• by Larissa Faw , May 9, 2018

MDC Partners cited the combination of client cutbacks, slower new business development and new accounting regulations for what it acknowledged today were disappointing first quarter earnings results.   

The company’s stock dropped 16% in after-hours trading shortly after the company released its Q1 report. 

The subpar Q1 performance has prompted MDC to lower expectations for the full-year. It is "no longer realistic" for the company to reach 4% organic growth, said Scott Kauffman, chairman, chief executive officer, MDC Partners.  

MDC now expects organic revenue growth of 1% to 3% and no more than four-tenths of a percentage point of margin expansion. 

First quarter revenue—adjusting to the new accounting guidelines ASC 606—totaled $327 million, down from $344.7 million a year ago. 

The holding company’s organic revenue grew a tepid 1% and net new business wins (on an annualized revenue basis) totaled $19.9 million.

This "underlying performance is leading us to update our outlook to incorporate the increased risk that has emerged," said David Doft, chief financial officer, MDC Partners.  

Analysts on an earnings call Wednesday afternoon questioned MDC management over its apparent reversal regarding what the company had been calling its competitive advantage—a network rooted in digital and designed to avoid the challenges currently impacting traditional holding companies. 

One frustrated investor stated that "this call is so different from your last call." 

Kauffman, sounding a bit like his fellow holding company leaders, said the firm was trying to combat slower growth by bolstering its expertise in healthcare, data and analytics as well as operating more efficiently. 

Kauffman added that the firm may sell off some of its agencies, saying there is "unrecognized value in our portfolio." 

He said all options are on the table in order to fulfill his role to "maximize shareholder value." 

Kauffman also asserted that the new accounting regulations mean its first quarter 2018 financial performance is not directly comparable with last year's numbers from the same period. 

MDC's adjusted EBITDA of $7.8 million, to that end, was down from $35.8 million a year ago, as reported under ASC 605. That said, even excluding the impact of the adoption of ASC 606, adjusted EBITDA would still have been just $13.9 million.

Similarly, the company reported a net loss attributable to MDC Partners common shareholders of $31.4 million versus a loss of $11.1 million a year ago. Excluding the impact from the adoption of ASC 606, however, net loss attributable to MDC Partners common shareholders was still $27 million.