Tuesday, July 16, 2024

UnitedHealth Group ($UNH) filed its latest quarterly report on Tuesday, giving us yet another opportunity to review our favorite non-GAAP disclosure, “EBCD” — earnings before cybersecurity disaster! 

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.


Wednesday, July 10, 2024

CFOs, corporate financial departments, and SEC reporting teams can often struggle to know exactly what level of detail you should include in the 10-Q. One useful resource on that issue is, naturally, other filers going through the same process — and one way to find that information is to look through SEC comment letters sent to other filers. 

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. 



Monday, July 8, 2024

Financial analysis never sleeps, which is why the Calcbench research team was picking through corporate filings that arrived on the otherwise quiet, post-holiday day of July 5 — and we came across the latest quarterly filing for KB Home ($KBH), one of the largest homebuilders in the country.

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.


Calcbench is all about providing financial analysts with quick ways to find useful financial information, so in advance of all those Q2 earnings releases that will start to arrive next week, we offer one more. 

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!


The second quarter of 2024 has now closed, which means earnings reports for Q2 activity will start arriving in about two weeks (and then become a torrent by end of July). 

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. 


Thursday, June 27, 2024

The second quarter of 2024 draws to a close this week, which means Q2 earnings reports reports should start to arrive about two weeks after that — but when, exactly? And once the window opens, how quickly does the trickle of earnings reports turn into a flood? 

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.