Non-GAAP measures – reporting the story

An interesting contrast in how two prominent Canadian newspapers reported the first quarter results of Torstar Corporation.

Here’s a section of the report from the Toronto Star:

  • “Torstar booked a number of charges related to the digital transformation in the first quarter of 2016 that ate into its earnings, but are not expected to continue to hit the bottom line over the rest of the year.
  • The company reported a net loss of $53.5 million, or 66 cents per share in the first quarter of 2016. That compared to a loss of $3.7 million, or five cents per share, in the year-earlier, partially due to a number of unusual items.
  • Its adjusted loss was 40 cents per share, down from a profit of two cents per share in the same quarter of 2015. The loss included a 52 cent per share impact from amortization and depreciation.
  • The company booked $31.8 million in restructuring and other charges, $22.4 million of which related to the closure of its printing press.
  • The quarter included a $5.1 million investment in the Toronto Star Touch, with the remainder of an expected $10 million spend in 2016 spread over the remaining quarters.
  • It also included the absence of $2.9 million from the closure of Olive Media, $1.4 million in commercial printing contracts at the Toronto Star printing press and a $6 million digital media tax credit that was claimed in the first quarter of 2015.
  • Segmented revenue was $174.8 million in the first quarter, down 9.1 per cent from the opening three months of 2015. Declining print advertising and the lack of revenue from closed operations offset digital gains that included $8.3 million from the company’s majority stake in VerticalScope.
  • However, the company said the decline in print advertising moderated in April and digital revenue is expected to grow at, Star Touch, and Vertical Scope and in local online advertising.
  • Digital revenues comprised 17.1 per cent of total revenues in the period ending March 31, compared to 13.2 per cent in the first quarter of 2015.
  • Segmented earnings before interest, taxes, depreciation and amortization, or EBITDA, amounted to a loss of $1.1 million.”

In contrast, the corresponding report in the Globe and Mail also starts with the net loss, and observes: “The company’s chief executive officer, David Holland, was…at pains to convey that the steep first-quarter loss resulted in large part from temporary charges related to the company’s restructuring, including amortization and depreciation expenses from its purchase of a 56-per-cent stake in niche online publisher VerticalScope for $180-million and its decision to close its printing plant in Vaughan, Ont.” The report later notes: “The company’s loss from continuing operations of 66 cents a share compared with a loss of $500,000, or 1 cent, in the same quarter last year. Amortization and depreciation had a 52-cent-a-share effect on the first-quarter results. Revenue was $156.7-million, down from $181.2-million in the first quarter of 2015.”

I don’t think it’s relevant here that Torstar is the parent company of the Star – I think the differences in approach reflect a different degree of rigour and care in dealing with financial information, rather than a varying standard of objectivity. It seems to me that the Star’s report, while starting off with the IFRS-compliant number, immediately blurs it by shifting to “adjusted loss,” without even providing a cursory explanation of what that is or what one should think of it; later, it muddies the evaluation of performance further by referring to segmented EBITDA. The paper refers to “segmented revenue” but doesn’t report the total for IFRS-compliant revenue (a lower number, which experienced a greater decline) or explain what the difference is. In contrast, the Globe and Mail’s story (which, as you might guess, relies much less on Torstar’s own press release) sees no need to mention adjusted or segmented loss at all, and only addresses total rather than segmented revenue. Although the Star’s story superficially has more of what we might call “data,” it’s hard to imagine any general interest reader would be any better informed because of it.

Note also the subtle difference between how the Star refers to charges that “are not expected to continue to hit the bottom line over the rest of the year,” which a reader might well take to be indicating an “expectation” arising from some kind of broad-based consensus, and how the Globe and Mail makes it clear that this is a corporate position, attributed to a named individual. We’ve addressed the eternal topic of non-GAAP measures numerous times on this blog, and readers may detect that I don’t take as hard a line against them as some commentators (or prominent standard-setters) do. The Globe and Mail article seems to me (at least in the respects I’m addressing here) a solid example of the media acting as a responsible filter and mediator of information, either entirely ignoring or at least placing in clear context the company’s attempts to influence how investors might perceive its financial performance. The Star, in contrast, more or less just falls entirely under that influence, although readers are more likely to be confused than bamboozled by it.

The point, I think, is that non-GAAP measures can’t lead users astray if those users don’t allow them to. The ultimate responsibility for that of course belongs with the users themselves. But it certainly helps when the media does something more than just happily pass on whatever self-defined jumble of information comes out of the investor relations office…

The opinions expressed are solely those of the author

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