We had another example of how to put Calcbench to use land in our email box the other day, when a subscriber asked us for help in finding firms that recently emerged from bankruptcy.
It didn’t take long for us to point that subscriber in the right direction. Let’s walk through those steps again here, so everyone else can see how you might use Calcbench search techniques for similar needs you might have.
Start on our Interactive Disclosures page, and as always, select the group of companies you want to research. In this instance, we decided to search all firms (the “whole universe” option you see at the top of the page) for 2019.
Then in the full-text search field on the right side of the page, we entered "bankruptcy emerge”~10. (Quotes around “bankruptcy emerge,” tilde mark and 10 on the outside of it.) That tells our databases to search for any instances of the words “bankruptcy” and “emerge” appearing within 10 words of each other. See Figure 1, below.
This method isn’t perfect. You may find several false positives, where the words “bankruptcy” and “emerge” do appear in close proximity, but the disclosure isn’t about a firm emerging from bankruptcy.
That said, this method does provide the raw material that you can keep narrowing until you find examples of what you are looking for. For example, one of the first results in Figure 1 is Pacific Drilling ($PACD), where the relevant disclosures very much were about the firm coming out of bankruptcy the prior year.
That ends today’s lesson in how to Calcbench. No matter what you’re looking for, we’ve got the data in there somewhere!
Earlier this week we had a post about Albertsons Cos. ($ACI) reporting an adjustment to earnings last year for “civil unrest” — and we mentioned that by using our non-XBRL Data Query Tool, we found virtually no other large firms made a similar disclosure last year.
A Calcbench subscriber then emailed us with an excellent question: “Hey, can you show us how that non-XBRL Query thing works?”
Indeed we can. Here’s a tutorial on how the query page works.
The non-XBRL Query Page lets you search for terms in earnings releases or quarterly reports even when those items are not tagged in XBRL. That’s the data classification technology used for GAAP-approved financial data, and we have a query page dedicated to those terms, too.
But data in an earnings release, and especially non-GAAP financial disclosures, are not required to be tagged in XBRL. So if you want to conduct in-depth analysis of that information, an XBRL search tool won’t help. Hence the Calcbench non-XBRL Query Page.
Figure 1, below, shows what the non-XBRL query page looks like. As you can see, the left side is where you enter the “fact” you want to research, the right side where you enter the relevant periods of time.
First, as always, select the company or group of companies you want to research using the Choose Companies buttons at the very top of the page.
Second, enter the fact you want to research using the “label or metric” field at the top of the left column. For example, in our Albertsons case, the label could be “unrest” or “civil” since those words were the label that Albertsons used for that non-GAAP item. Also, select the right operating symbol from that pull-down menu in the middle that starts with an equals sign. You’ll see a range of choices, such as
We were searching for labels that included the text phrase “civil unrest,” so we set that operating symbol to “contains text.” Then we entered “unrest” in the third field.
The other fields further down that side of the page simply help to narrow your search field. You can choose whether to search earnings guidance or not; to search specific filing types such as proxy statements, guidance updates, 10-Ks and Qs, and so forth. You can even enter whether a term is non-GAAP or not.
The fields on the right side of the page help you narrow the period of time you want to search, and they’re pretty self-explanatory. You can search by fiscal quarters or calendar quarters; one specific filing period or numerous periods of time; or even by specific filing date if you know that detail.
Then you press Search or Direct to Excel at the bottom, and see what results come up.
Figure 2, below, shows the search we ran for our Albertsons post. It was a simple exercise of searching the S&P 500 for any firms that used the text “unrest” in their filings sometime in 2020. (Be warned, when searching large groups of companies or large swaths of filings, the data crunching can take a while.)
Figure 3, below, shows some of the results we received at the bottom of the search page. As we noted in our Albertsons post, most of the results that mention unrest aren’t about civil unrest from last year’s social justice protests. To discover that, however, we had to expand the two columns named “column label” and “label.”
This image shows some of the results for AIG ($AIG) — an insurance firm, where it’s no surprise that the company has costs related to damages from civil unrest. Then the results shift to Avalon Bay ($AVB), and we can see from the Label column that those mentions of “unrest” aren’t related to last year’s protests.
Anyway, that’s a quick tutorial on the non-XBRL Query Tool. It’s available to Calcbench Professional subscribers only; if you need more detailed help or support with a search project you have, always feel free to drop us a line at firstname.lastname@example.org.
Earnings Before Civil Unrest
Here at Calcbench we’re constantly on patrol for unusual disclosure items, but occasionally one slips by unnoticed for a quarter or two. So you can imagine our surprise when we were reading Albertson Cos. ($ACI) latest quarterly report, filed today, and noticed that last year the company included a non-GAAP adjustment to earnings for “civil disruption costs.”
The disclosure came in a reconciliation table Albertsons included in its press release, showing how the grocery business was adjusting its GAAP-approved net income of $1.06 billion over the last four quarters to a non-GAAP adjusted EBITDA of $4.36 billion. Near the bottom was a $13 million adjustment for “civil disruption related costs.” See Figure 1, below; relevant line item shaded blue.
One would assume those costs came from the social justice protests that wracked the United States last summer. Sure enough, the explanation in Footnote No. 5 for that line item goes on to say: “Primarily includes costs related to store damage, inventory losses and community support as a result of civil disruption during late May and early June in certain markets.”
Intrigued, we then looked at Albertsons’ quarterly report for the relevant period, which ended June 20. In that filing, however, Albertsons reported its civil unrest costs as $14.9 million. See Figure 2, below.
Why the $1.9 million discrepancy? We’re not quite sure, except that Albertsons adjusted $1.9 million back to earnings in the subsequent quarter. That only explains the numerical difference, however, not what prompted the change.
Nor does Albertson ever elaborate on the specific damages related to its civil unrest adjustment, beyond that one-sentence description we noted above. Then again, even the whole $14.9 million is barely material (equal to 2.5 percent of $586.2 million in net income for the period), and the item seems to be reported only in that specific quarter.
We did wonder whether any other firms reported similar adjustments last summer. Using our non-XBRL Data Query Tool, we tried to find other firms that disclosed a spending item related to “disruptions” or “unrest.” Several insurance firms such as AIG ($AIG), Travelers ($TRV), and Hartford Financial Services ($HIG) all reported costs related to “civil unrest” in 2020, although that’s to be expected from property & casualty insurers.
We found no businesses like Albertsons, reporting costs related to physical damages they incurred. So Albertsons may stand alone with this oddball entry in the Earnings Adjustment Hall of Fame.
Businesses had to engage in some deft footwork last year to retool their operations amid the disruptions of coronavirus. One firm taking the right steps seems to be Nike ($NIKE).
The sneaker giant filed its most recent quarterly report on Jan. 5, and all the important numbers on the income statement looked good. Revenue up 8.8 percent from the year-ago period to $11.24 billion; pre-tax income up 16.5 percent to $1.45 billion. Even total overhead and sales expenses declined by 1.7 percent — an impressive feat of cost management, considering all the new expenses firms have had to pay as part of operating during a pandemic.
OK, but exactly what is Nike doing to get these numbers? We’d written before about retailers making a pivot into e-commerce sales since physical stores are no longer reliable sales channels. Was that part of Nike’s strategy?
First we looked at Nike’s segment disclosures. Figure 1, below, shows lots of geographic segments.
That’s informative unto itself—revenue up in all four regions—but it doesn’t tell us anything about e-commerce versus other sales channels. We did, however, notice this item in the narrative discussion that preceded the table disclosures: “The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment.”
That bit about NIKE Direct sounded like a clue to us. So we hopped over to the Management Discussion & Analysis section, and found considerably more detail about that part of the business.
As one might guess from the name, NIKE Direct is the firm’s business that sells directly to consumers, both through e-commerce sales and company-owned stores. (Nike also has a wholesale operation where it sells its gear to other retailers like Footlocker ($FL), for example.)
Nike does disclose revenue from NIKE Direct in the MD&A, and that line of business was up in the last quarter, too. See Figure 2, below.
Except, the $4.31 billion in that line item still combines both e-commerce and company-owned stores. So we kept reading, and finally found this paragraph tucked away on Page 28:
On a reported basis, NIKE Direct revenues represented approximately 40 percent of our total NIKE Brand revenues for the second quarter of fiscal 2021 compared to 33 percent for the second quarter of fiscal 2020. Digital sales were $2.4 billion for the second quarter of fiscal 2021 compared to $1.3 billion for the second quarter of fiscal 2020. On a currency-neutral basis, NIKE Direct revenues increased 30 percent, driven by digital sales growth of 80 percent, which more than offset comparable store sales declines of 4 percent primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.
There you have it. Digital sales grew by $1.1 billion in the most recent quarter (from $1.3 billion one year ago to $2.4 billion today), and if it weren’t for that e-commerce growth, total revenue for Nike would have declined from the year-ago period. As management itself says, digital sales growth more than offset any physical store sales declines.
So that’s another retailer making the pivot to e-commerce. Deft footwork, indeed.
We were sifting through 2019 annual reports the other day, reacquainting ourselves with all the ways firms adjust net income, when we came upon an interesting item from Eli Lilly & Co. ($LLY).
Lilly reported non-GAAP net income lower than actual net income, which is an unusual thing; most firms report non-GAAP income that’s higher than actual net income. And why did Lilly do that? Because the company had a one-time gain of $3.68 billion in 2019, stemming from discontinued operations: it had cashed out of an animal health business it had spun off.
Hmmm, we wondered. How many other firms report large gains from discontinued operations? Do any firms report gains that are so large, or report those one-time gains so often, that income from discontinued operations actually exceeds operating income?
So we dug into the data to find out. The answers are yes and yes.
We examined operating income among the S&P 500 for 2016 to 2019, and compared that to net income from discontinued operations for the same period. Collectively, the S&P 500 reported $5.66 trillion in operating income during those four years. They also reported $32.92 billion in income from discontinued operations — only 0.58 percent of operating income.
That’s only the large picture, however. When you zero into specific firms, some of them tell quite a different picture.
Table 1, below, shows the 10 firms with the largest percentage of income from discontinued operations relative to operating income. As you can see, six of the 10 firms actually had more income from discontinued operations 2016-2019 than they did from regular operations.
We know what you’re thinking: “Oh sure, the overall percentage might be high — but that could be from one huge divestment or spin-off. You’re still looking at such a large picture that the numbers aren’t that meaningful.”
Ha! We considered that too. When you look at each of the 10 firms above one year at a time, you still find several that had significant income, year after year, from discontinued operations. One good example of what we mean is Dow ($DOW), below.
Granted, Dow went through quite a bit of tumult over the late 2010s as management first merged the company and DuPont de Nemours ($DD) in 2017, and then split the merged business again into Dow, DuPont, and a third business called Corteva ($CTVA) in 2019. Not every firm will see that many operations discontinued in such a short period.
Another example is Fortive ($FTV), the industrial conglomerate spun out of Danaher ($DHR) in 2016. Fortive’s gains from discontinued operations weren’t quite as eye-popping as those from Dow, but they were still significant. See below.
What were all these discontinuations about? We didn’t delve into that question, although you can always use our trace feature and the Interactive Disclosures database to see exactly what a firm had to say about those one-time gains.
Regardless, the numbers are the numbers — and they show that for at least some firms, getting out of operations can be just as lucrative as staying in them.
As we wind down 2020, we thought it might be interesting to poke around with our latest obsession: Special Purpose Acquisition Companies (SPACs). We’ve written about these vehicles before. At the end of November, we discovered how many there were and did an introductory piece on the topic.
Today, we will show our users how to do some sleuthing of their own, and try to learn something together.
First, we come up with our list of SPACs. To do that, visit the Multi-company page on Calcbench and click on the choose companies button. You will get a form that opens up and you can select the entire SIC group by entering “6770” like the picture below.
Next, pick your metrics. We chose assets and cash. Our naïve assumption was that all (or most) of the assets of the SPACs were “dry powder” and would be ready to deploy at a moments notice. We discovered that our assumption was inaccurate. As you can see in the figure below, most SPACs’ assets are something other than cash.
Since we now show about 2-3 percent of assets of the SPACS in cash, we wondered (out loud) about what was going on.
Hint: Read the footnotes!
We created a smaller peer group and went to the Interactive Disclosures page on Calcbench, where we found two interesting cases. First, Pershing Square has a SPAC. For those who know, Pershing Square is the hedge fund run by famed financier Bill Ackman. This SPAC was the biggest one that we found (measured by assets), so we thought it worth examining. It turns out that most of the assets are in a trust that, while technically not cash, are liquid.
See the Accounting policy below:
Next, we looked at another SPAC further down the list, AgroFresh Solutions. Maybe it has a trust too?
No, but look at what we did find. AgroFresh has 75 percent of its assets in intangibles.
Looking a bit deeper, the footnote for Intangibles and Goodwill tells you that it sits mostly in Developed Technology.
OK, but exactly what developed technology is in that line item? You have to go back to the 2015 10-K to find out.
Hopefully you found this tutorial helpful. Calcbench looks forward to seeing more of our readers in 2021, so to all of you, Happy New Year!
Tech firm SolarWinds Corp. ($SWI) is in the headlines lately because it seems to be the vehicle for that massive cybersecurity attack Russian interests launched against the U.S. government and lord only knows how many private businesses.
So we at Calcbench, of course, fired up the Interactive Disclosure Tool to see what we could learn about SolarWinds from its filings. Presumably we didn’t learn as much about the company as the Russians did, but there’s still plenty of interesting stuff in there.
First, if you want to read the 8-K announcing the breach itself, that was filed on Dec. 14 under the deceptively plain heading “Other Events.” There, we see that attackers inserted their malware into SolarWinds’ Orion product sometime in the spring. The company believes that roughly 18,000 customers were affected, around 6 percent of its 300,000 customers overall.
Another interesting morsel from the 8-K shows that the breach is very much material to SolarWinds’ revenue picture:
For the nine months ended September 30, 2020, total revenue from the Orion products across all customers, including those who may have had an installation of the Orion products that contained this vulnerability, was approximately $343 million, or approximately 45 percent of total revenue.
From the firm’s recent income statements, we can see that SolarWinds had been moving briskly in the right direction over the last several years. Revenue went from $422 million in 2016 to $932.5 million last year, and the company had been on pace through the first three quarters of 2020 to end this year north of $1 billion — until this breach happened, that is.
Several other points to note within the company’s most recent 10-K, which was filed last February.
First, SolarWinds disclosed that one distributor posed a customer concentration risk, which is a fairly rare disclosure to see. The exact statement, included in the Summary of Significant Accounting Policies, was this:
We provide credit to distributors, resellers and direct customers in the normal course of business. We generally extend credit to new customers based upon industry reputation and existing customers based upon prior payment history. For the year ended Dec. 31, 2019 a certain distributor represented 12.5 percent of our revenue.
We don’t know who that distributor is. We do know, however, that privately held Carahsoft Corp. is SolarWinds’ exclusive distributor to government customers, and Uncle Sam tends to be a mighty big customer for any business. We also know that SolarWinds did not have any customer concentration issues worth reporting in prior years.
Whatever the details may be, it’s reasonable to assume that in quarters to come SolarWinds will see some revenue disruption, plus higher costs to repair the damage of the attack — and a significant chunk of revenue could disappear with the loss of this one mystery customer. SolarWinds is in a precarious position.
Second, upon hearing “reputation disaster!” we immediately thought “goodwill impairment!” and went to see how much goodwill SolarWinds carries on the books.
The firm reported $4.12 billion in goodwill assets in Q3, roughly 75 percent of the $5.45 billion in total assets SolarWinds reported. Goodwill grew by about 10 percent in 2019, but only by about 1 percent in the first nine months of this year. We’ll be curious to see what the company has to say about potential impairment in its next annual report.
We also noted an item in SolarWinds’ disclosure of intangible assets. See Figure 1, below. Notice the second line, “customer relationships.”
Hmmm. One-third of SolarWinds’ intangible assets are tied up in customer relationships. That typically means something like a customer contract that could be sold to another company, or lists of customer names that might be sold to marketing firms, or just good relations with a customer due to sustained business and other contacts.
We don’t know exactly what’s included in the $567 million customer relationships line item here. Our question, however: could this line item also suffer some sort of impairment due to the cyber attack? For example, if customers stop taking SolarWinds’ calls, or have early-exit clauses due to a breach, could this line item decline in value?
That’s not as common as goodwill impairment, but it happens.
Firms and Income From Investments Last week we had a post exploring the income numbers at Salesforce ($CRM) and the surprising factoid that for most of 2020, Salesforce’s income from strategic investments in other businesses actually exceeded income from Salesforce’s own operations.
Our curiosity was piqued: How many other non-financial firms have seen investment income account for a significant portion of net income? How often does something like this happen?
We used our Multi-Company database to search disclosures among the S&P 500, comparing net investment income to all net income for 2016-2019. Pulling the data only took a few minutes, and several conclusions stood out.
First, few large companies disclose net investment income at all. In all four years we examined, no more than 70 firms out of the whole S&P 500 reported net investment income. Most that did were financial firms of some kind — and while there’s nothing wrong with being a financial firm, their operations are quite different than other sectors so we’re disregarding those folks.
Second, some firms do indeed report some eye-popping investment income numbers, but that’s rare.
As a benchmark, Salesforce’s net investment income accounted for 94 percent of all net income in 2019. Few other firms came close to that. No other non-financial firm came close to that level in 2019, although Entergy Corp. ($ETR) reported $547 million in investment income, equal to 44 percent of net income. CVS Health ($CVS) reported $1.01 billion in investment income that year, 15 percent of all net income. Most other firms were in the single-digit percentages, if they reported any investment income at all.
Third, trends are rare. Yes, Salesforce reported gobs of net investment income in 2019 — but it didn’t report numbers anywhere near those levels in prior years. Its net investment income accounted for only 5 percent of net income in 2018, and 10 percent in 2017.
The only non-financial firm that had appreciable amounts of investment income across several years was Constellation Brands ($STZ): 21 percent of all net income in 2017 and 61 percent in 2018. Then again, Constellation also reported a $2.67 billion net investment loss in 2019, which almost obliterated total income last year (a measly $21.4 million).
And where do all these net investment income numbers come from, exactly? If you want to know, you can always use the Calcbench Trace feature: click on that number when you see it in the income statement, and we’ll promptly whisk you away to the firm’s footnote disclosure to see the details.
Here, for example, is what you see when you trace that $2.67 billion loss Constellation Brands reported.
You might remember that several weeks ago we had a post reviewing the Q3 financial disclosures of nearly 2,500 firms, and one finding was that firms have stockpiled huge amounts of cash to help them weather difficult economic circumstances.
We’ve now taken a deeper look at which firms have been stockpiling the most cash, and how that picture has evolved from one quarter to the next.
Figure 1, below, tells the tale. We examined the cash holdings of roughly 400 non-financial firms in the S&P 500, and tracked total cash reported for that group from the start of 2018 through third-quarter 2020.
The blue bar is total cash for all firms. As you can see, cash was $949.73 billion at the start of 2018, trended downward through much of that year, and then trended back up to $955.7 billion by the end of 2019.
Then comes the pandemic in Q1 2020, and cash holdings soared. They hit a high-water mark of $1.323 trillion over the summer — an increase 38.5 percent in just six months. Total cash edged downward in the third quarter of this year, but not by much. Firms are still sitting on a mountain of money in case economic conditions take a turn for the worse.
OK, that all makes sense so far. Now let’s turn to the orange bar in Figure 1.
The orange bar represents cash among the 10 firms with the most cash in that specific quarter. That bar has fluctuated much less than for all 400-ish firms in total.
You might need to squint to see it, but cash among the Top 10 firms went from a low of $193.3 billion in early 2019, to a pandemic-fueled high of $271.4 billion at the start of this year — and then back to $240 billion in the third quarter. Which is actually lower than Top 10 cash at the start of 2018, when cash for this group was $270.3 billion.
We also wanted to know: How much cash did the Top 10 firms have as a percentage of all cash for the whole 400-firm sample. The results are in Figure 2, below.
As you can see, since the pandemic started, the share of cash going to the Top 10 firms every quarter is declining relative to the whole group. Given what we saw in Figure 1— that the whole group has amassed a huge pile of cash — then Figure 2 has to mean that a small group of large firms (the Top 10) are keeping cash levels roughly constant; but the other 390-ish firms are stockpiling much more.
Why? Presumably because those large firms are confident enough in their operations that they’re not too worried about cash supply — but the vast majority of other firms aren’t as confident, so they’ve salted away a mountain of greenbacks.
We should note that the Top 10 cash-rich firms does vary from one quarter to the next, so it’s not correct to say that only 10 firms qualify as success stories during this pandemic. On the other hand, a select few do keep turning up quarter after quarter: Apple, Amazon, and Google, for example; and a few others. (Mostly tech firms, of course.)
Upon Further Review...
Another way to study this trend would be to look at operating income. We already know from our first study a few weeks ago that operating income in Q3 2020 was lower than the year-ago period. So one possible analysis would be to examine total operating income for the whole group over the last three years (that is, repeat Figure 1, but with operating income rather than cash) and then compare the operating income share for the Top 10 relative to the whole (that is, repeat Figure 2).
If we see a pattern where the largest firms are increasing their share of operating income relative to the whole, then that could explain the cash patterns we see here: other firms are generating less operating income, so they’re amassing cash to preserve their liquidity.
Hmmm. That sounds like a really interesting analysis, now that we think about it. Why don’t you all circle back to us in another few days and see what we found?
Today we have another in our occasional series of Q&A interviews with consumers of financial data, to hear about what research they do and how they use Calcbench to meet their analysis needs. Our guest is Vern Richardson of the University of Arkansas.
About Professor Vern Richardson
Dr. Vern Richardson is a distinguished professor of accounting at the University of Arkansas. He teaches Financial Statement Analysis, Introduction to Financial Accounting, and Accounting Analytics.
Dr. Richardson is also the author of Data Analytics for Accounting and Introduction to Data Analytics for Accounting, the only data analytics textbooks for accountants; and Accounting Information Systems, all published by McGraw Hill. He has published numerous research papers on data analytics and accounting.
What got you interested in data analytics for accounting?
I became very interested in how accounting is evolving with the proliferation of computers and the availability of data. I realized early on that the role of accountants would pivot from measurement of transactions to analyzing data. Now that machines are doing much of the record-keeping and there is so much data available to analyze, accountants need to focus their time on interpreting data to address accounting questions.
How did you learn about Calcbench?
I was searching for data providers that would give me access to the raw data from financial statements for my students. I was frustrated with the time it took to pull information from sources like Yahoo Finance.
It was through my interest in XBRL [eXtensible Business Reporting Language] that I learned about Calcbench.
What Calcbench tools do you use?
For me the most important thing is to download information embedded in financial statements into a usable format. I like to download a bunch of companies at the same time.
Beyond the basics, I like to show the “originally reported” feature to my students. Students are often surprised that what’s printed is not set in stone. And the “peer comparisons” tool is powerful. Calcbench makes it effortless to compare a company to itself over time, or to competitors, or against industries, and even to the economy. For visual comparisons, I also like the “common-sizing” tool.
How would you like to use Calcbench in the future?
I’d like to use Calcbench to forecast future cash flows for companies. I’m always interested in the future value of long-term debt and lease payments. In addition, it would be great if Calcbench could give me the Z-score, for example, to help predict bankruptcies. I would also like to use Calcbench to compute sentiment scores through textual analysis for the MD&A of the 10-K disclosures.
Lastly, it would be great to use Calcbench for easy access to disaggregate and decompose financials. It would be great if Calcbench can automate DuPont and Penman ratios for companies.
When you think of Salesforce, you probably think of customer relationship management (CRM) software. That’s how most people use Salesforce. It’s the dominant player in that niche. Heck, the company’s ticker symbol is even $CRM.
Well, think again. Salesforce is more like a venture fund.
Salesforce has funded more than 400 entrepreneurs since 2009. It holds a stake in numerous businesses, and lists those investments on a portfolio page on the company website. Many of those investments have been handsomely profitable: Dropbox, Zoom, CloudLock, Box, just to name a few.
As a result, an increasing portion of Salesforce’s income actually comes from these investments. Figure 1, below, shows that a majority of the company’s pre-tax income stems from gains on those strategic investments (the orange line, which started exceeding operations income at the start of 2020 and then soaring in the last two quarters).
These investments also deliver a significant boost to Salesforce’s balance sheet. Figure 2, below, shows that strategic investments (the orange line) now account for almost 10 percent of total assets; marketable securities are another 10 percent. Add in goodwill, and you’re above 50 percent of total assets from those three line items alone.
One interesting detail: in its footnote disclosures, Salesforce assumes no change in the value of its strategic investments. Look at this excerpt from a Salesforce earning announcement filed on Dec. 1, 2020 (see it in its entirety on Calcbench):
“Gains on Strategic Investments, net: Upon the adoption of Accounting Standards Update 2016-01 on February 1, 2018, the company is required to record all fair value adjustments to its equity securities held within the strategic investment portfolio through the statement of operations. As it is not possible to forecast future gains and losses, the company assumes no change to the value of its strategic investment portfolio in its GAAP and non-GAAP estimates for future periods.”
So there you have it. Despite the CRM ticker, Salesforce is a lot more than CRM.
Two years ago Calcbench published one of our most popular posts ever: a study of how much time firms took to proceed from their fiscal year-end, to filing an earnings press release, to filing their full Form 10-K report.
A lot can change in two years, so we decided to repeat that analysis with firms’ 2019 form 10-K filings. After crunching the numbers for thousands of filers large and small, one conclusion stands out: Firms are taking more time to file their disclosures.
Table 1, below, presents the change in filing times for 2017 and 2019 reports, across the major categories of filer status.
As you can see, time to file increased in just about every way possible — more time from fiscal year-end to earnings release; more time from earnings release to 10-K; more time from fiscal period to 10-K. The only exception was time elapsed from earnings release to 10-K for non-accelerated filers, which declined.
To calculate “average percent of time to 8-K” we divided the average time from fiscal year-end to the earnings release (yellow column) into average time from fiscal year-end to the 10-K (green column). The result is in the rose column along the right side of Figure 1. As you can see, that number increased over the last two years, too.
(We should note one significant change. Two years ago there was a fourth category of filer, the smaller reporting company. The Securities and Exchange Commission subsequently consolidated “SRCs” and non-accelerated filers into a single category. We noted this because the SRCs might explain why non-accelerated filers had such a large increase in filing times.)
Why are firms taking more time to file their disclosures? We can’t help but wonder whether coronavirus was one reason, given the disruption it caused to countless firms earlier this year. It’s also true that several significant accounting rules have undergone major revisions in the last several years, such as revenue recognition and leasing costs. Those revised standards have added complexity to what firms need to disclose, and figuring that out can take more time.
A Closer Look at Large Filers
We also charted the number of days from fiscal year-end (FYE) to 8-K earnings release and to 10-K filing for large filers. The result is this scatter-plot chart below, Figure 1.
All large accelerated filers must file their 10-Ks within 60 days of year-end. That timeline is measured along both axes — so any blue dot along the very top or the far right of Figure 2 is a late filing. (We estimate about three dozen in Figure 1.)
What’s interesting is that if you look back to this same chart for 2017 filings, decidedly fewer firms were beyond the 60-day deadline. See Figure 2, below, shamelessly stolen from our first post in May 2018.
In both charts, we see most firms crammed near the corner along the x-axis. That means most firms filed their earnings releases well after their FYE, and then filed their 10-K quickly after that.
But clearly only a handful of firms filed their 2017 annual reports after the 60-day mark in Figure 3, compared to the several dozen in Figure 2. Hmmmm.
Nobody can draw broad conclusions about that discrepancy just from this data. You’d need to research each firm individually using our Interactive Disclosures database, which might offer hints about disagreements with auditors or unreliable data or lord knows what else.
Still, the discrepancy is there. It also supports our first conclusion, that firms are taking longer to file earnings releases and 10-Ks. Presumably that would lead at least some firms to stumble into the late filing zone.
Food for thought as we all keep waiting for those latest filings to arrive.
So there we were, sitting around the Calcbench virtual breakroom, wondering how we should finish up the rest of the year. Then the intern piped up: “Why don’t we form a SPAC? Everyone else is doing it!”
Ummm, no, we politely told the intern. But he had raised an interesting point: how many groups are launching SPACs these days?
For those not in the know, Special Purpose Acquisition Companies (SPACs) are investment vehicles that investors with lots of money can use to take firms public quickly. The SPAC is essentially a publicly traded holding company, which then uses its funds to acquire operating firms. The acquisition closes, and presto — that target’s operations are now part of the publicly traded SPAC.
SPACs use a dedicated SIC code when filing financial statements. This means Calcbench can identify all the SPACs that have been cropping up lately, and see what revenues, operating income, assets, and liabilities these folks have been reporting.
What We Found
First, a lot of SPACs have come onto the scene lately. Take a look at the numbers in Figure 1, below.
The number of SPACs filing statements with the U.S. Securities & Exchange Commission more than doubled in one year, from 80 firms in Q3 2019 to 170 in Q3 2020. Moreover, most of that surge happened in the last six months!
Then we peeked at the assets these firms have, since the value of assets is what drives a SPAC’s ability to make acquisitions. Here are some factoids to digest along with your turkey leftovers:
Of the 170 SPACs we found in Q3 2020, only 11 reported any revenue at all — and almost all of that revenue came from two firms! Infrastructure & Energy Alternatives ($IEA) reported $552.2 million, and AgroFresh Solutions ($AGFS) reported $52.8 million. No other SPAC even cracked $1 million in revenue.
Meanwhile, 157 of 170 firms reported an operating loss in the third quarter (and seven firms reported exactly zero dollars of operating income) and 165 of 170 reported negative operating cash flow.
The Bottom Line
The bottom line is that scores of SPACs have cropped up in the last six months. A fair number of them have a respectable amount of assets to pursue their acquisition dreams, but almost all of them are operating at a loss right now.
Who are these SPACs, and what do they want to do? You can use our Interactive Disclosures database to research specific firms and their filings, and some do tell a rather, um, interesting tale.
One of our favorites was Yacht Finders ($YTFD), which apparently launched in the early 2000s to act as an online database of yachts, matching buyers and sellers. By 2007 that business idea was taking on water, so the firm sailed into the SPAC business instead.
“The company’s business plan now consists of exploring potential targets for a business combination through the purchase of assets, share purchase or exchange, merger or similar type of transaction,” the firm said in its most recent quarterly report.
Well, that’s one way to keep your options open. Although as of third-quarter this year, Yacht Finders had no assets and no income.
Anyway, there are plenty of other SPACs in the sea. You can find them using the SIC code 6770, and then use our Interactive Disclosure page or our Multi-Company page to research any or all of them to your heart’s content.
Close followers of the Securities & Exchange Commission may have noticed that last week the SEC adopted new rules aimed at streamlining the disclosures that firms need to include in their Management Discussion & Analysis.
One detail in the new rules caught our eye: that firms will not need to tag the data in their MD&A in a machine-readable format such as XBRL. Tagging would allow analysts to find data in the MD&A more quickly and export it to Excel or other analytical tools for whatever number crunching you want to do — but it would also impose new costs on filers to comply with that rule, and the SEC commissioners decided that firms’ compliance costs are high enough already. So no tagging of MD&A disclosures.
For Calcbench users, however, a critical question follows.
Who cares? We’ve already been tagging data in firms’ MD&A disclosures for years! You get it as part of the package, and that’s not going to change no matter what rules the SEC does or doesn’t adopt.
The technical details of how we parse and tag a firm’s MD&A disclosures aren’t important here. If you really want to know, email us at email@example.com; we’d be happy to set up an appointment to geek out on the subject of structured data for hours.
Suffice to say, Calcbench subscribers can already access that level of analytical detail in the MD&A through our Interactive Disclosures page, or the standardized metrics we provide on the Multi-Company page, or the segments analysis we offer on the Segments, Rollforwards & Breakouts page. You get the idea — parsing financial data is our job, and we’re always striving to bring that data to you in ways that let you find exactly what you want, when you want it.
We’re sticklers for keeping your mask on here at Calcbench — but it looks like everything else is coming off as usual at strip club operator RCI Hospitality Holdings, which just posted an update to earnings.
RCI ($RICK, naturally) published its guidance on Nov. 19. Let’s peep at what the business had to say.
On the perky side: October revenue from its clubs and restaurants totaled $15.3 million — the firm’s best performance since April, when all 48 locations were closed due to covid lockdowns. October sales were up 34 percent over September, and equaled 97 percent of October 2019 sales.
Moreover, all of RCI’s locations still operate under at least some occupancy restrictions. So if the business is seeing almost the same volume of revenue as it did prior to the pandemic but with fewer people allowed inside, we presume that means its establishments are generating more revenue per customer (although the guidance doesn’t specifically say that.)
OK, good news so far. Can RCI keep it up?
That’s less clear. The company warns in its guidance that our current second wave of the pandemic is leading to new occupancy restrictions and closures. For example, the firm had 47 locations open in October, but only 42 were open as of Nov. 19. (The five locations that closed were all strip clubs; the 10 sports bars RCI operates under the Bombshells brand all remain open.)
If there are no additional closings or restrictions, RCI estimates November sales will be around $11 million to $12 million.
For comparison purposes, revenue for the year-ago quarter was $48.4 million. That averages to $16.1 million per month, or $32.2 million for two months. This quarter, RCI is looking at $27.3 million for the first two months of the quarter ($15.3 million in October plus $12 million in November) if nothing gets any worse. We all hope that is the case, but who knows what coronavirus may bring.
Our latest quarterly snapshot of financial performance is now ready for your review, and the numbers confirm a tale most of us probably suspected already: lots of firms racking up debt so they have enough cash to weather difficult economic circumstances, and lots of other turbulence across most line items on the income statement.
We try to publish these snapshot reports every quarter, collecting and comparing financial data for a large pool of firms. For Q3 2020, we looked at the disclosures of more than 2,500 firms across dozens of industries. Large retailers are excluded because most of them don’t have third quarters that end on Sept. 30; and large financial firms are excluded because that sector’s financial statements are so different from everyone else.
Still, 2,500 firms across dozens of other industries gives us a good look at what happened in Q3 2020, and how that performance compared to Q3 2019. Some of our findings, for all firms as a whole:
Figure 1, below, shows year-over-year changes visually:
None of that should surprise people. Since the pandemic arrived earlier this year, operating expenses have gone up for many firms, while revenue declined. Firms also scrambled for cash to keep themselves liquid, and primarily did so by tapping lines of credit or raising debt. The big pieces of this puzzle all fit together.
And Looking by Industry…
Calcbench also tracked the 2,500 firms in our sample by SIC code, the classification system used to group firms by industry. So our Q3 snapshot report also lets people see how 20 specific industries fared across eight major financial metrics. For example…
Here’s how revenue changed year-over-year for all 20 industry sectors we tracked:
You can download the full report (or our other prior reports) for free from our Research Page. Remember, if you have other ideas of research we should do or projects where you can’t quite find that piece of financial data you’re looking for — drop us a line at firstname.lastname@example.org. We’re here to help!
Good news for all you data fanatics, eager to export yet more corporate disclosures into Excel so you can perform whatever analysis you’re hoping to do: Calcbench has added new capability to let you pull data from earnings releases.
Here’s how it works.
First, you need an earnings release. Perhaps you have one because you’ve set up your Calcbench email alerting functions and been notified that one of your favorite firms just filed an 8-K earnings release; or maybe you were skimming our Recent Filings page and a firm’s release caught your eye. We randomly selected Cornerstone Building Brands ($CNR), which filed its latest earnings release on Nov. 10.
Anyway, you have the earnings release displayed on your screen. What then? Look for the small Excel icon along the top of the main display panel, next to the firm’s ticker and the ‘8-K: Results’ descriptor. See Fig. 1, below; we’ve pointed to the icon with a blue arrow.
When you click on that icon, an Excel spreadsheet will download with all the earnings release data organized into neat rows and columns. It will look something like Figure 2, below:
There’s a lot going on in that spreadsheet, so let us explain. Some of the columns track details that might not be urgent to financial analysts, such as tag identifiers or Securities and Exchange Commission filing codes. In Figure 2, we shaded in orange the columns that are most important to financial analysts. Those columns won’t be shaded in your own download, but some examples include:
Once you have that data in Excel — well, what you do with it next is your choice. Calcbench simply strives to provide all the data you want, in a manner that lets you use the data however you want. This is one more step toward our goal. Enjoy!
We have another glimpse today into the pandemic’s effect on the economy from AvalonBay Communities ($AVB), the apartment rental giant that just filed its third-quarter report.
Avalon manages more than 86,000 apartments across 294 locations. So one might assume that amid a nationwide moratorium on evictions and higher unemployment, Avalon’s revenue streams and other operating metrics would suffer.
One would be correct.
Q3 revenue was $567.4 million, 3.4 percent below the year-earlier period and 5.7 percent lower than the $600.6 million Avalon reported in Q1 just prior to the pandemic’s arrival. Meanwhile, operating expenses, property taxes, general administration, interest, depreciation — they all rose from the year-earlier period, to the point that pretax income plummeted 49 percent from the year-earlier period, to $147.7 million.
More interesting to us, however, are the details of how Avalon’s revenue and operations are changing. How many people are falling behind on their rent? How much are vacancies rising? How much is rent falling, since that could suggest lower cash flows into the future? (That’s why landlords are always more willing to give you a month’s free rent rather than to cut rent, you know; so they can keep prices higher come lease renewal.)
The table below, grabbed from the Management Discussion & Analysis, offers excellent detail into what’s happening across the seven geographic markets where Avalon does business. As you can see, revenue rental is down for the first nine months of 2020 (Avalon generates essentially all its revenue from rentals), but average rental rates and occupancy rates are down, too — particularly in the metro New York area.
Beyond the numbers, however, are the narrative disclosures. Consider this statement from Avalon management:
Rental and other income decreased $19,995,000, or 3.4 percent, and increased $14,933,000, or 0.9 percent, for the three and nine months ended September 30, 2020 compared to the prior year periods.
The decrease for the three months ended September 30, 2020 is primarily due to an increase of $15,373,000 in uncollectible lease revenue as a result of the COVID-19 pandemic, of which $13,101,000 relates to residential and $2,272,000 relates to commercial, as well as decreased occupancy and rental rates at our Established Communities, partially offset by additional rental income generated from development completions, development under construction and in lease-up and acquired operating communities.
In other words, Avalon saw a significant spike in uncollectible revenue in the third quarter, which accounted for 77 percent of its revenue decline in the period. Ugh.
The question then becomes whether conditions will improve for Avalon any time soon. Let’s recall that a second federal stimulus package is still nowhere in sight, and job losses started to mount in October after a summer of the first federal stimulus package at least kinda sorta keeping the economy afloat.
Now the economy is in sink-or-swim territory — and Avalon’s Q3 wasn’t going swimmingly even before we reached this point.
The lesson to learn here: whether you’re negotiating a lease or analyzing financial data, read the fine print. Lord knows what you’ll find.
Real estate firm CBRE Group ($CBRE) filed its third-quarter report just before Halloween, and we decided to take a look. After all, selling and managing commercial real estate during a pandemic must be a frightful experience these days.
A glance at the income statement did not disappoint. Revenue, operating income, pretax income, net income: all were higher in Q3 2020 than they were in Q2 2020, but all were also still woefully lower than where they were in Q3 2019. See Figure 1, below.
Quite simply, CBRE has been sailing along a robust real estate market for most of the 2010s and into the first month of 2020 — when, as the company said in its Management Discussion & Analysis, “this healthy backdrop changed abruptly in the first quarter of 2020 with the emergence of the COVID‑19 pandemic.”
No surprise, but how has business changed, exactly? Which parts of CBRE are suffering?
We first looked at the Segments portion of CBRE’s footnote disclosures. That gave us some sense of CBRE’s operating divisions; the company reports three operating segments, and (see Fig. 2, below) two of them have actually increased in the first nine months of 2020 — but not enough to eclipse the 16.2 percent drop in its second-largest segment, advisory services.
Those disclosures are better than nothing — but do they really tell us that much? What goes into “Global Workplace Solutions” that is still growing respectably? What about the advisory practice taking things on the chin?
So we moved to CBRE’s Management Discussion & Analysis. That’s where we hit paydirt.
There, CBRE broke down its revenue streams in much more detail, under the guise of letting investors compare the total mix of revenue streams this year to the mix of revenue streams last year. See Figure 3, below.
(In the filing, CBRE’s table also compares the first nine months of 2019 and 2020, but we couldn’t capture a decent image of the whole display.)
To calculate each line item’s change from 2019 to 2020 you do need to do some math, but only some math. For example, fees from global workplace solutions rose 5.6 percent from the year-ago quarter, while revenue from advisory leasing plunged 31.4 percent.
Reading CBRE’s MD&A also provides more context for what all those lines of revenue are, and how the pandemic is shaping them. Here’s one useful paragraph:
COVID-19 is putting downward pressure on parts of our business and creating larger opportunities in other parts. The severe economic effects of the pandemic continued to weigh heavily on higher-margin property lease and sales revenue in the Advisory Services segment. However, global industrial leasing revenue, fueled by e-commerce, and project management activities for occupier clients were resilient during the third quarter. Also, during the third quarter, our Continental Europe business showed signs of recovery and benefited from our diverse service offering during the period.
Our point: you can find a lot of data and insight in the footnotes, although you might need to look in more than one disclosure, or across several disclosures, to get the best picture. It’s a good thing our Interactive Disclosures page, our Trace function, and lots of other features bring exactly that precision and versatility to your fingertips!
As you all know because you hang on every word of this blog, Calcbench hosted its first-ever live webinar on Oct. 19 to discuss goodwill assets and impairments: why those things are important to financial analysis, how you can research data about goodwill, and what that data has been telling us lately.
You can view the entire one-hour discussion on YouTube if you like. Meanwhile, we wanted to review some of the big themes in that presentation and connect them to other goodwill examples we’ve seen lately.
First, our guest speakers Dan Gode of New York University and P.J. Patel of Valuation Research Corp. talked about the growth in goodwill assets on the corporate balance sheet generally.
In general, that growth should not be a surprise; over the last two decades, M&A activity has inexorably tilted toward more knowledge-based businesses and industries, where goodwill can account for a significant portion of the value that an acquisition target brings. So one should expect goodwill to become a larger part of the balance sheet.
Second, while goodwill impairments do happen, those write-downs do tend to take some time to emerge. As Patel noted, after a deal closes, executives typically need several years to achieve the “synergies” so breathlessly promoted at time of acquisition— or, perhaps, to conclude that those synergies aren’t as bountiful as first presumed. Then impairment enters the picture.
Speaking of Synergies…
As fate would have it, while we were writing this post, health insurance giant Centene Corp. ($CNC) filed its quarterly report for Q3 2020. Included in that report were details of Centene’s acquisition of WellCare earlier this year for a total of $19.55 billion in cash and stock — where goodwill accounted for $11.71 billion of that amount.
You can see the purchase price allocation here, with goodwill listed at the bottom:
So why did this example of goodwill intrigue us? Because in the footnotes below the table, Centene management had this to say about that $11.71 billion:
Goodwill is estimated at $11,171 million and primarily relates to synergies expected from the acquisition and the assembled workforce of WellCare. The assignment of goodwill to the company’s respective segments has not been completed at this time, but the majority of goodwill is expected to be allocated to the managed care segment.
Synergies! Mentioned right there in the first sentence of the disclosure!
We cannot speculate on how skillfully Centene will or won’t extract those expected synergies. Our points are only that (1) an analyst should always check back on announced acquisitions, because purchase price allocation (like Figure 1, above) often isn’t reported until one or two quarters after the breathless press release; and (2) always read the footnote disclosures, because that’s where the juicy stuff like purchase price allocation gets reported.
Anyway, Back to Our Webinar
The Centene example above just streaked across our radar today on our Recent Filings page. In our webinar, we examined the goodwill balances of Analog Devices ($ADI) as well as Roper Technologies ($ROP). Analog is fascinating because most of its goodwill is tied to one large acquisition the company closed in 2017; Roper is interesting because it has done many smaller deals over time.
We also talk about how coronavirus has affected goodwill impairments, and whether it will keep affecting impairments in the future. (Short answer from our speakers: probably not.)
As always, Calcbench subscribers can choose your own goodwill adventure when sifting through our database archives:
And just because we’re so proud, here’s our webinar that you can play right here and now. Enjoy!
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