September 14, 2023

There have been a number of conferences going on lately, so today’s update is partially focused on what our attending companies had to say.

There were no really big reveals, but also no change in tone from the management teams I listened to – and certainly nothing edging toward the more negative side of the scale.

Big picture, I’d say leadership teams continue to be somewhat conservative. Given that we only have a couple weeks left of Q3 they should have a pretty good handle on how the quarter should shake out (and the year for that matter).

On the macro front, the big events of the week were yesterday’s CPI inflation print and today’s PPI release. Energy prices were the main issue for both, though there were no really bad surprises.

Arm Holdings’ (ARM) IPO (today) is also a big event for the tech market and just may signal some thawing there. Instacart, Birkenstock and Klaviyo have all submitted filings and are projected to have multi-billion-dollar valuations if and when they go public. It would be nice to see some fresh names in the small-cap space.

Keeping in mind, September is typically the worst month for stocks. We’re almost halfway through.

The UAW (United Auto Workers) is expected to go on strike tonight, the government needs to get its act together to avoid an end-of-month shutdown and the Fed wraps up the September meeting next Wednesday (market odds are 96% it will hold).

What could possibly go wrong?!

Recent Changes

None

Updates

Alphatec (ATEC) presented at the Morgan Stanley Healthcare Conference yesterday. Management didn’t change guidance but said they think consensus is reasonable (3Q revenue +25%). They also said the main drivers of the business – surgeon and utilization growth – continue to trend in the right direction. There has been some M&A in the spine space, as well as management transitions among competitors, and this has created an opportunity for Alphatec to attract surgeons. The company is expanding the types of surgery that its devices are suitable for and this is growing their market opportunity significantly. In fact, in Lateral Transpsoas (LTP) instrument supply hasn’t kept up with demand. Initiatives to simplify procedures within the lateral market are expected to be supported with more EOS (full body imaging devices) placements. Looking forward, management will discuss new spine hardware at NASS (October 18-21), new EOS applications in the second half of 2025 and into 2025 and introduction of robotic offerings (REMI) in late 2024 (starting with freehand). The stock (like many MedTech names) has pulled back. BUY

Braze (BRZE) enjoyed a little pop after the Q2 report (last Thursday) showed the company beat expectations. Revenue grew 33.6% to $115.1 million while EPS of -$0.04 was up from -$0.16 in Q2 last year. The stock hasn’t done a heck of a lot since but it was a clean quarter and the forward growth profile looks solid so shares should get in gear when the market does. Full-year revenue is now seen up around 28% (22.3% in 2024) and break-even may come in Q4 of next year. BUY

Duolingo (DUOL) has been solid lately and is back at the 160 level where it was in July before a quick pullback took shares to 122 in the first half of August. No notable news. BUY HALF

Enovix (ENVX) got a thumbs up from Cantor Fitzgerald last Friday as the firm said the stock should still be worth 28 (shares closed near 14.4 yesterday). Management is back in “drumming up awareness” mode. Yesterday, they put out the first episode of the company’s podcast, “Journey to Scale.” The idea is to give a behind-the-scenes look, as well as updates, as Enovix scales up its manufacturing volume. I listened to part of it and thought it was “fine.” No real news, yet. The link is here. HOLD

Flywire (FLYW) hasn’t had a lot of news to share since the earnings report and secondary offering in early August. Management will present at the Autonomous 8^th Annual Future of Commerce Virtual Symposium today at 1:15 p.m. ET. Keeping my eyes open for Flywire to make an acquisition, but no rumors on that front to share. BUY

Intapp (INTA) reported Q4 fiscal 2023 results last Wednesday that came in ahead of expectations. I detailed the results in a Special Bulletin, the high points of which were that revenue grew 25.3% to $94.6 million (beating by $1.5 million) while EPS of $0.04 was up from -$0.04 in Q4 last year (beat by $0.03). Guidance for 2024 implies revenue should be up around 20% to $421 million (analysts had expected $402 million) and EPS should be around $0.22 (analysts had been expecting $0.18). This week the company announced the launch of a partner program with over 100 partners that span aspects of development, marketing, selling, delivery and innovation. Lastly, I listened to the company’s presentation at the Piper Sandler Growth Frontiers Conference yesterday. It was good. No ground-breaking announcements. But good. BUY

R1 RCM (RCM) is trading near the low end of its trading range over the last three weeks. No major news lately. The stock took a hit last year as costs skyrocketed following an acquisition and sizeable new customer wins and go-lives. It’s recovered the bulk of that drop but isn’t yet getting credit for the operational improvements and technology enhancements (including AI) that should drive significant (+70%) profit growth next year (and beyond). BUY

Remitly Global (RELY) is our newest position (added last week) and continues to look fantastic. Citigroup just boosted their price target to 30 from 25 (stock closed at 25 yesterday). Remitly is a mission-driven financial services company that helps immigrants send money to friends and families overseas. Over the last 12 months, $34 billion has been sent across the platform. In the last quarter, the company had over 5 million quarterly active users. Perhaps most impressive, Remitly grew revenue by almost 50% in the most recent quarter, while delivering a profit. And EPS is poised to double next year. BUY

Repligen (RGEN) isn’t doing anything special these days and we’re biding our time with our last quarter of the position, looking to a stronger bioprocessing market in 2024. We recently learned that Repligen has hired a new CFO, Jason Garland from Integer Holdings, to replace retiring CFO Jon Snodgres. Last week RBC Capital reiterated their outperform rating and 191 price target. HOLD A QUARTER

SI-Bone (SIBN) presented at the Morgan Stanley Healthcare Conference on Tuesday. The short version is that all the good trends from Q2 are continuing into Q3, though management didn’t raise Q3 guidance which is implied to be in the low single digits. That’s a trend outlier. Revenue growth hasn’t fallen below 9.4% in any quarter over the last two and a half years and analyst consensus implies 22.5% growth for Q3. There is some seasonality in Q3, but even the analysts at Morgan Stanley seem to think guidance is overly conservative since there isn’t anything specific to flag as a concern. This year was one of investment and that should pay off with more supply in 2023, especially for the short construct line extension, and management sees revenue growth above operating expense growth into next year. That bodes well for driving the company closer toward profitability, though consensus expectations for 2024 EPS of -$1.03 illustrate there’s still a way to go here. With the stock trading well below its highs for the year and near the 200-day line it looks like a buy. Though admittedly, I’d like to see Q3 guidance revised upward. BUY

TransMedics Group (TMDX) presented at the Morgan Stanley Healthcare Conference on Monday. I listened to the presentation and was glad to hear management discuss a few more specifics regarding the Aviation business, rather than just the high-level strategic importance of it (which they also discussed). It sounds like the company has already won three transportation contracts with transplant centers in just three weeks. Management firmly believes that the TransMedics Aviation “pitch” to transplant centers (streamlined, less risky logistics, competitive pricing) will drive a lot of new customers their way. Management said its mid-term goal is to reach 10,000 transplants, a very doable goal in their view given that’s “only” 70% of transplants being done today. There was discussion of market trends in the heart market as well as cold perfusion (which TMDX now has through the Bridge to Life acquisition) and management has a convincing case that they’re positioning the company to not only be significantly bigger but also a very difficult player for competitors to displace. That said, with such a big transformation this is a “show me” story for now. HOLD THREE QUARTERS

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