TSS, Inc. (TSSI) | The Buildout — AI Infrastructure
The Verdict
TSS is a physical-layer integration and services company. It takes racks of AI hardware built by others — H100, H200, Blackwell and GB300 systems — assembles and validates them, installs modular data centers, and maintains the buildings that house them. It does not design chips, servers, networking silicon, software or models. The company dates its AI rack capability to 2024, and describes itself as absorbing technical burden that is being pushed outward from primary technology providers like NVIDIA to the supplier community. Practically all of that work runs through one unnamed US-based IT OEM customer.
| Market Cap | — |
| Revenue (TTM) | $193M |
| Revenue Growth | −26.6% |
| EBITDA Margin (TTM) | 7.3% |
| Net Cash | $29M |
| Earnings Beats | 2 of 2 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Blended gross margin reached 22.8% in Q2 FY2026, up 640 basis points year over year, as higher-margin Systems Integration and Facilities Management grew and Procurement shrank.
- The Q1 10-Q disclosed $110.3M of remaining performance obligations expected to complete beyond one year, excluding variable consideration, recognized ratably over a long-term agreement.
- The $17M Vera Rubin build-out has a spend-to-date figure ($7M–$8M) and a completion target (mid-September 2026), with revenue expected some in Q3 and primarily in Q4.
- The December 2025 repricing already worked once: Systems Integration gross margin rose from 22.1% to 37.5% in Q1 FY2026.
- Management says the Georgetown facility has 2x to 3x capability over the bare minimum in the contract, and the balance sheet holds $67.7M of cash.
What We’re Watching
- The contract's guaranteed weekly minimum has been exceeded only "once or twice year-to-date," per management — the mechanical trigger for the revenue step-up.
- Systems Integration revenue has printed roughly flat for three quarters ($14.2M → $14.1M → $13.9M), and year-over-year growth decelerated from +88% to +46%.
- Q3 2026 Procurement revenue against the guided $30M–$40M range; management says Q3 orders already exceed Q2 Procurement revenue.
- The mid-September 2026 Vera Rubin build-out completion, with supply chain — memory, cables and other parts — named by management as the gating item above demand.
The thesis reads as intact but forward-dated. The mix shift is working — gross profit and operating income rose year over year while revenue fell 20% — and the $17M Vera Rubin build-out carries a spend-to-date figure against a dated completion. The weakness is that the AI-linked Systems Integration line has printed roughly flat for three quarters, and the contract's weekly minimum has been exceeded only once or twice year-to-date. The open question: does Vera Rubin revenue actually break Systems Integration above roughly $14M a quarter, and does it arrive before Georgetown depreciation erodes the margin?
Earnings Beat
TSS reported Q2 FY2026 revenue of $35.1M, down 20% year over year, as Procurement revenue fell 45% to $18.2M. Systems Integration revenue rose 46% to $13.9M, and Facilities Management grew 84% to $2.7M. Blended gross margin expanded 640 basis points to 22.8%, gross profit rose 11% to $8M, and adjusted EBITDA rose 12% to $4.5M.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $35M | $55M | $44M | −20.2% |
| Gross margin | 22.8% | 15.4% | 15.9% | +690bps |
| EBITDA | $3M | $4M | $3M | −6.5% |
| EPS | $0.06 | $0.09 | $0.06 | −6.7% |
| Systems Integration revenue | $13.9M | $14.1M | $9.5M | +46% |
| Adjusted EBITDA | $4.5M | $5.3M | n/a | +12% |
This shift improves the quality of our earnings. This is by design.— Darryll Dewan, President and CEO, 2026-08-13
Management tone: The Q2 call was framed more defensively than the Q1 call, with the CEO leading on the earnings-quality argument before addressing a 20% revenue decline. Management volunteered an unflattering mainstream-rack downturn and disclosed that the weekly minimum had been exceeded only once or twice year-to-date. They answered directly on the $17M build-out's spend-to-date and completion date, and declined customer-specific pipeline detail on stated contractual grounds.
Management Guidance
Management maintained FY2026 adjusted EBITDA toward the upper end of $20M–$22M, guided Q3 Procurement revenue back to the $30M–$40M historical range, and said the second half of 2026 should be stronger than the first. The $17M Vera Rubin build-out is expected to convert into Systems Integration revenue beginning in Q3 and primarily in Q4, recognized ratably over the multiyear agreement. The Q1 effective-tax-rate guide of about 26% for Q2–Q4 and about 22.7% for FY2026 was not reaffirmed or updated on the Q2 call.
Trajectory
Revenue has fallen sharply as Procurement deflates — from $99.0M in Q1 FY2025 to $35.1M in Q2 FY2026 — while gross margin reached 22.8% in Q2 FY2026, up 640 basis points year over year. The mix shift is doing the work: Q2 gross profit rose 11% and operating income 16% even as revenue fell 20%. The strain sits in the AI-linked line itself, where Systems Integration revenue has printed $14.2M, $14.1M and $13.9M over three quarters and its gross margin slipped from 37.5% to 31.3% on Georgetown depreciation.
The Model
The model projects FY+1 revenue of $199.5M and EBITDA of $18M (8.8% margin), then FY+2 revenue of $242.0M and EBITDA of $29M (12.1% margin). The near-term figure is anchored to the Vera Rubin build-out converting into ratable Systems Integration revenue and the guided Procurement rebound. The FY+2 step depends on higher integration volume inside the existing Georgetown footprint and a continued mix shift toward the higher-margin segments.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $246M | $200M | $242M |
| YoY Growth | — | −18.8% | +21.3% |
| EBITDA | $14M | $18M | $29M |
| EBITDA Margin | 5.9% | 8.8% | 12.1% |
Projections are the median of 5 independent model runs.
Management maintained FY2026 adjusted EBITDA toward the upper end of $20M–$22M, guided Q3 Procurement revenue back to the $30M–$40M historical range, and said the second half of 2026 should be stronger than the first. The $17M Vera Rubin build-out is expected to convert into Systems Integration revenue beginning in Q3 and primarily in Q4, recognized ratably over the multiyear agreement. The Q1 effective-tax-rate guide of about 26% for Q2–Q4 and about 22.7% for FY2026 was not reaffirmed or updated on the Q2 call.
What Could Go Right — and Wrong
- Sustained weekly-minimum exceedance converts the flat ~$14M Systems Integration line into reported dollars, since management says the uplift above the minimum "gets really much more dramatic."
- The $17M Vera Rubin build-out completes mid-September 2026 and Systems Integration revenue steps up in Q3 and Q4, breaking the plateau.
- Systems Integration gross margin recovers above 37.5%, showing the December 2025 repricing outruns Georgetown depreciation.
- A second qualified customer or a named beyond-OEM contract begins to reduce the 99% revenue concentration.
- An MDC contract converts the two dated installs (September–October 2026 and mid-2027) into recurring, high-margin facilities revenue.
- The weekly minimum remains the effective ceiling, Systems Integration stays near $14M, and the demand narrative never converts into dollars.
- Georgetown depreciation keeps outrunning price recapture, pulling blended gross margin back and breaking the operating-leverage claim.
- A second weak Procurement quarter takes total gross profit dollars lower even as the percentage margin improves.
- Vera Rubin revenue timing slips past Q4, or the ramp arrives later than management guided.
- TSS is not qualified on non-NVIDIA platforms as the ecosystem scales AMD Helios and in-house silicon.
Looking Ahead
The next 12 months turn on whether the Vera Rubin build-out converts into revenue. The $17M power and cooling investment is targeted for completion in mid-September 2026, with revenue expected some in Q3 and primarily in Q4, recognized ratably over the multiyear agreement. Management expects the second half of 2026 to be stronger than the first and reaffirmed FY2026 adjusted EBITDA toward the upper end of $20M–$22M, with Q3 Procurement revenue forecast back to $30M–$40M. Two modular data center installations are dated for September–October 2026 and mid-2027.
- Mid-September 2026Vera Rubin build-out completes — $17M power and cooling assets go into service; tests Q4 timing
- Q3 2026Procurement revenue rebound — Tests the guided return to the historical $30M–$40M range
- Q3 2026First Vera Rubin revenue — Tests whether Systems Integration breaks above its ~$14M plateau
- September–October 2026New MDC installation — First of two dated modular data center installs; tests execution
- Q4 2026Primary Vera Rubin revenue — Tests the ratable revenue ramp from the Vera Rubin build-out
- Mid-2027Second MDC installation — Tests whether the modular pipeline builds to recurring revenue
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $148M | $246M | $193M | +65.9% |
| Gross Margin | 19.6% | 13.4% | 16.5% | 630bps |
| EBITDA | $9M | $14M | $14M | +58.2% |
| EBITDA Margin | 6.1% | 5.9% | 7.3% | 28bps |
| Net Income | $6M | $15M | $14M | +157.6% |
| Free Cash Flow | $7M | $2M | −$21M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)16.5%
- EBITDA Margin (TTM)7.3%
- Net Margin (TTM)7.5%
- ROIC13.7%
- FCF Conversion-148.9%
- SBC / Revenue2.2%
The Company
TSS is a data center services company headquartered in Georgetown, Texas. It provides services for the integration of complex AI technologies — planning, design, deployment, maintenance and refresh of end-user and enterprise systems, including the mission-critical facilities that house them. Its services include technology consulting, design and engineering, project management, systems integration, systems installation, facilities management and IT procurement. The company dates its AI rack integration capability to 2024, when systems integration services were enhanced to include AI-enabled data center server racks.
TSS does not make the parts it integrates. The 10-K states it does not manufacture the individual components that go into modular data centers; it assembles, validates and installs hardware built by others, and maintains the buildings and modular data centers that house them. Its physical footprint is two leased Texas sites — a 212,793 square foot headquarters and integration facility in Georgetown that opened mid-2025, and a 96,766 square foot Round Rock warehouse and office repurposed to warehousing and logistics effective May 1, 2026.
Business Segments
Competitive Landscape
TSS's competitive position is not described in the company's own words anywhere in the source material. The competitive set appears only in a modeled supply-chain file that is flagged as spider-sourced rather than quoted. The source also notes that TSS's replaceability is not addressed in the evidence — no contract termination provisions, cure rights, or win/loss data are disclosed.
- Named in a modeled supply-chain file as a rack integration services competitor; not discussed by the company.
- Named in the modeled file as a server and rack integration competitor; also appears as customer and supplier, which weakens the entry.
- Named in the modeled file for data center facilities management and services.
- Schneider ElectricNamed in the modeled file for modular data center and facilities services.
Supply Chain
TSS sits in the physical integration layer of the AI supply chain, assembling and testing hardware built upstream. No neighbor in the source material named TSS; NVIDIA is the only supplier relationship with a documented tie.
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