Non-GAAP reporting metrics are already widely used in quarterly reporting. So much so that according to our analysis of ~40 earnings calls this quarter, NGMs were the primary focus of analyst questions – and by a good margin, too. That shouldn’t really be a surprise: the analysts on your quarterly earnings call are looking for an edge. The ‘color’ they talk about is those little pieces of additional information they can’t get from anyone but management. Non-GAAP reporting metrics sit squarely in the middle of this category because they are the best way to quantify management’s vision and execution strategy. We believe that promoting the use of non-GAAP financials can be a vital IR tool and here’s why.
Non-GAAP Metrics: A coming of age
CFO.com has an excellent piece out this week which endorses the use of non-GAAP reporting metrics. David Katz explains that in analysis of over 400 IPOs since 2011, almost 60% have used a non-GAAP metric in their financial statements . Understandably, this period of NGM growth has coincided with the SEC’s relaxation of restrictions on the use of NGM .
Greg Jonas, director of the office of research and analysis of the PCAOB, explains:
“I really like them because [they allow] management to tell the story of the company through their eyes, which I think many analysts want – to step into the shoes of management when they analyze a company. They may not agree with management, but they want to understand management”
EBITDA is the most commonly used NGM in IPOs by a fairly significant margin. But other useful metrics would include free cash flow, adjusted gross profit and individual project costs. Here’s a brief summary of some of the NGMs you could consider using in your quarterly earnings infographic.
How to display EBITDA
An excellent example of how to display EBITDA in context is provided to us by analysts covering Rackspace. Rackspace use a series of ROT metrics on their corporate IR site. The graph below is a re-designed version of a Revenue vs. EBITDA chart. We’re unclear as to whether an outside IR firm helped them with this. Interestingly, (and something to think about) Rackspace also provide a full list of non-GAAP metrics including EBITDA and ‘Return on Capital’ as a PDF download for shareholders.
Making use of adjusted EBITA
Adjusted EBITA is a great way to compare and contrast different business sectors within your company. It provides a high-level overview of where income is being generated, and over time allows analysts and investors to watch the growth of your various projects within your business. This kind of comparison is particularly useful if you’re trying to shift your company’s narrative, educate current investors, or win new ones.
You can download and use both of these charts in our earnings infographic template. The long awaited (since Monday) Version #2 is set to be released tomorrow and we’ll send both versions out via email for anyone who wants to start using infographic metrics as part of their earnings disclosure checklist. If there’s a strong need for this, we’ll also think about an infographic specifically for non-GAAP metrics, so feel free to comment below or let us know on our social media channels if that would be useful to you.