Ironvale Digital Infrastructure, a fictional operator of six data center campuses, is for sale as Project Voltaic. Its CIM, management presentation and sell-side quality of earnings (QoE) draft all show FY25 Adjusted EBITDA of $224.0 million on revenue of $412.0 million, against reported EBITDA of $219.1 million. A buyer working through the data room would find three things:
- Management’s own add-backs are small and mostly hold up. They total $4.9 million net. The storm repair, its insurance recovery and a tax refund are supported; $2.9 million of transaction costs booked before the Board discussed a sale is held back until the seller shows the invoices, and $0.6 million of severance is rejected.
- The larger problem is income management leaves in. Adjusted EBITDA includes $3.2 million of interest on cash and $2.2 million of settlements on a virtual power purchase agreement (VPPA), a financial hedge. Neither is operating earnings, and the company’s own credit agreement excludes both.
- The historicals move in ways no document explains. The FY23 and FY24 bridges need unexplained residuals of $2.8 million and $2.2 million, other income more than doubles from $4.3 million to $11.1 million in two years and is missing from the CIM’s table, the QoE’s LTM column carries FY25 other income, and the monthly accounts were re-phased after the Board saw them. Each is a question for the seller.
The wider quality of earnings work, from revenue quality to net working capital and debt-like items, is on the financial due diligence page.
Unexplained flux in the historicals
Management’s FY25 bridge from reported EBITDA of $219.1 million to $224.0 million ties to the audited statements. The FY23 and FY24 bridges tie only after residual “management adjustments” of $2.8 million and $2.2 million that no schedule supports.
| B | C | D | E | F | G | |
|---|---|---|---|---|---|---|
| 1 | $M | FY23 | FY24 | FY25 | Q1 FY26 | LTM Q1 FY26 |
| 2 | Total revenue | 268.0 | 332.0 | 412.0 | 113.0 | 430.8 |
| 3 | Net income (loss) | (16.4) | (8.9) | (2.1) | 0.4 | n/a |
| 4 | (+) Interest expense, net | 61.2 | 78.9 | 94.3 | 25.8 | n/a |
| 5 | (+) Depreciation and amortization | 88.5 | 104.2 | 126.9 | 34.6 | n/a |
| 6 | Reported EBITDA | 133.3 | 174.2 | 219.1 | 60.8 | 229.5 |
| 7 | (+) Transaction and process costs | 2.9 | 1.6 | 4.8 | 1.7 | 6.5 |
| 8 | (+) Storm repair, DFW I hail | 1.1 | 1.1 | |||
| 9 | (+) Severance, two commercial roles | 0.6 | 0.6 | |||
| 10 | (–) Insurance recoveries, DFW I | (1.0) | (0.1) | (1.1) | ||
| 11 | (–) Property tax refund, PHX I | (0.6) | (0.6) | |||
| 12 | (+) Unexplained residual | 2.8 | 2.2 | – | (0.4) | (0.4) |
| 13 | Management-adjusted EBITDA | 139.0 | 178.0 | 224.0 | 62.0 | 235.6 |
| 14 | Margin | 51.9% | 53.6% | 54.4% | 54.9% | 54.7% |
| 15 | Memo: other income inside Adjusted EBITDA | 4.3 | 8.2 | 11.1 | 12.9 |
Before testing any add-back, a buyer rebuilds the seller’s figure from documents the seller cannot restate (net income, interest and D&A from the audited accounts) and asks the seller to explain every movement that does not follow from them.
Four movements need an explanation. None changes FY25 reported EBITDA, but each changes which of the seller’s numbers a buyer can rely on.
| B | C | D | E | |
|---|---|---|---|---|
| 1 | Movement | Document | Ties to | Difference |
| 2 | QoE dashboard adjustments vs bridge, FY23 | 2.9 | 5.7 | (2.8) |
| 3 | QoE dashboard adjustments vs bridge, FY24 | 1.6 | 3.8 | (2.2) |
| 4 | CIM table: NOI less G&A vs Adjusted EBITDA, FY25 | 212.8 | 224.0 | (11.2) |
| 5 | QoE other income, LTM Q1 FY26 | 11.1 | 12.9 | (1.8) |
| 6 | Board deck revenue, Jan-Sep 2025 | 303.3 | 307.6 | (4.3) |
| 7 | Board deck Adjusted EBITDA, Jan-Sep 2025 | 164.6 | 166.4 | (1.8) |
- Residuals in FY23 and FY24. The QoE’s dashboard shows $2.9 million and $1.6 million of adjustments for FY23 and FY24, but the bridges need $5.7 million and $3.8 million. The residuals raise the base years, so without them the seller’s growth would look faster, not slower; the question is what they are.
- Other income. It rises from $4.3 million in FY23 to $8.2 million in FY24 and $11.1 million in FY25, faster than revenue, and the CIM’s table runs NOI less G&A straight to Adjusted EBITDA, which gives $212.8 million in FY25, not $224.0 million. The missing $11.2 million is other income, which the CIM never mentions.
- The QoE’s LTM column. It carries FY25 other income of $11.1 million into the twelve months to March 2026, where the management accounts give $12.9 million, and a “management adjustment” fills the difference to reach $235.6 million.
- Re-phased monthly accounts. Version 3 of the FY25 management accounts shows January to September revenue $4.3 million and Adjusted EBITDA $1.8 million higher than the November Board deck. The full year is unchanged, but the LTM figure depends on where the months fall.
Management’s adjustments, tested
Of management’s five FY25 adjustments and three items of other income, four are accepted. Transaction costs are adjusted, and severance, interest on cash and VPPA settlements are rejected.
| B | C | D | E | F | |
|---|---|---|---|---|---|
| 1 | FY25, $M | Management | Buyer | Verdict | Reason |
| 2 | Reported EBITDA | 219.1 | 219.1 | ||
| 3 | (+) Transaction and process costs | 4.8 | 1.9 | Adjust | May-Sep costs predate sale talks |
| 4 | (+) Storm repair, DFW I | 1.1 | 1.1 | Accept | Board minutes, Q&A |
| 5 | (+) Severance | 0.6 | – | Reject | Roles being rehired |
| 6 | (–) Insurance recovery, DFW I | (1.0) | (1.0) | Accept | Mirrors the repair |
| 7 | (–) Property tax refund, PHX I | (0.6) | (0.6) | Accept | 2023 assessment year |
| 8 | Management-adjusted EBITDA | 224.0 | 220.5 | Buyer: after the same items | |
| 9 | (–) Interest income on cash | – | (3.2) | Reject | Financing income |
| 10 | (–) VPPA settlements | – | (2.2) | Reject | Financial hedge |
| 11 | Development and management fees | – | – | Accept | Recur every year |
| 12 | Diligence-adjusted EBITDA | 224.0 | 215.1 | ||
| 13 | Margin | 54.4% | 52.2% | ||
| 14 | |||||
| 15 | Memo: (–) straight-line rent | (8.4) | Rent ahead of billing | ||
| 16 | Memo: cash EBITDA | 206.7 |
Where the buyer agrees with management:
- Storm repair and insurance recovery. The June 2025 hail damage at DFW I is confirmed by the September Board minutes and the Q&A log. The $1.1 million repair is added back and the $1.0 million recovery deducted, so the event nets out. The claim file is still worth requesting: the insurance schedule shows no claim above $0.5 million.
- PHX I property tax refund. It relates to the 2023 assessment year, so deducting it from FY25 is right.
- Development, management and energy services fees. At $5.8 million they recur in every audited year and accrue evenly by month, so they stay in. They rose to $2.8 million in Q1 FY26 from $1.2 million a year earlier, which needs a fee schedule before the LTM figure is final.
Where it does not:
- Transaction costs: adjust. The $4.8 million line is labeled “pre-process readiness” advisory, tax and legal work. The $1.9 million booked in November and December follows the Board’s November 19 decision to review a sale and is accepted. The $2.9 million booked from May to September came first. Timing alone does not make a cost recurring, and the G&A detail shows at most about $0.1 million of ordinary advisory work moved into the line; the May and June costs follow the Board’s approval of the ATL II construction facility and may be financing costs, which would also sit outside EBITDA. The buyer holds the $2.9 million back until invoices and engagement letters show which.
- Severance: reject. The QoE accepts it because “the roles were not replaced”, but the FY26 hiring plan adds four commercial roles, two already filled. With no written severance plan and involuntary exits in every quarter of FY24 and FY25, severance is part of running the business.
- Interest income on cash: reject. It is financing income. A buyer’s capital structure will not carry the seller’s cash, and the credit agreement nets interest income against interest charges.
- VPPA settlements: reject. They come from the 80 MW Maumee Ridge wind contract, a contract for differences that delivers no power to the data centers; tenants’ power is passed through at cost. The credit agreement excludes gains on swap contracts, and the second VPPA, Caliza Solar, is disclosed as a $3.1 million liability. A buyer removes the settlements and values the contracts separately.
The QoE also lists items it considered and did not adjust, and the buyer agrees with each: the FY25 bonus paid at 108% of target is the normal scheme; the $6.5 million retention pool and the $1.2 million mechanic’s lien accrual are debt-like items for the equity bridge; the CMH I property tax abatement runs to 2036 and belongs in the forecast; the $18.0 million DFW I chiller replacement is capital expenditure.
The bridge
From management’s $224.0 million, four adjustments take FY25 EBITDA to $215.1 million.
FY25: management-adjusted to diligence-adjusted EBITDA
The buyer's adjustments, US$ millions
Adjusting the transaction costs and rejecting severance are judgments. From Compound's Add-Back Tests and Diligence EBITDA tabs.
Diligence-adjusted EBITDA is $215.1 million in FY25, $8.9 million (4.0%) below management’s $224.0 million, at a 52.2% margin. For the twelve months to March 2026 it is $226.7 million against management’s $235.6 million. Cash EBITDA, after $8.4 million of straight-line rent, is $206.7 million in FY25 and $218.2 million LTM.
| B | C | D | E | F | |
|---|---|---|---|---|---|
| 1 | $M | FY23 | FY24 | FY25 | LTM Q1 FY26 |
| 2 | Management-adjusted EBITDA | 139.0 | 178.0 | 224.0 | 235.6 |
| 3 | Diligence-adjusted EBITDA | 133.3 | 174.2 | 215.1 | 226.7 |
| 4 | Difference | (5.7) | (3.8) | (8.9) | (9.0) |
| 5 | As % of management-adjusted | (4.1%) | (2.1%) | (4.0%) | (3.8%) |
| 6 | |||||
| 7 | (–) Straight-line rent | (6.1) | (7.2) | (8.4) | (8.5) |
| 8 | Cash EBITDA | 127.2 | 167.0 | 206.7 | 218.2 |
| 9 | Margin | 47.5% | 50.3% | 50.2% | 50.6% |
The financial due diligence page deducts a further $8.2 million, provisionally, for metered power the company buys but does not recover from tenants, which takes buy-side adjusted EBITDA to $206.9 million. That item comes from the meter data rather than the add-back schedule, so it is not in the bridge above.
Straight-line rent is the step from diligence-adjusted to cash EBITDA. GAAP spreads each lease’s escalating rent evenly over its term, so revenue runs ahead of billing in the early years: by $8.4 million in FY25 and more each year, as new leases with 2.5% to 3.0% escalators commence. The QoE treats this as a presentation difference; for a buyer it is the difference between earnings and cash.
The growth story survives. Diligence-adjusted EBITDA grows at a 27.0% compound rate from FY23 to FY25, against 26.9% on the seller’s basis: removing the residuals and holding back the transaction costs lowers FY23 and FY24 about as much, in proportion, as the buyer’s adjustments lower FY25. The figures include no run-rate items, and the seller claims none.
Questions for the seller
Six requests decide the remaining items, with up to $8.2 million of LTM EBITDA at stake.
- Transaction costs. Invoices and engagement letters for the $2.9 million booked May to September 2025, and a split of the FY23 and FY24 line between financing and abandoned-project costs.
- Hail claim. The DFW I claim file, since the insurance schedule and Q&A show no claim above $0.5 million against a $1.1 million repair.
- Development fees. The fee schedule behind the step-up to $2.8 million in Q1 FY26, $1.6 million more than a year earlier.
- Bonus accrual. How much of the $0.4 million rise in the Q1 FY26 corporate incentive accrual is a true-up of the FY25 bonus, which would lower FY25.
- Q1 FY26 other income. Support for the $0.5 million of reported other income the seller excludes, of which $0.1 million is explained.
- Phasing. Why January to September 2025 Adjusted EBITDA is $1.8 million higher in the management accounts than in the November Board deck.
Methodology. Project Voltaic and Ironvale Digital Infrastructure are fictional, labeled illustrative throughout. Every figure comes from the Project Voltaic data room (audited FY23 to FY25 statements, FY25 monthly management accounts, Q1 FY26 statements, the CIM, management presentation, sell-side QoE draft, credit agreement, Board minutes, HR files and the buyer Q&A log) and from the adjusted EBITDA workbook built in Compound from those documents, which cites every input. LTM figures are FY25 plus Q1 FY26 less Q1 FY25; Q1 FY25 straight-line rent is estimated at a quarter of the year. Holding back the May to September 2025 transaction costs and rejecting the severance add-back are judgments, labeled as such in the workbook.
