TSS Earnings Call: Growth Amid Challenges

TSS ((TSSI)) has held its Q3 earnings call. Read on for the main highlights of the call.

During the recent earnings call, TSS conveyed a mixed sentiment. The company celebrated significant year-to-date growth and strategic investments, particularly in AI and high-performance computing. However, challenges such as third-quarter revenue declines, operational issues at a new facility, and impacts from a government shutdown were also highlighted. Despite these hurdles, the company remains optimistic about future growth prospects.

Exceptional Year-to-Date Growth

TSS reported an impressive 88% increase in revenues and a 59% rise in adjusted EBITDA compared to the previous year. The company also achieved a positive cash flow from operations amounting to $18.5 million, showcasing robust financial health.

Systems Integration Business Growth

The systems integration segment experienced a 20% revenue growth, driven by the rising demand for AI-enabled infrastructure. This growth underscores the company’s strategic focus on expanding its capabilities in cutting-edge technologies.

Strategic Investments and Expansion

TSS opened a new facility in Georgetown, designed to meet the growing demand with enhanced electrical capacity to support next-generation chip technology. This move is part of the company’s broader strategy to expand its operational footprint.

Positive Financial Position

The company successfully raised $113 million through a stock offering, strengthening its balance sheet. This financial maneuver positions TSS to make further strategic investments in its core areas of focus.

Strong Future Outlook

Looking ahead, TSS expects another record year in 2026, with initial guidance suggesting 40% to 50% organic EBITDA growth. This optimistic forecast is supported by strategic investments and potential acquisitions.

Third Quarter Revenue Decline

Despite overall growth, TSS faced a year-over-year decline in third-quarter revenues, primarily due to lower revenues from procurement services. This dip highlights some of the challenges the company is navigating.

Operational Challenges in New Facility

The new facility in Georgetown encountered delays in ramping up rack integration volumes due to unforeseen operational requirements. Process improvements are needed to optimize operations.

Impact of Government Shutdown

The government shutdown adversely affected procurement services, leading to uncertainty in deal closures and a cautious forecast for the fourth quarter.

Facilities Management Revenue Drop

The facilities management segment saw a 19% year-over-year revenue decline, although there was a sequential increase. This segment represents a smaller portion of the company’s overall revenue.

Increased Costs and Expenses

TSS experienced higher SG&A expenses due to increased headcount and noncash stock compensation. Additionally, significant unabsorbed electricity costs contributed to the rise in expenses.

Forward-Looking Guidance

TSS remains optimistic about its future, anticipating a strong rebound in adjusted EBITDA in the fourth quarter. The company projects full-year 2025 EBITDA growth of 50% to 75% and expects 40% to 50% organic EBITDA growth in 2026. These forecasts are bolstered by strategic investments and potential acquisitions in AI, edge computing, and modular data centers.

In summary, TSS’s earnings call presented a balanced view of the company’s current position and future prospects. While celebrating significant growth and strategic investments, the company acknowledged challenges such as revenue declines and operational issues. Nevertheless, TSS remains confident in its ability to achieve substantial growth in the coming years.