TSS Inc (TSSI) reported a significant increase in first quarter revenue to $15.9 million, up from $6.6 million in the previous year, marking a growth of 142%.
The company saw a substantial improvement in gross and operating profits, with gross profit increasing by $1 million or 61% compared to the first quarter of the previous year.
Net income improved to $15,000 in Q1 2024, a significant recovery from a net loss of $786,000 in Q1 2023.
Adjusted EBITDA turned positive at $475,000 in Q1 2024, compared to a loss of $436,000 in the same quarter the previous year, showing effective cost management and operational efficiency.
TSS Inc (TSSI) is expanding its production capacity in partnership with customers, including a major OEM partner, to meet the increasing demand for Rack integration services driven by AI computing solutions.
Negative Points
Despite overall revenue growth, the systems integration business saw a decline, with revenues down by $0.5 million compared to the first quarter of the previous year.
The gross profit margin decreased to 17% in Q1 2024 from 26% in Q1 2023, indicating a less favorable revenue mix and the impact of accounting treatments in the procurement business.
Selling, general and administrative expenses increased by $127,000 or 6% due to higher headcount costs, which could pressure the operating margin if not accompanied by proportional revenue increases.
Interest expenses increased due to higher volumes of business transacted through the procurement business, which could affect net income if not managed carefully.
While the company is making significant strides in its core business areas, there are still uncertainties in the IT market and the role of modular data centers, which could impact long-term strategic positioning.
Q & A Highlights
Q: Can you provide an overview of TSS Inc's performance in the first quarter of 2024? A: (Darryll Dewan - President, CEO) In Q1 2024, TSS Inc achieved significant growth with overall revenue of $15.9 million, up from $6.6 million in Q1 2023. This growth was driven by a strong performance in the procurement business, which saw revenues increase to $11.6 million from $1.7 million in the previous year. The company also reported an improvement in gross and operating profits and a positive adjusted EBITDA of $475,000, a substantial improvement from a loss of $436,000 in Q1 2023.
Q: What were the key drivers behind the revenue growth in the procurement business? A: (John Penver - CFO) The procurement business experienced a $9.9 million increase in revenues, primarily due to heightened data center demand. The gross value of transactions processed was $20 million, involving 61 transactions, compared to $6.7 million from 31 transactions in Q1 2023. This surge reflects the broader industry trends and our strategic positioning.
Q: How is the systems integration business performing, and what are the future expectations? A: (Darryll Dewan - President, CEO) Although systems integration revenues were slightly down by $0.5 million from the previous year, the business is poised for significant growth. We are expanding our rack integration services in response to the increasing demand for AI computing solutions. We anticipate visible financial results and a robust sales funnel growth in 2024, driven by these expansions and our high-quality, flexible service offerings.
Q: Can you discuss the operational changes and investments made recently? A: (Darryll Dewan - President, CEO) We've invested in scaling our integration business, particularly in enhancing our factory team and technology. This will increase our rack integration capacity by up to ten times. These investments, along with our skilled labor force enhancements, are crucial as we prepare for increased data center infrastructure spending and aim to improve our operational efficiency and financial strength.
Q: What new initiatives or products has TSS Inc launched recently? A: (Darryll Dewan - President, CEO) We recently launched the 'cybersecurity in a box' solution, which integrates and delivers top-tier cybersecurity solutions. This service leverages our extensive experience in high-performance computing and IT infrastructure to provide robust protection against security breaches, ensuring comprehensive cyber recovery and integration services.
Q: How does TSS Inc plan to sustain its growth and address market opportunities in 2024 and beyond? A: (Darryll Dewan - President, CEO) Our strategy involves continuous improvement in our core business operations and making strategic investments to support growth. We are focused on delivering value to our customers, enhancing our team's capabilities, and leveraging our unique position in the technology sector to efficiently and effectively capitalize on emerging market opportunities, particularly in AI and traditional rack integration.