Companies would keep quarterly earnings but shift some filings to semiannual, surveys find

Wells calls fraud, insider knowledge ‘bogies of the slower reporting cycle’

The Wall Street Journal reported on August 17 that a KPMG survey of 156 chief financial officers, chief accounting officers, and controllers at publicly traded U.S. companies found most respondents would preserve quarterly earnings disclosure even if the SEC adopts its proposal to allow semiannual regulatory filings.

Under the KPMG survey, 39% of respondents said they would continue publishing earnings press releases quarterly while submitting regulatory documents twice a year — a reviewed semiannual report and an audited annual filing. Another 39% said they would make no changes to current practices, meaning they would continue to file 10-Q quarterly reports and publish quarterly releases. Three percent said they would file semiannual earnings and skip quarterly updates entirely, while 7% said they would adopt the semiannual option while publishing select financial data, such as sales figures, on an interim basis. The remaining 12% said they were undecided.

More than half of respondents said their financing agreements required quarterly information. Nearly all respondents — 94% — said they would maintain quarterly governance and oversight practices internally even with fewer required SEC filings.

A separate survey of 100 companies by the Society for Corporate Governance, a professional association, found only 8% of members were very likely to adopt semiannual reporting within three years. Half of the society’s respondents said the proposal would result in a moderate reduction in reporting burden, while more than a third said the reduction would be minimal or have no impact. “We think it can be left to each company to make the determination as to whether the benefits of shifting to semiannual reporting outweigh the costs,” said Paul Washington, the society’s president and chief executive.

Several named finance executives described how they would handle the proposed rule. Serge Tanjga, finance chief at Appian, a business process automation company, said the four-times-a-year cadence produces internal discipline. “We learn a lot, and we become better, and we hold each other internally accountable by going through that process,” Tanjga said. Brian DelGhiaccio, CFO at Republic Services, a waste management company, said preparing an earnings release without an accompanying regulatory filing might not yield significant savings. “The internal effort to provide that information is not substantially different than if you went the extra effort to file a 10-Q,” DelGhiaccio said. Curtiss Bruce, chief financial and operating officer at Honest Company, which makes baby wipes and other skincare products, said quarterly reporting helps his firm attract investors. “Particularly as a small-cap company, where our is strategy to attract more long-only investors, sharing less frequently is not advantageous to us,” Bruce said.

Some companies have signaled their plans in regulatory filings. Eli Lilly, for example, said in public comment letters it planned to file a semiannual and annual regulatory report, but would also publish earnings quarterly, the Journal reported.

Supporters of the SEC proposal have argued that a less-frequent regime could encourage more companies to go public and could lower auditor fees and reduce the time finance teams spend preparing reports. Investors who oppose less-frequent reporting, the Journal reported, are described as hungry for data on corporate performance.

Former Netflix CFO David Wells, who served as finance chief from 2010 until 2019, submitted a public comment letter on the proposed rule. Wells said in his letter that while the four-times-per-year cycle can be a slog and lead to short-term focus, it also underpins trust, drives rigor and creates a level playing field for individual investors and large institutions, which can request check-ins with management. Wells noted in his letter that while some companies may be well suited to semiannual reporting, others may adopt it because they lack financial discipline. Fraud, a greater value placed on insider knowledge, and a longer shelf life for bad corporate strategy would be “bogies of the slower reporting cycle,” he said.

The SEC is expected to move forward with its proposal to drop quarterly reporting requirements despite strong public opposition, the Journal reported.