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TSS Posts Flat Y/Y Q2 Earnings, Raises Guidance on AI Growth
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Shares of TSS, Inc. (TSSI - Free Report) have declined 23.7% since reporting results for the second quarter of 2025, while the S&P 500 index rose 0.7% over the same period. Over the past month, the stock has fallen 10.1% against the S&P 500’s 1.8% growth.
In the June-end quarter, TSS posted revenues of $44 million, skyrocketing 262% year over year, while diluted EPS held flat at 6 cents per share. Net income rose by $0.1 million to $1.5 million, and gross profit increased 72% to $7.8 million. The company’s adjusted EBITDA soared 103% year over year to $4 million.
Growth was concentrated in two segments. Procurement revenues surged 572% to $33 million from a year earlier, and Systems Integration increased 91% year over year to $9.5 million. Facilities Management declined 35% to $1.5 million, though management noted a sequential uptick of $0.2 million versus the first quarter. The gross margin for the consolidated business was 17.8%, down from 37.3% a year ago but improved from 9.3% in the first quarter.
CFO Danny Chism added color on profitability by segment. Systems Integration margin moved up to 44% (from 43%), Facilities Management held at 74% and Procurement posted a 7.7% GAAP gross margin. On a non-GAAP gross value of transactions basis, The Procurement margin improved to 3.9% from 3.4%, with the gross value of those transactions skyrocketing 213% to $65.7 million.
Management commentary
CEO Darryll Dewan said the 213,000-square-foot Georgetown, TX-based facility became fully operational late in the quarter and is a strategic asset designed to support rapid scaling of integration services for advanced AI hardware. He framed demand for AI-enabled infrastructure as exceptionally strong and described the company as positioned to scale capacity and address complexity as customers accelerate deployments. Dewan also highlighted that first-half revenues exceeded second-half 2024 levels, reinforcing confidence in a “record year.”
Factors influencing the headline numbers
Two mixed effects shaped the results. Outsized growth in lower-margin Procurement (including a greater proportion of gross versus net deals) compressed the consolidated gross margin despite solid segment profitability elsewhere. Operating expenses reflected higher headcount and a sharp increase in depreciation tied to the Georgetown facility, which was placed into service in May; management expects a full quarter of depreciation expenses in the third quarter. Interest expenses rose as well, driven by the construction loan for the new facility and higher activity around procurement transactions, partially offset by interest income on cash.
Guidance
Management raised its 2025 adjusted EBITDA outlook to at least 75% growth versus 2024 from the prior guidance of at least 50%. On the call, executives characterized the new target as a floor rather than a ceiling, citing a strengthening pipeline in AI rack integration and ongoing momentum in procurement. The press release also flags the higher target and the rationale — confidence from first-half execution and improved visibility into the back half.
Other Developments
The company completed the move to the Georgetown headquarters and production site. It continued to invest heavily in power and cooling capacity, including direct liquid cooling, to handle rapidly rising rack densities (management is preparing for 300-kilowatt racks and discussed a potential path toward 1 megawatt).
On financing, TSS converted its construction facility into a fully amortizing loan in July, requested a $5-million accordion, and expects to receive $6.8 million in tenant-improvement reimbursements in the third quarter. Net working capital turned negative, given the scale of capital expenditure, but cash and restricted cash totaled roughly $41.8 million at quarter-end, supported by $37 million of operating cash flow in the first half. Management is also exploring a sublease of the legacy Round Rock facility, which, if executed, may improve operating income in the future.
Overall, TSS delivered exceptional top-line growth and stronger cash generation, offset by expected margin and expense pressures associated with scale-up and facility ramp. The increased adjusted EBITDA outlook, combined with a fully operational Georgetown site and a deepening AI integration pipeline, frames an execution-heavy second half.
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TSS Posts Flat Y/Y Q2 Earnings, Raises Guidance on AI Growth
Shares of TSS, Inc. (TSSI - Free Report) have declined 23.7% since reporting results for the second quarter of 2025, while the S&P 500 index rose 0.7% over the same period. Over the past month, the stock has fallen 10.1% against the S&P 500’s 1.8% growth.
In the June-end quarter, TSS posted revenues of $44 million, skyrocketing 262% year over year, while diluted EPS held flat at 6 cents per share. Net income rose by $0.1 million to $1.5 million, and gross profit increased 72% to $7.8 million. The company’s adjusted EBITDA soared 103% year over year to $4 million.
TSS Inc. Price, Consensus and EPS Surprise
TSS Inc. price-consensus-eps-surprise-chart | TSS Inc. Quote
Other key business metrics
Growth was concentrated in two segments. Procurement revenues surged 572% to $33 million from a year earlier, and Systems Integration increased 91% year over year to $9.5 million. Facilities Management declined 35% to $1.5 million, though management noted a sequential uptick of $0.2 million versus the first quarter. The gross margin for the consolidated business was 17.8%, down from 37.3% a year ago but improved from 9.3% in the first quarter.
CFO Danny Chism added color on profitability by segment. Systems Integration margin moved up to 44% (from 43%), Facilities Management held at 74% and Procurement posted a 7.7% GAAP gross margin. On a non-GAAP gross value of transactions basis, The Procurement margin improved to 3.9% from 3.4%, with the gross value of those transactions skyrocketing 213% to $65.7 million.
Management commentary
CEO Darryll Dewan said the 213,000-square-foot Georgetown, TX-based facility became fully operational late in the quarter and is a strategic asset designed to support rapid scaling of integration services for advanced AI hardware. He framed demand for AI-enabled infrastructure as exceptionally strong and described the company as positioned to scale capacity and address complexity as customers accelerate deployments. Dewan also highlighted that first-half revenues exceeded second-half 2024 levels, reinforcing confidence in a “record year.”
Factors influencing the headline numbers
Two mixed effects shaped the results. Outsized growth in lower-margin Procurement (including a greater proportion of gross versus net deals) compressed the consolidated gross margin despite solid segment profitability elsewhere. Operating expenses reflected higher headcount and a sharp increase in depreciation tied to the Georgetown facility, which was placed into service in May; management expects a full quarter of depreciation expenses in the third quarter. Interest expenses rose as well, driven by the construction loan for the new facility and higher activity around procurement transactions, partially offset by interest income on cash.
Guidance
Management raised its 2025 adjusted EBITDA outlook to at least 75% growth versus 2024 from the prior guidance of at least 50%. On the call, executives characterized the new target as a floor rather than a ceiling, citing a strengthening pipeline in AI rack integration and ongoing momentum in procurement. The press release also flags the higher target and the rationale — confidence from first-half execution and improved visibility into the back half.
Other Developments
The company completed the move to the Georgetown headquarters and production site. It continued to invest heavily in power and cooling capacity, including direct liquid cooling, to handle rapidly rising rack densities (management is preparing for 300-kilowatt racks and discussed a potential path toward 1 megawatt).
On financing, TSS converted its construction facility into a fully amortizing loan in July, requested a $5-million accordion, and expects to receive $6.8 million in tenant-improvement reimbursements in the third quarter. Net working capital turned negative, given the scale of capital expenditure, but cash and restricted cash totaled roughly $41.8 million at quarter-end, supported by $37 million of operating cash flow in the first half. Management is also exploring a sublease of the legacy Round Rock facility, which, if executed, may improve operating income in the future.
Overall, TSS delivered exceptional top-line growth and stronger cash generation, offset by expected margin and expense pressures associated with scale-up and facility ramp. The increased adjusted EBITDA outlook, combined with a fully operational Georgetown site and a deepening AI integration pipeline, frames an execution-heavy second half.