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Small-Cap Confidential
Undiscovered stocks that can make you rich

November 9, 2022

Treace Medical (TMCI) delivered a Q3 beat after the bell yesterday with revenue of $33.1 million (+53%) beating estimates by $3.03 million and EPS of -$0.22 beating by $0.07.

TMCI and FLYW Report

Treace Medical (TMCI) delivered a Q3 beat after the bell yesterday with revenue of $33.1 million (+53%) beating estimates by $3.03 million and EPS of -$0.22 beating by $0.07. Management boosted full-year guidance by slightly more than the Q3 beat, implying Q4 should also be better than expected. New 2023 revenue guidance is $135 to $138 million (+43% to + 46%). Treace enjoyed high utilization, and active surgeons grew, meaning the company is trending at 10.7 kits per surgeon on an annual basis. The average selling price of $5,794 was above expectations that were closer to $5,620. Management says sales of new products and ancillary solutions remain high and they are investing to support Q4 and 2023 as demand for Lapiplasty continues to be strong. The direct sales team continues to grow and drove 74% of sales in the quarter, up from 53% in the year-ago quarter. With management’s goal of 70% now passed, it looks like Treace will end the year with closer to 80% of revenue coming from the direct sales team. With TMCI having sold off heading into the event, this quarter should provide some support for the stock, though in the immediate term the broad market may be more influenced by mid-term election results (today) and October’s CPI report (tomorrow). BUY HALF

Flywire (FLYW) also beat Q3 expectations on the topline as revenue of $95.2 million (+40%) came in $7.34 million ahead of consensus, though EPS of $-0.04 fell $0.08 shy of expectations. The size of the beat was less than the market has gotten used to, which management attributed to foreign exchange (FX) headwinds and fewer visas for Chinese students (offset somewhat by more for Indian students). On the flip side, there are enough new clients and expansions (like in Colombia) and reopening trends in Asia and luxury in Europe that management continues to guide for 30%+ annual revenue growth (2022 full-year outlook now at $264 to $267 million, or +32%, reflecting FX pressure) and has the confidence to keep investing in growth (almost 150 new employees over last four quarters and a new 529 product) given its pipeline is up by roughly 50% so far this year. With shares of FLYW having sold off over the last week and this report somewhat de-risking the name in the near term (though CPI report tomorrow poses risks to the broad market), let’s go ahead and fill the second half of our position. We’re down on FLYW but a move up to the level of just two weeks ago (around 22) would be more than enough to get us back to breakeven (or above) factoring in the reduced costs basis of adding a second half today. BUY SECOND HALF

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.