Investor complains to agency about contractor's financial performance

The same activist equity research group that has targeted three small and mid-tier defense companies within the past 12 months has found another target in space company Maxar Technologies.

But this time around, noted short seller Spruce Point Capital Management went beyond a self-touted “forensic research opinion” that questioned Maxar’s top- and bottom-line financial outlook slightly less than a year after the company’s rebrand from “MDA” through its acquisition of imagery giant DigitalGlobe.

Spruce Point’s founder and chief executive Ben Axler sent a letter Aug. 7 to one of Maxar's biggest government customers, the National Geospatial Intelligence Agency and its director Robert Cardillo. Axler recommends Cardillo review the agency’s main commercial imagery contract with the DigitalGlobe business, worth $7.3 billion over 10 years.

The timing of the letter is curious. Maxar executives said in a July 31 quarter earnings that NGA plans to extend EnhancedView into a ninth year just as the agency is poised to transition that contract to the National Reconnaissance Office. First awarded in 2010, the contract has to be renewed each year.

An inquiry to NGA on whether it has received the letter remains unanswered but I will update this post if and when a response comes back.

All government contractors are subject to an audit of their books by their agency customers at any time, in addition to what the Defense Contract Audit Agency already does.

Federal Acquisition Regulations also detail various integrity and ethics rules contractors must work under in order to be determined a “responsible contractor,” in essence a good citizen company.

But analysts I spoke with on background cautioned that even in the worst case financial scenarios, government contractors can keep performing the work already awarded to them.

For its part, Maxar issued a seven-sentence statement Tuesday that said Spruce Point made “a number of inaccurate claims and misleading statements” in its research report, which the company called “a direct attempt by a short-seller to profit, at the expense of Maxar shareholders, by manipulating Maxar’s stock price.”

“Maxar continues to execute against its strategy, and recently reaffirmed its full-year 2018 guidance for revenue and cash flow from operations, while increasing its full-year adjusted (earnings per share) outlook,” the company said. “Maxar continues to be fully committed to transparency in all of its investor presentations and financial reports.”

Axler’s letter to Cardillo discloses Spruce Point’s short position in Maxar and that the firm stands to benefit from a stock price decline.

Spruce Point’s targeting of Maxar has worked so far as the company’s stock has traded almost 20 percent lower since the research report came out.

Spruce Point is the same company that has targeted defense contractors Kratos Defense and Security Solutions and Mercury Systems this year, as well as AeroVironment in November of last year.

Short sellers sometimes issue press releases to tout their research.