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Small-Cap Confidential
Undiscovered stocks that can make you rich

May 11, 2023

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Our portfolio companies wrapped up their reporting season this week, which means I have a chance to come up for air after an intense couple of weeks.

Somewhat as expected we had some nice winners, but also some losers too. It’s just that kind of market; and while I wish we could have had 100% of our stocks post terrific performance after reporting, that’s just not realistic.

We’re now at that point where we think the Fed is done (or at least ready to pause) and the market is trying to sort out if the economy is going to dip into recession, or not.

Naturally, there is no easy answer to this looming question. It’s just a matter of working through it. And if I was a betting man (which I guess as a stock picker I am), I’d say a continuation of the rolling recession scenario seems the most likely path forward.

As you’ve likely seen from the headlines, yesterday’s Consumer Price Index (CPI) came in just a hair lighter than expected (good) and this morning’s Producer Price Index (PPI) did too. But the turmoil with the regional banks continues.

It’s sort of hard to believe the Fed hiked rates into what seems like a looming banking crisis among the “little guys.” However, one can argue that those bank failures equate to a roughly 100bps hike in the Fed’s target interest rate. That may help the Fed achieve its tightening goals, and do it quickly (i.e., save four 25bps hikes, which would take six months or so depending on the cadence of FOMC meetings).

So, maybe that’s part of why the Fed doesn’t seem too concerned. It’s also interesting to see how seemingly easy it is for these institutions to be absorbed into bigger banks.

In any event, the relatively high weight of financials (being pounded these days) in the small-cap index is not a good look for the asset class these days. For those of us who go deeper, however, we see that there are a lot of stocks looking pretty darn good.

Today we’ll cut one of our weakest positions as we tighten up our portfolio and make room for emerging opportunities.

Recent Changes:
Rani Therapeutics (RANI) moves to SELL


Alphatec (ATEC) has come up a little since reporting good results last week and announcing the acquisition of the REMI Robotic Navigation System. Reported revenue of $109 million ($1 million above the pre-release) represents 54% growth. Surgical volume was up 40%, and average revenue per procedure rose 11%. Management stuck with its guidance for revenue growth of 28% to $450 million in 2023, break-even adjusted EBITDA this year and cash flow break-even in 2025. BUY

Enovix (ENVX) sold off when the company reported a few weeks ago, but shares have battled back since. No new news to report, though there was a lot to digest from the quarterly report so I’m including those notes to refresh your memory. To summarize:

  • Delivered 12,500 batteries in Q1 from Fab1 (Freemont, CA) and on track for 18K in Q2 and 180K for the year.
  • On track to install Gen2 Autoline at Fab2 in Malaysia later this year with commercial production beginning mid-2024.
  • Fab2 Line1 is expected to produce 9.5 – 18.9 million, so with four lines Fab2 should be 38-75 million batteries, depending on size.
  • We’re awaiting the final financing decision with YBS, which is expected to cover CapEx for Fab2 Line1. We’re looking for $70 million or more.
  • Enovix received $148 million from the recently announced convertible note offering. This should fund Lines 2-4 (management had previously guided for $50-$70 million in CapEx per line).
  • Previous guidance for 2023 CapEx was $120 million. This SHOULD come in lower depending on the YBS deal.
  • This video of the Gen2 Autoline shows how it should work relative to the current Fab1 Line1 in California. Check it out here.

Enovix has a very active calendar of conferences, including Oppenheimer (today), JPMorgan (May 23), B. Riley (May 25) and Craig-Hallum (May 31). HOLD

Expensify (EXFY) reported underwhelming Q1 2023 results Tuesday, and I sent out a Special Bulletin yesterday. The takeaway is that the climate for this business, which serves small and very small businesses, isn’t great but it still has a compelling product and a new and improved platform is to be released soon. There will be a product-focused media push leading up to, and after, the ExpensiCon invite-only conference on May 18. Expensify also has a share buyback program that’s likely snapping up shares right now. I think the stock reflects a lot of bad news and very little upside recovery in the business, so we’ll give it a little more rope and look for the upcoming media push to give EXFY a little lift. HOLD

Flywire (FLYW) reported Q1 2023 results earlier this week and I detailed the report in a Special Bulletin. The stock responded well but hasn’t yet broken out of its established trading range. Revenue was up 46% to $94.4 million (beat by $11.5 million) while EPS of -$0.03 improved from -$0.10 in the year-ago quarter and beat by $0.04. Full-year revenue guidance was upgraded to $380 - $398 million (versus $373 - $392 million previously). Management said demand remains strong across all its business segments (education, travel, healthcare, B2B). BUY

Huron Consulting (HURN) delivered another significant beat last week, then shares tanked as the regional banks came under pressure again. They’ve come back quite a bit since and we’re not backing down from the stock. Revenue rose 22.2% to $317.9 million, beating by $18.3 million. Adjusted EPS of $0.87 grew 78% and beat by $0.21. Revenue in the Digital capability grew 28.5% to $140.7 million (44% of total revenue). Management reaffirmed full-year revenue guidance of $1.22 - $1.28 billion (+5% to 10%) and EPS guidance of $3.75 to $4.25 (+9% to 24%). The company continues to focus on its two strongest markets, healthcare (+22%) and education (+29%). The company is focused on expanding margins back to the mid-teens by 2025 and appears to be making progress. Q1 adjusted EBITDA margin of 9.3% was higher than the 8.5% from the year-ago quarter (healthcare margins dipped while education margins expanded, both due to fluctuations in compensation costs for segment workers). HOLD

Inspire Medical Systems (INSP) reported last week, and the stock has looked fantastic since. Revenue grew 84.3% to $128 million, beating by $7.8 million. EPS of -$0.53 beat by $0.12. Management raised full-year guidance by $20 million (more than the Q1 beat) to a range of $580 - $590 million. Consensus was at $570 million. HOLD TWO THIRDS

Intapp (INTA) reported at the beginning of this week, sending the stock back to within spitting distance of its recent high of 47. Total revenue was up 32% to $92 million, beating by $4.5 million, while EPS of $0.03 beat by $0.03. The number Wall Street really likes is Cloud ARR (+40% to $206.3 million), which shows that annualized revenue from cloud-based subscriptions continues to grow faster than the company total. Management said their biggest markets of law firms, accountants and private equity groups are super stable. And they’re watching investment banking since that would seem the most suspect, but so far, no notable weakness there. There was also a lot of talk about the deepening partnership with Microsoft (MSFT) and everybody is bullish on the opportunities. Management raised full-year 2023 guidance by more than the Q3 beat, calling for revenue up about 28.6% to $350 million (consensus was $340 million) and adjusted EPS of $0.07 to $0.09 (consensus was $0.05). HOLD

Rani Therapeutics (RANI) reported Q1 2023 results yesterday. This was mostly a repeat of the 2022 update from March 22, with some information from the May 2 H.C. Wainwright BioConnect Investor Conference sprinkled in. There was no conference call. Here are the major takeaways:

Phase 2 study for RT-102 expected to start in the second half of this year. Should be an eight-week study with 25-30 patients per arm with a few different doses. This study is hoped to support a Phase 2/3 or Phase 3 study with data reported at six and twelve months.

RT-105 containing adalimumab biosimilar Phase 1 expected to start later this year with data coming in early 2024. This will be the first program to use the RaniPill HC (the new, larger payload capsule).

RT-110 containing PTH for hypoparathyroidism should have some pre-clinical data available near the end of the year, and a Phase 1 study is intended to start near the end of the year as well.

RT-111 (partnered with Celltrion) containing an ustekinumab biosimilar is expected to move into a Phase 1 study in the second half of this year (dose manufacturing ramping up now) with data also expected in the second half. Once this data is available, Celltrion has 90 days to decide if it wants to negotiate a global commercial deal. That suggests RT-111 could be partnered out by the middle of 2024.

This partnership deal with Celltrion is likely to be the model for how Rani tries to get these programs funded and, ultimately, go to market. One of the problems with this company/stock is that they only have $87 million in cash and cash equivalents. This gives them less than a 12-month runway without raising capital through equity sales or joint ventures. Rani does have an equity sales agreement with Cantor Fitzgerald and H.C. Wainwright that allows it to sell up to $150 million in equity. There have been no sales yet, but I expect they will start to take place relatively soon.

Stepping back, the technology of the RaniPill is compelling and there is a big market out there if things go wall. That said, this is still an early-stage company, and the stock has been bleeding for months and the funding runway is getting shorter at a time when the costs to advance programs are going to go up. This doesn’t put Rani in a power position for negotiating.

I hate to bail on it at a depressed price, but there are no catalysts for six months (roughly) and there are other opportunities out there that we may be better off focusing time and capital on. Therefore, I’m going to bite the bullet on RANI and sell it today. This will be a mistake if a partner swoops in soon and provides a significant amount of funding, however, I don’t see that happening until the end of the year (at the very earliest), and only then if the Phase 2 data for RT-102 looks fantastic. I suspect we’ll have an opportunity to get back into the stock if and when things look better, so I’ll keep an eye on Rani. SELL

Si-Bone (SIBN) was added last week (half-sized position), literally hours before management announced a secondary offering priced at 22. That sent the stock down about 8% but the offering appears to have been well-received (not surprised) and shares are up near 23.5 this morning. I expect the roughly $70 million raised will be directed to the sales team and R&D. Continue to average in. BUY HALF

Repligen (RGEN) reported last week with results that beat expectations, but management reduced full-year guidance owing to the weak macro environment and weakness in China. Revenue of $181.4 million was down 12% but just surpassed expectations by $1.23 million. EPS of $0.64 beat by $0.05. Full-year revenue guidance was cut by 5% to $720-$760 million (+4% to 8%) from $760-$800 million (+11% to 15%). Gross margin may be about 50bps lower to around 52.5%. Adjusted EPS is seen in the range of $2.35 to $2.42 versus prior guidance of $2.61 - $2.69. Shares rose after the report, and we sold another quarter of our position. HOLD HALF

Terex (TEX) reported last week with results that beat expectations. Revenue was up 23% to $1.24 billion, beating by $105 million. Operating profit margin of 12% beat consensus of 9.3%, driving EPS to $1.60 and beating consensus by $0.56. By segment, Materials Processing revenue was up 22.3% to $553.8 million while Aerial Work Platforms was up 24.4%. Full-year revenue guidance was increased by $200 million at the midpoint (more than the Q1 beat) to a range of $4.8 - $5.0 billion and EPS guidance was raised by a full dollar, to a range of $5.60 - $6.00. BUY HALF

TransMedics Group (TMDX) reported last week with another beat-and-raise quarter. Revenue rose 162% to $41.6 million and beat by $38.1 million. EPS loss was -$0.08 as some operating expenses were lower than expected and helped margins surpass expectations, though these will vary quarter to quarter as the company prioritizes growth over sustainable margin improvement. Management increased their revenue growth outlook from a range of $138 - $145 million to $160 - $170 million (+71% - 82%), which straddles consensus expectations. On the conference call, there was a lot of talk about capacity and logistics and how the company expects to solve bottlenecks. We’ve been expecting a “TransMedics Aviation” business to fire up and have had questions around funding. But on Monday the company announced a $400 million convertible note offering. So, there’s the answer! I expect we’ll hear about some sort of aviation acquisition in the coming months. This will be a significant development. HOLD THREE QUARTERS

Please email me at with any questions or comments about any of our stocks, or anything else on your mind.

Stock NameDate BoughtPrice BoughtPrice on 5/3/23ProfitRating
Alphatec (ATEC)4/10/231615-4%Buy
Enovix (ENVX)10/6/222013-38%Hold
Expensify (EXFY)2/2/23116-46%Hold
Flywire (FLYW)8/4/22 & 11/9/2221.622936%Buy
Huron Consulting (HURN)12/2/2280790%Hold
Inspire Medical (INSP)10/4/1959288393%Hold 2/3
Intapp (INTA)1/4/23264472%Hold
Rani Therapeutics (RANI)10/7/21 & 7/28/2214--SOLD
Repligen (RGEN)11/2/18 & 12/31/1859151155%Sold 1/2, Hold 1/2
Si-Bone (SIBN)5/3/23NEW23NEWBuy 1/2
Terex (TEX)3/3/236047-21%Buy 1/2
TransMedics Group (TMDX)7/7/223477126%Hold 3/4
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.