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Select Medical Holdings, Vaxart, and Expedia

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 November 1-5, 2021


Last week saw a number of interesting labor Red Flags

ZILLOW GROUP INC (ZG) Zillow's is estimating laying-off 25% of their workforce as part of the wind-down of Zillow offers.

ALLEGHENY TECHNOLOGIES INC (ATI) Allegheny has reversed $8.5M in restructuring charges this year, reducing severance-related reserves for about 250 employees based on “revised workforce reduction estimates”.

SENSIENT TECHNOLOGIES CORP (SXT) Sensient hasn't made accruals for multiple labor violations.



10-Q | Market cap: $4B

In October, the company received a letter from the DOJ’s fraud section stating that the DOJ and US Department of Health and Human Services are investigating the Company’s physical therapy services billings [1].

Operating income includes a one-time $18M recovery resulting from a favorable court ruling for Medicare bad debt reimbursement [2].

The company recognized a $9M loss stemming from an indemnity claim on a previously sold business [3].

SEM’s margins in their hospital segments were adversely affected by labor costs, in particular, increased demand for health care workers and an increased use of contract clinical labor due to COVID-19 [4].

  1. “On October 7, 2021, the Company received a one-page letter from a Trial Attorney at the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”). The letter stated that the DOJ, in conjunction with the U.S. Department of Health and Human Services, is investigating the Company in connection with potential violations of the False Claims Act, 31 U.S.C. § 3729, et seq. The letter specified that the investigation relates to the Company’s billing of physical therapy services.”

  2. “A U.S. District Court ruled in favor of the Company and ordered CMS to determine and pay the Medicare bad debt reimbursement plus interest and, in February 2021, the Company received reimbursement proceeds of $17.9 million plus accrued interest of $4.7 million. These amounts were recognized as other operating income and interest income, respectively, during the nine months ended September 30, 2021.”

  3. “We also incurred a loss of $9.0 million related to an indemnity claim associated with a previously sold business”

  4. “ Our critical illness recovery hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals.”... “ Our rehabilitation hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals.”



10-Q | Market cap: $800M

The company has virtually no revenue this year. Certain revenue generating royalty agreements have expired without replacement [1], and decreases in influenza due to Covid-19 protocols have reduced demand and eliminated current royalties on Inavir, a flu treatment drug [2].

Per their most recent 10-K (filed Feb ‘21), the company’s current drug offerings all range from preclinical to Phase II. Their current operating cash burn rate ($44M over 3 quarters) provides an 11 quarter runway based on existing cash ($167M).

On September 15, the company announced a Controlled Equity offering to sell common stock with an aggregate offering price of up to $100M [3], having raised $122M from the sale of common stock already YTD [4].

  1. “For the three months ended September 30, 2021 and 2020 we earned no royalty revenue. For the nine months ended September 30, 2021, we earned no royalty revenue, compared to $3.0 million earned in the nine months ended September 30, 2020, $2.8 million of which related to Inavir and was earned in the three months ended March 31, 2020, with the remainder related to Relenza, for which we are no longer entitled to receive royalties. ”

  2. “We do not recognize any royalty revenue from sales of Inavir until the first $3 million net of 5% withholding tax in years ending on March 31 has been recognized as non-cash royalty revenue related to sale of future royalties. We recognized no royalty revenue in the year ended March 31, 2021, because net royalties were only $1.3 million, compared to $6.4 million in the year ended March 31, 2020. We believe this 80% decrease is primarily because social distancing, mask wearing and increased influenza vaccination rates due to the COVID-19 pandemic have caused the number of influenza infections to decline.”

  3. “On September 15, 2021, Vaxart, Inc. (“Vaxart” or the “Company”) entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) and B. Riley Securities Inc. (“B. Riley”) and, together with Jefferies, the “Sales Agents”), pursuant to which Vaxart may offer and sell, from time to time through the Sales Agents, shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $100.0 million (the “Shares”).”

  4. “In the nine months ended September 30, 2021, we received $122.2 million from the sale of common stock under the October 2020 ATM and $3.1 million from the exercise of common stock warrants and stock options.”



10-Q | Market cap: $25B

Expedia has a majority stake in trivago (63.5%). In October parties in the ongoing trivago ACCC trial submitted penalty recommendations. The ACCC proposed a penalty of at least AU$90M, trigavo recommended AU$15M. Neither trivago or Expedia updated their previously recorded estimated losses of $11M [1].

Last year, Expedia recorded a $800M on goodwill impairment, including impairment of $240M relating to their investment in trivago [2].

The company has recognized an additional $54M of expenses this year related to their 2020 restructuring plan [3].

  1. “On October 18 and 19, 2021, the Australian Federal Court heard submissions from the parties regarding penalties and other orders. In its submissions, the ACCC proposed a penalty of at least AU$90 million and an injunction restraining trivago from engaging in misleading conduct of the type found by the Australian Federal Court to be in contravention of the ACL. trivago submitted that an appropriate penalty for the court to impose would be in the order of up to AU$15 million. The parties await a ruling. We recorded an estimated probable loss of approximately $11 million with respect to these proceedings in a previous period. ”

  2. “On September 30, 2021, a three-member arbitration panel awarded Mesabi Trust $2 million plus interest as damages for 2019 and 2020 and ruled that the royalty agreement requires that, for royalties on intercompany sales, Northshore reference all third-party pellet sales, regardless of grade, and select the highest price arms’ length pellet sale from the preceding four quarters.“

  3. “As a result, we recognized $54 million and $206 million in restructuring and related reorganization charges during the nine months ended September 30, 2021 and 2020.”


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