closely related to serving our customers. By excluding interest, taxes, depreciation, amortization, long-term incentive compensation, and certain non-recurring items, we are able to evaluate performance without considering decisions that, in most cases, are not directly related to meeting our customers’ requirements and were either made in prior periods (e.g., depreciation, amortization, long-term incentive compensation, lease exit costs, reversal of a prior period legal contingency accrual), or deal with the structure or financing of the business (e.g., interest, acquisition related costs, rebranding costs) or reflect the application of regulations that are outside of the control of our management team (e.g., taxes). Similarly, we find the comparison of our results to those of our competitors is facilitated when we do not consider the impact of these items.
Reconciliation of Net Income to Adjusted EBITDA
(in thousands, unaudited)
| | | | | | | | | | | | |
| | Three months ended | | Twelve Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 (1) | | 2020 | | 2019 (1) |
Net income (loss) | | $ | (1,756) | | $ | 4,585 | | $ | (5,455) | | $ | 7,864 |
Interest income, net | | | (15) | | | (315) | | | (404) | | | (747) |
Provision for income taxes | | | 277 | | | 2,336 | | | 2,035 | | | 6,545 |
Depreciation and amortization of intangible assets | | | 2,810 | | | 2,966 | | | 12,003 | | | 11,545 |
Long-term incentive compensation | | | 1,840 | | | 2,008 | | | 6,001 | | | 5,324 |
Non-recurring items | | | — | | | 1,250 | | | — | | | 1,250 |
Adjusted EBITDA | | $ | 3,156 | | $ | 12,830 | | $ | 14,180 | | $ | 31,781 |
(1) 2019 results have been revised to correct for certain immaterial misstatements. For additional information, see the “Revision of Prior Period Financial Statements” section of this press release.
Non-GAAP Net Income & Non-GAAP Diluted EPS
We define non-GAAP net income and non-GAAP diluted EPS, as net income or EPS before the consideration of long-term incentive compensation expenses, the amortization of intangible assets, and certain non-recurring items. We use these measures to assess the impact of our performance excluding items that can significantly impact the comparison of our results between periods and the comparison to competitors.
Long-term incentive compensation for management and others is directly tied to performance and this measure allows management to see the relationship of the cost of incentives to the performance of the business operations directly if such incentives are based on that period’s performance. To the extent that such incentives are based on performance over a period of several years, there may be periods which have significant adjustments to the accruals in the period but which relate to a longer period of time, and which can make it difficult to assess the results of the business operations in the current period. In addition, the Company’s long-term incentives generally reflect the use of restricted stock grants or cash awards while other companies may use different forms of incentives the cost of which is determined on a different basis, which makes a comparison difficult. We exclude amortization of intangible assets as we believe the amount of such expense in any given period may not be correlated directly to the performance of the business operations and that such expenses can vary significantly between periods as a result of new acquisitions, the full amortization of previously acquired intangible assets or the write down of such assets due to an impairment event. However, intangible assets contribute to current and future revenue and related amortization expense will recur in future periods until expired or written down.
We also exclude certain non-recurring items including impacts of tax reform, acquisition related costs, rebranding costs, lease exit costs, and reserves for certain legal contingencies as these items are unrelated to the operations of our core business. By excluding these items, we are better able to compare the operating results of our underlying core business from one reporting period to the next.
We make a tax adjustment based on the above adjustments resulting in an effective tax rate on a non-GAAP basis, which may differ from the GAAP tax rate. We believe the effective tax rates we use in the adjustment are reasonable estimates of the overall tax rates for the Company under its global operating structure.
