In monitoring SEC comment letters, we came across this SEC comment letter made public today, which we thought of particular interest to our readership given its direct application to almost all public companies. In the letter, the SEC Staff expressly concludes that simply including a URL address in an earnings press release that directs readers to a website where the non-GAAP reconciliation is located does not comply with the requirements in Item 10(e)(1)(i) of Regulation S-K (i.e., “must include….in the filing…a reconciliation”) and the general rules regarding disclosure of non-GAAP financial measures outlined in Regulation G (i.e., “must accompany that non-GAAP financial measure with…a reconciliation”). Although this is the Staff’s current position, we believe this may be an interesting area to watch in light of the SEC’s recent rulemaking in the hyperlinking space (see this post) as well as continued innovation in electronic communication and IR practices.
The relevant comment is below.
Exhibit 99.1 — Press release… dated January 31, 2017, furnished pursuant to Item 2.02
2. We note you have not included the reconciliations of your non-GAAP measures Operating Cash Cost and EBITDA to the most comparable GAAP measures within your filing, but instead have provided a URL address at which those reconciliations can be found. Please modify your presentation to include the required reconciliations of your non-GAAP measures within your filing. Refer to Item 10(e)(1)(i)(B) of Regulation S-K and the general rules regarding disclosure of Non-GAAP financial measures outlined in Regulation G.
Two exceptions to note with respect to this non-GAAP URL discussion are as follows:
- The Staff position may be different in electronic documents that are subject to limitations on the number of characters, such as a tweet. In this situation, we understand the Staff has informally endorsed the concept that an active hyperlink in such an electronic communication, may, under certain circumstances, satisfy the requirement that required information “accompany” the disclosure of a non-GAAP financial measure.
- Note 1 to Regulation G provides that if a non-GAAP financial measure is released orally, telephonically, by webcast, by broadcast, or by similar means, the registrant may provide the accompanying information required by Regulation G by: (i) posting that information on the registrant’s website; and (ii) disclosing the location and availability of the required accompanying information during its presentation.
For additional background on this topic, see this post that discusses a recent Wall Street Journal article that highlighted the SEC Staff’s attention to non-GAAP disclosure issues in the SEC comment letter process.