MD&A and non-GAAP financial measures have led the list of topics the SEC staff addresses most frequently in comment letters for multiple consecutive years. Within MD&A, the results of operations section is the most consistently commented-on subsection. According to EY's analysis of SEC staff comment letter trends for the year ended June 30, 2025, MD&A continued to lead comment letter activity, and the staff frequently requested more specific explanations of material period-to-period changes, asking registrants to identify and quantify the underlying drivers including offsetting factors for revenue, cost of goods sold, gross profit, and operating expenses.
The comment pattern is consistent enough to be predictable, and predictable comment patterns are preventable. This post maps the specific requirements of Item 303, the recurring comment triggers in the results of operations section, and the drafting practices that address them before the filing goes out.
What Does Regulation S-K Item 303 Actually Require for Results of Operations?
The regulatory foundation for results of operations disclosure is Item 303 of Regulation S-K, as amended by the SEC's November 2020 final rules (Release No. 33-10890). The amendments modernised the MD&A requirements but did not reduce their substantive scope. Understanding exactly what Item 303 requires is the starting point for understanding what the staff comments on when it is not met.
Item 303(b)(2) requires registrants to discuss results of operations for each year covered by the financial statements, including material changes in net sales or revenues and the reasons for those changes, and any other significant components of revenues or expenses necessary to understand the results of operations. The key word in the regulatory text is discuss, not describe. The SEC has consistently interpreted this to require analysis, not narration.
The SEC's 2020 interpretive release (Release No. 33-10751) is the primary guidance document on what the discussion must contain. It states that the results of operations discussion should not merely repeat numerical information already included in the financial statements. The objective is to provide investors with a view of the company through the eyes of management. When management identifies multiple factors driving a change in a line item, the discussion must address each factor with enough specificity that the investor understands the relative contribution of each.
Item 303(b)(2)(ii) specifically addresses known events. It requires registrants to disclose any known trends or uncertainties that have had or that are reasonably likely to have a material effect on net sales or revenues, income from continuing operations, profitability, liquidity, or capital resources. This forward-looking obligation is separate from and in addition to the historical period-over-period comparison. Companies that confine their results discussion to describing what happened without addressing what is expected to continue or change are not fully meeting the Item 303 requirement.
Item 303(b)(2)(iii) added a requirement, not present in the prior rules, for registrants to discuss material changes in net sales or revenue even when those changes represent a material decrease. The prior rules referenced "material increases" and some registrants interpreted that narrowly. The 2020 amendments clarified that material changes in either direction must be analysed.
According to the Alston and Bird analysis of the 2020 MD&A amendments, Item 303(a)(3)(ii) also requires registrants to disclose known events that are reasonably likely to cause a material change in the relationship between costs and revenues, such as known or reasonably likely future increases in the costs of labour or materials, price increases, or inventory adjustments. This requirement was already in the prior rules and remains in force. It is frequently missed when companies focus their results discussion on historical numbers and leave the forward-looking analysis to the risk factors section.
What Does the SEC Staff Comment on Most Frequently in Results of Operations?
The most recurring comment on results of operations disclosures across companies and industries is a variation of the same request: quantify the impact of each material factor contributing to the change. This comment appears in two forms.
The first form addresses the description of drivers without quantification. A company will write that revenue increased due to higher volume and pricing, or that gross margin declined due to increased material costs and unfavourable mix, without attaching a dollar or percentage figure to any individual driver. The SEC staff's comment in response is direct: please revise to quantify the impact of each material factor. The comment letters from Ross Stores (FY2025), Universal Corporation (FY2025), QuinStreet (FY2025), and Columbia Sportswear (FY2020) all follow this pattern. The specific wording varies, but the substance is consistent: identifying factors without quantifying them does not meet Item 303.
The second form addresses offsetting factors specifically. When a company's revenue increases due to two positive factors and one negative factor, and the disclosure describes both positive factors but omits or minimises the negative one, the SEC staff will ask about the omitted factor. The requirement is to present the full picture of what drove the change, including the factors that worked against the direction of the net change. A company that grew revenue 10% by achieving 15% volume growth while absorbing 5% from price reductions has a different story than a company that grew 10% purely on volume. Both disclose a 10% revenue increase. Only one of them discloses the pricing pressure that the management team was managing.
According to Mayer Brown's analysis of 2025 SEC comment letter trends, the staff specifically requests that registrants identify and quantify the underlying drivers including offsetting factors for revenue, cost of goods sold, gross profit, and operating expenses. The explicit reference to offsetting factors reflects the staff's awareness that companies tend to explain the factors that support a positive narrative while giving less prominence to the factors that do not.
The third common comment concerns segment-level analysis. For companies with multiple operating or reportable segments, the SEC staff expects results of operations to be discussed at the segment level, not just in the aggregate. A consolidated revenue discussion that attributes growth to strong performance across all segments, without breaking down which segments contributed most and why, does not give the investor the line-of-sight the staff expects. The Drive Shack comment letter (FY2020) is a direct example: the staff asked the company to provide segment-level analysis that describes and quantifies the effect of each causal factor for material changes in each segment's operations.
The fourth comment concerns the relationship between MD&A and earnings releases. In several comment letters, the SEC staff has asked why the company disclosed more specific information about revenue drivers or cost factors in its earnings release or earnings call transcript than it disclosed in the Form 10-Q or 10-K filed later. The QuinStreet comment letter is an example: the staff noted that the company's earnings releases described significant period-over-period increases in specific client vertical revenues and asked why the 10-Q did not contain the same level of specificity. The standard being applied is that the formal SEC filing cannot be less specific than the voluntary earnings disclosure the company already made.
How Specific Must the Quantification Be?
This is the most practically significant question for drafters, and the answer requires understanding the standard the SEC staff applies rather than trying to derive a bright line from the regulatory text.
The quantification requirement is not absolute. A company is not required to provide a precise dollar attribution for every sub-factor within every line item. What is required is that the investor can understand the relative significance of each material driver. If a company says revenue increased due to volume, pricing, and favourable mix, the disclosure should allow the investor to understand whether pricing was the dominant driver or the smallest contributor, and whether the factors operated independently or reinforced each other.
The SEC's 2020 interpretive release provides the relevant standard. It states that companies should quantify the effects of each factor they identify, to the extent that quantification is reasonably available and would not be repetitive of other disclosures. The phrase "reasonably available" is important. A company that tracks revenue by volume, pricing, and mix in its internal reporting has that information reasonably available. A company that does not separately track those components in its internal systems may not be able to provide the same precision. The question the staff will ask is whether management actually uses the identified factors to understand its business. If the answer is yes, the information is available.
Columbia Sportswear's response to the SEC's quantification comment is instructive. The company committed to determining which items to quantify based on materiality and whether the information is reasonably available, precise, and not repetitive of disclosures made in other sections of the MD&A or financial statements. This response captures the practical standard: material factors that management can quantify precisely without being repetitive should be quantified.
The most defensible approach is to quantify each material driver to the extent that the company's internal management reporting tracks it. If the internal revenue bridge that management uses to understand period-over-period performance breaks out volume, pricing, mix, and currency, those four components should appear in the results of operations discussion with approximate attribution. If the internal reporting does not have that precision, the drafting should explain what information is tracked and why the disclosure reflects the same level of precision management uses to manage the business.
How Should the Period-Over-Period Structure Be Organised?
The structure of the results of operations section matters as well as its content. Companies that organise their disclosure in a way that makes the period-over-period comparison difficult to follow, or that buries material changes in tables without accompanying narrative, are more likely to receive comments on clarity even when the underlying information is present.
The standard structure that the staff expects is a table presenting the financial results for the current period and the prior period, followed by a narrative discussion that identifies the material changes, explains the drivers of each material change with quantification, and addresses known trends and uncertainties that are likely to affect future results. The table satisfies the numerical disclosure. The narrative satisfies the analytical requirement.
The narrative for each line item or category should follow a consistent structure: identify the direction and magnitude of the change, identify each material factor contributing to the change in order of significance, quantify the contribution of each material factor to the extent available, identify any significant offsetting factors, and, where known trends apply, address what is expected to happen to the relevant drivers going forward.
When a registrant has multiple reportable segments, the segment-level discussion should either follow the consolidated discussion or replace it for companies where the consolidated totals obscure material segment-level differences. The staff's preference is for segment-level discussion that allows the investor to understand why each segment performed as it did, rather than a consolidated discussion that attributes changes to vague references to performance across all business lines.
A common structural failure is the use of relative terms without absolute reference. Phrases like significantly increased, modestly declined, or experienced meaningful improvement do not convey magnitude and are not substitutes for quantification. The staff has commented on these constructions directly in multiple letters. Replacing relative language with actual figures or ranges eliminates this comment trigger.
What Does the Forward-Looking Obligation Require?
The results of operations discussion has two temporal dimensions that are frequently conflated: the historical analysis of what happened in the period and the forward-looking disclosure of known trends and uncertainties likely to affect future results. Item 303(b)(2)(ii) addresses the second dimension specifically, and it is the one most often underserved in practice.
A company that has experienced increased material costs due to tariffs, supply chain disruption, or commodity price movements has an obligation to discuss whether those cost pressures are expected to continue, intensify, or abate in future periods. A company whose revenue growth was driven by a single contract or relationship that has since ended, or by a product cycle that is maturing, has an obligation to discuss the implications for future revenue. These are known trends and uncertainties in the regulatory sense even if they are disclosed in general terms in the risk factors section.
The distinction the staff draws is between risk factor disclosure and MD&A disclosure. A risk factor says that commodity prices may increase and adversely affect margins. An MD&A disclosure of a known trend says that commodity prices have already increased X% in the current year and are expected based on current market conditions to remain elevated through the next two quarters, with a material effect on gross margin if the company cannot pass the increase through to customers. The first is a possibility. The second is a known condition with known implications. Item 303 requires the second, not just the first.
The 2020 Commission guidance specifically addresses the distinction between risk factors and MD&A trends disclosure. It states that the results of operations discussion should identify and discuss any known trends, events, or uncertainties that will, or are reasonably likely to, result in a material change in the relationship between revenues and expenses. The use of "will" and "reasonably likely to" draws a different line than the "possible" standard that applies to risk factor disclosure.
What Drafting Practices Reduce Results of Operations Comment Risk?
The research from actual comment letters and the regulatory text converge on a set of drafting practices that address the patterns the staff consistently comments on.
Quantify at the factor level, not just the line-item level. If revenue changed by $50 million, the disclosure should not stop at that figure. It should state that volume contributed $65 million of the increase and pricing reduced the increase by $15 million, resulting in the net $50 million change. The investment the disclosure committee makes in building the revenue bridge to the factor level produces the narrative that satisfies the Item 303 requirement.
**Address every material factor in order of magnitude. **The practice of listing drivers in the order they contribute to the narrative, rather than the order they contributed to the financial result, is a structural mismatch the staff notices. When the largest driver of gross margin compression was an unfavourable shift in product mix and the disclosure discusses raw material costs first, the ordering signals that the disclosure was not written from the investor's perspective.
Include offsetting factors explicitly. When a line item improved and a countervailing factor partially offset that improvement, the countervailing factor belongs in the disclosure. A company that acknowledges it managed through headwinds is providing more useful information than one that explains only the tailwinds. It is also providing disclosure that is less likely to generate a comment about what was omitted.
Make the MD&A at least as specific as the earnings release. Before the 10-Q or 10-K is finalised, the disclosure team should compare the narrative in the filing to the narrative in the most recent earnings release and earnings call transcript. Where the earnings communication was more specific, the filing should be brought to the same level of specificity. The SEC staff routinely reviews both.
Carry the forward-looking obligation through to the trends paragraph. Each line item discussion that addresses historical results should have a corresponding trends statement where known conditions suggest a different relationship in future periods. The trends statement is not a commitment to a specific outcome. It is a disclosure that the known conditions exist and are reasonably likely to produce the described effect. Companies that use boilerplate language in the trends paragraph while their earnings communications discuss known pressures in specific terms are creating an inconsistency the staff will ask about.
Test every relative modifier against the quantitative evidence. Before any draft goes to the disclosure committee, replace every instance of "significant," "meaningful," "modest," "substantial," and similar relative terms with the actual figure or with a defined range. If a meaningful increase in selling expenses means $3 million on a $40 million expense base, write $3 million. If the actual number is not suitable for disclosure without context, the context should be provided rather than a relative modifier that obscures the magnitude.
According to EY's highlights of trends in 2025 SEC staff comment letters, comments on MD&A have requested that disclosures go beyond boilerplate and align with Item 303 expectations. The practical application of that standard is that the disclosure should be company-specific enough that a reader who does not know which company produced it could not easily conclude it was describing a different company in the same industry.
How Does Segment Reporting Interact With Results of Operations Disclosure?
For companies with multiple reportable segments, the interaction between the results of operations discussion and the segment reporting requirements creates a disclosure architecture question that is worth addressing explicitly.
Item 303 requires that the results of operations discussion address material changes in the company's results. When a company has reportable segments under ASC 280, those segments are the level at which the chief operating decision maker (CODM) evaluates performance. If results differ materially across segments, a discussion at only the consolidated level cannot provide management's view of performance in the way Item 303 requires.
The SEC staff's expectation, reflected in multiple comment letters, is that companies with significant segment diversity explain performance at the segment level rather than consolidating the discussion in a way that obscures material differences. A company where one segment grew 25% while another contracted 15% but the consolidated revenue grew 5% has disclosed very little if the results discussion discusses only the 5% consolidated growth.
The segment-level discussion should follow the same structure as the consolidated discussion: the direction and magnitude of change, the material factors and their relative contributions, any significant offsetting factors, and known trends and uncertainties at the segment level. For companies with many segments, this produces more disclosure volume but less comment risk. The alternative, a consolidated discussion that attributes segment-level differences to performance variations without analysis, consistently generates the comment letter asking for segment-level quantification.
Frequently Asked Questions
What is the most common SEC comment on results of operations disclosures?
The most common comment is a request to quantify the impact of each material factor that contributed to a period-over-period change. When a company identifies multiple drivers — such as volume, pricing, and mix — for a revenue change but does not attach a figure to each driver, the SEC staff will request that the registrant revise to separately quantify each material factor. This comment pattern appears consistently across industries and company sizes and is directly addressed by Item 303(b)(2) of Regulation S-K.
Does Item 303 require quantification of every factor mentioned in the results of operations discussion?
Not every factor, but every material factor. The 2020 Commission guidance states that companies should quantify the effects of each factor they identify to the extent that quantification is reasonably available and would not be repetitive of other disclosures. If a factor is mentioned as a driver of a change, and the company tracks that factor in its internal management reporting, the staff expects quantification. If a factor is immaterial relative to the total change, it need not be separately quantified, but should be addressed in the context of the other factors.
What is the forward-looking obligation in results of operations disclosure?
Item 303(b)(2)(ii) requires disclosure of any known trends or uncertainties that have had or are reasonably likely to have a material effect on net sales, revenues, income from continuing operations, profitability, liquidity, or capital resources. This is a separate obligation from the historical period-over-period analysis. Known conditions that are reasonably likely to produce a material effect on future results belong in the results of operations discussion as trends statements, not only in the risk factors section as possibilities.
How does the SEC staff identify when the MD&A is less specific than the earnings release?
The SEC staff reviews earnings releases, earnings call transcripts, and other investor communications when reviewing periodic filings. When those communications contain more specific information about revenue drivers, cost factors, or forward-looking expectations than the formal filing, the staff will ask why the filing did not contain the same level of specificity. The standard is that the formal filing must provide at least the level of specificity the company has already disclosed voluntarily.
What does it mean to discuss offsetting factors in results of operations?
An offsetting factor is a driver that worked in the opposite direction from the net change. If revenue increased due to volume gains but was partially offset by pricing pressure, the pricing pressure is an offsetting factor. Item 303 and the 2020 interpretive release require that material offsetting factors be identified and quantified. A disclosure that addresses only the factors contributing to the direction of the change, without acknowledging the factors that limited the magnitude of that change, does not provide the balanced view of performance the regulation requires.
What makes a results of operations disclosure "boilerplate"?
A results of operations disclosure is boilerplate when it uses language that could describe any company in the same industry without being specifically tied to the reporting company's actual experience. Statements like "revenue increased due to strong demand" or "margins were compressed by higher input costs" without company-specific quantification or context are the type of language the SEC staff characterises as boilerplate. The test is whether a reader who does not know which company produced the disclosure could determine, from the language alone, that it applies to this company rather than any other company in the same sector.
Key Takeaways
- MD&A and non-GAAP measures lead SEC comment letter activity year after year. Within MD&A, results of operations is the most consistently commented-on subsection. The comment pattern is predictable enough to address proactively before filing.
- Item 303(b)(2) of Regulation S-K requires analysis, not narration. The 2020 amendments and interpretive release make clear that the results discussion must provide management's view of performance, not a restatement of the financial statement numbers.
- The most common comment requests quantification of each material factor contributing to period-over-period changes. When a company identifies drivers without attaching figures, the staff will ask for separate quantification of each material driver. Companies that track revenue bridges and cost attribution internally have the information and should use it.
- Offsetting factors must be disclosed. A disclosure that addresses only the factors supporting the direction of the net change, without acknowledging the factors that limited or opposed it, consistently generates comments requesting the omitted information.
- The forward-looking obligation in Item 303 requires more than risk factor language. Known trends and uncertainties reasonably likely to have a material effect on future results belong in the results of operations discussion with the same specificity the company uses in its earnings communications.
- Segment-level analysis is required for companies with multiple reportable segments where consolidated discussion would obscure material performance differences across segments. The discussion at the segment level should follow the same structure as the consolidated discussion.
