Square, After Warning From SEC, Drops 'Adjusted Revenue' Metric

By:
Chris Gaetano
Published Date:
Nov 8, 2019
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Payment processor Square announced it will no longer use 'adjusted revenue' in its financial reports after being told by the Securities and Exchange Commission that the agency did not take kindly to the way the firm was using the metric, according to MarketWatch. While the specifics of the communication were not disclosed in Square's FAQ on the matter, it came initially in the form of a comment letter, followed by ongoing communications between the two parties. 

Square said that it first began using the metric in 2015 "as a supplemental non-GAAP measure 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," and added that management uses this metric to assess performance, growth and contribution of products and services with significantly different margins. 

The metric adjusted gross revenue to net by subtracting transaction-based costs and bitcoin costs, and also adding back deferred revenue that had been permanently written off after an acquisition, according to MarketWatch. It introduced the metric shortly after it lost a deal with Starbucks, which had been a significant source of revenue in the past. 

The move carries significance, as three other firms⁠—Symantec, BlackBerry and Progress Software⁠—use the same metric. While Square had been rather fastidious on its use of adjusted revenue, as it was quite open about what it meant and implied, the FAQ said that the SEC has an "evolving position with respect to non-GAAP performance measures." 

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