Tag: backlog management practices
VMware charged with failure to disclose “backlog management practices”
Last week, the SEC brought a settled action against VMware, a provider of cloud-storage software and services, alleging that it misled shareholders by failing to disclose material information about its “managed pipeline” of orders in quarterly and annual Exchange Act reports, on earnings calls and in earnings releases during its 2019 and 2020 fiscal years. According to the press release, the company used its “backlog management practices” to “push revenue into future quarters by delaying product deliveries to customers, concealing the company’s slowing performance relative to its projections.” Interestingly, the charges in the SEC’s Order were not about funny accounting or even that favorite Enforcement standby, failure to maintain and comply with adequate disclosure controls and procedures. As VMware noted in a statement, the “SEC’s findings do not include any findings that the Company failed to comply with generally accepted accounting principles.” Rather, the charges were about the disclosures about the accounting. “Although VMware publicly disclosed that its backlog was ‘managed based upon multiple considerations,’” the SEC said, “it did not reveal to investors that it used the backlog to manage the timing of the company’s revenue recognition.” VMware was ordered to cease and desist and pay a civil penalty of $8 million. According to an Associate Director in the Division of Enforcement, “by making misleading statements about order management practices, VMware deprived investors of important information about its financial performance….Such conduct is incompatible with an issuer’s disclosure obligations under the federal securities laws.”
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