Earlier this year, the Securities and Exchange Commission (SEC) issued interpretive guidance, effective February 25, 2020, regarding the disclosure of key performance indicators and metrics (KPIs) in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), which we discussed in a previous blog post.

This guidance may not have been at the forefront of disclosure matters under consideration for many companies during the first quarter 2020 reporting cycle given the disclosure and other challenges resulting from the COVID-19 pandemic at that time.

Reminders for Public Companies

With the passage of time and a greater sense of clarity on COVID-19 disclosure matters, some companies may use the second quarter 2020 financial reporting cycle as an opportunity to revisit, review and, to the extent necessary, revise their KPI disclosure to ensure alignment with SEC’s interpretative guidance issued during the first quarter 2020. As companies do so, they should ensure that KPIs and other operating metrics disclosed in the MD&A are appropriately considered. For example, to the extent a company identifies an operating metric as a KPI, the company should ensure that its disclosure aligns with the SEC’s interpretive guidance, which may include current and prior-year period comparative disclosure and analysis of factors contributing to year-over-year changes, to the extent material.

In addition, companies should consider whether there are any material operating metrics that management uses in evaluating business performance that are undisclosed and whether disclosure of such metrics would be useful to investors. The Staff guidance includes a non-exhaustive list of potential KPIs, including, for example, operating margin, same-store sales, sales per square foot, total customers, and average revenue per user.

Companies should also consider whether to disclose any non-GAAP measures that are KPIs in the MD&A and ensure existing non-GAAP measures comply with the existing regulatory framework of Item 10 of Regulation S-K.

As a final takeaway, companies should be mindful of SEC comment letters to News Corporation (related to syncing KPIs disclosed in an earnings calls with MD&A disclosures) and Noble Vici Group, Inc. (related to aligning KPI disclosures with the SEC’s guidance) regarding KPI disclosure. We anticipate that the SEC’s focus on KPIs will continue.

If you have questions about this or other issues related to disclosure of KPIs, please contact any member of our Corporate & Securities Practice for more information.

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Public and private companies of all sizes across a variety of industries turn to Bass, Berry & Sims for counsel on a wide range of corporate matters, including mergers, acquisitions and dispositions; capital markets transactions; executive compensation issues; corporate governance; and shareholder activism. We serve as primary corporate and securities counsel to more than 35 public companies and have counseled on 150 deals ranging in size from $20 million to more than $15 billion over the past two years. Click here to learn more about the Corporate & Securities Practice at Bass, Berry & Sims.