What happened
Shares of MDC Partners (MDCA +0.00%) have gotten crushed today, down by a whopping 36% as of 11:45 a.m. EDT, after the company reported first-quarter earnings results and lowered its outlook for organic revenue growth this year.
So what
Revenue in the first quarter was $327 million, down from $344.7 million a year ago. The company attributed this decline to the adoption of the new revenue recognition standard (ASC 606) that took effect at the beginning of the year. That new standard was a massive change that affected a broad range of companies across many industries and was a long time coming. MDC estimates that the new accounting rule reduced recognized revenue by $21.3 million.
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MDC incurred a net loss of $31.4 million, or $0.56 per share. The company says the accounting change hurt the bottom line by $4.4 million, or $0.08 per share. Adjusted EBITDA was $7.8 million for the quarter.
Now what
When MDC reported fourth-quarter earnings in February, it issued a forecast expecting 4% organic revenue growth for 2018, while expecting its adjusted EBITDA margin to expand by approximately 20 basis points.
The company is now revising its outlook and expects organic revenue growth this year to be just 1% to 3%. Organic revenue growth excludes impacts from ASC 606. MDC is adding some wiggle room for its adjusted EBITDA margin, which it now forecasts at flat to up 40 basis points. The new estimate includes a 60-basis-point benefit from the new accounting rules, as certain client contracts will shift from gross to net revenue accounting. The bad news is that when excluding the impact from accounting changes, MDC is effectively expecting a reduction of 60 basis points compared to its previous forecast.
