PRESS RELEASE
FOR IMMEDIATE RELEASE
| FOR: | MDC Partners Inc. 950 Third Avenue, 5th Floor New York, NY 10022 |
| CONTACTS: | Donna Granato Director, Finance & Investor Relations 646-429-1809 dgranato@mdc-partners.com |
MDC PARTNERS INC. REPORTS RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006
ANNOUNCES THE SALE OF THE SECURE PRODUCTS INTERNATIONAL GROUP
| QUARTER HIGHLIGHTS: | Consolidated Revenues up 4.3% $35 million Net New Business MDC EBITDA up to $7.2 million Cash EPS of $0.25 |
| YTD HIGHLIGHTS: | Consolidated Revenues up 14.7% $65 million Net New Business MDC EBITDA up to $20.9 million Cash EPS of $0.79 |
NEW YORK, NEW YORK (November 7, 2006) - MDC Partners Inc. (“MDC Partners” or the “Company”) today announced its financial results for the periods ended September 30, 2006.
Consolidated revenues for the three months ended September 30, 2006 were $101.1 million, an increase of 4.3% compared to $97.0 million in the same period of 2005. Operating income for the third quarter of 2006 was $0.6 million versus $5.7 million reported for the third quarter of 2005. Net loss from continuing operations for the quarter ended September 30, 2006 was ($3.1) million versus a loss of ($2.3) million for the same period in 2005. Diluted loss per share from continuing operations for the third quarter of 2006 was ($0.13) compared to ($0.10) last year.
“New business activity continued to be robust during the quarter. In addition, the planned divestiture of our Secure Products International Group will conclude our mission to become a pure play marketing communications and consulting firm,” said Miles S. Nadal, Chairman & CEO of MDC Partners.
Consolidated revenues for the nine months ended September 30, 2006 were $299.3 million, an increase of 14.7% compared to $261.0 million in the same period of 2005. Operating income for the first nine months of 2006 was $5.3 million versus $11.4 million reported in the first nine months of 2005. Net loss from continuing operations for the nine months ended September 30, 2006 was ($8.4) million versus ($4.8) million for the same period in 2005. Diluted loss per share from continuing operations for the first nine months of 2006 was ($0.35) compared to ($0.21) last year.
MDC Partners’ share of EBITDA (as defined) was $7.2 million in the third quarter of 2006 compared with $7.1 million in the third quarter of 2005. MDC Partners’ EBITDA for the first nine months of 2006 increased to $20.9 million from $16.0 million in the same period in 2005.
Cash earnings per share from continuing operations for the third quarter of 2006 was $0.25 compared with $0.23 in the third quarter of 2005. Cash earnings per share was $0.79 for the first nine months of 2006, up from $0.65 in the same period of 2005.
“Despite the slowdown in growth experienced during the third quarter, the new business pipeline continues to be strong. We have positive momentum going into the fourth quarter that should enable us to meet the profitability expectations that we have put forth in 2006,” said Steven Berns, President and Chief Financial Officer.
The Company will provide significant additional details on its operations and financial results on its conference call (see details below).
Secure Products International Disposition
On November 3, 2006, the Company entered into a definitive agreement to sell the stock of its Secure Products International Group (“SPI”) to an affiliate of H.I.G. Capital in exchange for consideration equal to approximately $27 million. Consideration will be paid in the form of a $20 million cash payment at closing, $1 million annually for five years in consulting fees, and the Company will receive a 7.5% equity interest in the newly formed SPI. Net cash proceeds at closing will be used to repay borrowings under the Company’s credit facility. The transaction is expected to close by mid-November.
Options Review
A Special Committee of the Board of Directors of the Company is continuing to review the Company's historical option award practices and procedures. Management expects this internal review to be concluded, with appropriate recommendations made and implemented, prior to year-end.
Conference Call
Management will host a conference call today at 8:30 a.m. (EST) to discuss our quarter results. The conference call will be accessible by dialing 1-416-644-3426 or toll free 1-866-250-4907. An investor presentation has been posted on our website www.mdc-partners.com and will be referred to during the conference call.
About MDC Partners Inc.
MDC Partners is a leading provider of marketing communications services to clients in the United States, Canada, Mexico and the United Kingdom. Through its partnership of entrepreneurial firms, its Marketing Communications group provides advertising, specialized communication and consulting services to clients. MDC Partners Class A shares are publicly traded on the NASDAQ under the symbol “MDCA” and on the Toronto Stock Exchange under the symbol “MDZ.A”
Non-GAAP Financial Measures
In addition to its reported results, MDC Partners has included in this earnings release certain financial results that the Securities and Exchange Commission defines as "non-GAAP financial measures." Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's growth. These non-GAAP financial measures relate to: (1) presenting MDC’s share of EBITDA (as defined) for the three and nine months ended September 30, 2006 and September 30, 2005; and (2) presenting Cash Earnings per Share for the three and nine months ended September 30, 2006 and 2005. Included in this earnings release are tables reconciling MDC’s reported results to arrive at these non-GAAP financial measures.
This press release contains forward-looking statements. The Company’s representatives may also make forward-looking statements orally from time to time. Statements in this press release that are not historical facts, including statements about the Company’s beliefs and expectations, recent business and economic trends, potential acquisitions, estimates of amounts for deferred acquisition consideration and “put” option rights, constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
| | · | risks associated with effects of national and regional economic conditions; |
| | · | the Company’s ability to attract new clients and retain existing clients; |
| | · | the financial success of the Company’s clients; |
| | · | the Company’s ability to remain in compliance with its debt agreements, and the Company’s ability to finance its contingent payment obligations when due and payable including, but not limited to, those relating to “put” options rights; |
| | · | risks arising from identified and potential future material weaknesses in internal control over financial reporting; |
| | · | the Company’s ability to retain and attract key employees; |
| | · | the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; |
| | · | foreign currency fluctuations; and |
| | · | risks arising from the Company’s historical option grant practices. |
In addition to improving organic growth for its existing operations, the Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using available cash from operations and through incurrence of bridge or other debt financing, either of which may increase the Company’s leverage ratios, or by issuing equity, which may have a dilutive impact on existing shareholders proportionate ownership. At any given time the Company may be engaged in a number of discussions that may result in one or more material acquisitions. These opportunities require confidentiality and may involve negotiations that require quick responses by the Company. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of the Company’s securities.
Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in the Annual Report on Form 10-K under the caption “Risk Factors” and in the Company’s other SEC filings.
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| | | | | | | | | | |
MDC PARTNERS INC. | |
CONSOLIDATED STATEMENTS OF OPERATIONS | |
(US$ in 000s, except share and per share amounts) | |
| | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | | |
| Revenue | | $ | 101,122 | | $ | 96,977 | | $ | 299,333 | | $ | 261,042 | |
| | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | |
| Cost of services sold | | | 57,150 | | | 55,509 | | | 177,790 | | | 155,180 | |
| Office and general expenses | | | 36,666 | | | 28,853 | | | 97,672 | | | 77,826 | |
| Depreciation and amortization | | | 6,696 | | | 6,905 | | | 18,595 | | | 16,675 | |
| | | | 100,512 | | | 91,267 | | | 294,057 | | | 249,681 | |
| | | | | | | | | | | | | | |
| Operating Income | | | 610 | | | 5,710 | | | 5,276 | | | 11,361 | |
| | | | | | | | | | | | | | |
| Other Income (Expenses) | | | | | | | | | | | | | |
| Other income (expense) | | | 625 | | | (395 | ) | | 1,697 | | | 616 | |
| Interest expense | | | (3,704 | ) | | (2,302 | ) | | (8,134 | ) | | (4,926 | ) |
| Interest income | | | 171 | | | — | | | 429 | | | 230 | |
| Income (Loss) from Continuing Operations Before | | | | | | | | | | | | | |
| Income Taxes, Equity in Affiliates and Minority Interests | | | (2,298 | ) | | 3,013 | | | (732 | ) | | 7,281 | |
| | | | | | | | | | | | | | |
| Income Tax Recovery | | | 812 | | | 397 | | | 1,711 | | | 1,676 | |
| | | | | | | | | | | | | | |
| Income from Continuing Operations Before Equity in | | | | | | | | | | | | | |
| Affiliates and Minority Interests | | | (1,486 | ) | | 3,410 | | | 979 | | | 8,957 | |
| Equity in Earnings of Non Consolidated Affiliates | | | 129 | | | 348 | | | 630 | | | 624 | |
| Minority Interests in Income of Consolidated Subsidiaries | | | (1,780 | ) | | (6,073 | ) | | (9,965 | ) | | (14,374 | ) |
| | | | | | | | | | | | | | |
| Loss From Continuing Operations | | | (3,137 | ) | | (2,315 | ) | | (8,356 | ) | | (4,793 | ) |
| Discontinued Operations | | | (9,772 | ) | | 660 | | | (20,190 | ) | | (1,609 | ) |
| Net Loss | | | ($12,909 | ) | | ($1,655 | ) | | ($28,546 | ) | | ($6,402 | ) |
| | | | | | | | | | | | | | |
| Income (Loss) Per Common Share | | | | | | | | | | | | | |
| Basic: | | | | | | | | | | | | | |
| Continuing Operations | | | ($0.13 | ) | | ($0.10 | ) | | ($0.35 | ) | | ($0.21 | ) |
| Discontinued Operations | | | (0.41 | ) | | 0.03 | | | (0.84 | ) | | (0.07 | ) |
| Net Loss | | | ($0.54 | ) | | ($0.07 | ) | | ($1.19 | ) | | ($0.28 | ) |
| | | | | | | | | | | | | | |
| Diluted: | | | | | | | | | | | | | |
| Continuing Operations | | | ($0.13 | ) | | ($0.10 | ) | | ($0.35 | ) | | ($0.21 | ) |
| Discontinued Operations | | | (0.41 | ) | | 0.03 | | | (0.84 | ) | | (0.07 | ) |
| Net Loss | | | ($0.54 | ) | | ($0.07 | ) | | ($1.19 | ) | | ($0.28 | ) |
| | | | | | | | | | | | | | |
| Weighted Average Number of Common Shares: | | | | | | | | | | | | | |
| Basic | | | 23,911,327 | | | 23,710,572 | | | 23,849,571 | | | 23,151,825 | |
| Diluted | | | 23,911,327 | | | 23,710,572 | | | 23,849,571 | | | 23,151,825 | |
| |
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MDC PARTNERS INC. | |
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA* | |
(US$ in 000s) | |
| | | | | | | | | | | | |
For the Three Months Ended September 30, 2006 | | | | | | | | | |
| | | | | | | | | | | | |
| | | Marketing Communications Group | | | | | |
| | | Strategic | | Customer | | Specialized | | | | | |
| | | Marketing | | Relationship | | Communication | | Corporate & | | | |
| | | Services | | Management | | Services | | Other | | Total | |
| Revenue | | $ | 61,682 | | $ | 20,934 | | $ | 18,506 | | | — | | $ | 101,122 | |
| | | | | | | | | | | | | | | | | |
| Operating Income (Loss) as Reported | | $ | 4,063 | | | ($2 | ) | $ | 1,572 | | | ($5,023 | ) | $ | 610 | |
| | | | | | | | | | | | | | | | | |
| Add: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 5,102 | | | 1,240 | | | 292 | | | 62 | | | 6,696 | |
| Stock-based compensation | | | 128 | | | 6 | | | — | | | 1,515 | | | 1,649 | |
| | | | | | | | | | | | | | | | | |
| EBITDA * | | | 9,293 | | | 1,244 | | | 1,864 | | | (3,446 | ) | | 8,955 | |
| | | | | | | | | | | | | | | | | |
| Less: Minority Interests | | | (1,322 | ) | | 11 | | | (469 | ) | | — | | | (1,780 | ) |
| | | | | | | | | | | | | | | | | |
| MDC's Share of EBITDA** | | $ | 7,971 | | $ | 1,255 | | $ | 1,395 | | | ($3,446 | ) | $ | 7,175 | |
| * EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization plus |
| * stock-based compensation. | | | | | | | | | | | | | | | | |
| ** MDC's Share of EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation |
| ** and amortization plus stock-based compensation less minority interests. | | | | | | | | | |
MDC PARTNERS INC. | |
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA* | |
(US$ in 000s) | |
| | | | | | | | | | | | |
For the Three Months Ended September 30, 2005 | | | | | | | | | |
| | | | | | | | | | | | |
| | | Marketing Communications Group | | | | | |
| | | Strategic | | Customer | | Specialized | | | | | |
| | | Marketing | | Relationship | | Communication | | Corporate & | | | |
| | | Services | | Management | | Services | | Other | | Total | |
| Revenue | | $ | 59,699 | | $ | 16,645 | | $ | 20,633 | | | — | | $ | 96,977 | |
| | | | | | | | | | | | | | | | | |
| Operating Income (Loss) as Reported | | $ | 9,543 | | $ | 496 | | $ | 3,798 | | | ($8,127 | ) | $ | 5,710 | |
| | | | | | | | | | | | | | | | | |
| Add: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 5,505 | | | 910 | | | 225 | | | 265 | | | 6,905 | |
| Stock-based compensation | | | 6 | | | 12 | | | — | | | 548 | | | 566 | |
| | | | | | | | | | | | | | | | | |
| EBITDA* | | | 15,054 | | | 1,418 | | | 4,023 | | | (7,314 | ) | | 13,181 | |
| | | | | | | | | | | | | | | | | |
| Less: Minority Interests | | | (5,239 | ) | | (50 | ) | | (784 | ) | | — | | | (6,073 | ) |
| | | | | | | | | | | | | | | | | |
| MDC's Share of EBITDA** | | $ | 9,815 | | $ | 1,368 | | $ | 3,239 | | | ($7,314 | ) | $ | 7,108 | |
| * EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization plus |
| * stock-based compensation. | | | | | | | | | | | | | | | | |
| ** MDC's Share of EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation |
| ** and amortization plus stock-based compensation less minority interests. | | | | | | | | | |
| |
| | | | | | | | | | | | |
MDC PARTNERS INC. | |
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA* | |
(US$ in 000s) | |
| | | | | | | | | | | | |
For the Nine Months Ended September 30, 2006 | | | | | | | | | |
| | | | | | | | | | | | |
| | | Marketing Communications Group | | | | | |
| | | Strategic | | Customer | | Specialized | | | | | |
| | | Marketing | | Relationship | | Communication | | Corporate & | | | |
| | | Services | | Management | | Services | | Other | | Total | |
| Revenue | | $ | 180,272 | | $ | 60,747 | | $ | 58,314 | | | — | | $ | 299,333 | |
| | | | | | | | | | | | | | | | | |
| Operating Income (Loss) as Reported | | $ | 15,654 | | $ | 882 | | $ | 6,246 | | | ($17,506 | ) | $ | 5,276 | |
| | | | | | | | | | | | | | | | | |
| Add: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 14,147 | | | 3,429 | | | 860 | | | 159 | | | 18,595 | |
| Stock-based compensation | | | 619 | | | 18 | | | 2,338 | | | 4,006 | | | 6,981 | |
| | | | | | | | | | | | | | | | | |
| EBITDA * | | | 30,420 | | | 4,329 | | | 9,444 | | | (13,341 | ) | | 30,852 | |
| | | | | | | | | | | | | | | | | |
| Less: Minority Interests | | | (7,931 | ) | | (27 | ) | | (2,007 | ) | | — | | | (9,965 | ) |
| | | | | | | | | | | | | | | | | |
| MDC's Share of EBITDA** | | $ | 22,489 | | $ | 4,302 | | $ | 7,437 | | | ($13,341 | ) | $ | 20,887 | |
| * EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization plus |
| * stock-based compensation. | | | | | | | | | | | | | | | | |
| ** MDC's Share of EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation |
| ** and amortization plus stock-based compensation less minority interests. | | | | | | | | | |
MDC PARTNERS INC. | |
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA* | |
(US$ in 000s) | |
| | | | | | | | | | | | |
For the Nine Months Ended September 30, 2005 | | | | | | | | | |
| | | | | | | | | | | | |
| | | Marketing Communications Group | | | | | |
| | | Strategic | | Customer | | Specialized | | | | | |
| | | Marketing | | Relationship | | Communication | | Corporate & | | | |
| | | Services | | Management | | Services | | Other | | Total | |
| Revenue | | $ | 153,810 | | $ | 49,145 | | $ | 58,087 | | | — | | $ | 261,042 | |
| | | | | | | | | | | | | | | | | |
| Operating Income (Loss) as Reported | | $ | 20,616 | | $ | 634 | | $ | 8,951 | | | ($18,840 | ) | $ | 11,361 | |
| | | | | | | | | | | | | | | | | |
| Add: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 13,044 | | | 2,634 | | | 659 | | | 338 | | | 16,675 | |
| Stock-based compensation | | | 21 | | | 68 | | | — | | | 2,273 | | | 2,362 | |
| | | | | | | | | | | | | | | | | |
| EBITDA* | | | 33,681 | | | 3,336 | | | 9,610 | | | (16,229 | ) | | 30,398 | |
| | | | | | | | | | | | | | | | | |
| Less: Minority Interests | | | (11,887 | ) | | (63 | ) | | (2,424 | ) | | — | | | (14,374 | ) |
| | | | | | | | | | | | | | | | | |
| MDC's Share of EBITDA** | | $ | 21,794 | | $ | 3,273 | | $ | 7,186 | | | ($16,229 | ) | $ | 16,024 | |
| * EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization plus |
| * stock-based compensation. | | | | | | | | | | | | | | | | |
| ** MDC's Share of EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation |
| ** and amortization plus stock-based compensation less minority interests. | | | | | | | | | |
SCHEDULE 4 | |
| | | | | | | | | | |
MDC PARTNERS INC. | |
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING | |
OPERATIONS TO CASH EARNINGS PER SHARE | |
(US$ in 000s) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | 2006 | | 2005 | | 2006 | | 2005 | |
| Net Loss from Continuing Operations | | | ($3,137 | ) | | ($2,315 | ) | | ($8,356 | ) | | ($4,793 | ) |
| Depreciation & Amortization | | | 7,470 | | | 7,228 | | | 20,193 | | | 17,586 | |
| Stock Based Compensation | | | 1,649 | | | 566 | | | 6,981 | | | 2,362 | |
| Cash Earnings | | $ | 5,982 | | $ | 5,479 | | $ | 18,818 | | $ | 15,155 | |
| | | | | | | | | | | | | | |
| Diluted Shares | | | 23,911 | | | 23,711 | | | 23,850 | | | 23,152 | |
| | | | | | | | | | | | | | |
| Cash EPS | | $ | 0.25 | | $ | 0.23 | | $ | 0.79 | | $ | 0.65 | |
SCHEDULE 5 | |
| | | | | | |
MDC PARTNERS INC. | |
CONSOLIDATED BALANCE SHEETS | |
(US$ in 000s) | |
| | | | | | |
| | | September 30, | | December 31, | |
| | | 2006 | | 2005 | |
| Assets | | | | | |
| Current Assets: | | | | | |
| Cash and cash equivalents | | $ | 4,592 | | $ | 12,923 | |
| Accounts receivable, net | | | 120,414 | | | 117,319 | |
| Expenditures billable to clients | | | 31,152 | | | 7,838 | |
| Inventories | | | — | | | 10,359 | |
| Prepaid expenses | | | 4,682 | | | 4,401 | |
| Other current assets | | | 630 | | | 356 | |
| Assets held for sale | | | 28,849 | | | — | |
| Current Assets | | | 190,319 | | | 153,196 | |
| | | | | | | | |
| Fixed assets, net | | | 43,403 | | | 63,528 | |
| Investment in affiliates | | | 10,068 | | | 10,929 | |
| Goodwill | | | 199,340 | | | 195,026 | |
| Other intangible assets | | | 50,130 | | | 57,139 | |
| Deferred taxes | | | 17,825 | | | 16,057 | |
| Other assets | | | 10,173 | | | 11,440 | |
| Assets held for sale | | | 12,249 | | | — | |
| | | | | | | | |
| Total Assets | | $ | 533,507 | | $ | 507,315 | |
| | | | | | | | |
| | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | |
| Current Liabilities: | | | | | | | |
| Short term debt | | $ | 4,218 | | $ | 3,739 | |
| Revolving credit facilty | | | 85,300 | | | 73,500 | |
| Accounts payable | | | 69,686 | | | 63,452 | |
| Accrued and other | | | 69,549 | | | 69,891 | |
| Advance billings | | | 50,996 | | | 38,237 | |
| Current portion of long term debt | | | 1,532 | | | 2,571 | |
| Deferred acquisition consideration | | | — | | | 1,741 | |
| Liabilities related to assets held for sale | | | 16,221 | | | — | |
| Total Current Liabilities | | | 297,502 | | | 253,131 | |
| | | | | | | | |
| Long-term debt | | | 4,991 | | | 8,475 | |
| Convertible notes | | | 40,261 | | | 38,694 | |
| Other liabilities | | | 8,871 | | | 7,937 | |
| Deferred taxes | | | 2,346 | | | 2,446 | |
| Liabilities related to assets held for sale | | | 3,352 | | | — | |
| Total Liabilities | | | 357,323 | | | 310,683 | |
| | | | | | | | |
| Minority Interests | | | 46,335 | | | 44,484 | |
| | | | | | | | |
| Shareholders' Equity: | | | | | | | |
| Common stock | | | 183,852 | | | 178,590 | |
| Share capital to be issued | | | — | | | 4,209 | |
| Additional paid in capital | | | 25,600 | | | 20,028 | |
| Accumulated deficit | | | (81,621 | ) | | (53,075 | ) |
| Accumulated other comprehensive income | | | 2,018 | | | 2,396 | |
| Total Shareholders' Equity | | | 129,849 | | | 152,148 | |
| | | | | | | | |
| Total Liabilities and Shareholders' Equity | | $ | 533,507 | | $ | 507,315 | |
