EGC Corporate Governance Practices (May 2018)

EGC Corporate Governance Practices: A Survey and Related Resources PAGE 51 PART III The Use of Non-GAAP Financial Measures During the period from January 1, 2013, through December 31, 2017, 770 EGCs, or approximately 90.8%, prepared their financial statements using U.S. GAAP. The remaining 78 issuers used International Financial Reporting Standards (IFRS) or another form of generally accepted accounting standard. Of the 848 EGCs, approximately 42.9% included non-GAAP (or other accounting standard equivalent) financial measures in their IPO prospectuses, and approximately 57.1% did not. Figure 79 : N=848. During the year ended December 31, 2017, of the 155 EGCs that prepared their financial statements using U.S. GAAP, approximately 41.9% included non-GAAP (or other accounting standard equivalent) financial measures in their IPO prospectuses, and approximately 58.1% did not. Yes; 364 No; 484 Use of Non-GAAP Financial Measures (Cumulative) (By Frequency) Yes No Non-GAAP financial measures include, among others, earnings before interest, tax, depreciation and amortization (“EBITDA”); Adjusted EBITDA; Adjusted EBITDA Margin; Adjusted Net Income; Free Cash Flow; Contribution Margin; and Billings. The staff of the SEC’s Division of Corporation Finance (the “SEC Staff”) has been focused on the use of non-GAAP financial measures by registrants in their SEC filings. In May 2016, the SEC Staff issued updated Compliance and Disclosure Interpretations, or C&DIs, on the use of non-GAAP financial measures, which provide further guidance on Regulation G under the Securities Act and Item 10(e) of Regulation S-K under the Securities Act, the two principal rules that address the use of non- GAAP financial measures. The SEC Staff has also issued a significant number of comment letters on the use of non-GAAP financial measures since the issuance of the updated C&DIs. For more information, see our Practice Pointers on Non-GAAP Financial Measures, available at https://media2.mofo.com/documents/160816-practice-pointers-on-non-gaap-financial-measures.pdf , and our Practice Pointers on Anticipating and Addressing SEC Comments on Non-GAAP Financial Measures, available at https://media2.mofo.com/documents/170222-practice-pointers.pdf .