Today we continue our look at non-GAAP adjustments to net income with a fan favorite — a list of the 10 companies with the biggest non-GAAP adjustments to net income in 2023!

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.



It’s that time of year again: Calcbench and Suffolk University have released our annual analysis of non-GAAP adjustments to net income at large companies — this year bigger and better than ever!

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):

  • Gains and losses on investments (including pensions)
  • Tax adjustments
  • Mergers, acquisitions, and divestitures
  • Restructuring costs
  • Amortization of intangible assets

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:

  • Amortization of intangibles
  • Impairments
  • Stock-based compensation
  • Litigation
  • Mergers and acquisitions

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!



Friday, May 10, 2024

As the week’s earnings reports come to a close, we wanted to devote today’s post specifically to the banking industry — which is still feeling the pressure of tight net interest margins and non-performing assets.

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.



Calcbench tracks SEC comment letters as those letters become public, and we noticed that Dolby Laboratories ($DLB) had a comment letter published earlier this week. We decided to take a look.

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!



Monday, May 6, 2024

Today we have another update from the famed Calcbench Earnings Tracker, this time trying to understand where first-quarter 2024 corporate earnings are coming from.

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.


Wild news from the auditing world this weekend: regulators have suspended an audit firm in Colorado for fabricating its work with clients. Hundreds of businesses — including for Donald Trump’s newly public Truth Social — must now scramble to find new audit firms and re-perform prior audit work.


The audit firm in question is BF Borgers, along with its sole owner and engagement partner, Benjamin F. Borgers. On Friday the Securities and Exchange Commission charged both the man and the firm with “deliberate and systemic failure” to follow industry audit standards for more than 1,500 regulatory filings that Borgers reviewed from January 2021 through June 2023.


According to the SEC, Borges simply took clients’ old audit workpapers, scribbled a new date across the top, and passed off those doctored pages as fresh work. Borges agreed to pay a total of $14 million ($12 million for the firm, $2 million for Borges personally) and never to practice before the SEC again.


The practical upshot is that 350 businesses that used Borges as their auditor (mostly small-cap companies, with some broker-dealers in the mix too) are up the creek. They must find a new audit firm immediately and re-perform previous audit work done by Borges to see whether that work is worth the paper it’s printed on, which it probably isn’t.


For the curious, we did compile a list of filers that used Borges as their auditor in 2022. We couldn’t use 2023 filings because not all filings for last year have arrived yet, particularly the small public companies that Borges typically handled as clients. (The firm’s most famous client, Trump Media & Technology Group ($DJT) only went public in March of this year, so it is not on that 2022 list either.)


As for those companies now left high and dry — they are likely to be in for a tough few months. Numerous smaller audit firms have quit handling public-company clients because the jobs are too complex, so finding a replacement for Borges is not likely to be easy. Then that new audit firm will need to sift through Borges’ prior work, and that won’t be cheap. What a headache.



Friday, May 3, 2024

One of the most important metrics of corporate health these days is free cash flow: the amount of cash a company still has after it pays its for routine operating expenses (opex) and capital expenditures (capex).

That remaining cash (abbreviated as FCF) can pay for lofty ambitions such as R&D, acquisitions, dividends, or share buybacks. It also pays down a company’s debt load — and hence FCF is so important these days. As interest rates remain stubbornly high and many companies refinance their debts from the late 2010s at those higher rates, companies will need strong FCF to cover those larger interest payments. 


So the crack Calcbench research team wondered: How has free cash flow been performing lately? 


To answer that question, we visited our Multi-Company database page and pulled up free cash flow disclosures for more than 1,700 non-financial companies with annual revenue of $100 million or more. Figure 1, below, shows total free cash flow for that group for the last five years. 



As you can see, cashflow has risen nicely over the last five years, from $1.82 trillion in 2019 to $2.63 trillion last year, an increase of 44.3 percent. On the other hand, that increase unfolded in a rocky manner, with free cash flow declining in 2022 (amid punishing inflation increases that year), followed by a sharp jump in FCF in 2023.


Also, is it even wise to study FCF at that collective level? Wouldn’t a few highly profitable companies generate huge piles of FCF that eclipse whatever is happening with smaller companies? 


Fair point, so Figure 2 shows median cash flow for the same group, over the same five-year period.



Median cash flow levels are far smaller, but they tell broadly the same tale. Median cash flow jumped 66.2 percent, from $74.4 million in 2019 to $123.7 million in 2023.


We also did a raw count of how many companies in our sample (1,706 firms) had positive FCF in any given year versus those reporting negative FCF, and that was even more good news. In 2019, 1,287 companies had positive free cash flow; in 2023, that number rose to 1,351.


What to Do With FCF


We looked at free cash flow collectively more as a thought experiment than anything else. Individual analysts, however, could look at FCF from individual companies in conjunction with several other disclosures to get a sense of the company’s future prospects. 


For example, if the company has high debt levels, analyze the interest rates and due dates for that debt. (How, you ask? Start by reading our in-depth series last year on corporate debt disclosures.) If you determine that the company’s interest rate payments are going to spike, then you can assess whether it has sufficient free cash flow to cover those higher payments.


Or if the company has low debt levels and lots of free cash flow, consider whether that money might be used for acquisitions, dividends, or share buybacks. Any of those three actions could have significant implications for the share price.


Or if the company has declining free cash flow and persistent sagging share price, perhaps a goodwill impairment might be in the company’s future.


Our point being that free cash flow can be an enormously useful metric when used in conjunction with other metrics — and in just about all cases, Calcbench has those other metrics too!



Calcbench is used by academics around the world. Typically academics have used our platform for teaching or for research — but lately, we increasingly come across examples of academics who use Calcbench for both. Recently, we had the pleasure of talking with Anne Beatty, who uses the Calcbench platform in her advanced accounting course at Ohio State University and also incorporates Calcbench data into her research projects. Below are excerpts from our conversation. 

Why do you use Calcbench? 

Calcbench is super handy in class for one-off examples. Calcbench is also available to me to research what I teach in class, in a “big sample” way. 

For the advanced accounting class that I teach, I rely heavily on information that’s embedded in the footnotes of the financial statements. I show live examples in the classroom. Currently my students do not pull data from Calcbench as part of their assignments, although I may ask students to do so in the fall. One of the things that I like about Calcbench is that it's a single  license for the school and anyone at Ohio State, student or faculty, can use the platform with no additional cost.

Goodwill accounting is a topic that’s discussed in my classroom. I also wrote a paper on the topic using Calcbench data. The paper, Is the Goodwill Impairment-Only Model Broken? An Examination of Post-Acquisition Accounting for Goodwill versus Other Intangibles, (co-written with Scott Liao, vice dean, of undergraduate and specialized programs and professor of accounting at the University University of Toronto; and Joseph Weber, George Maverick Bunker professor of management and professor of accounting at MIT Sloan School of Management)  was presented at the 2024 Emerging Financial Reporting Issues Research Symposium in April 2024.

How do you use Calcbench? 

I use tools such as Compustat and Intelligize, but often I need more data that I can only get from the XBRL tags. I dig into the rules of accounting; the details and layers of data are important. For example, for the goodwill paper, I needed both finite-life and indefinite-life intangible assets. Other providers have accurate data, but they give you an aggregate. I want things broken out. I need to understand whether the intangible assets are amortizable or not. That’s where Calcbench comes in. 

Calcbench offers an amazing amount of data; the most challenging part is collecting it. Companies sometimes use different XBRL tags and you need to understand the reporting units that the goodwill is allocated to. With Calcbench, you can use the dimensions data to get that information. 

For many of my projects I can spend a lot of time searching for the needle in the haystack. For example, the elimination of intercompany inventory profits: with Calcbench you can usually find the tag and dimension for it. 

Lastly, I like the ability to search specific disclosure sections and go back to the originally posted data. For class, I am talking about consolidated worksheets, which is a fundamental part of the advanced accounting curriculum. I am also working on a project that looks at Guarantor subs and non-Guarantor subs, the parings and eliminations. I can search the debt disclosure text to get the information I need and I can also pull data from the tables embedded in the notes. 

What Calcbench features and functionality do you use? 

I use the Bulk Data, XBRL Raw Data Query, and Interactive Disclosure tools. I typically download the data into an Excel file.


Friday, April 26, 2024

All right, financial analysts everywhere — the Calcbench Earnings Tracker is back in the house, with our first look at earnings for Q1 2024!

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 first-quarter numbers. As of 3 pm ET this afternoon, we had data for roughly 350 non-financial companies. The headline numbers are in Figure 1, below.



As you can see, revenue is up 3.6 percent compared to the start of 2023, although net income is down 4.8 percent. There’s no cause for alarm about that net income number yet; by the end of earnings season in a few weeks’ time all these numbers might look quite different. 


We also track cost of revenue to get a read on where inflation is going these days. So far cost of revenue is up only 1.1 percent. We’ll be sure to forward our data to Federal Reserve economists so they can hyperventilate about inflation signals properly.


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.


Thursday, April 25, 2024

Since earnings season for Q1 2024 is now in full swing, today we offer a refresher course on how to use Calcbench and our many database resources to analyze corporate earnings. The task is a bit more tricky than you think.

For starters, let’s review a few fundamentals about earnings releases:


  1. Not every company issues an earnings release. Most do, because that helps investors; but earnings releases are not required by law, and some companies choose not to issue them.

  2. The format of earnings releases can vary from one company to the next. Again, most companies tend to report a few clearly defined fundamentals — revenue, net earnings, gross profit, and the like — but they don’t have to follow the rigid format that you’d see in, say, a 10-K filing. 

  3. Earnings releases can also contain lots of other information, such as operating metrics or key performance indicators. We’ve seen airlines report miles flows, ride-share apps report number of passengers booked, and railroads report number of railcars rolling around the country. The list of non-GAAP disclosures is endless.

  4. The numbers in earnings releases are not audited. (The numbers in quarterly 10-Q reports are reviewed by auditors, and the numbers in annual 10-K reports are audited.)


OK, now onto the good stuff: Where can you actually find earnings releases in Calcbench? 


Start With the Recent Filings Page


You can always start by looking at our Recent Filings page, which lists all filings for each day. As those filings arrive at the Securities and Exchange Commission, Calcbench indexes the data and has them ready for consumption within a few minutes. 


To find each day’s earnings releases, just hit the “Earnings Release” filter at the top of the display. We did that at 11:10 a.m. on April 25, and found dozens of earnings releases already filed, including Tootsie Roll Industries ($TR), Oshkosh Corp. ($OSK), Union Pacific ($UNP), and many more. See Figure 1, below.



If you see an earnings release that you want to study right there, you can always export the data in the release into Excel by hitting the “Export Data Tables” button at the right-hand side of each listing. 


Pro tip: you can always configure Calcbench to send you alerts via email whenever companies you follow submit a new filing, including earnings releases. Typically we’ll have all that data indexed within minutes of it arriving at the SEC, and an email alert in your in-box at roughly the same time.


Other Ways to Research Earnings


Say you know the company whose earnings you want to research, but not whether or when the company has actually filed an earnings release. Calcbench can help there, too.


Start by going to the Disclosures and Footnotes Query page and looking up the company you want to research. Calcbench will then give you a long list of possible disclosures you can pull up — including the company’s earnings release. Select that choice, and the earnings release for the period in question will appear.


Figure 2, below, shows how this would work with Tootsie Roll for its 2023 annual report.



If you want to look up a company’s earnings release for the current filing period (say, Q1 2024), you might not even need to set the menu choice to the earnings release, if that release is the only filing we have. For example, we do have Tootsie Roll’s Q1 earnings release on file, but since the company hasn’t filed anything else yet (like a full 10-Q), that release would be the only choice you’d see. Hence we used the 2023 annual report as an example, to show you the full complexity you might encounter. 


For a more formal briefing on earrings releases, we also have our Guide to Analyzing Earnings Press Releases, a PDF you can download with more samples of what companies offer and how to study it.


You can also find non-GAAP earnings metrics on our Multi-Company search page, as we discussed in a previous How-To article. We also have a few tricks up our sleeves with template Excel spreadsheets we offer that track some earnings data — but that’s in our next How-To post, coming soon!

Tuesday, February 20, 2024

Today we want to return to our world-famous Calcbench earnings template, a spreadsheet we use to track companies’ quarterly financial performance as they file their earnings releases. We last peeked at this template on Feb. 2, when Q4 filings had just started to arrived.

We now have hundreds of filings from the S&P 500, giving us a much more complete picture of how Corporate America is doing. So far it seems to be doing pretty good. 

As you can see in Figure 1, below, which reflects earnings reports filed through Feb. 16, both revenue and net income for Q4 2023 rose from their year-earlier periods. 

Even more interesting, however, is that the cost of goods sold was essentially flat compared to the year-earlier period, at just under $1.5 trillion for the whole group. 

Let’s remember, the markets threw a mini-meltdown last week when the Consumer Price Index rose 0.3 percent in January from December prices. That was higher than expected, and suggested that inflation might not be fading as quickly as people had assumed, and then everyone freaked out.

Perhaps January prices were higher compared to Q4 2023. Perhaps those price pressures will level off in February and March, and cost of goods sold for Q1 2024 (when those numbers start to arrive in late April) will look as flat as they do in Figure 1. Perhaps the cost of supplies is flat for corporations, and prices are rising because companies are trying to squeeze consumers — the so-called “greedflation” theory that has plenty of traction in some business press. 

Our point here is simply that Calcbench has the data to help you perform your own analysis as quickly as possible, with the latest data around. If Calcbench subscribers wish to get their hands on the spreadsheet we used for the data here, use this link to the file. Please note that it will only work with an active Calcbench subscription.


Thursday, February 8, 2024

Banks have been reporting their Q4 earnings at a brisk pace lately, and already we have more than 260 earnings reports to study — and as much as everyone loves to talk about commercial real estate lately (including Calcbench in a recent post) today we want to talk about net interest margin. 

Net interest margin is the spread between the interest rate it 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. 

So what have net interest margins been doing lately? See Figure 1, below.

As you can see, net interest margin spiked in 2022, as banks raised their rates on new loans (keeping pace with the Federal Reserve’s punishing rate increases that year) but held rates on deposits low. 

By late 2023, however, the Fed had stopped its rate hikes. Loan rates stabilized, and net interest margins narrowed to an average of 3.22 percent reported in Q4 2023— almost exactly where they were at the start of 2021, 3.23 percent. 

So, what does 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. (We have a report on banks’ non-performing assets coming soon, for example.)

For the curious, we offer Figure 2, below, which shows the banks with the largest and smallest net interest margins, and how those margins have fluctuated over the last two years.

Premium Calcbench subscribers can also 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.


Spirit AeroSystems, a crucial supplier to aircraft manufacturers Boeing and Airbus, filed its year-end 2023 earnings report this week. The report offers some fascinating disclosures that can help analysts understand how Spirit’s performance might be affected by the struggles Boeing is having these days with its 737 jets. 

As you probably already know, Boeing ($BA) suffered yet another safety and publicity mishap on Jan. 5, when a door on one of its 737 Max jets blew off the fuselage mid-flight. That fuselage was manufactured by Spirit AeroSystems ($SPR).

Investigators believe the door that flew off this specific flight — an Alaska Airlines ($ALK) flight from Oregon to California — was first delivered intact to Boeing, where technicians then removed it from the fuselage and perhaps re-attached it improperly; so perhaps this specific failure can’t be attributed to Spirit. On the other hand, Spirit shareholders filed a lawsuit against the company in 2023 alleging “widespread quality failures.” 

How will all this get resolved by air safety regulators? Calcbench doesn’t know. But we did take a close look at Spirit’s earnings release, which paints a rather detailed picture of the financial ties between Boeing and Spirit.

For example, Figure 1, below, shows the pace of Spirit’s “shipset deliveries” (that is, the number of aircraft) grouped by type of aircraft.

If you do the math, Airbus accounts for 51 percent of Spirit’s aircraft deliveries in all of 2023 — but Boeing started to close the gap by Q4 2023, when it accounted for 33.4 percent of all Spirit deliveries versus 49 percent for Airbus.

Even better is that Spirit reports the number of deliveries per type of aircraft, including the 737. Using our “Show Tag History” feature, we then looked at the number of 737 deliveries per quarter for the last four years. See Figure 2, below.

Boeing had made the 737 Max a linchpin of growth plans in the 2010s, until it suffered two crashes in 2018 that cost more than 300 lives. Sales of the Max had just begun to recover from that disaster when this new incident with the door struck. So what will Q1 2024 deliveries look like? Only time will tell, but Calcbench does let you track disclosures at that level of detail!

What About the Money? 

Spirit also reports revenue and earnings for several operating segments. One of them is a Commercial segment, which includes the Boeing 737 and other aircraft types mentioned in Figure 1, above. Those revenues arrived at $1.52 billion in Q4 2023. 

We again used our Show Tag History feature to chart Spirit’s commercial revenues for the last four years. See Figure 3, below. (Note the swift plunge in Q2 2020 when the pandemic struck.)

What we don’t know from these disclosures is how much Spirit’s commercial revenues depend on Boeing deliveries, and deliveries of the 737 specifically. Yes, Boeing accounts for roughly one-third of aircraft deliveries lately; but one-third of deliveries doesn’t necessarily mean one-third of all revenue. For example, it might well be the case that Airbus aircraft are more expensive, and account for an outsized share of that $1.52 billion.

We do know that Spirit AeroSystems is likely to go under the investor microscope in weeks and quarters to come, as the full extent of the Boeing crisis becomes clear. Analysts following Spirit can use Calcbench to dive into the various non-GAAP disclosures and other performance metrics Spirit makes, so you can model the potential disruption now rather than be caught by surprise later. 


Friday, February 2, 2024

Yes, yes: everybody knows that the economy is humming along these days and corporate earnings are doing well — but precisely how well, you ask? We have some data for you.

Calcbench has been tracking Q4 earnings among the S&P 500, pulling in data as companies file. (As recently as Friday morning, a few hours before this post, when Bristol Myers Squibb ($BMY) filed its earnings at 7:47 a.m.) 

The result is Figure 1, below, which compares the collective year-over-year Q4 earnings for 212 firms in the S&P 500 that have filed so far. 

Because we’re dealing with such large amounts, perhaps showing the data in table format might be helpful too. See Figure 2. 

So revenue drifted upward only 2.69 percent, but net income shot up 14.36 percent. (This is GAAP-approved net income, by the way, not the non-GAAP adjusted earnings that can be framed in very flattering light.) 

We will continue to update our numbers weekly as earnings season progresses. Of course, you can also conduct your own analysis using any of the Calcbench database tools. If Calcbench subscribers wish to get their hands on the spreadsheet used for the data here, please use this link to the file. Please note that it will only work with an active Calcbench subscription.


Wednesday, January 31, 2024

Tech giants Microsoft ($MSFT) and Google ($GOOG) both filed their latest quarterly earnings releases on Tuesday — giving us an excellent opportunity to showcase how Calcbench can help you dive into the details of their operating segment performance. Lots of charts and tables coming up!

For example, we looked at the segment-level disclosures in Microsoft’s earnings release, which Calcbench lets you export into Excel. With just a few keystrokes that led to Figure 1, below, which lets us see which of Microsoft’s many lines of business grew the most year over year. 

With just a few more keystrokes we then turned that table into a bar chart, see in Figure 2. (We dropped Microsoft’s smaller lines of business from this chart since they were so small compared to the larger ones.)

The above images relied on our “Export Table” function, which you can see when you hold your cursor over just about any footnote disclosure. We also have our “Export Tag History” function, which lets you export the data for one specific line item over time. We used that to conjure up Figure 3, below, which shows revenue for Microsoft’s LinkedIn subsidiary.

We’re not sure what that upward trend says about the white-collar job market these days — but clearly it tells something, and Calcbench lets you find that information double quick.

Now let’s switch to Google’s latest earnings release. Within a few minutes of that release arriving at the Securities and Exchange Commission, Calcbench had already indexed all the disclosures for presentation in our databases. For example, Figure 4, below, shows Google’s segment disclosures in our Company-in-Detail database.

You could then visit our Interactive Disclosure page to view the actual tables for Google’s segment-level disclosure as filed in the 10-K. Figure 5:

Remember, however, that some useful disclosures are reported in the earnings release; others are reported in the 10-K or the 10-Q. Your best bet is to look at both filings as they arrive— and Calcbench always has the data ready to go within a few minutes of its arrival!


Tuesday, January 30, 2024

You might remember that several weeks ago Calcbench previewed our airline earrings analysis tool, an Excel template we cooked up to study earnings and other key performance metrics in the airline industry. 

Well, all major U.S. airlines have now reported their Q4 2023 earnings, and we’re happy to say our template worked like a charm. Here’s a quick chart tracking total revenue per available seat mile — TRASM, a crucial metric for airline performance — since the start of 2020. 

If you are a Professional-level Calcbench subscriber and have installed the Calcbench Excel Add-In, all you need to do is download our template from DropBox. The template will then automatically pull the latest quarterly data as the airlines file earnings reports. 

TRASM isn’t the only metric our template tracks, either. You can get automatic updates on… 

  • TRASM, or total revenue per available seat mile
  • CASM, costs per available seat mile
  • Load factor, which is the percentage of seating capacity filled by customers
  • Fuel consumed
  • Average fuel cost per gallon
  • Percentage of revenue coming from passengers
  • EPS

Calcbench has been using this template internally for a while now, such as when we looked at fuel costs for five major airlines last October or when we looked at RASM for those same five airlines last July. We are happy to share it far and wide. (Although the template won’t work unless you have a Professional-level subscription. If you’d like to inquire with us about that, email info@calcbench.com.)

We will share more templates in other industries throughout 2024. Until then, you’re free to unbuckle and move about the financial statements. 


Tuesday, January 23, 2024

Like everyone else on the planet, Calcbench has been relieved to see the covid-19 pandemic recede into the background of daily life. Now, however, Johnson & Johnson’s latest earnings report gives us a glimpse of what that fade means for corporate earnings.

J&J ($JNJ) filed its earnings report on Tuesday morning. As we skimmed through the company’s segment disclosures, we noticed an odd detail. J&J had established a new “Innovative Medicine” operating segment, but reported that segment’s numbers “excluding covid-19 vaccines.” 

We’re pretty open-minded about adjustments to earnings around here, but really? Has the decline in covid vaccination business declined so much, so swiftly, that an adjustment is warranted? Come to think of it, how much did covid vaccinations support J&J earnings, anyway? 

It’s all there in the filings — if you know where to look. 

Let’s start with that Innovative Medicine operating segment. Johnson & Johnson defined that segment last summer when the company spun off its consumer health business into Kenvue ($KVUE) in third-quarter 2023. Today’s Innovative Medicine segment had previously been the Pharmaceutical segment, and in the 10-Q J&J now reports the U.S., international, and worldwide revenue for its blockbuster drugs. Pretty cool, actually. See Figure 1, below, for a small sample of what J&J discloses.

Further down that segment report, one sees that J&J reported only $41 million in worldwide revenue for its covid-19 vaccine in Q3 2023 — and all of that revenue came from international sales; J&J reported zero revenue from the United States. Even more jarring, that $41 million in sales was down 91.5 percent from $489 million in the year-earlier period.

OK, those Q3 2023 numbers do establish that J&J’s covid vaccine revenue has been plummeting. Now let’s look at those Q4 numbers filed today.

Covid-19 Revenue and Cost

First, we can see from the Q4 earnings release that the Innovative Medicine segment reported a total of $13.722 billion for the quarter, up 4.2 percent from the year-earlier period in 2022. See Figure 2, below.

Immediately below those line items, we have Innovative Medicine “excluding covid-19 vaccination.” That totalled $13.678 billion for the quarter, which is $44 million less than the $13.722 billion reported in the previous line item.

So that’s how much covid-19 revenue J&J had for Q4 2023: $44 million, compared to (if you do that same math again for Q4 2022 numbers) $689 million in the year-earlier period. That’s a drop of 93 percent. Ouch.

Meanwhile, we also have covid-19 related costs for J&J. The company reports those in the earnings release too, as part of its reconciliation table to square adjusted earnings ($5.56 billion) back to GAAP-approved net earnings ($4.13 billion). See Figure 3, below. The covid costs are highlighted in gray.

As you can see, the company reported a $10 million adjustment related to covid this quarter, down from an $821 million adjustment one year ago. Those costs, the company says in a footnote, stem from “external manufacturing network exit costs and required clinical trial expenses, associated with the company's completion of its COVID-19 vaccine contractual commitments.”

So, clearly, J&J is winding down covid-19 vaccination as a substantial part of its operations. And for those who want to see a history of J&J’s covid revenue since the company first started reporting it at the beginning of 2021, see the rather astonishing Figure 4, below.

More on Calcbench and Pharma Revenue

If following the pharma sector is your thing in financial analysis, don’t forget that large pharma companies report their sales of blockbuster drugs. Calcbench first looked at this corner of financial disclosure in 2018 and then provided a fresh look in 2021. You can use our Segments reporting database to research sales of specific drugs. 

And for Calcbench premium customers, we even have a pharma industry earnings analysis template that uses our Excel Add-in to pull the latest revenue on blockbuster drug sales automatically. 

If you want to learn more (about pharma or any other templates, tools, and other tricks of the trade we have), just email us at info@calcbench.com


Friday, January 12, 2024

One simmering risk in the economy these days is the commercial real estate market. Vacancy rates for office space are at an all-time high, and many owners of commercial real estate face painfully high refinancing rates. That could lead to a market meltdown.

So Calcbench wondered: What are the risks to banks that carry commercial real estate loans on their books? 

That question is not hard to answer if you have the right tools and know where to look — like, say, by using Calcbench. We offer an example below.

We pulled up the commercial real estate loans reported by 25 large banks in their 2022 annual reports, and compared those holdings (which are listed on the balance sheet as an asset) against total assets for that year. Figure 1, below, shows the 10 largest holders of commercial real estate that we found.

OK, that’s kinda cool, but for financial analysts the most important column is the one on the far right: the ratio of commercial real estate loans to total assets. The higher that percentage is, the bigger the threat to stockholder equity if commercial restate takes a nasty turn and banks need to start writing down those holdings.

So Figure 2, below, ranks the banks based on that ratio.

As you can see, none of the country’s largest banks (Bank of America, Citigroup, JP Morgan, Wells Fargo) are on this list. On the other hand, Valley National Bank ($VLY) has both a lot of commercial real estate holdings and the highest ratio of commercial real estate exposure to total assets. That’s quite a thing, given today’s economic climate.

How this matters now

We offer the above tables as an example of the research you can conduct, although most of these specific banks might not be all that interesting. Large banks don’t have a high exposure to commercial real estate; the smaller ones (in SIC code 6022, if you must know) typically have more exposure. 

And, of course, these numbers are nearly a year old. As 2023 annual reports arrive in coming weeks, you’ll find the latest numbers on commercial real estate holdings tucked away in the banks’ loan disclosures. You’ll be able to pull that up using our Interactive Disclosures tool. For example, here is the disclosure for Valley National Bank, with the commercial real estate high-lighted in gray:

You can stay informed of when banks’ annual reports arrive by setting up email alerts for the firms you follow. We’ll also revisit commercial real estate from time to time in the next several months, since this concern isn’t likely to go away any time soon.


Tuesday, January 9, 2024

Fourth-quarter 2023 earnings will start to arrive this week, and one early filer is Delta Air Lines ($DAL), which will announce earnings on Jan. 12. That gives us an excellent opportunity to remind everyone of Calcbench’s ability to study earnings data in detail, using airlines as the example.

Earlier this year we cooked up a template to study earnings and key performance metrics in the airline industry. The template is a spreadsheet that Calcbench subscribers can use to track numerous disclosures that matter in the airline sector, including:

  • RASM, or revenue per available seat mile
  • CASM, costs per available seat mile
  • Load factor, which is the percentage of seating capacity filled by customers
  • Fuel consumed
  • Average fuel cost per gallon
  • Percentage of revenue coming from passengers
  • EPS

Calcbench has been using this template internally for a while now, such as when we looked at fuel costs for five major airlines last October or when we looked at RASM for those same five airlines last July

In anticipation of Q4 earnings, which should arrive from all the majors over the next three weeks, we used our template to look at RASM yet again for major airlines: Delta, American Airlines (AAL), United Airlines (UAL), Alaska Airlines (ALK), JetBlue (JBLU) and Southwest (LUV). See Figure 1, below.

Delta, in green, has been pulling away from its competitors for a while now. That’s also what the data told us last July, and we’ll be curious to see whether the pattern continues in Q4 results. 

On the other hand, how neatly does high RASM translate into EPS performance? Perhaps not all that much. Figure 2, below, compares quarterly EPS, and if you can see a clear outlier in those numbers, your analytical eyesight is better than ours; these results are all over the map.

So how can you take advantage of our airlines analysis template? Follow these simple steps.

  1. Be a Calcbench professional-level subscriber. 
  2. Install the Calcbench Excel Add-In
  3. Download our template from DropBox.
  4. That’s it, really. As Q4 data arrives, it will automatically populate in the template and your analysis is as current as can be.

Calcbench fans who are not professional-level subscribers can still download the template, but you’ll need to enter the data manually. You can inquire about professional subscriptions by emailing us at info@calcbench.com.  Our larger point is that if you want in-depth analysis to understand how companies and industrial sectors are really performing, you need in-depth data such as RASM, load capacity, fuel costs, and more. Calcbench has that data. Today’s example looks at the airlines, but whatever industry you follow — we’ve got the in-depth data for it!


Thursday, January 4, 2024

Today we want to pull on a thread mentioned in our last blog post about corporate debt, where a Barron’s article had cited Calcbench research and noted that “smaller companies are more likely to issue convertible debt” as a way to avoid higher interest expenses.

Well, convertible debt seems to be our first financial fad of 2024, since the Financial Times also just ran an article about how “U.S. companies have been piling into the market for convertible bonds as they search for ways to keep their interest costs down.”

So today we offer a refresher course on what companies disclose about convertible debt that they issue, and how you can research such disclosures on Calcbench.

Convertible debt is a bond or some similar note that can be swapped for company shares when the company’s stock price hits an agreed-upon level. Typically this debt carries a lower interest rate than standard debt, so it’s a way for companies raising debt to keep their interest expense low. That feature can be mighty attractive these days, as so many companies are refinancing low-interest rate loans issued in the 2010s at today’s much higher rates. 

OK, enough of the abstract stuff. How do you find the gritty details in Calcbench? 

As usual, one good place to start is the Multi-Company Page. Here you can find amounts of convertible debt disclosed by one or more companies that you follow; simply identify the peer group you want to research and type “convertible debt” into our Standard Metrics field. 

We pulled up convertible debt disclosed by non-financial companies with annual revenue of at least $100 million, then sorted from largest amount to smallest. The result is Figure 1, below.

As you can see, many of the largest issuers of convertible debt tend to be tech companies (and often life sciences companies too) that need lots of cash to fund high-growth expansions. 

An Example of Convertible Debt Details

We randomly selected Akamai Technologies ($AKAM), which reported $2.28 billion in convertible debt at the end of 2022, and used our Interactive Disclosure tool to research where that $2.28 billion figure came from. Digging into the Debt footnote disclosure from Akamai’s 2022 10-K report, we found that Akamai issued two tranches of convertible debt in recent years.

First was $1.15 billion of convertible senior notes issued in 2018 and due in 2025. The notes have an interest rate of 0.125 percent (wow), and each $1,000 of principal can be converted into 10.515 shares of Akamai, which is equivalent to a conversion price of roughly $95.10 per share. 

Now we get to the important part. Under what circumstances can debt holders convert their notes into Akamai shares at that $95.10 conversion price? Because if those circumstances come to pass and the debt holders exercise their conversion rights, that could dilute the value of shares owned by others. 

That’s something a financial analyst should want to know. If you own shares in Company A and it issues lots of convertible debt, you want to know the conditions upon which debt holders can convert the debt into equity — and then build models and alerts to track those circumstances, so a dilution event won’t catch you by surprise.

Thankfully, the footnote disclosures describe those conversion situations in detail. Let’s just excerpt straight from the 10-K:

At their option, holders may convert their 2025 Notes prior to the close of business on the business day immediately preceding January 1, 2025, only under the following circumstances: During any calendar quarter commencing after the calendar quarter ended June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; During the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day. On or after January 1, 2025, holders may convert all or any portion of their 2025 Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances.

We should add that Akamai issued another $1.15 billion in convertible notes in 2019, payable in 2027 and carrying an interest rate of 0.375 percent. Each $1,000 of principal for those notes can be converted into 8.607 shares, which is roughly $116.18 per share. Akamai’s footnotes then list the various circumstances where holders of this debt can convert their holdings into shares. 

For the record, Akamai’s share price in May 2018 (when the first round of convertible debt was issued) was roughly $76 per share. In August 2019 (when the second round was issued) the share price was around $87 per share. 

The question for debt buyers at the time (2018 and 2019) was whether they believed Akamai shares would trade higher than the conversion prices ($95 and $116, respectively) by the time 2025 and 2027 roll around. If so, then maybe it’s worth putting up with those ultra-low interest rate payments in exchange for a great conversion price in another few years. 

As of this week, Akamai shares were around $115. 

Go forth and research

Of course, many more companies carry convertible debt too, with a wide range of conversion prices and scenarios. We only picked Akamai as one example to show you the research that’s possible. 

There’s lots more out there! As always, Calcbench has the data.


Tuesday, January 2, 2024

Happy New Year, dedicated Calcbench users. We begin 2024 with another look at what might be the most perilous financial issue of the year to come: refinancing of corporate debt at higher interest rates. 

The latest analysis comes from Barron’s, which last week reviewed debt levels among the S&P 500 and speculated on whether higher interest rate costs will lead to widespread layoffs in the corporate world. (Spoiler: no, for various economic reasons.) Barron’s cited previous Calcbench research looking at 55 non-financial firms in the S&P 500, who collectively have $105 billion coming due this year with an average interest rate of 2.75 percent. 

The odds that those 55 firms will be able to refinance their debt at those sub-3 percent levels are slim. They’ll need to either repay that debt, which would be a hit to cash holdings; or refinance the debt at today’s higher rates, which will drive up operating costs and potentially squeeze net income. 

How companies avoid the refinance trap will be a dominant question in financial analysis for at least the first half of 2024 — but it is not a new question. Indeed, Calcbench first explored the refinancing trap one year ago, with a five-part series on who owed how much to whom, and at what rates.

We won’t recap that whole series here, but we did want to call out one specific post about where to find debt disclosures in the Calcbench data archives. 

If you want data from a group of companies, one place to start is our Multi-Company page. First, select the group of companies you want to research. (We have an entire post dedicated to creating a peer group if you need a refresher.) Once that group is set, you can choose from any number of debt-related disclosures we include in our Standardized Metrics field on the left-hand side. Those disclosures include:

  • Total debt
  • Short-, long-, and medium-term debt
  • Floating-rate debt
  • Debt-to-equity ratio
  • Interest payable
  • Interest expense

For one specific company, you can use the Company-in-Detail page, you can research what the company reports on the income statement and the balance sheet. This approach is somewhat hit or miss, because not all companies report interest expenses on the income statement — although all companies do report debt on the balance sheet. You can then trace the disclosures for the company you follow and see what it reports in the footnotes.

You can also get a global sense of a company’s debt disclosures using our Segments, Rollfowards & Breakouts page. Start by selecting the specific company you want to research. Then select “Debt Instruments” from the pull-down menu of dataset options  on the left side of the screen. Be warned, you’re likely to get lots of data in the results!

Calcbench will, of course, keep studying debt disclosures throughout 2024. Drop us a line at info@calcbench.com and let us know what else we should be studying for you!


Thursday, December 21, 2023

Lots of financial analysts and other Calcbench users might be wishing they could sail away on a tropical cruise as we enter the holiday slow season, so perhaps it’s a good time to visit Carnival Corp. ($CCL) and the company’s latest financial performance. 

Carnival filed its latest quarterly (and fiscal year-end) earnings release on Thursday, and top-line numbers looked pretty good for a company still recovering from the pandemic’s apocalyptic effects four years ago. Quarterly revenue jumped 40.6 percent from the year-ago period, to $5.4 billion; annual revenue soared 77.5 percent to $21.6 billion. 

But wait, we have even more revenue detail! Thanks to several nifty GAAP and non-GAAP disclosures that Carnival makes, we can also determine whether cruise passengers are paying more per ticket and spending more once they’re onboard. 

Let’s first look at the revenue disclosures. Tucked away in the earnings release is a breakdown of where that $5.4 billion revenue number comes from. See Figure 1, below.

Further down, Carnival also discloses several non-GAAP metrics under the heading “Statistical Information”— including the number of passengers carried. See Figure 2, below.

Note that last item, passengers carried. So if we use Calcbench’s Nobel-prize winning “Show tag history” feature, which lets us see previous disclosures for the same line item, we can divide the number of passengers into passenger ticket revenue, and calculate ticket revenue per passenger. 

Calcbench did exactly that, starting from first-quarter 2021 through this latest quarter, ending Nov. 30. The results are in Figure 3, below.

For those who don’t want to squint at the blue line, ticket revenue per passenger went from $600 in Q1 2021 ($3 million in revenue from 5,000 passengers) to $1,132 at the end of 2023 ($3.51 billion in revenue from 3.1 million passengers).

There’s also that “Onboard and Other” revenue segment, which was $1.9 billion for the most recent quarter. We’re not entirely sure what goes into that line item. Carnival doesn’t say, either in the earnings release or the more fulsome Management Discussion & Analysis disclosures made in the 10-Q. Clearly some of that revenue comes from passenger spending onboard the ships; the “other” category likely includes travel insurance or other ancillary products Carnival sells to passengers even when they’re on dry land. 

To make matters even more interesting, Carnival had more onboard-and-other revenue than passenger ticket revenue in the beginning of 2021, so average onboard-and-other revenue per passenger was sky-high in that period — and then plunged as more passengers returned to the high seas, pushing average spend down. 

We charted the numbers out anyway, dropping the first two quarters of 2021 since they skewed the curve for the rest of the data. See Figure 4, below.

Overall, Carnival seems to have weathered the pandemic storm and is now sailing toward brighter shores. And for financial analysts, it’s yet another example of how you can dig up a treasure trove of insight from the earnings release and Calcbench database powers!


Thursday, December 14, 2023

Everyone likes to say cash is king, so we have mixed news on that front from the Calcbench macro-economic analysis department: plenty of companies have been generating more cash from operations in the last few years, despite the pandemic and inflation.

And plenty of companies then watched that cash fly out the window, thanks to the pandemic and inflation.

Here’s what happened. Like so many others these days, the Calcbench research team was wondering whether the economy has been sliding toward recession or even already is in recession. So we assembled a group of more than 1,800 non-financial companies with at least $100 million in annual revenue; and then studied average cash flow from operations since 2019. See Figure 1, below.

OK, that’s not bad. It tells us that a broad swath of the economy is generating more cash from what that business actually does — not from financing or investing; from bread-and-butter operations. Even 2023 numbers, which only capture the first three quarters of last year, are trending in the right direction.

Next question: where is that money going? Is it being saved or invested? To answer that question, we looked at average cash and equivalents for that same group of companies. See Figure 2, below.

OK, no surprises here. Average cash holdings popped in 2020 as everyone stocked up on cash to endure the pandemic, and have been trending downward ever since. So companies are not saving these greater amounts of cash they’re generating. 

Indeed, if you examine cash on a quarter-to-quarter basis (not shown here, but we did peek at those numbers) you’d see a vertiginous plunge in cash during the first half of 2022 as inflation surprised everyone and caused expenses to soar. 

On the other hand, average cash across the three quarters of 2023 hovered around $850 million. In coming weeks, we might see that everyone had a great Q4 and cash for the whole year rose; we don’t yet know. 

Of course, Figure 2 above doesn’t necessarily mean companies were spending down cash levels. In theory, they could have diverted that cash to investing or financing activities, which could also explain lower cash levels on the balance sheet. 

To clarify that picture, then, we also examined average operating expenses across the same not quite five-year period. See Figure 3, below.

Notice the jump upward in 2022. It’s a clear indicator that even as companies were generating more cash from operations (good), that extra cash went right into higher operating expenses. 

Is all hope lost? Well, let’s check the bottom line. Figure 4, below, shows average net income for our sample group.

Clearly net income rose sharply in 2021, but that’s more a recovery in net income from the low, pandemic-induced floor established in 2020. Once the economy stabilized at the end of 2021, however, average net income didn’t really improve from 2021 to 2022 — and we’d need to have a gangbusters Q4 for 2023 average net income to sail past 2022. 

What does all this mean for the future? Calcbench doesn’t know. We’re encouraged by all these numbers moving in good directions in latter 2023, which supports the broader story these days that the economy is healthy overall. Still, there’s lots to wonder about when you dig deeper into the data.

Thankfully, data is what Calcbench has in spades. Whether you want to conduct your own macro-economic analysis or build more detailed models for specific industries, you can use our Bulk Data Query page and other databases to test as many questions as you’d like.


Tuesday, December 12, 2023

So there we were today, scanning the latest corporate filings to the Securities and Exchange Commission, when we noticed that Johnson Controls ($JCI) had filed its latest earnings report

We started reading, and were immediately stopped short by this earnings adjustment, right there in the second bullet point: 

Fiscal Q4 GAAP EPS of $0.80; Q4 Adjusted EPS of $1.05, including a $0.04 headwind from the cyber incident.

Hold up — what cybersecurity incident? When did that happen, and what has Johnson Controls said about it so far? (Calcbench regrets to admit that with cybersecurity attacks happening so often these days, our crack research team doesn't always notice every one.) 

We read the rest of Johnson’s earnings release, and to our surprise found that the company provided no further discussion of exactly what the cyber incident was. Clearly the incident was material; the company reported $549 million in net income attributable to Johnson, and $0.80 EPS. If the cyber incident reduced EPS by $0.04, that implies a cost of $27.3 million.

A quick scan of Johnson’s recent 8-K filings began filling in the details. According to one filing on Sept. 27, the company “has experienced disruptions in portions of its internal information technology infrastructure and applications resulting from a cybersecurity incident.” 

Johnson provided few other details, and ended with a bland, “The Company is assessing whether the incident will impact its ability to timely release its fourth quarter and full fiscal year results, as well as the impact to its financial results.”

The company provided an update on Nov. 13 with much more detail. The incident was a ransomware attack that hackers had launched against Johnson the week of Sept. 23, and which disrupted various parts of Johnson’s IT systems. (By then the cybersecurity media had also reported various details about the attack, including that overseas attackers had stolen terabytes of data and demanded a $51 million ransom.) 

By Nov. 29, Johnson Controls announced that it would be late filing its quarterly report (for fiscal fourth-quarter and full-year results ending on Sept. 30). Those late results are what arrived this morning in the earnings release. 

Perhaps we’ll see more information about the cyber incident whenever Johnson Controls files its full 10-K. We can’t say exactly when that will be, but for comparison purposes, Johnson had a 12-day gap between earnings release and 10-K in 2022. 

We also can’t help but notice that Johnson issued no press release about its attack or the consequent effect on operations, earnings, or filings. Hence it’s so important to read the filings and all the fine print in them — because that’s where you’re likely to see the juicy details, such as a cyber attack cutting quarterly EPS by a material amount.

The Clorox Comparison

OK, so Johnson Controls reported earnings adjusted for a cybersecurity attack. We wondered: how have other companies treated major attacks in their earnings reports? 

One primary example is Clorox Corp. ($CLX) which suffered a hugely disruptive ransomware attack in August. The company’s first 8-K filing on Aug. 14 reported the attack with typical sparse detail. By Oct. 4, however, Clorox filed a preliminary earnings release with a painfully extensive update on the damage. 

Most notably, Clorox reported an estimated GAAP loss of $0.35 to $0.75 EPS — and an attack-adjusted EPS of $0.00 to $0.40. So Johnson Controls isn’t alone in reporting “earnings before cyber incident” after all. 

And why are we so obsessed over this? Don’t forget that starting next week, new SEC rules for expanded disclosure of cybersecurity incidents go into effect. Companies will need to discuss their general cybersecurity risks and how they manage those risks in the annual report; and will need to disclose “material cybersecurity incidents” in 8-K filings within four days of deciding any such attack is indeed material.

Translation: we’ll be seeing lots more disclosure of cybersecurity attacks in the future. Tracing all the details might still be a bit tricky, but Calcbench will have all the disclosures and data to help you do it.


Wednesday, December 6, 2023

Clothing retailer Lands’ End filed its latest earnings release on Tuesday, with what seemed like underwhelming results: revenue down 12.5 percent from the year-ago period ($324.5 million), operating income swinging to a loss of $101.3 million, largely driven by a big honking goodwill impairment of $106.7 million.

So why did Lands’ End ($LE) shares pop by nearly 10 percent when the company dropped such icky news? Perhaps because the company also reported an improvement in gross profit.

The company said so itself, in its earnings release: “Our deliberate efforts to generate more profitable sales resulted in increased gross profit dollars and gross margin expansion of approximately 700 basis points and drove Adjusted EBITDA above the high end of our guidance range.” 

You can see why that might be the case. Gross profit is total revenue minus cost of revenue, and can be construed as a company’s ability to ward off inflationary pressure. If you can raise prices more than the cost of revenue, you can pass along higher cost of revenue to consumers, and protect net income. (Sure, other operating costs might rise due to inflation too, but you can always address that by being a cheap-o and embracing layoffs.) 

For the record, gross profit at Lands’ End rose 2.8 percent from the year-earlier period: $148.4 million one year ago, to $152.6 million today. Gross profit margin was 47 percent.

Calcbench then wondered: how does Lands’ End gross margin compare to its competitors? So we fired up our Multi-Company database page to compare quarterly gross profit margin at four other firms as well: TJX Cos. ($TJX), Gap ($GPS), VF Corp. ($VFC), and Under Armour ($UA).  

Our standardized metrics field tracks gross profit as a matter of course. Then we selected the “Time Series Data” option to pull up quarterly gross margins as far back as the start of 2019. The result is Figure 1, below.

Lands’ End is the line in red, and two points immediately jump out from the page. First, Lands’ End did not suffer any dramatic plunge in gross profit during the pandemic, which is more than we can say for Gap and TJX. (Presumably that’s because those two firms rely on in-store sales more than the others?) 

Second, gross profit for Lands’ End began a sharp climb upward at the end of 2022 — much higher than the other four firms, although Gap does make a decent show of things in the last few quarters. If that steep ascend for Lands’ End is hard to discern, here’s how matters look if you start from the beginning of 2022. 

Like, now you see it: while other retailers battled back and forth with inflationary pressures for the last 18 months, Lands End has made an impressive march upward since the start of this year. 

We should also note that goodwill impairment of $106.7 million. Lands’ End attributes that to “the decline in the company’s share price,” and lord knows that’s true. The company went from a high of $42 per share in mid-2021 to $11 one year ago, to a lackluster $6.75 in the last six weeks or so. 

But as ugly as that impairment makes net income this quarter, long-term growth depends on factors like gross and operating profit margin. Right now, gross profit is moving in the right direction — and it’s moving in that direction faster than Lands’ End competitors. 

All of this insight, we brought to the surface with a few from our Recent Filings page (to notice Lands’ End at all), followed by our Multi-Company page (to research time-series data for Lands’ End and its competitors), then exported to Excel. Took us all of five minutes. What research do you want to perform for the companies you follow? 


Monday, November 27, 2023

Everyone loves to talk about the potential for artificial intelligence these days. Calcbench decided to take that analysis one step further: how are things going with the microchip companies behind the budding AI revolution? 

This is on our minds because Nvidia Corp. ($NVID), dominant player in the AI microchip market right now, filed its latest quarterly report just before Thanksgiving. Revenue was a stupendous $18.1 billion, up from $13.5 billion the previous quarter and more than triple the $5.9 billion Nvidia reported one year ago.

Impressive, sure. But if you want to see where Nvidia really pulls away from its competitors, you need to look at operating margins. 

Figure 1, below, shows quarterly operating margins for Nvidia and competitors Advanced Micro Devices ($AM), Intel ($INTC), and Qualcomm ($QCOM) for the last two years. Nvidia is in yellow.

Astonishing, isn’t it? One year ago was when ChatGPT and its generative AI brethren took the world by storm — and that’s when demand for Nvidia chips took off. While revenue more than tripled, cost of revenue increased only 71.4 percent ($2.75 billion to $4.72 billion) and operating expenses 15.8 percent ($2.57 billion to $2.98 billion). See Figure 2, below.

With numbers like that, operating margin pretty much had no choice but to soar. Pre-tax income also ballooned, so Nvidia has barrels of money it can spend on dividends, product development, acquisitions, debt repayment (ponder this for a moment: Nvidia has $9.7 billion in total debt, so it could pay off all its debt from the operating income of this quarter alone), or anything else that comes to the executive suite’s mind.

We compiled this research using our Multi-Company Search page for Figure 1, and the Company-in-Detail page for Figure 2. With a few clicks to search for standardized metrics such as revenue and operating income, it took us 10 minutes to make the chart above. 

Equity analysts can do similar in-depth research yourselves, including an easy ability to create charts and tables if you need to drop those into a presentation for the boss. Feel free to experiment yourself if you’re a Calcbench subscriber — or if not, contact us at us@calcbench.com today for a demo!


Monday, November 20, 2023

Good news for analysts everywhere just before the Thanksgiving holiday: Calcbench has released its Q3 2023 Wrap-Up, so you have something to read surreptitiously on your phone while the in-laws gripe about politics.

We release our wrap-ups at the end of every earnings season (you probably figured out that part already) to study broad trends in revenue, net income, capital spending, and other important metrics. This quarter’s report tallies up the data for more than 3,300 non-financial firms — not quite every filer that’s out there, but more than enough to give us a sense of this quarter’s corporate performance. 

Most notably, we saw an 11.8 percent increase in net income compared to the year-earlier period. That compares to more modest increases in capital expenditures (up 3.4 percent) and inventory (up 1.7 percent), and overall revenue actually edged downward by 1.1 percent. See Figure 1, below.

(To be clear, all firms included in this report filed earnings for Q3 in both 2023 and 2022, for the most apples-to-apples comparison.)

The Q3 Wrap-Up also examines three specific sectors: retail, software, and chemicals, to get a sense of how performance varied from one sector to another.

Sometimes that performance varied by a lot. The 230 companies in our retail group, for example, reported a year-over-year jump in net income of 148.4 percent, while capital expenditures dropped 11.2 percent. Various specific companies had equally impressive numbers. Walmart ($WMT) revenue rose 5 percent; Amazon.com ($AMZN) net income jumped from $2.9 billion to $9.9 billion.

Meanwhile, the software sector saw year-over-year revenue rise 9.5 percent, while net income rose 72.7 percent — led, not surprisingly, by tech giants such as Facebook ($META), Google ($GOOG), and Microsoft ($MSFT), which all reported multi-billion dollar increases in profit. See Figure 2, below.

The highlights in this report are a great place to start when analyzing Q3, but they certainly do not tell individual stories of specific companies. For example, Berkshire Hathaway ($BRKA) reported a year-over-year revenue of $16.3 billion (yay!) and a decrease in net income of $9.8 billion (yuck). To find out more about the specific companies you follow, you’ll need to do more digging and reading in the footnote disclosures. 

For example, did you know Berkshire reported investment losses of $24.1 billion in the quarter? We did, because our Interactive Disclosure tool lets you dig into the footnotes and bring those important kernels of insight to the surface in short order. 

Try Calcbench’s suite of products to get more data and details yourself!


Thursday, November 16, 2023

If we love to do anything here at Calcbench, we love digging into the footnotes to excavate fascinating nuggets of financial analysis. So when Uber ($Uber) and Lyft ($Lyft) both filed their third-quarter earnings reports the other week, we got to work. 

At first glance, Uber dwarfs Lyft in almost every way. Most notably, Uber had roughly nine times the revenue as Lyft ($9.3 billion versus $1.16 billion) and almost the same multiple on total assets ($35.95 billion versus $4.48 billion). Uber also had a positive number for net income ($219 million) which is more than we can say for Lyft (net loss of $12.1 million). 

More than that, Uber also dwarfs Lyft on several non-GAAP metrics too. For example, Figure 1, below, shows total gross bookings — that is, the total amount paid for a rideshare trip, including taxes, tolls, the driver’s share of the payment, and everything else — for the last seven quarters. 

For those who don’t have a magnifying glass to make out Lyft’s numbers, average quarterly gross bookings for Lyft was $3.16 billion. For Uber it was $30.8 billion. On the other hand, Lyft’s gross bookings did rise 32 percent, compared to 33.4 percent for Uber — so even though Lyft is starting from a far lower floor, its growth in bookings has kept pace with Uber. 

Here’s where things get interesting, however. Gross bookings might not be the best comparison between Uber and Lyft, because Uber has multiple operating segments: Mobility (personal trips), Delivery (food delivery), and Freight, which is mostly logistics services to match carriers and shippers. Lyft, meanwhile, only reports a single operating segment of ridesharing. 

This means that some portion of those sky-high Uber numbers in Figure 1 aren’t really fair to Lyft. So can we get a more accurate reading of Uber’s gross bookings for Mobility only? 

We can! Dig into the Management Discussion & Analysis in Uber’s most recent 10-Q, and on Page 47 you find a table listing gross bookings by operating segment. See Figure 2, below.

This changes the proportions of the story, although not the basic plot. Even with those Mobility-only numbers, ranging from $10.7 billion at the start of 2022 to $17.9 billion in Q3, Uber still dwarfs Lyft’s numbers. 

OK, but what about comparing the number of trips for Uber versus Lyft? Can that tell us anything? Kinda sorta, but not really. 

Both Uber and Lyft do disclose the number of trips that their respective companies provide. Figure 3, below, shows the comparison, yet again with Uber dwarfing Lyft. 

The drawback is that Uber and Lyft define this metric differently. Uber discloses “trips,” defined as the number of completed rides for its Mobility and Delivery segments. Lyft discloses “rides,” which is the number of completed rides — but since it has no Delivery segment, comparing trips to rides isn’t an apples-to-apples comparison.

What we don’t have from Uber is a breakdown of its Mobility trips versus Delivery trips. If we did have that number, then we could make a fair comparison and answer another burning question: How much revenue is each company making per trip? 

Alas, Uber and Lyft don’t disclose sufficient numbers to let us draw any conclusions about that. They both do report revenue, obviously; but since they define “trips” and “rides” in non-comparable ways, we can’t really divide total number of trips/rides into revenue to derive a “revenue per ride” metric. Uber’s “trip” number would include food deliveries, while Lyft’s “ride” number wouldn’t. 

Lyft does give a few tantalizing hints in its Management Discussion & Analysis, with non-GAAP disclosures such as “Active Riders” and “Revenue per Active Rider.” Except, Lyft defines an active rider as someone who uses the service at least once per quarter; Uber discloses a “Monthly Active Platform Consumer” (MPAC) which is someone who completes either a Mobility ride or a Delivery order at least once per month

Maybe we could divide Lyft’s quarterly active users by three to get a rough estimate of monthly users, but we’d still be comparing Lyft’s rideshares against Uber’s rideshares and food deliveries. Is that a fair and useful way to calculate average number of riders, or average revenue per rider? We’re uncertain enough not even to try. Regardless, the point of this exercise was to show the range of non-GAAP disclosures that two comparable companies make, and the sorts of financial analysis you could at least begin to perform with those disclosures. Our Interactive Disclosure database has it all; with the right bit of sleuthing, you can go far.


The Calcbench research team has done it again, churning out another analysis of corporate debt soon coming due — and how much the refinancing of that debt at today’s high interest rates might crimp corporate earnings. 

You can download the complete report on our Research page, but the gist of it is that dozens of companies are likely to face painfully higher interest costs next year as they refinance debt coming due in 2024. Those higher costs, in turn, could squeeze earnings per share by as much as 2.9 percent. 

For example, Hewlett Packard Enterprise ($HPE) has $1 billion of debt coming due in 2024. That debt carries an interest rate of 1.45 percent. If HP decides to refinance that debt, it’s likely to face a new interest rate of 5 percent or higher. If we assume that new rate to be 5.44 percent (recently the rate on the one-year treasury note), that would lead to an extra $39.9 million in annual interest expense. 

If we then use Q2 2023 as a baseline, that extra $39.9 million would cut HP’s trailing twelve month EPS ($0.84) by $0.03, or 3.7 percent. 

HP is by no means alone. The Calcbench research team found more than 50 companies that have disclosed debt coming due in 2024, all of them with impressively low interest rates today that won’t last much longer. So what happens then? 

The Bigger Debt Picture

The forces driving this pressure are no longer news. Companies racked up debt during the low-interest rate era of the 2010s and early 2020s. That era ended in 2022 when the Fed jacked up interest rates to fight rising inflation. Now that debt from the 2010s is starting to come due. Companies can either (a) pay it off; or (b) refinance the debt at today’s higher rates.

To quantify all this, the crack Calcbench research team used our Segments and Breakouts page to examine the debt disclosures of S&P 500 companies. We found 55 firms with debt coming due in 2024. In total they owe more than $105 billion, at an average interest rate of 2.8 percent.

If those companies all refinanced their debt at 5.44 percent (that’s the rate we used for our model, based on the one-year treasury bill), that would add a total of $3.04 billion to their interest expense. Using Q2 2023 as a baseline, that additional expense would reduce average earnings per share by $0.10, or 2.9 percent.

But wait, there’s more! Among those 56 firms, we found 19 who, as of mid-2023, did not have enough cash on hand to cover their debt coming due. So those firms would either have to refinance at the higher interest rate, or sell assets to raise cash, or some combination of the two. Table 1, below, shows the 10 firms with the largest deficits between cash on hand and debt coming due. 

The rest of our report explores some specific examples of corporations with 2024 debt, and how refinancing might cut into their EPS; we look at Home Depot ($HD), Tyson Foods ($TSN), Nvidia ($NVDA), and others. The report also includes a list of all 55 firms in our study, plus pointers on how you can use Calcbench tools to perform similar research on whatever companies you follow. 

If you have a suggestion for other research we should dig into, drop us a line at us@calcbench.com any time. 


Thursday, November 2, 2023

Sometimes you can see the plot twists in a TV show coming from a mile away. One could say the same for streaming service Hulu, which Disney $DIS just announced that it will buy out entirely for at least $8.6 billion.

Wait a minute — Calcbench did see that deal coming from a mile away, as far back as 2019! 

Back during that golden era of streaming services, our research team had a hobby of analyzing the disclosures of Hulu’s corporate owners to see what clues we could garner about its financial performance. If you knew where to look, you could piece together quite a bit.

As far back as 2016, we had a post about the three corporate owners of Hulu at that time: Disney, Comcast $CMCSA, and 21st Century Fox ($FOX). Those three had each owned 33 percent of Hulu until mid-summer, when they allowed Time-Warner to buy a 10 percent stake of Hulu. We also noted that Comcast had booked a loss of $65 million from Hulu in the first half of that year. Do the math, and it meant that Hulu was on track to lose $390 million that year. 

In May 2017 we had a follow-up post, again digging into disclosures at Comcast, Disney, and the other corporate parents. We estimated that Hulu lost $180 million in the first quarter of that year, although we never could deduce how much revenue the service was bringing in. 

By the time of our third post on Hulu in December 2017, much had changed. Most notably, Disney had proposed to buy most of 21st Century Fox’s entertainment assets — including Fox’s stake in Hulu. That deal ultimately did close, giving Disney a controlling interest in Hulu (its own 30 percent stake, plus Fox’s 30 percent). We also figured out that Hulu’s losses had ballooned in the last three years to the mid-nine figures. 

We published our longest analysis ever of Hulu in 2019. By then, Disney had bought out the 10 percent stake that Time-Warner had acquired back in 2016. Time-Warner paid $590 million for that stake in 2016; three years later, Disney bought it back for $1.4 billion. 

Here’s the critical part. When Disney acquired all those Fox assets, it disclosed the purchase price allocation — and included the value of its own 30 percent stake that Disney had previously owned. Figure 1, below, shows that Disney valued that 30 percent slice of Hulu at $4.74 billion.

Do some math again, and that implies a total valuation of $15.8  billion. Thanks to some other fine-detail negotiations, Disney actually owned 67 percent of Hulu at the time. Which means Comcast’s remaining one-third stake would’ve been worth $5.26 billion.

Now comes the big reveal. 

Disney and Comcast had also reached an agreement that come January 2024, either party would have the right to compel Disney to buy out Comcast’s remaining stake in Hulu for fair market value or total valuation of $27.5 billion, whichever is greater.

Disney is being cagey on what the exact final purchase price will be. The fair value will be assessed as of Sept. 30, 2023. The company said in a statement that “if the value is ultimately determined to be greater than the guaranteed floor value, Disney will pay [Comcast] its percentage of the difference between the equity fair value and the guaranteed floor value.”

We won’t know that exact final price until sometime in early 2024. Still, nobody who had been keeping an eye on the details should be surprised by any of this. For years, buried in the footnotes, were disclosures that showed steep losses at Hulu. Its valuation three years ago was $15.8 billion. Now the question is whether Hulu turned around its fortunes so quickly, and so dramatically, that its valuation will be worth more than the $27.5 billion floor price.

In other words, just like an episode of Only Murders in the Building, all you had to do was look for the clues there in the background all along. 



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