February 15, 2024

Small caps have had a volatile week, which we can blame on the CPI inflation report (Tuesday) and subsequent move in interest rates. That all said, if you just woke up from a two-week nap you wouldn’t notice much at all at the small-cap index level. It’s actually a touch higher than it was on January 30 and currently challenging the levels seen last Friday (pre-CPI report).

That’s all a long-winded way of saying the market has digested the CPI report and determined (for now) that one slightly-higher-than-expected reading doesn’t make a trend. It’s helped that a few Fed officials have said the same.

Plenty of macro stuff we could talk about but with the heart of earnings season for our portfolio stocks set to launch next week, I’m keeping the high level talk short and sweet and focusing on our stocks.

Get ready for the fun to begin!

Recent Changes
None

Updates

Alphatec (ATEC) reports official results a week from next Tuesday (we’ve already received preliminary results, which were better than forecast). The stock is behaving very similar to the iShares Medical Device ETF (IHI), which is to say pretty well. That said, we’ve had a good run lately so keeping at hold (moved to hold last week) until we can evaluate official Q4 results and forward guidance. HOLD

Earnings Date: Tuesday, February 27

Braze (BRZE) is a late reporter (March) so, same as last week, I’m not expecting any material news for a little while here. The stock looks fantastic – has just moved through its 52-week high from December and the pattern of higher highs and higher lows implies it will go into the mid-60 range before the next pullback. Braze offers a customer engagement software platform that customers/brands use to connect with consumers in real time. HOLD

Expected Earnings Date: March 29

Docebo (DCBO) reports next Friday morning with a conference call at 8 a.m. ET to follow. No major news to report. The company is a player in the Learning Management System (LMS) market and has an easy-to-use, cloud-based platform that’s used by both internal (employees) and external (customers, partners, suppliers) workers. Revenue in Q4 should be up at least 24% to $48.4 million and EPS should be $0.13 or better. We’re looking for Docebo to grow revenue by about 23% in 2024, when EPS should up about 42% to $0.76. BUY

Earnings Date: Friday, February 23

Enovix (ENVX) COO Ajay Marathe recently updated investors on the status of the new Gen2 manufacturing line at the Fab-2 facility in Penang Malaysia via the company’s Journey to Scale podcast. With no press release touting the pod (available on the company’s Investor Relations website), this event flew under the radar. The main takeaway is that while there is some reasonable give and take (i.e., some early, some late) with the timing of certain pieces of equipment advancing through FAT (Factory Acceptance Testing) and SAT (Site Acceptance Testing) management confirmed that the first samples off the Agility Line (the R&D line) in Fab-2 are scheduled for April, setting up high-volume manufacturing (HVM) ramp to begin in the second quarter (April – June) and progress throughout the year until things run full bore in 2024. Suffice to say, this will be a huge milestone for the company and is expected to move shares higher, offset by periodic, dilutive secondary offerings as the company raises capital to fund its growth plan. This is my assumption – it could very well turn out that Enovix seeks to raise cash through a mix of equity, debt and convertible debt. We’ll just have to wait and see. Back to the status of equipment, we’ll get more details on the earnings call next Tuesday (it should have a video component) but this is what we know now:

Zone 1 (Laser Patterning): FAT is done, SAT ongoing with first four tools.

Zone 2 (Cell Assembly): HVM line FAT expected to be done by end of February with equipment shipped immediately after. For R&D line (Agility line) FAT was expected by end of 2023 but is now scheduled for mid-February (i.e. right now) with equipment on-site in about a month.

Zone 3a (Cell Packaging): FAT expected to be done in March, a couple months later than expected.

Zone 3b: FAT is done, equipment currently being shipped and SAT is ongoing.

Zone 4 (Formation): FAT is complete and SAT is ongoing.

Bottom line: things are more or less tracking as expected and a more comprehensive update is due next Tuesday with earnings. BUY

Earnings Date: Tuesday, February 20

EverQuote (EVER) is our newest addition and continues to look fantastic. Earnings will be out a week from next Monday. I listened to the conference call from NerdWallet (NRDS), which reported yesterday, since they also play in the lead gen insurance market and that management team had very positive things to say about their outlook for carriers to increase spending on customer acquisition in the auto insurance market. They also mentioned how Q1 2024 will be a tough comparison to the same quarter last year because everybody thought the auto insurance market was going to recover (i.e., Q1 2023 was pretty good) but ultimately didn’t. I’m expecting some of the same from EverQuote’s team, but also expect this dynamic is factored into the stock. Elsewhere, Progressive (PGR) stock continues to do extremely well (one of EverQuote’s biggest customers). BUY

Earnings Date: Monday, February 26

Intapp (INTA) reported a couple of weeks ago and shares sold off afterward, falling back to their 200-day line near 40 (a level the stock finally crossed back above on January 12). I expected the stock to hold there and so far it has. Looking for INTA to move back toward its pre-report level in the mid-40s soon. BUY

Earnings: Done

Liquidity Solutions (LQDT) reported last week and the stock had a terrible reaction as revenue in a couple of segments (Retail Supply Group (RSCG) and Capital Assets Group (CAG)) was a little low due to product mix and international delays. However, management said they see growth in those two segments coming back in Q2 and we’re moving into the seasonally strong time of the year for the company. I suspected the stock would bounce back and so far it has; yesterday LQDT closed just 4% below its pre-reporting level. Keeping at hold. HOLD

Earnings: Done

Remitly Global (RELY) will report next Wednesday. This is an interesting setup and frankly, I expect RELY will either fall modestly or be up big, depending on the results. I say this because investor expectations have come way down (thanks to the Q3 report on November 1) and it would take a really awful quarter/outlook to send RELY meaningfully lower, while there’s potential the Q4 report could show investor concerns are overblown and a significantly better-than-expected report/outlook could send RELY soaring. The reasons for the uncertainty surround Q4 marketing investments (revealed on the Q3 call), which management characterized as offensive (good, aimed at grabbing market share), not defensive (bad, trying to protect market share), and driven by better lifetime value and customer acquisition costs (market terms related to how much revenue the company gets from customers over the time of their relationship). Being somewhat on the fence here, I’m going to keep RELY at hold, though I wouldn’t argue with those with a higher risk tolerance who want to add shares ahead of the event in hopes of a good outcome. Turning to expectations, Q4 revenue is expected to grow by 36.8% to $261.4 million and EPS is expected to come in at $0.01. For 2024 guidance (if we get it), the hurdle is growth of 28.5% ($1.2 billion) and EPS is $0.24 (+62.5%). Those are solid growth numbers so you can see why RELY stock could pop if concerns are shown to be overblown. HOLD HALF

Earnings Date: Wednesday, February 21

TransMedics Group (TMDX) reports a week from Monday and continues to look fantastic, having recovered the vast majority of the ground it lost between August and November of 2023 (which was north of a 50% haircut!). I’ll hold off on labeling it the best comeback story of the last 12 months just yet – we need Q4 results, a bit of 2024 guidance and a solid stock reaction for that – but at the moment, TMDX is in the running. No major news to report. HOLD A QUARTER

Earnings Date: Monday, February 26

Weave (WEAV) reports Q4 results next Wednesday. Shares have held above last summer’s high of 12.5 for the last couple of weeks and I’m not expecting that to change until after earnings are out. The Q4 hurdle has been set at $44.2 million in revenue (+17.3%) and EPS of -$0.03 (50% improvement). For 2024 guidance, we need to hear revenue should grow by at least 15.5% to $195 million and EPS should be around -$0.07 or better, with potential for breakeven toward the end of the year. Tempted to add our other half but buying so close to earnings can be pretty risky. BUY HALF

Earnings Date: Wednesday, February 21

That’s it for this week. Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.

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