TSS (NASDAQ:TSSI) executives highlighted a record fourth quarter and what they described as a “transformational” fiscal 2025, driven by higher AI-related rack integration volumes and growth in the company’s procurement business. Management also pointed to an amended and extended agreement with its largest customer that updated pricing and addressed incremental fixed costs tied to power infrastructure at its integration facility.
Strong finish to a transformational year
President and CEO Darryll Dewan said the company exited 2025 with “meaningful” improvement in its business run rate, aided by higher rack integration output at TSS’s Georgetown, Texas facility. Dewan said the step-up in fourth-quarter performance reinforced confidence that investments in “capacity, systems and talent” can scale to meet AI infrastructure demand.
Amended customer agreement: term extended, pricing updated
Both Dewan and CFO Danny Chism discussed a December amendment to TSS’s long-term AI rack integration agreement with its largest customer. Dewan said the change was a combination of adjustments, including an extension of the term, and additional support tied to TSS’s investments in infrastructure such as power and thermal management capabilities.
On the Q&A, management said the amendment did not change the base structure of volume commitments. Chism added that the company had incurred incremental fixed power costs and made additional capital expenditures beyond initial plans, and the amended agreement better contemplated those costs going forward. Dewan said the extension was “encouraging” and a positive signal about the durability of the relationship.
Financial results: revenue up 66%, adjusted EBITDA up 83%
Chism said 2025 was a record year and noted several items that affected reported results, particularly a sizable income tax benefit. For the full year, TSS reported:
- Total revenue: $245.7 million, up 66% from just over $148 million in 2024
- Adjusted EBITDA: approximately $18.6 million, up 83% from $10.2 million in 2024
- Net income: $15.1 million, up 153% from $6.0 million in 2024
- Diluted EPS: $0.56, up from $0.24
Chism said fourth-quarter adjusted EBITDA was $7.9 million, which he described as 50% higher than the prior record quarter posted in the first quarter of 2025.
Segment performance and margin drivers
The company’s revenue growth was driven primarily by procurement services and systems integration. Procurement services revenue totaled $197.5 million, up 68% year-over-year, while facilities management revenue was $7.9 million, down 1%.
Systems integration revenue increased 78% for the full year to $40.3 million. Chism said fourth-quarter systems integration revenue rose to $14.2 million from $7.9 million in the prior-year quarter. He cited organic growth in rack integration volumes, as well as two quarter-specific contributors:
- About $1 million of additional revenue in Q4 tied to the amended rack integration agreement, related to activities and expenses incurred in Q2 and Q3 of 2025.
- $800,000 of accelerated revenue recognition from a prior customer reimbursement associated with the company’s former Round Rock, Texas facility. Chism said the acceleration pulled forward revenue that otherwise would have been recognized mostly in 2026 and had no impact on cash flows because the cash was received in 2024.
Related to the accelerated recognition, Chism noted a $658,000 loss on disposal of assets in 2025, reflecting accelerated depreciation tied to assets previously used for AI rack integration at Round Rock.
On margins, consolidated gross margin was 18.6% in the fourth quarter, up from 14.4% a year earlier, which Chism said was heavily influenced by the amended customer agreement. For the full year, consolidated gross margin was 13.2% compared to 15.1% in 2024. Chism attributed the year-over-year decline primarily to the start of allocating operations-related depreciation at the Georgetown facility into cost of revenues, plus the rapid growth of procurement revenue, which carries lower margins than other streams.
Facilities management gross margin was 60% for 2025 compared to 62% in 2024. Chism said maintenance revenues were down early in the year but improved later, while discrete project work surged in Q4. He said discrete projects were $2.5 million in the fourth quarter, up 263% from $700,000 in the prior-year quarter, and cautioned that discrete work is less predictable than recurring maintenance.
Taxes, cash, and 2026 outlook
Chism said TSS recorded an income tax benefit of $7.6 million in the period, representing about half of full-year net income. He attributed this to reversing a valuation allowance on deferred tax assets, citing improved pre-tax income over the last two years and increased confidence in utilizing accumulated net operating losses. He said the balance sheet reflects a $7.9 million deferred tax asset and that future periods should reflect a more typical tax expense, with an expected 2026 effective tax rate of approximately 21%–22%.
TSS ended 2025 with $85.5 million of unrestricted cash and cash equivalents, up $62.3 million from year-end 2024. Chism said the company raised $55.3 million of net proceeds in an August secondary offering to fund strategic growth opportunities. Cash flow from operations increased to over $30 million in 2025 from $15.3 million in 2024, while net working capital improved to $46.1 million at year-end 2025 from $1.3 million a year earlier.
Management also discussed debt and restricted cash. In response to an analyst question, Chism said restricted cash was applied toward a debt paydown under the credit agreement, contributing to a reduction in debt.
Looking ahead, Dewan said the company is forecasting continued earnings growth in 2026, with adjusted EBIT expected in the $20 million to $22 million range. He characterized the outlook as conservative due to supply chain volatility and deal timing. Dewan also said the company is evaluating strategic options including deeper partnerships, selective acquisitions, and potential joint ventures to expand capabilities and diversify revenue.
During Q&A, Dewan said fourth-quarter rack volume “almost exceeded” the combined volume from the first three quarters and said the company’s expectation is to double the business in calendar 2026 compared with 2025. He also noted that forecasting is challenging given the size and volatility of deals and supply chain dynamics, including memory shortages that can raise prices and delay deployment timelines. Dewan said TSS has been somewhat insulated from those shortages because its key partner manages the global supply chain effectively.
About TSS (NASDAQ:TSSI)
TSS, Inc offers planning, design, engineering, construction management, commissioning and maintenance services. It provides these services primarily for specialized facilities such as data centers, communications rooms, call centers, laboratories, trading floors, network operations centers, medical facilities and similar environments. TSS Inc, formerly known as Fortress International Group, Inc, is based in Columbia, United States.
