UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2024 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-33627 TSS, INC. FORM 10-K (Mark One) (Exact name of registrant as specified in its charter) Delaware 20-2027651 (State or other jurisdiction (I.R.S. Empl ...

Financial Performance - TSS reported a record revenue of $148.1 million for FY 2024, representing a 172% increase compared to FY 2023[4] - The company achieved earnings per share (EPS) of $0.24, up from breakeven in 2023[3] - Adjusted EBITDA for FY 2024 was $10.2 million, reflecting a 283% increase from the previous year[4] - Fourth quarter revenue reached $50.0 million, a 105% increase year-over-year, with procurement revenues up 95% to $40.5 million[5] - TSS's gross profit for FY 2024 was $22.4 million, up 103% due to growth across all service lines[4] - The company ended FY 2024 with a net income of $6.0 million, compared to $74,000 in 2023[4] Strategic Developments - TSS signed a multi-year agreement with its largest customer, enhancing its role in AI rack integration[3] - The company expects significant EBITDA growth in 2025, driven by contributions from a new facility expected to be operational by June 2025[6] Revenue Composition - Procurement services accounted for nearly 80% of revenues in 2024, characterized by higher revenue variability and lower margins[6] Asset Growth - TSS's total assets increased to $94.3 million in December 2024, up from $25.6 million in December 2023[17]

Revenue Growth - Total revenues increased 689% to $70.1 million in Q3 2024 from $8.9 million in Q3 2023, with procurement revenues up $55.0 million (1,016%) and systems integration revenues up $5.9 million (361%) [84]. - Total revenues for the nine-month period ended September 30, 2024, reached $98.2 million, a 227% increase from $30.0 million in the prior year [102]. - Procurement revenues surged by 334%, increasing from $17.7 million to $77.0 million for the nine-month period [105]. - Recognized revenue for procurement deals increased from $17.7 million to $77.0 million, a growth of 335% year-over-year [106]. - The gross value of all procurement transactions increased by 94% from $40.9 million to $79.6 million in Q3 2024 [90]. - Gross value of revenues including netting rose 33% from $90.5 million to $120.6 million year-to-date [106]. Profitability and Income - Consolidated net income improved to $4.1 million in the current year-to-date period from a loss of $0.3 million in the prior year-to-date period [101]. - Operating income increased by 431%, from $0.7 million in Q3 2023 to $3.8 million in Q3 2024 [97]. - Operating income increased by 461% from $1.0 million to $5.7 million year-to-date [111]. - Net income for the current period was $4.1 million, compared to a net loss of $0.3 million in the prior year [113]. - Cash provided by operating activities surged to $36.9 million from $8.6 million year-over-year [120]. Expenses and Margins - SG&A expenses as a percentage of gross profit improved from 72% to 49% year-over-year, despite a 90% increase in dollar terms [96]. - SG&A expenses increased by $2.5 million (39%) primarily due to higher headcount and compensation costs [110]. - Consolidated gross margin decreased from 26% to 15% due to a higher proportion of lower-margin procurement deals [107]. - Gross margin based on recognized value of transactions decreased from 19.8% in the prior year to 6.9% in the current year [105]. Capital Expenditures and Investments - Capital expenditures of approximately $25 million to $30 million are anticipated for improvements to the new facility to support increased production capabilities for AI-enabled racks [77]. - The company plans to invest approximately $25 million to $30 million in a new facility to support AI-enabled computer racks [115]. Customer Agreements and Services - A multi-year agreement was signed with the largest customer to provide systems integration services for AI-enabled computer racks, ensuring consistent revenue to cover fixed and variable costs [77]. - Maintenance and integration services traditionally earn higher margins, with maintenance contracts typically renewing annually, providing revenue predictability [82]. - The company has focused on smaller scaled jobs connected with addition/move/retrofit activities to achieve better margins and more predictable earnings [82]. Supply Chain and Market Conditions - Supply chain issues may impact non-AI rack integration services, causing delays in revenue recognition [86]. - The company expects procurement revenues to remain elevated for the next three to six months but does not anticipate maintaining the same high levels long-term [88].

Financial Performance - Third quarter revenue reached $70.1 million, an increase of 689% year-over-year[2] - Net income surged 1,166% to $2.6 million, with diluted EPS rising to $0.10 from $0.01[6] - Procurement revenues alone were $60.5 million, up 1,016% compared to the same quarter last year[6] - Year-to-date total revenues for 2024 reached $98 million, more than three times the amount from the same period last year[5] - Gross profit for the third quarter was $7.9 million, up 179%, driven by higher margin services[6] - Adjusted EBITDA for the third quarter was $4.3 million, an increase of 358%[6] - Net income for Q3 2024 reached $2,646 million, a significant increase from $209 million in Q3 2023[20] - EBITDA for Q3 2024 was $4,002 million, compared to $787 million in Q3 2023, reflecting strong operational performance[20] - Adjusted EBITDA for the nine months ended September 2024 was $6,748 million, up from $1,726 million in the same period of 2023[20] - The company reported an increase in adjusted EBITDA margin, indicating improved profitability metrics[20] - For the nine months ended September 2024, net income was $4,063 million, a recovery from a loss of $262 million in the same period of 2023[20] Operational Developments - The company signed a multi-year agreement with a major customer for AI rack integration, enhancing future earnings visibility[4] - The company plans to relocate to a larger facility in early 2025 to meet increasing demand for AI-enabled technologies[4] - TSS, Inc. uplisted to the Nasdaq Capital Market, enhancing market presence and visibility[4] - The company expects revenue and profit trajectories to remain strong through the first half of 2025[5] Cost and Expense Management - Interest expense, net, increased to $1,128 million in Q3 2024 from $482 million in Q3 2023, indicating higher borrowing costs[20] - Depreciation and amortization expenses rose to $208 million in Q3 2024, compared to $72 million in Q3 2023, suggesting increased asset utilization[20] - Stock-based compensation for Q3 2024 was $299 million, up from $153 million in Q3 2023, reflecting changes in compensation strategy[20] - Income tax expense for Q3 2024 was $20 million, slightly down from $24 million in Q3 2023, indicating effective tax management[20] Future Outlook - Future outlook remains positive with expectations of continued revenue growth and operational efficiency improvements[20]

Revenue Performance - Revenue for the three-month period ended June 30, 2024, was $12.2 million, a decrease of $2.4 million (16%) compared to $14.5 million in the second quarter of 2023, primarily due to a $5.7 million decrease in recorded procurement revenues[76]. - Total revenues for the six-month period ended June 30, 2024, were $28.1 million, an increase of $6.9 million (33%) compared to $21.1 million in the prior year[89]. - Procurement revenues increased by $4.2 million (34%) for the six-month period ended June 30, 2024, while facility management revenues rose by $0.6 million (17%) and non-procurement systems integration revenues increased by $2.1 million (42%) compared to the same period in 2023[89]. Gross Margin and Profitability - Consolidated gross margin improved to 37% for the three-month period ended June 30, 2024, compared to 22% for the same quarter of 2023, driven by a smaller proportion of total revenues from procurement services[80]. - Non-procurement integration service and maintenance gross profit reached $3.8 million, representing a $2.2 million (141%) increase from the comparable period of 2023[80]. - Operating income increased by $0.7 million (74%) compared to the prior year quarter despite the decrease in recorded total revenues[76]. - Operating income increased by 74% to $1.7 million for the quarter ended June 30, 2024, compared to $1.0 million in the prior year quarter, driven by a 41% growth in gross profits[85]. - Net income for the quarter was $1.4 million, or $0.06 per diluted share, compared to a net income of $0.3 million, or $0.01 per diluted share in the same quarter of the previous year[87]. Expenses and Cost Management - Selling, general and administrative (SG&A) expenses as a percentage of gross profit improved from 67% in the quarter ended June 30, 2023, to 60% in the current quarter, reflecting better cost leverage[84]. - Selling, General and Administrative (SG&A) expenses as a percentage of gross profit improved from 90% to 70% in the current year-to-date period, while SG&A expenses increased by $0.7 million (16%) due to higher headcount[95]. Procurement and Supply Chain - The gross value of all procurement transactions decreased by 51% from the second quarter of 2023, from $42.9 million to $21.0 million in the quarter ended June 30, 2024[79]. - The gross value of all procurement transactions decreased by 17% from $49.6 million to $40.9 million in the six-month period ended June 30, 2024[91]. - Supply chain disruptions continue to impact the timing of systems integration revenue, with expectations of ongoing issues for several quarters[77]. Cash Flow and Financial Position - Cash used in operating activities was $1.7 million for the six-month period ended June 30, 2024, compared to $4.0 million of cash provided in the same period of 2023[103]. - As of June 30, 2024, the company had cash and cash equivalents of $8.3 million, down from $11.8 million as of December 31, 2023[102]. Strategic Focus - The company has focused on maintenance and integration services, which typically yield higher margins and provide consistent revenue streams[75]. - The integration of AI-enabled server racks began in June 2024, contributing to revenue and earnings growth in the systems integration segment[76].

Revenue Growth - Revenue for the three-month period ended March 31, 2024, was $15.9 million, an increase of $9.3 million or 142% compared to $6.6 million in the first quarter of 2023[78] - Procurement services revenue increased significantly from $1.7 million in Q1 2023 to $11.6 million in Q1 2024, contributing to the overall revenue growth[80] Cost and Profitability - Cost of revenue as a percentage of revenue was 83% for Q1 2024, up from 74% in Q1 2023, reflecting higher costs associated with procurement services[81] - Gross profit margin for Q1 2024 was 17%, down from 26% in Q1 2023, primarily due to the higher percentage of revenue from procurement services[85] - Operating income improved by $0.9 million or 138% in Q1 2024, reaching $253,000 compared to an operating loss of $665,000 in Q1 2023[87] - Net income for Q1 2024 was $15,000 or $0.00 per share, compared to a net loss of $786,000 or $(0.04) per share in Q1 2023[89] Expenses and Financial Management - Selling, general and administrative expenses increased by $127,000 or 6% in Q1 2024, primarily due to higher compensation and professional fees[86] - The company anticipates that as the percentage of revenues from procurement services increases, gross profit margins will decrease due to lower margins associated with these services[82] - Management plans to implement cost reductions if future results do not meet expectations, which may affect product offerings and financial results[97] Cash Flow and Liquidity - Cash provided by operating activities was $2.6 million for the three-month period ended March 31, 2024, a significant improvement compared to cash used of $13.5 million in the same period of 2023[94] - Cash and cash equivalents increased to $14.4 million as of March 31, 2024, up from $11.8 million at the end of 2023[93] - Cash used in investing activities was $39,000 for the three-month period ended March 31, 2024, compared to $185,000 in the same period of 2023[95] - Cash used in financing activities was $55,000 for the three-month period ended March 31, 2024, primarily for stock purchases related to tax obligations[96] - The company believes it will continue to be profitable on a quarterly and annual basis in 2024 and beyond, indicating confidence in future cash flows[92] - The company may require additional capital for business acquisitions or to introduce new lines of business, which could impact liquidity[98] - The company has no off-balance sheet arrangements as of March 31, 2024[99] Operational Challenges - The company faced ongoing supply chain issues that impacted the timing of systems integration revenue, expected to continue for several quarters[79] - As of March 31, 2024, the company had an accumulated deficit of $66.3 million, despite recording operating and net income in the last four quarters[91] Accounting Policies - There have been no material changes to critical accounting policies since the last annual report[100]

Revenue Growth - Total revenue for 2023 was $54.4 million, representing a $23.8 million or 78% increase from 2022 revenues of $30.6 million[94] - Revenue from procurement transactions increased by $25.3 million or 191% in 2023, with the aggregate gross value of all procurement transactions rising from $73 million in 2022 to $123.1 million in 2023[93] - Total revenue for 2023 was $54.4 million, a 78% increase from $30.6 million in 2022, primarily driven by a $25.3 million increase in procurement business[124] Profitability - Operating income improved by $0.8 million or 91% from 2022, reaching $1.75 million in 2023[97] - Net income for 2023 was $74,000, compared to a net loss of $73,000 in 2022, marking a turnaround in profitability[137] - Operating income improved by 91% to $1.75 million in 2023, compared to $914,000 in 2022, despite higher selling, general and administrative expenses[134] Cost and Expenses - Selling, general and administrative expenses rose by 16% to $8.9 million in 2023, primarily due to increased labor costs from strategic investments[96] - Interest expense increased by $0.7 million in 2023 due to higher interest rates and increased activity in procurement transactions, with total transactions amounting to approximately $123.1 million[98] - Selling, general and administrative expenses rose by 16% to $8.9 million in 2023, driven by strategic investments in sales and marketing[133] Gross Profit and Margins - Gross profit increased by $2 million or 23% compared to 2022, although gross profit margin decreased to 20% in 2023 from 29% in 2022 due to a higher proportion of lower-margin procurement business[95] - Procurement revenues accounted for 71% of total revenue in 2023, up from 43% in 2022, indicating a shift towards lower-margin services[127] - Gross profit margin decreased to 20% in 2023 from 29% in 2022, attributed to the increased revenue share from procurement services[130] Cash Flow and Liquidity - Cash on hand at the end of 2023 was $11.8 million, a decrease of $8.6 million from the end of 2022, primarily due to timing of cash flows related to procurement activities[99] - Cash used in operating activities was $8.3 million in 2023, a significant decrease from cash provided by operating activities of $14.7 million in 2022, primarily due to timing impacts of procurement services[151] - As of December 31, 2023, the company had cash and cash equivalents of $11.8 million, down from $20.4 million in 2022[150] Future Outlook - The company anticipates continued profitability on a quarterly and annual basis in 2024 and beyond, with no substantial doubt about its ability to continue as a going concern[149] - The company expects fluctuations in MDC deployments to continue, impacting quarterly revenues and profits[90] Other Financial Metrics - The company recorded an accumulated net operating loss carry-forward of $40 million as of December 31, 2023, which may offset future taxable income[136] - Interest expense for 2023 was $1.616 million, up from $931,000 in 2022, due to higher interest rates and increased factoring transactions[135]

Revenue Performance - Total revenue for the nine-month period ended September 30, 2023, was $30.0 million, an increase of $10.3 million or 52% compared to $19.7 million in the same period of 2022[75]. - Systems integration segment revenues increased by 31% during the first nine months of 2023 compared to the same period in 2022, contributing to a $13.7 million increase in total revenue[69]. - Procurement and reseller services revenues for the nine-month period ended September 30, 2023, were approximately $17.7 million, up 216% or $12.1 million from $5.6 million in the comparable period of 2022[77]. - Revenue for the three-month period ended September 30, 2023, was $8.9 million, an increase of $0.8 million or 10% compared to the third quarter of 2022[74]. Profitability and Expenses - Gross profit margin for the three-month period ended September 30, 2023, was 32%, down from 34% in the third quarter of 2022, primarily due to increased costs in the integration business[84]. - Cost of revenue as a percentage of revenue was 68% for the three-month period ended September 30, 2023, compared to 66% for the third quarter of 2022[79]. - Selling, general and administrative expenses increased by $217,000 or 12% for the three-month period ended September 30, 2023, primarily due to higher compensation costs[85]. - Operating income for the three-month period ended September 30, 2023, was $715,000, compared to $871,000 in the third quarter of 2022[86]. - Net income for Q3 2023 was $209,000 ($0.01 per share), down from $605,000 ($0.03 per share) in Q3 2022; for the nine-month period, a net loss of $262,000 was recorded compared to a net income of $1,068,000 in the same period of 2022[88]. Cash Flow and Financial Position - Cash and cash equivalents increased to $28.7 million as of September 30, 2023, from $20.4 million at the end of 2022[93]. - Cash provided by operating activities was $8.6 million for the nine-month period ended September 30, 2023, compared to $3.6 million in the same period of 2022[94]. - Deferred revenue increased by approximately $11 million and accounts payable rose by about $10 million at September 2023 compared to September 2022, reflecting higher procurement activities[94]. - Cash used in investing activities was $240,000 for the nine-month period ended September 30, 2023, primarily for leasehold improvements[95]. - Cash used in financing activities was $33,000 in the nine-month period ended September 30, 2023, significantly lower than $1.7 million in the same period of 2022[96]. - The company has an accumulated deficit of $66.6 million as of September 30, 2023, with a history of annual operating and net losses[90]. Future Outlook - Management believes profitability is achievable in the next quarter and for the year ending December 31, 2023, despite previous delays in customer transactions[91]. - The company plans to implement cost reductions if future results do not meet expectations, which may impact product offerings and financial results[98]. Operational Challenges - The facilities business saw a $3.5 million decrease in revenues from Modular Data Center (MDC) deployments in the first nine months of 2023 compared to the same period in 2022[68]. - Supply chain disruptions continue to impact the timing of systems integration and MDC deployment revenue, with expectations of ongoing issues for several quarters[76]. - Interest expense for Q3 2023 was $661,000, up from $263,000 in Q3 2022, driven by an increase in factored transactions from $27.4 million to $61.4 million[87].

Revenue Performance - Revenue for the three-month period ended June 30, 2023, was $14.5 million, an increase of $8.1 million or 126% compared to the second quarter of 2022[78]. - Year-to-date revenue for the six-month period ended June 30, 2023, was $21.1 million, an increase of $9.5 million or 82% compared to the first six months of 2022[79]. - Systems integration revenues grew by 46% in the first half of 2023 compared to the first half of 2022, driven by an $11.3 million increase in this segment[79]. - Revenues from procurement and reseller services were approximately $10.6 million in the second quarter of 2023, compared to $0.8 million in the second quarter of 2022[81]. Profitability and Income - Gross profit margin for the three-month period ended June 30, 2023, was 22%, down from 41% in the second quarter of 2022, primarily due to increased costs in the integration business[88]. - Operating income for the three-month period ended June 30, 2023, was $975,000, compared to $939,000 in the second quarter of 2022[90]. - For the three-month period ended June 30, 2023, the company recorded a net income of $315,000 or $0.01 per share, compared to a net income of $771,000 or $0.04 per share for the same period in 2022[93]. - For the six-month period ended June 30, 2023, the company reported a net loss of $471,000 or $(0.02) per share, contrasting with a net income of $463,000 or $0.02 per share in the first half of 2022[93]. - The company anticipates being profitable in the next quarter and for the year ended December 31, 2023, based on improved revenue growth and order backlog[96]. Expenses and Costs - Cost of revenue as a percentage of revenue was 78% for the three-month period ended June 30, 2023, compared to 59% for the second quarter of 2022[83]. - Selling, general and administrative expenses increased by $556,000 or 35% for the three-month period ended June 30, 2023, compared to the second quarter of 2022[89]. - The company plans to implement reductions in selling, general, and administrative expenses if future results do not meet expectations to improve profitability and cash flows[95]. Cash Flow and Financial Position - As of June 30, 2023, the company had cash and cash equivalents of $24.2 million, an increase from $20.4 million at December 31, 2022[98]. - Cash provided by operating activities was $4 million for the six-month period ended June 30, 2023, significantly up from $0.5 million for the same period in 2022[99]. - Cash used in investing activities was $205,000 for the six-month period ended June 30, 2023, primarily for leasehold improvements, compared to $122,000 in the same period of 2022[101]. - Cash used in financing activities was $10,000 for the six-month period ended June 30, 2023, compared to cash provided of $27,000 in the same period of 2022[102]. - The company had an accumulated deficit of $66.9 million as of June 30, 2023, with a history of annual operating and net losses attributed to COVID-19 and supply chain constraints[95]. Supply Chain and Future Outlook - The company expects ongoing supply chain issues to persist for at least the next several quarters, affecting the timing of revenue recognition[80]. - Interest expense for the three-month period ended June 30, 2023, was $672,000, an increase from $162,000 in the same period of 2022, due to more agent-type transactions[92]. - The company has no off-balance sheet arrangements as of June 30, 2023[105].

Revenue Performance - Revenue for the three-month period ended March 31, 2023, was $6.6 million, an increase of $1.4 million or 27% compared to the first quarter of 2022[83]. - Systems integration segment revenues increased by $1.2 million, or 39%, to $4.3 million in the first quarter of 2023, driven by improved supply chain conditions[83]. - The facilities business saw a $3.9 million increase in revenues from MDC deployments in 2022, contributing to the overall revenue growth[76]. - The company expects fluctuations in the number of MDC deployments on a quarterly basis, impacting revenues and profits[76]. Cost and Profitability - Cost of revenue as a percentage of revenue was 74% for the three-month period ended March 31, 2023, compared to 68% for the first quarter of 2022[87]. - Gross profit margin for the three-month period ended March 31, 2023, was 26%, down from 32% in the first quarter of 2022, primarily due to increased labor costs[91]. - Selling, general and administrative expenses increased by $533,000 or 31% compared to the first quarter of 2022, mainly due to higher compensation and professional fees[92]. - The company recorded an operating loss of $665,000 for the three-month period ended March 31, 2023, compared to an operating loss of $173,000 in the first quarter of 2022[93]. - Net loss for the three-month period ended March 31, 2023, was $786,000 or $0.04 per share, compared to a net loss of $308,000 or $0.02 per share for the same period in 2022[95]. Cash Flow and Financial Position - Cash used in operating activities was $13.5 million for the three-month period ended March 31, 2023, compared to cash provided by operating activities of $4.9 million for the same period in 2022[101]. - The Company had cash and cash equivalents of $6.7 million as of March 31, 2023, down from $20.4 million at the end of 2022[100]. - Cash used in investing activities was $185,000 for the three-month period ended March 31, 2023, primarily for leasehold improvements[102]. - Cash used in financing activities was $1,000 for the three-month period ended March 31, 2023, compared to $23,000 for the same period in 2022[103]. - As of March 31, 2023, the Company had an accumulated deficit of $67.2 million and negative working capital of $499,000[97]. Future Outlook and Risks - Management anticipates profitability in the next quarter and for the year ended December 31, 2023, based on a significant backlog of delayed projects[98]. - The Company may require additional capital for business acquisitions or if there is a sudden increase in reseller and procurement services[97]. - Management believes that adequate trade credit will be available to finance reseller activities as the business grows in 2023 and beyond[101]. - There are potential risks that revenues may not meet projections or costs may exceed estimates, affecting liquidity and growth opportunities[99]. - Supply chain disruptions continue to affect the timing of systems integration revenue, with expectations of ongoing issues for several quarters[84]. - The Company has a history of annual operating losses, attributed to COVID-19 and supply chain constraints[97].