Callouts & quotes from 572+ activist slides

"Why should PetIQ shares trade at more than double pharmaceutical distributor multiples when near-term sales growth is more likely to be 9-11% than 15-20%, and when the Company's outsized margins appear to depend entirely on at-risk vendor rebates?"

"There are many data points to cast doubt on the accuracy of Axon's margins beyond it having recently reported a material weakness tied to revenue recognition and cost of sales, fail to promptly address SEC comment letters, and have its CFO resign."

"We believe that DOX has engineered superficial top and bottom-line growth alongside unusually stable margins through opaque M&A, aggressive percentage-of-completion accounting, software cost capitalization, and repeated one-off net tax benefits."

"In contrast to management's claims that plant-based foods will be a success with healthy margins for Saputo, based on our interview of a former Saputo executive familiar with its cheese business, the plant-based sales team is struggling to sell."

"Manufacturers of clean energy solutions don't necessarily carry higher valuation multiples. Excluding Enphase, which has margins that Generac will likely never achieve, peers are trading around 2.7x and 2.0x 2022E and 2023E sales, respectively."

"Spruce Point views MSCI change of practices from providing margin targets to focusing on Adj. EPS as a major red flag. We later illustrate why we believe MSCI's margins are highly susceptible to potential manipulation through cost allocations."

"BR promoted Itiviti as a 30%+ operating margin business when announcing the acquisition in late March 2021. However, when its audited and pro forma financials were later filed with the SEC, we see that its operating margins were closer to 20%."

"Abbott management is aware that, given current G-Series prices and its own production cost advantages, offering the Libre at a lower price point allows it to take overwhelming incremental market share while still earning attractive margins."

"Ambry Genetics was acquired at a notable discount relative to other advanced genetic and molecular diagnostic testing companies, despite the entire peer group, including Ambry, showing double-digit sales growth and EBITDA margins above 10%."

"We believe GE can reach 18% operating margins through (i) a recovery in equipment profit margins to historical levels, (ii) stable improvement in the services portfolio over the next few years and (iii) a modest reduction in corporate costs"

"Kratos is trading at peak valuation on the inflated belief that “this time is different” and that its aspirations in the heavily promoted unmanned systems (aka: Drones) will drive nearly $800m of revenues and near record 10% EBITDA margins."

"Spruce Point observes unusual and unexplained changes to REZI's property disclosures between 2023 and 2024. Our suspicion is that REZI used its discretion to allocate greater overhead costs to the P&S segment to flatter ADI segment margins."

"Avery Dennison faces significant long and short-term headwinds across its offerings' end-markets. We believe these headwinds will continue to intensify as competition increases, resulting in declining sales and further pressure on margins."

"Rollins has been increasing its discussion of auto accidents and insurance as a headwind to margins, and recently modified its Critical Audit Matter discussion on the topic. We believe this will continue to weigh on margins going forward."

"This stark and recent case study brings up several questions: How can a $2bn revenue segment of ADP have margins which are >80% below optimal levels? What does this say about ADP's corporate operating efficiency, culture, and governance?"

"Spruce Point believes that frequent segment shuffling is a classic red flag and we find that Zebra has made multiple shuffles. When we evaluate the revisions, we see that it has twice moved product lines that exhibited declining margins."

"In 2019 Vireo has come short of its dispensary rollout plan and gross margins have been significantly below expectations (16% in Q3/2019 vs 35% consensus and down 19% sequentially) Buildout in a number of locations have been put on hold."

"Although Tessera’s IP segment is currently profitable, its financial performance has deteriorated substantially over the past few years and its profit margins are far below the margins of other intellectual property licensing companies."

"We compare Rollins’ valuation with a broad set of residential and commercial service companies. We expect Rollins’ margins to contract and its top-line growth to normalize. As a result, we believe its excessive multiple should contract."

"If management becomes more bearish about a recovery, it can reduce capacity further and shrink the cost base. We believe that if the business were right-sized to the current sales base of ~$3.3bn, EBIT margins could be approximately 10%"

"Spruce Point believes LSPD purposefully avoids talking about quantifying payments margins. Even when asked directly by analysts, management gives long-winded answers and indirect responses suggesting things are fine and will improve."

"Spruce Point observes that Stryker has recorded in its income statement $419 million of inventory sold that was stepped-up to fair value since 2017. Stryker passes this through as a "non-cash" cost add-back to improve gross margins."

"We believe companies should generate significant operating leverage on revenue growth, evidenced by incremental margins that are substantially higher than consolidated margins – especially software companies with high gross margins"

"We believe companies should generate significant operating leverage on revenue growth, evidenced by incremental margins that are substantially higher than consolidated margins – especially software companies with high gross margins"

"Gross margins materially compressed from the 40% - 50% range to 23% in 2019. The compression was from cost of good sold rising much faster than revenues. This could suggest L3Harris pushed high priced product to its distributor."

"The loss of the PPB will undoubtedly hit margins. While the sell-side optimistically projects a gross margin rebound and a reversal in R&D and SG&A as a percentage of revenue, the changes to tax policy make this scenario absurd."

"We observe significant red flags in Mettler's SEC reported Chinese Operations segment. Our biggest concerns: two unexplained restatements boosting segment margins, and total asset growth since 2015 of 144% vs. 30% sales growth."

"Further, we are concerned that Mellanox has set the bar far too low. For example, even if the 2018 targets are achieved, Mellanox would still be expected to come in dead last among the peer group in terms of operating margins."

"Spruce Point believes BR is retroactively reducing segment margins, notably in its Global Technology and Operations segment by approximately 80 - 90 basis points, with a reclassification involving foreign exchange allocation."

"We find Procept’s historical pattern of inventory reclassifications and COGS definition changes, accompanied by extra mid-year auditor work, troubling. As a result, we lack confidence in the Company’s reported gross margins."

"In contrast to the significant opportunity touted by the Company, we learned that the margins in this region are typically dilutive because a majority of the market is low-cost driven and not seeking premium priced products."

"Margins are already “industry leading” and yet Rollins is now talking about SG&A initiatives. With such strong cash flow, why is Rollins only now making these investments with the Rollins family and management selling stock?"

"Margins are already "industry leading" and yet Rollins is now talking about SG&A initiatives. With such strong cash flow, why is Rollins only now making these investments with the Rollins family and management selling stock?"

"In the context of wildly increasing margins being reported by Smart2Pay following the close, we investigated its revenue post closing. Our analysis suggests that Smart2Pay’s revenues declined by approximately 6% in Q1 2021."

"Even if we look at Segment EBITDA margins which adds back disclosed depreciation and amortization costs, we find that segment margins have fallen from 2020 and did not improve much with the contribution of Itiviti in 2022."

"Spruce Point has difficulty believing Generac's reasons for why Domestic EBITDA margins keep falling. First off, it keeps citing commodity input costs, yet this same factor is never mentioned in the International segment."

"They are maintaining their margins. So being off 10% when you plan to be off 10% and you keep your margin is a significantly different situation than being off 15% when it wasn't your plan and your margins were decimated."

"We cannot find any record of Saputo providing EBITDA figures for Argentina. However, we can now estimate Argentina's margins with the insights from Saputo's obscured Australian financial filings through a numbered entity."

"TWC's programming costs continue to rise, especially for sports programming. TWC has been relatively successful at passing these costs onto consumers, however, margins are predicted to compress as costs rise even further."

"Upon closer inspection, we see that Stryker’s foreign earnings before income taxes (“EBT”) has been falling as a percentage of total EBT, and its foreign margins are falling, yet it is claiming greater U.S. tax benefits."

"As PBH has grown through larger acquisitions, the Company has been paying higher multiples for businesses with lower margins. PBH currently trades at a premium to the average EBITDA multiple of its acquisition targets."

"Over a longer term period, with a best-in-class management team and perfect information, we believe the opportunity exists to reach peer average margins of 48% and potentially further close the margin gap with Amgen."

"Recent buyers bucket Avery as a "value" investment, despite the fact we illustrate it trades at the richest multiple in its sector (with below average margins and sales growth) and at a premium to broker fair value."

"Compared to its DTC peers, FIGS allocates nearly all fulfillment and distribution expenses to the operating expense line items, instead of COGS. This results in FIGS gross margins being overstated relative to peers."

"Wall Street analysts are projecting 2023 revenue growth of $283 million and improving margins. We believe these expectations are overly optimistic based on the breadth of revenue and profit headwinds we see in 2023."

"Henan Ruili cannot be dismissed as a single anomalous operation. We strongly suspect there are other controlled suppliers that, combined with the controlled distributors, materially improve ANTA's reported margins."

"Genius currently trades at a premium to peers on a sales and EBITDA multiple basis while generating significantly lower margins than peers and below average projected revenue growth to online gaming and B2B peers."

"To grow margin, we have to incorporate innovation, which is a really difficult hill to climb. We can do it in pieces and parts, but there are not a lot of super large opportunities to expand margins in that space."

"PEN trades in line with more advanced and R&D-intensive medical device companies despite its weak IP, relatively low gross margins (even by the standard of 510(k) companies) and increasingly competitive landscape."

"While auditor rotations can be viewed positively, we believe three auditors in six years is excessive in light of the accounting anomalies we have identified related to sales, gross margins, inventories and capex."

"Based on our view of appropriate revenue growth and operating profit margins, we believe that P&G should be earning closer to $6/share by FY June 2016 – a level more indicative of the company’s true earnings power"

"Axon's core Taser product is at best not growing, while margins have been slowly contracting. Meanwhile, its faster growing Software and Sensor segment is experiencing slower growth, along with margin contraction."

"Revenues are basically flat over the last 4 quarters – a striking fact for a “growth” stock; losses have doubled and are accelerating; gross and operating margins have tanked, falling sequentially in each period."

"Note that the trained and certified dealer network slowed in Q1 2022 to 4%. One of our concerns is that Generac does not break-out clean energy revenues or margins in SEC filings as a separate reporting segment."

"After appropriately valuing its high quality franchise and real estate cash flows, even “unfixed” Wendy’s is worth $35 today. If the Company improves its company-operated store margins, the business is worth $42"

"In total, our detailed presentation outlines how we believe Office Depot, as a stand-alone company, can improve its current operating margins from 0.9% to 7.3%, representing an improvement of over $650 million."

"Even before the recession, Target’s retail margins have been deteriorating while Wal-Mart’s margins have remained higher and constant, despite Wal-Mart selling a greater mix of food and other lower margin goods"

"Even before the recession, Target’s retail margins have been deteriorating while Wal-Mart’s margins have remained higher and constant, despite Wal-Mart selling a greater mix of food and other lower margin goods"

"We believe that ANTA posts industry-leading operating margins not because it's so well operated; but, rather because ANTA uses numerous secretly controlled Tier 1 distributors to fraudulently boost its margins."

"Lasertec is an extreme, textbook accounting fraud that checks off every box: claiming to have the highest margins in the industry; but alarmingly little cash flow and the lowest cash conversion among its peers."