NASDAQ: TSSI

Over the last ten years, we have optimized our business by providing world-class integration services to our customer base. As computing technologies evolve and as we see new power and cooling technologies emerge, including direct liquid-cooled IT solutions and the rapid adoption of AI computing solutions, we will continue to adapt our systems integration business and capabilities to support these new products. We will also continue to offer expanded services to enable the integration, deployment, support, and maintenance of these new IT solutions. We compete in expanding market segments, often against larger competitors who have extensive resources. We rely on several large relationships and one US-based OEM (original equipment manufacturer) strategic customer to win contracts and to provide business to us under a Master Relationship Agreement. A material decline in volume from, or loss of this OEM customer would have a material effect on our results. Our operational focus is to ensure this does not occur.

Most of the components used in our systems integration business are consigned to us by our largest OEM customer or its end-user customers. Thus, our revenues reflect only the services we provide, and the consigned components are not reflected in our statement of operations or on our balance sheet. We also offer procurement services whereby we procure third-party hardware, software and services on their behalf. Our configuration and integration services businesses often integrate these components to deliver a complete system to our customers.

In some cases, in the performance of procurement services, we also act as an agent and arrange for the purchase of third-party hardware, software or services that are to be provided to our customers by another party but have no control of the goods or services before they are transferred to the customer. In these instances, we are acting as an agent in the transaction. These procurement services allow us to develop relationships with new hardware, software and professional service providers and allow us to generate higher profits on integration projects by broadening our revenue and customer base.

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Recent Developments

In October 2024, we signed a long-term agreement with our largest customer to provide systems integration services for AI-enabled computer racks at an expected minimum monthly volume. To support this level of production and to be able to provide increased volumes over our existing facility, we moved our headquarters and production facility to a new location in 2025 and completed capital expenditures of approximately $40 million for improvements to that facility, primarily to significantly increase the available electrical power and related cooling capabilities for both air-cooled and direct liquid cooled (“DLC”) computer racks. In December 2025, we signed an amendment to the long-term agreement whereby both parties agreed to update the pricing in the agreement to account for increased power demands and capital expenditures beyond those contemplated in the original agreement, update the pricing to reflect current rack configurations, and to extend the term of the agreement by an additional two years, with automatic one-year renewals if neither party terminates the agreement at least 180 days prior to that date. While there may be some variability in the number of racks built in any given period, we believe the structure of the agreement provides reasonable assurance to us that, absent our material breach of the agreement, the fees we earn from this arrangement will consistently be sufficient to cover projected fixed and variable costs directly related to the performance of our obligations under the agreement. The agreement may also be terminated for convenience by either party with 180 days’ written notice. If the other party terminates the agreement for convenience, it would no longer be committed to minimum volumes, however it would remain obligated to pay us amounts that we believe would be sufficient to cover the related facility costs and debt service costs related to capital expenditures incurred to support our obligations under this agreement, or to directly assume the responsibility for such items.

The volume of our strategic procurement services grew substantially during 2024 and 2025 compared to prior years. Customers value our ability to source disparate hardware, software and services and provide a single-source solution for their IT needs. In some cases, we merely act as agents in these transactions, and so the reported revenues will reflect only our fees earned in the transaction (“net deals”). If the procurement activities include integration services or other value-add work beyond just the procurement activity, the transaction is recorded at its gross value (“gross deals”), and revenue and costs are allocated to the procurement and systems integration segments based on the value created in each and the effort or cost involved to fulfill the contracts.

Service Offerings

We have developed a unique set of solution offerings to provide a range of services that enable our customers and partners to efficiently plan, develop, build, deploy, and maintain their IT hardware and software solutions. These solutions begin with strategies for the care of information technology assets that are housed in the facility or MDCs including power, cooling and heat management, as well as disaster recovery backup systems. Our operating expenses are not exclusively aligned to each service offering, as shared resources such as sales, marketing, and general and administrative expenses support all services. Our solutions involve many aspects of the life cycle of both traditional and MDCs and their related assets which are described in more detail below.

Systems Integration Services:

To assist our customers with IT equipment deployment in their data centers, we provide what we call "systems integration” services. We provide integrated technology services and software tools designed to accelerate the assembly and delivery of complex information technology solutions. These services include custom configuration of a broad scope of information technology products including client products, enterprise products, clusters, and modular containers. The integration of this equipment at both a rack-level or facility or MDC level is performed to our customers’ specifications and test criteria and may include imaging of software onto the hardware as well. We are generally not responsible for the performance of the related IT equipment in the field. While we have the ability to do onsite rack integration and occasionally do so, we believe one of our competitive advantages is doing rack integration in our own centralized rack integration facility, where we have greater scalability and our staff can specialize in individual parts of the integration process rather than needing to be a generalist in all phases of rack integration as is generally needed for onsite rack integration performed in clients’ data centers. This approach also allows for greater quality control as it is performed and supervised in our ISO-certified facility. We also provide warehousing of high-value equipment such as servers, switches, and other information technology hardware that are generally provided on a consignment basis to us by our OEM and end-user customers.

We also provide second-touch configuration services for our OEM and end-user customers, such as adding software, hardware, or other features to end-user devices, bundling such devices with peripherals, pre-loading customer-determined application software, tagging, asset capture, and other fulfillment services. Our services include solutions for edge devices, and client and infrastructure technologies. Many, but not all of these configuration services originate from our strategic procurement activities and are delivered as a holistic solution to customers seeking bundled services for procurement and configuration.

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Facilities Management Services:

While we do not manufacture the individual components that go into modular data centers (‘MDC’), we ensure all systems and equipment are correctly installed, integrate and test the computer racks in the MDC and test the entire MDC before deploying it to a customer site. Our strategy includes increasing the number of customers and MDCs under contract so that we can increase the amount of recurring revenues from ongoing design, maintenance, and support contracts. Our mission-critical facilities experience and our skilled personnel position us as trusted advisors to our customers and allow us to work on new opportunities as our customers grow or as their facilities mature and as partners introduce us to new client opportunities. We also intend to increase our efforts at establishing direct selling and business relationships within the market. In our history, we have integrated over 500 MDCs and currently continue to maintain over 100 of such MDCs. We anticipate enterprises may increase their evaluation of MDCs as they seek ways to efficiently deploy AI-enabled servers in their own environments without requiring the expense of building or retro-fitting data centers to accommodate AI racks. We have disaggregated the Facilities Management Services into two separate service offerings:

1-Equipment sales, deployment and other services:

In connection with the deployment of a solution within a customer’s existing data center, MDC or related equipment requirements, our capabilities include project management, value engineering and design management, bid negotiation support, subcontractor pre-qualification and selection, long-lead equipment procurement, issuance of equipment and construction contracts, and refinement and management of project budgets and schedules. Our project managers mobilize the required expertise for the project, utilizing project superintendents, quality control and safety professionals, as well as qualified subcontractors and support personnel. Project managers supervise work by project team members, including subcontracted parties, and all aspects of the following: architecture and construction, electric power systems, heat rejection and cooling, energy management, and controls, cooling tower systems, security systems, voice, data and network cabling, fire and life safety systems, and process piping and plumbing systems. The project manager remains responsible for managing all aspects of the project until project completion and customer delivery.

In addition, this installation portion of a project has the largest number of outside influences that can impact project goals and objectives, such as weather, non-performance of subcontractors, equipment deliveries, unexpected project changes from the owner and influence from local authorities and utility providers. Therefore, management experience, skill, and mission focus are critical during the project installation period.

2 - Maintenance and management:

We provide a comprehensive maintenance and service offering designed to ensure that the multiple systems critical to sustaining online applications in enterprise data centers and MDCs remain operational and functional. Typical facilities management services include overall management of the post-construction facility maintenance program and on-site staffing of technical engineering positions (e.g., electricians, HVAC mechanics, control technicians, and voice/data technicians). Some data centers are constructed in a modular format, whereby information technology, power, cooling, air filtration, uninterruptible power supplies and other related assets are deployed in pre-integrated solutions. MDCs may have lower overall cost of delivery, lower energy consumption, and shorter deployment schedules compared to traditional data centers. Our on-site maintenance services provide additional project revenue for us and position us for involvement in any new facility planning, design, and construction initiatives that the customer undertakes.

In addition, we provide 24x7 network operations support by remotely monitoring our data center service contract customers’ facilities for systems operations and emergency events that could lead to outages. Temperature levels, humidity, electrical connectivity, power usage, and fire alarm conditions are among the items monitored. The system maintains all site documentation for repairs and maintenance performed on each critical piece of equipment covered under our services. Such information is useful to our customers in assessing operational efficiency and causes of failure and enables them to make critical decisions on repair or replacement strategies based on the operating history of the monitored systems.

Our facilities maintenance service contracts can be tailored to customer requirements and typically span one to three years in duration, renewable annually thereafter, with cancellation clauses for nonperformance and are typically billed annually in advance. Our service contracts take different forms including fixed-price equipment maintenance with an optional comprehensive warranty to fix failures in key components such as uninterruptible power supplies or batteries, ticket-based service provided at contracted rates in a master service agreement, comprehensive facility services agreements that include on-site staffing, scheduled equipment maintenance and nontechnical facility services, and direct job-specific contracts for additional moves, additions, refreshes, refurbishments and change work within a facility.

As compute density increases and data centers evolve into the use of modular form factors, we found that we could leverage our facilities' maintenance experience and infrastructure by offering maintenance services for modules being deployed into new data centers. Our design services continue to evolve to support changing data center requirements including installation and maintenance of systems deployed on the edge. Ultimately, we started working with IT vendors to help them in the design and integration of their IT equipment into MDCs, which typically leads to ongoing maintenance contracts as these modular systems deploy.

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Procurement Services:

We generate revenues from fees we charge our customers to procure third-party hardware, software and professional services on their behalf, some of which are then used in our integration services as we integrate these components to deliver a completed system to our customer. We recognize our procurement services revenues upon completion of the procurement activity or delivery of the completed product depending on the performance obligation. For any procurement activities in which we transform the product, the revenues recognized on these transactions are the gross sales amount of the transaction, and we recognize offsetting costs of revenues for any costs we incur to procure the related goods (“gross deals”). In some cases, we arrange for the purchase of third-party hardware, software or professional services that are to be provided directly to our customers by another party, we have no control of the goods before they are transferred to the customer, and we do not transform the product in any way. In these instances, we are acting as an agent in the transaction and recognize revenue on a net basis, recording only the amount of any fee or commissions to which we expect to be entitled after paying the other party for the goods or services provided to the customer (“net deals”). Thus, the gross margin percentage for this business can be significantly different, even if the gross profit dollars are the same, depending on this mix of gross and net deals. This, in turn, can have a material impact on the gross margin percentage for the consolidated company, particularly in periods in which we experience a large change in volume of procurement transactions in relation to the volume of the remainder of our business.

Customers

Our customers include IT OEM equipment, technology and service companies and private-sector businesses that in some cases are the end users of the facility, or in other cases are providing a facility to a government or commercial end user. The majority of our sales are currently made to or through strategic alignment with a global Fortune 100 information technology company with a significant presence near our headquarters and integration facility. Through them, we provide facility management services to other major technology, software, banking and cloud service providers. The majority of our procurement services and systems integration activities are likewise delivered in conjunction with or for this same large OEM.

Sales and Marketing

A key part of our selling strategy is entering into master service agreements with multiple partners and co-selling our range of services to our partners’ end-user customers, leveraging their customer relationships and broadening the scope of potential customers for us. Our go-to-market approach relies primarily on business generated by or through a global Fortune 100 OEM customer with whom we have strategically aligned ourselves. This approach relies on expertise in information technology hardware systems, energy consumption, real estate matters, and facilities planning and operation from this primary demand source. This marketing approach allows the end–user customer to contract for comprehensive facilities services or to contract separately for each project phase such as integration or fulfillment services.

We continue to expand on our go-to-market strategy to also capitalize on our investment in direct selling personnel and leveraging our OEM partner’s capabilities at the same time. Our ability to be involved in sales engagements earlier in the cycle and with end-users allows us to positively impact demand and provide greater visibility into the integration schedules and future pipeline. This impacts our ability to better manage personnel schedules and ultimately optimize our production capacity. We also seek to enhance our name recognition using improved web marketing, trade shows, technical seminars, direct mailings, and social media.

Our headcount in sales and marketing has been very selective and targeted to align the skill sets with our evolving service offerings, leverage partner relationships and increase the consultative capability of our sales organization.

Maintaining key alliances and creating new partnerships is an important part of our sales development and growth plan. These alliances reside with various information technology consulting firms, specialty mission-critical engineering firms, application service providers, and internet service providers. Key alliance opportunities also reside in other firms within the market sector such as equipment manufacturers, product suppliers, property management firms, developers, information technology system integrators, and firmware providers. We are focused on expanding our strategic alliances with information technology corporations to provide engineering, design, construction management services, systems integration, modular solutions, and facility management services. As we expand our configuration services business, we expect this will help us establish alliances with new hardware and software providers who operate in the IT infrastructure market.

Competition

The mission-critical information technology solutions market is large, fragmented, and highly competitive. We compete for contracts based on the strength of our customer relationships, successful past performance, significant technical expertise, specialized knowledge, and broad service offerings. Our strength lies in our ability to deliver quality solutions on time and with high quality at a competitive price. These solutions can be complex or simple. We have gained market traction by providing complex AI solutions utilizing GPU and advanced thermal management technology and our largest customer highly values our flexibility, partnership and ability to execute on our commitments. We often compete against channel resellers and divisions of large information technology service and equipment providers. In some cases, because of diverse requirements, we collaborate with these and other competitors for projects. We respect competition in the information technology services sector, and we embrace what we need to do to compete and win to continue to increase in the future.

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Strategy

Our goal is to profitably grow our existing businesses and to identify expanded service offerings to further our value-add to our customers as we become a recognized leader in the life-cycle management of complex IT solutions. At a high level, the strategy we intend to use to accomplish this goal includes:

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Continue to deliver operational excellence and cost competitiveness to enhance our manufacturing capability: A key element of our success is our ability to leverage and optimize our systems integration facility. We have invested over $40 million in our new, larger integration facility in Georgetown, Texas that has significantly increased the available electrical power, cooling capabilities, and the number of testing / validation stations. This increased the capacity to integrate both air-cooled and direct liquid cooled racks, particularly in the AI market space for which power and thermal management demands continue to rapidly increase. We will continue to invest in our integration processes and technology to achieve additional cost efficiencies and enhance our existing capabilities. We are expanding to a hybrid integration model which allows us to generate revenues from within our facility and externally at customer locations. This allows more flexibility to support our customers’ requirements while continuing to enhance our cost-effectiveness.

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Expand our ability to drive demand with direct selling resources and to co-sell with our customers and partners. We believe we can expand our services portfolio penetration with new as well as existing customers.

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Maintain intense customer focus: We intend to strengthen and deepen our customer relationships. We believe that continued focus on cost-effective systems integration, deployment, and ongoing life-cycle management is important, and will help to increase our net sales, operating performance, and market share. To accomplish this, we will continue our close collaboration with our OEM partner to assist them in identifying demand for our services and design new services that allow them to meet new customer requirements and leverage innovations and technical developments. Additionally, we will continue to expand our sales force and field service technicians and add additional technical expertise.

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Pursue selective strategic partnerships and acquisitions: As part of our strategy to expand our service offerings and to maximize our market opportunities, we may partner with or acquire technologies, services, or product lines to accelerate our growth and to enhance our portfolio.

Employees

On December 31, 2025, we had 286 full-time employees plus approximately 64 temporary workers utilized primarily in our rack integration services. Our future success will depend on our continued ability to attract, retain, and motivate qualified personnel. We are not a party to any collective bargaining agreement, and we have not experienced any strikes or work stoppages. We consider our relationship with our employees to be very satisfactory.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements relating to our annual stockholders’ meeting with the Securities and Exchange Commission ("SEC”). Copies of these filings, including amendments to such filings are available, free of charge, on our website, www.tssiusa.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Information contained on our website is not and should not be deemed to be a part of this Annual Report or a part of any other report or filing with the SEC. The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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