When the road show begins after the completion of a fiscal quarter but prior to the availability of financial statements for that quarter, prospective investors are inevitably curious about the quarter’s financial results. In this circumstance, a company might consider providing estimated financial results for the quarter—dubbed “flash results”—in the preliminary prospectus, depending on factors such as:
- the length of time since the end of the quarter and the status of the company’s normal quarter-end closing procedures;
- the availability of reliable estimates of the quarter’s financial results prior to completion of closing procedures;
- the ability of the underwriters to conduct due diligence on the flash results;
- the extent (if any) to which the company’s auditor can provide comfort on the flash results;
- the time required to resolve any staff comments on the related disclosures; and
- whether flash results are considered important to the marketing of the offering.
If flash results are included in the preliminary prospectus, the SEC staff can be expected to focus on whether the presentation of the flash results is balanced and not misleading, which often results in the inclusion of both revenue and income metrics. The staff may also ask the company to explain the basis of the flash results, to justify the use of ranges, and to eliminate or revise excessive disclaimers.
The frequency with which flash results appear in prospectuses, although low overall, has increased substantially in recent years. Fewer than 4% of US IPOs in the period 2007 to 2009 included flash results. The prevalence of flash results increased to nearly 7% in 2010 and jumped to 19% in 2011. These increases probably reflect the perceived need, in a choppy market, to commence the road show as soon as conditions appear receptive, even if the timing falls between quarter-end and the availability of financial statements for that quarter.