AudioEye adds litigation expenses to Adjusted EBITDA under Western Alliance loan amendment

In an 8-K filed 18 September 2026, AudioEye, Inc. said it executed a Fourth Loan Modification Agreement with Western Alliance Bank, amending its existing March 2025 credit facility. The filing states the amendment adjusts the calculation of Adjusted EBITDA to permit the add-back of specific litigation expenses. No other terms are described in the summary, and no one in the reported packet is on the record. This is, so far, single-source — an SEC filing only, with no independent confirmation. [SEC 8-K]

The filing changes how EBITDA is measured for the bank, not how GAAP profit is reported

The operative change disclosed is to Adjusted EBITDA — a non-GAAP metric defined in lender documentation, distinct from GAAP operating income or net income. The 8-K says the new definition now allows certain litigation expenses to be added back in the calculation. That matters because loan agreements often use Adjusted EBITDA as the denominator or numerator in leverage and coverage tests; a broader add-back can lift the measured figure even if cash outflows rise. The filing does not enumerate which covenants, if any, reference Adjusted EBITDA, nor does it specify the exact categories or caps of litigation costs eligible for add-back. As disclosed, this is a definitional change, not an assertion of performance improvement. [SEC 8-K]

Why a litigation add-back matters for covenant headroom and sales choices

If Adjusted EBITDA is an input to covenant compliance under the March 2025 facility, permitting litigation-cost add-backs can increase compliance headroom without improving cash generation. In practice, that can influence day-to-day commercial decisions: a CFO under covenant pressure has an incentive to defer discretionary spend or tighten discounting; one with additional headroom may sustain sales hiring, marketing programs, or customer incentives through a legal cost spike. The filing does not state how Adjusted EBITDA is used in AudioEye’s specific covenant package, but the definitional change implies lender awareness that legal expenses are material enough to affect measured performance under the prior definition. [SEC 8-K]

The obvious read is that it’s a technical tweak; the risk is incentive design

A surface read would treat this as a clerical tidy-up with no operational consequences. That view underestimates how non-GAAP definitions in loan documents can steer behavior. When litigation expenses are carved out, they no longer depress the covenant EBITDA number. If those expenses are cash, the company’s liquidity still bears the hit — but the constraint that often bites first in banked software businesses is a ratio test, not the cash balance itself. In that scenario, sales and customer success leaders may see fewer last-minute freezes on hiring or enablement spend aimed at preserving covenant compliance, because the compliance metric now excludes a cost line that might otherwise force cuts. The filing, to be clear, does not say any hiring or program changes will follow; it only reveals the metric change that could permit them. [SEC 8-K]

What this signals to software CFOs and lenders in the next renewal cycle

For software CFOs, the signal is that lenders will negotiate around episodic legal costs when those costs would otherwise impair the Adjusted EBITDA result used in facilities. That can be a relief valve during a lawsuit or regulatory matter — but it also raises the bar for investor communications discipline. Adjusted EBITDA in a bank document is not the same as Adjusted EBITDA in an investor deck; each agreement defines the term. The 8-K highlights this by naming a specific add-back category in the credit facility. Buyers and partners reading company presentations should assume that the covenant version may be more permissive than the investor-relations version, unless the company explicitly reconciles them. The filing does not provide a reconciliation or the baseline definition it replaces. [SEC 8-K]

Lenders may view such amendments as pragmatic recognition that litigation can be lumpy and not reflective of the underlying recurring-revenue engine. The cost, however, is that the covenant metric can drift away from cash reality. That can defer, but not eliminate, the moment a borrower must either improve operations or raise capital if cash is tight. The 8-K does not indicate any new financing or changes to maturity; it names an amendment to a definition within the existing March 2025 credit facility. [SEC 8-K]

Procurement will notice if the legal line is the chokepoint behind the bank ratio, even if it isn’t named

Enterprise buyers are rightly attentive to a vendor’s financial resilience, particularly when signing multi-year terms or prepaying. A vendor whose capacity to comply with bank covenants hinges on excluding litigation costs is not necessarily weaker — but it is more sensitive to non-operating cash outflows. In negotiations, that can surface as tighter terms requests (e.g., upfront payment) or as resistance to extended payment terms that increase accounts receivable. The 8-K does not mention payment practices or working-capital changes, but procurement teams who track vendor credit risk will read such filings as signals for where the pressure points lie. If legal costs are the locus, expect legal terms in master service agreements to get more scrutiny from both sides. [SEC 8-K]

The skeptic’s view: if operating performance were robust, you wouldn’t need the add-back

There is an obvious counterargument: when a lender agrees to loosen a performance definition, it can mean the borrower risked tripping a covenant under the old one. If operating momentum were sufficient to absorb legal costs, why negotiate a change? The filing does not state that AudioEye faced or avoided any breach, and it does not disclose leverage or coverage ratios. It simply notes the definitional modification. Skeptics will look to the next quarterly report for any language about covenant compliance, minimum liquidity, or other guardrails that would contextualize the need for this amendment. Absent that, the change will be read as precautionary — but still a sign that litigation spend is material enough to matter. [SEC 8-K]

What to watch in the next two filings window

Two disclosures will test whether this amendment is a footnote or a fulcrum. First, the next periodic report should state whether the company was in compliance with all material covenants as of quarter-end and may describe the material terms of its credit facility, including definitions if they are material. If compliance language tightens or if a separate waiver appears, the read will shift from opportunistic housekeeping to stress response. Second, any subsequent 8-Ks that further amend the facility — for example, to adjust interest margins, collateral, or maturity — would suggest that the definitional tweak was one step in a broader renegotiation. The present filing contains none of that; it reports a Fourth Loan Modification Agreement focused on Adjusted EBITDA and litigation expense add-backs, tied to an existing March 2025 credit facility with Western Alliance Bank. [SEC 8-K]

This is a narrow change on paper. In practice, how it reshapes behavior will be visible in whether sales investment, discount discipline, and payment-term posture remain steady through any legal-cost spikes — or whether cash pressure shows up elsewhere. The filing offers no projections. It does, however, make clear that for at least one lender-borrower pair, litigation expense is now formally carved out of the performance metric that matters inside the loan agreement. [SEC 8-K]