Investors and analysts continually look for meaningful and concise financial disclosure. However, most 10-K and 10-Q filings are filled with extraneous information required by the Securities and Exchange Commission (SEC) — information that’s often considered boilerplate. The information can leave stakeholders overwhelmed and without a clear picture of how the company has performed and where it’s headed.
There is a way, though, to give stakeholders the information they care about the most while also driving the narrative of the company. The solution: a quarterly supplemental financial disclosure package, which gives an audience incremental insight into how the company would describe itself in a more condensed and digestible manner. A thoughtfully prepared supplemental financial package provides a prime opportunity to give stakeholders a peek into what the company views as its core operations and key performance indicators.
For some, the thought of providing more financial disclosure than what’s required may cause defenses to go up, but there are some key benefits that go along with providing a supplemental financial package.
The decision to provide a supplemental financial package is weighty, but the long-term benefits — such as sustained credibility and trust — far outweigh any short-term drawbacks.
The CFO must be prepared, though, to accept the good with the bad. For instance, certain metrics that present the company in a good light one day could later paint it in a bad light — that’s what comes with being transparent. Even when the information provided isn’t flattering, if the company can back it up and explain the numbers, it’s going to get applause from the investment community for simply making the information available. By choosing to not provide a supplemental financial package, the company is giving investors more and more reasons to not invest in its stock.
Providing a supplemental financial package means the CFO and CEO have to be ready to discuss the information on the earnings call. Constituents will be armed with questions, which need to be answered thoughtfully and in a way that helps demonstrate the company’s forward-thinking vision.
While it can be argued that supplemental financial packages make sense for most all companies, this is particularly true for those with complex business models. For example, it’s critical for global companies or those with many different operating segments to provide a supplemental financial package in order to ensure the company’s message isn’t lost in the complexity of its business. Investors and analysts will have a much easier time sifting through a 15-page supplemental financial package than a 100-page disclosure document.
Lastly, the disclosure of non-GAAP financial measures by public companies has been an area of increasing focus for the SEC to ensure that non-GAAP measures are not potentially misleading the investing public. As supplemental financial packages typically include more non-GAAP financial measures than SEC financial filings do, companies need to carefully evaluate their non-GAAP financial disclosures with their securities counsel and external auditor. Particularly, the focus should be on the usefulness of such information, ensuring that appropriate disclosure is made regarding the method of calculation. In addition, comparable GAAP financial measures and reconciliation of the financial measures from GAAP must be given equal or greater prominence.
Stakeholders crave clear insight into where a company has been and where it’s going, and a supplemental financial package allows the CFO to tell the story in a way that will leave the audience impressed and coming back for more.
Phillip Joseph is the chief financial officer and executive vice president at Spirit Realty Capital.