He sits next to Warren B, swaying his head as WB waffles away, and then delivers the knockout punch
waffle waffle waffle Charlie, anything you’d like to say about EBITDA?
“every time you see EBITDA just replace it with the phrase Bullsh*t earnings”
But now there’s a new villain on the accounting slippery slope – Adjusted EBITDA
So let’s go with “complete Bullsh*t” – I’m sure Charlie would agree
But don’t all investment bankers use EBITDA?
Perhaps, but since most deals destroy value, maybe that’s the problem
Maybe if more acquirers used multiples of GAAP net income, they’d pony up less money & destroy less value
But isn’t management simply trying to illustrate normal earnings?
No, they’re trying to juice the share price to cash in their options – wake up people!
That accounting is like airbrushed Tinder photos (so I’m told) – no resemblance to reality
Adjustments are supposed to be “exceptional”, out of the ordinary
Except the companies that use these tricks are rarely “exceptional” and more often “ordinary”
On 4th May 2022 Revlon reported Q1 results – a net loss of minus $67m
But they reflected Adjusted EBITDA of $58m
Want to know the truth?
43 days later Revlon filed for bankruptcy
Conclusion – Adjusted EBITDA was complete Bullsh*t
Now capital intensive businesses like these adjustments because reversing depreciation makes their businesses look better
and serial acquirers like them because they want you to ignore the amortisation of the goodwill they paid
Now imagine a serial acquirer… in a capital-intensive industry
And you get a company that LOVES these adjustments!
In the latest results, XPO disclosed a net loss of -$94m in Q4 but adjusted EBITDA of $252m
and they used the phrase, “Adjusted EBITDA” 39 times on their conference call!
I know it’s Feb and love is in the air, but 39 times?!
Maybe they’re hoping we ignore all restructuring, transaction, integration, and goodwill expenses
Except they charged those on the roll-up (when acquiring companies)
and are still charging them after spinning off entities
Bloomberg tells me that they’ve charged $515m in total Merger / Acquisition expenses since Q3 2015
compared to cumulative Comprehensive income since then of $2bn!
My conclusion: Complete Bullsh*t x 39
What’s even worse is that remuneration committees are now using Adjusted EBITDA
Bed Bath & Beyond (help)’s GAAP Net Loss in 2021 was -$560m
But Adjusted EBITDA was +$182m
Which number was the best guide?
Well BBBYh is on the brink of bankruptcy so yet again GAAP told the truth
But since management was getting remunerated on a number BEFORE interest, do you think they cared about debt?
Don’t be silly, that’s why they’ve blown up
So there you have it – focus on GAAP
Ignore EBITDA & adjusted EBITDA
Just think ” complete Bullsh*t” to be safe,
You won’t be sorry