We track these earnings using our Earnings Tracker template, which pulls in financial disclosures as companies file their latest earnings releases with the Securities and Exchange Commission. The Earnings Tracker provides an up-to-the minute snapshot of financial performance compared to the year-earlier period.

In this Week 2 of second-quarter earnings season, we have 788 firms reporting. The headline numbers are below. First is Figure 1, reporting revenue… 

As you can see, several different tales are being told at once here. Large companies (those in the S&P 500) are doing well, with revenue up 2.72 percent if you include financial firms and still up 1.85 percent when you don’t. 

Smaller companies outside the S&P 500, however, saw total revenue decline from the year-earlier period by more than 1 percent. 

Can’t say we love that divergence, but what about net income? That story is even more kooky, as shown in Figure 2 (which we converted into bar graphs just to show off). 

Here, smaller firms outside the S&P 500 saw net income decline by 0.33 percent. Except, when you exclude smaller financial firms, all other small filers saw net income pop by 13.3 percent — an increase pretty much equal to what all non-financial firms saw (up 13.7 percent) and all non-financial large firms (up 13.8 percent). 

Large financial firms, however, saw net income rise 8.4 percent. That’s not the 13.5-ish increase for non-financial firms, but it ain’t chump change either. Which implies that smaller financial firms must still be taking it on the chin. Then again, we’re still relatively early in earnings season, so the picture may change yet again in another few weeks. 

We will continue to update our earnings tracker at the end of every week for the next few weeks, as quarterly reports flood into the database. 

If Calcbench subscribers wish to get their hands on the template we use for this analysis, so you can conduct your own experiments at home, use this link to the file. 

Please note that it will only work with an active Calcbench subscription. If you need an active subscription (and who doesn’t, really, when swift access to real-time data is so important?), contact us at info@calcbench.com.

For example, did you know that average maximum train length is a thing? It is! And according to Union Pacific’s second-quarter earnings release, its maximum average train length increased by 2 percent from the year-ago period, to an all-time high of 9,544 feet. That’s 1.8 miles long, and we’re pretty sure we got stuck waiting for one of those trains at a rail crossing in upstate New York last month.

Anyway, using the nifty Calcbench export-to-Excel capabilities we talk about so much, we even charted out maximum average train length for the last four years. See Figure 1, below.

We’re not rail industry analysts so we don’t quite know what to do with this disclosure, other than to marvel at its inherent coolness. 

Nor is maximum average rain length the only interesting disclosure Union Pacific makes. Its earnings release is full of oddball disclosures, such as:

• Quarterly freight car velocity of 201 daily miles per car was flat.

• Quarterly locomotive productivity was 134 gross ton-miles (GTMs) per horsepower day, a 6% improvement.

• Quarterly workforce productivity improved 5 percent to 1,031 car miles per employee.

• Fuel consumption rate of 1.08, measured in gallons of fuel per thousand GTMs, improved 1 percent.

For all the above disclosures, you can quickly export them to Excel and compare them to prior periods’ disclosures, to generate charts such as ours above. That is, you can use Calcbench to model nuanced metrics of corporate performance quickly and easily, in visual formats easy to drop into a research note or client presentation.

We only chose Union Pacific because it happened to file this week, and because we went through a diehard Thomas the Tank Engine phase in kindergarten. You could just as easily find key performance metrics from other companies in other industries too, such as airlines, banking, retail, and more. 

Indeed, if you know an industry with particularly interesting performance metrics, drop us a line at info@calcbench.com and let us know! We’re always happy to dig into new types of data and come up with other cool industry reports. 

#KPI #earnings #railroads #finance #economoics

We track these earnings using our Earnings Tracker template, which pulls in financial disclosures as companies file their latest earnings releases with the Securities and Exchange Commission. The Earnings Tracker provides an up-to-the minute snapshot of financial performance compared to the year-earlier period.

Today is our first look at second-quarter numbers. As of 2:30 pm ET this afternoon, we had data for roughly 110 non-financial companies. The headline numbers are in Figure 1, below.

As you can see, revenue is up 1.56 percent compared to second-quarter 2023, and net income is up a whopping 17 percent. Then again, we have so few companies in our sample size so far, it’s unwise to draw any broad conclusions from this data; come back in a few weeks, when we have hundreds of firms’ reports. 

We also track cost of revenue to get a read on where inflation is going these days, and so far cost of revenue is down 1.8 percent. (We’ll be sure to forward our data to Federal Reserve economists so they can hyperventilate about inflation signals properly.) Capex is up 4.6 percent, inventories down 4.7 percent.

Figure 2, below, shows essentially the same data from above in chart format.

We will continue to update our earnings tracker at the end of every week for the next few weeks, as quarterly reports flood into the database. 

If Calcbench subscribers wish to get their hands on the template we use for this analysis, so you can conduct your own experiments at home, use this link to the file. 

Please note that it will only work with an active Calcbench subscription. If you need an active subscription (and who doesn’t, really, when swift access to real-time data is so important?), contact us at info@calcbench.com.

OK, that’s not really a thing, but given the extent of UnitedHealthcare’s breach earlier this year, it could be. UnitedHealth suffered a devastating ransomware attack in February, when hackers shut down its Change Healthcare subsidiary (acquired in 2022). Since Change Healthcare processes billing and insurance claims for a large swath of the healthcare industry, the attack left pharmacies and hospitals across the United States unable to fill prescriptions, book procedures, and otherwise operate as normal. 

Anyway, back to today’s s earnings release for second-quarter 2024. UnitedHealth reported a total of $98.8 billion in revenue (up 6.4 percent from the year-ago period) and $4.42 billion in net income (down 21.8 percent).

The good stuff, however, was in the non-GAAP disclosures about the cyber attack. UnitedHealth broke the numbers down into “direct response costs” (that is, money the company paid out to help defray costs of the breach) and “business disruption impacts” (reduced revenue from the attack). Take a look at Figure 1, below, from the earnings release.

As you can see, total cyber attack impacts (that is, higher costs and missed revenue) were $1.1 billion for this quarter alone. That’s up from $872 million in the first quarter, which also means total impacts were $1.98 billion for the first half of the year. 

But wait, there’s more! Further down the release, UnitedHealth also estimates the attack’s total hit to EPS, for both this period and the full 2024 calendar year. See Figure 2, below. (Look for the bottom line shaded in blue.)

You may need to squint, but total hit to EPS for this quarter was $0.92 and estimated total hit for the year is $1.90 to $2.05.

Of course, also remember that you don’t need to squint at images and tables, even in our easy-to-use Disclosures & Footnote Query tool. If you simply leave your cursor over the table you’re studying (Figure 2 appears on Page 8 of UnitedHealth’s supplemental financial data), an icon automatically appears that lets you download the entire table as a neatly formatted Excel spreadsheet. You can then conduct your own analysis with the data as you see fit.

We do still have questions about the UnitedHealth breach itself. For example, the company said it extended $8.1 billion in interest-free loans to various parties disrupted by the breach. Well, who were those parties? What will they disclose in their earnings releases over the next few weeks? We’re not sure yet, but we have a reminder to ourselves to check.

UnitedHealth is also likely to face significant regulatory pressures from the Securities and Exchange Commission (our brother-in-arms Radical Compliance has a long post about potential SEC enforcement against UnitedHealth if that’s your bag), the Federal Trade Commission, federal healthcare regulators, and lord knows who else. 

It’s a big mess. The devil is in the details. Calcbench has those details indexed and ready for you.

That’s on our mind today because the SEC recently published a comment letter exchange the agency had with Lyft ($LYFT) about how the ride-sharing business discusses cash used in operating activities. 

The letters themselves don’t say anything too controversial. Basically, SEC staff told Lyft that they wanted to see more detail about material changes in cash from operating activities, and about how the company plans to meet its cash requirements. Lyft then responded with examples of expanded disclosure on those two points, which the company promised to include in future filings. 

Our point is simply that if you, another company, aren’t certain about exactly what you should include in footnote disclosures — which can often be a lengthy mix of obscure data and narrative discussion — SEC comment letters offer a glimpse into the SEC’s thinking. You can see what’s on the agency’s mind, and how other companies tried to answer those expectations; and then craft a more useful disclosure that, ideally, will avoid any exchange of SEC comment letters at all.

For example, the SEC comment letters asked specifically about Lyft’s 10-K filing for the period ending Dec. 31, 2023. Lyft responded by saying that it had updated and expanded its disclosure of cash related to operations for its Q1 2024 filing, and then included a sample with the new material underlined:

“Cash provided by operating activities was $156.2 million for the three months ended March 31, 2024, which consisted of a net loss of $31.5 million primarily offset by changes in working capital of $97.4 million. The year over year decrease in net loss from $187.6 million to $31.5 million was a result of increase in our revenues and the actions we have taken to reduce our operating expenses. Net loss was also offset by non-cash adjustments for stock-based compensation expense of $80.1 million, which decreased year over year due to a reduction in headcount driven by the restructuring activities initiated in prior years, and depreciation and amortization expense of $32.4 million. The changes in working capital were primarily driven by insurance, which saw (i) an increase in our insurance reserves due to a rise in commercial auto insurance rates on a per mile basis compared to the prior year and an increase in ride volume in the first quarter of 2024 compared to previous quarters and (ii) an increase in accounts payable which was primarily due to the timing of insurance claim payments.”

Apparently responses like that worked, because in a follow-up letter dated June 6 the SEC said it had completed its review of Lyft’s filing.

As we’ve noted before on this blog, SEC comment letters can be somewhat difficult to find and analyze. The SEC does release all comment letters eventually, but they are released on a time delay that can range from several weeks to months. Then you need to hunt-and-peck through the letters to figure out the right chain of conversation.

Calcbench simplifies that for our users by indexing all comment letters. We maintain a dedicated page for recent comment letters, and when you find a company that piques your interest, we display the entire comment letter chain by date so you can understand who wrote what to whom, on what date, and what the reply was.

You can also research whether a company has received any comment letters in the past (most have, even if the letter only says the SEC has reviewed its filing and has nothing else to say) by going to the Disclosure & Footnotes Query page and then selecting “SEC Comment Letters” from the pull-down menu of disclosure choices on the left side of your screen.

Why bother with this at all? Because you can find a lot of stuff in comment letters, including some pretty obscure disclosure issues by industry or accounting topic. Chances are that if you’re struggling with a disclosure issue, somebody else has already struggled through that same issue too — and with a little bit of digging in Calcbench, you can find out how they resolved it. 

We fired up our Disclosures & Footnotes tool, and randomly decided to look at KB Home’s debt disclosure. Hoo boy, that perked us right up!

Figure 1, below, shows what we found. KB has four notes payable, each for several hundred million dollars, coming due within the next several years. Moreover, those notes have interest rates anywhere from a rather reasonable 4 percent to 7.25 percent, almost high enough to cause a nosebleed. 

That alone made us wonder about KB Home’s ability to pay off those debts. Then we kept reading through the footnote, and came to this line at the bottom:

As of May 31, 2024, principal payments on our notes payable are due during each year ending November 30 as follows: 2024 – $4.3 million; 2025 – $1.0 million; 2026 – $360.6 million; 2027 – $300.8 million; 2028 – $.8 million and thereafter – $1.04 billion.

Yikes, that’s a lotta debt coming due in two years’ time. Perhaps that will work in KB’s favor; maybe the Fed will be in a rate-cutting cycle by then, and the company can refinance the debt at rates lower than what we see today. On the other hand, if that calculation turns out wrong and rates aren’t substantially lower, KB could be in for either (a) continued high debt loads and interest payments, if it refinances at high rates anyway; or (b) some painful financial reckoning as the company pays down its debt. 

Well, what about paying off that debt — is KB throwing off enough cash to do that? To ponder that question, we flipped over to our Company-in-Detail database to look at KB’s balance sheet and statement of cash flows for the last few years. 

The short answer is that we’re not financial analysts, so we aren’t making any predictions. But we can show you some of KB’s relevant disclosures, to let you draw your own conclusions.

For example, Figure 2, below, shows KB Homes’ balance sheet for the last few years. Cash has zig-zagged up and down over the last four years, most recently landing at $727.1 million for the fiscal year that ended last November. At the same time, notes payable has fluctuated in a much narrower range, landing at $1.69 billion in the last fiscal year. 

Next we have the statement of cash flows. That shows a surge in cash from operating activities in the most recent fiscal year to $1.08 billion, although that surge largely comes from a huge positive swing in inventories plus other assorted accounting moves, such as an increase in deferred taxes. See Figure 3,  below.

On the other hand (and not shown here), KB Homes saw a decline in cash generated from investing and financing activities; although it did end 2023 with an increase in cash of $397.1 million.

All this is to say that good financial analysis requires careful examination of both the primary financial statements and the footnote disclosures; you can’t understand the whole story — including, critically, where the business is likely to go in the future — by looking at only one set of disclosures. You need both.

Which, coincidentally, Calcbench has.

When looking at a company’s financial summary, look for the series of Excel export choices that Calcbench also provides. Usually you’ll see that as a list of Excel icons above the financial data, although sometimes those icons are stacked in a corner instead. 

For example, see Figure 1, below, which shows the latest quarterly data filed by beer and spirits giant Constellation Brands ($STZ) on Wednesday. 

Click on any of those icons, and in moments you’ll get reams of useful data ready to be exported to your desktop in Excel. You can then fiddle with that spreadsheet to your heart’s content, dump the data into other models and templates you already have, or do whatever else you want to do with the data.

Moreover, when you view the data as a spreadsheet, you get much more than what you see there on the financial statements from Figure 1. 

For example, if you view the Earnings Model spreadsheet for Delta Airlines ($DAL), you get year-over-year comparisons for Delta’s most recent quarter, in both absolute numbers and percentage terms. Figure 2, below, shows what we mean. (We picked Delta as an example because it’s one of the early filers every quarter, so this will all be updated with Q2 data soon enough.) 

The Earnings Model also displays lots of non-GAAP financial metrics too, with all the same year-over-year comparisons. Figure 3, below, shows those disclosures for Delta.

Those are just more of the many ways Calcbench tries to collect, organize, and display financial and operating data as efficiently as possible for your analysis. Enjoy the long weekend and then brace for Q2 data starting the following week!

To help analysts prepare for that deluge of information, Calcbench reminds everyone that we have several earnings analysis templates ready to go, which will automatically capture and report earnings disclosures as your favorite companies and industry sectors file.

For example, we have our pharmaceuticals industry template, which tracks the sales of blockbuster drugs. Each of several pharma industry giants (Merck, Pfizer, Johnson & Johnson) gets their own tab in the spreadsheet, and then each company tab tracks sales of individual drugs that reap $1 billion or more in revenue. 

We also have our airlines industry template, which tracks performance metrics such as revenue per available seat mile (RASM), cost per available seat mile (CASM), ticket revenue, fuel cost per gallon, and more. You can see a summary for all airlines in the current quarter; or historical data per airline with each in their own dedicated tab. 

We are also working on templates for the banking industry, to track deposits and non-performing assets over time, soon to be released to subscribers. And of course, if you have suggestions for other industry templates we should develop, drop us a line at info@calcbench.com any time! We’re happy to collaborate and give you what you need. 

One caveat: the automated population of fresh data into our templates only works if you (1) are a Calcbench professional-level subscriber; and (2) have installed our Excel Add-in. If you need help with either of those requirements, let us know and we’ll walk you through it.

Separately, we also have a bunch of other templates to perform income tax analysis, DuPont ratios, impairments analysis, and more. Those templates also need the Calcbench Excel Add-In to work, but once you have that installed it’s smooth and easy sailing. 

To answer that question in a fun way, Calcbench looked at the distribution of filing dates for second-quarter of 2023 and plotted them into a chart. See Figure 1, below.

As you can see, the first few weeks of July are quiet. Usually the Wall Street banks go first in mid-July, with the tech giants about a week later, and a few other large businesses (the airlines, for example) reporting as well. Not until the end of July do we see filing volume really start to spike, and then it reaches its peak at the start of August.

Also note that Thursdays seem to be the busiest filing days of the week, presumably so that good reports can leave you feeling great for the weekend and bad ones can be forgotten by the subsequent Monday.

Presumably Q2 reports for this year will follow a similar distribution pattern as the 2023 pattern depicted above. In a subsequent post, we’ll look at the morning release times (aka pre-open) versus those in the afternoon (post-close).

And of course, you can always get email alerts from Calcbench, giving you the head’s up whenever companies you follow file their latest earnings release or any other disclosure. Read our previous post about setting up email alerts, and then strap yourself in for the Q2 earnings starting next month!

First let’s review the broader non-GAAP net income scene. As you might recall, several weeks ago Calcbench released our annual report on non-GAAP adjustments, looking at the adjustments of 260 randomly selected firms in the S&P 500. We found an average of 6.3 adjustments per company. Those adjustments pushed up non-GAAP net income by an average of $698 million per firm, 29 percent higher than traditional GAAP net income. 

You can download the full analysis from our Research page — and this year, for the first time, we also have a secondary report devoted specifically to non-GAAP adjustments by industry. 

So what were some of the more interesting findings in that industry report? Let’s take a look.

First, we did find that some industries had larger non-GAAP adjustments than others. We did this by sorting our sample of 260 companies into SIC category (that is, the broad industry classification companies must include when filing financial reports to the SEC) and then measuring how much non-GAAP adjustments increased GAAP net income in each industry.

SIC categories are organized as follows (the manufacturing and services categories are so broad they both straddle two numbers):

• 0 - Agriculture

• 1 - Mining and construction

• 2 - Manufacturing

• 3 - Manufacturing 

• 4 - Transportation and public utilities

• 5 - Wholesale & retail trade

• 6 - Finance, insurance, real estate

• 7 - Services

• 8 - Services

• 9 - Public Administration

Figure 1, below, shows the sum of adjustments per SIC category, compared against the sum of GAAP net income for each category; and then expresses the non-GAAP adjustment in percentage terms. 

In other words, the firms in our sample that fell into SIC category 5 (wholesale and retail trade) reported $11.4 billion worth of non-GAAP adjustments against $20.75 billion of GAAP net income — pushing non-GAAP net income 54.9 percent higher than GAAP net income. 

In contrast, the firms in SIC category 6 (financial services and real estate) had much larger GAAP net income ($91.9 billion), but the non-GAAP adjustments to that income were relatively smaller ($17.9 billion). So non-GAAP net income was only 19.5 percent higher than GAAP net income in that sector.

OK, cool — but what about the types of non-GAAP adjustments seen in each industry? Wouldn’t that vary too? Since some sectors have different traits in their assets, liabilities, and income than others? 

Our industry report looked at that trend too. Figure 2, below, has a lot going on, but it depicts the breakdown of non-GAAP adjustments for each SIC category listed above, sorted by dollar value.

For example, look at the column for SIC category 2, one of the manufacturing categories. It skews quite heavily toward amortization of intangibles, which accounted for 46.2 percent of all non-GAAP dollars in that category; and toward impairments, which accounted for 26.9 percent. 

That makes sense; manufacturers have lots of items such as patents, trademarks, and copyrights, which must be amortized or tested for impairment often. (By coincidence, we just explored the importance of intangible assets to manufacturing companies last week, looking at Campbell Soup Co. ($CMP), which is a category 2 company.) 

In contrast, SIC category 7, which includes tech services companies, has a much larger share of non-GAAP adjustments going to stock-based compensation — which also makes sense, given the options-crazed habits of tech companies in that category.

What does it all mean? Well, if non-GAAP adjustments vary by sector (and to be clear, they do), that could represent common industry practices. So if you’re a CFO or financial planning executive trying to figure out what makes sense to report as non-GAAP adjustments to net income, this industry-specific data can help to guide your deliberations. 

And as we’ve noted many times before, lots of companies now report non-GAAP adjustments. That might suggest that GAAP (Generally Accepted Accounting Principles) might not be as robust and useful as necessary. That’s a policy question above Calcbench’s pay grade, but we do have the data you need to have productive conversations about it.

We ask because Campbell ($CPB) just filed its latest report, for its fiscal quarter ending April 30. The filing included the details of how Campbell accounted for its $2.9 billion acquisition of Sovos Brands, previously owner of Rao’s Homemade pasta sauce and various smaller food brands. The deal closed on March 12.

Calcbench users can find purchase price allocation details using our Disclosures and Footnotes database; just find the company in question and then select the Business Combinations and Acquisitions footnote from the pull-down menu on the left-hand side of your screen. We did that for Campbell, and found the following purchase price allocation for the Sovos deal:

OK, let’s do some math. Campbell acquired $2.37 billion in Sovos assets, and also $585 million in liabilities. Net those numbers out, and Campbell acquired $1.79 billion in net assets — which is almost exactly equal to the $1.78 billion in “other intangible assets” listed above. 

So, really, Campbell paid $2.9 billion to acquire $1.78 billion in tangible assets and another $1.11 billion in goodwill. The amount of physical goods (cash, inventories, plant assets) is only $472 million, easily eclipsed by the $585 million in Sovos liabilities coming along with the deal. 

That’s not so unusual unto itself; Calcbench has written about purchase price allocation many times before, and we’ve often seen deals where the vast majority of the price goes to goodwill and intangibles — that is, stuff that doesn’t physically exist. 

What is unusual is that elsewhere in the footnotes of its latest report, Campbell also provided a breakdown of its goodwill and intangible assets. That includes a listing of the intangible assets by brand, which brings us back to Rao’s. See below.

Rao’s accounts for $1.47 billion of the $1.78 billion in intangible assets that Campbell just acquired from Sovos, or 82 percent of all intangible assets acquired from the deal. Or we can do the math a bit differently: $1.11 billion in goodwill pulse $1.47 billion in Rao’s intangibles equals $2.58 billion, which is 86 percent of the total $2.9 billion purchase price.

In other words, the vast majority of this acquisition rests upon the continued success of the Rao’s brand. That’s not necessarily a bad thing; Rao’s does seem to be a popular brand. (We use it for Calcbench pizza days.) But should Rao’s ever suffer a dive in popularity sometime in the future, that could lead to a write-down of both the trademark value and the goodwill, which would be a nasty surprise to earnings. 

Just food for thought, made possible by Calcbench.

A net operating loss (NOL) happens when a company incurs a tax loss in some given year. The NOL can then be carried forward to reduce taxable income in future years, which makes NOLs a nifty thing to keep on the books. As the Morgan Stanley research note observed, the potential cash tax savings offer “a real and significant economic value” to a company or acquiring business.

OK, sounds cool — so which companies have NOLs on the books? 

That was the question Morgan Stanley explored, using data from Calcbench and other less-cool sources. Research analyst Todd Castagno found that U.S. companies had roughly $510 billion of NOLs at the end of 2023. The NOLs were concentrated in healthcare (18 percent), financials (13 percent), technology (13 percent), energy (13 percent), and industrials (13 percent), with several other industries following behind. 

The pie chart shows the complete breakdown.

If a company has an NOL, it discloses that fact in the footnotes of the annual report in the tax disclosure. For example, we used our Interactive Disclosure tool to dig up the NOL information for Delta Air Lines ($DAL). See below:

NOLs can be quite useful as companies try to manage their tax burden, although how useful they are depends on tax law. For example, the tax cuts of 2017 limited the total size of possible deductions, disallowed carrybacks, and lifted limits on carryforwards. The pandemic relief bills of 2020 then allowed some carrybacks for a limited period, and today the treatment of NOLs depends on when the loss was generated. 

If you want more information on those details, read Castagno’s note or, better yet, consult a tax attorney. On the other hand, if you simply want to research who has what NOLs on their books and how large those NOLs are, Calcbench is here for you; we even have an analysis guide for tax disclosures. 

If you ever need help, email us at info@calcbench.com. Good luck with the research!

Specifically, among the 260 randomly selected S&P 500 firms that we studied, we identified 147 adjustments related to amortization of intangible assets, worth a total of $60.5 billion. That was the largest single category of non-GAAP adjustment by far, roughly one-third of the whole $181.5 billion in non-GAAP adjustments to net income that we identified.

Moreover, amortization of intangibles has been one of the largest categories of non-GAAP adjustments for three years running. Even in 2022, when goodwill impairments were the single largest category of adjustment, amortization of intangibles still placed a strong second. Now that inflation and impairments are behind us, amortization is back on top as usual. We should pause to understand why that is. 

First, amortization of intangible assets is required under U.S. Generally Accepted Accounting Principles. Specifically, for any intangible asset with a finite lifespan (say, a patent or a copyright), you must amortize the value of that asset over the course of that lifespan, typically on a straight-line basis.

That means most companies will have at least some amortization every year, because most companies these days have intangible assets on their balance sheet. Table 1, below, shows the total value of intangibles among the S&P 500 for the last few years. 

As you can see, intangibles as a portion of all assets has been trending downward for the last seven years, but it still encompasses a significant fraction of total assets, and in absolute dollars is near an all-time high. (The 2023 figure doesn’t include a few notable S&P filers that have yet to submit full-year earnings.) So one can expect a fair bit of amortization costs, year after  year. 

So how might amortization of intangibles affect net income? Table 2, below, shows net income and amortization of intangibles among the S&P 500 for the same seven-year period.

The above table only gives us a sense of how much a non-GAAP adjustment for amortization of intangibles might affect net income. Not all companies do adjust for amortization costs, although it does seem to be a widely accepted non-GAAP practice. Table 2 only shows that if all S&P 500 companies adjusted for amortization of intangibles, that would push up non-GAAP net income anywhere from 7.7 to 15.2 percent, although that 15.2 percent figure was in the pandemic outlier year of 2020. 

Why dwell on this? Simply to show that GAAP and non-GAAP financial reporting can be a complicated question. If so many companies adjust for amortization of intangible assets, and those adjustments account for such a significant portion of all non-GAAP adjustments — maybe the rulemakers at the Financial Accounting Standards Board need to revisit how GAAP is calculated in the first place? 

It’s not really Calcbench’s place to say, of course. Our place is just to provide the data to let you make better-informed decisions. 

Today’s report builds on the non-GAAP analysis we released earlier this week, documenting how 260 randomly selected firms in the S&P 500 reported non-GAAP net income for 2023. Our primary findings from that report were that non-GAAP adjustments actually fell in 2023 compared to 2022. The average total value of adjustments per company was $698 million, compared to $1.08 billion in 2022. The average adjustment itself, meanwhile, fell from $184 million to $110.8 million.

Now the good stuff: Who made the biggest adjustments? 

Our table below provides the answer. It lists the 10 companies that reported the largest total non-GAAP adjustments in 2023. 

Notice that seventh entry from General Electric ($GE) printed in red. GE did indeed have one of the largest non-GAAP adjustments we saw in 2023, but that adjustment was downward, pushing non-GAAP net income below GAAP net income. 

Indeed, among the 50 firms with the largest non-GAAP adjustments, three reported negative adjustments: General Electric, as well as APA Corp. ($APA) and Baxter International ($BAX). (You can download our full 50 companies list from DropBox if you’d like.)

Adjustments in Relative Terms

We also wanted to place all these non-GAAP adjustments in context. How many led to adjusted net income far above GAAP net income? How many led to adjusted net income below GAAP income, and so forth. 

To answer that question we composed this scatterplot, below. It charts how non-GAAP net income compared to GAAP net income for all 260 firms we studied this year. 

Bottom line: most companies did adjust non-GAAP net income upward, but most of the time that adjusted net income was still within 50 percent of GAAP net income. Rare were the outliers who pushed non-GAAP net income to several multiples above (or in two cases, below) GAAP income.

Our study, that is. Non-GAAP adjustments to annual net income were generally not bigger and better in 2023 compared to prior years, which is our most important finding of all. 

You can download the full analysis from our Research page, and don’t miss Bloomberg’s article about our findings as well.

The backstory is as follows. Every spring our research team and a squad of undergraduate accounting “winterns” from Suffolk University pore over annual earnings reports for several hundred randomly selected firms in the S&P 500. The team tallies up every non-GAAP adjustment to net income it can find, groups them by type of adjustment, and then identifies which categories of adjustment are (1) most common; and (2) the largest by total dollars adjusted.

This year we examined the 2023 earnings reports of 260 randomly selected S&P 500 firms, our largest sample size yet in the four years we’ve been studying non-GAAP adjustments. You can download the full report on our Research Page. The major findings are as follows:

• Among the 260 companies in our sample, we found 1,649 individual reconciling items with a total value of almost $182 billion.
• Companies had an average of 6.3 adjustments in 2023, a small increase from the 5.9 average in 2022 and 5.8 in 2021.
• Adjusted net income (that is, non-GAAP net income) was higher than GAAP net income by an average $698 million per company, or roughly 29 percent larger than GAAP net income. 
• The average non-GAAP adjustment, therefore, was worth $110.8 million ($698 million in adjustments divided by 6.3 adjustments per firm). That is a 60.2 percent decrease from the $184 million average adjustment in 2022.
• Average adjusted non-GAAP net income was $3.1 billion, down from $3.97 billion last year. (GAAP net income saw a similar decline.)
• 86 percent of companies adjusted non-GAAP income upwards (non-GAAP income is higher than GAAP income), while 14 percent adjusted non-GAAP income downward.
• The most common adjustment was for gains and losses on investments (294 out of 1,649 total adjustments), but the largest adjustment by dollar type was for amortization of intangibles ($60.4 billion out of $181.5 billion).

In other words, non-GAAP adjustments to net income are widespread, come in all shapes and sizes, and usually add a significant amount to whatever GAAP net income the company in question is reporting.

All of which points, yet again, to a question that the financial reporting community has been asking for years: If so many companies are reporting adjusted non-GAAP income, is “traditional” net income under GAAP really that informative?

That is not Calcbench’s place to say — but we do have all the data you need to ponder that question yourself.

Non-GAAP Adjustments by Category

Table 1, below, shows the various categories of non-GAAP adjustments that we identified, along with how often those adjustments were made, their dollar amount, and the relative size of each category to the whole.

As you can see, the most common categories of non-GAAP adjustment were, in order (and excluding the “Other” category):

Interestingly, the above sequence for 2023 adjustments is unchanged from 2022 adjustments. 

On the other hand, the largest categories of adjustment by total dollars adjusted for 2023 were, in order:

Here, we did see some re-arrangement compared to 2022’s sequence. In that year, impairments placed first followed by amortization of intangibles, while adjustments for stock-based compensation, litigation, and gains and losses on investments didn’t even crack the top five. 

Broadly speaking, then, we can conclude that the most common types of non-GAAP adjustments have held steady over the last several years, even though the dollar amounts for those adjustments can vary considerably from one year to the next. 

Again, you can download our complete non-GAAP report on the Calcbench Research page, and we’ll have more posts about our findings later this week. 

And we very much thank Suffolk University’s winterns, without whom this research never would have been possible!

Calcbench maintains a template that tracks the disclosures banks make in their earnings releases, and we now have Q1 2024 data for more than 200 banks. So what do the trends tell us so far? 

Figure 1, below, shows the ratio of non-performing assets as a percentage of total assets. As you can see, that percentage has been gliding upward since mid-2023 and continued to do so in the first three months of this year.

Nothing to panic about; percentage levels are still well below 1 percent of all assets. Then again, it also depends on the bank; institutions with high exposure to commercial real estate might face higher “NPA” levels than those with less exposure. It’s a good thing that we had a post earlier this year about how to track banks’ exposure to commercial real estate.

Figure 2, below, shows net interest margin — that is, the spread between the interest rate a bank pays on customer deposits and the interest rate it receives from loans. For example, when a bank extends loans at 8 percent and pays 5 percent to depositors, the net interest margin is 3 percent. 

You can see that margin continues to be quite compressed, which has been the case since late 2022; and margins continue to fall overall. That should imply a decline in net interest income— and when we checked the math, comparing several hundred banks from Q1 2023 to Q1 2024, that was indeed the case. Total net interest income whiskered downward from $154.7 billion to $154.2 billion, and average net interest income dropped from $398.8 million to $390.4 million.

So, what does all this mean? Are depositors getting wiser and demanding better rates on their savings accounts? Are banks responding to that pressure by raising depositor rates, which therefore narrows the net margin? 

You can answer those questions if you know where to look in the earnings release and the quarterly filings. Calcbench specializes in data that can be found deep within both: average interest rates, deposit volumes, loan performance metrics, and more. 

Premium Calcbench subscribers can see our spreadsheet detailing interest rate spreads for the entire 260+ group we studied, and lots of other data besides that. Email us at info@calcbench.com if you’d like to know more.

In that letter (dated 28 Feb. 28 2024, but the SEC typically waits weeks before releasing comment letters publicly), SEC staff asked Dolby several questions about its 10-K report filed last November and the company’s accompanying earnings release. Specifically, the SEC asked Dolby to explain its non-GAAP net income number, which included an adjustment for amortization of acquisition-related intangible assets. 

The SEC wanted to know why Dolby recognized only part of its amortization expense, and told Dolby to provide “more robust disclosure explaining why management believes this adjustment, which excludes some, but not all, amortization expense, results in a non-GAAP measure that is useful to investors.”

Wait a minute — that’s the sort of challenge where Calcbench can help!

To be precise, Calcbench can help a firm understand how its non-GAAP disclosures compare against others. That can be useful knowledge when replying to SEC comment letters and trying to defend your position.

For example, we visited our Multi-Company Page and searched for amortization of intangible assets (using the list of standardized search terms on the left side of the page). We quickly found dozens of firms that reported such amortization in 2023; Figure 1, below, is a quick glimpse of the results.

One could then use our world-famous Trace feature to see exactly what those amortization disclosures were. Simply hold your cursor over the number you want to study, and a “Trace” icon will magically appear. Click that icon, and a separate window will open to that exact disclosure in the company’s financial statements. You could then study what the company said and perhaps find inspiration for how to reply to your own comment letter. 

Speaking of Non-GAAP Adjustments

In addition to the detailed research you can do comparing your company to peers, Calcbench also publishes an in-depth report on non-GAAP adjustments once a year. 

Our 2023 report examined the annual reports for 200 randomly selected companies in the S&P 500. Our crack team of interns tallied up every non-GAAP adjustment to net income they could find, grouped the adjustments by type, and identified which categories of adjustment were (1) most common; and (2) the largest by total dollars adjusted.

The headline last year was that among those 200 companies, we identified a total of 1,188 non-GAAP adjustments with a total value of almost $219 billion. Companies averaged 5.9 adjustments each, and each adjustment was on average for $184 million. 

We bring all this up because we are working on this year’s non-GAAP adjustment analysis right now. Expect that report, and lots of discussion on these blog pages about what it all means, in coming weeks!

Spoiler: big tech.

Specifically, two tech giants — Microsoft ($MSFT) and Google ($GOOG) — account for 15.8 percent of all first-quarter net income reported so far by more than 1,100 non-financial companies. Indeed, total net income for the 1,144 non-financials that have filed first-quarter earnings so far actually declined compared to the year-ago period by 3.6 percent. 

In other words, the software sector is propping up everyone as a whole, and Google and Microsoft are propping up the software sector specifically. That is what the Q1 2024 earnings season looks like so far.

Let’s step back and look at the larger picture. Figure 1, below, shows the data from the Calcbench Earnings Tracker as of May 6. 

Total revenue is up 2.26 percent, but total net income is down 3.6 percent, presumably caused by a jump in capex spending (up 10.5 percent) and marginally higher cost of revenue and inventory.

OK, but now let’s look specifically at all filers whose SIC code starts with the digit 7. That includes a wide range of service companies: hotels, consulting, movies, amusement parks — and, yes, prepackaged software. Figure 2, below, displays those results in a nifty bar chart.

This is quite a different story from Figure 1. Among this group of companies (197 firms in total) revenue rose a healthy 12.5 percent. Net income jumped an impressive 37.2 percent, from $62 billion one year ago to $85.1 billion today.

Now let’s zoom in even further, to companies whose SIC code starts with the digits 73. That is the code for prepackaged software, which includes names such as Microsoft, Google, Facebook ($META), Oracle ($ORCL), and Adobe ($ADBE). See Figure 3, below.

Performance is even better. For this group of 158 firms, net income went from $58.5 billion to $81.4 billion, an increase of 41.6 percent. Revenue rose 13 percent.

And that brings us to the nitty-gritty. Within that group of 158 firms that reported total net income of $81.4 billion… 

• Google reported $23.66 billion;

• Microsoft reported $21.94 billion;

• Facebook reported $12.37 billion.

Nobody else came even close. Oracle was a distant fourth-place with $2.4 billion in net earnings, and others trailed behind from there. 

So Google and Microsoft alone had $45.6 billion in net income. That’s more than half of net income for the entire prepackaged software sector, and 15.8 percent of all net income reported by, well, everyone so far.

Indeed, if you strip out the results for Google and Microsoft, then revenue for everyone else in the sample — 1,142 firms across a wide range of sectors — fell by 6.8 percent, net income by 12 percent. Nobody would feel good about that performance except maybe Jerome Powell at the Federal Reserve.

We will, of course, keep updating earnings performance with our Earnings Tracker for at least another month as more earnings releases arrive. If Calcbench subscribers wish to get their hands on the template we use for this analysis, so you can conduct your own experiments at home, use this link to the file. 

Please note that our template will only work with an active Calcbench subscription. If you need an active subscription (and who doesn’t, really, when swift access to real-time data is so important?), contact us at info@calcbench.com.