Streamlining & Optimizing Financial Reporting with Jeff Catt, DFIN’s Senior Vice President of Global Sales, ActiveDisclosure

Transcript

Dana Barrett - Welcome to the Insider by DFIN. I'm Dana Barrett and joining me right now is Jeff Catt. He is the SVP of Global ActiveDisclosure Sales.

Dana Barrett - And we're going to get into ActiveDisclosure and all things reporting in just a minute. But before we do that, Jeff, tell me a little bit about your background and your role at DFIN.

Jeff Catt - Thank you, I would be happy to. So I've been involved in what we'd call sort of content management my whole career, so that's taking structured and unstructured data and making it reportable.

Dana Barrett - Okay

Jeff Catt - So then I fast forward and get to DFIN, where we have regulatory reporting, and I started out at DFIN working with clients directly, which was awesome because I got to learn about regulatory reporting that way and then just kind of elevated through the process to now, where I'm running a global team.

Dana Barrett - So you mentioned structured and unstructured data. Can you just sort of explain what that means?

Jeff Catt - Yeah, sure, that's a good one too. So think of structured data as your financial statements. So things that would come out of an accounting system. A great example for that is Excel. Excel data would be structured, and if you think about if you've ever used Excel, that table's pretty clean and easy to understand.

Dana Barrett - Right

Jeff Catt - Unstructured would be descriptive information because what you write, and I write might be completely different.

Dana Barrett - Right

Jeff Catt - It's hard to kind of put a bar chart or like a barcode excuse me around that.

Dana Barrett - Right, so if you're looking at a data and a spreadsheet, you can sort of take the calm descriptor on the left and the topic on the right, and you know exactly what you're talking about. You're talking about revenue for June of 2020.

Dana Barrett - Right?

Jeff Catt - Perfect.

Dana Barrett - Yeah, and you're talking about unstructured. Well, I'm telling you that I do this amazing thing for diversity and inclusion, and I want it in my report, but it's just this thing that I wrote up talking about what I did. There's no numbers next to it.

Jeff Catt - You have completely nailed it.

Dana Barrett - Okay, got it. Just want to make sure we're on the same page here. So how do you take unstructured data and report on it?

Jeff Catt - Okay. So, wow. We're going to go there.

Dana Barrett - I just want to know.

Jeff Catt - We're digging in.

Dana Barrett - We're just jumping around.

Jeff Catt - I like that, okay. So what you typically do, and this is where the genesis of content management comes into play is, first of all, it sounds geeky, but it's not that complicated in that you just take that, we'll call it textual information, and essentially you put it in a database and that way you're able to refer to it, and the great part about putting it in a database is then you can kind of say, “Oh, I can use it here, here, and here”, and that's really great in that it's not just one document. You might have a subset of content that goes across three different documents. A great example for public companies is when I'm doing my quarterly report or when a client's doing a quarterly report, they also do a press release. So, they might be able to pull that now structured content out of a content management system, like ActiveDisclosure, and have it go into the 8-K earnings release as well.

Dana Barrett - Okay, I love that real world example because everyone knows you got to put the press release out.

Jeff Catt - Yeah, and it goes first. (laughs)

Dana Barrett - Yeah. Yeah. All right, so let's talk about ActiveDisclosure a little bit. Can you talk about sort of what it is, what it does?

Jeff Catt - Yeah, yeah, happy to. So years ago, can I go backwards?

Dana Barrett - You can go backwards.

Jeff Catt - Cool. So years ago what would happen is, and we still have clients that do this today, which is hard to believe, but there are, and what they do is they still work in sort of Word and Excel. So the exact example we talked about unstructured content in word, structured content in Excel, and they'd send us a file, and then we have this massive system, not ActiveDisclosure, this essentially compiles it, gets it into the regulatory requirement formats. Let's just use SEC as the example. They call that EDGAR, super cool name. Right?

Dana Barrett - Yeah.

Jeff Catt - And, essentially, then we get it ready to be filed with the SEC. It's painful like literally, that process is you send it to me, we process it, we send it back to you, wait for this, they print it out, and they hand market it, and then that process goes back and forth.

Dana Barrett - What?

Jeff Catt - Sounds super-efficient. Right?

Dana Barrett - Yeah.

Jeff Catt - So what ActiveDisclosure does is solves for all of that. So now it's not Word, but it's Word like, so I'm still working as the client the same exact way. I've got my structured and unstructured content now in a better format, so I can repurpose that content like we talked about earlier.

Dana Barrett - Right

Jeff Catt - And here's the great thing, So DFIN can come in and help you do the things you don't want to do. Less about editing, more about another fun topic called XBRL, park that for just a minute or two.

Dana Barrett - Yes, okay.

Jeff Catt - Okay. But you control your own destiny. So, oh my God, I forgot, literally. Oh my God, I forgot a comma. In the old world, we would be like, you forgot the comma, then you would have to adjust it, and then we'd have to put it in our system again. In ActiveDisclosure, you control the whole thing. So you're just making your content changes. The system then takes it and makes it SEC ready and then it just becomes a question of how do you want to get it to the SEC?

Dana Barrett - So it's sort of like the equivalent for somebody who's not in this financial reporting world of working in a shared Google Doc versus working in a separate Microsoft Doc, not to disparage Microsoft, because you can do those, share it also with SharePoint, but the old school way of working it on my computer and now I've got to send it to you, and then you've got to update it, and you made a change at the same time. We're in trouble.

Jeff Catt - You're good. You're really good. Because that's a perfect analogy and what we can do beyond that, is that okay, so you own it, right, but you may want Jeff to get invited in, but you may only want me in this little section over here. So you can put permission around that piece of it as well.

Dana Barrett - Right. Which is, of course, why you cannot just do it in a shared Google Doc because you have got to have all these controls.

Jeff Catt - You got it. You got it and a common example of that, which I think will lead to where we're going too, is that if you think about primary owners, and you actually said this a little bit ago, primary document owners, there's the person that does the numbers, you know?

Dana Barrett - Yeah.

Jeff Catt - And then there's the person that looks at those numbers and describes what happened, and those are two great users within our system and the great part is that they can kind of work concurrently. As opposed to a stop start methodology.

Dana Barrett - Right, so this might be a weird question, but if somebody were to make a change and others in the environment need to know about it, is it flagged in some way? So that if I'm that description writer, I know that, oh, that number just changed?

Jeff Catt - Yeah, great comment. I wish it would have been just in our session a second ago because we just talked about some new technology we're adding to that, which is really going to be a game changer in it. Right now, the way we do it is you can get there. It's very simply hit a button as a compare.

Dana Barrett - Oh, gotcha. So it shows you what has been changed, since you last looked at it.

Jeff Catt - You got it. The most common analogy for this is Word and Google does it a little bit too, where they have that track changes component to it.

Dana Barrett - Yeah. Yeah.

Jeff Catt - So we have components of that, but we're really building it out and what we've learned is it took a long time for Word to do that too.

Dana Barrett - Yeah. Yeah.

Jeff Catt - So we're getting there.

Dana Barrett - Yeah, that is a pretty complex technology, knowing what changed and what you have to do with it.

Jeff Catt - Absolutely, I'm so glad you brought it up though because it's critical, right, because if you think about regulatory reporting, at the end of the day, if they misstate something, it could actually literally impact their stock price. So it is important that we know who did what, when.

Dana Barrett - Yeah, and its major bottom-line hit.

Jeff Catt - You got it.

Dana Barrett - Yeah. Yeah. For sure. All right, so let's talk about companies that are getting ready to IPO or wait a minute, let's back up even further, and let's talk about the state of the world of IPOs right now.

Jeff Catt - Good call.

Dana Barrett - So, so talk to me about where we're at. Are there a lot of IPOs happening? Are there not very many? Where are we right now?

Jeff Catt - So the best thing I can tell you is, like in 2021, we were driving like on a bond. They were just happening, every day was tremendous. Not just for DFIN, although we were the market leader in it. They were just happening. Then all of a sudden, the brakes just stalled in 2022. Now we predicted that was going to happen. Two reasons, one, you couldn't keep up the pace, and the other is the SEC tends to change regulatory requirements along the way.

Dana Barrett - Yeah. Yeah.

Jeff Catt - So both those things were kind of happening. Then you add things into it, such as the geopolitical nature of what's going on in Ukraine.

Dana Barrett - Yeah.

Jeff Catt - When an event like that happens, it's weird how it impacts the marketplace. Now, in this case, it made a little bit more sense because essentially, if you were doing business with Russia, some companies made decisions to not even do that anymore. So it just really kind of stalled the transactional pace.

Dana Barrett - Yeah. I was having a conversation with Marcie Clark about some of the SEC stuff the other day, and she was talking about how there were sort of no new proposed rules coming out of the SEC, and then all of a sudden, there were 16.

Jeff Catt - You got it.

Dana Barrett - So that kind of part of what you're referring to, yes?

Jeff Catt - Absolutely, and it's interesting that they seem to work that way, you can go for months, if not years, and then all of a sudden, there's 16 new things that you have to worry about.

Dana Barrett - Yeah.

Jeff Catt - So that's definitely a product of it too. Now, if I may, the other piece of this is that we think that's adding to it is that now you have a couple different things going on. You have all these companies that went public last year, and candidly, some are viable, and some are less viable because they made a money run.

Dana Barrett - Yeah.

Jeff Catt - They wanted to hit the market and get some funding so they could grow their business.

Dana Barrett - Yeah.

Jeff Catt - Smart, okay, but now they are sitting there, and they're questioning, “Okay, in this economy, is that the right move for us?” So, a couple of other things are happening. Some they're going to go for it and be successful because they've got a great solution or mark or product or whatever it might be.

Dana Barrett - Sure.

Jeff Catt - Others are now going, okay, should we stay public or should we go private because we got our funding? Or should we work with a private equity company?

Dana Barrett - Right.

Jeff Catt - These private equity companies have so much, the term they use is dry powder, that's money that they can take and do a couple different things. Either invest in those companies, that's the great move. In some cases, everybody's read about this too, it's the exact opposite. They're going to strip it down, add efficiencies to it, for sure, take cost out, and then either see if they can bring it back to the public markets or find a strategic. So strategic would be somebody that it's just an adjacent or complementary business in that company's portfolio.

Dana Barrett - Got it. So really, you've got a bunch of different kinds of companies, the ones that are still excited about IPI, the ones that have recently IPO. They're new in the world of being public, and you've got some that are we need to back out and maybe go private again.

Jeff Catt - Right.

Dana Barrett - Ostensibly, the ones that go private again, the whole goal is to go back to the public market at some point in some way. Correct?

Jeff Catt - Correct.

Dana Barrett - Okay.

Jeff Catt - I mean, there are some examples that. So a customer of ours, Koch Industries, they're one of the big, if they're not the biggest, they're the second biggest private company in the world, there are exceptions to the rules. So they'll probably never go public. I'm not speaking for them.

Dana Barrett - Sure.

Jeff Catt - But they're so big right now.

Dana Barrett - Right, they don't need that actual capital.

Jeff Catt - There's a reason they're not doing it. Exactly.

Dana Barrett - Yeah. Yeah and they like that family control.

Jeff Catt - You got, exactly. They're the exception on the rule.

Dana Barrett - Yeah. Yeah, of course. So when you're talking about companies that are going back private, they already sort of have all their reporting tools in place. They using active disclosure, they're doing everything, right? The biggest question for them, I think, is, do we keep doing this?

Jeff Catt - Yeah.

Dana Barrett - But it's the younger companies, if you will, that have never been public that have this new challenge. We were doing things all. We did some Excel spreadsheets over here. We wrote a press release. It's just content over there, unstructured I now know, content over there. What do these companies need to be thinking about as they prepare for IPO?

Jeff Catt - Yeah, so the last piece of it was the most important part. It's as they prepare. So DFIN’s methodology, forget about ActiveDisclosure, DFIN’s methodologies are we want to get in there as early as possible, so typically it's either industry or growth or a combination thereof and our methodology is public company preparedness. What's interesting about those, is it’s just not ActiveDisclosure. It's certainly some of our other solutions. Like Venue's a good example of it as well. But in addition to that, it's our partner ecosystem. So I'll give you a great example and in align with this perfectly. So we've partnerships with NetSuite. So NetSuite, that company you just talked about, a lot of times they're using QuickBooks, and that makes sense at that point in time, but then they get to a certain point where the way NetSuite talks about is like, it's the hairball of the spreadsheets that come out of that, and they need to clean that hairball up.

Dana Barrett - Right.

Jeff Catt - So we'll introduce them and say, hey, we integrate with NetSuite today. This might be a good next step for you. Then there's another partner. I promise we'll make this more about DFIN, but it's really critical to the journey. It's called FloQast, and one of the cool things about them is that they leverage Excel, as does ActiveDisclosure, as does NetSuite, QuickBooks, so on so forth. So it's a real great common denominator. What they help you do is close your books. So if you think about these emerging private companies, they're doing that in such an inefficient and manual way that you add these three simple technologies with ActiveDisclosure on the back and there's the reporting. We've changed their process. We've given them time back. We've eliminated risk, all critical things, and most importantly, when they're starting to go do their road show again, they've already been acting like a public company.

Dana Barrett - Right. Right. You know I think it's important to talk about those partners and sort of the DFIN process on the whole because everybody knows I think just from a personal experience, if you go grab some app off the internet to do something you need to do, if it doesn't integrate with everything else you're doing, if it doesn't take care of your entire problem, if you will, then it isn't a great solution. It's only kind of half the battle. So ActiveDisclosure on its own, I'm sure is wonderful, but it's even better because it's a part of this ecosystem.

Jeff Catt - You said it, and we just want to solve problems all along the way. So we will work with Excel and we'll work with dirty Excel, not dirty, but like not clean relative to structured again. Okay, because like you can have a great Excel file, but if it's not in the shape of a balance sheet, there's work in between, right?

Dana Barrett - Yeah.

Jeff Catt - So if those two solutions help that work, then everybody wins.

Dana Barrett - Yeah. Yeah, absolutely. Alright. So for these companies thinking about it, let's kind of get back to that path. What do they need to do? So they're thinking about getting ready for IPO or they're starting to make that happen and they need to start getting their data in order. What are some of the other things they need to do to sort of be ready?

Jeff Catt - Yeah, as it relates to reporting, part of it is just improving the content of what they're reporting are, and then there's another factor in that, and that depends on you don't see as much of this anymore, but like sort of that sole proprietor or serial entrepreneur, that's a little bit different because in that case that's where the investment is. What we're really starting to see a lot of, and we've been seeing this for years, is when you get your funding from outside sources because you might get it from three different sources, and each one of those might have you have different reporting structure. Which is painful, okay? So what we're able to do, ActiveDisclosure can help solve that either way. However, what we've been able to do to partner with these clients is maybe if you had better structured, not in the example earlier, but like a well formatted inform report then what you could do is go to those investors and say, “Does this work for you?”

Dana Barrett - How about this?

Jeff Catt - Instead of you telling us--

Dana Barrett - The thing you asked me to do, right?

Jeff Catt - Exactly, right?

Dana Barrett - That makes a lot of sense.

Jeff Catt - So that's a big piece of it.

Dana Barrett - Yeah, so they can sort of start doing it ahead of time.

Jeff Catt - Exactly.

Dana Barrett - Even though their current investors haven't specifically asked for that.

Jeff Catt - Correct.

Dana Barrett - I got it. That makes a lot of sense and then there's also things that they didn't have to think about at all as a private company. Some of the requirements that they know they are going to have to meet for SEC, like the Sarbanes-Oxley.

Jeff Catt - You got it.

Dana Barrett - So just talk to me about some of those things that they maybe never thought about, and now they have to?

Jeff Catt - Yeah. That's a really good one. Now it does depend on the size of the company. So if you're a smaller public company, I want to say it's a non-accelerated filer. You have about a year to do that, but for your larger companies, it's about 60 days.

Dana Barrett - Yeah

Jeff Catt - So a lot of times you're focused on your business as a company. You're focused on certainly your investment, but you're not necessarily focused on what those regulatory requirements are going to look like. There's a really simple one that we also solve for it's adjacent to ActiveDisclosure, but you're a reporting owner, so those that have internal stock in the business.

Dana Barrett - Yeah.

Jeff Catt - Within 45 days, you have to do a filing based on that as well. I can't tell you how many companies are like, “Say what now”, about that.

Dana Barrett - Yeah. (laughs)

Jeff Catt - And that's 45 days, you go public, you ring that bell 45 days happens really quickly.

Dana Barrett - Oh yeah. All right. Well, what are some of the other challenges? I know earlier you mentioned XBRL and said, we'll get back to it.

Jeff Catt - Oh God, we have to talk about that?

Dana Barrett - I mean, can we do it quick? (laughs)

Jeff Catt - I'll do my best. So the XBRL vision was you would take, and boy, this is some pretty dry content, but I'll make it as, as exciting as I can.

Dana Barrett - We can get up and sing and dance to make it more interesting if you like.

Jeff Catt - We should do it either way. Anyway, so what the goal of XBRL was really, and I used this term earlier, not thinking about XBRL and imagine just sort of creating consistency based on your industry. So here's your table, okay? You're going to basically put a barcode. It's not a barcode. It's just a good analogy that says, every balance sheet should look like this. Every balance sheet should have this terminology in it, and then they use something called US GAAP reporting to essentially define it. Balance sheet equals this, net income equals that, so on and so forth. The goal when it initially came out was they would help investors tremendously. Oh, it's so great, now I can compare these three companies in this industry. That goal is still being worked on. It's really more so that the SEC not from an investor perspective, but from a regulatory requirement perspective, can made and use the XBRL to understand, okay, are these companies doing the right things?

Dana Barrett - And of course it's standard, so systems can read it.

Jeff Catt - Well, so I should have said standard as well.

Dana Barrett - Right, so I think of it in my mind, I'm thinking like, when we were talking about that Excel document, if I said revenue June 2020, somebody else might have the date in numbers, or somebody else might have revenue REV, and somebody's got it spelled out revenue, right?

Jeff Catt - You did your homework because those are perfect examples, and XBRL solves for all of that because you have to have those definitions aligned like that.

Dana Barrett - So that makes a lot of sense. I mean when you're trying to be standard, there has to be a way for machines to read it, and people to read it, and everybody to be kind of the same.

Jeff Catt - And that's the dream and the goal, and now just that I can, so now you have the SEC is deliberating right now on, I don't think it's one of the 16, but there's this new concept of ESG. So it's environment or social and governance. So one of the first things that they're looking out is just greenhouse gases, and they want you if you're a company that's in a manufacturing company to be in that. There's certain standards that you have to abide by. They are actually going to put that in the XBRL taxonomy.

Dana Barrett - Yeah, yeah, yeah.

Jeff Catt - For the same reasons you described consistency. Everybody reports on the same way.

Dana Barrett - It's really interesting. Listen, I feel like there's so much probably, which is why you guys have a company that does this day in and day out that we can't sort of boil down, what's the number one piece of advice for companies going public or those going back private, but give me some words of wisdom for kind of both of those scenarios for companies in either one of those situations.

Jeff Catt - Yeah, that's a really great question, and I'll try to boil it down because we could go in a different direction. I personally, and I'm a little bit biased obviously, based on my role here. For me, it's really getting your content in a good position. Ultimately, whether you are going to go public or whether you're going to go get more investment, how you capture your content, the process to do it, and then how you're describing it is just so impactful for you. So the earlier that you can do that, the better off you'll be, regardless of what your path is. So the companies that went public that may be going private now, they become more attractive by default if they're acting that way as it is. Then I would, and again, just to be consistent, I'd also look one of the big fallacies of all clients, even some that use our competitors, is that they are only solving this problem. They should be looking at the problems upstream as well because the more efficient you are over here, the more efficient you'll be downstream as well. So we really try to get clients to think about that.

Dana Barrett - Well just seemed to me also that even if you don't end up going public or if you go back private and stay that way for a period of time, you're still going to have stakeholders care about what you're reporting and how you're reporting it.

Jeff Catt - Well said.

Dana Barrett - Yeah.

Jeff Catt - Well said and then the other thing, and this is a little bit of a plug, I'll acknowledge that is that don't work with a software company. I mean, they're great, but work with somebody who's going to talk to you about where you are today and where you're trying to go because that's going to be critical for you to get to reach your strategic goals.

Dana Barrett - Right, in other words, it's not just about the solution. Just sort about understanding exactly what your goals are.

Jeff Catt - Exactly.

Dana Barrett - Yeah. Yeah. Jeff, thank you so much. I learned a lot.

Jeff Catt - Dana, thank you. I think you knew a lot of going into it.

Dana Barrett - Okay, well that remains to be seen. Been a pleasure. Thank you so much.

Jeff Catt - Thank you.

Dana Barrett - This has been the Insider by DFIN. We'll see you next time.