TSSI · TSS, Inc.

TSS, Inc.'s Q1 2026 results reflect a deliberate strategic pivot toward higher-margin Systems Integration, which grew 88% year-over-year to $14.1 million, driven by strong demand for AI rack integration services at its Georgetown, Texas facility now operating at increasing scale for six months. This growth partially offset a steep 56% decline in lower-margin Procurement revenue ($40.0 million), which the company attributes to record-high volumes in Q1 2025 that are not recurring. Gross profit declined only 4% despite the 44% revenue drop, underscoring improved margin composition — gross profit included a $0.9 million allocation of depreciation to COGS this quarter, a non-recurring accounting treatment affecting comparability. Net income fell 24% to $2.3 million due to the full impact of income taxes following the removal of the deferred tax asset valuation allowance in Q4 2025 — a one-time accounting shift that increased tax expense by $342,000 versus Q1 2025. Adjusted EBITDA rose 1% to $5.3 million, confirming operational leverage from the integration business. Management reaffirmed its full-year 2026 Adjusted EBITDA guidance of $20–$22 million and stated performance is now expected toward the high end, citing sustained AI integration demand exceeding current outlook assumptions. The balance sheet remains strong but shows declining liquidity: cash fell $19.5 million sequentially to $66.0 million, and total assets declined $31.4 million, largely driven by reductions in contract receivables and inventories — consistent with lower Procurement volume and working capital normalization. Forward-looking statements emphasize continued execution risk around supply chain constraints, labor market conditions, and enterprise IT system implementation, all of which remain material uncertainties for the remainder of 2026.