Please ensure Javascript is enabled for purposes of website accessibility
Small-Cap Confidential
Undiscovered stocks that can make you rich

May 2, 2024

Enovix (ENVX) Up On Q1 Results and Development Agreement, Weave Communications (WEAV) Dips After Q1 Report

Weave Communications (WEAV) Dips After Q1 Report

Shares of Weave (WEAV) are trading down after the Q1 report even though results beat expectations and guidance was raised. This has become something of a pattern – back in February the stock traded down for two days then popped right back up to where it was ahead of earnings.

Will we get a repeat? We’ll get to that in a second, as I have a feeling I know why shares are reacting this way, despite a generally good quarter.

Revenue was up 19.3% to $47.2 million and beat by $1.4 million. Adjusted EPS of -$0.01 improved from -$0.05 in the year-ago quarter and beat by $0.01. Adjusted gross margin grew by 2.8% to 70.4%. Trailing twelve-month net revenue retention (NRR) of 96% was up 1 point from Q4 2023.

Not blowout results, but perfectly acceptable.

Management raised full-year revenue guidance by $2.5 million to a range of $197 - $200 million and left adjusted income the same at -$4 million.

Big picture, the company continues to do very well. Sales teams are doing their thing and growth in Specialty Medical is strong (though still below 10% of revenue) while the new payments solution is helping margins and NRR, even though payments isn’t yet as strong as hoped.

So what gives with the stock?

My (wild?) hunch is that a trend outlier number in cash flow from operations (CFO) has sent off some alarm bells (possibly in pure algorithmic trading strategies?). CFO was expected to be modestly positive (around $1 million) but came in at almost -$20 million, down $21.1 million from Q1 2023. That’s a big change.

The reason is twofold, and not really material. Management said they put in a new billing system that meant March subscription billings got kicked back a month (i.e. into Q2). This had the trickle-down effect of increasing accounts receivable and decreasing free cash flow (by about $15 million).

The second reason was the payout of employee bonuses ($7 million), which have historically been paid in Q2 but got moved to Q1 for some reason.

This type of accounting shuffleboard throws a wrench in the reported numbers trend. Analysts get it (nobody on the conference call asked about it), but a pure numbers-based trading program? Not so much.

There could certainly be other factors contributing to the stock’s reaction, or maybe I’m way off base. It wasn’t a massive quarter by any stretch. But Weave showed continued positive progress, which is really what I think investors expect to see here.

You may do OK buying into this selling, but of course there is risk in that. Still, on balance and given that we have a half-sized position, I’m comfortable keeping WEAV at buy a half here. Might be able to average down a little and position for a bounce. That said, if the stock doesn’t get its act together relatively soon I will let it go. BUY HALF

Enovix (ENVX) Up On Q1 Results and Development Agreement

Shares of Enovix (ENVX) are indicated to open nicely higher this morning after the company reported Q1 results and stated a development agreement with a major smartphone OEM (sixth largest by volume) that’s likely based in China given management’s prior commentary on these players being “first in line.”

First the results. Revenue was $5.3 million (ahead of $3.5 - $4.5 million guidance) due to IoT battery sales. As we know, Factory Acceptance Testing (FAT) on the Gen2 Agility Line in Malaysia is done. FAT is almost done for the high-volume Gen2 Autoline (should be in production in Q3). Site Acceptance Testing (SAT) is approaching completion such that samples of EX-1M batteries should be coming off the line before the end of the month (i.e., in Q2).

Management is working to reduce fixed costs and sees potential to slash $35 million annualized by the end of the year, with the goal of propelling Enovix toward profitability (once sales volumes ramp, obviously). The company ended Q1 with $262.4 million in cash and equivalents after spending $35 million on operations and $15.1 million on capex (i.e., about $50 million total). ENVX stock price performance lately signals some investor concern over financing. Management said it is considering customer financing and project financing options, but a lot will depend on how demand/sales shape up since CapEx is flexible. It sounds like additional production lines will run around $60 million (lower than the first line).

The company reached a joint development agreement with a top five global smartphone manufacturer which means a lot of back and forth starting now to get the exact battery size into the desired phone model. Enovix is also shipping samples built in Fremont, CA to six of the top eight global smartphone OEMs. We will see what develops there.

Nearer term, revenue from IoT batteries is expected to ramp up while smartphone batteries should be the main driver starting in the second half of 2025 given a nine-to-twelve-month qualification process.

In terms of product development, Enovix is advancing both battery designs with silicon and those with graphite (product portfolio acquired last year).

Second-quarter guidance was updated to revenue in a range of $3 - $4 million with adjusted EPS of -$0.22 to -$0.28. This is “fine.” We care more about the timing of production ramp and what happens in 2025 and beyond.

Remember, the big-picture pitch for Enovix is that demand for battery density is going up as energy demand for smartphones and other electronics rises. AI is only accelerating that trend. Enovix appears to have battery technology that can offer this energy density.

Once the company’s batteries are fully qualified for at least one manufacturer’s smartphone and orders start to come in, the company will likely raise capital. Concerns around shareholder dilution are valid, however, assuming expected volume/demand ramp is as significant as planned, Enovix “should” be able to raise capital from a much stronger position than it’s in right now. Maintain at buy. BUY

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.

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.