TSS, Inc. Reports 21% Revenue Decline but Improves Gross Margin and Operating Income

TSS, Inc. reported a significant decline in financial performance for the second quarter of 2026, with total revenues decreasing by 21% to $34.9 million compared to $43.9 million in the same period last year. The drop was primarily driven by a 45% decrease in procurement revenues, which fell to $18.2 million from $33.0 million. However, the company saw growth in its higher-margin segments, with facilities management revenues increasing by 84% to $2.7 million and systems integration revenues rising by 46% to $13.9 million. The overall gross margin improved to 22.8%, up from 16.4% in the prior year, reflecting a shift towards more profitable service lines.

In terms of profitability, TSS reported a net income of $1.4 million, or $0.05 per diluted share, a slight decrease from $1.5 million, or $0.06 per diluted share, in the prior-year quarter. The company attributed the decline in net income to increased selling, general, and administrative expenses, which rose by 17% due to higher compensation costs and the addition of new executive positions. Despite these challenges, TSS's operating income increased by 16% to $1.6 million, indicating improved operational efficiency.

Strategically, TSS has expanded its service offerings, particularly in the integration of AI-enabled computer racks, which has become a key growth driver. The company entered into a multi-year warehousing and logistics arrangement with its largest customer, which is expected to provide a recurring revenue stream through March 2029. This agreement enhances TSS's operational capabilities and strengthens its relationship with the customer, who accounts for a significant portion of its revenues.

Operationally, TSS's total assets decreased to $175.3 million as of June 30, 2026, down from $184.9 million at the end of 2025. The company reported a cash balance of $67.7 million, with $1.8 million in restricted cash. TSS's employee headcount increased to 28,200 shares outstanding, reflecting ongoing investments in talent to support its growth initiatives. The company continues to face challenges related to supply chain disruptions, which have impacted its procurement business and overall revenue predictability.

Looking ahead, TSS anticipates that its revenues will ramp up at a faster pace than its selling, general, and administrative costs, leading to expected increases in operating income for the remainder of the year. The company remains focused on leveraging its strategic partnerships and expanding its service offerings to navigate the competitive landscape and capitalize on the growing demand for AI integration services.