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Small-Cap Confidential
Undiscovered stocks that can make you rich

February 22, 2023

Sprout Social (SPT) and Repligen (RGEN) Report

Sprout Social (SPT) reported Q4 results after the close yesterday that were close to expectations as bigger deals, partnerships (i.e., and price increases drove revenue and annualized recurring revenue (ARR) higher, despite a challenging market for IT spending. Revenue in Q4 was up 30.8% to $69.7 million (missed by $200,000) while adjusted EPS of $0.03 increased from -$0.05 a year ago and beat by $0.05. The company added 175 customers through the partnership and higher-value customers didn’t balk at price hikes. The tradeoff is that lower-value customers aren’t signing up (only 132 net new customers in the quarter versus an average of 800 over the preceding three quarters). As Sprout moves up market we’re also seeing margin expansion. Management expects to turn non-GAAP profitable in 2023 (probably around $0.02 for the year) whereas expectations had been for a loss of about two cents. Turning to forward guidance, management is calling for 2023 revenue of $332.5 million (+31%), which is slightly ahead of consensus. With profitability rising and top-line growth still around 30% this is a great story. We just need a macroenvironment where interest rates won’t hold growth stocks back. Until we see more evidence of that I’ll keep SPT at hold. HOLD HALF

Repligen (RGEN) reported this morning with Q4 results that beat expectations but guided for 2023 revenue that fell short due to resin supply issues in the chromatography business. Revenue in Q4 was up a fraction ($300K) to $186.8 million. Stripping out COVID-related revenue, the base business was up 35%. Adjusted EPS in Q4 was $0.68 versus expectations of $0.58. For 2023 management guided for revenue of $760 - $800 million versus expectations of $800 million and growth in the base business of 12% to 16%, slower than the 16% to 20% management mentioned on the Q3 call a few months ago. The chromatography market has slowed down due to shortages of resin and management doesn’t think it will normalize until Q3 or Q4. That is the only real surprise in the quarter and explains RGEN’s lack of upside today. Given that we weren’t expecting a huge quarter (larger peers TMO and DHR set the stage) this result is a non-event really. The question is, should we continue to hold a full stake in RGEN and wait for a stronger 2024? That’s a very tough decision as the stock could be taken out at a 30% or greater premium any day. For now, we’ll sit tight. Depending on the stock’s performance in the coming weeks I may elect to sell a quarter position. HOLD

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.