During our buy-side Quality of Earnings, the auditors are challenging our normalized EBITDA because we ran our custom AI integration expenses through our marketing budget. How do we prove these expenses were one-time, non-recurring technology upgrades rather than ongoing operational costs?

Question

Tyler Smith · Accepted Answer

During a Quality of Earnings audit, buy-side analysts will scrutinize every expense to find reasons to challenge your adjusted EBITDA. If you ran custom, one-time technology integrations through your marketing or operational budgets, they will naturally assume these are ongoing, recurring operating expenses that drag down your baseline profitability.

To defend these as legitimate non-recurring adjustments, you must provide clear, undeniable proof that these costs are truly capital-like investments that will not recur post-transaction.

Start by pulling the specific project documentation, vendor invoices, and statement of work agreements for the integration. Show that these expenses were tied to a specific, finite initiative, such as migrating your legacy databases to an AI-driven automation platform, rather than normal, ongoing marketing campaigns.

Next, cross-reference these projects with your historical quarterly Rocks. Your EOS® leadership records will show that these initiatives were designated as company Rocks with clear start and end dates, rather than permanent, recurring line items.

Finally, show how these one-time investments have permanently lowered your forward-looking operating cost structure. By demonstrating that the development phase has concluded and the resulting automated workflow is now fully operational, you prove that the historical cash outlay was a one-time upgrade. This documentation allows your advisory team to successfully add these expenses back to your adjusted EBITDA, protecting your overall valuation multiple.