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: SEC questions DoorDash about removing overhead from adjusted financial metrics

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The Securities and Exchange Commission questioned DoorDash Inc.’s removal of overhead costs in non-GAAP metrics, but the company seemed to successfully argue that the adjustment was not material.

Correspondence made public Wednesday shows the SEC reviewed the app-delivery company’s annual financial filing for 2021 and in May requested a change to DoorDash’s presentation of its results and questioned why DoorDash
DASH,
+0.86%

adjusted for seemingly normal expenses as “allocated overhead.”

The SEC has focused on non-GAAP metrics in recent years, establishing new guidelines for what could be adjusted in 2016 and pushing for change at companies including Block Inc.
SQ,
-1.35%

and Blackberry Ltd.
BB,
+2.60%

The SEC allows companies to use non-GAAP numbers to supplement their reporting, but they must give equal or greater prominence to GAAP numbers and explain how the two are reconciled.

DoorDash agreed to change how it presents its results to give greater prominence to GAAP metrics, but offered a detailed defense of the overhead adjustment in a letter dated June 3. DoorDash told the SEC that it adjusts for allocated overhead, such as facilities and IT costs, because those costs are generally fixed and not affected by fluctuations in orders or revenue.

The company further offered that last year, allocated overhead represented a tiny fraction (1% to 3%) of the following adjusted costs: revenue, sales and marketing, research and development, and general and administrative.

“Changes to allocated overhead are not necessarily reflective of the Company’s unit economics,” DoorDash said in its letter.

The SEC told the company on June 13 that it has completed its review, writing “We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.”

Francine McKenna, a lecturer in accounting at The Wharton School, said“whether or not they accept the explanation is fact-specific and likely influenced by the materiality of the adjustment,” which DoorDash focused on by explaining the percentage of revenue that is affected.

The SEC “may accept the explanation for now, as long as DoorDash doesn’t abuse the opportunity,” McKenna added.

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