorities to have ample current power available plus the capacity to grow. That said, there are numerous choke points in the integration process. NVIDIA currently drives the process with rollout of new chip families, each driving more compute power than the last. We have been integrating H100, H200 and the Blackwell families. Currently, we're seeing significant GB300 volume. We are in the midst of investing approximately $17 million to build the capacity to support NVIDIA's new Vera Rubin platform. We began this latest round of investment in Q2, and we should be completed in mid-September. As we discussed, such investments drive meaningful increases in recurring, high-margin revenue. Over the time period, the assets are used to complete rack integrations. It's an important step because it strengthens our recurring revenue earnings base while expanding our relationship with our marquee customer. We are very encouraged by these accelerating trends. Customer engagement remains high. The pipeline for higher-margin Systems Integration continues to grow. The demand for our integration capabilities remains healthy and robust. Effective May 1, we also began providing warehousing and logistics services to our largest customer at their request, fully utilizing our integration facility in Round Rock, Texas, which has been vacant. We expect the second half of 2026 to be stronger than the first half. And for the time being, we are maintaining our full year adjusted EBITDA outlook towards the upper end of the previously announced $20 million to $22 million range. So in summary, the higher-margin segments of our business continue to grow, recurring revenue continues to expand, and we're executing well for our customers in a market that continues to present significant long-term opportunity. We are excited about these results and the direction of our business. So with that, let me turn the call over to Danny to review the financial results. Daniel Chism: Thanks, Darryll. Good afternoon, everyone. Before reviewing the financial performance, I want to highlight a change in the presentation and the results beginning in the second quarter. In May, we began using our previous integration facility in Round Rock, Texas to provide warehousing and logistics services to our largest customer, as Darryll mentioned. We consider this an operating lease for GAAP purposes and the lease operations are reported within our Systems Integration segment. Details of the accounting treatment are included in the 10-Q, which was filed just a few minutes ago. With that, let's go into the results. Total revenues for the second quarter were $35.1 million compared with $44 million in the second quarter of 2025. We saw dramatic year-over-year growth in our higher-margin business lines while reducing the dependence on lower-margin procurement activities. Systems Integration revenues increased 46% year-over-year, while Facilities Management revenue increased 84%. As we've mentioned on prior calls, Procurement Services remains an important part of our business. It carries the lowest margin among the 3 operating segments, but can produce wonderful incremental income and carries very little fixed costs in periods with lower volumes. Activity in this business is largely driven by the timing and scale of customer infrastructure purchases and deployment schedules. As a result, Procurement revenue can fluctuate meaningfully from quarter-to-quarter depending on customer ordering patterns and the supply chain. Taking a closer look at each segment. Revenue from Procurement Services was $18.2 million, a decrease of 45% compared to the prior year quarter. As Darryll mentioned, orders received for Q3 already exceed Procurement revenues in Q2, likely returning to more of our typical $30 million to $40 million range per quarter. Revenue from our Systems Integration segment increased 46% from $9.5 million in the second quarter of 2025 to $13.9 million in Q2 of this year, reflecting continued customer demand for our integration capabilities, supporting AI and high-performance computing infrastructure deployments. As we've discussed previously, Systems Integration continues to be the primary driver of growth for TSS and represents a structurally higher-margin business compared to Procurement Services. During the second quarter, that dynamic played out with Systems Integration representing 39% of total revenues compared to 22% in the prior year period. As this business continues to scale and leverage its relatively fixed cost base, we expect it to be an increasingly important contributor to gross profit growth and overall profitability. Revenue from Facilities Management increased 84% to $2.7 million, reflecting the continuation of ongoing maintenance agreements, combined with a spike in discrete project work in the period, similar to the increase we saw in Q1. Maintenance revenues in this segment decreased from $1 million in the prior year quarter to $746,000 in the current quarter as certain customers opted not to renew maintenance agreements on some of the older MDCs. That was more than offset by discrete project work increasing from just under $0.5 million this quarter last year to almost $2 million this quarter. Our Facilities Management team has done a great job helping end customers extend the useful lives of their MDCs by refreshing the infrastructure in them. The refresh of these units provides enhanced confidence in those customers' continued use of our preventative maintenance services. Moving down the income statement a bit. Gross profit increased 11% year-over-year to $8 million and reflecting the shift to higher-margin lines of business. Our blended gross margin improved 640 basis points from 16.4% this quarter last year to 22.8% in the current quarter. The Procurement Services group gross margin improved to 11% in the second quarter compared to 7.7% this quarter last year. When viewed using non-GAAP gross value of all transactions, which we believe provides a more comparable view of procurement economics, the gross margin was 6% in the current quarter compared to 3.9% in the prior year period. Facilities Management gross margin was 57.1% in the second quarter compared with 74.3% in the prior year period. As the margins in this line of business are typically near 50%, the current quarter results represent a return to more normal expectations, whereas the prior year quarter carried an unusually high margin tied to the expiration of certain maintenance agreements in which we incurred less costs in that period than what would normally be expected. As a result of the revenue growth in this segment, Facilities Management gross profit increased from $1.1 million this quarter last year to $1.6 million in the current quarter. Systems Integration gross margin was 31.6% (sic) [ 31.3% ] in the second quarter compared to 37.5% in the prior year quarter. The overall change was expected as a result of the increased depreciation charges we recognized in the current period related to our Georgetown, Texas facility, which was not fully operational during this time last year, so it didn't have comparable depreciation in that period. SG&A costs were $5.6 million in the second quarter compared to $4.7 million in the prior year period. The increase was primarily driven by higher noncash equity compensation, head count and related compensation costs to support the growing scale of the organization. We continue to maintain a disciplined approach to managing our cost structure while investing in the resources necessary to support long-term growth. With the growth in gross profit outpacing operating expense growth, we turned an 11% increase in gross profit into a 16% improvement in operating income from $1.4 million in the prior year quarter to $1.6 million in the current quarter. Interest on our bank loan was all capitalized this quarter last year as we were still wrapping up the buildout of our new Georgetown integration facility in that period, so the interest charges were being capitalized. That compares to $322,000 of interest expense in the current period as we continue to service the debt that we borrowed to finance that buildout. Interest expense continues to decrease each period as our debt amortizes down. As a result of higher cash on hand, interest income increased to $565,000 in the second quarter compared to $175,000 this quarter last year. Our effective tax rate in the second quarter reflects the full impact of income taxes following the removal of the valuation allowance on our deferred tax assets in the fourth quarter of 2025. As we discussed previously, prior periods benefited from the partial release of the valuation allowance each period, absorbing any federal taxes and a portion of our state taxes in that period. Following the release of that valuation allowance in Q4 2025, we're now recognizing income tax expense at the applicable statutory rates net of discrete tax benefits, which impacts year-over-year comparisons of net income and earnings per share. Income tax expense was $413,000 for the second quarter of 2026 compared with $69,000 in the prior year period. As a result, net income for the quarter was $1.4 million, or $0.05 per diluted share compared to $1.5 million, or $0.06 per diluted share in the second quarter of last year. Adjusted EBITDA improved 12% year-over-year to $4.5 million in the current quarter. Year-to-date, adjusted EBITDA improved 5% to $9.8 million. Combined with our expectation that the second half of 2026 will be stronger than the first, as Darryll discussed, this gives us confidence in reaffirming our full year adjusted EBITDA outlook towards the upper end of our $20 million to $22 million range. Taking a quick look at the balance sheet. We ended the quarter with $67.7 million in cash and cash equivalents and total debt of $16.1 million. With a strong cash balance and a leverage ratio below 1x, we believe we have the financial flexibility to continue investing in our Systems Integration capabilities, support customer growth and execute on the opportunities we're seeing in the market. To summarize, our second quarter financial results demonstrate the continued progress we're making in shifting our business mix towards higher-margin Systems Integration and Facilities Management revenues. While total revenues were impacted by lower Procurement activity, our higher-margin business continued to grow, driving improved gross profit and adjusted EBITDA. And we expect Procurement revenues to revert to a more typical range in Q3. The investments we've made in our higher-margin Systems Integration capabilities and the executive talent, combined with the expansion of our recurring revenue opportunities, are strengthening the quality of our earnings and positioning us for continued growth. With that, I'll turn the call back over to Darryll. Darryll Dewan: Great. Thank you, Danny. Well said. We've said we're encouraged by the progress we're making, and we operate in an exciting business segment. The demand for AI and high-performance computing infrastructure remains strong, and we continue to see that translate into opportunities across our higher-margin Systems Integration and Facilities Management business. And as an example, we will install a new MDC, Modular Data Center, in September-October and another in mid-2027. Interest in modular is increasing. The shift in our revenue mix is improving the quality of our earnings. We're maintaining a disciplined approach to execution and investing in the capabilities our customers need today while positioning TSS for continued long-term growth. Looking ahead, we remain confident in our 2026 outlook. Our customer engagement remains strong. Our pipelines continue to grow. We expect the second half of the year to be stronger than the first. Much of our excitement is factored into our annual outlook, and we're also planning to drive more integration business in the second half as the demand signal continues to accelerate. I would add, from a business development standpoint, we have reorganized our sales team, and we are actively deploying and exploring how we can broaden our business in terms of customers' capabilities and capacity. Our core Systems Integration capability is a strong starting point. It provides us the visibility into what is happening in a data center as compute capacity and densities grow. Our team's number one priority is to provide great service to our existing customers with rapid time to value, and we are concurrently making investments to assess capacity plan and capabilities extension to enhance our offerings to customers. I expect to have more to report on that in the coming months and quarter. Before we open the call for questions, I'd like to thank our team members for their continued hard work and dedication, our customers for their trust and their partnership, and many of you, our shareholders, for your continued support. So thank you. Operator, we're ready to take questions. Operator: [Operator Instructions] Our first question is from Matt Calitri with Needham. Matthew Calitri: This is Matt Calitri over at Needham. We want to make sure we're clear here on the small sequential downtick in Systems Integration revenue. So is the idea here that you're seeing more demand for the GB200 racks and those take longer to test so they can't ship as fast? And then is that part of this $17 million investment in AI readiness and enhanced testing? Daniel Chism: Yes, the second part of that question, I'll take first, Matt. The $17 million is really investment in additional power infrastructure and cooling capability. There's a little more to it, but that's primarily it, specifically to be ready for NVIDIA's Vera Rubin configuration. So that requires more power, which then in turn requires more cooling. So that's really what that investment is directed towards, but that should directly drive incremental revenues in future periods. The second part of the question, Darryll, I don't know if you want to jump in on that. The sequential downtick, we've been rolling right around that $14 million to $14.2 million per quarter last 3 quarters. This is in line with that same range. I think it's just barely down at $13.9 million. We are anticipating increases in that as we move forward. We'll start seeing the contribution from the investment in Vera Rubin readiness, as well as we'll start to see a little more contribution from the warehousing work that we just started doing that rolls into that as well. Darryll Dewan: Matt, there's a little bit more data there I'll share with you. It's a good question on quarter-to-quarter on the revenue. The mix of the rack integration business, we refer to it here internally as AI racks and mainstream, which is the high-performance computing capabilities, networking racks and compute racks. We had a downturn in Q2 over Q1 in the mainstream business segment. It was significant enough to have a little bit of impact, but I can tell you from an outlook going forward, that's not going to be an issue. The AI rack business that we all have spent a lot of time talking about was up quarter-over-quarter. Daniel Chism: Yes. I add a little bit more color, I guess, on the mainstream piece there, too. Some of what we're seeing, Matt, is a resurgence of demand, specifically on network racks. As you deploy a lot of compute, you then also need the network racks to help with that. Those network racks typically go through our mainstream line, and that's where we're seeing a pretty good increase in demand coming through on those for Q3, Q4. Matthew Calitri: Good to know on the mix there. So what is left on the build-out for the power and cooling requirements for Vera Rubin? And how should we think about how much of a benefit this could be, I guess, both starting in 3Q and through the rest of the year? Daniel Chism: Yes. So you'll see on the statement of cash flows, you probably haven't had a chance to look through the full 10-Q yet, but I think we've got something like $4.5 million, $4.7 million of CapEx. But really, you need to look at that in combination with the incremental CapEx funded with AP that's down at a supplemental disclosure at the bottom of the cash flow statement. So we've completed $7 million to $8 million as of quarter end of that buildout. As Darryll mentioned, we plan on that being completed by September, and we'll start putting that to use pretty quickly. So I would anticipate that will start driving incremental revenue, some in Q3, primarily in Q4. And as far as specific timing, we've not put out the specific timing of our agreement, but you can pretty well assume that would get recognized fairly ratably over the term of our multiyear agreement for AI rack integration. Matthew Calitri: Got it. That makes sense. And then maybe just one more on -- so we talked about how the AI rack business was up quarter-to-quarter and there's the nuance with the mainstream. What trends are you seeing in order volumes for Dell? And is there any way to think about how close you're getting to that weekly minimum commitment on the average week or anything like that? Darryll Dewan: Matt, that's a really good question. We really can't go into detail because it would be out of order for us to go talk about the pipeline in any more granular detail because it's outside of our house. But we refer to the outlook as very strong. And the -- if you look at our key customers' public statements, they're pretty robust. They've increased their outlook for AI server in their fiscal year '27. So we're doing everything we can to get as much of that growth as we possibly can. And that means that we've got to be really, really good at operating and that we've got to be really good at providing value. So we are full speed ahead to get as much of that as we can. Our outlook for the second half of the year is pretty strong compared to the first half. And going back to your minimum question, it is all of our desire to get over the minimum, and that works on a weekly basis, the way it's calculated. And I think we've gone over once or twice year-to-date. But the outlook is exciting, and we all want to get over the minimum, we all want to do as much as we can to take care of our key customer and what they're doing in the market. Operator: [Operator Instructions] The next question is from Alex Fuhrman with Lucid Capital Markets. Alex Fuhrman: The Systems Integration revenue here, it sounds like there's a lot of potential for that to accelerate from the $14 million per quarter plateau it looks like we've been on for a couple of quarters. Can you talk just longer term, bigger picture, what is the potential for growth in this business, assuming demand for AI servers remains strong? What's the gating factor to how fast you can grow and how much revenue you can generate in that business? Darryll Dewan: Well, Alex, it's a good question. I think there's a couple parts to the answer. One is we have got to be stellar in our operational efficiency. Number two is we need to make sure that we stay out in front of the technology curve, which is what we're doing right now with some of the enhancements to handle the new technology coming down from the new platform, and we're preparing for the one after. And then you get into constraints around how much power do you have and how much space do you have. We happen to be in a very good labor market. We've got a good labor force. We think we can dial that up and down depending on the nature of the demand. I think we've got headroom that is significant over the minimum in this particular facility here. I have gone public, and I said I think we've got 2x to 3x capability over the bare minimum in the contract. And in order for us to do that, we've got to be real tight operationally, and we've got to do and deliver when we say we're going to deliver. Daniel Chism: And I'd add really the limiting factor has not so much been demand as much as it is supply chain. I think that's kind of universal. One quarter it may be memory, another quarter it may be a certain cable. There are so many parts that goes into these that as that aligns, that opens the floodgates for us to be able to do more. But I think that will continue to be a little bit of a gating item. Darryll Dewan: Another part -- I probably should just shut up, right? But another part of the answer is, we're talking about integration of racks. We're seeing an increase in conversation around the modular data center offering, getting closer to the edge, removing latency, given some of the environment around data center expansion and growth. It's a time-to-market value kind of proposition. And the way we are looking at taking advantage of that growth is by partnership, and where appropriate, investing in skills that are needed to go promote and deliver a MDC solution like engineering skills and some potential sales skills. So we're looking at that as we speak. Operator: We have no further questions in the queue. I'd like to turn the floor back to Darryll Dewan for our closing remarks. Darryll Dewan: Okay. Thank you so much. I appreciate it. Everybody on the call, much appreciate your attention and time today. And thank you for your continued support. We are blessed and pleased with the shift to our higher-margin Systems Integration business. We're excited about the continued growth in this segment. We talked a lot about where we've been, where we're going. We're optimistic about the business acceleration in the second half of the year, and our progress reviewing strategic growth options remains high on our list. So thank you, and see you again soon. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. 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Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management is intentionally transitioning the revenue mix away from volatile, low-margin Procurement toward higher-margin Systems Integration and Facilities Management to improve earnings quality. Systems Integration revenue grew 46% year-over-year, now representing 39% of total revenue as customers seek flexible partners for increasingly sophisticated AI and high-performance computing environments. The 20% decline in total revenue was driven by an expected pullback in Procurement, which management notes is historically variable and dependent on specific customer deployment schedules. Facilities Management saw 84% growth, primarily driven by discrete project work as customers refresh infrastructure to extend the useful life of existing Modular Data Centers (MDCs). Operational focus is centered on managing the rapid evolution of rack densities, which requires significant changes in power and cooling infrastructure to support new chip families. The company reactivated its Round Rock, Texas facility in May 2026 to provide warehousing and logistics services, further deepening the relationship with its largest customer. Management expects the second half of 2026 to be stronger than the first half, maintaining an adjusted EBITDA outlook toward the upper end of the $20 million to $22 million range. A $17 million investment in power and cooling infrastructure is underway to support NVIDIA's Vera Rubin platform, with completion expected in mid-September 2026. Procurement revenues are forecasted to return to a historical range of $30 million to $40 million in Q3 2026, based on orders already received. Strategic growth plans include exploring Modular Data Center (MDC) expansion to address market demand for reduced latency and faster time-to-market at the edge. The company is reorganizing its sales team and investing in engineering skills to broaden capabilities beyond core rack integration into comprehensive data center solutions. The company recognized a full income tax expense following the removal of the valuation allowance on deferred tax assets in Q4 2025, impacting year-over-year net income comparisons. Systems Integration gross margins were pressured by increased depreciation charges related to the Georgetown, Texas facility becoming fully operational compared to the prior year. Interest expense is trending downward as the company amortizes debt used for the Georgetown facility buildout, supported by a leverage ratio below 1x. Warehousing services started in May 2026 are accounted for as an operating lease within the Systems Integration segment. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management clarified that while 'mainstream' networking and compute rack revenue dipped in Q2, the AI-specific rack business grew quarter-over-quarter. The $17 million investment is specifically for power and cooling infrastructure to support NVIDIA's Vera Rubin configuration, which is expected to drive incremental revenue starting in Q3 2026, with the primary impact in Q4 2026. The Georgetown facility has significant headroom, estimated at 2x to 3x the minimum contract requirements, provided operational efficiency remains high. Supply chain constraints, such as specific cables or memory components, remain the primary external limiting factor rather than underlying market demand. Management declined to provide granular pipeline data for their marquee customer (Dell) but noted that the customer's public outlook for AI servers is robust. The company has exceeded weekly minimum volume commitments once or twice year-to-date and expects to move beyond these minimums more consistently in the second half of the year.

This article first appeared on GuruFocus. Total Revenue: $35.1 million in Q2 2026, down 20% from $44 million in Q2 2025. Systems Integration Revenue: Increased 46% year over year to $13.9 million, representing 39% of total revenue (up from 22% in Q2 2025). Facilities Management Revenue: Increased 84% year over year to $2.7 million. Procurement Revenue: Decreased 45% year over year to $18.2 million, down from $33 million in Q2 2025. Gross Profit: Increased 11% year over year to $8 million. Gross Margin: Improved 640 basis points to 22.8% from 16.4% in Q2 2025. Systems Integration Gross Margin: 31.6% in Q2 2026, down from 37.5% in Q2 2025. Facilities Management Gross Margin: 57.1% in Q2 2026, down from 74.3% in Q2 2025. Procurement Gross Margin: Improved to 11% in Q2 2026 from 7.7% in Q2 2025. Operating Income: Increased 16% year over year to $1.6 million from $1.4 million. Net Income: $1.4 million, or $0.05 per diluted share, compared to $1.5 million, or $0.06 per diluted share, in Q2 2025. Adjusted EBITDA: Improved 12% year over year to $4.5 million in Q2 2026; year-to-date adjusted EBITDA improved 5% to $9.8 million. Cash and Cash Equivalents: $67.7 million at end of Q2 2026. Total Debt: $16.1 million at end of Q2 2026. SG&A Expenses: $5.6 million in Q2 2026, up from $4.7 million in Q2 2025. Interest Expense: $322,000 in Q2 2026, compared to fully capitalized interest in Q2 2025. Interest Income: Increased to $565,000 in Q2 2026 from $175,000 in Q2 2025. Income Tax Expense: $413,000 in Q2 2026, compared to $69,000 in Q2 2025. Full-Year Adjusted EBITDA Outlook: Reaffirmed toward the upper end of the $20 million to $22 million range. Warning! GuruFocus has detected 7 Warning Signs with TSSI. Is TSSI fairly valued? Test your thesis with our free DCF calculator. Release Date: August 13, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Systems integration revenue grew 46% year-over-year, now representing 39% of total revenue versus 22% a year ago. Facilities management revenue surged 84% year-over-year, driven by strong discrete project work. Gross profit increased 11% and adjusted EBITDA rose 12% despite a 20% decline in total revenue, reflecting a favorable mix shift. The company is investing $17 million to support NVIDIA's Vera Rubin platform, expected to drive incremental high-margin revenue in Q4 and beyond. Management reaffirmed full-year adjusted EBITDA guidance toward the upper end of the $20 million to $22 million range, with a stronger second half expected. Total revenue declined 20% year-over-year due to a 45% drop in procurement revenue, which fell to $18.2 million from $33 million. Systems integration gross margin decreased to 31.6% from 37.5% due to higher depreciation from the Georgetown facility. Facilities management gross margin fell to 57.1% from 74.3%, returning to more normal levels after an unusually high prior-year quarter. Maintenance revenue in facilities management declined to $746,000 from $1 million as some customers did not renew older MDC agreements. Net income slipped to $1.4 million from $1.5 million, impacted by higher interest expense and a full tax provision following the release of the valuation allowance. Q: Can you provide more detail on the $17 million investment for AI readiness and enhanced testing, and how it will impact systems integration revenue?A: Danny Chism (CFO) explained that the $17 million investment is primarily directed toward additional power infrastructure and cooling capability, specifically to prepare for NVIDIA's Vera Rubin configuration, which requires more power and cooling. This investment should directly drive incremental revenues in future periods, with some contribution in Q3 and primarily in Q4, as it will be recognized fairly rapidly over the term of the multi-year agreement for AI rack integration. Q: What is the potential for growth in the systems integration business, and what are the gating factors to how fast you can grow?A: Darryll Dewan (CEO) stated that the company has significant headroom, estimating 2x to 3x capability over the bare minimum in the contract. Key factors include stellar operational efficiency, staying ahead of the technology curve, and managing constraints around power and space. Danny Chism (CFO) added that the limiting factor has not been demand but rather supply chain issues, such as memory or cable shortages, which can fluctuate quarter to quarter. Q: What trends are you seeing in order volumes for your largest customer, and how close are you to the weekly minimum commitment?A: Darryll Dewan (CEO) noted that while he couldn't provide granular pipeline details, the outlook is very strong, referencing the customer's increased outlook for AI servers in fiscal year '27. He emphasized the company's desire to exceed the weekly minimum, which has been achieved once or twice year to date, and expressed excitement about the second-half outlook compared to the first half. Q: Can you explain the small sequential downtick in systems integration revenue and the mix between AI racks and mainstream business?A: Darryll Dewan (CEO) explained that the mix of rack integration business includes AI racks and mainstream (high-performance computing, networking, and compute racks). There was a downturn in Q2 over Q1 in the mainstream business segment, which impacted results, but the AI rack business was up quarter over quarter. Danny Chism (CFO) added that the $17 million investment is for power and cooling infrastructure for Vera Rubin, and the sequential downtick was minimal, with expectations of increases moving forward. Q: What is the status of the build-out for power and cooling requirements for Vera Rubin, and how should we think about the benefit through the rest of the year?A: Danny Chism (CFO) stated that approximately $7 million to $8 million of the build-out was completed as of quarter end, with completion expected by September. The investment will start driving incremental revenue, some in Q3 and primarily in Q4, recognized over the term of the multi-year agreement for AI rack integration. Q: Can you provide more color on the warehousing and logistics services provided to your largest customer and its impact?A: Darryll Dewan (CEO) mentioned that effective May 1, the company began providing warehousing and logistics services to its largest customer at their request, fully utilizing the integration facility in Round Rock, Texas, which had been vacant. Danny Chism (CFO) added that this is considered an operating lease for GAAP purposes, reported within the systems integration segment, and will contribute to revenue growth in the second half of 2026. Q: How is the company's revenue mix shifting, and what impact is it having on profitability?A: Darryll Dewan (CEO) highlighted that the higher-margin systems integration business grew 46% year over year, representing 39% of total revenue compared to 22% in the prior year. Facilities management grew 84%. This shift improved consolidated gross profit by 11% and adjusted EBITDA by 12%, even as total revenue declined 20% due to the expected pullback in procurement. Danny Chism (CFO) noted that blended gross margin improved 640 basis points to 22.8%. Q: What is the outlook for procurement revenue in the third quarter, and how does it compare to Q2?A: Darryll Dewan (CEO) stated that procurement revenue was $18.2 million in Q2, down from $33 million a year ago, but orders received for Q3 already exceed Q2 procurement revenues, likely returning to the typical $30 million to $40 million range per quarter. Danny Chism (CFO) confirmed that procurement services remains an important part of the business, carrying the lowest margin but with little fixed costs in periods with lower volumes. Q: Can you discuss the facilities management segment's performance and the mix between maintenance and project work?A: Danny Chism (CFO) reported that facilities management revenue increased 84% to $2.7 million, driven by a spike in discrete project work increasing from under $0.5 million to almost $2 million. Maintenance revenues decreased from $1 million to $746,000 as certain customers opted not to renew maintenance agreements on older MDCs. The gross margin was 57.1%, returning to more normal expectations near 50%, compared to an unusually high 74.3% in the prior year. Q: What is the company's full-year adjusted EBITDA outlook, and how does the second half compare to the first?A: Darryll Dewan (CEO) reaffirmed the full-year adjusted EBITDA outlook towards the upper end of the previously announced $20 million to $22 million range, expecting the second half of 2026 to be stronger than the first. Danny Chism (CFO) noted that year-to-date adjusted EBITDA improved 5% to $9.8 million, and the company is confident in the outlook given the expected procurement rebound and continued growth in higher-margin segments. For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Interested in TSS Inc.? Here are five stocks we like better. Revenue fell 20% year over year to $35.1 million, driven by a 45% decline in lower-margin procurement services. However, systems integration revenue rose 46% to $13.9 million and facilities management revenue increased 84% to $2.7 million. The stronger business mix lifted gross margin to 22.8% from 16.4%, while adjusted EBITDA rose 12% to $4.5 million. Management maintained its full-year adjusted EBITDA outlook toward the upper end of the $20 million–$22 million range and expects a stronger second half. TSS is investing approximately $17 million to expand power and cooling capacity for NVIDIA’s Vera Rubin platform, with incremental revenue expected to begin in the third quarter and have its main impact in the fourth quarter. The company ended the quarter with $67.7 million in cash and $16.1 million in debt. 5 Small Cap Stocks With Explosive Upside Potential TSS (NASDAQ:TSSI) reported second-quarter 2026 results marked by growth in its higher-margin systems integration and facilities management businesses, even as total revenue declined because of lower procurement activity. Management said the company expects a stronger second half and maintained its full-year adjusted EBITDA outlook toward the upper end of its previously stated $20 million to $22 million range. Total second-quarter revenue was $35.1 million, down from $44 million in the prior-year quarter. The decline reflected a 45% decrease in procurement-services revenue to $18.2 million, compared with $33 million a year earlier. President and CEO Darryll Dewan said procurement revenue is the company’s most variable business line because it depends on the timing and scale of customer infrastructure purchases. → Lumentum Just Delivered the AI Growth Investors Wanted “Our second quarter results reflect how our company is growing its higher margin business lines while relying less on lower margin procurement,” Dewan said. He added that the company expects procurement revenue in the third quarter to return to its historical range of $30 million to $40 million, although results can vary because of last-minute order adjustments. Systems integration revenue increased 46% year over year to $13.9 million from $9.5 million. The segment represented 39% of total revenue in the quarter, up from 22% in the second quarter of 2025. Facilities management revenue rose 84% to $2.7 million. → Joby’s Defense Pivot Accelerates With $500M Resonant Sciences Deal CFO Danny Chism said systems integration continued to be the company’s primary growth driver, supported by demand for AI and high-performance computing infrastructure deployments. Dewan said customers are deploying more sophisticated computing environments and need partners capable of integrating, deploying and managing those systems efficiently. The company’s changing revenue mix contributed to higher profitability. Gross profit increased 11% to $8 million, while blended gross margin improved 640 basis points to 22.8% from 16.4% a year earlier. Adjusted EBITDA rose 12% to $4.5 million, and year-to-date adjusted EBITDA increased 5% to $9.8 million. → Ryman Checks Into a $1.38B Hospitality Upgrade Operating income rose 16% to $1.6 million from $1.4 million, as gross-profit growth outpaced the increase in selling, general and administrative costs. SG&A expense rose to $5.6 million from $4.7 million, primarily due to higher non-cash equity compensation, additional headcount and related compensation expenses. Net income was $1.4 million, or $0.05 per diluted share, compared with $1.5 million, or $0.06 per diluted share, in the prior-year period. Chism said the comparison was affected by higher income tax expense following the removal of a valuation allowance on deferred tax assets during the fourth quarter of 2025. Second-quarter income tax expense was $413,000, compared with $69,000 a year earlier. TSS is investing approximately $17 million to expand its capacity to support NVIDIA’s Vera Rubin platform. Dewan said the investment, which began in the second quarter and is expected to be completed by mid-September, is primarily focused on power infrastructure and cooling capacity. The company has integrated NVIDIA H100, H200 and Blackwell chip families and is currently seeing significant GB300 volume, Dewan said. Chism said approximately $7 million to $8 million of the Vera Rubin-related buildout had been completed as of the end of the second quarter. He expects the investment to begin contributing incremental revenue during the third quarter, with the primary impact expected in the fourth quarter. During the question-and-answer session, Dewan said AI rack integration revenue increased sequentially, while a downturn in the company’s mainstream business affected systems integration revenue. He said that mainstream decline is not expected to remain an issue, while Chism cited increased demand for network racks as compute deployments expand. Management identified operational efficiency, technology readiness, available power and space, and supply-chain availability as factors influencing the pace at which systems integration can grow. Dewan said the Georgetown facility has capacity significantly above the minimum level in the company’s contract, estimating potential capability of two to three times that minimum if TSS executes efficiently. Facilities management growth included a rise in discrete project work to almost $2 million, compared with just under $500,000 in the prior-year quarter. Maintenance revenue declined to $746,000 from $1 million, as some customers did not renew agreements for older modular data centers. Chism said discrete refresh projects can help customers extend the useful lives of those units and support continued preventative-maintenance services. Facilities management gross profit rose to $1.6 million from $1.1 million, though gross margin declined to 57.1% from 74.3%. Chism said margins in the business are typically near 50% and that the prior-year quarter had an unusually high margin because certain maintenance agreements expired with lower associated costs. Effective May 1, TSS also began providing warehousing and logistics services to its largest customer, using its formerly vacant Round Rock, Texas, integration facility. The company accounts for the arrangement as an operating lease for GAAP purposes and reports it within the systems integration segment. TSS ended the quarter with $67.7 million in cash and cash equivalents and $16.1 million in total debt. Management said the balance sheet provides flexibility to continue investing in integration capabilities and support customer growth. Dewan also said TSS expects to install one new modular data center in September or October and another in mid-2027. The company has reorganized its sales team as it evaluates ways to broaden its customer base, capabilities and capacity while continuing to prioritize service for existing customers. TSS, Inc offers planning, design, engineering, construction management, commissioning and maintenance services. It provides these services primarily for specialized facilities such as data centers, communications rooms, call centers, laboratories, trading floors, network operations centers, medical facilities and similar environments. TSS Inc, formerly known as Fortress International Group, Inc, is based in Columbia, United States. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "TSS Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

TSS Inc. (TSSI) came out with quarterly earnings of $0.05 per share, missing the Zacks Consensus Estimate of $0.08 per share. This compares to earnings of $0.06 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of -37.50%. A quarter ago, it was expected that this company would post earnings of $0.04 per share when it actually produced earnings of $0.08, delivering a surprise of +100%. Over the last four quarters, the company has surpassed consensus EPS estimates two times. TSS, which belongs to the Zacks Engineering - R and D Services industry, posted revenues of $35.14 million for the quarter ended June 2026, missing the Zacks Consensus Estimate by 32.29%. This compares to year-ago revenues of $43.97 million. The company has topped consensus revenue estimates two times over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. TSS shares have added about 71.3% since the beginning of the year versus the S&P 500's gain of 13.2%. While TSS has outperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for TSS was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $0.07 on $50.3 million in revenues for the coming quarter and $0.32 on $213.4 million in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Engineering - R and D Services is currently in the bottom 37% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. One other stock from the same industry, Matrix Service (MTRX), is yet to report results for the quarter ended June 2026. This energy services company is expected to post quarterly earnings of $0.17 per share in its upcoming report, which represents a year-over-year change of +160.7%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. Matrix Service's revenues are expected to be $247.06 million, up 14.2% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report TSS Inc. (TSSI) : Free Stock Analysis Report Matrix Service Company (MTRX) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

Systems Integration Revenue Increased 46% Year-Over-Year, Representing 39% of Total Revenue ~$17 Million Investment Expected to Drive Increased Systems Integration Revenue from Next Generation AI Data Center Technology GEORGETOWN, TX / ACCESS Newswire / August 13, 2026 / TSS, Inc. (Nasdaq:TSSI), a data center services company that provides integration and related services for AI and other high-performance computing infrastructure and software, today reported results for its second quarter ended June 30, 2026, showing a continued strategic shift of its revenue base toward higher margin AI and infrastructure services. Systems integration revenue grew 46% year-over-year Facilities management revenue grew 84% Reduction in total revenues reflects shift from lower margin procurement business to higher margin systems integration and facilities management business lines The company began deploying capital for its planned $17 million investment in readiness for the next generation of AI data center technology, which is expected to convert into higher systems integration revenues beginning in the third quarter of 2026 "Systems integration revenue represented 39% of total revenues in the quarter, compared with just 22% in the prior year quarter. Over time, we expect growth in Systems Integration will continue to outpace the other segments of our business given the strong demand signals we are seeing and our proven ability to address complex technology needs," said Darryll Dewan, CEO of TSS, Inc. Second Quarter 2026 Financial Highlights: (All comparisons are to Second Quarter 2025) Revenues of $35.1 million, down 20%, with growth in higher margin business lines Gross profit of $8.0 million, up 11% Pre-tax income up 19% on favorable leveraging of expense structure Net income of $1.4 million and Diluted EPS of $0.05, compared to net income of $1.5 million and Diluted EPS of $0.06 after full tax provision, following Q4 2025 removal of valuation allowance on deferred tax asset Adjusted EBITDA of $4.5 million, up 12%, reflecting a shift in total revenues to higher margin systems integration Year-to-Date 2026 Financial Highlights: (All comparisons are to the First Six Months of 2025) Revenues of $90.5 million, down 37%, with growth skewed towards higher margin business lines Gross profit of $16.8 million, up 2% Pre-tax income of $4.5 million, down only 1% despite comparison to record procurement revenues in the prior year period Net income of $3.7 million and Diluted EPS of $0.13 compared to net income of $4.5 million and Diluted EPS of $0.17 after full tax provision, following Q4 2025 removal of valuation allowance on deferred tax asset Adjusted EBITDA of $9.8 million, up 5%, reflecting a shift in total revenues to higher margin systems integration 2026 Outlook Dewan concluded, "Looking ahead, we expect the second half of this year to be stronger than the first half with accelerated growth in Systems Integration as we continue to see strong demand across our business. We maintain our 2026 outlook for Adjusted EBITDA to be at the upper end of our $20 million to $22 million range. Conference Call Details The Company will conduct a conference call at 5 p.m. Eastern time today. To participate on the conference call, please dial 888-506-0062 toll free from the U.S. or Canada. Other international callers may access the call at 1-973-528-0011. The event ID is 473873. Investors may also access a live audio webcast of this conference call and replay the call for one year following the webcast at https://www.webcaster5.com/Webcast/Page/2294/54255. About Non-GAAP Financial Measures Adjusted EBITDA is a supplemental financial measure not defined under Generally Accepted Accounting Principles (GAAP). We define Adjusted EBITDA as net income (loss) before net interest expense and bank factoring costs, income taxes, depreciation and amortization, impairment loss on goodwill and other intangibles, stock-based compensation, and certain extraordinary items. We present Adjusted EBITDA because we believe this supplemental measure of operating performance is helpful in comparing our operating results across reporting periods on a consistent basis by excluding items that may or could have a disproportionately positive or negative impact on our results of operations in any particular period. We also use Adjusted EBITDA as a factor in evaluating the performance of certain management personnel when determining incentive compensation. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with Regulation G under the U.S. federal securities laws, Adjusted EBITDA has been reconciled to the nearest GAAP measure; this reconciliation is located under the heading "Adjusted EBITDA Reconciliation" following the Consolidated Statements of Operations included in this press release. The Company is unable to provide a reconciliation of forward-looking Adjusted EBITDA to GAAP net income because certain reconciling items are outside the Company's control or cannot be reasonably predicted without unreasonable efforts. These items may include stock-based compensation expense, fluctuations in prevailing interest rates and the resulting impacts on bank factoring fees, interest expense and interest income, and other adjustments that may be material. About TSS, Inc. TSS specializes in simplifying the complex. The TSS mission is to streamline the integration and deployment of high-performance computing infrastructure and software, ensuring that end users quickly receive and efficiently utilize the necessary technology. Known for flexibility, the company builds, integrates, and deploys custom, high-volume solutions that empower data centers and catalyze the digital transformation of generative AI and other leading-edge technologies essential for modern computing, data, and business needs. TSS' reputation is built on passion and experience, quality, and fast time to value. As trusted partners of the world's leading data center technology providers, the company manages and deploys billions of dollars in technology each year. For more information, visit www.tssiusa.com. Forward Looking Statements This press release may contain "forward-looking statements" -- that is, statements related to future -- not past -- events, plans, and prospects. In this context, forward-looking statements may address matters such as our expected future business and financial performance, and often contain words such as "guidance," "forecast," "prospects," "expects," "anticipates," "intends," "plans," "believes," "seeks," "should," or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Particular uncertainties that could adversely or positively affect our future results include: we may not have sufficient resources to fund our business and may need to issue debt or equity to obtain additional funding; our reliance on a significant portion of our revenues from a limited number of customers and our ability to diversify our customer base; risks relating to operating in a highly competitive industry; risks relating to supply chain challenges; risk related to changes in labor market conditions; risks related to the implementation of a new enterprise resource IT system; risks related to the development of our procurement services business; risks relating to rapid technological, structural, and competitive changes affecting the industries we serve; risks involved in properly managing complex projects; risks relating to the possible cancellation of customer contracts on short notice; risks relating to our ability to continue to implement our strategy, including having sufficient financial resources to carry out that strategy; and other risks and uncertainties disclosed in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2025. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. Contacts: Hayden IR TSS, Inc. James Carbonara (646) 755-7412 Danny Chism, CFOBrett Maas (646) 536-7331 (512) [email protected] [email protected] -- Tables Follow - TSS, Inc.Condensed Consolidated Balance Sheets(In thousands) TSS, Inc.Consolidated Statements of Operations(Unaudited, In thousands except per-share values) TSS, Inc.Adjusted EBITDA Reconciliation (GAAP to non-GAAP)(Unaudited, In thousands) SOURCE: TSS, Inc. View the original press release on ACCESS Newswire

Find winning stocks in any market cycle. Join 7 million investors using Simply Wall St's investing ideas for FREE. TSS (TSSI) recently reported first quarter 2026 results, with overall revenue and earnings per share down from a strong prior year period, while systems integration activity tied to AI and high-performance computing gained ground. See our latest analysis for TSS. The stock has been volatile around these updates, with the share price falling 24.1% on the day to US$12.02 and down 17.5% over the past week. Despite this, it still shows a 56.3% year to date share price gain and a very large 3 year total shareholder return. If AI infrastructure is on your radar after TSS's latest quarter, it may be worth scanning other opportunities through our screener of 38 AI infrastructure stocks With TSS guiding toward the high end of its 2026 adjusted EBITDA range and the stock still up sharply year to date despite the recent pullback, you have to ask: is this a fresh entry point, or is future growth already priced in? At a last close of $12.02 versus a narrative fair value of $15, the current price sits below what the most followed storyline is assuming. Read the complete narrative. Want to see what margin profile this narrative is banking on, and how earnings and revenue interplay to justify that valuation path? The full narrative lays out the assumptions that sit behind the $15 fair value call and the earnings trajectory needed to get there. Result: Fair Value of $15 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, you still need to weigh the heavy reliance on a single OEM partner and the underused Georgetown facility, as either factor could pressure margins and earnings. Find out about the key risks to this TSS narrative. While the community narrative sees TSS as 19.9% undervalued at $12.02 versus a $15 fair value, the Simply Wall St DCF model is less generous. On that cash flow view, the stock at $12.02 sits well above an estimated value of $5.15, which points to downside risk rather than upside. Which lens do you trust more when both are using the same business story? Look into how the SWS DCF model arrives at its fair value. Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TSS for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 49 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity. Are you seeing mixed signals on value and risk so far? Take a moment to review the underlying data and form your own view with 1 key reward and 4 important warning signs. If TSS has sharpened your interest in where capital could work harder, do not stop here, because the next opportunity may already be on your screen. Target potential value opportunities by scanning 49 high quality undervalued stocks that pair solid fundamentals with prices that may not fully reflect their underlying business strength. Strengthen your income stream by reviewing 12 dividend fortresses built around stocks offering yields of 5% or higher with a focus on resilience. Prioritize capital preservation by filtering for 71 resilient stocks with low risk scores that keep risk scores in check while still offering room for upside. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include TSSI. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

5 Small Cap Stocks With Explosive Upside Potential TSS (NASDAQ:TSSI) reported a sharp year-over-year decline in first-quarter revenue as procurement activity normalized from unusually high levels a year earlier, but executives said growth in the company’s higher-margin systems integration business helped support profitability and reinforced its 2026 outlook. The company reported first-quarter 2026 revenue of $55.3 million, down from $99 million in the prior-year period. Chief Financial Officer Danny Chism said the decrease was driven primarily by lower procurement services revenue, which fell 56% to $40 million from $90.2 million a year earlier. → Insider Sales: Top AST SpaceMobile Insider Cuts Postion Over 30% Procurement revenue is “a meaningful yet inherently variable component” of the business, Chism said, adding that last year’s first quarter benefited from “extraordinarily high” procurement activity tied to customer infrastructure purchasing cycles. Systems integration revenue rose 88% year over year to $14.1 million from $7.5 million, reflecting demand for large-scale infrastructure deployments and the impact of a renegotiated long-term AI rack integration agreement signed in the fourth quarter of 2025. Facilities management revenue was $1.3 million, in line with the prior-year quarter. → Light Speed Returns: Corning Cashes In on NVIDIA Growth President and Chief Executive Officer Darryll Dewan said the company’s first-quarter results reflected “continued execution” of its growth plan and accelerating momentum in systems integration, particularly tied to demand for AI-related infrastructure. “Demand for AI infrastructure remains at an all-time high and is showing no signs of abating,” Dewan said. He said customers are scaling deployments to meet demand for AI services and servers, and that the company has expanded capacity to support that growth. → Years in the Making, AMD’s Upside Movement Has Just Begun Systems integration represented 25% of total revenue in the first quarter, up from 8% in the prior-year period, when procurement made up a larger portion of revenue. Chism said the shift in mix helped lift consolidated gross margin to 15.9% from 9.3% a year earlier. Systems integration gross margin increased to 37.5% from 22.1% in the first quarter of 2025. Chism attributed the improvement to higher AI rack volumes and the renegotiated agreement, which increased rates to recapture capital investments and additional power availability. Facilities management gross margin also improved, rising to 64.7% from 40.9%, which Chism said reflected greater use of internal resources instead of subcontractors on discrete projects. Procurement gross margin was 6.7%, down from 7.8% a year earlier, with the prior-year period benefiting from a large sale with a higher-than-normal margin. Operating income fell 14% to $2.3 million from $2.6 million in the prior-year quarter. Net income was $2.3 million, down 24% from $3 million, and diluted earnings per share were $0.08 compared with $0.12 a year earlier. Chism said the decrease in net income was driven primarily by the more normalized level of procurement activity and higher recorded income tax expense. The company recorded income tax expense of $391,000, or 14.7% of pretax income, compared with $49,000, or 1.6%, in the prior-year quarter. Chism said the change followed the fourth-quarter 2025 reversal of a valuation allowance on the company’s deferred tax asset. Adjusted EBITDA was $5.3 million, up 1% from $5.2 million a year earlier. Dewan said the result reflected a more favorable sales mix as well as investments related to the company’s new facility. SG&A expenses increased 13% to $5.5 million, with Chism citing stock-based compensation and higher headcount and compensation costs to support growth. Bank factoring fees declined to $704,000 from $1.5 million, reflecting lower receivables factored and favorable interest-rate shifts. Dewan said TSS has expanded its ability to handle AI rack integration at its Georgetown, Texas, facility, which opened less than a year ago and began flowing orders about six to seven months ago. He said that within May, the company expected to have completed more AI rack integrations in 2026 than it delivered in all of 2025. “Importantly, we have remaining capacity within our existing footprint to support additional growth as demand requires,” Dewan said. The company has also dedicated its previously idle Round Rock facility to warehousing AI rack material for its largest OEM customer. Dewan said the service began May 1 and is included in the company’s adjusted EBITDA guidance for the year. During the question-and-answer session, Dewan said TSS can grow “multiples” over current levels in the Georgetown facility, depending on the technology mix and validation test times. He said reducing rack validation testing times could allow the company to push more volume through the business, potentially increasing output significantly with the current load. Chism said the company’s primary customer recently requested that TSS invest about $17 million in capital expenditures to support the next generation of AI racks. He said the investment is expected to be made between now and the third quarter, with assets put into use relatively quickly after completion. In response to an analyst question, Chism said the investment is not tied to a new facility, but rather to technology moving to “Vera Rubin,” which requires higher power and more cooling. He said TSS expects to earn a “healthy return” over several years through higher pricing that recaptures the investment. Dewan said the company is positioning itself to compete for work tied to the next-generation technology and said the opportunity could be incremental, though the exact capacity impact remains to be determined. TSS maintained its full-year adjusted EBITDA outlook of $20 million to $22 million, with Dewan saying the company expects results to be at the high end of the previously set range. He said the outlook is supported by a multiyear agreement, revenue visibility, downside protection, expanded capacity and a strengthened leadership team. The company also highlighted the recent appointments of Matt Wallace as chief strategy officer and David Hull as chief technology officer. Dewan said Wallace brings experience in corporate strategy, business transformation and strategic partnerships, while Hull brings engineering and infrastructure leadership experience related to large-scale deployments. Dewan said TSS is reassessing the markets it serves, including the potential to address rack integration requirements beyond its historical OEM customer base and to offer services beyond AI rack integration. He cited increasingly complex data center designs, higher power density, cooling requirements and evolving networking needs as factors that could create additional opportunities. “We are being very deliberate in how we position a business for the next phase of growth,” Dewan said. “We’ve expanded capacity, optimized our footprint, strengthened our leadership team with additions that bring both experience and industry connectivity.” TSS, Inc offers planning, design, engineering, construction management, commissioning and maintenance services. It provides these services primarily for specialized facilities such as data centers, communications rooms, call centers, laboratories, trading floors, network operations centers, medical facilities and similar environments. TSS Inc, formerly known as Fortress International Group, Inc, is based in Columbia, United States. The article "TSS Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for May 2026.

Total Revenue of $55.3 Million Systems Integration Revenue Increased 88% Year-Over-Year Refines Full-Year 2026 Outlook; Now Expects Adjusted EBITDA Toward High End of $20 to $22 Million Range GEORGETOWN, TX / ACCESS Newswire / May 7, 2026 / TSS, Inc. (Nasdaq:TSSI), a data center services company that integrates AI and other high-performance computing infrastructure and software and provides related data center services, today reported results for its first quarter ended March 31, 2026. "We delivered strong growth in our higher margin Systems Integration business in the first quarter, with revenue increasing 88% year over year, driven by strong customer demand and solid operational execution with growth particularly high in our AI activities," said Darryll Dewan, CEO of TSS, Inc. "Total revenue comparisons were affected by record high volumes in the first quarter of last year in our lower-margin Procurement business, which can vary from quarter to quarter. Importantly, our first quarter results were in line with our expectations, underscore the strength of our core business and reinforce our confidence in achieving our outlook for the full year. "Our Georgetown, Texas AI rack integration facility has been running at increasing scale for six months. As a result, our quarterly EBITDA levels have grown and will continue to grow along with AI rack volumes. We are working to expand the markets we serve in terms of both customers and service offering. We have strengthened our leadership team with the addition of a chief strategy officer and a chief technology officer, whose deep industry expertise, proven leadership and extensive global networks position us to accelerate both organic expansion and strategic growth initiatives within our current customer base as well as opportunities to expand beyond our current customers." First Quarter 2026 Financial Highlights: (All comparisons are to First Quarter 2025) Revenues of $55.3 million, down 44% Procurement revenues of $40.0 million, down 56% Systems Integration revenues of $14.1 million, up 88% Facilities Management revenues of $1.3 million, down 1% Gross profit of $8.8 million, down 4% Reflects current year $0.9 million allocation of depreciation to COGS Net income of $2.3 million, down 24% Reflects full impact of income taxes following removal of valuation allowance on deferred tax asset in Q4 2025 Diluted EPS of $0.08 compared to $0.12 Adjusted EBITDA of $5.3 million, up 1%, reflecting a shift in total revenues to higher margin systems integration 2026 Outlook Dewan concluded, "We maintain our outlook for Adjusted EBITDA in the range of $20 million to $22 million for 2026 with performance expected toward the higher end of the range. Our forecast reflects a prudent view on component availability, with total integration demand continuing to exceed the volume incorporated into our outlook." Conference Call Details The Company will conduct a conference call at 5:00 p.m. Eastern time today. To participate on the conference call, please dial 888-506-0062 toll free from the U.S. or Canada. Other international callers may access the call at 1-973-528-0011. The event ID number is 804808. Investors may also access a live audio webcast of this conference call and replay the call for one year following the webcast, at https://www.webcaster5.com/Webcast/Page/2294/53895. About Non-GAAP Financial Measures Adjusted EBITDA is a supplemental financial measure not defined under Generally Accepted Accounting Principles (GAAP). We define Adjusted EBITDA as net income (loss) before net interest expense and bank factoring costs, income taxes, depreciation and amortization, impairment loss on goodwill and other intangibles, stock-based compensation, and certain extraordinary items. We present Adjusted EBITDA because we believe this supplemental measure of operating performance is helpful in comparing our operating results across reporting periods on a consistent basis by excluding items that may or could have a disproportionately positive or negative impact on our results of operations in any particular period. We also use Adjusted EBITDA as a factor in evaluating the performance of certain management personnel when determining incentive compensation. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with Regulation G under the U.S. federal securities laws, Adjusted EBITDA has been reconciled to the nearest GAAP measure; this reconciliation is located under the heading "Adjusted EBITDA Reconciliation" following the Consolidated Statements of Operations included in this press release. The Company is unable to provide a reconciliation of forward-looking Adjusted EBITDA to GAAP net income because certain reconciling items are outside the Company's control or cannot be reasonably predicted without unreasonable efforts. These items may include stock-based compensation expense, fluctuations in prevailing interest rates and the resulting impacts on bank factoring fees, interest expense and interest income, and other adjustments that may be material. About TSS, Inc. TSS specializes in simplifying the complex. The TSS mission is to streamline the integration and deployment of high-performance computing infrastructure and software, ensuring that end users quickly receive and efficiently utilize the necessary technology. Known for flexibility, the company builds, integrates, and deploys custom, high-volume solutions that empower data centers and catalyze the digital transformation of generative AI and other leading-edge technologies essential for modern computing, data, and business needs. TSS' reputation is built on passion and experience, quality, and fast time to value. As trusted partners of the world's leading data center technology providers, the company manages and deploys billions of dollars in technology each year. For more information, visit www.tssiusa.com. Forward Looking Statements This press release may contain "forward-looking statements" -- that is, statements related to future -- not past -- events, plans, and prospects. In this context, forward-looking statements may address matters such as our expected future business and financial performance, and often contain words such as "guidance," "forecast," "prospects," "expects," "anticipates," "intends," "plans," "believes," "seeks," "should," or "will." Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Particular uncertainties that could adversely or positively affect our future results include: we may not have sufficient resources to fund our business and may need to issue debt or equity to obtain additional funding; our reliance on a significant portion of our revenues from a limited number of customers and our ability to diversify our customer base; risks relating to operating in a highly competitive industry; risks relating to supply chain challenges; risk related to changes in labor market conditions; risks related to the implementation of a new enterprise resource IT system; risks related to the development of our procurement services business; risks relating to rapid technological, structural, and competitive changes affecting the industries we serve; risks involved in properly managing complex projects; risks relating to the possible cancellation of customer contracts on short notice; risks relating to our ability to continue to implement our strategy, including having sufficient financial resources to carry out that strategy; and other risks and uncertainties disclosed in our filings with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2025. These uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. -- Tables Follow -- TSS, Inc. Condensed Consolidated Balance Sheets (In thousands) TSS, Inc. Consolidated Statements of Operations (Unaudited, In thousands except per-share values) TSS, Inc. Adjusted EBITDA Reconciliation (GAAP to non-GAAP) (Unaudited, In thousands) SOURCE: TSS, Inc. View the original press release on ACCESS Newswire