🐻The Bear Cave #59🐻
New Activist Reports, Resignations and Departures, Tweets of the Week, and More!
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New Activist Reports
Judd Arnold of Lake Cornelia Research published a 61-page long thesis on Jaws Acquisition Corp (NYSE: JWS — $1.18 billion), a SPAC that is acquiring Cano Health, a primary care provider for Medicare. Arnold highlighted a low valuation relative to peers and a large addressable market. Kerrisdale Capital also tweeted that it was long JWS as well.
Bonitas Research published on Arcimoto (NASDAQ: FUV — $486 million), a company that makes three-wheeled electric vehicles. Bonitas alleged the company inflated pre-orders for its product and alleged that its largest customer is controlled by a related-party. Bonitas also highlighted that the company issued an NHTSA safety recall and that Elon Musk had previously criticized the company. In response, Arcimoto tweeted about “short-and-distort” campaigns:
Alex Pitti previously published a Seeking Alpha article on the company’s low sales. Arcimoto is flat year-to-date after doubling and then falling ~50%.
Night Market Research published on Mountain Valley MD (CNSX: MVMD — CAD$366 million), a Canadian drug company that “has pivoted from cannabis to nutraceuticals, to pharmaceuticals, to COVID – all within less than a year.” Night Market Research alleged the company’s lead scientist does not have a medical degree and that the company’s chief medical officer was involved in a $2 million embezzlement scheme.
Citron Research published on Root Insurance (NASDAQ: ROOT — $3.61 billion), an app-based car insurance company. Citron highlighted that the company “has the best data analytics in the industry” and the backing of “smart money” investors like Silver Lake, Dragoneer, and Coatue. Citron also highlighted the company’s underwriting improvement and 42% short interest.
The Bear Cave previously criticized Root Insurance and highlighted excessive price hikes by the company. Root’s underwriting improvements may be a one-time improvement from the pandemic that will reverse as states re-open.
Moreover, Root uses its data-collecting app to distinguish good drivers from bad ones by tracking driving speed, braking, travel times, phone usage, and other factors. Newer cars are being built with the ability to collect this data directly and transfer the data to marketplaces like Otonomo and WeJo, which can then sell the data to insurers. This may make Root’s technology obsolete, as data directly from a car is better than data from a phone in a car. Time will tell.
New Resignations & Departures
Notable executive departures disclosed in the last 90 days include:
CFO of Penn National Gaming (NASDAQ: PENN — $16.9 billion) resigned after about ten months on the job due to “the challenges of continuing to work remotely from the West Coast.” Penn has had five different CFOs in the last five years.
CFO of Mohawk Industries (NYSE: MHK — $13.7 billion) resigned after less than a year. Mohawk has had three different CFOs over the last three years.
CFO of Qiwi (NASDAQ: QIWI — $638 million), a Russian payment service provider, resigned after four months “due to personal reasons.” Qiwi has had four different CFOs in the last three years.
CFO of Palo Alto Networks (NYSE: PANW — $31.1 billion) departed after less than a year to become the CFO of Unity Software (NYSE: U — $26.6 billion).
CFO of Nam Tai Property (NYSE: NTP — $474 million), a Chinese electronics manufacturer turned real estate developer, resigned after six months on the job. Nam Tai Electronics has had four different CFOs and four different CEOs in the last five years. The company’s auditor is Moore Stephens and Nam Tai’s website says its “shares are worth anywhere from $20 to $100.” The stock currently trades around $12.
Interesting SEC Comment Letters
Comment letters are informal public correspondence between the SEC and public companies about potential disclosure, accounting, or other issues in public filings. Below are some of the most interesting ones.
Gracell Biotechnologies (NASDAQ: GRCL — $1.08 billion), a recent Chinese biotech IPO, received four detailed comment letters from the SEC (1, 2, 3, 4). In particular, the SEC questioned the potential for Chinese taxes to be imposed on U.S. ADR investors.
SEC: “Please revise the summary to include information about… the risk that shareholders may be required to file a return and be taxed by the PRC, and the risks related to the discretion of Chinese governmental authorities to influence your business… Finally, revise the summary to include the risk of being delisted…”
RLX Technology (NYSE: RLX — $16.5 billion), a recent Chinese vaping company IPO, received a comment letter about its related party transactions.
SEC: “We note your revised disclosure that you sold e-vapor products to a party that is controlled by an individual who has indirectly significant influence on you. Please revise to identify the party, or explain why you do not believe that you are required to do so.”
Service Corporation International (NYSE: SCI — $8.74 billion), a funeral company, received two written SEC inquiries and conducted two SEC staff phone calls about its accounting. In a 19,036-word response (inclusive of exhibits), the company wrote, in part,
Company: “Our financial reporting for preneed funeral and cemetery contracts with customers has been the subject of significant research, deliberation, consultation, and discussion with the Staff and the Office of the Chief Accountant over the last 15 years. State laws generally require all or a substantial portion of the funds collected for preneed funeral and cemetery merchandise and service contracts to be placed into service trusts… The Trusts hold investments in marketable securities that we have generally considered other-than-trading…”
Adagene (NASDAQ: ADAG — $731 million), a Chinese immunotherapy company that went public in February, received multiple SEC comment letters about related-party transactions, misleading drug descriptions, confusing labels, delisting risk, and cash flow line items. The main letter read, in part,
SEC: “We note your updated graphics … appear illegible. In addition, we note the graphics contain technical jargon, including “RP2D” and “Traditional 3+3,” and elsewhere in your registration statement we note technical terms, such as “SUV scores.” Define these terms in a way that a lay person can understand.”
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What to Read
“With Negative Rates, Homeowners in Europe Are Paid to Borrow” (WSJ)
“LISBON—Paula Cristina Santos has a dream mortgage: The bank pays her. Her interest rate fluctuates, but right now it is around minus 0.25%. So every month, Ms. Santos’s lender, Banco BPI SA, deposits in her account interest on the 320,000-euro mortgage, equivalent to roughly $380,000, she took out in 2008. In March, she received around $45.”
“The Two Tiger Cubs at the Center of Friday’s $35 Billion Meltdown” (Institutional Investor)
“Despite billions of dollars at stake, neither Archegos nor Teng Yue has filed a 13F quarterly disclosure listing the public U.S. equities they own. They get around that requirement by using swaps, which also allow them to avoid regulatory limits on leverage for stocks.”
“Zappos CEO Tony Hsieh Bankrolled His Followers. In Return, They Enabled His Risky Lifestyle.” (WSJ)
“The group that surrounded the late Zappos boss helped sustain his drug habit, protected him from outsiders and lived off his largess…”
Tweets of the Week
Until next week,
The Bear Cave