It isn’t unusual to see a registration statement or a prospectus supplement include a recent developments section disclosing “flash numbers” — preliminary revenue and income information for a quarter that hasn’t yet been finalized. The Staff scrutinizes flash number disclosures pretty closely if they’re reviewing a filing, and they often have questions for the issuer about the basis for its disclosure and whether it is appropriately balanced.
A recent Bass Berry blog points out that the Staff’s comments may also target disclaimer language relating to the flash numbers. The blog cites a recent IPO registration statement that included flash numbers accompanied by the following disclaimer:
This preliminary financial information is not a comprehensive statement of our financial results for this period, and our actual results may differ materially from these estimates due to the completion of our financial closing procedures, final adjustments, and other developments that may arise between now and the time the closing procedures for the fiscal quarter are completed.
The Staff asked the company to remove the disclaimer, noting that “If you choose to disclose preliminary results, you should be able to assert that the actual results are not expected to differ materially from that reflected in the preliminary results.” The company complied with the comment. This excerpt from the blog lays out the key takeaway for public companies from this exchange:
This comment letter exchange serves as a reminder that the SEC Staff generally disfavors disclaimer language aimed at limiting investors from relying on the information being provided. (As another example, see the Titan Section 21(a) Report related to whether investors could rely on the reps and warranties in a merger agreement.) As such, companies that are faced with issuing preliminary financial results, whether in a ’33 Act or ’34 Act setting, should ensure that they are comfortable with investors relying on the information presented, even if the results are only preliminary and unaudited.
I’ve always found the issues surrounding the use of flash numbers to be extremely interesting, and apparently many of you have as well. In fact, our 2017 webcast on the use of flash numbers in offerings is one of our most popular. It may be time to think about an encore in the near future.
-John Jenkins, TheCorporateCounsel.net August 30, 2021