Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TSS Inc (TSSI, Financial) reported a significant year-over-year revenue growth of 689% for the third quarter, reaching $70.1 million.
- The company achieved a nearly twelvefold increase in net income compared to the same quarter last year, with diluted EPS rising from $0.01 to $0.10.
- TSS Inc (TSSI) successfully executed a multiyear agreement with a primary customer, enhancing revenue visibility and supporting investment in capacity.
- The company has expanded its production capacity, reducing cycle times for computer racks from weeks to less than a day.
- TSS Inc (TSSI) has been awarded the Professional Services Best Deployment Partner Award for 2024 by its largest customer, highlighting its commitment to customer service.
Negative Points
- The company's overall gross margin decreased to 11.3% from 31.9% due to a higher proportion of lower-margin procurement services.
- Procurement revenues, while contributing to growth, are subject to quarter-to-quarter fluctuations and seasonality, particularly due to federal government buying cycles.
- The facilities management segment, while stable, only experienced moderate growth of 8% and faces challenges from increasing compute density and cooling requirements.
- TSS Inc (TSSI) anticipates potential bottlenecks in growth due to power requirements and availability of NVIDIA chips for its customers.
- The company expects profitability in the fourth quarter to be slightly below the third quarter level due to timing of incoming projects and a smaller pipeline of procurement deals.
Q & A Highlights
Q: Your business has seen tremendous growth recently, and with a multiyear agreement in place, how do you plan to execute on the potential upside scenario, especially with your competitor facing delisting risks?
A: Darryll Dewan, President and CEO, stated that while they can't comment on specific customers, they are prepared for growth spikes and have plans to accommodate increased demand. They are ready to take on more business and are confident in their ability to handle it. Daniel Chism, CFO, added that their new facility is being built to handle two to three times the current volume, preparing for significant growth in AI rack building.
Q: Would you consider being acquired by a company like Dell, given your strong position in the market?
A: Darryll Dewan, President and CEO, mentioned that while they are open to opportunities that benefit the business and stakeholders, their primary focus is on execution and growth. They will consider any offers that align with their strategic goals.
Q: How attractive is the facilities management business compared to the integration business, and what is its long-term potential?
A: Darryll Dewan, President and CEO, noted that the facilities management business has a growth trajectory with a CAGR of 12-13%. While it may not reach the volumes of rack integration, there is optimism for growth, especially with AI-related opportunities. They expect to see positive developments by the end of the year that will impact revenue in 2025 and 2026.
Q: Is your new facility large enough to handle future growth, and what are your plans if you outgrow it?
A: Darryll Dewan, President and CEO, assured that the new facility is sufficient for current growth plans, with additional space available nearby if needed. They have options to expand and are optimizing current space for production. Daniel Chism, CFO, added that the primary driver for the move was power requirements, not just square footage, and they have plans to increase power capacity significantly.
Q: What do you see as the biggest potential bottleneck to your growth over the next few years?
A: Darryll Dewan, President and CEO, identified power as a critical factor, along with the availability of NVIDIA chips for their customers. They are actively planning for future power needs and working closely with customers to adapt to technological advancements. Daniel Chism, CFO, mentioned that the city is cooperating to expand power capabilities, which will support future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
