NEW YORK, March 16, 2018 /PRNewswire/ -- Report
entitled "Target Locked: Ready to Fire Management" outlines
how Kratos faces 40%-70% downside risk as a result of unsupported
hope its transition to a leader in unmanned systems (drones) will
succeed in the face of management's repeated failures.
- Checkered Management Team and Culture of Wrongdoing: Kratos CEO
and CFO are both former executives of Titan Corp, payers of a
$28.5m fine to settle civil and
criminal charges for violations of the Foreign Corrupt Practices
Act. Additionally, over the past decade Kratos employees and
business partners have settled incidents with the SEC, DOJ, FBI and
DOL.
- History of Acquiring Tainted Assets and Value Destruction:
Kratos three largest acquisitions, two of which are core to the
drone business, have histories of DOJ settlements, scandals and
accounting issues. Spruce Point estimates that management's
acquisition spree between 2008-2012 has resulted in cumulative
value destruction, net of divestitures, of $239m in sales and $69m EBITDA losses. Once forecasted to produce
16% EBITDA, Kratos margin stands at 7.2% evidence of a negative
leverage business.
- Aggressive Accounting and Potential Signs of Stress: Spruce
Point is seriously concerned about multiple potentially
questionable financial statement presentation issues, most notably
the stuffing of "corporate activity" assets, and management's
inability to forecast the business accurately. Despite significant
efforts by management to promote the drone backlog, signs of stress
are beginning to show in revenue mix deterioration, a recent asset
sale at depressed valuation, rising DSO and negative free cash
flows.
The research report can be found on our website at
www.sprucepointcap.com and updates will be posted on twitter
@sprucepointcap.
Spruce Point Capital has a short position in Kratos (KTOS) and
stands to benefit if its share price falls.
About Spruce Point Capital
Spruce Point Capital
Management, LLC, is a forensic fundamentally-oriented investment
manager that focuses on short-selling, value and special situation
investment opportunities.
Contact
Sean
Donohue
Spruce Point Capital Management
sean.donohue@sprucepointcap.com
212-519-9813
Spruce Point Capital Management, LLC is a member of the
Financial Industry Regulatory Authority, CRD number 288248.
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SOURCE Spruce Point Capital Management, LLC