SEC Sanctions ADT Over Non-GAAP Financial Measures in Earnings Releases

On December 26, 2018, the SEC announced settled charges against ADT Inc. after finding that ADT, in two earnings releases, gave undue emphasis to non-GAAP adjusted EBITDA figures because they identified the relevant GAAP measures only later and much less prominently.

Without admitting or denying the SEC’s factual or legal claims, ADT agreed to an administrative settlement finding violations of Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-11 thereunder, relating to the requirements of Item 10(e) of Regulation S-K that an issuer present “with equal or greater prominence . . . the most directly comparable financial . . . measures” calculated under GAAP when it includes non-GAAP financial measures in filings and certain other reports to the Commission.

This is just the second enforcement action concerning non-GAAP disclosures that the SEC has brought against an issuer in the two-and-a-half years since the issuance of Staff guidance on non-GAAP disclosure requirements, and it is the first during SEC Chair Jay Clayton’s tenure.  It also is the first action related to non-GAAP disclosures finding a violation of only Section 13(a) of the Exchange Act without an accompanying finding that the disclosure in question constituted a material misstatement or omission.