Yes revs go up especially throughout next yr imo. Thing is expenses do too. Why? $30M leasehold buildout. We do t know lease term or how amortizing it, but should be over initial lease term. That could be $6M in expenses if 5 yr. Then you have interest on loan to finance buildout. Still have the prior space.
Then you have one-time move costs. You likely have higher rent costs as space is 60% larger. Electricity costs etc go higher too. This is primarily Q1 and forward costs. Not a Q4.
I did ask the CFO about these but would not disclose as he noted it wasn’t public info, likely because lease and financing not finalized. Hopefully we find out soon to put into models.
High Kevin, yes, there will be some additional cost. The one thing that's significant is the $25M-$30M CapEx, which is a one-off and likely to have a pretty interesting ROI. The cost of moving is also a one-off and pretty trivial (and since they offer this as a service to clients, they might even do part themselves). The new lease, well that's a normal cost of business and they could rent out their previous space (if not, that means they need even more space so that would be pretty bullish, IMHO).
Capex isn’t a one off to P&L. It is to cashflow but will be part of EPS for next 5-10 years depending on how it is amortized. It is significant. Now if Dell foots the bill? How you ask? If there is buildout allowance in lease, then this is a credit that is amortized. But I don’t expect that to occur or be significant as they are discussion bank financing.
Sure they may sublet and noted as much. I do t expect overflow into the existing building if they keep it till the earliest being 2026 if it even occurs. Why? New building can handle 4x the Q3 volume.
Move I noted was one off.
What they need is non Dell business that they can make higher margins. Also increase Facility Mgmt revs which typically have good margins. Note Q3 was lower due to “warranty” claim dropped margins. Mgmt expects that to rebound this qtr. much of this revenue is recurring.
I look at worst case till mgmt becomes transparent regarding these items. Hopefully that occurs very soon as lease and debt sb finalized soon.
But we already knew for some time they're going to spend $25M-$30M in CapEx for the new facility, exactly how that's amortized, I'm not sure I care all that much about that, given that:
1) They're not going to dilute
2) What we DIDN'T know is that xAI opportunity is MUCH larger than previously thought.
Now, I agree with much of the rest, getting additional customers, getting facilities management and the MDC businesses growing faster, and the like (see my previous takes on TSSI here), but we shouldn't lose sight that by today's news, the business is in much better shape than we might have assumed previously and I'm not sure any which way they chose to amortize the CapEx fundamentally alters that picture.
You care because it impacts the bottom line. You need even more sales to cover that nut. So if you apply a multiple to earnings it matters. It is an EXPENSE over x years. So it matters.
The positive about no dilution is it indicates positive sentiment that stock is undervalued longer term, despite the massive selling by insiders lately. Which mgmt stated before, although stock was $6.50-$7.00 when they said it. At almost $10 it is 50% higher and is really at upper end of FV based on last qtr .10 earnings providing basis for .40 run rate. 20x-25x gives you $8-$10 FV based on that historical metric. I do expect to exceed that mid 2025 as business ramps to cover the increased expense structure.
So yes they picked the less harm to shareholders solution to fund LHI. That is also a positive towards mgmts ability in managing business
I didn't say I don't care and of course, I realize it's an expense. What I said was that grosso modo it's already known, and exactly how they amortize it is a minor issue, compared to the news today about the true size of xAI, IMHO.
- Recent Dell customer CoreWeave opening 10 new data centers in FY25 https://www.bisnow.com/national/news/data-center/coreweave-sees-surging-revenue-investment-as-ai-startup-grows-data-center-footprint-ahead-of-ipo-126676#:~:text=CoreWeave%20has%20leveraged%20this%20wave,new%20facilities%20planned%20in%202025.
- Dell doubling its AI-server customers from 2K to 4K in the next couple of quarters https://www.wsj.com/tech/ai/michael-dell-spent-40-years-preparing-for-an-ai-boom-no-one-expected-8cc20c04
Guess what, Dell has landed yet another AI-server customer: https://www.prnewswire.com/news-releases/coreweave-and-dell-technologies-extend-relationship-to-deliver-ai-at-scale-302326486.html A wave of demand is coming for TSSI the coming years.. https://shareholdersunite.substack.com/p/tss-inc-update-xais-colossus-is-indeed
Yes revs go up especially throughout next yr imo. Thing is expenses do too. Why? $30M leasehold buildout. We do t know lease term or how amortizing it, but should be over initial lease term. That could be $6M in expenses if 5 yr. Then you have interest on loan to finance buildout. Still have the prior space.
Then you have one-time move costs. You likely have higher rent costs as space is 60% larger. Electricity costs etc go higher too. This is primarily Q1 and forward costs. Not a Q4.
I did ask the CFO about these but would not disclose as he noted it wasn’t public info, likely because lease and financing not finalized. Hopefully we find out soon to put into models.
High Kevin, yes, there will be some additional cost. The one thing that's significant is the $25M-$30M CapEx, which is a one-off and likely to have a pretty interesting ROI. The cost of moving is also a one-off and pretty trivial (and since they offer this as a service to clients, they might even do part themselves). The new lease, well that's a normal cost of business and they could rent out their previous space (if not, that means they need even more space so that would be pretty bullish, IMHO).
Capex isn’t a one off to P&L. It is to cashflow but will be part of EPS for next 5-10 years depending on how it is amortized. It is significant. Now if Dell foots the bill? How you ask? If there is buildout allowance in lease, then this is a credit that is amortized. But I don’t expect that to occur or be significant as they are discussion bank financing.
Sure they may sublet and noted as much. I do t expect overflow into the existing building if they keep it till the earliest being 2026 if it even occurs. Why? New building can handle 4x the Q3 volume.
Move I noted was one off.
What they need is non Dell business that they can make higher margins. Also increase Facility Mgmt revs which typically have good margins. Note Q3 was lower due to “warranty” claim dropped margins. Mgmt expects that to rebound this qtr. much of this revenue is recurring.
I look at worst case till mgmt becomes transparent regarding these items. Hopefully that occurs very soon as lease and debt sb finalized soon.
But we already knew for some time they're going to spend $25M-$30M in CapEx for the new facility, exactly how that's amortized, I'm not sure I care all that much about that, given that:
1) They're not going to dilute
2) What we DIDN'T know is that xAI opportunity is MUCH larger than previously thought.
Now, I agree with much of the rest, getting additional customers, getting facilities management and the MDC businesses growing faster, and the like (see my previous takes on TSSI here), but we shouldn't lose sight that by today's news, the business is in much better shape than we might have assumed previously and I'm not sure any which way they chose to amortize the CapEx fundamentally alters that picture.
You care because it impacts the bottom line. You need even more sales to cover that nut. So if you apply a multiple to earnings it matters. It is an EXPENSE over x years. So it matters.
The positive about no dilution is it indicates positive sentiment that stock is undervalued longer term, despite the massive selling by insiders lately. Which mgmt stated before, although stock was $6.50-$7.00 when they said it. At almost $10 it is 50% higher and is really at upper end of FV based on last qtr .10 earnings providing basis for .40 run rate. 20x-25x gives you $8-$10 FV based on that historical metric. I do expect to exceed that mid 2025 as business ramps to cover the increased expense structure.
So yes they picked the less harm to shareholders solution to fund LHI. That is also a positive towards mgmts ability in managing business
I didn't say I don't care and of course, I realize it's an expense. What I said was that grosso modo it's already known, and exactly how they amortize it is a minor issue, compared to the news today about the true size of xAI, IMHO.