Tss (TSSI) Q2 Revenue Surges 262%

Tss (TSSI -1.00%), a provider of data center infrastructure services, reported earnings for Q2 2025 on August 6, 2025. The highlight was a 262% year-over-year increase in total revenue (GAAP), reaching $44.0 million in Q2 2025, with the procurement segment contributing the largest share. However, Gross margin percentage was 17.1% in Q1 2024 and declined in the following quarter, as most revenue gains came from lower-margin procurement work. There were no analyst estimates available for Q2 2025. Diluted earnings per share (GAAP) held steady at $0.06 in Q2 2025, and net income (GAAP) was $1.5 million in Q2 2025. Management called out robust demand for AI-related services, raised its full-year 2025 Adjusted EBITDA growth outlook from at least 50% to at least 75% over 2024, and highlighted strong operating cash flow in the first half of 2025. Overall, the period was defined by dramatic growth, with margin pressure and customer concentration risks noted as areas to watch.

What Tss Does and Recent Focus

Tss specializes in services for building and supporting data centers, including procurement of hardware, customized installation (systems integration), and ongoing facilities management. It is a technical services firm working behind the scenes for clients in computing infrastructure, particularly in areas that support artificial intelligence (AI) and high-powered computing.

The company has focused heavily on expanding capacity and modernizing its integration capabilities. Its main priority has been to keep up with surging demand for AI-specific computing racks and state-of-the-art cooling solutions. Strategic partnerships, especially with one major original equipment manufacturer (OEM) – widely believed to be Dell – are critical. Tss relies on these relationships for large contracts but wants to broaden its customer base. The recent launch of the new Georgetown facility signals the company's intent to lead in advanced technology and address growing customer needs.

Performance and Key Events in the Quarter

Revenue (GAAP) rose significantly in Q2 2025. The procurement segment, which sources components and systems for clients, generated $33.0 million in GAAP revenue in Q2 2025, representing a 572% jump from a year ago. Systems integration—which includes assembling, testing, and installing advanced server racks—grew 91% to $9.5 million (GAAP) in Q2 2025. The smaller facilities management segment, which involves ongoing maintenance and support for data centers, dropped 35% year-over-year to $1.5 million (GAAP) in Q2 2025. This ongoing decline in facilities management reflects a transition period in that business and some lumpy project work in the comparison quarter, as seen in the year-over-year decrease in facilities management revenues.

Gross profit (GAAP) was $7.8 million in Q2 2025. However, the Gross margin percentage fell sharply to 9.3% in Q1 2025 from 17.1% in Q1 2024, as procurement is a lower-margin service compared to integration work. Leadership attributed this pressure to the business mix in Q1 2025, as procurement contributed the majority of revenue. There was also significant growth in operating expenses—totaling $5.6 million, compared to $2.8 million the year prior—in Q2 2025, driven by expansion and support for the new Georgetown plant. Interest expense more than doubled in Q1 2025 as the company took on additional debt to finance this facility upgrade.

The Georgetown facility is now fully operational. This site was purpose-built to handle high-density AI hardware—specifically advanced rack integration using technologies such as direct liquid cooling (a method of dissipating heat in ultra-dense server setups). Management described this investment as a move to meet current and future industry needs, highlighting a rapid build timeline and the facility’s designed-for-AI layout. Facility investment is reflected in the balance sheet, with property and equipment (GAAP) increasing to $35.3 million as of June 30, 2025, from $8.6 million as of December 31, 2024.

Strategic risk remains a topic of discussion. The company’s dependence on a single major OEM remains, and management directly acknowledged this in the release. Tss is working to diversify its customer base and broaden its service capabilities, saying new business—either by acquisition, partnership, or product—remains a priority. There were no material one-time events such as asset divestitures, write-downs, or merger announcements in the quarter.

Products, Trends, and Segment Context

The procurement segment sources and resells servers, storage units, and networking equipment, generally at lower gross margins; procurement gross margins were 7.8% on a GAAP basis and 6.6% on a non-GAAP gross value basis in Q1 2025. A significant portion of this business is tied to government and enterprise contracts, which can be large but are often unpredictable from quarter to quarter.

Systems integration, the company’s higher-margin offering, involves assembling and testing AI-enabled server racks. These racks are central to data centers running advanced AI workloads. The company’s new Georgetown facility lets it offer more capacity and incorporate direct liquid cooling—technology vital for high-performance computing as heat output climbs. Management reported that the demand for more sophisticated racks is increasing, with the proportion of business requiring liquid cooling at its highest level to date.

Facilities management is the smallest division, covering modular data centers and technical upkeep services. This area has declined as a revenue contributor over time. However, management sees long-term potential if the segment can adapt to trends such as edge computing (bringing computation closer to the source of data generation) and more AI-specific modular infrastructure.

Gross margin percentage, which shows how much of each dollar of revenue TSS keeps after covering the cost of goods sold, fell in Q1 2025 primarily due to the shift in business mix toward procurement. Cash flow from operations remained positive during the first half of 2025, and the company ended Q2 2025 with $36.8 million in cash and cash equivalents. Long-term debt increased to $19.5 million as of Q2 2025, reflecting capital investment and financing for Georgetown.

Outlook and What to Watch

For the full year FY2025, management raised its Adjusted EBITDA (non-GAAP) growth expectations. The new target is at least 75% growth in Adjusted EBITDA for FY2025 over FY2024, up from a previous goal of 50%. This guidance is based on first-half momentum in 2025 and “increasing visibility into the second half of the year,” but Tss did not provide formal revenue forecasts for the remainder of 2025. The company's leadership continues to see robust industry demand for data center buildouts and AI infrastructure, referencing a strong sales pipeline. No specific numbers were shared on new contracts or backlog duration.

TSSI does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.