NOTE TO EDITORS: The Following is an Investment Opinion Issued by Spruce Point Capital Management
Reveals That Samsara’s Aggressive Accounting Policies Defer Expenses into Future Periods and Have Resulted in Material Overstatement of Gross and EBITDA Margins by an Estimated 664bps and 1,176bps, Respectively
Expresses Concerns Over Samsara’s Opaque and Subjective Financial Reporting Given its Chief Accounting Officer’s Prior Leadership Role at VMware When the SEC Charged it With Misleading Investors by Obscuring Performance and Shifting Results Between Periods
Highlights Serious Risks to Revenue Growth, Including the Potential for Hardware Disruptions as the FCC Considers Blacklisting a Key Chinese Wireless Module Supplier
Provides Detailed Evidence That Samsara has a Vulnerable Competitive Position and Demonstrated a Poor Track Record of Winning Large Deals, as Evidenced by its Recent Failure to Win the Massive U.S. Postal Service Contract
Questions the Company’s Upside Potential Related to Artificial Intelligence (AI) Given its Historical Practices of Providing Free Upgrades for These Features
Argues That Samsara Suffers from Poor Governance, Including a Failure to Adopt a Clawback Policy for Fraud or Misstatement, Misguided Compensation Schemes, and an Audit Chair Spread Thin Among 10 Different Boards
Sees 45% to 75% Long-Term Downside Risk to Samsara’s Share Price and Urges Investors to Visit www.SprucePointCap.com and Follow @SprucePointCap on Twitter for the Latest on $IOT
Spruce Point Capital Management, LLC (“Spruce Point” or “we” or “us”), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled “The Accounting For Things” that outlines why we believe shares of Samsara Inc. (NYSE:IOT) (“Samsara” or the “Company”) face up to 45% to 75% long-term downside risk, or $6.30 – $13.90 per share. Download or view the report by visiting www.SprucePointCap.com and follow us on Twitter @SprucePointCap for additional information and exclusive updates.
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Spruce Point Report Overview
Samsara provides vehicle telematics, video safety, and asset tracking solutions that target fleet applications. The Company sells a bundled offering whereby its hardware is given away for free, and its software (which includes a license to its hardware) is billed as a subscription. Founded in 2015, Samsara underwent several strategic pivots before opportunistically capitalizing on the 2019 U.S. Department of Transportation mandate for trucking companies to implement electronic logging devices (ELDs) that track driver duty cycles. Samsara is one of the most richly valued software companies in the public markets.
The concerns we outline in our report include:
Unlike most SaaS companies, Samsara has a material hardware business that gives the Company a uniquely poor business model subject to numerous serious risks. Based on our analysis of customer quotes and agreements, we believe hardware represents approximately 25% of the value of Samsara contracts. Moreover, our review of product datasheets finds that Samsara devices generally employ very mature technologies (little more than what is found in today’s cellphones) and that suppliers of comparable products typically garner gross margins in the low thirties. Not only does Samsara hold more physical inventory than most pure SaaS companies, but the Company’s hardware giveaway and sizeable related engineering effort weigh on Company gross and operating margins, which have historically ranked among the worst relative to peers. However, Samsara management largely avoids discussing its hardware products (sometimes even suggesting that the cash flow implications should be ignored) and represents that its reliance on hardware will decline. In contrast, we highlight that, by any reasonable metric, Samsara’s reliance on hardware has only increased over the past several years and that new product initiatives are only more hardware intensive. For example, capitalized device costs as a percent of new ARR added has risen from 44% to 62% since FY2021.
We believe Samsara’s improving profitability is a mirage, as the Company’s accounting policies …
