Callouts & quotes from 984+ activist slides

"On May 4, 2020, we completed the divestiture of the Security & Detection Systems and MacDonald Humfrey Automation solutions business ("airport security and automation business") to Leidos, Inc. for $ 1 billion (net cash proceeds of $ 950 million after selling costs and estimated purchase price adjustments), subject to final customary purchase price adjustments as set forth in the definitive sale agreement, and recognized a pre-tax loss of $26 million during the quarter ended July 3, 2020."

"Generac's press release fails to address that it acquired the business from Caledonia Investments, a public investment vehicle listed in the UK. Caledonia acquired the business from its founders, who cashed out in October 2018. The business was sold for £162 million ($213.1 million). Generac's press release also failed to disclose it paid $420.7 million, or a 97% valuation increase, for a business that barely grew revenues and showed margin deterioration in the past few years."

"The current average sell-side price target implies 13% upside, which we believe is hardly exciting in a world where you can earn 5% sitting in cash while avoiding the risks that, 1) Xylem mis-executes (like it has in previous M&A) with integrating Evoqua, 2) That the DOJ brings parallel charges against Evoqua similar to (or worse than) what the SEC charged, and 3) Financial restatement risk as suggested by Xylem’s recent disclosure of two sets of financial statements."

"TASK's financial performance is not as robust as it appears on the surface. The company promotes its 57% top-line growth, 82% and 95% Adjusted EBITDA and Net Income growth, respectively. However, we point out that the COVID-19 adjustments are not industry standard, and should be removed. Furthermore, by adjusting LTM cash flows for one-time equity payments, we find that cash flow growth has lagged headline figures. Free cash flow growth was negative."

"The Company reclassified prior year comparative figures in the condensed consolidated statement of cash flows to conform to the current year's presentation. In addition, the Company reclassified certain prior year comparative figures from interest expense to net sales to conform to the current year's presentation. This change in presentation did not have an impact on the Company's financial condition or operating results."

"After observing problematic restructuring accounting adjustments and financial presentation methods that we believe artificially boost Adjusted EPS and Free Cash Flow (two of the three key components of management Annual Incentive Plan), we observe that Avery Amended and Restated the Annual Incentive Plan on Jan 1, 2020 to greatly expand language around the clawback provision for fraud or intentional misconduct."

"This is simply not true. This cash would only be available to pay principal on debt and pursue further acquisitions in an imaginary world where this cash had not already been spent on severance, restructuring and other exit costs as well as transaction and integration costs, which left them with only $4.3 million of real free cash flow in 2018 – enough to pay down a whopping 0.13% of the principal on GTT’s debt."

"If it becomes necessary, we are confident Phillips 66 could follow a similar path by: Making appropriate management changes; Closing the current $2-$3 per barrel refining EBITDA gap between Phillips 66 and Valero; and Generating $15 billion to $20 billion of after-tax cash proceeds from the sale of Phillips 66’s CPChem stake, European convenience stores, and a portion of its non-operated midstream stakes."

"2U was founded in 2008. In over a decade since its founding, there is no evidence it has built a business of any value. Cumulative free cash flow since reporting in 2011 amounts to a loss of $225m. Over the same time periods, insiders have stashed in their piggy banks $148m from stock sales. Who is laughing to the bank? Now ask yourself, does 2U look like a vehicle to enrich insiders or investors?"

"[T]he outsiders (who often had complicated balance sheets, active acquisition programs, and high debt levels) believed the key to long-term value creation was to optimize free cash flow, and this emphasis on cash informed all aspects of how they ran their companies – from the way they paid for acquisitions and managed their balance sheets to their accounting policies and compensation systems."

"Mr. Prittie’s alleged shortcomings were tied to his perceived failure to come to grips with Tyler and OneMove’s concerns over the Company’s financial status, share price performance, leadership, strategic vision and strategy, corporate governance, CEO compensation, excessive M&A activity, debt leverage to cash flow ratios and the lack of guardrails around senior management decision making."

"The Street believes that VRNT shares trade at a ~35% discount to SaaS peers. However, we estimate that VRNT trades just above the industry median, despite its chronically low organic growth, destructive acquisitions, and inability to generate cash flow growth despite frequent M&A – a stark contrast to the many fast-growing and highly-profitable true cloud businesses which occupy the space."

"Limbach trades at over 18x our estimate for its FY26E Adj. EBITDA, a large premium when compared to peers. We believe this premium is unwarranted considering the Company's decelerating organic revenue growth, non-existent free cash flow growth, and its aggressive accounting methods which we believe may overstate earnings quality and obscure the true underlying volatility of the business."

"Spruce Point believes it's likely that MPWR routes its cash through Singapore, which is owned by MPS International Ltd. (Bermuda). Singapore engaged in related-party transactions with Bermuda for "Services Rendered". Yet, its Singapore subsidiary Monolithic Power Systems (Singapore) PTE. LTD currently has a going concern warning, and is audited by a three person firm called Plus LLP."

"Spruce Point believes it’s likely that MPWR routes its cash through Singapore, which is owned by MPS International Ltd. (Bermuda). Singapore engaged in related-party transactions with Bermuda for “Services Rendered”. Yet, its Singapore subsidiary Monolithic Power Systems (Singapore) PTE. LTD currently has a going concern warning, and is audited by a three person firm called Plus LLP."

"Spruce Point believes that Dropbox overstates free cash flow with a simplistic presentation that is analytically flawed and ignores two material costs such as: 1) Costs required to repurchase shares related to employee compensation programs, which are operating in nature, and 2) Costs associated to pay for infrastructure, which are effectively deferred capital expenditure payments."

"We believe it will be difficult for Zillow to grow as long as its Premier Agent business is in decline. Our estimates for 2024 assume continued weakness in Premier Agent offset by strong gains in its Rentals business paired with a comparable operating expense structure to 2023. Based on these estimates, we believe Zillow could produce $200 to $260 million of free cash flow in 2024."

"Just as the Company reaches a size at which continued M&A-fueled growth would require even larger deals, management is communicating that it no longer has sufficient cash flow to consistently support M&A from FCF on top of its fairly consistent $450-550M return of cash to shareholders, and that any M&A would have to come out of buybacks / dividends (if not the balance sheet)."

"We see a major red flag that REZI has made four separate revisions to its capex nomenclature on the Consolidated Statement of Cash Flow. The revisions make it appear as if REZI is trying to obscure its technology spending which we view as enormously important given its recent disclosure of ERP challenges and the importance of technology in its product and service offerings."

"Looking carefully at AMR's reported interest income relative to its unrestricted and restricted cash balance we see a startling observation: AMR reported an effective savings rate of between 2 and 6 basis points in Q4 2021, depending on whether it earns interest income on restricted assets. This could indicate that AMR was nearly out of cash and draining capital resources."

"A hallmark of inflated profits is inflated assets. Through a Chinese attorney our investigators obtained the recent tax fillings for Mettler's 10 China subsidiaries. We find Mettler's assets in China as depicted from tax filings are materially lower than assets depicted at the consolidated level in Mettler's SEC reporting. We also could not account for some of its cash."

"There's already evidence that Porch is failing to meet its financial objectives. The Company claimed it would complete the transaction with $205m of cash and no debt. Yet, it ended up with more cash than projected, but its debt balance is still claimed to be $40m in Porch's investor presentations. This figure is actually contradicted by Porch's 2020 10-K to be $50.8m(1)"

"AMR prominently promotes how valuable its 65% ownership in Dominion Terminal Associates (DTA) is to its export business, claiming export sales are primarily shipped through it. We will show how AMR gets all the benefits of owning and using the DTA, while avoiding any impact to its key performance metrics such as "cost of coal sales", EBITDA, and operating cash flow."

"Considering that Zillow's Adj. EBITDA is virtually all stock-based compensation, Spruce Point believes free cash flow is a much better figure to value the Company. Zillow trades at a much higher multiple of free cash flow then nearly all its peers. At over 6x sales and ~37x+ FCF, we believe that Zillow is one of the most richly valued stocks among its peer group."

"The cumulative impact of these announcements helped send shares from ~$1.50 to over $7 in the span of a couple weeks, driven by what we view as misplaced AI excitement, poor retail investor understanding of the true cash impact of PCF deals, and aggressive short covering from investors positioned for Lumen's death rather than the extension of a sudden lifeline."

"Spruce Point has identified many red flags as it relates to Aerojet’s meteoric share price appreciation since 2017. Its significant EBITDAP growth without corresponding cash flow growth should be evaluated relative to recent executive and director departures, along with heavy insider selling, a civil DOJ inquiry, and disclosure of federal and state tax audits."

"Considering the fact that IQ paid RMB 2.4 billion for this supposed “game development company,” we find this to be ridiculous at face value and believe it is indicative of utter incompetence by IQ’s management at best, or a completely fraudulent transaction designed to siphon cash out of the publicly-traded company and into management’s pockets, at worst."

"BR's CEO cited many records in FY 2022, but what he doesn't point out is that cash flow declined. By adjusting the results for the onerous UBS project investment and COVID-19 effects, as well as the inorganic acquisition contribution from Itiviti, we estimate that BR's core business experienced declining Cash From Operations by approximately -17.2%."

"Spruce Point believes part of what has driven Weis' share price is the belief that its operating cash flow grew 550% YoY in Q1'18. However, by pro forma adjusting results for its aggressive accounting change to accelerate accounts receivables as cash, and a one-time incentive payment (cash flow drag) from Q1'17, we estimate the growth rate was 74%."

"The proxy statement depicts Xylem’s ability to retire Evoqua’s debt and pay transaction costs entirely with cash and equivalents from the balance sheet. However, the balance sheet below also assumes that Xylem has frictionless and unfettered access to all of its cash even though 86% of cash is in foreign markets and may not be freely convertible."

"Xylem portrayed its ability to retire Evoqua’s debt and pay transaction costs with available cash from Evoqua and existing cash on its balance sheet. Total debt was illustrated to be $2.0 billion. However, in reality Xylem’s current debt rose over $500 million and it quickly filed a shelf registration the day after its Q2 2023 earnings call."

"Spruce Point believes investors should be skeptical of the continued outperformance of PERI’s share price. PERI recently announced a CEO transition plan and then disclosed concerning revisions to accounting policies in its annual report. Insiders have been repeatedly liquidating shares and PERI reported its first cash flow decline in years."

"Free cash flow growth should be a strong driver of equity valuation and sell-side analyst price targets. What we find is that Stryker's 2022E Free Cash Flow estimates have been contracting. Yet, not a single analyst has downgraded the stock, and in fact some brazen analysts claim shrinking Free Cash Flow merits a price increase and a "Buy"."

"Carvana management likes to say that it currently has access to $1.5bn in total committed liquidity (excluding unpledged real estate assets). In reality, of this amount, only $488m as of 1Q23 is cash on hand with the balance primarily short-term revolving capacity available only for financing vehicle inventory and funding customer loans."

"Given the size of legal spend, it appears that Tessera pays full cash legal fees at extremely high hourly rates for all of its litigation instead of opting for performance driven structures, such as the use of partial contingency fees that reduce cash outlays, share risk and incentivize law firm performance as opposed to billable hours."

"By following this plan, we believe Macy's has the opportunity to create significant value for shareholders and massively improve its share price to approximately $70 per share (before value creation from further improved operations and credit card earnings), while maintaining its cash flow and real estate flexibility and reducing risk."

"The Company subsequently determined, however, to pursue multiyear upfront contracts with enterprise customers to help meet its fiscal year 2023 free cash flow goal. Upfront billings of enterprise customers in fiscal year 2023 substantially exceeded historical levels, helping the Company to meet its lowered annual free cash flow target."

"Disney should consider issuing a long-term free cash flow growth target beyond FY 2024 to anchor investors on a clearer strategic vision, improve investor outlook, and provide shareholders with a tangible commitment that the Company will allocate capital in a disciplined way to continually maximize long-term shareholder value"

"Disney should consider issuing a long-term free cash flow growth target beyond FY 2024 to anchor investors on a clearer strategic vision, improve investor outlook, and provide shareholders with a tangible commitment that the Company will allocate capital in a disciplined way to continually maximize long-term shareholder value"

"Companies that consistently invested their cash flow and resources in a share repurchase program have generated material outperformance over the past 5, 10 and 15 year periods, leading to an average of more than 4% greater annualized returns versus the S&P 500 index and 4x the amount of investor gains over the 15-year period"

"At the end of the day, we believe LODE has failed to deliver on its corporate promises, has a subpar CEO, and illiquid assets of little productive value. We believe the LiNiCo transaction won't succeed and that investors should value LODE at a multiple of its cash. Our price target is approximately $0.35 - $0.70 /share."

"TIP REIT will be required to fund land capex for the first two years after the spin-off. Thereafter, TIP REIT will be Target Corp’s land developer through its Preferred Vendor Agreement. As such, Target Corp will generate significant free cash flow and will likely deleverage to an A-/A3 ratings profile after two years"

"Fast forward to TFS’s FY 2010 results and any mention of the outstanding institutional investor’s payment is non-existent. However, the breakdown of receivables shows a massive growth in amounts outstanding from institutional investors despite management’s prior assertion that future BC sales would be on a cash basis!"

"Spruce Point does not believe the Evoqua deal was an effective roll-up strategy worthy of the commanding valuation paid by Xylem. After deploying $490m for acquisitions, cash flow struggled ever since COVID-19, and its final acquisition of Mar Cor appears to have been a bust with the return of unpaid earnout money."

"Lumen has not disclosed the exact prepayment amount for the $5bn in contracts (neither for 2024 nor in aggregate) but based on the company's change in FCF outlook guidance and the management comments regarding the upfront nature of cash paid in advance of construction, we estimate ~$1.3bn will be received in 2H24E."

"As Philip Service Corp. continued to file financial statements, we see that 1996-1997 total operating cash burn was revised up from -$175m to -$224m. Over the same time period, Capex was revised from $92.4m to $82.9m. As a result total free cash burn from these two years was revised higher from $267.5m to $307.1m."

"Samsara has a history of exorbitant cash burn. While the Company celebrated its positive CFO in its latest fiscal Q1 and Q2, we find that the result was primarily driven by exceptional changes in accounts receivable and inventories relative to previous six quarter results and ratios and are likely not sustainable."

"In other words, management's action shows that when it's our money, it needs to be held conservatively and reserved for "strategic flexibility." But when it's their money, they don't need so much rainy day cash and they'd like to see the balance sheet working harder to generate the maximum return on their equity."

"It seems to us that the lease model may quickly become a huge liability if one of the following occurs: (i) AXDX depletes its cash reserve; (ii) negative clinical data about the Pheno system are published; (iii) a new strong competitor comes in a picture; (iv) hospitals will underutilize installed Pheno systems."

"We estimate gross profit per system will continue to drop as the solar investment tax credit steps down over the next 2 years. Lower margins and a reduced benefit for tax equity investors look to pressure an industry which already has tight margins and relies on tax equity to support their negative cash flows."

"Spruce Point believes Kornit Digital (“the Company” or KRNT) saw 2018 revenues, and particularly cash flow, driven entirely by Amazon’s expansion of its Merch program, which are likely to taper based on a slow-down of program growth, and would leave a gaping hole in Kornit’s aggressive revenue growth strategy."

"It appears CTC is more inclined to sell properties than it was in the past. In 2018 and during the first half of 2019, CTC drastically increased the value of sales. This is concerning given that CTC’s debt load has grown substantially over this time. We believe this is a sign the company is strapped for cash."

"But when a third of the value of the company is cash, managing it requires the sort of attention one would normally reserve for operating the business. And in contrast to the rest of Apple’s business, where innovation is the norm, Apple’s attitude toward managing its cash has been exceedingly non-innovative."

"Current investors are paying a significant premium to the Company’s historical valuation. Spruce Point finds it difficult to justify Kratos’ valuation expansion in light of its history of disappointment, unproven drone opportunities, questionable business practices, shrinking backlog, and rising cash burn."

"BR has experienced multiple expansion over the past few years, while the evidence shows its cash flow has deteriorated, it has a shrinking ecosystem and greater customer concentration, has failed to deliver on the UBS project in a timely manner, and may be under increasing regulatory scrutiny from the SEC."

"SMCI is currently trading at the highest revenue multiple in its sector, likely a reflection of investors perception that it is growing revenues the fastest. However, unlike its peers which have historically solid free cash flow generation, SMCI has not demonstrated any long-term free cash flow ability."

"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; accompanied by the highest inventory level of any semicap equipment supplier in the world."

"Given our discussions with former employees and forensic analysis of Stryker’s historical inability to deal with its SG&A and cost bloat, along with rising supply chain and inflation challenges, we view it unlikely that its free cash flow will increase 4.4% in 2022 and that earnings will grow 25.2%."

"Notice that BR recently included warning language around impairment charges and that a significant non-cash impairment could have a material adverse effect on its operations. Based on our findings and analysis, we struggle to believe BR's explanation that the UBS partnership isn't already impaired."

"BR management has consistently touted Closed Sales as a key performance indicator (KPI), and it influences management's short-term cash compensation. But as we'll illustrate, it is fraught with holes and should not be relied upon as a firm measure of revenue that will materialize in the near-term."