The Wall Street Journal yesterday published an interesting article regarding the SEC Staff’s attention to non-GAAP financial measure disclosure issues in the SEC comment letter process. The article highlights the ongoing focus of the SEC staff on non-GAAP financial disclosure issues following the revised (and more stringent) non-GAAP financial guidance promulgated by the SEC in the spring of 2016, as well as inquiries that were received from a sizeable number of public companies in 2016 from the SEC Division of Enforcement focused on non-GAAP compliance.

The article also makes clear that, if the Staff questions the use of a non-GAAP financial measure in the comment letter process, a public company may be able to convince the Staff that the use of a particular non-GAAP financial measure is appropriate and compliant. The article notes, however, that the ability of public companies to prevail may be correlated with the nature of the non-GAAP financial measure being used, and that public companies have been less successful in defending their usage of non-GAAP revenue-based measures (which have been the subject of particular scrutiny by the Staff) in comparison to non-GAAP earnings-based measures. Overall, public companies and their outside attorneys and accountants should continue to monitor non-GAAP disclosure considerations (and changing market practice) closely – not only in their SEC filings but also in other public disclosures such as earnings calls – as there is no indication yet that the SEC has decreased its focus on this issue, even with the change in presidential administrations.