On Heels of TSSI Success, Research Has Begun on Stock With Data Center Focus [GeoWire Weekly No. 151]

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Highlights Buckle Up for Next Open Forum as a Blast of August  Earnings to Be Revisited. Hindenburg’s Short Report on SMCI Short: What Their Findings Can Mean For TSSI. GLP-1 Weight Management Product the Centerpiece of Discussion with Dietary Supplement Company CEO. Discussion with another Microcap CEO Further Reinforces Bull Case for His Company With New Focus On Data Center Market. [45% to 155% Upside] Our affinity for Aerospace Investing Theme Brings Us To TATT and FTGFF (TSX:FTG). Will We Pursue The Flexible Packaging Space with IFLXF (TSXV:IFX)?

Before we dive into this week’s email, due to on-boarding a significant influx of new Geoinvesting premium subscribers in August, I wanted to send out a special thank you and  reminder that we’ll be holding our Live August Monthly Open Forum this week—and if this will be your first time attending our Open Forum event, you better buckle up for this one. 

In August, we reviewed 73 earnings through our morning emails, and during the open forum, we’ll be running a good portion of them, including Konatel, Inc. (OTCQB:KTEL), Compumed, Inc. (OOTC:CMPD), Tss, Inc. (OTCQB:TSSI) and Covalon Technologies Ltd. (OTC:CVALF) (TSXV:COV). But even more exciting, we’ll be announcing our new focus stock of the month, a tradition we’re aiming to establish during our monthly forums. Stay tuned, and we hope you’ll join us live. So far, we have added 6 stocks to this NEW  high conviction Model Portfolio, logging in an average return of 34.08%. Five remain open, with an average return of 18.44%. The bar for a stock to make this list includes the potential to rise at least 50% to 100% in the near-term and much more in the longer term.

SMCI Short Report Findings: What Can It Mean For TSSI?

The big news of the week was once again–you guessed it –  Tss, Inc. (OTCQB:TSSI).

Earlier this week on Tuesday, Hindenburg Research, currently the most prominent short-seller, released a scathing report on Super Micro Computer, Inc. (NASDAQ:SMCI). The report alleged various forms of misconduct, including allegations of fraud, accounting irregularities, and related party issues. But what caught our attention most was Hindenburg’s coverage of SMCI’s quality control concerns, citing:

• High Failure Rates: Reports of high malfunction rates, with some customers experiencing up to a 17.5% failure rate in Super Micro servers.
• Firmware Issues: Some customers received orders where up to half of the servers had firmware issues.
• Poor After-Sales Service: Multiple former employees and customers described Super Micro’s after-sales service as a major weakness, negatively impacting customer retention.

SMCI manufactures and sells servers and related services and provides rack integration services, some of which is similar to those offered by TSSI.

“We are a Silicon Valley-based provider of accelerated compute platforms that are application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence (“AI”), 5G and edge computing. Our Total IT Solutions include complete servers, storage systems, modular blade servers, blades, workstations, full rack scale solutions, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure.”

During my visit to TSSI headquarters in June, I learned that competitors in the integration business were struggling with quality control. At the time, I speculated that SMCI might be one of those companies—something the Hindenburg report has now confirmed.

In recent weeks, Mark Gomes had already flagged quality issues at SMCI during his due diligence, possibly reinforcing the validity of Hindenburg’s findings. 

This could be a significant opportunity for TSSI, potentially allowing them to capture some of SMCI’s business—or maybe they’re already one of the competitors Hindenburg alluded to in the report. Even more telling, Hindenburg also pointed out that Dell currently leads the pack in terms of quality and reliability for data center integration and build-out, a sentiment echoed by Nvidia. Remember, TSSI is a major partner of Dell.

Excerpts From Section 4 Of Hindenburg Short Report:

“…
In Super Micro’s core U.S and European markets, which account for 71% of revenue, we found a slew of large, dissatisfied customers who had moved business away from Super Micro.

At the same time, competitive threats have emerged from major technology companies like Dell who have a long track record in serving the enterprise market. As Jensen Huang, CEO of Nvidia, Super Micro’s largest supplier and partner, said just months ago:

“Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell.” (GTC Conference, March 2024, reported by Bloomberg)

…”

“…

Super Micro declares its 2023 deal with Genesis a “success story” according to its website. As part of the deal, Super Micro says it provided its systems to run both Intel processors and Nvidia GPUs.

When we asked one former employee their experience of the Super Micro deal, they said:

“Catastrophic. It is, on the technical side, one of my worst experiences I’ve had…in the industry.”

A current employee explained the issues with the Super Micro servers Genesis bought:

“We had about a 10% failure rate and that was down at a hardware level and a firmware level issue.”

…”

“,,,

However, at least 10 former Super Micro employees told us that Super Micro was consistently let down by its after sales and support. As one senior salesperson concluded:

“It’s their Achilles heel. It’s just horrible. Salespeople hated to sell any of their on-site services. The service salespeople hated to sell any of their support. Just awful. It always came back to bite them just in terms of if they sold a certain SLA, service level agreement. Super Micro would never meet it.”

…”

We continue to believe that TSSI’s evolution into the potentially leading quality data center integration company remains under the radar for many investors who would be interested in it.

Preliminary interview Updates on GLP-1 Company and a New Data Center Play – Skull Session Live Events Being Scheduled

We only sent out three emails this week as Q2 earnings season is wrapping up, with a few still releasing their earnings throughout the week. One of these was…

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TATT and Aerospace Theme

Tat Technologies Ltd. (NASDAQ:TATT) was the third Model Portfolio holding to report earnings this week, and it was clearly the standout. Both sales and earnings saw significant increases, indicating that the company’s restructuring to focus on long-term contracts with substantial recurring maintenance revenue is beginning to show inflection.

“…

TAT Technologies Ltd. (NASDAQ:TATT) ($15.35; $162.1M market cap) announced Q2 2024 results:

• Sales of $36.5 million vs $26.8 million in the prior year
• EPS of $0.25 vs EPS $0.15 in the prior year

“We are very proud to report another record quarter marked by revenue growth, margin expansion, and profitability improvement. Our results demonstrate increasing demand for our products and services, which are aligned with our growth strategy. This was the seventh consecutive quarter of growth in revenue and EBITDA, and given our growing momentum and backlog, we expect this trend to continue.

During the second quarter, we secured orders of more than $40 million, resulting in a record backlog and LTA Value of over $414 million,” continued Mr. Zamir. “These new orders give us significant visibility into revenue potential over the coming quarters and bolster our confidence in continued success. On top of the continued revenue growth, we invest efforts in improving our operational efficiency and cost structure. This resulted in an improved Gross margin and EBITDA margin…

… We are very excited about our future revenue growth and profits, as we start leveraging the potential of this new market. We will continue to expand our customer base for those engines MRO services according to our growth strategy”

In Q4 we stated that we anticipated that, over the next few quarters, TATT should begin to see accelerated growth in revenue and income as the company begins executing on long-term contracts it secured over the last several months. So far Q1 and Q2 have lived up to these expectations and based on management’s comments it seems it should continue into Q3 and Q4. 

TATT is a leading provider of products and services to the commercial and military aerospace and ground defense industries.

(Source: GeoInvesting Pro Portal)

…”

We’ve been bullish on the aerospace sector. FTGFF, based in Canada, is another Model Portfolio holding in the industry, 

There are multiple reasons to be bullish on the aerospace space:

• The industry has an easy 5 to 10 year runway for growth, resulting from under capacity during COVID.
• Long-term demand for over 41,000 new airplanes in the next 20 years and major production increases planned by Airbus and Boeing. For example, Airbus is expected to increase its annual production rate by 100% over the next few years (1000 per year), and Boeing is expected to increase its production rate by about 40% (700 per year). The backlog of orders for both of these companies will take over ten years to satisfy.
• Given the state of global tensions, the defense sector will create long-term growth tailwinds that are recession-resistant.

“…

IFLXF, A Player in Flexible Packing Space, Comes Through with Notable Quarter

We’re going to start taking a closer look at Imaflex Inc (OOTC:IFLXF), a Canadian company that Imaflex is focused on the development and manufacturing of innovative solutions for the flexible packaging space. We’ve been monitoring this stock for about a year and a half, waiting for its financials to show significant improvement, and it appears that this quarter might be the start of such a trend. 

“…

Imaflex Inc (OOTC:IFLXF) (IFX.V) ($0.84; $43.7M market cap) announced Q2 2024 results:

• Sales of $28.8 million vs $24.5 million in the prior year
• EPS of $0.07 vs $0.01 in the prior year

“Business momentum continued into the second quarter, with top and bottom-line growth comfortably surpassing the corresponding prior-year period and Q1 2024,” said Mr. Joe Abbandonato, President and Chief Executive Officer of Imaflex. “This solid performance is a direct result of our proven business model, built on innovation and profitable growth. Our strategic investments to elevate production capacity, enhance capabilities and drive operational efficiencies are contributing to these results.”

Outlook

“I am pleased to see a solid return to growth after a difficult industry downturn,” said Mr. Abbandonato. “Although the pace and magnitude remain uncertain, we expect continued strength over the medium term, supported by improving markets, growing customer demand and new equipment. As usual, third quarter performance will be impacted by Québec’s annual construction holiday, which results in temporary plant closures across the province, including Imaflex’s Montréal and Victoriaville plants.

With our multi-year equipment expansion project nearing completion, we are focused on boosting utilization levels and delivering sustainable, profitable, growth. Collectively, this should have a more meaningful impact on revenues and profitability, while also heightening operational efficiencies. We are excited about our future and encouraged by the growth platform we have built.”

(Source: GeoInvesting Pro Portal)

We’re planning to schedule an interview with the company’s management team as soon as possible.

As a reminder, MS Microcaps has been busy developing its PRaaP (Press Release as a Platform), a research platform tailored for microcap investors. It’s now available for beta testing, offering a powerful tool to streamline and enhance the research process, specifically focused on microcap stocks.

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The post On Heels of TSSI Success, Research Has Begun on Stock With Data Center Focus [GeoWire Weekly No. 151] appeared first on GeoInvesting.

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