A Dow Jones piece in MarketWatch says that BlackBerry’s earnings report puts it at risk of an enforcement action due to a headline touting non-GAAP revenue, followed by four non-GAAP measures.
Under SEC rules, companies must lead with their GAAP numbers. They are allowed to add non-GAAP metrics, which many companies say give a truer picture of underlying earnings. But they must give equal prominence to the two sets of numbers and offer a full reconciliation of the two.
BlackBerry explained its adjusted revenue in a footnote:
“During the first quarter of fiscal 2020, the Company recorded software deferred revenue acquired but not recognized due to business combination accounting rules of $20 million, of which $19 million was included in BlackBerry Cylance and $1 million was included in IoT (Internet of Things).”
BlackBerry is adding in revenue that will never be allowed under GAAP as the result of an acquisition.
That matters because that extra $20 million gives the company an “adjusted” revenue of $267 million, which brings it above the FactSet consensus of $265 million. The actual revenue number, under GAAP, is $247 million, below the FactSet consensus.
In response to the article, BlackBerry released the following statement,
“The information in our financial disclosures complies with U.S. securities laws that apply to us as a Canadian foreign private issuer, including all rules regarding the use of non-GAAP measures.
We believe the non-GAAP information, together with our GAAP information, provides shareholders with valuable information regarding our financial performance.”
SEC rules are quite clear that foreign private issuers must comply with the same rules as U.S. issuers, as the guidelines above indicate, in particular as regards prominence.