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Most IPOs used Non-GAAP measures: PwC report

According to a latest report by PwC titled “How non-GAAP Measures Can Impact Your IPO”, which was released after analysing more than 400 IPOs, nearly 60% of the IPOs offered in the period 2011-13 in the U.S markets used at least one non-GAAP financial measure in their financial statements.

PwC’s U.S. Capital Markets leader, Neil Dhar, in a statement said that management teams, investors, regulators and rating agencies are keenly focused on NGMs and how they are being used by new equity issuers. Among the many choices that companies preparing for IPO have to make, an important one is to how to utilize the NGMs in their filings and in their communications with potential investors. NGMs provide meaningful insight into a company’s liquidity, cash flow, and operating performance. Using the right NGMs can help new issuers highlight key facts and and circumstances to positively position themselves to the investment community.

According to PwC’s research, adjusted EBITDA NGMs appeared in 46% of reviewed filings. over 70 percent of those included an adjustment for stock, share or other equity based compensation. Other common EBITDA adjustments related to impairment (33 percent), acquisition (20 percent), and restructuring & reorganization impacts (15 percent). A wide diversity in EBITDA adjustments made by companies, was also identified by PwC, noting that 80 percent of the filings included at least one unique adjustment, which ranged from management fees to accretion charges, to income or losses from discontinued operations.

Adjustments to EBITDA can be determined at the discretion of the company, the report noted, and can vary significantly from organization to organization, impacting comparability between companies and industries. The research also showed how some industries have developed other common NGMs in addition to or as a replacement for Adjusted EBITDA, including the asset management, banking & capital markets and entertainment, media and communications sectors.

Comparability between companies and industries is impacted by the fact that adjustments to EBIDTA can be determined at the discretion of the company which then results in significant variation from organization to organization. The research also shed light on how some industries have developed other common NGMs either in addition to or as a replacement for adjusted EBITDA.

After Adjusted EBITDA, other common NGMs in the financial statements analyzed included EBITDA (19 percent), adjusted net income (9 percent), free cash flow (4 percent) and adjusted gross profits (4 percent).

Mike Gould, PwC’s U.S. Public Offerings leader said that having the financial reporting in order from start is a key factor for companies to be ready to enter the IPO markets while the window is open. NGMs are a key tool for companies planning to enter the public market but a complex process such as this must be thought through objectively to avoid potential mishaps and unanticipated costs and delays in their offerings.

Download full report here.


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