Read any AI company's earnings release and you will meet two versions of nearly every figure: a GAAP number and a 'non-GAAP' or 'adjusted' one. The gap between them is often large, and it is usually where the editorializing happens — which is exactly why the Securities and Exchange Commission regulates how the adjusted figure may be presented. Understanding what makes a measure non-GAAP, and what the rules require alongside it, is the difference between reading a company's results and reading its preferred framing of them.

The SEC defines the term precisely. A non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position, or cash flows that, in the Commission's words, 'excludes amounts, or is subject to adjustments that have the effect of excluding amounts,' that are included in the most directly comparable GAAP measure — or that includes amounts excluded from the comparable GAAP measure. In plain terms: it is any performance number that has been adjusted away from the official, standardized GAAP figure by adding or removing items.

Whenever a registrant, or person acting on its behalf, publicly discloses material information that includes a non-GAAP financial measure, the registrant must accompany that non-GAAP financial measure with a presentation of the most directly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP); and a reconciliation of the differences between the non-GAAP financial measure disclosed with the most comparable financial measure.— 17 CFR 244.100 (Regulation G), source

That rule — Regulation G, codified at 17 CFR 244.100 — is the load-bearing one. It does two things. First, it forbids a company from presenting a non-GAAP measure in a vacuum: the comparable GAAP figure must appear alongside it, and the differences must be reconciled, item by item. Second, Regulation G applies an antifraud overlay, prohibiting a non-GAAP measure that, taken together with its accompanying information, is materially misleading. So the adjusted number is permitted, but only on a leash.

Two rules, two settings

There are two distinct regimes, and which applies depends on where the measure appears. Regulation G governs any public disclosure of a non-GAAP measure — an earnings release, a webcast, an investor presentation. A second rule, Regulation S-K Item 10(e) (17 CFR 229.10(e)), imposes additional requirements when a non-GAAP measure appears inside an SEC filing such as a 10-K or 10-Q: the company must give equal or greater prominence to the comparable GAAP measure, reconcile it, and state why management believes the non-GAAP measure is useful to investors. Item 10(e) also prohibits certain adjustments outright — for example, it bars adjusting a non-GAAP performance measure to remove items labeled non-recurring 'when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years.' That two-year test is a direct check on the habit of calling a repeated cost 'one-time.'

Why this matters for AI earnings

For AI companies, the most common non-GAAP adjustment is the exclusion of stock-based compensation, which can be a very large expense for companies that pay engineers in equity. A company's non-GAAP operating margin can therefore look materially healthier than its GAAP operating margin, and the entire difference may sit in items the company has chosen to exclude. Regulation G is what guarantees a reader can find the comparable GAAP figure and the reconciliation in the same document — which means the disciplined read of any 'adjusted' AI number is to go straight to the reconciliation table and see what was added back.

The prominence requirement deserves emphasis because it is where presentation choices get policed. Under Item 10(e), when a non-GAAP measure appears in a filing, the comparable GAAP measure must be presented with equal or greater prominence — a company cannot headline an adjusted figure while burying the GAAP one in a footnote. The rule also bars presenting non-GAAP measures on the face of the GAAP financial statements or in the accompanying notes, keeping the adjusted figures out of the audited statements themselves. These are structural guardrails: they do not stop a company from emphasizing the story it prefers, but they guarantee the standardized figure is never crowded out of view, so a reader who wants the GAAP number can always find it without hunting.

The definition also tells you what is not non-GAAP. The SEC's rule excludes from the term GAAP measures themselves, as well as certain operating and statistical measures and ratios calculated entirely from GAAP figures. So a metric like revenue, or a count of customers, is not a non-GAAP financial measure; an 'adjusted EBITDA' is. The practical method is consistent across every AI earnings release: identify which figures are non-GAAP, locate the comparable GAAP figure that Regulation G requires beside them, read the reconciliation to see exactly which items were excluded, and treat the GAAP number — not the adjusted one — as the standardized basis for comparing one company to another. The adjusted number is the company's story; the GAAP number, and the reconciliation the SEC requires next to it, is the record. None of this requires distrusting non-GAAP measures, which can genuinely help investors compare operating performance across periods; it requires only reading them the way the rules intend — beside the GAAP figure they adjust, with the reconciliation that shows exactly how the two differ.