Practical Tips for Managing SEC Comment Letters
Pro tip: When in doubt, pick up the phone and call the SEC

Maggie Torres
Silicon Valley Co-Chair, SEC Professionals Group 
Vice President and Corporate Controller, FOX Factory


Joey Pruitt
Charlotte Chapter Co-Chair, SEC Professionals Group
Chief Accounting Officer, Krispy Kreme

Mention the phrase "SEC comment letter" to an external reporting manager and watch the blood drain from their face. Don’t panic if you receive a comment letter (well most of them, at least), say veteran SEC Pro Group members Maggie Torres and Joey Pruitt. It comes with the territory in external reporting. 

The SEC reviews a publicly traded company’s filings at least once every three years, and some companies more often. If the agency has questions about your disclosures or an accounting treatment, an SEC examiner will issue a comment letter. 

In a recent conversation, Maggie and Joey shared practical tips for responding to comment letters. First, stay on top of your disclosure strategy and make sure your story is consistent across all communication. This is especially true for your non-GAAP disclosures. Second, when you receive a comment letter, it’s helpful to understand the SEC’s process and to use that knowledge to prepare an effective response. 

Q: The extraordinary circumstances created by the COVID-19 pandemic and the growing interest in ESG risk have created new disclosure demands. How do you stay on top of new disclosure trends?

Recently, we’re having more open conversations with our auditors. We’re asking them what they’re thinking about these new disclosure demands, how their other clients are responding to things like ESG, and to give us a sense of their expectations for emerging disclosure trends. I’ve found these discussions to be helpful.

We also increased our data analytics capacity to support our disclosure strategy. We invested in a subscription to Intelligize, an SEC search engine. It supports us in making better, faster decisions, and it saves us a ton of time.

Krispy Kreme went public earlier this year, and we started our life as a public company with a robust set of disclosures. We went through an exhaustive process of building out our disclosure framework for the IPO. We also reviewed a substantial amount of peer benchmarking information, and we found that a lot of our peers were including non-GAAP measures in their 10-Qs and 10-Ks.

This gave us some confidence to use non-GAAP measures in our SEC filings, too. As we prepared our non-GAAP measures, we compared line item by line item to the reconciliations provided by our peers to evaluate if we were within typical industry practice or outliers.  We went forward using non-GAAP measures for our segment profitability in the S-1 and 10-Q, because this is how management views the business. 

We knew that non-GAAP measures would be a big part of our story and that non-GAAP reporting is a top comment area for the SEC. Thus, we were very focused on aligning the disclosure language across all our filings, press releases, and earnings call script. 

Q: ESG disclosure is accelerating at warp speed. Where are you on your ESG disclosure initiatives?

Like a lot of folks, we are navigating the uncertainty surrounding exactly what is required for ESG disclosure. Nobody wants to be the last to get on board with a disclosure, but they probably don’t want to be the first either. Having said this, I would welcome a little bit more guidance from the SEC or a framework to get started. 

Recently, our leadership team has been helping to establish additional focus areas for ESG, so we’re building out our KPIs and approach to these specific items as some of our internal ESG priorities. We appreciate that we now have some specific, tangible areas where we can focus our efforts.

Q: Do you have any tips for companies that are working through SEC comment letters?

We’ve had three during the 7-plus years I’ve been with FOX Factory. We received a routine, three-year review comment letter in 2020, the early days of the pandemic. 

After the SEC asked for further clarification to our first response, we called the examiner—who was very helpful. Hearing the SEC’s point of view helped us to develop a response to the question they were asking. In the future, I won’t hesitate to call the SEC to confirm that we understand their questions.

We had a couple of rounds of SEC comments as part of our IPO. After we received the first comment letter, we organized a team meeting to draft our response to the SEC’s questions. It’s important to have all the right people on board to answer these questions.  The team included our external advisors from Big 4 accounting firms, our external and internal legal teams and our internal SEC Reporting and Tax team leaders. 

After working on comment responses for a few days,  we realized we needed some clarification from the SEC on a couple of their questions. Our external SEC legal counsel was able to quickly schedule a call with the examiner, and it was super helpful.  

Several people from the SEC participated on the call, and they were very clear in their responses. Some of the SEC’s questions were about non-GAAP,  including what’s acceptable and what’s not acceptable. During the call, the SEC was able to provide us with clarity on why they were questioning certain things, and we were able to understand their position and how we needed to respond. That meeting really helped us resolve the SEC’s comment letter questions and to stay on track with our IPO timeline.  

For the SEC’s point of view about comment letters, view “What the Chief Accountant Wants You to Know,” a panel conversation with Lindsay McCord, Chief Accountant for the Division of Corporation Finance, and Robert Telewicz, Accounting Branch Chief in the Office of Real Estate and Commodities.

Member Spotlight: Levongia Carrera
From SEC Pro Group Committee Work to Sports Mom, Levongia Carrera Says She’s Too Blessed to Be Stressed

Levongia Carrera
Senior Principal in Financial Reporting

You get what you give, says Levongia Carrera about her experience as a longtime SEC Pro Group member. And she’s pretty busy giving. An active Pro Group member, Levongia brings her committee leadership experience to the new ESG Reporting Committee as a co-chair. Pro Group committee chairs work on building membership and creating relevant programming. Levongia also recently changed jobs, joining Airbnb as Senior Principal in Financial Reporting, based out of Seattle, Wash.

What drew you to Airbnb?
I was drawn to Airbnb because of the career growth opportunities I could see for myself. I am a strong advocate of diversity, equity, and inclusion, and made the final decision to join Airbnb for its culture of belonging and connection with everyone. Airbnb has infused DEI in every part of the organization and resourced it at a level that demonstrates the company is serious about making positive changes. Of course, it's Airbnb. Who doesn’t like to travel, and what an awesome way to do it!
What is important to you outside of work? 
I am very passionate about high school sports, especially the games my son plays. I’m the typical booster mom and personal cheerleader for my son’s teams. Spending quality time with my only child is of the utmost importance to me. This last year during COVID-19, it really hit home how fragile we are and how important it is to cherish the ones we love while they are here to receive the love.
What inspired you to start the Staffing Industry Technical Accounting Group?
I was working for a publicly held staffing company and attended an SEC Institute training in Chicago with George Wilson. There were discussions about organizing industry working groups to tackle ASC 606 implementation. Before the conference ended, my co-worker and I sat down with George to discuss our ideas about forming a staffing industry working group, and he agreed to join us as a subject matter expert. From that point on, I cold called, networked, and trolled on LinkedIn until I got a handful of staffing professionals to agree to participate. The Staffing Industry Technical Accounting Group is now part of the SEC Professionals Group, and, in fact, it was one of the first industry groups on the platform.
You’ve recently joined the ESG Reporting Committee as a co-chair. What are you and the committee working on?
The time is growing closer when we expect that the SEC will require some kind of ESG reporting, and the committee is helping to prepare its members for that day. We’re working on forming three sub-committees to address key issues in ESG reporting: internal controls, materiality, and reporting frameworks. Each of these sub-committees is hosting meetings to increase engagement and gather information from members about where they’re at on the ESG reporting journey.
What's the best piece of career advice that you've ever received?
Leadership is a relationship, and humility is the foundation for all healthy relationships. An extraordinary leader should exhibit humility and demonstrate respect for others’ self-worth, which is a critical component to leading high-performing teams.
How has the SEC Pro Group helped you professionally?
The SEC Pro Group has been a fantastic professional networking platform. It has also given me the opportunity to step up and take on leadership roles that directly benefit my career, as well as my personal life. I believe you get what you give in life, and that is certainly true with the SEC Pro Group. If you want to get the most out of the group, then you need to step up and give to the group. There is nothing to lose and everything to gain.
Motto or personal mantra? 
Too blessed to be stressed.
Hometown: Seattle, WA
Undergrad alma mater: Sonoma State University, Rohnert Park, CA 
Graduate alma mater (MBA): Seattle University, Seattle, WA 
First job as a teen: Del Taco
Favorite food: Seafood
Last book I read: The Extraordinary Power of Leader Humility by Marilyn Gist, PhD
Last show I binge-watched: Bridgerton on Netflix



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