Adjusted EBITDA

Adjusted EBITDA starts with standard EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and then strips out items management considers non-recurring — things like restructuring charges, stock-based compensation, legal settlements, or acquisition costs. The goal is to show what the underlying business earns on a normalized basis.

The problem is that 'adjusted' is self-defined by the company. Management has wide latitude in what they exclude, which means two companies in the same industry can report very different adjusted EBITDAs for similar businesses. Investors should always compare adjusted EBITDA to GAAP net income to understand how large the gap is.

Example: A company might report a GAAP net loss of -$50M but an Adjusted EBITDA of +$120M after adding back $80M in stock compensation and $90M in restructuring charges. This is common in high-growth tech companies.

When reviewing 100X Insider Reports on BMInsider, you'll often see Adjusted EBITDA used alongside EV/EBITDA to value growth companies where GAAP earnings are temporarily depressed.