TSS, Inc.'s Q3 2025: Contradictions Emerge in Customer Diversification, Operational Delays, and Growth Forecasts

Date of Call: November 13, 2025

Financials Results

• Revenue: $41.9M for Q3 2025, down from $70.1M in Q3 2024 (year-over-year); 9M 2025 revenue ~ $185M, up 88% YOY
• EPS: -$0.06 per diluted share (loss) in Q3 2025, compared to $0.10 diluted EPS in Q3 2024
• Gross Margin: Consolidated 11.1% in Q3 2025, roughly unchanged from 11.3% in Q3 2024; segment detail: procurement 8.3% (was 6.1%), non-GAAP procurement 5.3% (was 4.7%), Facilities Management 55% (was 37%), Systems Integration 13% (was 45% — ~11 ppt impact from newly allocated operations depreciation)
• Operating Margin: Operating loss of $0.93M in Q3 2025, versus operating income of $3.8M in Q3 2024

Guidance:

• Q4: expect a strong rebound in adjusted EBITDA driven by higher Systems Integration rack volumes; slightly more cautious on procurement timing due to government shutdown paperwork.
• Full-year 2025 adjusted EBITDA growth expected to be 50%–75% versus 2024.
• Initial 2026 outlook: 40%–50% organic EBITDA growth year-over-year; pursuing M&A, partnerships and portfolio expansion to accelerate growth.
• Expect SI revenues to grow substantially in Q4 and 2026; operations-related depreciation and fixed power costs to persist.

Business Commentary:

• Revenue and Earnings Performance:
• TSSI reported revenue of $41.9 million for Q3 2025, down from $70.1 million in the same period last year.
• Year-to-date revenues were up 88% to $185 million, with procurement revenues more than doubling.
• The decrease in Q3 revenue was primarily due to lower revenues from procurement services, while adjusted EBITDA increased by 59%.

• The decline in procurement was attributed to the high revenue attainment in the same period last year and delays due to the government shutdown.

• Systems Integration Growth:

• The systems integration business reported a 20% revenue increase, driven by the integration of AI-enabled racks for the company's largest customer.
• 
• This growth was impacted by process improvements and higher electrical capacity investments.

• Ramp-up delays were experienced due to more rigorous service and systems process work, but Q4 volumes are expected to be significantly greater.

• Facilities Management and Strategic Investments:

• Facilities management revenues declined 19% year-over-year but were up 7% sequentially.
• TSSI plans strategic investments in this segment to drive future growth amidst early signs of new demand.

• The decline was partly due to supply chain issues and delayed deliveries, with expectations for improved performance in Q4.

• Outlook and Strategic Initiatives:
• TSSI anticipates a full-year 2025 EBITDA growth of 50% to 75% over last year, driven by higher rack volumes in systems integration.
• The company is actively exploring strategic acquisitions and partnerships to enhance shareholder value and expand its portfolio in AI, edge computing, and modular segments.
• TSSI is leveraging its strong balance sheet and recent capital raise to pursue and invest in strategic new opportunities.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted YTD revenue up 88% and adjusted EBITDA up 59% with $18.5M operating cash flow, called for a Q4 rebound in adjusted EBITDA, reiterated full-year 2025 EBITDA growth of 50%–75% vs 2024 and initial 2026 EBITDA growth guidance of 40%–50%, and described balance sheet strengthening from a secondary offering and confidence to pursue M&A and expansions.

Q&A:

• Question from Kris Tuttle (Blue Caterpillar): What are you seeing in end markets regarding a shift to more inference and enterprise demand versus hyperscalers? And can you give additional color on new Board member Vivek Mohindra and how he helps diversify customer mix?
  Response: Demand from large CSPs remains strong but enterprise/inference demand is rising; Vivek brings strategy/M&A experience and will help expand routes to market beyond the primary OEM customer.

• Question from Chris Benjamin (Private Investor): How many clients do you have? Why don't you announce new client wins publicly? And do you plan any more capital raises?
  Response: They work with multiple clients across segments but generally do not publicize customer specifics; no near-term capital raises planned given recent capital raise and desire to avoid dilution.

• Question from Kris Tuttle (Blue Caterpillar): Can you discuss mixed-vendor rack integration (non-Dell activity) this quarter and expectations going forward?
  Response: Mixed-vendor/configuration work exists but is handled confidentially with customers; the business is small today and not being publicly disclosed to protect customer relationships.

• Question from Brad Stevenson (Breakout Investors): What operational issues caused lower rack volumes in Q3 (beyond power), do those volumes push to future quarters, and do you have visibility to support 2026 guidance and use of equity proceeds?
  Response: Issues were multi-factor — increased power capacity, ERP integration/process gaps, new hires and communications cadence — now addressed; volumes were deferred and are expected to come in Q4; visibility has materially improved and equity proceeds will be used for inorganic and organic expansion.

• Question from David Bastian (Kingdom Capital Advisors): Is the implied facility run-rate roughly $5M–$7M EBITDA per quarter and is that full capacity? Are there accretive M&A opportunities at current valuation?
  Response: Management affirmed the $5M–$7M EBITDA quarterly run-rate is not full capacity (significant headroom remains) and said there are accretive M&A opportunities under review that could be pursued.

Contradiction Point 1

Customer Diversification and Expansion

It involves differing statements about the company's customer mix and expansion strategies, which can affect investor perceptions of the company's growth potential and strategic focus.

What is the company's strategy for expanding the customer base with the new Dell board member? - Kris Tuttle (Blue Caterpillar)

20251114-2025 Q3: We're serious about expanding our routes to market and beyond our current customer. Vivek's experience and expertise will help us grow strategically. We will pursue joint ventures and expansions to drive growth. - Darryll Dewan(CEO)

With the new board member, how will this impact your ability to expand and diversify the customer base? - Kris Tuttle (Blue Caterpillar)

2025Q3: Vivek Mohindra's extensive experience in industry trends and strategy will be valuable in expanding routes to market and customer base beyond Dell Technologies. - Darryll Dewan(CEO)

Contradiction Point 2

Operational Delays and Rack Volumes

It involves differing explanations and impacts of operational delays on rack volumes, which can affect the company's production efficiency and customer satisfaction.

What caused the Q3 delays, and were those volumes deferred to future quarters? - Brad Stevenson (Breakout Investors)

20251114-2025 Q3: Delays were due to power supply, ERP system integration, and internal process improvements. The volumes have been pushed into Q4, and we are seeing a significant increase in rack volumes. - Darryll Dewan(CEO)

What operational factors impacted rack volumes in Q3, and how will future volumes be managed? - Unknown Executive (Breakout Investors)

2025Q3: Operational issues were multifaceted, including power needs, ERP system improvements, and communication. These have been resolved, and we expect significantly greater rack volumes in Q4. - Darryll Dewan(CEO)

Contradiction Point 3

Future Revenue Growth and Market Demand

It involves differing statements about the company's future revenue growth and market demand, which can affect investor expectations and strategic planning.

What is the basis for the 2026 growth guidance? - Brad Stevenson (Breakout Investors)

20251114-2025 Q3: Improved visibility and communication in each business segment have contributed to our 40% to 50% growth forecast for 2026. We have better insights into customer demand, which has increased our confidence. - Darryll Dewan(CEO)

What visibility supports the 40%-50% growth target for 2026? - Unknown Executive (Breakout Investors)

2025Q3: Improved communications and visibility across all segments contribute to our confidence in growth. Recent visibility into customer demand is stronger than before. - Darryll Dewan(CEO)

Contradiction Point 4

Shift in Customer Mix and Strategic Growth

It highlights a potential shift in the company's strategic focus and growth plans, which could impact investor expectations and confidence in the company's leadership.

What is the company's strategy for expanding customer mix with the new Dell Board member? - Kris Tuttle (Blue Caterpillar)

20251114-2025 Q3: We're serious about expanding our routes to market and beyond our current customer. Vivek's experience and expertise will help us grow strategically. We will pursue joint ventures and expansions to drive growth. - Darryll Dewan(CEO)

Can you elaborate on your plans for organic growth and strategic expansion beyond current relationships? - Bradley Stephenson (Breakout Investors)

2025Q2: Organic growth is doing more with what we've got with our existing relationship. Outside of that, we're exploring ways to grow, such as on-site back integration in a customer facility or providing our solution to the channel market that resells customer technology. - Darryll Dewan(CEO)

Contradiction Point 5

Mixed Vendor Rack Integration and End-User Customers

It raises questions about the company's ability to diversify its revenue streams and maintain its primary customer relationship, impacting investor expectations.

Can you discuss the mixed vendor rack integration business? - Kris Tuttle (Blue Caterpillar)

20251114-2025 Q3: We do offer mixed vendor rack integration, which involves multiple technology providers, but we cannot discuss it due to confidentiality agreements with our primary customer, Dell. However, our services do reach various end-user customers. - Darryll Dewan(CEO)

What is the priority of TSS (TSSI) for Dell's rack integration projects? - Bradley Stephenson (Breakout Investors)

2025Q2: We're working hard to be the top priority. You want to make it really easy to pick TSS to do the total solution. We've positioned ourselves for the more complex future and to be the cheaper, better, faster alternative than anything else in the marketplace. - Darryll Dewan(CEO)