New Relic’s (NEWR) YoY revenue growth of 17.8% in 2Q22 (Sep.) benefitted from $9.7m in revenue recognized from performance obligations satisfied in prior periods; without these benefits revenue growth may have only been 12.0%, a deceleration from the prior quarter (vs. an optical +680bps acceleration). The business model transition has turned Company’s free cash flow negative on a trailing twelvemonth (TTM) basis. The Company has also seen turnover in the CEO and COO positions. For these reasons we are adding NEWR to the Biggest Concerns list.

The most significant takeaway from our review of SMG’s 10-K filing and 4Q21 (Sept. FYE) earnings is that the Company is taking on increased inventory risk. Inventory at September 2021 was 47% of expected 1H22 revenues. In comparison, inventory at September 2020 was only 24% of revenues recognized in 1H21. As inventory on the balance sheet has increased, purchase commitment disclosures show that SMG’s obligations to make future purchases increased by 90% YoY at 4Q21.

We are concerned that First Citizens BancShares, Inc. (FCNC.A) pending merger with CIT Group Inc. (CIT) may not be able to hit EPS accretion targets, as purchase accounting marks may reduce CIT’s legacy revenue. In particular we are concerned about the unsustainable CIT revenue from previous purchase accounting accretion and gain on sale of its Legacy Consumer Mortgages and rail assets. Additionally, FCNC.A’s dual share class structure may cause selling pressure upon the merger due to index inclusion requirements. Thus, we are adding FCNC.A to our Biggest Concerns List.

We believe that ATO’s true operating margin and FCF are both below that presented by management because of management’s aggressive use of adjustments to operating margin and the non-inclusion of acquisition costs in FCF. Cost capitalization has been increasing, raising the possibility of more earnings benefits. Excluding certain benefits, we estimate that operating margin was 8.0% in FY20 compared to the reported 9.0%. Additionally, organic revenue growth may disappoint following the rise in unbilled receivables in FY20, which could indicate accelerated revenue recognition. Thus, we are adding ATO to our Biggest Concerns list.

We flag elevated levels of finished goods on the one hand and on the other hand, shortages of certain products at distributors. We raise the concern that continued product shortages may result in revenue softness, while building finished goods may result in further inventory obsolescence charges.

We are concerned by revenue weakness in the Foodservice business, despite distribution gains. Insider sales continued in August. As a result, we are adding BYND to our Biggest Concerns List. Inventories at Beyond Meat, Inc. (BYND) are at record highs at the end of 2Q20. While the raw materials driven 2Q20 inventory build may be viewed by investors as less problematic than the 1Q20 inventory build (which was driven by finished goods), we note that the Company reduced production in 2Q20 (only partially attributed to Covid-19), thus our concerns about end demand remain.