TSS, Inc. Reports 44% Revenue Decline in Q1 2026, Despite Growth in Systems Integration

TSS, Inc. reported a significant decline in financial performance for the first quarter of 2026, with total revenues falling 44% to $55.3 million compared to $98.9 million in the same period last year. The decrease was primarily driven by a 56% drop in procurement revenues, which fell from $90.2 million to $40.0 million, attributed to an unusually high volume of procurement activity in the prior year. However, the company saw an 88% increase in systems integration revenues, rising from $7.5 million to $14.1 million, largely due to the integration of AI-enabled computer racks and an amendment to a long-term agreement with its primary customer.

In terms of profitability, TSS reported a net income of $2.3 million, or $0.08 per diluted share, down from $3.0 million, or $0.12 per diluted share, in the prior year. The decline in net income was influenced by increased selling, general, and administrative (SG&A) expenses, which rose by 13% to $6.5 million, reflecting higher compensation costs and non-cash equity-based compensation. Despite these challenges, the company achieved a gross margin improvement from 9.3% to 15.9%, driven by enhanced operational efficiency and a favorable shift in revenue mix.

Operationally, TSS has made strategic moves to bolster its capabilities, including the completion of a $40 million facility build-out in Georgetown, Texas, aimed at supporting increased production of AI-enabled racks. The company has also entered into a new agreement with its largest customer to utilize its previously idle Round Rock facility for warehousing and logistics services, which is expected to contribute to revenue starting in the second quarter of 2026. As of March 31, 2026, TSS had 28,073,956 shares of common stock outstanding.

The company’s balance sheet reflects a decrease in total assets from $184.9 million at the end of 2025 to $153.6 million, primarily due to a reduction in cash and cash equivalents, which fell from $85.5 million to $66.0 million. TSS's current liabilities also decreased significantly from $72.6 million to $40.6 million, indicating improved liquidity management. The company continues to rely heavily on a single customer for a substantial portion of its revenues, which poses a risk if that relationship were to deteriorate.

Looking ahead, TSS remains cautiously optimistic about its future performance, particularly in the systems integration segment, which is expected to benefit from ongoing demand for AI technologies. The company anticipates that the fixed monthly payments from its long-term agreement will help cover operational costs and debt service, providing a more stable revenue base. However, TSS acknowledges the potential for fluctuations in demand and supply chain challenges that could impact its operations in the near term.