A non-GAAP number needs its GAAP twin right beside it

The record

The SEC adopted Regulation G effective 30 January 2003, under authority the Sarbanes-Oxley Act gave it. The rule's current codified text, 17 CFR Part 244, states its general requirement plainly: whenever a company or someone acting on its behalf publicly discloses material information that includes a non-GAAP financial measure, such as adjusted EBITDA, it must accompany that measure with the most directly comparable GAAP measure and a reconciliation between the two. Section 244.100(b) separately prohibits a non-GAAP measure that, together with the reconciliation and other disclosure, would make the presentation materially misleading.

What the documents establish

The regulation's own text sets the reconciliation and non-misleading requirements; it does not itself spell out prominence rules for how a non-GAAP figure should be displayed relative to its GAAP counterpart. The SEC's own Non-GAAP Financial Measures Compliance and Disclosure Interpretations, last updated in December 2022, is the staff's elaboration of that general rule: it states that adjustments excluding normal, recurring cash operating expenses can make a measure misleading under Regulation G, and that presenting a full non-GAAP income statement, or otherwise giving a non-GAAP measure more visual or narrative prominence than the comparable GAAP measure, is inconsistent with the rule's purpose. Any adjusted or non-GAAP figure a startup reports, including adjusted EBITDA, is self-reported by the company under this disclosure framework, not an audited GAAP figure.

The operating read

As an editorial matter, a founder presenting adjusted metrics to investors or a board should treat the GAAP reconciliation as the anchor, not an appendix: Regulation G's own text conditions the right to disclose a non-GAAP measure on pairing it with the comparable GAAP figure, and the C&Is state that leading with the adjusted number, or presenting it in a larger font or before the GAAP figure, cuts against the rule's intent even where a literal reconciliation is present somewhere in the document.

What to check before you decide

Before citing a non-GAAP metric in a pitch, board deck, or public disclosure, check the following against the regulation's text and current SEC interpretations:

• Is the most directly comparable GAAP measure presented with equal or greater prominence than the non-GAAP figure?
• Does the reconciliation show each adjustment individually, including any tax effect, rather than a single net adjustment?
• Do the adjustments exclude normal, recurring cash operating expenses in a way the SEC's interpretations treat as potentially misleading?

Regulation G does not ban adjusted metrics; it conditions their public use on a GAAP anchor the company cannot omit or bury.