We study history to learn from our past. To see what worked, what didn’t, and how we can integrate those insights into our future decision-making. Given the scope and severity of COVID-19’s impact on Q1 – and the inevitability that it continues into the future – mid-market CFOs should assess where their companies stand and what it means for the road ahead.
That’s why we created the Embark Middle Market Report for Q1 FY20 – to give CFOs and their teams a concise but thorough look at the many ways the coronavirus affected accounting and operations. As you’ll see, we focused on financial data that, collectively, provides a clear snapshot of the middle market at March-end, going beyond cost reductions to gain a more granular view of key areas, including:
- Net income
- Debt restructuring
- Earnings guidance for those that disclose
- Non-GAAP measures
- Subsequent event disclosures
- Risk factors
- Going concern
We sampled public filings and statements from over 220 mid-market companies in our mid-cap earnings survey. The data represents a wide spectrum of industries that closely matches the breakdown of the middle market itself. Therefore, while not entirely comprehensive, our report’s sample population is a clear and fair representation of the middle market at Q1 close, without bias that would skew our results.
Our Findings and What They Mean for Q2 and Beyond
As you would guess, with the coronavirus not impacting most companies significantly until the second-half of March, the pandemic’s effect on many mid-market organizations was somewhat muted in Q1 filings. However, the juxtaposition of different data points paints a more telling picture of what’s to come. For instance:
- 69% of reporting companies experienced no decline or even growth in revenue, but nearly 52% saw severe declines in net income of 20% or more
- 98.5% did not include any disclosure on substantial doubt to continue as a going concern, yet nearly half of mid-market companies changed their debt structure in Q1, not even including PPP loans
- 70.6% of mid-market companies either withdrew or revised their Q1 earnings guidance, but only 11.2% disclosed COVID-specific adjustments to their non-GAAP measures
What do these seemingly diverging data points mean – along with the many others in our Q1 report – for the middle market’s near future? For starters, impairments, subsequent events, and additional effects from risk and uncertainty are just now beginning to distress companies and cast a shadow over financials. And as we point out, that’s just the tip of the iceberg in many respects.
However, perhaps the biggest takeaway from the Embark Middle Market Report is the light it shines on your own operations. Where do you stand relative to other mid-market companies and your competition? What should your employees, stakeholders, and customers expect from Q2? Those are the types of critical insights you’ll gain from reading our report. And it’s those insights that will guide your strategizing for an uncertain future.