The Financial Times recently reported that some companies have presented non-GAAP metrics — such as “EBITDAC” — that effectively adjust away the effects of the COVID-19 pandemic on their operations. Maybe I’m too cynical, but presenting “as adjusted” numbers that back out an event of the pandemic’s magnitude seems akin to asking a question like, “Other than that, Mrs. Lincoln, how did you enjoy the play?”
Just how prevalent are presentations of non-GAAP COVID-19 adjusted numbers? According to a recent Bass Berry survey, not very. The firm reviewed 55 public companies that presented Adjusted EBITDA in earnings releases during the period from April 1, 2020, to May 14, 2020. This excerpt says that only a handful included COVID-19 related adjustments in their Adjusted EBITDA presentations, but a number did narratively disclose the impact COVID-19 had on that metric:
Of the surveyed companies, five companies, or 9%, included an adjustment in their calculation of Adjusted EBITDA related in some form to the COVID-19 pandemic, and 91% did not. Certain surveyed companies within this 91% group, while not including an adjustment for COVID-19 in the definition of Adjusted EBITDA, noted the impact that the COVID-19 pandemic had on Adjusted EBITDA at either the consolidated or the segment level (for example, by noting that the COVID-19 pandemic had a specified percentage impact on Adjusted EBITDA as the result of the shutdown of a manufacturing facility as the result of the COVID-19 pandemic).
That seems to me to be a better way to present this information than adjusting it away. COVID-19’s impact on key performance indicators is clearly relevant information but including it in the Adjusted EBITDA metric itself implies that it should be regarded as a one-time event. Unfortunately, it appears that the pandemic is more like the “new normal,” and may impact operations in future periods even more significantly than it did during the first quarter.
-John Jenkins, TheCorporateCounsel.net May 21, 2020
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