They continue to perform well. The overhang for the stock are the re-competes in 2016 for ~50% of their revenues. If they lose one or more of those the stock would get crushed, and it is a binary event, with no way of knowing until the day of the announcement.
On the plus side, they have $1 billion in submitted bids awaiting awards and $3 billion to be bid in Q4 2015, so a total of $4 billion. No way to predict win rates, dollar amounts, etc, so hard to model what 2016/17/18 will look like.
So the stock remains very cheap by all metrics (still shows up every day, for example, on the Magic Formula list of 30 cheapest stocks), but until they show they can continue to win new business the stock will continue to suffer from the uncertainty around recompetes and new business.
Board of Directors of Support.com, Inc.(SPRT)
900 Chesapeake Drive, Second Floor
Redwood City, California 94063
Shawn FarshchiMark Fries
J. Martin O'Malley
To the Board of Directors:
As you know, we own 8,070,495 shares of Support.com(SPRT) ("Support" or the "Company") representing approximately 14.8% of the outstanding shares. As the Company's largest shareholder group, we have publicly and privately expressed our complete dissatisfaction with the Company's performance and business plan. Rather than recognize the flawed "business" strategy, the Board and management have doubled down by announcing additional investments into a strategy which to date has resulted in significant destruction of shareholder value.
Further, instead of engaging with us you have wasted precious corporate resources to engage the law firm Morgan Lewis specifically for corporate defense and to help you entrench yourselves. For example, you responded today to our proposal to amicably improve the Board by writing in your letter that there is no "basis for us to discuss a resolution." We cannot reconcile this blunt response with your duty to incorporate the input of your shareholders, especially your largest shareholder.
The Chairman of the Board seems too distracted by the film industry to return shareholder calls in a timely fashion. His experience as a software executive and film producer leave him ill-suited to handle Support's current situation and vulnerable to offers from defense law firms like Morgan Lewis who like the Chairman and the rest of the Board and management have no skin in the game and will benefit regardless of the outcome to shareholders.
The Company's CEO and COO appear to have no grasp of Support's "business" or how the "business" is performing. In yesterday's earnings call, management stated that they "are pleased with the progress made this quarter" and that the Company is on a path to $1m
The external management structure is one that can lead to serious conflicts of interest. While we have no issue with management at any company succeeding alongside of shareholders, we believe the structure currently in place between New Senior and Fortress leaves the interests of shareholders and management significantly misaligned.
On May 7th, 2015, on Fortress’ second quarter conference call, you said the following regarding the Fortress Permanent Capital Vehicle (“PCV”) business that includes New Senior, “The goal for that business from my standpoint is going to be $12 billion to $15 billion in capital by the end of the year. It's $6 billion right now.” Since you made this statement, the companies externally managed by Fortress that were spun out of Newcastle have dramatically underperformed with New Senior down -37.0%, New Residential down -21.1% and New Media down -30.6%, as compared with the S&P 500 decline of –9.0% and the MSCI US REIT Index decline of -3.6%, as reported on Bloomberg that includes dividends paid. As the Chairman of each of these companies, you have a fiduciary duty to their public shareholders, and that duty conflicts with your role at Fortress and specifically with Fortress’ desire to raise capital in these vehicles to increase its fee streams. Setting targets for capital raising may or may not be helpful in getting Fortress’ stock price up, but it sends a terrible message to the shareholders of companies that are externally managed by Fortress.
As we know, this issue of equity capital raise played out in New Senior before the end of the second quarter and is the main reason, in our view, for the precipitous stock decline versus benchmarks. On June 22nd, New Senior announced an equity offering underwritten by Bank of America Merrill Lynch, Citigroup, and Morgan Stanley to raise capital to purchase properties in a related party transaction from a privately-held Fortress affiliate, Holiday Retirement (“Holiday”). The announcement came with New Senior trading at $15.25 per share; already well below our estimated Net Asset Value (“NAV”), and was then executed approximately 10% lower at $13.75 per share. We believe the equity offering was mistimed and inopportune and doing an equity offering well below NAV was extremely troubling. We believe this has created the perception that Fortress has little regard for public shareholders. New Senior stock closed at $9.95 on September 29, 2015, the stock price has now dropped an additional -27.6% from the $13.75 offering and -34.8% below the $15.25 it was trading at before the offering was announced.
With New Senior’s stock trading dramatically below NAV, we call upon Fortress to take meaningful action to demonstrate a more appropriate balance between the external manager and the public shareholders in order to help bridge the substantial value discrepancy. We understand that New Senior has been a stand-alone public entity for less than a year, but Fortress has not earned the benefit of the doubt that they care about shareholder value in this and its other permanent capital vehicles. It is our view that the current structure does not align Fortress’ interest closely enough to New Senior shareholders. Until demonstrable actions are taken, potentially across the entire Fortress permanent capital universe, we believe these discounts to NAV will persist. If Fortress wants to be in the long-term business of taking private equity fee streams in public equity vehicles, we firmly believe that it must behave in a way that demonstrates appreciation that shareholder value is essential. By rebuilding trust with the public markets, we believe Fortress will benefit greatly and be able to continue to grow its permanent capital businesses and succeed alongside of shareholders.
Levin Capital Strategies looks forward to working constructively with you and the New Senior Board of Directors, as well as Susan Givens (who we hold in high regard) and her management team, to further explore these issues. We would like to address the external management structure and ways to further align Fortress’ compensation to stock price performance, a path toward internalization of management, Board composition and independence, and stock buyback and potential liquidation if the gap between the market price and NAV persists. We stand ready to meet with you at your earliest convenience.