TSS, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 14, 2024. TSS provides data-center and IT systems integration, procurement, deployment, and maintenance services. All revenue is from the U.S.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $15.9 million | $6.6 million |
| Gross profit / margin | $2.7 million / 17% | $1.7 million / 26% |
| Operating income (loss) | $253,000 | $(665,000) |
| Net income (loss) | $15,000; $0.00 per share | $(786,000); $(0.04) per share |
| Operating cash flow | $2.6 million | $(13.5) million |
- Revenue rose 142%, driven primarily by systems integration procurement revenue, which increased to $11.6 million from $1.7 million. Systems integration revenue overall was $13.7 million; facilities revenue was $2.1 million, down slightly year over year.
- Gross profit increased 59%, but gross margin contracted as procurement—73% of revenue versus 26% a year earlier—grew as a share of sales. Management reported a 42% margin on core integration and maintenance services, excluding reseller business, versus 30% in Q1 2023.
- SG&A increased 6% to $2.4 million. Net interest expense rose to $228,000 from $112,000; it included factoring-related fees, partly offset by $100,000 of interest income.
- Cash and cash equivalents were $14.4 million at March 31, up from $11.8 million at year-end. Working-capital movements, including inventory reduction and higher accounts payable, contributed to positive operating cash flow. Capital expenditures were $39,000; cash used for stock repurchases was $55,000.
- Current assets were $20.5 million and current liabilities $19.6 million. Total liabilities were $23.1 million, including $4.2 million of operating lease liabilities. No balance was outstanding on the bank revolver at quarter-end; borrowing availability was approximately $182,000. The revolver’s stated maximum is $1.5 million, subject to its borrowing base.
Management outlook, risks, and notable items
- Management expects profitability in the next quarter and for full-year 2024, citing revenue and backlog growth and improved supply-chain conditions. It also cautions that component supply issues remain and may continue for several quarters; procurement revenue is project-based, volatile, and difficult to predict.
- The company reported an accumulated deficit of $66.3 million and a history of annual losses, but said it had recorded operating and net income in its four most recent quarters. Management concluded there was no substantial doubt about the company’s ability to continue as a going concern. It noted possible cost reductions or new equity or debt financing if results fall short, and potential capital needs for acquisitions or growth in reseller activity.
- Customer concentration is significant: one U.S.-based IT OEM represented 98% of Q1 revenue, versus 90% a year earlier, and 95% of trade receivables at March 31. Losing or materially reducing business with this customer could significantly harm results.
- Non-recourse factoring of receivables from that customer totaled approximately $22.1 million in Q1, versus $10.9 million a year earlier; related fees were approximately $316,000. TSS also relies on vendor trade credit to finance procurement activity.
- The revolving credit facility was renewed on May 10, 2024, after quarter-end, with a May 5, 2025 maturity, a $1.5 million maximum subject to borrowing-base limits, an 8.50% effective rate at renewal, and a $1.5 million minimum-liquidity covenant.
- Gross margin may remain pressured if lower-margin procurement and reseller revenue grows. Fixed-price work also exposes the company to cost overruns, including labor, materials, and productivity risks.
- During the quarter, 120,485 shares were acquired for approximately $55,000 to cover employee tax withholding on vested restricted stock; the filing says these were not purchases under a publicly announced plan.
Key facts for investors to verify
- Whether procurement revenue and customer demand are recurring, and how much of the reported growth reflects agent transactions recognized net of third-party costs.
- Customer concentration, receivable collection, and continued access to non-recourse factoring and vendor credit.
- Progress toward management’s 2024 profitability outlook, including the impact of procurement mix, labor costs, and ongoing supply constraints on gross margins.
- Compliance with the renewed revolver’s liquidity covenant and the company’s available borrowing capacity.
- Cash-flow sustainability after the favorable working-capital movements in Q1, and whether liquidity remains adequate if revenue or collections weaken.