Citron Updates Arthrocare
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William Shakespeare
Last week Arthrocare announced its quarterly results. They led with a PR touting surprisingly high year over year growth numbers. Notably, the announcement was in the form of an 8-K – only including the numbers the company wanted investors to see. All the financial details provided by a 10-Q, such as divisional breakout of revenues, cash flow, receivables aging, etc. are still AWOL
Even within the bounds of the company’s carefully orchestrated quarterly release, there was one item that stood out like a sore thumb. Beyond the sequential decrease in revenue on the recently touted spine business (down 500k), was the cold fact that the rate of growth in receivables outstripped that of revenues by almost 300%. This should have been the first red flag to investors that something was not kosher in the world of Arthrocare.
Channel Stuffing?
While management is spending their time avoiding depositions and dodging subpoenas, it appears to Citron that there are ominous signs that someone at Arthrocare has been busy stuffing a channel.
In the recent earnings release, investors took notice of the claimed 25% growth in sports medicine sales, but they failed to notice that sequentially it only increased 4%. The actual big jump in sports medicine took place in Q4 of 07, when sports medicine went up 100% on an annual basis. This is a highly competitive sector with many competitors, none of which are able to show more than single digit growth.
On May 1, 2008 Arthrocare announced the acquisition of Ortoconcept of Scandinavia. How does one say Discocare in Danish? While we are still waiting for the financials of Discocare, which were promised to investors but never delivered, Citron Research is proud to present the financials of Ortoconcept.
Does this sound like a company who has had its channel stuffed? Let us keep one thing in mind, as it appears in the company’s website, they distribute only products for Arthrocare Sports Medicine.
http://www.ortoconcept.com/uk_sportsmedicin.htm
All of these numbers were obtained by Dun and Bradstreet Denmark. This is the company’s disclosure to D&B. The following numbers represent the change in 2006-2007 (We are left to imagine what 2008 looks like)
- Sales grew slightly more than 2% while inventories ballooned over 340%.
- Accounts Receivable were up by 5% but Accounts Payable grew over 120%
- Total Liabilities grew over 110%
- Inventory was over 3 years of sales for an industry whose product cycles are 6-9 months.
Citron first lifted the veil on Discocare, which is now the subject of an intensifying civil litigation onslaught. Then DRS seemed to creep out of the corners of Sanford, Florida. No we introduce Ortoconcept…..we are certain to see more cockroaches in this house.
As if it wasn’t bad enough
On May 1, 2008 Arthrocare’s huge competitor Smith & Nephew saw its stock drop 12% on lowered earnings based upon “unacceptable business practices of an acquired company in Switzerland”.
Considering Arthrocare has the nefarious DRS and Discocare divisions that are diverting money to doctors on a quarterly basis, it seems unlikely that any other medical device maker would want to put their head in the mouth of this lion.
In David Einhorn’s new book Fooling Some of the People All of the Time, he writes, “Warren Buffett once told me about the difficulty of shorting the stocks of companies run by crooks, because they’ll fight dirty to save themselves. The crook’s life depends on it… ” Buffet said. While I am not calling Mr. Baker an outright crook, his consistent dishonesty to Wall St. cannot be ignored
In upcoming reports, Citron will explain the “rebate” “carve-out” kick back schemes that Arthrocare is employing in their sports medicine division. So complete is Arthrocare’s deception that even knowledgeable investment analysts and investors are finding it difficult to ascertain the true operating condition of this company.
Arthrocare (NASDAQ:ARTC) is Living in Denial
| stock ticker: ARTC | ||
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CHARLES TREMPER
As Arthrocare (NASDAQ:ARTC) prepares for its earnings report and conference call on Monday, investors should be preparing as well: preparing to hold management accountable to stop denying the important issues that threaten the company, as reflected in current legal proceedings that seek to unmask their business model. With an upside down balance sheet in an industry that has become a hotbed for regulation from the Department of Justice, it appears to Citron that the problems at Arthrocare have just begun.
Citron Exposes the 3-Way Scheme Behind Emcore
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“And we would have gotten away with it, if it wasn’t for you meddling kids!”
Famous Scooby Doo line
Citron has observed with keen interest developments at Emcore since our first report March 18th and follow-up March 25th. There are a few significant events, all of which point to a ménage trios of convenience between Emcore, Green and Gold Energy and the head cheerleader analyst at Jefferies & Co.
Citron Examines Valence Technology (NASDAQ:VLNC)
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“Trust, but verify.” – Ronald Reagan
Here is a short and sweet story that has been infesting Wall Street for over 15 years. Valence Technology (NASDAQ:VLNC) is one of those “developmentally challenged” companies that never seems to get out of development stage. For 15 years, they’ve claimed to have a lithium battery that is promised to have uses from computers to aircraft to scooters to automobiles. Certainly, there has been a battery of press releases over the past 4 years …. But no meaningful business ever comes to fruition. With the recent recharge in the stock, Citron thought we would offer investors our perspective.
Basin Water - Down the Drain with Self-Dealing, Insider Dumping, Corporate Defection, and Mysterious Customers
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Citron Research Updates Emcore (NASDAQ:EMKR)
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“Business … that’s easily defined: It’s other people’s money” – Part II
– Peter Drucker
With its management and its analysts’ actions displaying an increasing disconnect from reality, Emcore (NASDAQ:EMKR) is becoming reminiscent of Home Solutions of America (HSOA.pk). Emcore has cornered itself in a situation that can only be solved by profitability. So instead of churning out yet another Press Release to respond to a report or holding a conference call, we suggest Emcore try a novel approach to answer its skeptics: turn a profit!
Citron Research shines some daylight on Emcore’s solar business.
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“Business … that’s easily defined: It’s other people’s money”
– Peter Drucker
It is difficult to write any financial story this week without referring to the complete debacle at Bear Stearns. While there are many lessons here, the pre-eminent one is the corruption of judgment induced by OPM (Other People’s Money). With the huge fees and cash bonuses generated by indiscriminate Wall Street dealmaking, the most fundamental principle has gone out the window: “When you make a loan, lend it out as if you were risking your own money, and when you recommend a stock to the public, act as if your mother was asking for investment advice.”