Executive Summary

Q2 delivered hypergrowth with revenue of $44.0M (+262% y/y) as AI-led Procurement (+572% y/y to $33.0M) and Systems Integration (+91% y/y to $9.5M) drove performance; Adjusted EBITDA rose 103% to $4.0M while diluted EPS was $0.06, flat y/y .
Consolidated gross margin recovered to 17.8% from 9.3% in Q1 as Georgetown’s 213k sq ft facility became fully operational; mix shift to lower-margin Procurement vs. last year weighed on y/y margin (37.3% → 17.8%) .
Management raised FY25 Adjusted EBITDA growth guidance to at least +75% y/y (from at least +50%) on stronger first-half and visibility into 2H; they view this as a floor, not a ceiling, implying upside if execution and demand hold up .
Liquidity and capacity expanded: cash rose to $36.8M with $5.0M restricted; the company invested ~$31.6M in Georgetown to support higher-density AI racks (toward 300kW/rack and beyond), with additional TI reimbursement and debt accordion expected in 2H .

What Went Well and What Went Wrong

What Went Well
- “Record year-over-year revenue growth of 262%” as AI procurement and rack integration accelerated; “we are squarely positioned to address that demand” with the Georgetown facility fully operational .
- Adjusted EBITDA more than doubled to $4.0M; management raised FY25 Adjusted EBITDA outlook to at least +75% vs. 2024, citing pipeline strength and capacity ramp .
- Positive operating cash flow YTD ($37M) and strong cash balance ($36.8M) bolstered financial flexibility amid growth investments .
What Went Wrong
- Consolidated gross margin fell y/y (37.3% → 17.8%) due to mix shift toward lower-margin Procurement and a greater proportion of “gross” deals; GAAP Procurement gross margin declined (14.7% → 7.7%) .
- Interest expense rose sharply ($859k vs. $378k y/y) on higher procurement volume financing and Georgetown construction loan; depreciation also stepped up and will increase further in Q3 with a full quarter on the new facility .
- Facilities Management revenue declined 35% y/y to $1.5M; although strategically important, it remains a small contributor near-term with timing variability of discrete projects .

Financial Results

Overall performance (oldest → newest):

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($M)	$50.03	$98.96	$43.97
Gross Profit ($M)	$7.21	$9.21	$7.82
Net Income ($M)	$1.91	$2.98	$1.48
Diluted EPS ($)	$0.08	$0.12	$0.06
Adjusted EBITDA ($M)	$3.39	$5.24	$4.01

Year-over-year and quarter-over-quarter change:

Metric	Q2 2024	Q2 2025	YoY Change	Q1 2025	Q2 2025	QoQ Change
Revenue ($M)	$12.16	$43.97	+261.7%	$98.96	$43.97	-55.5%
Diluted EPS ($)	$0.06	$0.06	0.0%	$0.12	$0.06	-50.0%
Adjusted EBITDA ($M)	$1.97	$4.01	+103.3%	$5.24	$4.01	-23.4%

Margins and mix:

KPI	Q2 2024	Q1 2025	Q2 2025
Consolidated Gross Margin %	37.3%	9.3%	17.8%
Systems Integration Gross Margin % (GAAP)	43%	22%	44%
Procurement Gross Margin % (GAAP)	14.7%	7.8%	7.7%
Procurement Gross Margin % (Gross Value basis)	3.4%	6.6%	3.9%

Segment revenue breakdown:

Segment Revenue ($M)	Q4 2024	Q1 2025	Q2 2025
Procurement	$40.50	$90.18	$33.00
Systems Integration	$7.91	$7.48	$9.49
Facilities Management	$1.62	$1.30	$1.48
Total	$50.03	$98.96	$43.97

Additional balance sheet and cash flow highlights:

Cash & equivalents: $36.8M; restricted cash: $5.0M (secures bank loan) .
YTD cash flow from operations: $37.0M; landlord TI reimbursement of $6.8M expected in Q3; pursuing $5.0M accordion on bank loan .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted EBITDA growth vs. FY2024	FY2025	At least +50% y/y	At least +75% y/y	Raised
Systems Integration gross margin	FY2025 (2H vs. 1H)	Improve vs. Q1 on facility ramp	Continued improvement as Georgetown is fully operational	Maintained/clarified
1H25 revenue vs. 2H24	1H 2025	1H25 > 2H24	Achieved; 1H25 revenue $142.9M vs. 2H24 $120.1M	Achieved

Notes: FY2024 Adjusted EBITDA was $10.15M; “at least +75%” implies ≥$17.8M FY2025 Adjusted EBITDA if achieved .

Earnings Call Themes & Trends

Topic	Q4 2024 (Q-2)	Q1 2025 (Q-1)	Q2 2025 (Current)	Trend
AI/rack integration demand	Multi-year agreement with largest customer; AI integration central to growth	Ramp beginning May; 6MW power expanding to 15MW; AI DLC readiness	Facility fully operational; preparing for 300kW→1MW racks; bullish outlook	Strengthening capacity and visibility
Georgetown facility	Buildout progressing; contribute from Q2 onward	Production started in May; full by June	100% operational; capacity expanding; key strategic asset	Executed and scaling
Procurement variability	Noted variability; large fed-related projects	Q1 surprised to upside; seasonality around federal cycle	$33M in Q2; mgmt optimistic; pipeline/seasonality drivers	Elevated but lumpy
Margins	Mix-driven variability; Procurement below avg margin	Consolidated GM 9.3%; SI GM 22% (32% ex noncash rent)	Consolidated GM 17.8%; SI GM 44%; Procurement GM 7.7%	Improving sequentially; mix still key
Facilities/Modular	Stable high-margin but small	Down 40% y/y; opportunity with enterprise/edge AI	Down 35% y/y; discrete projects expected in 2H	Potential 2H uptick
Macro: tariffs/supply	N/A	Tariffs lengthen lead times; roadmap timing affects orders	No major change; federal cycle still relevant	Watchlist headwind

Management Commentary

CEO: “We delivered substantial year-over-year growth… Our Georgetown facility is now fully operational across all capabilities, enabling us to integrate more racks featuring the latest advanced AI technologies” .
CEO: “We are preparing to integrate racks with 300 kilowatts of power, on our way to a megawatt of power possibly within the next year” .
CFO: “Consolidated gross margin was 17.8% this quarter… up compared to 9.3% in the first quarter… Downward movement in blended consolidated margins is driven by the outsized growth in lower-margin procurement” .
CFO: “Adjusted EBITDA… was $4.0 million, up 103%… We generated cash flow from operations of $37 million for the first six months of 2025” .
CEO: “We are raising our full year 2025 adjusted EBITDA outlook from at least 50% growth to at least 75% growth compared to 2024” .

Q&A Highlights

Dell priority and diversification: Management aims to be “cheaper, better, faster” to win an “unfair share,” while exploring channel/on-site integration and partnerships to expand beyond Dell without jeopardizing the relationship .
Procurement variability & federal seasonality: Large, discrete projects can drive swings; Q1 outperformed typical seasonality; management remains optimistic and is adding resources to pursue multi-tranche opportunities .
Guidance philosophy: “At least 75%” Adjusted EBITDA growth is a floor; with $9.2M in 1H, management signaled confidence in 2H contribution .
Georgetown capacity: Facility is fully operational; SI margins should improve as occupancy costs normalize with corresponding contract economics .
Round Rock facility: Potential sublease interest and/or use to expand configuration services; favorable legacy lease terms cushion downside .

Estimates Context

Street coverage: S&P Global did not show published consensus EPS or revenue estimates for Q2 2025; the dataset contained actuals only, so a beat/miss vs. estimates cannot be determined at this time.*
Implications: The explicit raise to “at least +75%” FY25 Adjusted EBITDA growth versus FY24’s $10.15M should prompt upward revisions to FY25 EBITDA models to ≥$17.8M, assuming management’s new floor is adopted .

*Values retrieved from S&P Global.

Key Takeaways for Investors

Capacity-led AI cycle exposure: Georgetown’s full operations and higher power/DLC capabilities position TSS to capture rising AI rack complexity and volume over the next 12–24 months .
Guidance raised and framed as a floor: FY25 Adjusted EBITDA outlook increased to at least +75% vs. FY24; management indicates upside potential with continued execution .
Mix is the swing factor: Procurement drives top-line but compresses margin; SI growth and margin expansion are key to improving blended profitability through 2H25 .
Liquidity/capex runway: Strong cash generation and expected TI/accordion inflows support continued scaling and working capital needs as large projects flow .
Near-term trading setup: Narrative catalysts include AI integration wins, SI margin progression, and any incremental OEM/channel diversification announcements; watch Procurement-driven volatility around federal buying seasonality .
Medium-term thesis: Structural AI compute build-out, increasing rack densities, and DLC adoption underpin multiyear demand; TSS’s capability investments and customer ties are strategic in this cycle .

Appendix: Source Cross-References

Q2 2025 8-K/Press Release (financials, guidance): .
Q2 2025 Earnings Call (margins, facility, outlook, Q&A): .
Q1 2025 8-K/Call (trend, SI margin normalization, seasonality): .
Q4 2024 8-K (baseline, growth trajectory): .

TSS, Inc. (TSSI)·Q2 2025 Earnings Summary