InFocus, non-GAAP Measures, and ModelsRobert M. Goldman, CFA
InFocus Capital Partners, LLC, www.infocuscp.com, is an experienced, accomplished, award-winning team with deep experience in research analysis, venture capital, investment banking, consulting, institutional sales, and operations. We help optimize our clients’ relationships with their current and potential stakeholders by leveraging our experience, capabilities, credibility, and tools to serve as a trusted finance and investor relations advisor on retained engagements to high quality public and private companies of significance.
Many of our client engagements include working with our client companies on financial modeling. We help our clients optimize their financial models and we quiz, probe, and challenge company management on these models to best prepare the management for their meetings with current and prospective investors.
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act). As directed by the Sarbanes-Oxley Act of 2002, the SEC adopted new disclosure regulations, Regulation G (effective March 28, 2003), which required public companies that disclose or release non-GAAP financial measures to include, in that disclosure or release, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosed non-GAAP financial measure to the most directly comparable GAAP financial measure. Other new SEC regulations, effective at the same time as Regulation G, provided additional guidance to those registrants that include non-GAAP financial measures in Commission filings.
Many folks, us included, believe non-GAAP financial measures are used by many companies to best and properly focus investor attention on the company’s true operational metrics. But, we and many others believe other companies are too liberal in their use of non-GAAP financial measures in an effort to perhaps distract investor attention from the company’s true operational metrics.
To address the concerns that non-GAAP financial disclosures may provide a misleading picture, the SEC on May 17, 2016 published its Compliance & Disclosure Interpretations which comprise the SEC’s interpretations of the rules and regulations on the use of non-GAAP financial measures. Better late than never, we think.
We believe many investors, even prior to the SEC Compliance & Disclosure Interpretations of May 17, 2016, already began to take non-GAAP financial measures on the income statement somewhat with a grain of salt and instead focused on cash flow metrics, which are less apt to be restated by the company.
All in all, the SEC might move slowly, but our sense is that non-GAAP financial measures will be viewed more and more suspect by investors.
Contact us – we can help.