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.
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.
Spruce Point Capital Management
Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.
SOURCE Spruce Point Capital Management, LLC