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TI

TSS, Inc. (TSSI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 revenue rose 105% year over year to $50.0M, with diluted EPS up 300% to $0.08; gross margin expanded to 14.4% on mix shift toward higher‑margin integration, though revenue was down sequentially versus Q3’s procurement spike .
  • Management guided that Q1 2025 revenue will exceed Q4 2024 and systems integration (SI) revenue will also exceed Q4; 1H 2025 total revenue is expected to exceed 2H 2024, and 2025 adjusted EBITDA is expected to be at least 50% above 2024’s $10.2M, signaling a material raise vs prior commentary .
  • Structural capacity expansion remains the key catalyst: the new 213k sq ft Georgetown, TX facility begins initial production in April, targets full operation by June, and is being upgraded for high‑power, direct liquid‑cooled AI racks (power plan expanding toward 15MW+ near‑term) .
  • Mix risk persists: Procurement represented ~80% of 2024 revenue with below‑average margins and quarter‑to‑quarter variability; management expects SI and Facilities Management (FM) to grow at “significantly” higher rates than the overall business, supporting margin trajectory despite procurement volatility .

What Went Well and What Went Wrong

What Went Well

  • Record year with step‑function growth: FY24 revenue $148.1M (+172%), diluted EPS $0.24 (from ~$0.00), adjusted EBITDA $10.2M (+283%); Q4 revenue +105% YoY with EPS +300% to $0.08 .
  • Margin improvements and mix: Q4 consolidated gross margin 14.4% vs 13.4% in Q4’23, driven by growth in higher‑margin SI; SG&A leveraged to 59% of gross profit vs 76% in Q4’23 .
  • Strategic momentum: multi‑year agreement with largest customer enhances visibility; new high‑capacity facility on track; 2025 adjusted EBITDA guided to be at least 50% higher than 2024, with 1H25 revenue to exceed 2H24; “2024 was a transformative year” .

Selected quotes:

  • “2024 was a transformative year…as we capture the soaring demand for AI rack integration” .
  • “We expect 2025 adjusted EBITDA to be at least 50% higher than in 2024” .
  • “We will be fully operational by June” (new facility) .

What Went Wrong

  • Mix headwind and variability: Procurement (~80% of 2024 revenue) carries lower margins and high quarter‑to‑quarter variability; Q3 benefited from a spike, while Q4 sequentially declined from Q3’s $70.1M total revenue .
  • Cost/interest drag: Q4 SG&A rose in dollars (included six‑figure one‑time severance), and net interest expense increased due to receivables factoring; non‑current debt was $8.2M at FY’24 year‑end tied to facility expansion .
  • Execution constraints: Power and cooling requirements for next‑gen AI racks are escalating, requiring rapid facility redesigns; procurement tied to federal buying cycles introduces seasonality .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$24.4 $70.1 $50.0
Gross Profit ($USD Millions)$3.3 $7.9 $7.2
Gross Margin (%)13.4% 11.3% 14.4%
Operating Income ($USD Millions)$0.7 $3.8 $2.8
Operating Margin (%)3.0% 5.4% 5.5%
Net Income ($USD Millions)$0.3 $2.6 $1.9
Diluted EPS ($)$0.02 $0.10 $0.08
EBITDA ($USD Millions)$0.8 $4.0 $2.8
Adjusted EBITDA ($USD Millions)$0.9 $4.3 $3.4

Segment revenue breakdown

Segment Revenue ($USD Millions)Q4 2023Q3 2024Q4 2024
Procurement$20.8 $60.5 $40.5
Facilities Management$1.5 $2.0 $1.6
Systems Integration$2.2 $7.6 $7.9

KPIs and operating indicators

KPIQ4 2023Q3 2024Q4 2024
Consolidated Gross Margin (%)13.4% 11.3% 14.4%
SG&A as % of Gross Profit76% 49% 59%
Procurement Gross Contract Value ($M)N/A$79.6 $48.5

FY 2024 context (selected)

  • FY24 revenue $148.1M; gross profit $22.4M; net income $6.0M; diluted EPS $0.24; adjusted EBITDA $10.2M .
  • Year‑end cash and equivalents $23.2M; long‑term debt $8.2M (non‑current); operating cash flow $15.3M in 2024 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue1H 2025“In line with our second and third quarters of 2024 in aggregate” (i.e., Q2+Q3’24) “1H 2025 to exceed total revenues in 2H 2024” Raised materially
Total RevenueQ1 2025 vs Q4 2024Not providedQ1 2025 revenue higher than Q4 2024 New positive
Systems Integration RevenueQ1 2025 vs Q4 2024Not providedQ1 SI to exceed Q4 New positive
Adjusted EBITDAFY 2025Not quantified previouslyAt least 50% higher than FY 2024 ($10.2M) New quantified raise
Facility Ramp2025New facility to support growth (Q3 call) Initial production April; fully operational by June; Q2 contributes and ramps through 2026 Timing specified/affirmed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
AI rack integration demandQ2: ramp underway; cycle time cuts; OEM‑funded capacity; visibility improving . Q3: multi‑year agreement; planning for higher power (6x); volume could be 2–4x .Continued strong demand; Q4 SI +264% YoY; Q1 SI expected > Q4; facility designed for DLC and higher power .Strengthening, scaling
Power/cooling constraintsQ2: power density rising 80–150kW+; DLC adoption rising . Q3: power is bottleneck; facility move for power; DLC validation capacity 3x .Secured path to 15MW+; chiller capacity jumping to ~1,650 tons; more DLC lines/validation .Addressed with aggressive upgrades
Procurement seasonality/variabilityQ2: variability acknowledged; cross‑sell benefits . Q3: seasonality tied to U.S. federal fiscal cycle; gross vs net deal mix drives reported margins .Q4 procurement $40.5M; management expects elevated levels near term with variability; Q1 2025 revenue > Q4 2024 largely due to procurement .Elevated but volatile
Facilities Management (MDC)Q2: promising long‑term; lead‑times a constraint . Q3: predictable, >50% GM; potential 12–18 month growth .Management targeting growth; 2024 FM gross margin ~62%; pipeline could add “couple million” late 2025 if deals close .Gradual improvement
Financing/capacityQ2: OEM funding for capacity; debt‑free . Q3: bank debt contemplated for new facility .$20M term loan (SOFR+300bp) in place; capex funded for build‑out .Funding secured
Analyst coverage / IRQ3: Nasdaq uplist .Engaging with potential coverage; no firm announcements .Improving access

Management Commentary

  • Strategy and positioning: “We are in the early stages of AI infrastructure build‑out…we see our SI business growing rapidly as AI demand is fulfilled in coming quarters and years” .
  • Facility readiness and ROI: “Initial production in April…full production in June…as volumes grow, we can envision extremely high returns…perhaps as high as a 2‑year payback” .
  • 2025 outlook: “Expect revenue for the first quarter of 2025 to be higher than the fourth quarter of ’24…and 2025 adjusted EBITDA to be at least 50% higher than in 2024” .
  • Mix/margin context: “Procurement…represents nearly 80% of revenues in 2024 and…margins are typically below our corporate average. In our higher‑margin Systems Integration and Facilities Management businesses, we expect growth at a significantly higher rate than our overall business” .
  • FM margin highlight: “For the full year, [FM margin] was just under 62%…up from 57% last year” .

Q&A Highlights

  • Facilities Management growth/timing: Lead times and DLC design are gating factors; management is incentivizing a “couple million” incremental revenue late in the year if closes accelerate; FM carries ~55%+ margins (FY ~62%) .
  • Visibility: Improved 90–120 day visibility with occasional last‑minute orders; multi‑year agreement provides minimum volume comfort .
  • Facility design and validation: New site expands chiller capacity to ~1,650 tons; more validation stations and DLC lines; designed for faster throughput (“from weeks to hours”) .
  • One‑time Items: Q4 included six‑figure severance in SG&A; net income and EPS would have been higher absent this .
  • Financing and capital plan: $20M term loan (SOFR+300bp), with option for +$5M; sufficient to fund build‑out alongside cash .

Estimates Context

  • S&P Global consensus: No published Wall Street consensus estimates (EPS or Revenue) were available for Q4 2024 in S&P Global for TSSI; we therefore cannot assess beats/misses versus consensus. Values retrieved from S&P Global.
  • Actuals for reference: Q4 2024 revenue $50.0M; diluted EPS $0.08; Adjusted EBITDA $3.4M (all from company disclosures) .

Key Takeaways for Investors

  • Raised outlook with concrete near‑term markers: Q1 2025 revenue and SI both expected above Q4 2024; 1H 2025 revenue > 2H 2024; 2025 adjusted EBITDA at least 50% above 2024—key near‑term catalysts for estimate upward revisions once coverage broadens .
  • Capacity/power advantage is strategic: Rapid upgrades for high‑density, direct liquid‑cooled AI racks and secured municipal power path should support share gains as AI rack wattages climb and timelines compress .
  • Mix is the swing factor: Procurement can drive large revenue prints but depress blended margins; watch SI/FM growth outpacing total company to underpin gross margin and EBITDA expansion .
  • Cash generation with prudent leverage: FY24 cash from operations $15.3M and now a $20M term loan to fund build‑out provides runway; monitor interest expense and dual‑facility transition until sublease/additional utilization clarifies .
  • Watch FM (MDC) pipeline: High‑margin FM (~62% FY) could add incremental dollars if sales cycle shortens and DLC designs standardize; even “a couple of million” moves the model .
  • No Street consensus yet: Coverage remains nascent; as more analysts initiate, stock may react to formalized consensus beats/misses and target price frameworks .
  • Execution risks: Power/cooling availability, procurement seasonality (federal cycle), and supply constraints (e.g., GPUs) remain operational swing variables; the multi‑year agreement mitigates but does not eliminate volatility .