Ladies and gentlemen, good afternoon. My name is Abby, I will be your conference operator today. At this time, I would like to welcome everyone to the TSS Q1 2023 earnings conference call. Today's conference is being recorded, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you would like to ask a question during this time, simply press the star key followed by 1 on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you, I will now turn the conference over to John Penber, Chief Financial Officer. You may begin.
Thank you, Abby. Good afternoon, everyone. Thank you for joining us on our conference call to discuss the Q1 2023 financial results. I'm John Penber , the Chief Financial Officer for TSS, and joining me today on the call is Darryll Dewan, the President and Chief Executive Officer for TSS. As we begin the call, I'd like to remind everyone to take note of the cautionary language regarding forward-looking statements contained in the press release that we issued today. That same language applies to comments and statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are only accurate as of today, May fifteenth, 2023.
TSS expressly disclaims any obligation to update, amend, supplement, or otherwise review any information or forward-looking statements made on this conference call to reflect events or circumstances that may arise after the date indicated, except as otherwise required by applicable law. For a list of the risks and uncertainties which may affect future performance, please refer to the company's periodic filings with the Securities and Exchange Commission. In addition, we will be referring to non-GAAP financial measures and a reconciliation of the differences between these measures with the most directly comparable financial measures that are calculated in accordance with GAAP is included in today's press release. Darryll will kick off today's call with an overview. I'll provide some detail on our Q1 2023 results, and then I will turn the call over to Darryll to discuss our strategy and our direction going forward. Darryll?
Hey, John. Thank you very much. Hello, everybody. Earlier today, we released a press release announcing our financial results for the Q1 of 2023. A copy of that release will be made available on our website at www.tssiusa.com. Overall, we made great strides on our plan in Q1. Our plan can be summed up as, 1, operationally restructure our systems integration business where we were in a loss-making position in the latter part of 2022, and we were not able to demonstrate to our key customer our ability to scale that business. We talked about that in our Q4 earnings call. We're gonna continue to focus on that as we go forward. 2, build out a high-level team. This will support our own ability to drive demand for our existing services.
We rely heavily on a single large OEM customer, and we must be selling directly to end customers and, in many cases, alongside our OEM partner. Number 3, develop capabilities to build on our core strengths and open up new markets to drive significant long-term growth. Our Q1 results were largely in line with, although they were directly impacted by the slippage of 2 large reseller transactions representing almost $600,000 in combined profit. We have or expect to close those transactions in the Q2. While not uncommon with larger deals, we need to develop more pipeline to cover for these types of situations, something we commented on in our Q4 earnings call and something we continue to focus on.
During Q1, we made significant progress to lower the run rate of our labor costs and to improve overall efficiency in our systems integration business in particular. We've reduced our total headcount, including contract labor, in this business by 25% since December 31, 2022, and you will see the impact of this in our 2nd quarter and beyond. Todd Marrott, Senior Vice President of Operations, has done a lot to improve the efficiency of our factory and to return this business to profitability. Compared to the 1st quarter of 2022, revenues in this business were up 90% as our rack and stack and our fulfillment activities both increased from higher customer demand. We have also made planned investments during this quarter. We hired an experienced sales leader to drive revenue growth and business growth in both our facilities management and our systems integration business.
We are looking to expand our customer base and generate more leads for our services. We expect over the next several quarters you will see the benefits of these investments. We anticipate that our Q2 results will show a substantial increase in revenues and that we will return profitability. I'll dive into this further. Let me first turn it back to John to provide some financial detail. John?
Thanks, Darryll. As Darryll said, looking at the Q1, the results were really impacted by several reseller transactions that we had expected to close during the Q1. One deal has revenue of $7.4 million and has already shipped in the Q2. The second is anticipated to close at any time. These 2 transactions would have provided $600,000 of operating income and allowed us to have positive EBITDA in the Q1. With these items moving into the Q2, we should anticipate our revenue and profits to turn around in the Q2. Let's look at the Q1. our total revenue for the Q1 of 2023 was $6.6 million.
This compared to total revenue of $5.2 million in the Q1 of 2022 and compares to $10.9 million in total revenue in the Q4 of 2022. Increased revenue in our systems integration business of $1.2 million was the primary driver of the growth compared to the Q1 of 2022. Changes in the level of procurement and reseller revenue are the main driver of change compared to the Q4 of 2022 as our reseller revenues decreased from $5.9 million or by $5.9 million. They were $7.6 million in the Q4 of 2022 and $1.7 million in the Q1 of 2023.
Our facilities business, which includes our modular data center deployment and maintenance services, generated $2.2 million of revenue during the Q1 of 2023. This was $0.2 million or 8% higher than such revenue in the Q1 of 2022. This was $1 million or 83% higher than the $1.2 million we had in our facilities business in the Q4 of 2022 as we completed a large MDC deployment during the Q1 after having no deployments during the Q4 of last year. The most significant change in Q1 was in our systems integration from both revenue and operational perspectives. Revenues, as I said, were $2.6 million in the Q1 of 2022.
We've seen strong growth of 90% compared to the prior year and 24% compared to the preceding quarter. This growth was driven by a substantial increase in our rack business and from the large fulfillment project that drove further revenue growth. Our rack business has grown 80% compared to 2022 due to strong demand from our OEM partner. We anticipate that our level of integration services will stay at similar levels in the Q2 and help drive strong revenue growth later in the year. We've also restructured several processes within the business to improve labor efficiency, which is still our largest operating cost. The labor efficiency will be more visible in Q2. Our production schedule is still impacted by the availability of components needed in production.
Although these supply chain issues are not as severe as what we experienced in 2022. Our reseller revenues of $1.7 million were the same as the level in the Q1 of 2022. As I said, they were down $5.9 million compared to the Q4 of 2022. The timing and volume of these resell and procurement transactions is often beyond our control. During the Q1 of 2023, we had 31 reseller transactions, of which 25 were what we call agent transactions. There we recognize GAAP revenue as the amount of our fees or commission that we are paid. Some of these agent transactions can be quite large. The gross value of all the procurement and reseller transactions during the Q1 was $6.7 million.
Put that into perspective, that compared to $34 million of gross transactions in the Q4 of 2022 and $10.2 million in the Q1 of 2022. Based on the accounting treatment of the agent transactions, we recorded $1.7 million in revenue during the quarter. We recommend investors focus on the gross profit generated by this business, which we'll also continue to report. We finance most of these deals for a short period of time. Higher interest rates impact this business, and our interest expense associated with these transactions of $90,000 was down from $390,000 in the Q4 because of the lower gross value of the transactions that we financed.
We increased our pricing for procurement services in the latter part of 2022 to account for the higher interest rates and to protect our earnings. In total, our gross profit margin of 26% during the Q1 of 2023 was down from 32% in the Q1 of 2022, but it was up from 18% in the Q4 of 2022. Our gross profit margin is directly influenced by several factors, including the mix of revenues between systems integration, facilities, and our reseller, and the accounting of the reseller revenues. In Q1 '23, reseller revenues were 26% of our total revenue, compared to 34% of total revenues in the Q1 of 2022. Our reseller revenues have been skewed towards these agent transactions.
Overall, the actual gross profits were up 1% compared to the Q1 of 2022 to $1.7 million. Our selling, general and administrative expenses during the quarter were $2.3 million. This was up $533,000 or 31% compared to the $1.7 million we had in the Q1 of 2022. It was down from the $2.6 million we had in the Q4 of 2022. In the Q1, we also recorded the remaining P&L impact of the leadership transaction transition that occurred in 2022, including our CEO transition and the addition of Todd Marrott. These non-recurring costs associated with these changes were approximately $180,000. We don't expect to incur any Q2 expenses relating to leadership transition.
After the above, we recorded an operating loss of $665,000 in the Q1 of 2023. This compared to an operating loss of $173,000 in the Q1 of 2022 and an operating loss of $723,000 in the Q4 of 2022. After interest and tax costs, we had a net loss of $786,000 or $0.04 a share in the Q1. This compared to a net loss of $308,000 or $0.02 a share in the Q1 of 2022. Our adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, and stock-based compensation, was a loss of $436,000 in the Q1 of 2023, and that compared to an adjusted EBITDA profit of $43,000 for the Q1 of 2023.
Turning to the balance sheet. Our balance sheet position remains healthy. The timing of events around our reseller transaction definitely has a material impact on the balance sheet, and the changes in our cash balances and the increases in deferred costs, inventory, or even payable since year-end are primarily due to the timing of cash receipts and payments related to reseller transactions. At the end of 2022, we were able to be paid by our customers for a number of reseller transactions, but we had yet to pay our vendors for those same projects. This resulted in an increase of approximately $14 million in our cash and accounts payable end of 2022, which reversed when we paid those vendors during this Q1.
This decrease in accounts payable was partially offset by a $7 million increase related to the procurement of inventory for a reseller transaction that we completed in April. We continue to feel good about the strength of our balance sheet. We are looking at ways to utilize it to assist us in growing future growth and cash flows. We believe we'll have adequate trade credit available to us to continue financing the reseller activities as we grow the business during 2023 and beyond. Last week, we also renewed our revolving line of credit facility with Susser Bank. This $1.5 million line of credit was extended for another 12-month term and provides us with additional financial flexibility as we attempt to diversify our customer base.
With that, I'll give the call back over to Darryll for some comments on how we see the business evolving over the remainder of 2023. Thanks, Darryll.
Hey, John. Thank you. At the outset of the call today, I revisioned our plan for TSS and we're moving quickly on all fronts. Let me kind of review that. Let's begin with operational efficiency in our systems integration business. We are balancing our labor force, and that's a real important thing to do because between the direct attempt to lower our overall labor costs. We have improved the process flow in our assembly lines to gain velocity and provide for scale. Our confidence to do this was based on the strength of our customer relationships and the visibility that we are getting into upcoming projects. We now get a better demand signal from our key customer, which helps us a lot. We had good progress in Q1. This will play out over the balance of 2023.
In Q1, we increased our rack-and-stack business by 80% compared to the Q1 a year earlier. 80%. We are expecting to continue on this pace and even expand the business from current run rates. We've also refocused on our competitive differentiation in the systems integration business. A key value to our customers is our flexibility and our capabilities in a combination of integration and deployment. There are other larger, lower-cost integrators. We perform the more challenging programs, often associated with new offerings from our OEM customers, or those that require greater levels of customization and more white glove service. As we invest in systems to run our factory more efficiently, we are mindful of the speed and flexibility that we have to onboard customer programs. This is a competitive differentiator. As we have honed in on this messaging, we are finding it resonates with our customers.
Second, we're building out our team with A players. I mentioned Todd earlier. In his first 6 months with us as a leader in our SI business, Todd has made an immediate impact. Beyond Todd, we hired an experienced revenue leader for our facilities management business. We announced that today in a press release. In the 5 weeks ago, the conversations that I'm involved with now are significantly more exciting and business impacting, I believe, with our existing customer as well as new potential customers in this exciting space. We are maniacally focused on profitable growth in each of our business segments. In rack-and-stack, integration fulfillment, in our resale business, and our facilities management business. Our facilities management business has a lot of potential, and we're in active conversations with potential new partners to expand this business.
As a reminder, this business deploys and maintains pre-integrated and configured modular data centers. Growing this business takes time, and it's important to note that it's a longer-term play compared to our integration and reseller services. Component lead times continue to be long, and the process to sell enclosed modular data centers is complex. We have consulted with industry leaders on this business, and we feel we're on the right track. Hiring a demand gen leader is a critical step, and we're excited about this space. We have a high level of urgency in the management team at TSS, and so while restructuring our systems integration business and bringing on new talent, we've begun to explore new market opportunities. It's early days, but we believe there's demand for high-value integration paired with deployment and maintenance of critical infrastructure.
In summary, I joined TSS because I believe there's a significant opportunity to profitably grow our business. I said that in our last call, and I'm gonna say it again 'cause I believe it. I am more convinced about this business 5 months later. We have tried today to carefully explain the higher Q4 and Q1 costs we experienced and the steps we're taking to lower the run rate of those costs going forward. We are investing in the people, training, systems, and the sales demand gen to be able to profitably and substantially grow our company. With that, let me turn the call back over to John, and we'll go over any questions you may have. John?
Okay. Actually, Abby, let's see if we have any questions from our listeners?
Thank you. As a reminder, if you would like to ask a question, press star then the 1 on your telephone keypad, and we will pause for just a moment to compile the Q&A roster. Once again, it is star 1 to ask a question. With no questions at this time, I do apologize. We just received a question from Maj Soueidan with GeoInvesting. Your line is open.
Hi, Darryll. Thanks for the nice summary today.
Hi, Maj.
I just had a quick question again on, you know, in terms of the diversification, you know, away from your largest OEM. I think you touched upon it, but I wanna know more about like what your, what the plans are to do that and how you're, how you're doing that and what kinda customers, you know, we could expect that to be maybe in the future?
Well, in particular, when you say diversification, are you asking in general or you're asking about in an area of our business like a on systems integration, rack and stack or?
Yeah.
Object-
Yeah. Look, I mean, I think... Yeah, I think the systems integration is where I'm really thinking about there, yeah.
Okay. Well, you know, Maj, I think you know that we take a demand signal from a customer, and we jump, and we do everything we can to delight that customer and their end user. We will continue to do that, and we'll do it with scale. We have the growth capability within our facility now through the good work that Todd's been leading to do more volume of that work. We're also expanding, and we've, you know, as I mentioned, we hired. We've got a tremendous business development leader on the team now that's gonna help us with our federal focus and also our OEM relationship with our particular customer. We're seeing early results of demand increasing and our sales force, if you will, our sales force implementation of how we track our pipeline.
That sector is doing better. Unfortunately, it's never enough. You know, no matter how good it is, it's never enough, but we're improving. I think the exciting area that we're really digging into that we have opportunity it is in their modular data center business and our facilities management business. There's a lead time that is required to get out in front of building, you know, these units or, you know, deploying these units, lead time for supply, if you will, and also lead time to the selling process. With the addition of Jim Olivier, who we announced earlier today, is our leader in that space. I have absolutely no doubt that Jim and Jim Woodward and our team teaming up will expand on the conversations we've had just a few weeks. Let me give you a specific.
There are consulting companies that influence the end user customer on whether and what to buy in a modular data center. We haven't ever talked to those people. We are now talking to them. That is an influence activity that I think hopefully will bear fruit. We are looking at having conversations with additional OEMs, and we've initiated some conversations there, which is exciting. You know, as we said many, many times, we need to go drive more demand beyond what we're doing today. You know, we've been receiving, now we've got to get in the driver's seat and make it happen. There's some areas in our business, and we talked a little bit about the OE business with a new biz dev leader.
We're gonna do more of that with our rack and stack business inside of our existing partner or customer, help them sell, and we'll do a lot more exciting things with Jim's leadership teaming up with Jim Woodward in the facilities management business. Hopefully, that gives you a little bit more insight.
As a reminder, hit star 1 if you would like to ask a question. With no further questions at this time, I would like to turn the call back to Mr. Darryll Dewan for closing remarks.
Yeah. Thank you. To everybody here, I appreciate, we appreciate, the team appreciates, your support, your interest in what we do. Being not profitable is not acceptable, period, end of story. To wrap this call up, I think we've got a plan. Hopefully, we've explained an update today where we're at with the plan. Thank you for participating today, and certainly, we look forward to sharing our Q2 results with you in due order. Thank you and keep safe.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.