When a struggling French property services company reported results recently, the numbers included a line item that raised eyebrows in the credit market: €20 million ($23 million) of additional earnings for future savings from a new artificial intelligence strategy.
Emeria SASU boosted its last-12-month EBITDA figure by adding "estimated efficiency gains" for the next two years from a program to deploy agentic AI, according to a presentation seen by Bloomberg News. At least 10 investors, lawyers and analysts told Bloomberg News that it was the first time they'd seen potential future benefits from AI as an adjustment in company results.
Earnings before interest, taxes, depreciation and amortization has long been considered a
Emeria's AI adjustment is more divisive.
"We view EBITDA add-backs related to future cost savings related to the use of AI as fully inappropriate to assess real numbers," said Benjamin Sabahi, head of credit research at Spread Research. "While such initiatives make sense from a margin and strategy standpoint, these have to be quantified once already generated."
A representative for Emeria, which is backed by Partners Group Holding AG and TA Associates, said the pro forma adjustments in the company's results "are standard adjustments that are widely used in credit markets and are fully aligned with the methodology agreed with the company's lenders."
The AI adjustment is "based on clearly identified and quantified actions, in particular the automated preparation of documents, data and client responses, as well as automation of tasks in customer service accounting, and back-office functions," the statement said. "Management clearly explained to lenders during the last two quarterly update calls where AI will be applied and how the efficiency gains will be generated. The €20 million adjustment represents only a fraction of the overall potential identified."
A spokesperson for Partners Group confirmed Emeria's statement, while minority investor TA Associates didn't respond to a request for comment.
EBITDAC, EBITDA-T
It's not the first time an unorthodox adjustment has been used to sweeten results. In 2020, some companies started reporting a so-called EBITDAC metric to add back earnings lost to the coronavirus pandemic, eventually sparking a
Several investors, who spoke on the condition of anonymity, compared Emeria's AI adjustment to the coronavirus-era EBITDAC metric. They were also surprised by the large size of the adjustment, given the difficulty in modeling for the impact of AI.
Others, however, said the AI adjustment was very different to coronavirus adjustments, and is reasonable given the changing way in which companies will operate as the new technology takes hold. They likened it to gains from other operational efficiencies like job cuts.
Emeria's AI adjustment for the 12 months ended June 30 has not been audited or reviewed by the company's independent auditors and is subject to change, according to an addendum to the results.
Debt talks
The AI adjustment comes as Emeria struggles with shrinking earnings and looming maturities for some of its roughly €3.5 billion in debt. Macroeconomic pressures, the sale of some businesses last year as well as the loss of some clients have all hurt earnings, and Partners Group cut its valuation of the company last month.
As Emeria moves forward with debt talks — including a potential €350 million cash injection from its sponsors — its leverage will be in the spotlight.
Emeria said in its results presentation that it has a leverage ratio of around 8.44 times, a gauge of its pro-forma net debt to its pro-forma M&A adjusted EBITDA. However, without the adjustment related to AI and several other items that altogether amount to roughly €40 million, the ratio is more like 9.3 times, according to calculations by Bloomberg News.
The earnings of other heavily-indebted companies are also likely to come under closer scrutiny. Many junk-rated companies need to refinance debt they took on when the market was rosier, and lenders will be parsing their numbers to figure out if they generate enough free cashflow to service new debt.
Still, EBITDA — and any adjustments to it — is just one metric for assessing a company's health.
Emeria "transparently presents its reported EBITDA and each individual pro forma adjustment separately, so that lenders can form their own view of the company's performance," the firm said in its statement.
"The market as a whole has found other ways to understand a company," said Catherine Braganza, senior portfolio manager at Insight Investment. She tends to disregard any "hoped-for savings" that companies add to EBITDA, and prefers to look at cashflow instead.
"Numbers are there for your interpretation as an investor."
