planning for the future

What’s On the Agenda for 2022?

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If you’re like me, you’ve probably seen, heard, and read one too many articles about trends for 2022. I even published a 2022 trend article myself. And as much as I enjoy thinking about and planning for the future with Audacia’s incredible clients, I’m also a realist.

Has anyone effectively predicted anything during the past two years? Fortunately, we don’t need to predict the future to build a solid strategy. What if we, instead, accepted the uncertainty and focused on building flexibility and the capacity for resilience inside our organizations?

With this in mind, let’s discuss what’s in, what’s out, and preview the flexible plan we’re implementing at Audacia Strategies this year.

What’s In

As we continue to watch workplaces shift and organizations rethink how productivity happens, some corporate culture trends have real staying power.

1. Building corporate trust.

The pandemic continues to erode public trust in large institutions. Early last year, when we were mostly feeling optimistic about a swift return to normalcy, we talked about ways corporations could begin rebuilding trust. Back then, public trust of businesses stood at 61%, higher than any other institution, according to Edelman’s Trust Barometer.

Now, after enduring another year of working from home and dealing with the uncertainty of the delta and omicron variants, many of us have given up on the concept of “a return to normalcy” entirely. And the 2022 Edelman Trust Barometer reveals that business holds onto its position as the most trusted institution, with even greater expectations due to government’s failure to lead during the pandemic.

Here are some of the key findings:

  • By an average of a five-to-one margin, respondents in the 28 countries surveyed want business to play a larger role on climate change, economic inequality, workforce re-skilling and addressing racial injustice. 
  • All stakeholders want business to fill the void, with nearly 60% of consumers buying brands based on their values and beliefs, almost 6 in 10 employees choosing a workplace based on shared values and expecting their CEO to take a stand on societal issues, and 64% of investors looking to back businesses aligned with their values. 

“Business must now be the stabilizing force delivering tangible action and results on society’s most critical issues,” said Richard Edelman, CEO of Edelman. “Societal leadership is now a core function of business.”

2. Establishing credibility as a trusted information source.

The 2022 Trust Barometer also revealed that trust in news and information sources has eroded over the past decade. Trust in all news sources has dropped (with the exception of owned media, which rose one point to 43%). Social media experienced the sharpest decline at eight points to 37%, followed by traditional media dropping five points to 57%.

In addition, concern over fake news being used as a weapon has risen to an all-time high of 76%. And the most credible source of information is communications from ‘My Employer’ (65%). 

Clearly, trust is at a premium now, which means there’s also a huge opportunity for organizations to establish credibility as a source of reliable information. Doing so will likely require skillful repetition of the truth and transparency in your internal and external communications.

It’s more difficult than ever for consumers to sift through all the available content and find useful information. Making increasing trust a part of your firms’ strategic plan in 2022 could be a serious differentiator.

3. Staying nimble.

Also, with all the challenges to public trust and uncertainty in the air, perhaps the best strategy for thriving in 2022 is to stay nimble. Where can you keep your strategic options open?

If you’re working on an M&A deal this year, for example, positioning your organization for the sale is key:

  • As your business model and corporate strategy shift with the times, you may need to re-evaluate how M&A fits.
  • Keep in mind that there are more options for M&A available now, such as SPACs and other non-traditional financial configurations.
  • Make sure your due diligence covers more than just the financials. The unfolding of the criminal trial and conviction of Elizabeth Holmes, CEO of the debunked medical startup, Theranos, has driven home this point. Many Theranos investors have been criticized for not doing the proper due diligence.

What’s Out

With the above in mind, let’s turn to what’s striking a discordant note with consumers, investors, and trend-setters.

1. Overpaying for an acquisition.

We’ve seen some of the highest M&A deal volumes ever in the past year, and multiples are at record highs. Still, the M&A market remains competitive. While many deals are worth the multiple, there’s no good reason to overpay for an acquisition. 

In fact, we see firms making this mistake for a variety of reasons:

  • Deal fever: It’s easy to get caught up in the excitement of a bidding war. Instead, be willing to walk away from a deal that doesn’t really work.
  • Cutting corners on due diligence: Due diligence is like going to the dentist. If you don’t do the preventative work, you may end up needing a root canal.
  • Not getting real about your competition: The deal will have ripple effects. Do your best to anticipate how it will affect your competitors and the market in general.
  • Getting entranced by “synergies” [or insert your favorite buzzword]: Don’t fall for talk that sounds good but isn’t backed up by substance. Always have a gut check strategy.

What we recommend: A comprehensive integration strategy that goes beyond IT systems and benefits (both vital!) and addresses culture, leadership style, behavior expectations, and just plain “what’s in it for me?” And by the way, this comprehensive integration strategy should include perspectives from employees, customers, and investors.

Consider one of my favorite quotes from Dan Doran: “Value is analyzed, price is negotiated.” Write it down on a sticky note and keep it top of mind for deal negotiations.

2. Mixed messages to employees and customers.

Remember how we’re inundated with information and unsure whether we can trust any of it? Well, one thing that contributes to this paucity of trust is mixed messages. So replace complex, inconsistent, and vague messages with simple, consistent, and transparent communications.

And also, it can’t hurt to approach all messaging with a healthy dose of realism and empathy. For many, January 2022 feels an awful lot like April 2020. Pandemic fatigue is at an epic level and right now it’s hard to be an employee, a leader, a customer, an investor, a parent, a kid, a teacher, a doctor, a nurse…a human.

3. Everything being a top priority.

With everything we have to deal with on a daily basis, we don’t need the added burden of everything feeling urgent. So it’s best to think extra carefully about your real top priorities as an organization. 

Employee burnout is real. Customer burnout is real. No one has the patience to discern what’s a true priority. If you treat every task or project as if it’s Defcon Level 5, you’re likely to invoke a fight, flight, or freeze response.

Instead, pick your top goals, staff out each project appropriately, and give realistic deadlines, all with team input. Then maintain productivity by communicating your priorities and why to all levels and all stakeholders.

What We’re Doing at Audacia Strategies

Of course, by now, you know we at Audacia are always thinking about how we can walk our talk and 2022 is no exception. 

Here’s what we’re doing to build flexibility and the capacity for resilience:

  • Lots of deep breaths.
  • One of our guiding principles: Start with empathy.
  • Recommitting to our values and actively building our culture around them.
  • Focusing on prioritizing our business investments: We’re doubling down on what has worked by augmenting our offerings and building our capacity to support executive transitions, exits (IPOs, M&A), and refreshed marketing positioning.
  • Focusing on building our kick*ss team: We are proud to work with professionals who are the best of the best in their field, highly respected, customer-focused, awesome people with a fabulous sense of humor, and are no bullsh*t team players. We’ve already announced that IR pro, Mike Pici, joined the leadership team, and you can check out our team page to find out more about our strategic partnerships.
  • More deep breaths…

If the question of building a solid strategy amidst chaos and uncertainty has your organization reaching for the Magic Eight Ball, contact us instead to schedule a consultation. 

We haven’t been able to predict the future (yet!), but we do help clients develop strategies for dealing with anticipated and unanticipated transformations, and we can do the same for your organization.

Photo credit: Business Colleagues Having A Meeting Discussing Graphs And Figures by Flamingo Images from NounProject.com

Investor relations

Ask an Expert: Managing Director, Mike Pici, Discusses How Investor Relations Drives Value by Looking at Ordinary Events in an Extraordinary Way

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Communicating with investors and potential investors can feel like walking a tightrope. Investors want to know how you’re going to protect and ideally increase their investment. Investors and analysts don’t appreciate uncertainty and surprises can add volatility into your stock’s trading.

Enter the Investor Relations expert.

First things first: Investor relations is not about pumping up the share price or sweeping surprises under the rug. It’s about supporting an accurate valuation and understanding of the firm.

IR professionals are there to keep your investors and analysts grounded. They are the first point of contact between investors, the Street, and the company. And their job is to effectively communicate the management’s mission, vision, and strategy, while being prepared for anything any stakeholder might ask.

Do you know what your investors are thinking? Or are you walking a tightrope?

Interview with Managing Director of Investor Relations and Financial Transformation, Mike Pici

To get you started down the IR road, Audacia Strategies CEO, Katy Herr, sat down with Managing Director of Investor Relations and Financial Transformation, Mike Pici, to talk about the what, the why, and best practices for coming up with an investor relations strategy.

Mike brings to Audacia 20+ years of financial and capital markets experience including investor relations, business modeling, budgeting, forecasting, and planning processes, as well as thorough experience with financial statements, i.e., 10-Qs and 10-Ks. He has also been a key internal advisor on portfolio transformation activities including $1B+ of acquisitions, multiple corporate spin-offs, asset divestitures, integrations and associated stranded cost mitigation planning, strategic portfolio reviews, and transformation messaging. 

To find out how your firm can benefit from working with an Investor Relations and Financial Transformation expert, check out these highlights from Katy’s interview with Mike.

Q | Can you talk a bit about what a Managing Director of Investor Relations does and how Financial Transformation fits into the picture?

Investors and potential investors naturally have a lot of questions about the companies in which they’re investing. Of course, they’d love to talk to the C-suite directly, but this isn’t always feasible. So IR steps in to answer investor questions between earnings calls or annual shareholder meetings.

Now, when your IR professional is doing their job well, they are on the same page as the managers and effectively communicate the managers’ narrative in a way that puts investors at ease. Credibility and transparency are key here. When investors trust the IR liaison, they can better weather any storms that may affect the company. It’s a win-win.

For example, if the IR manager can explain how a CEO transition fits into the broader business model and overall big picture, investors will feel more grounded and comfortable staying the course. Without earning their trust, though, IR and leadership will face a barrage of questions that could trigger significant turmoil.

Here’s where the financial transformation piece fits in:

What kinds of questions do investors ask most often? Questions about the financials, of course. 

Clearly, IR professionals have to know their numbers. But they also need to be able to communicate about the numbers in a way that makes sense to investors.

There’s no degree in IR. Typically, you’re either a finance person or a communications person. I have a financial background (Financial Planning & Analysis (FP&A)), so I’m often falling back on the numbers. This is helpful because the Street is always trying to build a model. So my financial background gives me the ability to think like an analyst and communicate in a way that steadies the waters for investors.

The real advantage in working with an IR strategist, though, is that they are always focused on the reality on the ground and how to best communicate about it in a way that aligns with your overarching messaging. Everything I do. Everything I look at. I always ask, how does this affect the numbers?

And this one-pointed focus is important because people get really emotional about money. So if you’re facing a potentially destabilizing situation, your IR professional can look past the perceived impact to the reality of the situation and be able to talk about the reality in a way that grounds your investors.

For example, right now there are shipping containers on ships stuck outside the port in L.A. How does or could this affect your bottom line? When investors inevitably call up and start asking how much of your product is stuck in that port, don’t you want someone who can help you answer that question in the most diplomatic and accurate way?

The ability to answer questions like these during some of the most trying times in the lifecycle of a firm makes working with IR a game changer. Yes, IR must align with the management team while finding a way to connect with investors. But the trust needs to flow from management to the IR person as well. 

It’s true that sometimes I have to speak truth to power. Part of the job is bringing messages back from the Street or from investors to managers and telling them hard truths. I often start these conversations saying, “I think this is what you pay me to do,” which is code for “I’m going to tell you something you don’t want to hear.”

When management and IR can find common ground, managers trust IR, and investors trust the IR professional, then you have a streamlined system that sets everyone up for success.

Q | How does a typical IR process work? Are there best practices that companies should follow when coming up with an IR strategy?

When I start working with a new client, the first thing I do is gather information. Firms need to know, first and foremost, where they stand. So, I call up the analysts to get a sense of their perception of the company. I also call up the top 10 investors to get their perspective. Then I take this information to the managers and have a conversation about what I’m hearing.

This allows me to start shaping the narrative that can be proven out over time during quarterly earnings calls. We figure out what makes you different from your peers and why that counts in your favor. Then we make sure every earnings call references your special sauce.

But this early process only scratches the surface. To keep the momentum going, each quarter I approach quarterly earnings calls in the following way: 

  • About a month away from the end of the quarter, I get in touch with the FP&A group and ask them how the forecast is shaping up. This gives me a sense of how the firm is performing relative to the Street’s expectations. 
  • Then I get the analysts’ models — the most invaluable piece of information. I lay out all the models and compare them to the forecast. And I compare them not just on the metrics we guide (e.g., revenue, earnings per share (EPS), or cash), but also on what they’re expecting throughout the P&L. 
  • So suppose I see that our margins (profitability) are coming in a little lighter than what they’re expecting. I can also see, we’re bridging the gap because we have fewer Selling, General, and Administrative (SG&A) expenses than they’re expecting. 
  • Now I can start to frame a narrative that the firm can build on each quarter. 
  • Armed with all this information, I’ll have a meeting with my management team two or three weeks before the end of the quarter to talk about key themes for the next earnings call. Obviously, we will always talk about the financial results. But we can also discuss major program wins or new product launches. And of course, I’ll ask management what they want to deliver during the call. Often we discuss market trends or the competitive environment. There will be some give and take here.
  • Within hours after each earnings call, I do follow up calls with analysts to correct the record and make sure the note reflects what we want.
  • Prior to the earnings call, I proactively extend an invitation to the top 10 active shareholders to meet after the call as well.
  • Because accessibility is key, I also go on the road with management once a quarter immediately after each earnings call.

The above process reflects what I see as best practices in IR: consistency and transparency. Knowing where your firm stands is imperative, but you also want to have a plan for where you’re going, knowing that you may need to pivot, but all the while maintaining continuity of your messaging. When you maintain a credible message with the Street and with investors and you support that message with facts, then you have a brilliant IR strategy.

Remember, good numbers can fix a bad message, but a bad message can hurt good numbers.

IR is all about communicating the future and getting others to see your vision. So how do you know you have a strong IR message? You know you have a strong IR message when the questions on the earnings calls and in conversation with buy-side investors become more strategic, than tactical. At this point, you know they see your vision and they’re with you.

Other key questions to ask:

  • Who’s investing in our peers and not in our firm?
  • Who do we want to be investing in our firm? Which rooms do we need to be in to make this happen?
  • Which analysts are tracking our peers and not tracking our firm?
  • Who should management meet with when they do the next roadshow?

Q | If there were one thing you wish your clients knew to get better outcomes or something that would make the process easier, what would it be?

Keep your audience at the forefront. To get the best outcome possible, you have to make sure you’re hitting on the points that are most important to the person on the other end of the call. Whether that’s an investor, an analyst, or a member of the media, you have to understand how they perceive you, meet them where they are, and get them to walk the path with you.

For managers, this takes an incredible amount of situational awareness. It means proactively reaching out to the right people and addressing the right issues. But it also means considering key components of communication that often get overlooked.

Consider your tone of voice when talking to investors, for instance, it’s not just the words that you say, but how you say them. If your numbers are off and you’re calling down your guidance for the quarter or year, you know it’s going to hurt. But when you’re in this situation, call down the guidance, acknowledge it, own it, offer a solution, and show investors how you plan to move forward. And if you deliver even a less than stellar message with confidence, you’re far more likely to get the outcome you’re hoping for.

Q | So what can an IR professional do for your firm that even a combination of PR, media relations, and marketing can’t do? 

An IR professional offers your firm the unique blend of communications skills and financial prowess that allows you to gain the trust of analysts and investors alike. Like it or not, successfully wooing investors is a game of controlling the narrative around the numbers. 

The unique thing about IR is that it forces you to look at ordinary events in an extraordinary way.

If you’re ready to look at ordinary events in your firm in an extraordinary way, schedule a consultation and let’s talk about your next business transformation.

Photo credit: Businesswoman leading a video conference call from her tv screen by Jacob Lund Photography from NounProject.com

rebuilding corporate trust

Rebuilding Corporate Trust: 4 Ways Business Leaders Can Bring About Real Change

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As we slowly leave the pandemic behind and enter the rebuilding period, let’s not forget our responsibility for rebuilding trust in public institutions. With all the highfalutin talk about rebuilding society and cultural norms coming out of the pandemic, it’s tempting to point the finger at the government, NGO’s, and the media.

But we are at a unique crossroads where business leaders are positioned to bring about real change both inside and outside of their organizations. Want evidence? Look no further than corporate reactions to measures tightening voting accessibility. Just over a week ago, hundreds of companies and executives signed on to a new statement opposing “any discriminatory legislation” that would make it harder for people to vote. 

This type of overtly public engagement has become increasingly common over the past few years as corporate executives step into the trust gap vacated by government organizations. 

Earlier this year, global communications firm, Edelman, released its 2021 Trust Barometer and the results are revealing, especially when it comes to rebuilding public trust:

  • Business has a 61% trust level globally (that’s higher than any other institution)
  • 86% of respondents believe that CEO’s must lead on societal issues
  • 68% say CEO’s should step in when governments fail

We can point the finger at others, or we can embrace this as an opportunity to reshape relationships and build new communication paths providing benefits that will long outlive the current moment. Edelman’s Trust Barometer makes it clear which choice your customers and employees want you to make. So let’s look at the why and how of rebuilding trust.

Rebuilding Corporate Trust in Response to the Epidemic of Misinformation

How did we get here? If you were an alien landing on Earth today, you might expect to find people turning to governments and other long-standing institutions for guidance as we restart the global economy. However, the way governments handled the global health crisis has not engendered confidence in people.

Time Magazine nicknames the findings of the Edelman report the “Epidemic of Misinformation.” In the first half of 2020, public trust of governments did rise. Early on, both U.S. and Chinese citizens deemed the government to be the most fit institution to handle the COVID-19 pandemic. However, by May 2020, China and the U.S. saw significant drops in trust by 18 and 23 points respectively.

To explain these sharp decreases, Richard Edelman points to China’s use of censorship and U.S. officials’ touting of “miraculous cures” that were discredited while simultaneously diminishing the efficacy of mask wearing and social distancing in favor of reopening businesses. Edelman’s recommendation: it’s time to declare information bankruptcy. 

As trust in governments has diminished, trust in businesses has only grown stronger. Given that trust is the glue that holds society together, especially during trying times, leaders must take the initiative to rebuild corporate trust.

How Our Clients are Rebuilding Corporate Trust

Even before the pandemic, many CEO’s appeared to be heeding this call and stepping into their roles as “America’s new politicians.” In 2019, 181 of the nation’s top CEO’s agreed that “driving shareholder value is no longer their sole business objective.” This is a significant break with the past profit-above-all-else mentality.

And this shift, spearheaded by Business Roundtable Chairman and JPMorgan Chase CEO Jamie Dimon, reflects growing pressure from employees, social media, and customers to do more than increase stock prices. The pandemic and recent political events have only accelerated this shift.

At Audacia Strategies, we’re fortunate to have a front row seat to see this change in action with our clients. Here’s how our clients are stepping up to rebuild corporate trust one organization at a time:

1. Looking deep into the “soul” of the organization

Our clients are looking deep into the “souls” of their organizations to tap into their purpose. They’re asking: Why do we exist beyond profits? And what value do we add?

They’re also recognizing that often rebuilding corporate trust requires reaching out to customers and employees to ask for help. They’re initiating Voice of the Customer and Voice of the Employee studies to really take the pulse of their key stakeholders.

In many cases, though, rebuilding trust is perpetually aspirational. This applies not only to startups, but also to long-tenured companies. As the world changes, how we leave an impact can and must evolve too.

2. Knowing credibility matters

Employers are recognizing this moment for the opportunity to be a credible voice and to provide clear, unambiguous information for employees to follow — whether it relates to corporate strategy, benefits changes, or societal changes.

When organizations look at employees as humans, as opposed to money-making machines, they see beyond increasing productivity, profitability, and financial performance. They see how having empathy for what their employees have experienced in the past 12 months can open doors for the organization.

In the current climate, employees are exhausted from having to parse through health messages online, in their inboxes, on television, and in the media. Misinformation and disinformation have created a void leaving many without an orientation point from which to believe anything at all. Operating in such a gray area is exhausting and demoralizing.

Companies focused on rebuilding trust recognize the chance to fill this void for their employees (and customers) and gain credibility as a result.

3. Believing consistency is king

The quickest way to blow your credibility when it comes to communications is to broadcast inconsistent and sporadic messages. The old 7×7 rule is still a good starting point — but it doesn’t go nearly far enough. 

For our clients, we encourage a message architecture that ties every communication back to the organization’s purpose and vision. 

Overcommunication is key… but not via an avalanche of emails. Instead, use multiple channels and — most important — use live events whether structured town halls, small group roundtables, regularly scheduled staff meetings, or just chatting before the next Zoom call. All of these are opportunities to reinforce a consistent message. And that leads me to…

4. Proving trust is not a one-way street

Employees must also have a voice and provide feedback in real time.  And although annual engagement surveys can help, these shouldn’t be the only means of listening. Some ideas:

  • Hold open Q&A sessions
  • Use your internal communication tools like Yammer, Slack, or Google Hangouts to solicit and facilitate feedback
  • Share pulse surveys
  • Voice of the Employee (VOE) research 
  • Have an open inbox/phone line/door for receiving and sharing feedback

When your employees feel heard, they trust that you’ll share with them what’s working and what’s not in a constructive way. They trust that you’ll share the questions and suggestions you receive. And they will trust you to create a roadmap forward and share your progress regularly. 

Rebuilding corporate trust is hard work. It’s sticky. It can be emotional and truthfully, it can be exhausting for the leader who often says, “but I’ve said this in the last 5 meetings — let’s move on.” Remember, though, consistency is credibility and credibility is trust. 

As leaders, we don’t have the luxury of passing the buck here. Rebuilding public trust starts with us. If you’re ready to boldly step into this new era of radical transparency and corporate trust, your partners at Audacia are here for you. Contact us to discover how we can work together. 

Photo credit: Group of happy people working together in an office by Flamingo Images from Noun Project

non-GAAP metrics

Credibility and Non-GAAP Metrics: Good, Bad, or Ugly?

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Investors and the Securities and Exchange Commission (SEC) have a love-hate relationship with non-GAAP (Generally Accepted Accounting Principles) metrics. On the one hand, they love information that could help them better determine where to invest capital. On the other hand, they have a hard time gauging the reliability of non-GAAP metrics.

So where does this leave those of us developing a transparent and accurate strategic message for our company? And how do non-GAAP metrics help shape credible investor, analyst, and financial media relationships?

It all comes down to the credibility factor. Non-GAAP metrics can be a critical component of your company’s strategic message, but they shouldn’t be abused. The goal should be transparency and easing investor understanding—not obfuscation.

What is a non-GAAP metric?

Before we discuss how these measurements can increase your company’s credibility and play a key role in both your investor and media strategy, let’s define a non-GAAP metric.

According to the SEC, a non-GAAP metric is “a numerical measure of a registrant’s historical or future financial performance, financial position, or cash flows that:

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.”

Essentially, a non-GAAP financial measure is intended to depict a measure of performance or liquidity that is different from those presented in audited financial statements (e.g., sales, net income, cash flow from operations).

To make it even clearer, let’s say your company anticipates conducting a sizeable restructuring this year. If this will have a material impact on net income, you may wish to report net income with restructuring charges (GAAP) and without restructuring charges (non-GAAP). The non-GAAP measure, then, would be: GAAP net income less restructuring charges = Adjusted Net Income.

The non-GAAP challenge.

Over the years, the use of non-GAAP metrics and their prominence in financial discussions has been on the rise. In 2015, just 12% of S&P 500 companies reported only GAAP (audited) numbers in their public filings. That was down from 25% in 2006. Non-GAAP metrics have become a common way for companies to share more about how they view company operations and performance (see the example above).

To be sure, there is value in using appropriate non-GAAP metrics as a supplement to audited GAAP reporting. What we want to avoid are misleading metrics. Unfortunately, over time we have seen that some companies’ non-GAAP metrics veered away from the original intent and may have been used to paint an overly optimistic picture of business operations.

As non-GAAP metrics have increased in usage, so have concerns that such measures might not be as rigorously tested and maintained as their GAAP counterparts. As a result, the SEC updated its guidelines to clarify what might be considered misleading non-GAAP presentations and how to avoid giving non-GAAP measures greater prominence than comparable GAAP measures.

Since updating its guidance on non-GAAP metrics in May, SEC officials have sent significantly more comment letters to companies regarding non-GAAP use and they have cracked down on potentially misleading non-GAAP disclosures.

As we head into quarterly (and annual) reporting, it’s a good time to revisit your disclosure strategy and consider how to communicate your company’s strategic direction and associated metrics.

Guidelines for using non-GAAP in your investor relations strategy.

1. Give GAAP prominence. When presenting a non-GAAP measure it must be presented with the most directly comparable GAAP measure given equal or greater prominence. For example, an earnings press release should cite GAAP net income before a non-GAAP “adjusted net income”.

2. Ensure non-GAAP measures aren’t misleading. Some adjustments specifically called out by the SEC (although not explicitly prohibited) include non-GAAP metrics that

  • exclude normal, recurring, cash operating expenses necessary to operate the business;
  • are adjusted and presented inconsistently between periods;
  • accelerate revenue recognition;
  • include nonrecurring charges, but not nonrecurring gains; and
  • do not show current and deferred income tax expense commensurate with the non-GAAP measure of profitability and note the income tax effects of the adjustments as a separate item (i.e., rather than showing net income “net of tax” adjustments should show income taxes as a separate adjustment that is clearly explained).

3. Return to the fundamentals of your message. Ask: What is our corporate strategy? What goals and objectives are we (or should we) be discussing in our disclosures to demonstrate progress? What are our milestones?

4. Ensure the non-GAAP metrics you use fit with your strategic message. When considering a non-GAAP metric ask the following questions:

  • What is the intent of the metric? Does it help to paint a more complete picture of the company’s performance and/or market opportunity?
  • Is this metric meaningful? Is this a metric that your management team uses to discuss the company with employees? Are managers held accountable for this metric?
  • What are the measures used by the company to assess progress against annual/long-term strategy?
  • What are key metrics in our industry? In my peer group? Are they helpful or outdated?
  • If I was a shareholder, would this metric better help me understand my company’s performance against stated strategy and goals?

But don’t overreach. Many investors will only consider GAAP in their models so be honest with investors (and yourself!) about those GAAP numbers and be ready to discuss them. All businesses have challenges, operational quirks, and unique investment and value-creating strategies. Stick to the truth of your operations and your company’s plan to achieve strategic goals.

At Audacia Strategies, credibility is king (and our #1 value). Credibility is all in the way you present and conduct yourself. If your aim is to help your stakeholders make smart investment decisions, you can’t go wrong. Treat your investors the way you would want to be treated.

How do you think about using non-GAAP measures? Do you discuss them with media? Employees? Have you received feedback from shareholders or analysts?

Financial disclosure is a critical component of a comprehensive communications strategy. We can help tighten up your investor relations strategy and integrate your messaging across your stakeholder sets. Let’s talk!

Photo credit: rawpixel / 123RF Stock Photo