Hudson Labs Red Flags - Dirty Laundry
Welcome to our weekly reports featuring impactful and unusual disclosures as extracted by Hudson Labs' algorithms.
Filings from the week of January 10-14.
Top red flags from last week:
BOSTON BEER CO INC (SAM) | 8-K | $6.3B SAM’s Chairman and Founder terminated his 10b5-1 plan, deciding not to purchase 356,500 shares. In the same 8-K, the company announced that they do not expect to meet guidance for shipment growth and gross margin earnings. Read more about 10b5-1 and insider trading here.
MARATHON PETROLEUM CORP (MPC) | 8-K | $44B Marathon announced that their Executive Vice President and Chief Commercial Officer, Brian Davis, is “no longer with the company”. The 8-K does not mention if this was a voluntary resignation.
FIDELITY NATIONAL INFORMATION SERVICES INC (FIS) | 8-K | $72B Bruce Lowthers resigned as President of FIS “to pursue other opportunities”.
E2OPEN PARENT HOLDINGS INC (ETWO)
10-Q | Market cap: $3B
E2Open announced a revenue increase of $52.9M compared to the same quarter last year, an increase of over 60%. This increase was almost entirely due to their BluJay acquisition; $51.7M of the $51.9M increase was due to BluJay [1].
The company opted for early adoption of ASU 2021-08 which allowed them to avoid a fair value adjustment of deferred revenue, and revenues for their new acquisition. This early adoption allows the company to present BlueJay revenues at their contract amount, as opposed to the lower fair value on acquisition (revenues net of costs to fulfill the contract) [2], [3].
- “For the three and nine months ended November 30, 2021, BluJay contributed $40.3 million to subscriptions revenues and $11.4 million to professional services revenue.”
- “During the three and nine months ended November 30, 2021, we recorded a $10.4 million and $47.1 million reduction to revenue to amortize the deferred revenue fair value adjustment that resulted from the purchase price allocation in the Business Combination, respectively. With the early adoption of ASU 2021-08, a fair value adjustment to deferred revenue is no longer required; therefore, an adjustment to deferred revenue was not made for the BluJay Acquisition.”
- If not for the adoption of ASU 2021-08, the company would have recorded an allowance for the difference between the fair value of deferred revenue acquired and the book value. Fair value would have been expected future revenues less costs to fulfill the contract (as opposed to the full expected future revenue balance). Under the old standard, as deferred revenue was recognized to revenue, the allowance account would have been amortized to the income statement as a reduction in revenue. By making the choice to adopt the new standard early, the company was able to record higher revenues from acquisition.
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