The Bear Cave #214

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

Mar 24, 2024

Welcome to The Bear Cave! Our last premium articles were “Problems at an ARK Invest Favorite” and “More Problems at Hershey (HSY)” and our next premium investigation comes out Thursday, April 4.

On Friday, The Bear Cave was interviewed on Know Your Risk Radio with an in-depth discussion about Hershey and Feastables starting at (15:15). Check it out here.

New Activist Reports

Hindenburg Research published on Equinix (NASDAQ: EQIX — $75.8 billion), a large data center REIT that owns and operates over 260 data centers across the world. Hindenburg interviewed “37 former Equinix employees, industry experts, and competitors” and concluded that Equinix manipulated its Adjusted Funds From Operations (AFFO) metric “by at least 22% in 2023 alone.” Hindenburg wrote,

“A key accounting trick to boost AFFO is to misclassify ‘maintenance CapEx’ as ‘growth CapEx,’ giving the appearance the company’s cost to maintain its revenue base is lower than it actually is, making the company appear more profitable.”

For example, Hindenburg alleged Equinix employees would “seek new serial numbers for refurbished equipment in order to recognize the old repaired item as new and book it as growth CapEx” and “[the] accounting even went as far as classifying light bulb replacements as growth CapEx, per former employees.” One former Equinix employee interviewed by Hindenburg explained,

“Say you changed out fluorescents to LED light bulbs, that’s a capital improvement. You’re not replacing lightbulbs, you’re enhancing”.

Hindenburg also highlighted that, last week, both the company’s CEO and Executive Chairman were stepping back from their roles and “tossing the baton (and the potential wreckage) over to a new CEO as they tiptoe into the background.”

Culper Research published on The Bancorp Inc (NASDAQ: TBBK — $1.65 billion), a bank that also provides “private-label banking and technology solutions for non-bank companies.” Culper Research alleged The Bancorp “has misrepresented the quality of its real estate bridge loan portfolio,” which now stands at roughly $2 billion with only $4.7 million provisioned for losses. Culper reviewed records for the underlying properties and found they are “quite literally, crumbling: ridden with crime, shootings, looting, infestations, fires, and even full-on condemnations, while vacancies remain high and rents have remained stagnant.” Culper said The Bancorp made its real estate loans at the worst possible time in the worst possible markets, Sunbelt loans in 2021 and 2022, and claimed a former underwriter “told us that they expected losses to be 10-15x reserve levels.”

Old Time REITster published on Gladstone Commercial Corporation (NASDAQ: GOOD — $595 million), a diversified net lease REIT. Old Time REITster suggested the company may need to cut its dividend again as Funds From Operations “will be impacted by expiring interest rate caps and lost revenue due to expiring leases and properties that were or will be sold.”

Capybara Research published a follow-up article on SoundHound AI (NASDAQ: SOUN — $1.90 billion), an AI-powered speech recognition company. Capybara suggested the company was “misleading investors about their AI capabilities” and posted losses double their revenues in 2020, 2021, 2022, and 2023. Capybara gave a $1 price target and suggested competitor Cerence (NASDAQ: CRNC — $611 million) was far more advanced and poaching customers.

In July 2023, Culper Research also called the company “a flailing AI wannabe trading at 22x revenues that has misled investors.”

Recent Resignations

Notable executive departures disclosed in the past week include:

CFO of Logitech International (NASDAQ: LOGI — $15.8 billion) “will be departing the company to pursue another career opportunity” after a little over one year. The company has also had three different CEOs in the last year.
CFO of MeridianLink (NYSE: MLNK — $1.38 billion) “will resign upon mutual agreement with the Board” after nearly two years. In addition, a board member also resigned this week after just seven months. The company is audited by BDO.
CEO of Citizens Inc (NYSE: CIA — $99 million) departed after two and a half years. The company has had five different CEOs and four different CFOs in the last ten years and is audited by Grant Thornton. In March 2017, Marcus Aurelius Research called Citizens “An Egregious Stock Scheme” that “displays some characteristics that appear analogous to a Ponzi scheme.”
CEO of Papa John's International (NASDAQ: PZZA — $2.15 billion) resigned after four and a half years to become CEO of Shake Shack (NYSE: SHAK — $4.62 billion). In the last year, the pizza chain’s CFO, Chief Operating Officer, Chief Marketing Officer, and Chief Operating Officer of International have all departed. In addition, Papa John’s has had five different CFOs in the last five years.
Chief Accounting Officer of Barings BDC (NYSE: BBDC — $974 million) resigned “to pursue other business opportunities” after just four months. Last week, the company’s President resigned “effective immediately, to pursue other business opportunities” after five and a half years. In April 2023, the company’s CFO “stepped down” after seven months “to pursue other business opportunities” and in December 2022, both the firm’s CEO and Chief Compliance Officer resigned after just three months in their roles.
Diane Brink, board and audit committee member of Altus Power (NYSE: AMPS — $767 million), resigned after a little over one year “for personal reasons.” The company has had four board member resignations since its December 2021 SPAC merger and has fallen ~50%. In August 2023, the company dismissed Deloitte as its auditor and engaged Grant Thornton.

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

What to Read

“A Bat Infestation, Postponed Surgeries and Unpaid Bills: A Hospital Chain in Crisis” (WSJ)

“Last spring, a nurse found a live bat clinging to a curtain in the intensive-care unit of Florida’s Rockledge Regional Medical Center. Steward Health Care System, which operates the hospital, brought in a pest-control company, which discovered another 3,000 or so Brazilian free-tailed and evening bats in the building… Last fall, Rentokil North America sued Steward for $1.6 million of allegedly unpaid bills, including $936,320 for the bat removal...
Steward’s shaky finances have focused attention on the role played by Medical Properties Trust (NYSE: MPW), the nation’s largest hospital landlord.”

John J. Ray III Statement to Court About Sam Bankman-Fried (PACER)

“The value we hope to return to creditors would not exist without the tens of thousands of hours that dedicated professionals have spent digging through the rubble of Mr. Bankman-Fried’s sprawling criminal enterprise to unearth every possible dollar, token or other asset that was spent on luxury homes, private jets, overpriced speculative ventures, and otherwise lost to the four winds. And even taking into account the potential for achieving anticipated recovery levels, which is by no means assured, customers still will never be in the same position they would have been had they not crossed paths with Mr. Bankman-Fried and his so-called brand of ‘altruism.’”

“Airline CEOs Seek Meeting With Boeing Directors to Address Production Problems” (WSJ)

“Boeing has responded by offering to send Chairman Larry Kellner, a former chief executive of Continental Airlines, and other board members to meet the leaders of its key U.S. customers as soon as next week, the people said. Boeing directors are also expected to meet in coming weeks with CEOs of international airlines that rely on its jets. The request to meet with Boeing’s directors is an unusual sign of frustration with the manufacturer’s problems and its leader, David Calhoun. The Boeing CEO isn’t expected to attend the planned meetings.”