EDR, MCG, GOL, BFLY, DXPE, PLUG, IDEX
Welcome to our weekly reports featuring impactful and unusual disclosures as extracted by Hudson Labs' algorithms.
Filings from the week of March 16 - March 22.
Elon Musk resigns from the BOD of Endeavor Group Holdings, Inc. (EDR), the CFO of Membership Collective Group (MCG) steps down while the company reports ineffective controls. Both EDR and MCG collateralize their assets while taking on unusually high debt.
Top Red Flags
BUTTERFLY NETWORK INC (BFLY) | 8-K | $1B - BFLY reported that it had failed to obtain proper signatures from its officers and directors for its most recent 10-K filing, its last three 10-Q filings, and its previous ELEVEN 8-K filings. The company stated it will not need to change its financial results in any of these reports. However, it most likely will have to refile the reports.
GOL INTELLIGENT AIRLINES INC (GOL) | 20-F | $5B - GOL was up 16% in its share price from March 14th to March 18th. However, at the same time, the company reported ineffective controls in its revenue system and significant uncertainty in its operations due to negative cash flows.
DXP ENTERPRISES INC (DXPE) | NT 10-K | $560M - DXPE delays its 10-K filing for the year ended December 31, 2021. The delay was primarily due to a change in auditor back in November 2021 (very late to change auditors!). This is the FIFTH time the company filed an NT 10-K or NT 10-Q since 2019!
PLUG POWER INC (PLUG) | 8-K | $16B - PLUG fired KPMG after the auditor gave an adverse opinion on its controls for two straight years. The company hired Deloitte as its new auditor. Could PLUG be audit opinion shopping?
IDEANOMICS INC (IDEX) | 8-K | $480M - IDEX received a notice from Nasdaq stating that it had not yet filed its 10-K, resulting in noncompliance with the stock exchange. This was one of several red flags from IDEX in recent years, which include restatements in its financial statements for periods ended March 31, 2021 and June 30, 2021 due to errors in revenue recognition.
ENDEAVOR GROUP HOLDINGS INC (EDR)
10-K | Market Cap: $14B
On March 12, 2022, Elon Musk resigned from EDR’s board of directors, effective June 30, 2022. EDR stated that his departure was not based on any disagreements between him and the company. [1] EDR is a media and entertainment conglomerate that owns and manages live events including UFC, New York Fashion Week, and Miss Universe.
Musk will not be replaced. Instead the size of the board will decrease to 7.
EDR’s board is NOT majority independent. [2] EDR is a controlled company (>50% voting power with Ari Emanuel and Patrick Whitesell) and has elected not to comply with NYSE corporate governance standards. [3] As a controlled company, EDR disclosed that “stockholders do not have the protections afforded by [NYSE’s] corporate governance requirements.” In other words: buyer beware!
Furthermore, EDR disclosed that it has “pledged a significant portion” of its assets as collateral to its long term debts. The company, however, is highly leveraged with a debt-to-equity ratio of approximately 2.69. [4] This ratio is significantly higher than others in the industry. [5]
The company reported that it was not “engaged to perform an audit of its internal control over financial reporting.” It also stated that the CEO and CFO evaluated its controls as effective as of December 31, 2021. [6] Nevertheless, the company identified a material weakness in its internal controls over financial reporting back in 2019. [7]
“On March 12, 2022, Elon Musk notified us of his resignation from our board of directors, effective June 30, 2022 and, in connection therewith, the board of directors approved reducing its size from eight to seven members subject to and effective upon the effectiveness of Mr. Musk's resignation. Mr. Musk’s resignation was not the result of any disagreement with the Company on any matter relating to its operations, policies or practices.”
“Messrs. Emanuel and Whitesell, Executive Holdcos, and the Silver Lake Equityholders control, as a group, more than 50% of our combined voting power for the election of directors.”
“As a result, we are considered a “controlled company” for the purposes of NYSE rules and corporate governance standards, and therefore we are permitted to, and we intend to, elect not to comply with certain corporate governance requirements of the NYSE, including those that would otherwise require our board of directors to have a majority of independent directors and require that we either establish Compensation and Nominating and Corporate Governance Committees, each comprised entirely of independent directors, or otherwise ensure that the compensation of our executive officers and nominees for directors are determined or recommended to the board of directors by the independent members of the board of directors.”
Debt-to-equity ratio was calculated based on EDR’s long term debt and shareholder’s equity as of December 31, 2021.
According to finviz.com, the median debt-to-equity ratio for companies in the entertainment industry is 0.63. EDR’s debt-to-equity ratio is more than 4x the median ratio.
“The Company's management has evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021.”
Disclosure regarding material weakness in EDR’s FY 2019 internal controls over financial reporting most recently found in the company’s Form S-1 filed on June 30, 2021.
MEMBERSHIP COLLECTIVE GROUP INC (MCG)
10-K & 8-K | Market Cap: $1.5B
Known for its exclusive membership hotel Soho House, MCG announced the resignation of its CFO, Humera Afzal on March 16, 2022. [1]
The resignation was announced the same time the company reported ineffective controls for its most recent fiscal year end. [2] MCG reported that it lacked qualified accounting and finance professionals with US GAAP experience. [3]
MCG also disclosed that it has “pledged a significant portion” of its assets as collateral to its long term debts. The company, however, is highly leveraged with a debt-to-equity ratio of approximately 2.56. [4] This ratio is quite high compared to others in its industry. [5]
Per MCG Form 8-K filed March 16, 2022: “Humera Afzal has resigned as the Chief Financial Officer of the Company. Ms. Afzal’s resignation will be effective on June 14, 2022, at the end of her three-month notice period.”
“Management concluded as of January 2, 2022 that our disclosure controls and procedures were not effective at the reasonable assurance level, due to material weaknesses in our internal control over financial reporting, to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.”
“Based on management’s assessment of the effectiveness of our internal controls over financial reporting, management concluded that our internal controls over financial reporting were not effective as of January 2, 2022, due to insufficiently qualified accounting and other finance personnel with an appropriate level of U.S. GAAP knowledge and experience.”
Debt-to-equity ratio was calculated based on MCG’s long term debt and shareholder’s equity as of January 2, 2022.
According to finviz.com, the median debt-to-equity ratio for companies in the lodging industry is 1.5.
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