Shares of TSS, Inc. (TSSI Quick QuoteTSSI - Free Report) have fallen sharply following the release of its fiscal third-quarter 2025 results. Since reporting earnings, the stock has declined 20.8%, a notably steeper pullback than the S&P 500’s 3.1% drop over the same period. Over the past month, TSSI shares are down 52.9%, while the S&P 500 has slipped a comparatively modest 1.2%.

Earnings & Revenue Performance of TSSI

In the September-end quarter, revenues fell 40% year over year to $41.9 million, pressured primarily by a sharp drop in procurement activity, which was up against an unusually strong comparison period. Procurement revenues declined 49% to $31.1 million, though Systems Integration revenues rose 20% to $9.2 million, and Facilities Management dipped 19%year over year to $1.6 million. The gross profit fell 41% year over year to $4.6 million, reflecting both lower volumes and the introduction of new operations-related depreciation in the cost of goods sold.

The company posted a net loss of $1.5 million compared with net income of $2.6 million a year earlier, and diluted EPS swung to a loss of 6 cents against earnings of 10 cents in the prior-year quarter. Adjusted EBITDA declined 66% to $1.5 million. For the first nine months of 2025, revenues rose 88% to $184.8 million, and adjusted EBITDA increased 59% despite a 27% decline in net income.

TSS Inc. Price, Consensus and EPS Surprise

TSS Inc. price-consensus-eps-surprise-chart | TSS Inc. Quote

Other Key Business Metrics of TSSI

TSS’ revenue mix continues to skew heavily toward procurement, though higher-margin segments are expanding their contribution. In the company’s investor presentation, procurement accounted for 84% of year-to-date 2025 revenues but only 58% of gross profit, while Systems Integration (“SI”) and Facilities Management (“FM”) represented a combined 42% of gross profit despite generating just 16% of revenues. SI remains a critical growth driver, supported by rising demand for AI-enabled rack integration, though third-quarter volumes came in below internal expectations due to operational bottlenecks. FM, still the smallest segment at roughly 4% of revenues, delivered 55% gross margins in the quarter, up from 37% a year ago.

Balance sheet strength was a notable positive. Cash and equivalents rose to $70.7 million as of Sept. 30, 2025 from $23.2 million at year-end 2024, aided by operating cash flow of $18.5 million and proceeds from a secondary offering. Working capital improved to $34.3 million from $1.3 million over the same period. The company has also invested $32.2 million year to date in building out its new Georgetown, TX, integration facility, which will expand power availability to 15 MW and more than double operating space.

TSSI: Management Commentary

Management emphasized that the third-quarter shortfall stemmed from execution challenges rather than weakening demand. CEO Darryll Dewan cited “unforeseen operational requirements” at the new Georgetown facility, including additional power upgrades, ERP integration work and expanded staffing needs. These issues caused delays that reduced SI rack volume during the quarter. Dewan characterized the setback as “a quarter of delay in ramping with significant learning,” adding that corrective measures have already resulted in “dramatically higher rack volumes in our fourth quarter.”

The company reiterated strong demand from hyperscalers and enterprise customers investing in AI infrastructure. Procurement activity was temporarily disrupted by a U.S. government shutdown, which paused processing of federal deals. Management stated it expects these orders to resume, but has adopted a more cautious fourth-quarter procurement forecast until the timing normalizes.

Factors Influencing TSSI’s Q3 Results

The most significant drag on third-quarter performance was procurement variability. The company stressed that this business can “fluctuate wildly” based on deal timing and revenue recognition methods — factors that created a difficult comparison against an exceptionally strong third quarter of 2024. Lower procurement volume also reduced the scale efficiencies that typically benefit margins.

Within SI, margins compressed sharply to 13% from 45% a year ago as the company began allocating $1 million in new facility-related depreciation to the cost of goods sold. Power costs at the expanded site also weighed heavily on profitability: TSS incurred more than $900,000 in electrical costs in the third quarter, nearly $800,000 of which were fixed charges, but recovered only about 20% of these costs from customers due to the lower rack volume.

Guidance by TSSI

Despite the third-quarter miss, TSS reaffirmed a bullish near-term outlook. Management now expects full-year 2025 adjusted EBITDA growth of 50% to 75% over 2024, slightly below the prior outlook but still implying a strong rebound in the fourth quarter, driven by higher SI volume and improved FM activity. For 2026, the company initiated guidance calling for 40% to 50% organic EBITDA growth, supported by increased visibility into customer demand and the continued ramp-up of the Georgetown facility.

Other Developments at TSSI

During the quarter, TSS appointed technology industry veteran Vivek Mohindra to its board of directors. Mohindra, currently Special Advisor to the Vice Chair and COO of Dell Technologies, brings extensive experience in AI, strategy and enterprise transformation. The company views his addition as an important step in accelerating its strategic expansion across AI, edge computing and modular data-center offerings.