October 31, 2024

The broad market has been resilient up until today when we see Microsoft (MSFT) leading the Nasdaq lower.

That said, small caps are hanging tough and are almost exactly flat over the last week.

The darn 10-year yield is still up, which signals the market thinks the Fed did not need to cut by 50bps in September. I’m increasingly dubious about a rate cut next Thursday, even though the market is saying there’s a 95% probability of a cut.

As is always the case during earnings season, there is A LOT going on. And it’s always a fun challenge to digest things in real-time while taking note of opportunities opening up after earnings reports, and assessing risks for those yet to report.

The obvious big-picture risks right now are the election next Tuesday and the Fed meeting next Thursday. These are known unknowns.

I think it’s fair to say there is a good deal of anxiety across the country regarding what the election outcome will be, let alone how it will be handled by supporters of the losing team.

It’s important to put things in perspective going into the event. The market is near record highs. For most people it’s likely about protecting gains right now, not being overly aggressive on the buy side.

I always try to monitor my sleep patterns at times like this. If I’m waking up thinking about the market, I’m probably overexposed. If I sleep like my kids (very soundly!), my exposure is about right.

If you’re feeling stressed, take a little off the table. Worst case scenario, the market rips higher and you lose out on some upside.

Let’s jump into earnings reports, which make up the bulk of this week’s update. I’ll be back in touch tomorrow morning too because we have new addition Willdan Group (WLDN) reporting after the close today.

Recent Changes:
TransMedics (TMDX) Sold

Updates

Artivion (AORT) has given us an earnings date of November 7, i.e. Fed Day. Last week the stock was initiated at outperform by JMP Securities with a price target (PT) of 33 (stock closed at 26.6 yesterday) and shares have been moving sideways since. I’m expecting the report will be heavy on trial-related activities, which will likely be mostly a repeat of what’s happened in the quarter. BUY

Confirmed Earnings Date: November 7

AvePoint (AVPT) reports next Thursday along with AORT. Nothing new in the last week, and shares are trading near their 2024 high from October 11. BUY

Confirmed Earnings Date: November 7

Docebo (DCBO) continues to look strong and reports next Friday, November 8. BUY

Confirmed Earnings Date: November 8

Enovix (ENVX) gave a good update on the battery maker’s progress Tuesday after the bell, and in my summary, I said, “Looming in the background is the reality that Enovix will likely tap the equity market with a secondary offering upon any major, positive announcement that drives up the stock. That’s fine, provided the news is “dilution worthy”. This is part of the game of early-stage investing, you just gotta be patient.”

Well, apparently management thought the timing was good enough to raise $100 million. I can’t say I disagree. The stock is neither super strong nor super weak. Management knows it’s going to need capital, and it’s not alone among smaller, more speculative firms raising cash before the election (Joby Aviation (JOBY) is another that comes to mind).

Is it great news? No. But it’s not awful either. It’s “only” $100 million (ENVX market cap at close yesterday was $1.85 billion). The stock closed at 9.73 yesterday and the implied offer price of this deal is 9.6. The offering should be closed by the end of the week. Keeping at buy, but also not pounding the table right now. I think ENVX stock probably won’t move higher in the next week or two. BUY

Earnings: Done

FTAI Infrastructure (FIP) reported another solid quarter after the close yesterday. As I’ve discussed before, this is essentially an infrastructure-focused private equity company that’s focused on generating cash flow and adjusted EBITDA. Management doesn’t mess around with a lot of investor-focused communications, preferring, it seems, to focus intently on developing the various businesses FTAI owns.

There wasn’t a lot in the earnings press release, but there was in the conference call this morning. Here are a couple of summary slides from the Q3 earnings presentation and bullet points from the call:

Q3 Results:

• Revenue grew 3.2% to $83.3 million.
• Adjusted EBITDA from four core businesses grew 80% to $21.1 million.
• Adjusted EBITDA from all businesses, including those with non-controlling interests, hit a new record and grew 50% to $36.9 million.
• Board authorized $0.03 dividend to be paid 11/19/24 to shareholders of record as of 11/12/24.

Looking Forward

• Management has line of sight on executed contracts and commitments worth roughly $70 million of incremental annual EBITDA. This would bring total company annual EBITDA to $220 million.
• Estimated annual EBITDA potential tops $300 million if management converts current pipeline to contracts.
• Company plans to refinance corporate bonds to lower rates once a few business segment refinancings are completed.

Business Segment Updates

• Transtar: Carloads and rates were steady and third-party revenue continues to grow. Management thinks the Nippon acquisition of U.S. Steel (X) has a good chance of going through and would be incrementally positive. But if it doesn’t go through, it won’t be a hit.
• Jefferson: Has a couple of projects that should add $20 million in annual EBITDA once operational in mid-2025.
• Repauno: Planning to raise $300 million in low-cost tax-exempt debt to fund phase 2 construction. Financing should close in December.
• Long Ridge: Hit nearly perfect capacity factor of 99%. Management plans to refinance debt and convert existing power hedges into new arrangements at significantly higher rates. This is good, it will drive higher cash flow.

Bottom line: Another good quarter developing the businesses, generating EBITDA, and building FTAI out for significantly more profitability down the road. BUY

Earnings: Done

Mama’s Creations (MAMA) remains in its established trading range. The company announced the hiring of former Boar’s Head executive Chris Darling as Mama’s Chief Commercial Officer. He will focus on store development, operations, retail merchandising and marketing, private label and branded product development and prepared foods routes to market. BUY

Expected Earnings Date: December 10

TransMedics Group (TMDX) was sold Monday after the company reported a disappointing quarter. SOLD FINAL QUARTER

Earnings: Done

Weave (WEAV) reported a better-than-expected quarter after the close yesterday. Revenue grew by 20.3% to $52.4 million (beating by $1 million) while adjusted EPS of $0.03 beat by $0.03 and was up from a loss of -$0.01 in Q3 last year. This marked the first quarter of EPS profitability for Weave, a major milestone. Management guided for full-year revenue in a range of $202.7 - $203.7 million, ahead of consensus of $201.9 million. Other notes from the call:

• The Patterson partnership is boosting the sales funnel and bookings. Momentum should continue.
• Specialty medical market (family practice, med spa, plastic surgery, physical therapy) continues to be a major focus. Growth is strong and driven by new integrations, especially payments. Management says it is larger than dental, opto and vet markets combined. This is encouraging.
• The new Weave Enterprise Platform (with AI) targets small-to-medium-sized practices, not large hospitals.
• Net Revenue Retention (NRR) is growing due to payments expansion and upsells.
• Gross margin expanded to 72.5% (+3% vs. year-ago quarter) and is seen at 75% to 80% in the future due to expanding payments product, phone amortization cycles and operational efficiencies (helped by AI automation).

Shares of WEAV entered the earnings report pushing up against their 2024 high of 13.8. They are down mildly today. I don’t think it will take much for WEAV to break out, so keeping at buy, but if shares falter we may move to hold. BUY

Earnings: Done

Willdan Group (WLDN) has announced a few contracts lately, but the bigger news is that the company will acquire Enica Engineering for an undisclosed amount. This deal should be accretive on a per-share basis. Enica is a U.S.-based engineering firm providing automation systems, metering system design and life-cycle analysis. The deal was announced last Friday, two days after it closed. Thanks for the heads up guys. We’ll learn more tonight. Wildan reports Q3 earnings after the close. Estimates are calling for revenue of $108.4 million (+66%) and EPS of $0.55 (+48.6%). Keeping at buy, but obviously, keep in mind that share movement after the report is highly unpredictable. That said, WLDN has done well after each of the last three quarterly announcements and the mid-term trend is clearly up and to the right. BUY

Confirmed Earnings Date: October 31

Zeta Global (ZETA) has been communicating with SEC staff regarding incorrect labeling on a Definitive Proxy Statement filed in April. It looks like Zeta mislabeled the y-axis of the graph as “Non-GAAP Operating Income (Loss)” when it should have been “Adjusted EBITDA.” Sounds like Zeta took care of the problem but may be on the SEC’s unofficial Naughty List for this mild infraction. It will be interesting to hear if anybody asks a question about this on the Q3 conference call (the week after next). I suspect not, as we’re really more interested in an update on the LiveIntent acquisition (the closing of which marked the high point for ZETA stock this year). HOLD

Confirmed Earnings Date: November 11

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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