TSS Posts Flat Y/Y Q2 Earnings, Raises Guidance on AI Growth

Core Insights - TSS, Inc. (TSSI) shares have decreased by 23.7% since the second quarter of 2025 results, contrasting with a 0.7% rise in the S&P 500 index during the same period [1] - The company reported a significant revenue increase of 262% year over year, reaching $44 million, while diluted EPS remained flat at 6 cents per share [2] - Adjusted EBITDA surged 103% year over year to $4 million, indicating strong operational performance despite margin pressures [2][11] Revenue Breakdown - Revenue growth was primarily driven by Procurement, which saw a 572% increase to $33 million, and Systems Integration, which grew by 91% to $9.5 million [3] - Facilities Management revenue declined by 35% to $1.5 million, although there was a sequential increase of $0.2 million compared to the first quarter [3] Profitability Metrics - The gross margin for the consolidated business was 17.8%, down from 37.3% a year ago but improved from 9.3% in the first quarter [3] - Systems Integration margin increased to 44%, while Facilities Management maintained a margin of 74% [4] Management Commentary - The CEO highlighted strong demand for AI-enabled infrastructure and the strategic importance of the new Georgetown facility, which became fully operational late in the quarter [5] - First-half revenues exceeded second-half 2024 levels, indicating confidence in achieving a record year [5] Guidance and Outlook - Management raised the 2025 adjusted EBITDA growth outlook to at least 75% compared to 2024, up from a previous estimate of at least 50% [7] - The new target is viewed as a floor, reflecting confidence from first-half performance and a strengthening pipeline in AI integration [7] Operational Developments - The company has completed its move to the Georgetown headquarters and is investing in power and cooling capacity to support high-density rack requirements [8] - TSS converted its construction facility into a fully amortizing loan and expects to receive $6.8 million in tenant-improvement reimbursements in the third quarter [9][10] Financial Position - Cash and restricted cash totaled approximately $41.8 million at quarter-end, supported by $37 million of operating cash flow in the first half [10] - Net working capital turned negative due to capital expenditures, but the company is exploring a sublease of its legacy facility to potentially improve operating income [10]