The Bear Cave #95
New Activist Reports, Recent Resignations, and Tweets of the Week
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New Activist Reports
Hindenburg Research published a blockbuster 10,612-word investigation into Tecnoglass (NASDAQ: TGLS — $890 million), a Colombia-based glass producer for residential and commercial buildings. The company was founded in 1984 by two brothers, Jose Daes and Christian Daes, who currently serve as CEO & COO. Hindenburg highlighted numerous questionable related-party transactions at the company. For example, the CFO of the company’s largest customer from 2013-2016 was a cousin of the Daes brothers. That customer was later acquired by Tecnoglass. In addition, Hindenburg found that the Daes brothers have sold Tecnoglass products to their nephews, invested in a company operated by their children, and ran construction expenses through a related party they own. Tecnoglass has difficulty collecting cash from its customers and has Days Sales Outstanding of nearly 100 days, almost 2x peers, which can be a sign of inflated revenue.
Hindenburg also highlighted the checkered past of Tecnoglass management. For example, Jose and Christian Daes were described by U.S. prosecutors as "managers & operators" of the Cali Cartel in 1996. Jose Daes was arrested in 1999 over separate allegations concerning the Cali Cartel. Mr. Daes also survived an assassination attempt in 2004.
The company went public via SPAC in 2013 and cycled through three different auditors in its first year as a public company. Hindenburg concluded,
“We strongly suspect Tecnoglass has faked a significant portion of its revenue… All told, we have no faith in Tecnoglass financials given management’s background and the irregularities we have uncovered.”
Tecnoglass stock fell roughly 41% last week.
Spruce Point Capital Management published a 119-slide presentation on Nuvei Corp (NASDAQ: NVEI — $8.52 billion), a Canadian roll-up of payment processing solutions. Spruce Point alleged the company covered up declining volume in North American with European acquisitions, some of which saw suspiciously expanded margins. In addition, Spruce Point alleged that Nuvei was exposed to payment processing for high-risk online industries and highlighted the unreliable pasts of some executives. For example, Spruce Point determined that Nuvei’s CEO previously claimed to have a Bachelor’s Degree from Concordia University even though he dropped out. Nuvei’s stock fell roughly 30% following Spruce Point’s report.
In response, Citron Research tweeted bullishly on the company:
Monocle Accounting Research published a Seeking Alpha article on Educational Development Corporation (NASDAQ: EDUC — $74.0 million), an Oklahoma-based publisher of children’s books. Monocle Accounting Research predicted that “an absolute evaporation” in the company’s consultant-based salesforce, based on data scraped from the company’s website, would mean lower than expected sales in future quarters.
Night Market Research published on Zynex (NASDAQ: ZYXI — $391 million), a medical device company focused on electrotherapy. Night Market Research alleged that the company’s largest customer, UnitedHealthcare, is being dramatically overcharged and “artificially sustaining the weak underlying business.” Under new payment policies, UnitedHealthcare will pay roughly 80% less for Zynex devices going forward. In addition, Night Market Research highlighted that the company’s CEO, Thomas Sandgaard, recently purchased the money-losing Charlton A.F.C. soccer team, which may force Sandgaard to sell down his 43% stake in Zynex.
Recent Resignations
Notable executive departures disclosed in the past week include:
CEO of Talis Biomedical (NASDAQ: TLIS — $102 million) resigned effective immediately after only seven days on the job “due to personal matters.” The stock is down 85% since its February 2021 IPO.
CFO of NVE Corp (NASDAQ: NVEC — $330 million) resigned after only three months. The prior CFO had served for nearly sixteen years and the company is audited by Boulay PLLP.
CEO of Proterra (NASDAQ: PTRA — $2.00 billion) retired after a little less than two years. Proterra’s CFO also resigned in September 2021 and the company went public via SPAC in June 2021.
CFO of FIGS Inc (NYSE: FIGS — $4.03 billion) retired after a little over one year. The stock is down roughly 30% since its May 2021 IPO.
CEO of Everbridge (NASDAQ: EVBG — $2.43 billion) resigned after two and a half years. The company has fallen over 50% in the last month.
CFO of Smile Direct Club (NASDAQ: SDC — $1.05 billion) resigned after less than four years “in order to pursue a CEO career opportunity at a start-up healthcare entity.” The company is down over 85% since its September 2019 IPO.
Chief Transformation Officer of General Mills (NYSE: GIS — $39.2 billion) resigned after seven months.
Chief Accounting Officer of Anaplan (NYSE: PLAN — $6.70 billion) resigned after a little over one year “to pursue another opportunity.” The company’s CFO also resigned in July 2021.
Chief Operating Officer of Graphite Bio (NASDAQ: GRPH — $618 million) resigned after a little less than one and a half years. The company IPO’d in June 2021.
Data for this section is provided by InsiderScore.com
What to Read
“Hedge Funds Face Expansive Short-Selling Probe, Exciting Critics” (Bloomberg)
"U.S. Justice Department has launched an expansive criminal investigation into short selling by hedge funds and research firms, scrutinizing their symbiotic relationships and hunting for signs that they improperly coordinated trades or broke other laws."
“These Stock Options Deserve the SEC’s Scrutiny” (Bloomberg Opinion)
“Spring-loaded grants allow executives to enrich themselves at the investing public’s expense. Regulators are right to get tougher on the practice.”
“Idea Brunch with Justin Dopierala of DOMO Capital” (Sunday’s Idea Brunch)
“Our strategy is based on the belief that diversification is riskier than concentration as long as you do not equate volatility with risk – which we do not. We believe the reason that so many mutual funds cannot outperform the index they measure themselves against is because they have their assets diversified across hundreds of stocks.”
“Here’s What to Watch in China, According to an Activist Short Seller” (Barron’s)
“China wants to avoid seeming as if Chinese companies are being kicked out of America, so they are going to make it look like they are leaving. The problem is that Hong Kong doesn’t have the liquidity to absorb all of these companies.”
Tweets of the Week
Until Thursday,
The Bear Cave