TSS, Inc. 2021 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021, with comparisons to 2020; it does not provide standalone fourth-quarter results. TSS provides data-center facilities services, systems integration, and IT procurement and reseller services. Its operations are concentrated in the U.S. and it reported two segments: facilities and systems integration.
Financial results and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $27.410 million | $45.062 million |
| Gross profit / margin | $6.361 million / 23% | $6.803 million / 15% |
| Operating loss | $0.831 million | $0.400 million |
| Net income (loss) | $(1.297) million; $(0.07) per share | $0.079 million; approximately $0.00 per share |
| Cash from (used in) operations | $(10.452) million | $9.997 million |
| Cash and cash equivalents at year-end | $7.992 million | $19.012 million |
- Revenue by segment: facilities was $7.075 million, down from $9.003 million; systems integration was $20.335 million, down from $36.059 million. Procurement and reseller revenue fell to $14.667 million from $28.773 million; integration-services revenue was $5.668 million versus $7.286 million.
- Gross profit fell $0.442 million despite the higher consolidated gross margin, principally because lower-volume procurement and reseller activity carries lower margins. Management reported core integration and maintenance margins increased to 44% from 30%.
- SG&A was essentially unchanged at $6.656 million. Interest expense was $0.430 million, versus $0.367 million. 2020 other income included $0.896 million from forgiveness of a Paycheck Protection Program loan.
- At year-end, total assets were $19.281 million, total liabilities $17.078 million, and stockholders’ equity $2.203 million. Working capital was negative $0.310 million.
- Debt of $2.023 million, including accrued in-kind interest, was classified as current and due in July 2022. A $1.5 million asset-based revolving credit facility had no balance at year-end, but TSS was not eligible to borrow because it failed financial covenants; the facility matured December 31, 2021.
Material changes and management commentary
- Revenue declined 39% year over year. Management attributed the decrease primarily to a $14.1 million reduction in procurement and reseller activity, alongside pandemic-related customer delays, modular data-center deployment cancellations, and supply-chain constraints affecting integration work.
- Facilities revenue declined 21%; deployment revenue fell $1.8 million, or 54%. Integration-services revenue decreased 22%. Component shortages in the second half of 2021 limited the OEM partner’s ability to supply equipment needed for projects.
- Operating cash flow swung from $10.0 million provided in 2020 to $10.5 million used in 2021. Management said the comparison was substantially affected by timing: at 2020 year-end, customer receipts for large procurement projects preceded payments to vendors; those vendor payments were made in early 2021.
- TSS generated $37.3 million of receivables through non-recourse factoring during 2021 and paid $177,000 in related fees, recorded as interest expense. The corresponding 2020 amounts were $56.6 million and $329,000.
Outlook, risks, and unusual items
- Management expected modular data-center deployments to increase in the first half of 2022 as customer site restrictions eased and supply conditions improved. It cited delayed project backlog and significant transactions after year-end as support for expected activity, but provided no numerical revenue or earnings guidance.
- The filing describes conditions that raised substantial doubt about continued operations, including recurring losses and negative operating cash flows, a $66.3 million accumulated deficit, a working-capital deficit, and debt due in July 2022. Management concluded that substantial doubt was alleviated based on its cash-flow expectations and backlog, and stated that it expected adequate resources for at least twelve months if its business-plan projections were met. Outcomes depend on execution, supplier deliveries, revenue, costs, and financing availability.
- Customer concentration is acute: one U.S.-based IT OEM accounted for 95% of 2021 revenue and 51% of year-end trade receivables; the three largest customers accounted for 99% of revenue. TSS warned that losing or receiving fewer orders from the principal customer could materially harm results.
- Other disclosed risks include COVID-19 effects and supply disruptions; variable, low-margin reseller volumes and related working-capital needs; competition and price pressure; contract cancellation and rebidding; cost-estimation risk on fixed-price contracts (about 85% of revenue); subcontractor and equipment warranty exposure; aging modular data centers potentially reducing maintenance revenue; cybersecurity; and difficulty attracting qualified personnel.
- Open purchase-order commitments were approximately $6.5 million at year-end, with most expected to be fulfilled in the first half of 2022. A January 2022 settlement resolved legacy litigation for $500,000; $450,000 was covered by insurance. The settlement liability and insurance receivable were recorded at year-end with no net impact on 2021 earnings, and the insurance company paid the settlement in February 2022.
- The auditor issued an unmodified opinion on the financial statements and identified the going-concern assessment as a critical audit matter. The auditor was not engaged to audit internal control; management reported its controls were effective.
Important facts for investors to verify
- Whether 2022 backlog converted into completed work, customer acceptance, and cash receipts, and whether supplier delivery expectations were met.
- Repayment or refinancing of the approximately $2.0 million debt due in July 2022, and the status of replacement or renewed revolving-credit availability following the facility’s maturity and covenant ineligibility.
- Whether TSS reduced its dependence on the principal OEM customer and diversified revenue and receivables.
- Cash conversion and working-capital requirements of procurement and reseller projects, including the availability and cost of trade credit and receivables factoring.
- The persistence of improved core-service margins and whether systems-integration facility utilization and profitability recover.