[author: Julia Spinelli]

In recent years, the Staff of the Securities and Exchange Commission (the “SEC”) has been providing comments regarding companies’ presentations of non-GAAP financial measures in public filings.  We surveyed and discussed the non-GAAP comments issued by the Staff to REITs, which can be found here.  In the period since the publication of the survey, based on a review of comment letters issued in the last six to nine months, we note that the SEC Staff continues to comment on the use of non-GAAP financial measures.  The comments issued in more recent periods relate largely to the improper labeling of non-GAAP financial measures and the failure to reconcile a non-GAAP financial measure used with its GAAP counterpart.

A recent comment related to improper labeling reads as follows:

“We note your calculation of EBITDA contains adjustments for items other than interest, taxes, depreciation and amortization.  Please revise in future filings to ensure that measures calculated differently from EBITDA are not characterized as EBITDA and have titles that are distinguished from ‘EBITDA’, such as ‘Adjusted EBITDA’.  Reference is made to Question 103.01 of the Compliance & Disclosure Interpretations for Non-GAAP Financial Measures.” (SEC Comment Letter (November 7, 2018)).

Another recent comment addresses the lack of reconciliation of the measure used with its most on-point GAAP counterpart:

“We note you provide guidance for PGRE’s share of Cash NOI and NOI.  In future supplemental packages, please reconcile your non-GAAP guidance to the most directly comparable GAAP guidance.  Please refer to Item 10(e)(1)(i)(B) of Regulation S-K and Question 102.10 of the updated Non-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016.” (SEC Comment Letter (September 4, 2018)).

While these are samples, they are representative of the comments that should be taken into account going forward this earnings season.