Commentary

A sell-side analyst covering Sage hosted a call with one of the principal investigators (PIs) in SAGE-547’s Phase 3 trial earlier this week.  Although we had already spoken with the PI at length about super-refractory status epilepticus (SRSE) and SAGE-547, we think some of the points raised during the call will be helpful for other investors.

1. The PI agreed with our thesis that patient outcomes are tied to etiology, not temporary inhibition:

Sell-Side Analyst: …What’s your estimate, from your experience, of pediatric mortality? How much does this…

Kerrisdale will host a conference call on Thursday, September 24, 2015 at 11:00am EDT / 17:00 CEST to discuss their report on Bavarian Nordic.

To participate in the conference call, please dial 855-780-5918 (United States), 224-633-1732 (international), or 80-88-42-84 (Denmark) and reference the access code 46857298…

On Monday, December 1st, 2014, we met with the FCC to discuss the use of the unlicensed 2.4 GHz band and how the sophisticated LTE/Wi-Fi coexistence filters prevalent in many mobile devices today would, by subjecting Globalstar’s proposed TLPS to high levels of rejection, substantially impair its usefulness. To view the full comment, please click here.

This graph illustrates the impact that the filters inside many mobile devices have on Channel 14 signals: dramatic degradation. These filters are tiny devices that transform radio signals by allowing certain frequencies through but suppressing others. The y axis measures the attenuation, or suppression, of the signal. A more negative figure in decibels corresponds to a more attenuated signal. The x axis measures the frequency of the signal. At the high-frequency edge of Channel 14, the attenuation would be approximately 25 decibels — a reduction in signal strength of more than 300 times.

Source: Avago Technologies ACFF-1024 data sheet (p. 3), Kerrisdale analysis

Note: purple lines and label added to Avago graph to highlight the level of typical insertion loss at the edges and center of a hypothetical 802.11n Channel 14 (2474-2494 MHz).

One of the key purported advantages of Globalstar’s (NYSEMKT:GSAT) Terrestrial Low Power Service (TLPS) is the existence of a large number of 2.4GHz Wi-Fi devices that, according to Globalstar, have the technical ability to transmit on its channel but are prevented from doing so via firmware. As Globalstar wrote in its initial petition to the FCC (p. 3)…

On Monday, November 10th, we submitted a third ex parte letter to the FCC addressing Globalstar’s response to our October 10th and 22nd letters. To view the full comment, please click here.

On Wednesday, October 22nd, we submitted a second ex parte letter to the FCC discussing results of our own testing and predictive surveys. The letter examines flaws to Globalstar’s tests, contrasts TLPS with real-world network at Canal Park, and shows how TLPS interferes with normal Wi-Fi. To view the full comment, please click here.

On Friday, October 17, Kerrisdale released a report highlighting the many shortcomings of the materials that Globalstar has so far released about its proposed Terrestrial Low Power Service (TLPS). On Monday, October 2oth, we conducted a public conference call briefly summarizing that report and addressing inbound questions. Shortly thereafter, Globalstar responded, but once again skirted the key issues. Like Globalstar, we too would like to reiterate the value of the spectrum assets in the hands of its equity holders: zero. TLPS is a non-solution to a non-problem, and Globalstar is a highly indebted and insolvent firm shored up by hype…

[Globalstar’s] “test” is ludicrous, non-realistic, non-professional, and would be laughed at by 100 out of 100 wireless professionals.

—seasoned wireless engineer overseeing a large-scale university network

Since we released our initial report and presentation on Globalstar (GSAT), the financial community has begun to question the value of the company’s proposed Terrestrial Low Power Service (TLPS), even assuming FCC approval and even taking at face value the materials that GSAT has previously put into the public domain. Here we shed light on two new topics…

On Friday, October 10th, we submitted an ex parte letter to the FCC discussing Globalstar’s planned TLPS. To view the full comment, please click here.

First, we acknowledge that we inadvertently misattributed a quotation in our report and presentation. The discussion of “that sinking feeling set[ting] in” when Globalstar management first read the FCC’s NPRM was L. Barbee Ponder’s, not Jay Monroe’s. We apologize for the error and will correct our materials accordingly.

Turning to the fundamentals of TLPS, we will have more to say but would initially like to contrast certain airy assertions made by Globalstar and Jarvinian with some concrete, real-world data. We noted a distinct lack of actual data in the presentation; an array of colorful diagrams papered over the absence of substance. (We are still uncertain what relationship Jarvinian has with Globalstar, so we will speak simply of Globalstar in what follows.)…

Introduction

Over the past several weeks, we have written a multi-part series about the perils of investing in specialty retailers, particularly those in undifferentiated formats. We strongly encourage readers to review our first three articles on Five Below (FIVE), each highlighting a different aspect about the risks of the specialty retail sector.

• Part 1: Five Below, Inc.: 50x P/E Too Rich For Xmas-Driven Discount Retailer highlights competitive risks in specialty retail
• Part 2: Five Below, Inc.: The Many Parallels With Other Overhyped Emerging Retailers That Have Disappointed Investors highlights how the specialty retail sector, as a whole, consistently disappoints investors due to unforeseen competition. In this article, we specifically highlight TCS and PBPB as specialty retail disappointments…

Summary

• FIVE’s valuation multiples are higher than historical multiples of other successful concepts in their growth phases. We compare FIVE’s multiples to those of several brands highlighted by a sellside analyst
• Morgan Stanley’s initiating coverage report last week is relatively bearish. Given lack of secular growth drivers and valuation above high-growth peers, MS does not believe FIVE’s current valuation is compelling
• Teen retail faces numerous headwinds, with too many specialty retailers competing for teen discretionary spending. Many teen retailers are closing stores and trying to recover from SSS declines in 2013
• FIVE will face increasing threats from e-commerce. It has mistimed its plans to build a national brick-and-mortar business as the industry experiences a paradigm shift towards consumers shopping more online…