TSS Inc(TSSI) - 2024 Q3 - Quarterly Report

Revenue Growth - Total revenues increased 689% to $70.1 million in Q3 2024 from$ 8.9 million in Q3 2023, with procurement revenues up $55.0 million (1,016%) and systems integration revenues up$ 5.9 million (361%) [84]. - Total revenues for the nine-month period ended September 30, 2024, reached $98.2 million, a 227% increase from$ 30.0 million in the prior year [102]. - Procurement revenues surged by 334%, increasing from $17.7 million to$ 77.0 million for the nine-month period [105]. - Recognized revenue for procurement deals increased from $17.7 million to$ 77.0 million, a growth of 335% year-over-year [106]. - The gross value of all procurement transactions increased by 94% from $40.9 million to$ 79.6 million in Q3 2024 [90]. - Gross value of revenues including netting rose 33% from $90.5 million to$ 120.6 million year-to-date [106]. Profitability and Income - Consolidated net income improved to $4.1 million in the current year-to-date period from a loss of$ 0.3 million in the prior year-to-date period [101]. - Operating income increased by 431%, from $0.7 million in Q3 2023 to$ 3.8 million in Q3 2024 [97]. - Operating income increased by 461% from $1.0 million to$ 5.7 million year-to-date [111]. - Net income for the current period was $4.1 million, compared to a net loss of$ 0.3 million in the prior year [113]. - Cash provided by operating activities surged to $36.9 million from$ 8.6 million year-over-year [120]. Expenses and Margins - SG&A expenses as a percentage of gross profit improved from 72% to 49% year-over-year, despite a 90% increase in dollar terms [96]. - SG&A expenses increased by $2.5 million (39%) primarily due to higher headcount and compensation costs [110]. - Consolidated gross margin decreased from 26% to 15% due to a higher proportion of lower-margin procurement deals [107]. - Gross margin based on recognized value of transactions decreased from 19.8% in the prior year to 6.9% in the current year [105]. Capital Expenditures and Investments - Capital expenditures of approximately$ 25 million to $30 million are anticipated for improvements to the new facility to support increased production capabilities for AI-enabled racks [77]. - The company plans to invest approximately$ 25 million to $30 million in a new facility to support AI-enabled computer racks [115]. Customer Agreements and Services - A multi-year agreement was signed with the largest customer to provide systems integration services for AI-enabled computer racks, ensuring consistent revenue to cover fixed and variable costs [77]. - Maintenance and integration services traditionally earn higher margins, with maintenance contracts typically renewing annually, providing revenue predictability [82]. - The company has focused on smaller scaled jobs connected with addition/move/retrofit activities to achieve better margins and more predictable earnings [82]. Supply Chain and Market Conditions - Supply chain issues may impact non-AI rack integration services, causing delays in revenue recognition [86]. - The company expects procurement revenues to remain elevated for the next three to six months but does not anticipate maintaining the same high levels long-term [88].