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SEC finds deficiencies at DigitalBridge Group, Las Vegas Sands, Helios Technologies and more

The SEC went public with a large batch of comment letters on January 5th and 9th. These letters are communications from the SEC’s Division of Corporate Finance to public companies which highlight potential problems with their disclosure.


The comment letters highlighted in the Hudson Labs feed come through the SEC’s “continuous disclosure review” process. Unlike registration statement review comments, continuous disclosure reviews are performed based partially on the risk profile of the company, as assessed by the SEC. (These reviews also result from other internal priorities e.g. climate). These types of SEC reviews often focus on riskier companies and riskier disclosure items.


Not sure what SEC comment letters are or how they matter? Learn more here - Everything You Need to Know About SEC Comment Letters.  


Here are some highlights worth paying attention to.


Revenue recognition concerns:

  • ZTO Express: The SEC raised questions on revenue and cost of revenue booked on transactions with Hong Kong & Cayman Island VIEs and subsidiaries, and on the appropriateness of classification.


SEC Comment Letter of ZTO at Hudson Labs platform

Hudson Labs platform subscribers can find the SEC Comments tab for each company under the Filings & Transcripts view of the company page.


Non-GAAP adjustments rejected at:

  • Las Vegas Sands Corp: The SEC told the company to remove hold-normalized casino revenue and expense from non-GAAP metrics going forward.

  • Helios Technologies: The SEC told the company to remove the word “cash” from various non-GAAP metrics due to the existence of non-cash adjustments.


Disclosure deficiencies identified at:

  • DigitalBridge: The SEC pointed out that segment disclosure should be included in the notes to financial statements! The SEC also requested more quantification of various factors, including depreciation variance analysis.

DigitalBridge SEC comment letter at Hudson Labs

  • Las Vegas Sands: The SEC raised questions about disclosure on the agreement reverting to ownership by the Macao government and non-GAAP metrics. See above.

  • Charles River Laboratories: The SEC requested the quantification of legal costs which will be done next quarter. “Venture capital and strategic equity investment losses” may not be a legitimate adjustment to non-GAAP metrics but has not yet been expressly rejected.

  • NXP Semiconductors: The SEC requested more quantification on variance analysis.


The SEC also made many comments on climate disclosure, primarily asking questions about discrepancies between sustainability reports and the 10-K. For instance, Novo Nordisk does not think that climate change regulation is material to their business and the SEC is resolutely sceptical.


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