TSS Q2 Earnings Call Highlights

Revenue fell 20% year over year to $35.1 million, driven by a 45% decline in lower-margin procurement services. However, systems integration revenue rose 46% to $13.9 million and facilities management revenue increased 84% to $2.7 million.

The stronger business mix lifted gross margin to 22.8% from 16.4%, while adjusted EBITDA rose 12% to $4.5 million.

Management maintained its full-year adjusted EBITDA outlook toward the upper end of the $20 million–$22 million range and expects a stronger second half.

TSS is investing approximately $17 million to expand power and cooling capacity for NVIDIA’s Vera Rubin platform, with incremental revenue expected to begin in the third quarter and have its main impact in the fourth quarter.

The company ended the quarter with $67.7 million in cash and $16.1 million in debt.

TSS NASDAQ: TSSI reported second-quarter 2026 results marked by growth in its higher-margin systems integration and facilities management businesses, even as total revenue declined because of lower procurement activity. Management said the company expects a stronger second half and maintained its full-year adjusted EBITDA outlook toward the upper end of its previously stated $20 million to $22 million range.

Total second-quarter revenue was $35.1 million, down from $44 million in the prior-year quarter. The decline reflected a 45% decrease in procurement-services revenue to $18.2 million, compared with $33 million a year earlier. President and CEO Darryll Dewan said procurement revenue is the company’s most variable business line because it depends on the timing and scale of customer infrastructure purchases.

“Our second quarter results reflect how our company is growing its higher margin business lines while relying less on lower margin procurement,” Dewan said. He added that the company expects procurement revenue in the third quarter to return to its historical range of $30 million to $40 million, although results can vary because of last-minute order adjustments.

Higher-Margin Segments Gain Mix Systems integration revenue increased 46% year over year to $13.9 million from $9.5 million. The segment represented 39% of total revenue in the quarter, up from 22% in the second quarter of 2025. Facilities management revenue rose 84% to $2.7 million.

CFO Danny Chism said systems integration continued to be the company’s primary growth driver, supported by demand for AI and high-performance computing infrastructure deployments. Dewan said customers are deploying more sophisticated computing environments and need partners capable of integrating, deploying and managing those systems efficiently.

The company’s changing revenue mix contributed to higher profitability. Gross profit increased 11% to $8 million, while blended gross margin improved 640 basis points to 22.8% from 16.4% a year earlier. Adjusted EBITDA rose 12% to $4.5 million, and year-to-date adjusted EBITDA increased 5% to $9.8 million.

Operating income rose 16% to $1.6 million from $1.4 million, as gross-profit growth outpaced the increase in selling, general and administrative costs. SG&A expense rose to $5.6 million from $4.7 million, primarily due to higher non-cash equity compensation, additional headcount and related compensation expenses. Net income was $1.4 million, or $0.05 per diluted share, compared with $1.5 million, or $0.06 per diluted share, in the prior-year period. Chism said the comparison was affected by higher income tax expense following the removal of a valuation allowance on deferred tax assets during the fourth quarter of 2025. Second-quarter income tax expense was $413,000, compared with $69,000 a year earlier. Inves...