Constellation Software's non-GAAP reporting signals quality
The bull case argued for Constellation Software and its spin-offs is that their refusal to report standard EBITDA in favor of 'free cash flow available to shareholders' signals a long-term orientation and high-quality capital allocation.
The argument
The speaker argued that companies like Constellation Software, Topicus, and Lumine use creative, non-IFRS metrics that better reflect their economic reality as M&A-focused businesses. By avoiding standard EBITDA and adjusted metrics, they filter out short-term oriented shareholders and focus strictly on cash generation.
The thesis, stress-tested
✓ What validates it
- ✓Topicus and Lumine maintaining FCF A2S growth rates close to historical levels over a multi-year period
- ✓Continued ability to raise debt without being forced to report standard EBITDA metrics
▸ Risks discussed
- ▸The high historical compound annual growth rates of FCF A2S may decline as the businesses mature over the next decade
- ▸Relying on non-standard, non-IFRS metrics can make direct comparisons with industry peers more difficult
Hear it yourself
"And I personally prefer the free cash flow available to shareholders number as it's a much better representation of reality for a business, because it still removes the cash needed to keep a business running, which EBITDA often misses. Another area where Lumine and Topicus are light on is on adjusted ratios such as adjusted EBITDA."
00:00 / 00:19
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE