Featuring FOMC, ZI, M, CLNN, and MO
Welcome to the inaugural 2021 Hudson Labs Rocky Awards.
Featuring FOMC, ZI, M, CLNN, and MO.
We’re wrapping up the year with a recap of the companies who have had the (dubious) honor of catching our attention. Welcome to the Rocky Awards!
About us: Hudson Labs extracts red flags from SEC filings based on learned associations with downside outcomes. Our institutional dashboard analyzes annual and quarterly statements, 8-Ks and SEC comment letters for over 8,000 tickers. We process filings and render analysis in real-time.
The Busybody Rocky
Awarded to the company with the most 8-Ks filed during the year
Winner: FOMO CORP (FOMC) for filing 131 separate 8-Ks during the year.
Public companies must file 8-Ks to announce major events that shareholders should know about. Typically companies will file 8-Ks for each of their earnings releases, and a few other events during the year. In 2021, Apple filed 9, Meta filed 7, and Microsoft filed 10.
Companies who file excessive 8-Ks are often trying to generate buzz. Fomo Corp may be using 8-Ks to generate fear of missing out, true to its namesake. Excessive 8-K filings can also be a way to bury information in noise.
FOMC filed an 8-K every second day (on average) during the year! Given that the typical deadline for filing an 8-K is 4 days after a significant event, FOMC certainly could have filed fewer.
The runner up, ASHFORD HOSPITALITY TRUST INC (AHT) filed 66, fewer than half filed by FOMC. Last year, this dubious honor went to Wells Fargo, with 101 8-Ks filed in 2020.
The Insider Rocky
Awarded to the company with the most Form 3, 4, and 5s (insider transaction forms) filed during the year
Winner: ZOOMINFO TECHNOLOGIES INC (ZI) for filing 587 Form 3, 4, and 5s during the year.
Company insiders, those with insider knowledge of material information, often own shares and trade them. When insiders trade they need to file a Form 3, 4, or 5 (or 144, see the Inside and Underground Rocky, below).
ZoomInfo had a massive stock price surge when they IPO’d in 2020, but there has been speculation that the surge was due to confusion between this sales prospect software company and Zoom Video Communications, the well-known video-conferencing provider that saw explosive growth with the expansion of work-from home during the pandemic. With such a high valuation, it’s easy to see why insiders were eager to cash out.
Honorable mention: CARVANA CO (CVNA) with 368. Carvana also got called out for being overvalued by some - https://www.sprucepointcap.com/carvana-co-update/
The Inside and Underground Rocky
Awarded to the company with the most Form 144s filed during the year
Winner: MACY’S INC (M) with 16 Form 144s.
For some reason we can’t fathom, the SEC still allows Form 144 paper filings for insider trades. Whereas Forms 3, 4, and 5 are electronically filed and therefore easier to analyze, these scans of paper filings are much harder to find and process. Perhaps companies have some reason other than obfuscation for filing Form 144s - a deep love of the fax machines? An old stack of forms they refuse to just recycle?
Honorable Mentions: OLIN CORP (OLN) with 15, HUMANA INC (HUM) with 10.
The Flying High Rocky
Awarded to the company with the most extravagant CEO aircraft privileges.
Winner: MICROSTRATEGY INC (MSTR) for eliminating their cap on personal use of the company aircraft.
Perhaps Microstrategy was tired of pretending to need a plane for business purposes?
CEO use of private jets exemplifies corporate extravagance. Using a company plane for personal trips may not be the most effective stewardship of company resources. Aircraft disclosures are good ‘tone at the top’ signal. We previously reported on Playboy (PLBY) buying a plane within weeks of their IPO, on Canoo (GOEV) reimbursing roughly $500,000/quarter to their CEO for use of his family’s aircraft, but ultimately, we think Microstrategy Inc wins this Rocky, for eliminating any caps on personal use of the corporate aircraft:
"In addition, the Compensation Committee amended the Company’s policy governing the use of Company aircraft (the “Aircraft Use Policy”) to eliminate (i) the 50% cap on the total number of hours that the Company aircraft may be used annually for non-business use and (ii) the annual 200 flight hour cap on non-business use of the Company aircraft, with such amendments effective as of 2021."
Forget private planes, the real question is whether they paid for the aircraft with Bitcoin!
The Round Tripper Rocky
Awarded to the most extreme round-tripping transaction.
Winner: CLENE INC (CLNN) for eye-catching Q1 results.
Round-tripping is the practice of buying and selling to related parties in a “you scratch my back, I’ll scratch yours” fashion. Round trip transactions can be useful in showing revenue growth, even if contribution to the bottom line is insignificant; both companies get to book increased sales, but may not be in a better position than if the transaction had never occurred.
In their first quarterly statement after they went public via SPAC, all of CLNN’s revenue was from related parties ($0.2M product revenues) and the company recorded related party cost of sales on these sales for a similar amount ($0.2M cost of sales). In subsequent quarters the company margin increased and they dropped disclosures on related party cost of goods sold. We’re hoping the nil margin related party transactions are gone for good.
The “Temporary” Rocky
Awarded to the company with the most notable “temporary” decline in asset value before eventual impairment.
Winner: ALTRIA GROUP INC (MO) for their investment in ABI.
Altria owns approximately 10% of Anheuser-Busch InBev SA/NV (ABI). ABI’s share price dropped below Altria’s recorded book value in October 2019, but at quarter end Altria argued that the decline was a temporary reduction in price due to COVID-19 despite the fact that the decline in price was evident in October 2019. Only in September 2021 did Altria finally recognize a $6.2M pre-tax impairment. ABI’s price had recovered significantly by that point. The largest difference between fair value and book value during this saga was Q2 2020, where the book value of the investment exceeded fair value by more than $7B.
