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  "docSlug": "1c836eeb374c",
  "documentTitle": "Monolithic Power Systems (MPWR)",
  "authorId": "54_Spruce_Point_Capital",
  "authorName": "Ben Axler",
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  "sourceTypeLabel": "Short seller",
  "presentationDate": "2019-10-09 00:00:00",
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  "pageNumber": 33,
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  "notes": "The slide uses a specific historical case study to cast doubt on a target company's current inventory metrics.",
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      "kind": "callout",
      "text": "Near the end of each quarter, beginning on or about December 2002~ Vitesse routinely shipped large amounts of inventory to Nu Horizons. As the close of each quarter approached, Tomasetta and Hovanec directed Vitesse employees to ship product to Nu Horizons in order to close the gap between Tomasetta's internally forecasted revenue target and Vitesse's actual quarterly revenue. During weekly revenue meetings, Tomasetta and Hovanec instructed members of the sales staff to maximize the amount of inventory Vitesse shipped to Nu Horizons. Tomasetta, Hovanec, Mody, Kaplan and others then discussed in smaller, closed-door meetings, specific product shipments to Nu Horizons that would be made in order to close the revenue gap identified by Tomasetta and Hovanec. The defendants sometimes referred to these quarterly shipments as quarterly stocking packages (\"QSPs\").",
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      "kind": "callout",
      "text": "Vitesse's Days Inventory Outstanding were rising rapidly prior to the scandal unfolding. MPWR's current DIOs are even higher.",
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      "text": "Days Inventory Outstanding: 159.1",
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      "text": "The SEC's complaint alleges that during September 2001 through April 2006, Tomasetta, Hovanec, Mody, and Kaplan engaged in an elaborate channel stuffing scheme in order to improperly record revenue on product shipments. They caused Vitesse to immediately recognize revenue and record invalid accounts receivable for product shipped at period end to its largest distributor, even though the distributor had an unconditional right to return all of the product. The right of return was accomplished through undisclosed side letters and oral agreements. As a result, as alleged in the complaint, Vitesse materially inflated the revenue it reported in its financial statements in 14 quarters from September 2001 through early 2006.",
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      "kind": "paragraph",
      "text": "Vitesse Semiconductor was a brazen revenue inflation scheme involving inventory on distributors with rights of return. Vitesse executive did this to hit Wall Street targets, and cash out of lucrative options. Vitesse's accounting scheme was so egregious, it was never able to completely restate its revenues. Vitesse's Days Inventory Outstanding were rising rapidly prior to the scandal unfolding. MPWR's current DIOs are even higher.",
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      "kind": "quote",
      "text": "Near the end of each quarter, beginning on or about December 2002~ Vitesse routinely shipped large amounts of inventory to Nu Horizons. As the close of each quarter approached, Tomasetta and Hovanec directed Vitesse employees to ship product to Nu Horizons in order to close the gap between Tomasetta's internally forecasted revenue target and Vitesse's actual quarterly revenue. During weekly revenue meetings, Tomasetta and Hovanec instructed members of the sales staff to maximize the amount of inventory Vitesse shipped to Nu Horizons. Tomasetta, Hovanec, Mody, Kaplan and others then discussed in smaller, closed-door meetings, specific product shipments to Nu Horizons that would be made in order to close the revenue gap identified by Tomasetta and Hovanec. The defendants sometimes referred to these quarterly shipments as quarterly stocking packages (\"QSPs\"). — SEC complaint",
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      "text": "Source: SEC.gov and complaint",
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      "kind": "source-note",
      "text": "Source: Vitesse Semiconductor Financials",
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      "kind": "table",
      "text": "Vitesse Semi's Inventory Turnover and Days Inventory Outstanding Bloated During The Complaint Period",
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      "kind": "title",
      "text": "Case Study: Vitesse Semiconductor Accounting Scandal; DIOs Similar To MPWR's",
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