The Bear Cave #128

New Activist Reports, Recent Resignations, and Tweets of the Week

Jul 31, 2022

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New Activist Reports

Blue Orca Capital published on MINISO Group (NYSE: MNSO — $2.34 billion), a China-based global retailer focused on everyday household items. Blue Orca alleged that MINISO “lies about its business model” because it claims to use independent franchisees to sell its products but actually uses stores owned by company executives or related parties. For example, Blue Orca found that MINISO’s Vice President and Chief Operating Officer, Huang Zheng, owns at least ten “independent” stores based on data from the Chinese corporate registry. In addition, Blue Orca alleged that the company’s chairman siphoned money from investors through questionable real estate transactions. Blue Orca also found that the company’s stores are struggling based on conversations with former employees.

Blue Orca concluded,

“Not only does our evidence undermine the authenticity of MINISO’s reported financials, but [it] also suggests that MINISO should trade at a fraction of its current share price.”

Blue Orca’s founder, Soren Aandahl, also did a Zer0esTv interview about MINISO. The company fell 20% this week and is down nearly 75% since its October 2020 IPO.

Muddy Waters Research published on Sunrun Inc (NASDAQ: RUN — $6.87 billion), a California-based residential solar company. Muddy Waters alleged that the company 1) exaggerates its subscriber values, 2) funds growth by abusing tax incentives, and 3) issues asset-backed securities that could lead to bankruptcy. Muddy Waters also highlighted that insiders have sold ~$205 million in stock since July 2020 and the company is on its third CFO since January 2020.

GlassHouse Research published on Mercury Systems (NASDAQ: MRCY — $3.40 billion), an aerospace and defense technology company. GlassHouse called Mercury Systems “a deteriorating roll-up that is set to implode” and showed that organic revenue growth has turned meaningfully negative. Moreover, GlassHouse alleged that the company “prematurely recognized revenue” and highlighted a new critical audit matter regarding long-term contract revenues as well as a nearly 10-fold rise in unbilled receivables in the last four years.

Kerrisdale Capital published on Paycom Software (NYSE: PAYC — $19.9 billion), a human resource tech company. Kerrisdale called Paycom “an okay business still trading at a nosebleed bubble valuation” and argued that its current multiple of 70x consensus cash flow estimates “doesn’t reflect headwinds of slowing employment growth, meaningful TAM saturation, and increasing competitive intensity.” Kerrisdale also alleged that the company “uses aggressive accounting to inflate its EBITDA,” in part by amortizing contract acquisition costs over ten years. Paycom stock is up over 2,000% since its 2014 IPO.

Citron Research published on Agilon Health (NYSE: AGL — $10.2 billion), a primary care company focused on the elderly. Citron alleged that Agilon was “finding ways to insert themselves into the transaction between physicians and Medicare” and used ~$270 million in stock grants to incentivize physician groups onto its platform. Citron questioned whether these stock grants violated anti-kickback laws and harmed the system. For example, Citron highlighted an investigation from the California Department of Managed Health Care about fraudulent claims and a whistleblower complaint alleging Agilon delayed medical care for a cancer patient to save money. Citron predicted the company will “be a fraction of itself five years from now as the government dynamically changes Medicare law and increases enforcement on middlemen.” Agilon Health is down ~15% since its April 2021 IPO.

Recent Resignations

Notable executive departures disclosed in the past week include:

Co-CEO of Vinco Ventures Inc (NASDAQ: BBIG — $161 million) was terminated “less than 72 hours after he was appointed” to thwart what the company believes was a secret hostile takeover attempt. The company also released a press release calling two past 8-K filings “incorrect and based on an invalid Board meeting.”
CFO of Gorilla Technology Group (NASDAQ: GRRR — $887 million) resigned after seven months. The company is up 22% since its SPAC merger earlier this month.
CFO of Tritium DCFC (NASDAQ: DCFC — $894 million) “is expected to transition out of the CFO position” after three and a half years. The company is down ~35% since its January SPAC merger.
CFO of Sabre Corp (NASDAQ: SABR — $2.01 billion) retired after a little over four years. The company’s Chief Product Officer also resigned this week and the company’s President of Travel Solutions departed in December 2021.
CEO of Weber Inc (NYSE: WEBR — $1.83 billion) “departed” after a little over four years and also left the board. The company is down ~65% since its August 2021 IPO and the company’s Chief Accounting Officer also announced her retirement last month.
CEO of F45 Training Holdings (NYSE: FXLV — $188 million) “will be stepping down” after nearly nine years. As part of the separation agreement the company agreed to give the outgoing CEO “a one-time cash payment of $4,800,000” and “payment by the company of a 12-month lease of [his] residence in Florida, with an annual lease amount of up to $1,200,00.” The Mark Wahlberg-backed fitness company is down nearly 90% since its July 2021 IPO.
Chief Human Resources Officer of 8x8 Inc (NYSE: EGHT — $580 million) resigned after just seven months. The company’s Chief Accounting Officer also resigned in January after a little over a year and the company’s Chief Revenue Officer resigned in July 2021 after eleven months. The company has had three different CFOs in the last five years and its stock has fallen over 80% in the last twelve months.
Chief Accounting Officer of Edgewell Personal Care (NYSE: EPC — $2.10 billion) resigned after a little over seven months “to pursue other opportunities.” The company’s Chief Legal Officer also resigned in December 2021 after about three and a half years.
Chief Revenue Officer of SmartRent Inc (NYSE: SMRT — $1.11 billion) “was terminated” after two and a half years. SmartRent’s CFO also resigned in May after less than two years and the company is down ~45% since its August 2021 SPAC merger.

Data for this section is provided by VerityData from VerityPlatform.com

What to Read

“Does Faraday Have a Future?” (The Technology Letter)

“Faraday Future, which came public last year via SPAC, needs at least a couple hundred million dollars to get small production volume of its first car, the ‘FF 91’ luxury sedan, out the door, and possibly a lot more additional capital to expand beyond there.”

“An ex-U.S. congressman from Indiana is among 9 people charged in insider trading” (NPR)

“He was described as making purchases of Sprint securities in March 2018 just a day after attending a golf outing with a T-Mobile executive who told him about the company's then-nonpublic plan to acquire Sprint, according to a civil case brought against Buyer by the Securities and Exchange Commission… Authorities said he also engaged in illegal trading in 2019 ahead of Navigant Consulting Inc.'s acquisition by consulting and advisory firm Guidehouse. Documents said he leveraged his work as a consultant and lobbyist to make illegal profits.”

“Idea Brunch with Brian Laks of Old West Investment Management” (Sunday’s Idea Brunch)

“I’ve probably analyzed hundreds of energy and mining projects over the years and have developed a pretty good sense of what is real and what’s not. A lot of it comes down to the people involved, their track record and whether they have done it before. It’s no small feat to take a project from discovery through permitting and construction into production, so teams that have that sort of experience are viewed with more credibility.”