TSS, Inc.

What they do

TSS provides technology consulting, design, engineering, project management, systems integration, installation, and facilities management for data centers and related facilities. The company has enhanced its systems integration capabilities to include AI-enabled server racks, and also offers procurement services for third-party hardware and software. Most components used in integration are consigned by its largest customer, so revenue reflects only services provided.

Revenue drivers

• Systems Integration — Integration of AI-enabled server racks and other IT systems; Q2 2026 revenue of $13.9 million, up 46% year-over-year, representing 39% of total revenue.
• Procurement Services — Acting as agent or principal in procuring third-party hardware/software; Q2 2026 revenue of $18.2 million, down 45% year-over-year, but still the largest revenue segment.
• Facilities Management — Ongoing management and maintenance of data center facilities; Q2 2026 revenue of $2.7 million, up 84% year-over-year.
• Operating Lease Income — Leasing of the former Round Rock integration facility; began May 2026, generating $0.3 million in Q2 2026.

Recent performance

For Q2 2026, total revenue was $35.1 million, down 20% year-over-year, driven by a 45% decline in procurement revenue. Gross profit rose 11% to $8.0 million, and net income was $1.4 million ($0.05 diluted EPS) versus $1.5 million ($0.06) last year. For the first half of 2026, revenue was $90.5 million, down 37%, but systems integration revenue grew 65% to $28.0 million and facilities management grew 44% to $4.0 million. Adjusted EBITDA for H1 2026 was $9.8 million, up 5%.

Strategy

Management is deliberately shifting the revenue mix toward higher-margin systems integration and facilities management, away from lower-margin procurement. The company is investing approximately $17 million to prepare for next-generation AI data center technology, expected to drive higher systems integration revenue starting in Q3 2026. They are also leveraging a new, larger integration facility in Georgetown, Texas, and are seeking to diversify the customer base beyond the primary OEM customer.

Risks

• Customer concentration — One OEM customer accounted for approximately 99% of revenue in 2025, 99% in 2024, and 96% in 2023; any reduction or delay from this customer would materially hurt results.
• Dependence on AI demand — Revenue growth depends on continued enterprise investment in AI and GPU-accelerated infrastructure; a slowdown would reduce demand for integration services.
• Fixed cost structure — The company has fixed facility costs, labor, and debt service obligations; a decline in volume from the primary customer would have a disproportionate negative impact.
• Diversification uncertainty — Efforts to expand into new customer segments may not generate sufficient revenue to offset any decline from the primary OEM, and may require additional investment before returns materialize.

Outlook

Management expects the second half of 2026 to be stronger than the first half, with accelerated growth in systems integration. They maintain their 2026 Adjusted EBITDA outlook of $20 million to $22 million, expecting to land at the upper end. The $17 million investment is expected to convert into higher systems integration revenues beginning in Q3 2026.