2.4 Certain Financial or Operating Metrics

2.4.1 What Are Metrics and Where Are They Disclosed?

A registrant may include in its SEC filings certain ratios or statistical measures such as “same-store sales,” “total customers/subscribers,” “occupancy rates,” and “average room rates” — often referred to as KPIs, key operating metrics, or simply metrics — to illustrate, for example, the size and growth of its business. Such measures are not included in the financial statements or the notes, nor are they necessarily derived from any underlying financial statement amounts.

In January 2020, the SEC issued an interpretive release, which states that a registrant should consider the need to disclose KPIs or metrics that it uses to manage its business in MD&A because this information may be material to investors and necessary in the evaluation of the company’s performance. While such disclosures may be included in MD&A, it may also be appropriate for companies to disclose KPIs or metrics in other areas, such as the business section or press releases. The types of metrics a company uses may vary widely among industries. For example, the same-store sales metric is used frequently in the retail and restaurant industries, subscriber numbers are often used by cable and streaming companies, and revenue per available room is a performance metric used throughout the hospitality industry. While such customized metrics are generally not considered non-GAAP measures (although they may be derived from such measures), a registrant should provide certain disclosures about them, many of which are similar to those the registrant would provide for non-GAAP measures under the Rules. See Section 2.4.3 for further discussion of the disclosure guidance for KPIs and metrics.

In the SEC’s interpretive release, registrants are also reminded of the importance of maintaining effective disclosure controls and procedures to help ensure the accuracy and consistency of the metric information. See Chapter 5 for a discussion of disclosure controls and procedures related to non-GAAP measures, which would also generally apply to metrics and KPIs.

2.4.2 How Is a Metric Different From a Non-GAAP Measure?

As discussed in Section 2.1, a registrant may calculate a non-GAAP measure by adding or subtracting items (that were also determined under GAAP) from the GAAP amount presented to arrive at an “adjusted GAAP” amount. A metric may be derived from data that is outside the GAAP financial statements, such as number of stores, quantity of customers, or Web site hits. Further, a metric may be a mathematical derivative of a GAAP number or non-GAAP measure. The non-GAAP rules would apply to a non-GAAP measure used in the calculation of a metric. Given the amount of diversity inherent in the presentation of metrics, the SEC staff expects registrants to provide transparent disclosures about them.

Comments from the SEC staff have increased regarding the improper presentation of a non-GAAP measure as a metric and vice versa. The staff has reminded registrants to review the non-GAAP rules and the SEC’s interpretive release on metrics to develop a firm basis for distinguishing between such amounts. Once an amount has been appropriately identified, registrants should clearly label it and provide the suitable corresponding disclosures.

2.4.3 Presentation and Disclosure Considerations for Metrics

Metrics should be discussed informatively since not all investors may be familiar with the registrant’s use of them. While the SEC staff has provided its views on metric disclosures in various speeches, the interpretive release (see Section 2.4.1) formalizes the SEC’s guidance on disclosures about KPIs and metrics. Accordingly, a registrant should (1) clearly define the metrics used and how they are calculated, (2) describe the reasons why the metrics provide useful information to investors, and (3) describe how management uses the metrics in managing or monitoring the performance of the business. A registrant should also disclose any key estimates, assumptions, and limitations (e.g., whether a metric is a “hard” amount or an estimate). The SEC emphasized in the interpretive release that when assessing whether to include metrics in its disclosures, a registrant should consider its existing MD&A requirements. The interpretive release noted that a company’s narrative should permit investors to see the organization from management’s perspective and that therefore the metrics should not materially deviate from those used to manage the business and make strategic decisions. A registrant should also consider providing metrics on a disaggregated basis (e.g., by segment or geography) when appropriate.

Although metrics may help registrants “tell their story” in MD&A, management must use judgment when determining whether to include them in filings and should also consider the following questions in making this determination:

Is the metric integral to the registrant’s story?
Does the metric help investors understand changes quickly and effectively?
Is the metric discussed outside of periodic filings (e.g., in earnings calls)?

In addition, because metrics may evolve over time, the interpretive release clarifies that registrants should disclose the following related to changes in metrics, if material:

Changes in the way the metric is calculated or presented.
The reasons for such changes (e.g., comparability with a metric used by peers).
The effects of any changes on other information being disclosed or previously reported.
Any other information about the changes that would be relevant to the company’s trends or results.

Further, to place changes to metrics in the appropriate context, a registrant may need to recast prior periods to conform to the current presentation if the changes are significant.

The SEC staff has continued to assess whether registrants that use metrics to manage their business have discussed such metrics consistently in documents, particularly when they are used to support changes in financial statement line items. In addition, registrants should continually monitor metrics disclosed outside of SEC filings (e.g., within press releases and investor presentations) to evaluate whether that information may be beneficial to investors and thus appropriate for inclusion in SEC filings.

The table below summarizes disclosure considerations in the interpretive release as applied to certain industry metrics.

Industry	Metric	Disclosure Considerations
Technology and Internet	Online users	If subsets of online users are material to an investor’s understanding of a registrant’s results of operations and financial position, the registrant should consider disclosing the subsets and explaining any differences between them. For example, the monetization of (1) U.S. users often differs from that of international users and (2) mobile users often differs from that of desktop users.
Retail	Number of visitors to Web site	A registrant should disclose how metrics are clearly and directly related to its results of operations and financial position. For example, a registrant may disclose the number of individuals who visited its Web site but fail to note how this number differs from the number of visitors who actually purchase goods.
Retail	Number of catalogs mailed	A registrant may disclose the number of catalogs mailed but fail to note sales made through mailed catalogs.
Retail and other industries	Same-store sales	The definition of this metric frequently varies by registrant or particular industry. The SEC staff has recommended clearly defining this metric and providing additional information about it, including how it is calculated, relevant assumptions, and limitations. For example, the staff has suggested that: Retail companies with brick-and-mortar stores disclose how renovated stores are treated as part of this metric. Brick-and-mortar retail companies that also offer online sales consider providing disclosures, when material, by either separately quantifying the change in the metric that is attributable to online sales or quantifying the change both “with and without” online sales.
Travel and hospitality	System-wide sales	System-wide sales are generally defined as the sales generated by a combination of the corporate-owned and franchised locations. Registrants should consider disclosing, in a clear tabular format alongside the narrative disclosures, corporate-owned, franchise, and system-wide sales in each period presented.
Real estate	Occupancy and average rental rates	Registrants often do not explain the reasons for period-to-period changes.
E-commerce	Gross merchandise volume	E-commerce retailers sometimes disclose this metric when they do not own the merchandise sold on their Web sites and record revenue on a net basis. Such disclosures often fail to discuss why this metric is important or how it is linked to the registrant’s results.

Further, the interpretive release provides certain additional examples of metrics for which a registrant should consider whether it may need to disclose additional information to give investors enough context to understand them, including:

Operating margin/contribution margin (see Section 3.2.1 for additional discussion).
Sales per square foot.
Traffic growth.
Total, active, or changes in customers/subscribers.
Average revenue per user.
Daily/monthly active users/usage.
Total impressions.
Number of memberships.
Voluntary and involuntary employee turnover rate.
Percentage breakdown of workforce (e.g., active workforce covered under collective bargaining agreements).
Total energy consumed.
Data security measures (e.g., number of data breaches or number of account holders affected by data breaches).

Confidential and Proprietary — for Use Solely by Authorized Personnel

This SEC Reporting Interpretations manual provides comprehensive guidance; however, the manual does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.