BlackBerry Ltd. has agreed to stop adjusting its revenue, an issue highlighted by MarketWatch in the past, after receiving a comment letter from the Securities and Exchange Commission questioning the practice.
The cybersecurity company
highlighted non-GAAP revenue, or revenue that does not conform with Generally Accepted Accounting Principles, in first-quarter earnings posted in 2019 and subsequent periods, using a metric that the SEC does not allow, as MarketWatch wrote at the time.
The Waterloo, Ontario–based company explained the move in a footnote, in which it said it had recorded “software deferred revenue acquired but not recognized due to business combination accounting rules of $20 million, of which $19 million was included in BlackBerry Cylance and $1 million was included in IoT (Internet of Things).”
In other words, it was adding in revenue that would never be allowed under GAAP as the result of an acquisition. That matters because the extra $20 million allowed the company to beat the FactSet consensus at the time, while its actual revenue number was a miss.
“Considering your deferred revenue and commission expense were adjusted to fair value at the time of acquisition pursuant to GAAP, these non-GAAP adjustments intended to eliminate the impact of purchase accounting substitute individually tailored recognition and measurement methods for those of GAAP,” the SEC wrote in its comment letter to BlackBerry. Companies are not allowed to use individually tailored metrics when presenting financial results.
BlackBerry responded that investors and financial analysts often seek information regarding software deferred revenue acquired and software deferred commission expense for modeling purposes. It also argued that others in its industry make similar adjustments, including companies it considers to be peers.
But it also agreed to stop the practice and said the adjustments “trend to zero due to time elapsed since its acquisitions.” BlackBerry will no longer offer non-GAAP revenue figures its financial-results reporting, starting with its fiscal year running March 1 through Feb. 28, 2022.
BlackBerry shares were down 0.4% early Friday but have surged 48% in 2021 while the S&P 500
has gained 4%.