SEC Updates Guidance on Use of Non-GAAP Financial Measures

On May 17, 2016, the Securities and Exchange Commission released updated guidance regarding the disclosure of non-GAAP financial information by public companies. This updated guidance comes in the wake of several public statements during the first half of 2016 by SEC Chair Mary Jo White, SEC Commissioner Kara M. Stein, SEC Chief Accountant James Schnurr and SEC Deputy Chief Accountant Wesley R. Bricker, each expressing concern over existing market practices surrounding the use and disclosure of non-GAAP financial information by public companies and suggesting that the SEC will increase its scrutiny in this area.

We believe the updated guidance will impact routine earnings press releases, investors presentations and SEC filings for a significant number of public companies. Many companies will need to revisit the basic structure of their earnings press releases, including how metrics are presented in headlines, captions and tables, the text of legends addressing non-GAAP financial measures, and the presentation of forward-looking guidance for metrics like adjusted net income, adjusted EBITDA and other non-GAAP financial measures. Some companies will also need to consider whether any adjustments to their historic non-GAAP financial measures could be considered misleading under the SEC’s updated guidance. The bottom line is that public companies should take a fresh look at their disclosures in preparation for their next reporting cycle.