Square discontinues adjusted revenue metric following SEC warning

In a statement to investors, Square said this will be the last quarter in which it will use adjusted revenue. Following receipt of a comment letter from, and subsequent communications with, the SEC’s Division of Corporation Finance, “we will discontinue the use of the adjusted revenue measure based on the SEC’s evolving position with respect to non-GAAP performance measures,” the company said.

“Going forward, our statements of operations will continue to disclose total net revenue, transaction-based costs, and Bitcoin costs, determined in accordance with GAAP, which are the key components of Adjusted Revenue,” Square said. “This reporting change will not affect our GAAP or other non-GAAP results.”

In a Nov. 6 FAQ document explaining to investors the changes to adjusted revenue reporting, Square explained that it first introduced adjusted revenue as a supplemental non-GAAP measure in November 2015 “to provide investors and analysts with useful metrics to measure the performance and growth of our ongoing recurring business and allow comparability to other businesses in the payment processing sector,” the company said.

In remarks at an accounting conference in 2016, Wesley Bricker, former deputy chief accountant at the SEC, said that, as the staff monitors adoption of the revenue-recognition rules (new at the time), they would also be watching for compliance with existing rules. “If you present adjusted revenue, you will likely get a comment,” he said, adding that staff will look “closely and skeptically” at explanations for why revenue adjustments are useful to investors.

Other companies that use adjusted revenue metrics—such as NortonLifeLock and Progress Software—may want to heed the warning.