One of the key areas of disclosure focus for the Securities and Exchange Commission (SEC) following the emergence of the COVID-19 pandemic was the impact that the pandemic might have on the presentation of non-GAAP financial measures for public companies. For example, when providing disclosure guidance for how registrants should approach COVID-19-related considerations in CF Disclosure Guidance: Topic No. 9, issued by the Division of Corporation Finance on March 25, 2020 (CF Disclosure Topic 9), the Staff stated that, with respect to the disclosure of non-GAAP financial measures in the pandemic environment, “where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments,” the SEC “would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results.”
Nevertheless, it has been our experience (consistent with the survey results summarized below) that most registrants did not include COVID-19-related adjustments in connection with the presentation of non-GAAP financial measures in the first quarter. This article summarizes our survey results and analyzes factors that may have impacted the determination of most registrants not to include any COVID-19-related adjustments in connection with their presentation of non-GAAP financial measures in first-quarter disclosure materials.
As part of our survey, we reviewed 55 public companies that presented Adjusted EBITDA in their earnings release filed in the period from April 1, 2020, to May 14, 2020. We chose to focus on Adjusted EBITDA in this survey (recognizing that such measure is utilized more frequently in some industries than others) because such measure is commonly utilized by public companies to measure their operational performance and frequently includes adjustments for items that are believed not to reflect the ongoing operational performance of the company. While we limited our survey to registrants that presented Adjusted EBITDA, we believe that the survey results have relevance for companies that present other types of non-GAAP performance measures which are adjusted for special items or items outside of the ordinary course of business.