Did the SEC just grow some teeth? For those who follow our quarterly reporting on the farce that is Tesla's earnings, the non-GAAP malarkey will be no surprise whatsoever – especially given the last quarter's "methodology changes." But it seems, as WSJ reports, that the company had come under fire from the SEC for using prohibited accounting metrics and sharing that information with investors.
As we noted ahead of the last earnings call, the electric-car maker is phasing out most of the non-GAAP adjustments it’s traditionally made, including ones for resale value guarantees or vehicles leased through banking partners.
Starting today, when the company discusses third-quarter adjusted non-GAAP earnings per share, it plans to exclude only stock-based compensation. The SEC in recent months has raised concern that public companies may be straying too far too often from Generally Accepted Accounting Principles. Though Tesla has telegraphed its plan for weeks, many analysts are only now revising forecast models and some are sitting out the guessing game entirely this time. That means it may be challenging to draw firm conclusions about whether Tesla missed or beat Wall Street expectations – giving added importance to what Chief Executive Officer Elon Musk says on a follow-up conference call about cash or production plans.
But now, as The Wall Street Journal reports, we have the details from The SEC…
The SEC said Tesla in its August earnings release used “individually tailored” measurements when the electric-vehicle maker added back certain costs to revenue calculated under generally accepted accounting principles. While the SEC allows the use of some non-GAAP metrics, certain figures that adjust revenue are prohibited as detailed in the regulator’s guidelines from May 17.
Tesla on Oct. 2 said in a press release it would drop non-GAAP revenue and other custom metrics flagged by the SEC from future earnings filings. The move came after the company in August said it was reviewing the SEC’s new accounting guidelines and taking steps to modify its non-GAAP information.
The SEC used the word “tailored” to describe revenue adjustments that are specifically prohibited in its May update on regulatory guidelines.
“Whenever the SEC uses that specific term it’s a clear indication that this specific adjustment should not be used, it’s very strong language,” said Olga Usvyatsky, vice president of research and CPA at Audit Analytics.
Tesla was also chastised for its slow response to new guidance on the use of non-GAAP figures.
The regulator criticized Tesla for failing to make a “substantive” case for providing non-GAAP figures to investors.
The SEC in this case is uncharacteristically specific about wanting to see Tesla’s revised disclosures in advance, Ms. Usvyatsky said. “The language is strong, it’s not ‘please, in future filings,’” Ms. Usvyatsky said.
All of which explains the sudden "methodology adjustments" in the last quarter…
And here's what those adjustments looked like…
But remember, even these numbers are questionabe as Tesla stopped paying its suppliers…
Musk and Mirrors indeed…
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