TSS's Q3 2025: Contradictions Emerge on Expansion, Client Base, Facility Capacity, and Strategic Growth

Date of Call: November 13, 2025

Financials Results

• Revenue: $41.9M in Q3 2025, down from $70.1M in Q3 2024 (YOY decline)
• EPS: Diluted loss of $0.06 in Q3 2025, compared to diluted EPS of $0.10 in Q3 2024
• Gross Margin: 11.1% in Q3 2025, compared to 11.3% in Q3 2024
• Operating Margin: Operating loss of $0.931M in Q3 2025 (operating margin not stated), versus operating income of $3.8M in Q3 2024

Guidance:

• Full-year 2025 adjusted EBITDA growth now expected to be +50% to +75% versus 2024.
• Q4 2025 expected to show a rebound in adjusted EBITDA driven by higher SI rack volumes.
• Initial 2026 guidance: 40% to 50% organic EBITDA growth year-over-year (on top of expected 2025 record year).
• More cautious near-term procurement outlook due to government shutdown paperwork timing.

Business Commentary:

• Revenue Growth and Profitability:
• TSS, Inc. reported revenue up 88% and adjusted EBITDA up 59% for the first nine months of 2025 compared to the previous year.

• The growth in revenue was driven by strong demand and significant strategic investments in infrastructure and capabilities.

  

• Procurement Services Fluctuation:

• Revenue from procurement services more than doubled year-to-date, but declined 19% year-over-year in Q3.

• The fluctuations were attributed to the timing and size of customer orders, particularly affected by a government shutdown that paused certain deals.

• Systems Integration and AI Rack Integration:

• Revenue from systems integration increased 20% in Q3 2025, driven by the integration of AI-enabled racks for a major customer.

• Growth was fueled by demand for AI infrastructure solutions and investments in advanced facilities to support the expanding AI market.

• Facilities Management Challenges and Opportunities:

• Revenue from facilities management, the smallest portion of the business, declined 19% year-over-year but was sequentially up 7% in Q3.

• Despite challenges, the segment is anticipated to grow, supported by strategic investments and expected new demand, including a delayed significant delivery due to supply chain issues.

• Financial Outlook and Strategic Investments:

• TSS expects full-year 2025 adjusted EBITDA growth of 50% to 75% compared to 2024, driven by a rebound in Q4 and strategic investments in facilities and capabilities.

• The company is actively exploring strategic acquisitions, partnerships, and portfolio expansion to drive future growth, leveraging the recent capital raise to pursue new opportunities.

  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management emphasized strong YTD momentum (revenues up 88% YTD; $18.5M operating cash flow), strengthened balance sheet from a secondary offering, and explicit guidance for 50%–75% EBITDA growth in 2025 and 40%–50% organic EBITDA growth in 2026, while acknowledging one-quarter operational setbacks.

Q&A:

• Question from Kris Tuttle (Blue Caterpillar): Observations on end-market shift from training to inference/enterprise demand and how new board member Vivek Mohindra helps diversify customer mix?
  Response: Demand from CSPs remains strong and enterprise interest is rising; Vivek brings strategy/M&A and go-to-market experience to help broaden routes to market and diversify the customer base.

• Question from Chris Benjamin (Private Investor): How many clients do you have, why not announce new clients publicly, and do you plan further capital raises?
  Response: They have multiple clients but generally don't publicly disclose customer names; they will be more vocal as they scale; no capital raise planned in the near term.

• Question from Kris Tuttle (Blue Caterpillar): Can you comment on mixed-vendor rack integration (non-Dell) scale this quarter and expectations going forward?
  Response: Mixed-vendor/configuration work exists but is small and treated as confidential; integration is collaborative with key customers and not disclosed further.

• Question from Brad Stevenson (Breakout Investors): What operational issues reduced Q3 rack volumes, and were those volumes pushed to future quarters?
  Response: Shortfalls were due to a combination of power capacity upgrades, ERP integration issues, staffing/process gaps and communications; fixes implemented and volumes are expected to ramp in Q4 (delayed, not lost).

• Question from David Bastian (Kingdom Capital Advisors): Is the implied facility run-rate ~$5M–$7M EBITDA per quarter, is that full capacity, and are accretive M&A opportunities available?
  Response: Management said the $5M–$7M run-rate is consistent with expectations but not full capacity (significant headroom remains); they have line-of-sight to potential accretive M&A targets.

Contradiction Point 1

Expansion and Client Base

It involves differing statements about the company's expansion plans and client base, which are critical for understanding TSS's growth strategy and market position.

How many clients do you have? Since you're primarily a Dell client, why don't you publicly announce new clients? - Unknown Attendee (Private Investor)

2025Q3: We have multiple clients beyond Dell, but we do not disclose them for security and competitive reasons. - Darryll Dewan(CEO)

Can you explain how Dell and NVIDIA collaborate to ease integration and how TSS sustains its value-added role? - Kris Tuttle (Blue Caterpillar)

2025Q1: We also have some demand from other customers that is very relevant and can be included in our build plans - Darryll Dewan(CEO)

Contradiction Point 2

Facility Capacity and Utilization

It involves differing statements about the capacity and utilization of the company's facilities, which are critical for understanding TSS's operational efficiency and capacity for growth.

Is the facility operating at full capacity given your EBITDA guidance of $5 million to $7 million per quarter? - David Bastian (Kingdom Capital Advisors)

2025Q3: The current run rate does not represent full capacity. We have significant additional capacity for growth and expect to leverage it strategically. - Darryll Dewan(CEO), Daniel Chism(CFO)

Are you still incurring costs for the old facility? Are there potential revenues from that facility? - Unidentified Analyst (Not Specified)

2025Q1: We are building the Round Rock facility larger to allow us to handle the demand and ramp over the next few years. - Darryll Dewan(CEO)

Contradiction Point 3

Strategic Growth and Customer Diversification

It highlights differing approaches to growth and customer diversification strategies, which are crucial for long-term success and investor expectations.

Can you provide more details on Vivek Mohindra joining the board to grow and diversify your customer mix? - Kris Tuttle (Blue Caterpillar)

2025Q3: We are serious about growing and expanding, and Vivek's expertise will be invaluable in achieving these strategic goals. - Darryll Dewan(CEO)

How have your strategic initiatives impacted financial performance? - Brad Stevenson (Breakout Investors)

2024Q4: We're all working closely together as I mentioned to ensure that we continue to grow as a great company that is in this space for the long term, both with where we are today and where we want to be in the future. - Darryll Dewan(CEO)

Contradiction Point 4

Operational Capacity and Growth Potential

It involves differing statements about the capacity utilization and growth potential of the company's facilities, which are critical for understanding its ability to scale and meet demand.

Does your guidance indicate the facility is operating at full capacity with $5 million to $7 million of quarterly EBITDA? - David Bastian (Kingdom Capital Advisors)

2025Q3: The current run rate does not represent full capacity. We have significant additional capacity for growth and expect to leverage it strategically. - Darryll Dewan(CEO), Daniel Chism(CFO)

What is the potential impact of regulatory oversight on the company's operations? - Maj Soueidan (GeoInvesting)

2024Q4: We continue to have strong demand across our business, and as we look at our capacity across our business, we continue to add capacity and are by far the most capacity in our market. - Darryll Dewan(CEO)