4.11 The customer-concentration risk factor gives no measure of how concentrated revenue is
Company D · a US-listed cloud communications software company · SEC-style question
In brief
Item 1A states that a significant portion of revenue comes from a limited number of large customers and that losing several of the top ten customers would materially and adversely affect the business. Nowhere does the Form 10-K say what share of revenue those customers provide; the only figure is the note that no single customer exceeded 10% of revenue in 2025, 2024 or 2023. The trigger was also reworded from 'one or more' of the top ten customers in the prior year to 'several' this year. Investors therefore cannot judge the size of the risk or why it changed.
The evidence, as filed
Screenshot withheld to protect the company’s identity. Even with names, figures and dates boxed out, the wording on these pages could be searched back to the filer. Pages relied on: Form 10-K 2024 (prior year), page 28; Form 10-K 2025, page 28; Form 10-K 2025, page 4; Form 10-K 2025, page 94.
What the filing shows, and what the rule requires
| What the filing shows | What the rule requires |
|---|---|
Risk factor (p.28): 'A significant portion of our revenue is concentrated among a limited number of large customers. If we lost several of our top ten customers ... our business would be materially and adversely affected.' No share of revenue is given; the notes (p.94) say only that no individual customer represented more than 10% of revenue. | A risk factor that shows how the concentration affects the company, for example the approximate share of revenue from the top ten customers in each year presented, or a statement explaining why the risk is material although no customer exceeds 10% of revenue. |
| What we checked. The risk factor, the risk factor summary, the concentration of credit risk note and the prior-year risk factor | |
The rule
Regulation S-K Item 105(b) (17 CFR 229.105(b)); Form 10-K Item 1A
Concisely explain how each risk affects the registrant or the securities being offered.
Version: In force from [date] · Source: Regulation S-K, 17 CFR 229.105, as amended effective [date]
Why it applies here. Item 105(b) of Regulation S-K asks each risk factor to explain concisely how the risk affects the registrant. A concentration risk is a quantity: without a measure, an investor cannot tell whether the top ten customers provide a fifth or a half of revenue, and the change from 'one or more' to 'several' implies the concentration has moved without saying how. The staff of the Securities and Exchange Commission (SEC) may ask a registrant to quantify a concentration it describes as significant. Because the 10% single-customer note is the only measure required by the accounting standards, and the wording change may simply reflect lower dependence, the matter is put as a question.
Why it matters
Investors cannot size a risk the company itself calls significant, or see why it was reworded; the staff may ask for quantification in a review.
Exposure
No penalty: at most a staff comment asking for quantification in future filings.
Our workings
the risk factor and the summary bullet assert that a significant portion of revenue is concentrated in a limited number of large customers. The notes state that for 2025, 2024 and 2023 no individual customer represented more than 10% of revenue. The prior-year risk factor said the business would be materially and adversely affected if the company lost 'one or more' of its top ten customers; this year it says 'several'. No share of revenue for the top ten (or any other group of) customers appears in the document.
Management’s best defense, and our reply
Management would say that no customer reached the 10% threshold that the accounting standards use for concentration disclosure, so there is no required figure to give, and that the share of revenue from its largest customers is commercially sensitive. It would add that Item 105 does not require risk factors to be quantified and that the change to 'several' reflects a broader customer base, which makes the risk smaller rather than larger. That defense is tenable, which is why the point is a question; however, the company itself describes the concentration as significant and material, and a concise explanation of how the risk affects the registrant normally needs at least an approximate measure.
The fix
- Add one sentence, for example: 'Our top ten customers accounted for approximately [x]% and [y]% of our revenue in 2025 and 2024, respectively; no single customer exceeded 10%.'
Question for the company
What share of revenue did the top ten customers provide in 2025 and 2024, and what change led the company to replace 'one or more' with 'several' of the top ten customers in this risk factor? Would management quantify the concentration in the next Form 10-K?
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | The risk factor asserts the concentration and the top-ten trigger but gives no share of revenue | Document | Form 10-K 2025, page 28 |
| 2 | The same risk is carried into the risk factor summary | Document | Form 10-K 2025, page 4 |
| 3 | The only concentration measure in the document is the single-customer 10% threshold, which no customer reached | Document | Form 10-K 2025, page 94 |
Absence check
- Document
- Form 10-K 2025
- Where it would appear
- A significant portion of our revenue is concentrated in a limited number of large customers.
- What is missing
- Any measure of the concentration, such as the share of revenue from the top ten customers
- Pages looked at
- p.28 (risk factor), p.4 (risk factor summary), p.94 (concentration of credit risk note); Form 10-K 2024 (prior year) p.28
- Result
- 'top ten' and 'major customers' hit only this risk factor. 'concentrat' also hits the summary bullet, the dual-class voting control risks (p.5, [n]), a description of competitors' messaging concentration, acquisition risks and the concentration of credit risk note; '10% of' hits only p.94, where no single customer exceeds 10% of revenue or receivables. None gives the share of revenue from the group of large customers. 'largest customer' does not appear.
Prepared by Pramanex from the company’s public SEC filings, without the company’s involvement, to show how a 10-K Pre-filing Check reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other attestation or assurance engagement, and not legal advice. An SEC-style question is a question, not a conclusion.
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