Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

Spruce Power Holding Corporation is an owner and operator of distributed solar energy assets. The Company provides subscription-based services for homeowners and small businesses to own and maintain rooftop solar and battery storage, as well as offers as-a-service model to access new technology without making a significant upfront investment and incurring maintenance costs.

<ul><li>Following 3Q24 results, we update our outlook for Spruce, a leading owner-operator of residential solar power purchase agreements (PPAs) and solar lease agreements (SLAs).</li><li>Spruce grows through the acquisition of mature portfolios.</li><li>Its portfolio has expanded at a 29% CAGR since 2018 and Spruce now owns the cash flow from approximately 75,000 home solar assets and contracts.</li></ul>

Following 3Q24 results, we update our outlook for Spruce, a leading owner-operator of residential solar power purchase agreements (PPAs) and solar lease agreements (SLAs).Spruce grows through the acquisition of mature portfolios.Its portfolio has expanded at a 29% CAGR since 2018 and Spruce now owns the cash flow from approximately 75,000 home solar assets and contracts.

SPRU: Adjusting Estimates Post 3Q24 Results; Acquisition an Upside Risk to Our Outlook

SurgePays, Inc. is a technology and telecommunications company. The Company focuses on the underbanked and underserved communities, as well as provides fintech platform for financial and prepaid products to convert corner stores and bodegas into tech-hubs for underbanked neighborhoods. SurgePays serves customers in the United States.

<ul><li>Before market open on Thursday, SurgePays announced it has signed a new strategic relationship deal with AT&amp;T.</li><li>The multi-year mobile virtual network operator (MVNO) agreement is a significant enhancement from its pre-existing carrier relationships in the ACP market.</li><li><p>Enables super low-cost service, critical to former ACP and current Lifeline customers. </p></li></ul>

Before market open on Thursday, SurgePays announced it has signed a new strategic relationship deal with AT&amp;T.The multi-year mobile virtual network operator (MVNO) agreement is a significant enhancement from its pre-existing carrier relationships in the ACP market.Enables super low-cost service, critical to former ACP and current Lifeline customers. 

SurgePays, Inc. - Signs Strategic Agreement with AT&T

Thematic (Sector/Industry)

<ul><li>AI Continues to Grab Investor Interest as Expectations Have It Affecting Nearly Everything AI is in every company now.</li><li>It has been having a major impact on the tech sector for some time, it accelerated in 2024, and is likely to continue driving tech in 2025.</li><li>Every company is now building neutral networks, and this is driving growth in data centers, hardware, and specifically GFP/AI chips. </li></ul>

AI Continues to Grab Investor Interest as Expectations Have It Affecting Nearly Everything AI is in every company now.It has been having a major impact on the tech sector for some time, it accelerated in 2024, and is likely to continue driving tech in 2025.Every company is now building neutral networks, and this is driving growth in data centers, hardware, and specifically GFP/AI chips. 

WTR Small-Cap Spotlight Recap Tech Trends for 2025

Bassett Furniture Inds / Equity Bottom-Up

Bassett Furniture Industries, Incorporated manufactures and sells a full line of furniture for the home.  The Company offers bedroom and dining suites, occasional tables and entertainment units, upholstered sofas and love seats, recliners, and mattresses, among other products.  Bassett's products are sold through retailers, including Bassett Furniture Direct.

<ul><li>Bassett announced an additional set of restructuring initiatives today in its continued effort to bring its cost structure in line with current demand, preserve its balance sheet strength, and free cash flow generation over the longer term, and improve its operating leverage.</li><li>The company said that it will eliminate additional headcount in an effort to reduce overhead (bringing total headcount reductions to 11%) in light of continued adverse industry conditions. Bassett will record a $500k charge in 4QFY24, affecting GAAP EPS by $0.04.</li><li>The restructuring and headcount actions announced today should save the company $2.5 million annually, or about $0.21 in EPS.</li></ul>

Bassett announced an additional set of restructuring initiatives today in its continued effort to bring its cost structure in line with current demand, preserve its balance sheet strength, and free cash flow generation over the longer term, and improve its operating leverage.The company said that it will eliminate additional headcount in an effort to reduce overhead (bringing total headcount reductions to 11%) in light of continued adverse industry conditions. Bassett will record a $500k charge in 4QFY24, affecting GAAP EPS by $0.04.The restructuring and headcount actions announced today should save the company $2.5 million annually, or about $0.21 in EPS.

BSET - Additional Restructuring Initiative

Tuya Inc., doing business as Tuya Smart, provides IoT cloud platform. The Company offers solutions which enables brands, retailers, OEMs, and manufacturers to develop, launch, manage, and monetize software-enabled devices and services. Tuya Smart serves customers worldwide.

<ul><li>Tuya reported another strong quarter, with revenue of $81.6 million, up 34% Y/Y (1Q and 2Q were up 30% and 29%, respectively).</li><li>Gross margin stayed in the mid-40s (46%). IoT PaaS revenue grew 26% Y/Y to $57.9 million.</li><li>Its 230-bp Y/Y margin improvement was significant, coming in at 46.9%. </li></ul>

Tuya reported another strong quarter, with revenue of $81.6 million, up 34% Y/Y (1Q and 2Q were up 30% and 29%, respectively).Gross margin stayed in the mid-40s (46%). IoT PaaS revenue grew 26% Y/Y to $57.9 million.Its 230-bp Y/Y margin improvement was significant, coming in at 46.9%. 

Tuya, Inc. - Another Strong Quarter of Revenue Growth (+34%) And Stable Margins