#non-gaap

Spirit AeroSystems, a crucial supplier to aircraft manufacturers Boeing and Airbus, filed its year-end 2023 earnings report this week. The report offers some fascinating disclosures that can help analysts understand how Spirit’s performance might be affected by the struggles Boeing is having these days with its 737 jets. 

As you probably already know, Boeing ($BA) suffered yet another safety and publicity mishap on Jan. 5, when a door on one of its 737 Max jets blew off the fuselage mid-flight. That fuselage was manufactured by Spirit AeroSystems ($SPR).

Investigators believe the door that flew off this specific flight — an Alaska Airlines ($ALK) flight from Oregon to California — was first delivered intact to Boeing, where technicians then removed it from the fuselage and perhaps re-attached it improperly; so perhaps this specific failure can’t be attributed to Spirit. On the other hand, Spirit shareholders filed a lawsuit against the company in 2023 alleging “widespread quality failures.” 

How will all this get resolved by air safety regulators? Calcbench doesn’t know. But we did take a close look at Spirit’s earnings release, which paints a rather detailed picture of the financial ties between Boeing and Spirit.

For example, Figure 1, below, shows the pace of Spirit’s “shipset deliveries” (that is, the number of aircraft) grouped by type of aircraft.

If you do the math, Airbus accounts for 51 percent of Spirit’s aircraft deliveries in all of 2023 — but Boeing started to close the gap by Q4 2023, when it accounted for 33.4 percent of all Spirit deliveries versus 49 percent for Airbus.

Even better is that Spirit reports the number of deliveries per type of aircraft, including the 737. Using our “Show Tag History” feature, we then looked at the number of 737 deliveries per quarter for the last four years. See Figure 2, below.

Boeing had made the 737 Max a linchpin of growth plans in the 2010s, until it suffered two crashes in 2018 that cost more than 300 lives. Sales of the Max had just begun to recover from that disaster when this new incident with the door struck. So what will Q1 2024 deliveries look like? Only time will tell, but Calcbench does let you track disclosures at that level of detail!

What About the Money? 

Spirit also reports revenue and earnings for several operating segments. One of them is a Commercial segment, which includes the Boeing 737 and other aircraft types mentioned in Figure 1, above. Those revenues arrived at $1.52 billion in Q4 2023. 

We again used our Show Tag History feature to chart Spirit’s commercial revenues for the last four years. See Figure 3, below. (Note the swift plunge in Q2 2020 when the pandemic struck.)

What we don’t know from these disclosures is how much Spirit’s commercial revenues depend on Boeing deliveries, and deliveries of the 737 specifically. Yes, Boeing accounts for roughly one-third of aircraft deliveries lately; but one-third of deliveries doesn’t necessarily mean one-third of all revenue. For example, it might well be the case that Airbus aircraft are more expensive, and account for an outsized share of that $1.52 billion.

You might remember that several weeks ago Calcbench previewed our airline earrings analysis tool, an Excel template we cooked up to study earnings and other key performance metrics in the airline industry. 

Well, all major U.S. airlines have now reported their Q4 2023 earnings, and we’re happy to say our template worked like a charm. Here’s a quick chart tracking total revenue per available seat mile — TRASM, a crucial metric for airline performance — since the start of 2020. 

If you are a Professional-level Calcbench subscriber and have installed the Calcbench Excel Add-In, all you need to do is download our template from DropBox. The template will then automatically pull the latest quarterly data as the airlines file earnings reports. 

TRASM isn’t the only metric our template tracks, either. You can get automatic updates on… 

TRASM, or total revenue per available seat mile

CASM, costs per available seat mile

Load factor, which is the percentage of seating capacity filled by customers

Fuel consumed

Average fuel cost per gallon

Percentage of revenue coming from passengers

EPS

Calcbench has been using this template internally for a while now, such as when we looked at fuel costs for five major airlines last October or when we looked at RASM for those same five airlines last July. We are happy to share it far and wide. (Although the template won’t work unless you have a Professional-level subscription. If you’d like to inquire with us about that, email [email protected].)

Fourth-quarter 2023 earnings will start to arrive this week, and one early filer is Delta Air Lines ($DAL), which will announce earnings on Jan. 12. That gives us an excellent opportunity to remind everyone of Calcbench’s ability to study earnings data in detail, using airlines as the example.

Earlier this year we cooked up a template to study earnings and key performance metrics in the airline industry. The template is a spreadsheet that Calcbench subscribers can use to track numerous disclosures that matter in the airline sector, including:

RASM, or revenue per available seat mile

CASM, costs per available seat mile

Load factor, which is the percentage of seating capacity filled by customers

Fuel consumed

Average fuel cost per gallon

Percentage of revenue coming from passengers

EPS

Calcbench has been using this template internally for a while now, such as when we looked at fuel costs for five major airlines last October or when we looked at RASM for those same five airlines last July. 

In anticipation of Q4 earnings, which should arrive from all the majors over the next three weeks, we used our template to look at RASM yet again for major airlines: Delta, American Airlines (AAL), United Airlines (UAL), Alaska Airlines (ALK), JetBlue (JBLU) and Southwest (LUV). See Figure 1, below.

Delta, in green, has been pulling away from its competitors for a while now. That’s also what the data told us last July, and we’ll be curious to see whether the pattern continues in Q4 results. 

On the other hand, how neatly does high RASM translate into EPS performance? Perhaps not all that much. Figure 2, below, compares quarterly EPS, and if you can see a clear outlier in those numbers, your analytical eyesight is better than ours; these results are all over the map.

So how can you take advantage of our airlines analysis template? Follow these simple steps.

Be a Calcbench professional-level subscriber. 

Install the Calcbench Excel Add-In. 

Download our template from DropBox.

That’s it, really. As Q4 data arrives, it will automatically populate in the template and your analysis is as current as can be.

If we love to do anything here at Calcbench, we love digging into the footnotes to excavate fascinating nuggets of financial analysis. So when Uber ($Uber) and Lyft ($Lyft) both filed their third-quarter earnings reports the other week, we got to work. 

At first glance, Uber dwarfs Lyft in almost every way. Most notably, Uber had roughly nine times the revenue as Lyft ($9.3 billion versus $1.16 billion) and almost the same multiple on total assets ($35.95 billion versus $4.48 billion). Uber also had a positive number for net income ($219 million) which is more than we can say for Lyft (net loss of $12.1 million). 

More than that, Uber also dwarfs Lyft on several non-GAAP metrics too. For example, Figure 1, below, shows total gross bookings — that is, the total amount paid for a rideshare trip, including taxes, tolls, the driver’s share of the payment, and everything else — for the last seven quarters. 

For those who don’t have a magnifying glass to make out Lyft’s numbers, average quarterly gross bookings for Lyft was $3.16 billion. For Uber it was $30.8 billion. On the other hand, Lyft’s gross bookings did rise 32 percent, compared to 33.4 percent for Uber — so even though Lyft is starting from a far lower floor, its growth in bookings has kept pace with Uber. 

Here’s where things get interesting, however. Gross bookings might not be the best comparison between Uber and Lyft, because Uber has multiple operating segments: Mobility (personal trips), Delivery (food delivery), and Freight, which is mostly logistics services to match carriers and shippers. Lyft, meanwhile, only reports a single operating segment of ridesharing. 

This means that some portion of those sky-high Uber numbers in Figure 1 aren’t really fair to Lyft. So can we get a more accurate reading of Uber’s gross bookings for Mobility only? 

We can! Dig into the Management Discussion & Analysis in Uber’s most recent 10-Q, and on Page 47 you find a table listing gross bookings by operating segment. See Figure 2, below.

This changes the proportions of the story, although not the basic plot. Even with those Mobility-only numbers, ranging from $10.7 billion at the start of 2022 to $17.9 billion in Q3, Uber still dwarfs Lyft’s numbers. 

OK, but what about comparing the number of trips for Uber versus Lyft? Can that tell us anything? Kinda sorta, but not really. 

Both Uber and Lyft do disclose the number of trips that their respective companies provide. Figure 3, below, shows the comparison, yet again with Uber dwarfing Lyft. 

The drawback is that Uber and Lyft define this metric differently. Uber discloses “trips,” defined as the number of completed rides for its Mobility and Delivery segments. Lyft discloses “rides,” which is the number of completed rides — but since it has no Delivery segment, comparing trips to rides isn’t an apples-to-apples comparison.

What we don’t have from Uber is a breakdown of its Mobility trips versus Delivery trips. If we did have that number, then we could make a fair comparison and answer another burning question: How much revenue is each company making per trip? 

Alas, Uber and Lyft don’t disclose sufficient numbers to let us draw any conclusions about that. They both do report revenue, obviously; but since they define “trips” and “rides” in non-comparable ways, we can’t really divide total number of trips/rides into revenue to derive a “revenue per ride” metric. Uber’s “trip” number would include food deliveries, while Lyft’s “ride” number wouldn’t. 

Lyft does give a few tantalizing hints in its Management Discussion & Analysis, with non-GAAP disclosures such as “Active Riders” and “Revenue per Active Rider.” Except, Lyft defines an active rider as someone who uses the service at least once per quarter; Uber discloses a “Monthly Active Platform Consumer” (MPAC) which is someone who completes either a Mobility ride or a Delivery order at least once per month. 

Earlier this week railroad giant Union Pacific, UNP, filed its most recent quarterly report. This gives us an excellent chance to demonstrate just how precisely you can tailor the key performance metrics you want to track using Calcbench data. 

Let’s start with the income statement since that’s always a good place to begin with financial analysis. Figure 1, below, shows quarterly results for the last five periods. 

As you can see, operating revenue dropped 9.5 percent, from $6.56 billion in third-quarter 2022 to $5.94 billion in third-quarter 2023. 

That decline in revenue is good to know, but honestly it doesn't tell you much about where within Union Pacific’s railroad empire those declines are coming from. To find out that information, you’re better off digging into the Management Discussion & Analysis. There, you can find average revenue per car, categorized by type of good. See Figure 2, below. 

Nifty data, but a bit hard to comprehend in table format. So we used our "Export Table" functionality within our Disclosure Viewer and .... Presto! We now have an easy way to see changes in revenue per carload for each type of shipment Union Pacific offers. See Figure 3, below. 

With our API and Excel Add-In, you can even automate exercises like this. The real challenge is in knowing what data is available for the companies you follow and how to find it. 

How much are you paying for gas? Or, more precisely, how much are you paying for gas when flying at an altitude of 32,000 feet in an aluminum tube with several hundred other people?

Airlines, like many businesses, report a wide range of metrics and KPIs in their earnings press releases. Some of those disclosures are downright fascinating, because they tell us so much about how well the companies are performing—and how well those companies are likely to perform in the future, too.

One such metric is average price per gallon of fuel for the period. In general, you would expect prices among airlines to be quite similar. After all, fuel is a commodity, so all buyers should pay a similar price for it, right?

To test that thesis, we examine the disclosures of five airlines:  Delta Air Lines (DAL), Southwest Airlines (LUV), Alaska Air Group (ALK), American Airlines Group (AAL), and United Airlines (UAL). We collected data from their earnings press releases from Q1 2020 to Q2 2023, focusing on the average price of fuel per gallon. The result is in Figure 1, below. 

As expected, we see that average prices for the fuel were generally similar for all five airlines over time. (Remember that this is the price per gallon, so every cent counts and would be significant.) With that in mind, we note a couple of interesting cases.

In Q1 2022, Southwest (the green line in Figure 1) seems to be paying much less than the others. In its filing for that period, the airline said: “While we are experiencing inflationary pressure from higher jet fuel prices, our fuel hedge is providing significant protection against rising oil prices.” The entire filing can be found in our disclosure page.

A similar case happened in Q3 2022 where again, Southwest seemed to be paying less. In that period’s filing, the airline said: “Our fuel hedging strategy continues to provide protection against persistently high jet fuel prices, and we are 61 percent hedged in fourth quarter 2022 and 50 percent hedged in full year 2023. We continue to execute well against our full year 2022 non-fuel cost guidance, despite cost headwinds due to operating at suboptimal productivity levels and significant inflationary cost pressures.” Again, the entire filing can be found in our disclosure page. 

Because we love our subscribers so much, you can use the spreadsheet template which we created on the airlines which we've posted publicly to DropBox.

By Olga Usvyatsky

(Editor’s note: Today we have a guest column from Olga Usvyatsky, a long-time accounting researcher and occasional contributor to the Calcbench blog. Usvyatsky is raising interesting questions about non-GAAP disclosures and how financial analysts might anticipate potential changes in disclosures based on what the SEC says in comments to registrants.)

Non-GAAP disclosures are one of the most common issues in financial reporting. Almost all large publicly traded companies make them, and such disclosures typically paint a more positive picture of corporate performance than comparable GAAP disclosures. 

At the same time, however, the Securities and Exchange Commission reviews non-GAAP disclosures with a skeptical eye. Earlier this year an article in the Wall Street Journal raised the possibility that thanks to increased SEC scrutiny, companies might change how they calculate non-GAAP metrics. Altering those calculations could be "embarrassing or even costly" for companies, the article said, because they would need to explain to investors why the previously used metrics were no longer permissible.

SEC rules require companies to reconcile non-GAAP disclosures back to their closest matching GAAP disclosure. Those non-GAAP adjustments can be significant, and changing how non-GAAP metrics are calculated could materially reduce adjusted income. In December 2022 the SEC Division of Corporation Finance updated its guidance on non-GAAP disclosures, expanding the list of non-GAAP metrics that violate SEC rules. This renewed scrutiny made us wonder: what types of non-GAAP adjustments would raise red flags with the SEC?

One way to answer that question is to examine SEC comment letters (letters the SEC sends to registrants, asking them about various issues in their financial statements). We used Calcbench’s Interactive Disclosure tool to identify roughly 1,900 SEC comment letters issued since 2021 that raised at least one non-GAAP comment. Then we looked to see which specific citations from that updated non-GAAP guidance were mentioned in the comment letters.  

The issue raised by the SEC most often was Question 102.10, which primarily concerns how companies disclose their metrics. SEC rules prohibit giving undue emphasis to adjusted numbers, such as discussing non-GAAP numbers before GAAP or presenting full non-GAAP income statements. As far as we can tell, presentation-only issues are relatively easy to rectify by updating the disclosure in future filings.

Notably, the updated SEC non-GAAP interpretation states that metrics can be misleading even if properly disclosed. For example, consider removing recurring expenses (Question 100.01) and tailoring non-GAAP metrics to company-specific needs (Question 100.04). Compliance with these provisions following SEC inquiries could be costlier for companies, since it would often require revising the metrics, explaining the changes to investors, and finding alternative ways to communicate results. 

One example of this comes from Lyft (Ticker: LYFT). On Aug. 12, 2022, the SEC asked Lyft to clarify how removing insurance reserve liabilities complies with Questions 100.01 and 100.04 of Regulation G. The company responded, stating that the adjustment is useful and not misleading: 

Regarding the considerations of Questions 100.01 and 100.04, the company does not believe this adjustment to be potentially misleading nor does it consider it to be a measure that uses an individually tailored recognition and measurement method in violation of Rule 100(b) of Regulation G. The company believes that this adjustment, which is disclosed as a separate line item and explained in the company’s non-GAAP discussions, provides investors with additional useful information related to the company’s operating performance during the current period, rather than including the impacts associated with insurance claims which occurred in prior periods.

After two rounds of back-and-forth comments, however, Lyft agreed to discontinue adjusting for the insurance reserves. The conversation between Lyft and the SEC spanned more than 153 days, much longer than an average 35- to 40-day review.

To understand the impact of the SEC review, let’s look at the materiality of insurance reserves to Lyft’s financial results. In 2021 the adjustment for insurance reserves improved Lyft’s non-GAAP contribution metric by $250.3 million. Removing the adjustment reduced the fiscal 2021 contribution margin from 58.6 percent to 50.8 percent. 

When explaining the revision to investors, Lyft noted that the accounting change was made to comply with the new SEC interpretation: In December, the SEC updated its guidance related to non-GAAP financial measures, which applies to all public companies. Subsequent to this change and following consultation with the SEC, we have updated our disclosures for the fourth quarter of 2022 and we have presented past periods on a comparable basis. 

Companies are not required to disclose SEC comment letters, and generally managers have little incentive to highlight SEC involvement voluntarily. Still, voluntary disclosure is notable, because managers are likely to aim at providing more transparency to avoid confusion about why the accounting change was necessary.  

Another SEC comment letter that led to non-GAAP revisions comes from Microstrategy (Ticker: MSTR). On October 7, 2021, the SEC asked Microstrategy to clarify why removing the impairment of bitcoin in reconciling its non-GAAP income and EPS metrics is useful to investors: 

Please tell us and expand your discussion to explain why you believe that adjusting for bitcoin impairment charges provides useful information to investors in light of your strategy and business purpose for purchasing and holding bitcoin. Refer to Item 10(e)(1)(i)(C) of Regulation S-K.

Although the question is fairly neutral and does not imply that the metric is misleading or inappropriate, the SEC noted that the discussion of the usefulness should be tailored to the company’s business strategy. In contrast to companies that hold bitcoins as investments, Microstrategy acquired bitcoins as part of an ordinary business strategy. Under GAAP rules, digital assets are reported on the balance sheet at the lowest price since the acquisition date. Based on the company’s response to the SEC, the adjustment is useful because:

 Reflecting cumulative impairment charges …without regard to current market value gains would result in an incomplete assessment” of bitcoin holdings.

In a follow-up letter, the SEC disagreed with the company’s position (emphasis added):

We note your response to prior comment 5 and we object to your adjustment for bitcoin impairment charges in your non-GAAP measures. Please revise to remove this adjustment in future filings. Refer to Rule 100 of Regulation G.

While SEC’s objection to bitcoin impairment adjustments leaves little room for maneuvering (we rarely see strong language such as “we object” in comment letters), the lack of specific guidance in SEC’s response allows for interpretation. For instance, did the SEC object to the adjustment because buying bitcoins is part of the company’s daily operations, so impairment charges are part of recurring expenses? Or is it because impairments create a tailored GAAP modification? (The improvement of GAAP accounting for digital assets is currently on the FASB agenda.) We don’t know the answer, but it’s worth noting the nuance in SEC comment letters. 

If there’s one thing companies like to do during times of economic uncertainty, it’s restructuring. Well, the economy has plenty of economic uncertainty today, so we wondered: what are companies reporting for restructuring costs lately?

Figure 1, below, shows the answer. These are the quarterly reported restructuring costs for S&P 500 companies since the start of 2018.

Why such a long look-back period? Because we wanted to get a sense of “normal” restructuring costs back before the covid-19 pandemic. Indeed, one can see an unsurprising pattern: restructuring costs spiked in 2020 during the worst of the pandemic, and then plummeted in 2021 as we all realized that perhaps economic calamity wasn’t going to strike after all.

Then came 2022 — and specifically, second-quarter 2022. By then inflation had taken root. As we can see, restructuring costs promptly popped back up, to levels slightly higher than pre-pandemic costs but still well below the worst of costs reported in 2020.

Some may also wonder: are more companies reporting restructuring costs? Honestly, no. In any given quarter over the last 5.5 years, the number of companies reporting such costs ranged from 107 to 129. The average number of firms with restructuring costs in any given quarter was 117, and the median was 118. 

The only exception so far has been Q2 2023, with 98 companies disclosing restructuring costs — but we still have a few non-standard firms that haven’t yet reported, so a somewhat lower number isn’t surprising.

Why Restructuring Matters at All

Restructuring costs are worth watching because they’re a common adjustment to non-GAAP net income. For example, in our Non-GAAP Reconciliation Report published earlier this year, where we studied the non-GAAP net income of 200 companies in the S&P 500, 97 of those companies reported non-GAAP net income that excluded restructuring costs. The average adjustment was a $118 million increase in GAAP net income.

Astute financial analysts might also notice that some companies announce one restructuring program after another. That opens the door to make repeated adjustments to net income — but at what point does an endless series of restructuring programs become just another way to mask poor operations?