A Quick update on TSS Inc. Q3/24

A few initial observations on TSS Inc. (TSSI) Q3/24:

• The general backdrop is huge and even accelerating AI server demand and Dell winning market share, the reasons for our bullishness, and that hasn't changed. (Also witness the pretty dramatic expansion in capacity that the company is undertaking while the present facility wasn't even at full capacity).

• The $0.10 in EPS (fully diluted) was certainly less than we expected

• Before one can figure out what was the cause of that (we still haven't) as revenues were actually better than expected, the stock was down two bucks and then before we can issue a sell alert the stock was down another two bucks, so that's not worthwhile.

• The stock is not a sell at $8.

• Guidance is also disappointing, at least for the coming quarters, which suggests to us their rack integration business is more project-based and they have poor visibility near term and guide only what they can see.

• These problems should ease over time and they're expanding capacity pretty dramatically for a reason.

We think they are simply unsure of the timing of a big project resuming, are smoothed over by Dell (per their recent agreement with them), and are expanding capacity for the coming ramp, whenever that comes.

When their MDC/enterprise and facilities management businesses become more prominent these visibility problems will decline as facilities management especially produces recurring revenues (on significantly higher margins to boot).

The upshot: Long-term the situation hasn't changed, short-term we're less bullish although positive surprises are quite possible. We change our rating to hold.