Welcome to part two of Hudson Labs' Rocky Awards where we air out everyone’s dirty laundry. For more corporate nonsense check out part 1 of the Rocky Awards featuring crowd favourites DWAC, Twitter and more.
The Ignoramus
Awarded to the pundit with the worst understanding of accounting, fundamentals, or life in general
Winner: Opendoor's $OPEN Executive Chairman - for insisting contribution margin was a GAAP metric
Opendoor, a digital platform for residential real estate, had been suffering with large losses throughout 2022. The company appeared to be doomed due to rising interest rates, but its co-founder and chairman, Keith Rabois, wouldn’t go down without a fight.
Keith Rabois appeared at CNBC in late September to let the world know that Opendoor “has been making money successfully for 5 years in a row” and would recover from this economic blip. However, CNBC reporter Deidre Bosa reminded Rabois that the company has not been making money, and has not been profitable under Generally Accepted Accounting Principles (GAAP) in the last few years.
Keith explained that on a per-home basis, Opendoor was making money and that stock-based expenses don’t matter.
The reporter reminded him that the profitability numbers Keith was referring to are non-GAAP. He doubled down on his argument, explaining that Opendoor is profitable on a contribution margin basis and therefore profitable on a GAAP basis. Like a true gentleman Keith’s rebuttal included an eloquent, “that’s stupid”.
According to the company’s own 10-Q, which Keith probably had to approve, contribution margin is (obviously) a non-GAAP metric. Better luck next time, Keith.
To our credit, Hudon Labs flagged a multitude of high severity red flags at Opendoor prior to their not so temporary “blip”. Hudson Labs predicted Opendoor Technologies $OPEN stock collapse
The Corporate Negligence Award
Awarded to the company with the sloppiest mistake in their SEC filings
Winner: Audit firm Marcum LLC - for accidentally giving Pershing Square Tontine Holdings $PSTH (Bill Ackman’s SPAC) an adverse opinion on internal controls, sort of.
SPACs had a rocky (haha get it?) year in 2022. Many SPAC mergers failed during the year while many de-SPACs disclosed struggles like cash flow issues.
Hence, it only makes sense that one of the weirdest 10-K amendments we identified came from none other than a SPAC. Not just any SPAC, but the SPAC created by billionaire Bill Ackman.
On March 4, 2022, Pershing Square Tontine Holdings filed an amendment to its Form 10-K for the year ended December 31, 2021 because the company’s auditors, Marcum, accidentally included “seven additional unintended words in their report.”
What were those seven words? “Because of the existence of material weaknesses.”
FYI, a “material weakness” means that a company’s systems or processes (i.e, internal controls) are not effective in ensuring accurate financial statements.
This is super weird because Marcum’s audit report was meant to state that the internal controls are absolutely fine!
We love imagining the call between the audit partner at Marcum and Bill Ackman. ‘I’m sorry sir, but to cut costs we outsource our audit report drafting to high school students.’
We think it might be because the audit partner was stretched a little thin…. Read more here - Withum and Marcum audited over 78% of all SPACs since 2020.
It was all for naught, because in July 2022 Bill Ackman decided to shut down Pershing Square Tontine. It had been the largest SPAC ever, raising $4 billion. Nevertheless, as we had seen with so many SPACs in 2022, Pershing could not find a company to acquire and never completed a merger.
The Felon
Awarded to the executive with the most absurd arrest. (We had to add this award because there were multiple this year.)
Winner: Beyond Meat $BYND COO for biting a man’s nose.
Runner up: Tyson Foods $TSN CFO for drunkenly crawling into a stranger’s bed and sleeping in it.
Both of these exec arrests were so ridiculous that we had to highlight them both.
In November, John R. Tyson, CFO of Tyson Foods (and yes, the heir to the Tyson chicken empire), was found sleeping in a stranger's house in an alleged state of intoxication. Tyson was arrested but pleaded not guilty to the charges.
For some reason (possibly because he’s family), the board of Tyson Foods stated that they had confidence in him and that the situation was a personal matter.
In their defense, the Tyson’s have been under a lot of stress since…
Douglas Ramsey, now the former COO of Beyond Meat, was arrested for reportedly biting a man’s nose. According to witnesses, Ramsey was involved in a dispute with a driver at the parking lot of an Arkansas football game, ripping the flesh on the tip of the man’s nose!
In a statement the following day, Beyond Meat apologized for encouraging cannibalism among staff. It is an alternative to animal products after all. Just kidding, that last part isn’t true. Everything else (incredibly) is though!
Soon after the incident, Beyond suspended him which was disclosed in a whirlwind SEC filing.
What’s even more incredible is that Douglas Ramsey was a former Tyson Foods executive! Truth really is stranger than fiction.
The Fixer Upper
Awarded to the company with the most (or the most notable) amendments to their quarterly filings
Winner: Beauty Health Co $SKIN with FOUR amendments to 10-Ks/Qs, the most of any accelerated filer in 2022.
Beauty Health Co had to make amendments to every single one of its annual and quarterly filings submitted in 2022. On December 15, 2022, Beauty Health changed its previously filed Form 10-K for the year ended December 31, 2021 as well as its three Form 10-Qs filed during 2022.
The company had to amend these reports because it had inadvertently omitted an important statement from the CEO about the company’s internal controls. Beauty Health Co had originally omitted a required certification from the CEO which should have stated that he (Andrew Stanleick) assessed the adequacy of the company’s internal controls over financial reporting.
You can learn more about internal controls and why/when they matter in “Interpreting internal control (ICOFR) weaknesses in stock research”.
It will come as no surprise that the company has reported ineffective internal controls continually since December 2020. Also unsurprising - Hudson Labs models rate Beauty Health Co as high risk.
Check out part 1 of the Rocky Awards to see which company put Elon Musk’s tweets in their securities filings - The Rocky Awards return to highlight 2022’s most notorious corporate nonsense
