MDCA - Earnings call transcript Q3 2017

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Operator

Good day, and welcome to the MDC Partners' Third Quarter Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Matt Chesler, VP, Investor Relations and Finance. Please go ahead.

Matt Chesler

everyone. afternoon Good thank to to third taking time the of I'd MDC you Partners' listen the the conference to XXXX. like for call quarter for

and Scott Joining Chairman MDC today Chief are me and Officer. from CEO; David Doft, Financial Kauffman,

remarks, our forward-looking all contains like to and non-GAAP financial Before that prepared remind following the we I'd begin discussion statements you data.

and the statement As we and are the to cautionary included uncertainties company's and our subject detailed Form slide all know, subsequent further presentation company forward-looking the in SEC referenced are statements release in about earnings XX-K in filings.

reference, an we For to your posted our website. presentation investor

I'd We for to to over Chairman to definitions, this financial turn you and also reconciliations our Kauffman. CEO, and press call, of non-GAAP refer to release like presentation explanations, now data. it and slide And Scott afternoon's the start

Scott Kauffman

at Matt, financial good industry-leading $XXX increased strong X% Thanks year-over-year, Revenue was a X.X%. organic results growth in growth or everyone. delivered our of afternoon, third quarter. net basis. million X.X% and continuing Year-to-date, X% on We the organic

organic the in increased Canada U.S.; organic remained up with and was international For the modestly; very growth. X% strong revenue quarter, XX%

We see of increase financials, key by in double-digit and year-over-year, to with $XX XX% adjusted of basis nearly client led even XXX verticals, continue We EBITDA, points. gains which an CPG. generated million communications, was expanding margins

driven IKEA McDonald's been from Carnival areas, that our including business continued local we to and of growth publicly leveraging co-ops. brands was the disclose our making was and cost lines, of nearly growth yields and wins by new the Hershey's, see from Net as Cruise such million, beginning the this we're can investments the in structure. quarter $XX now Our we've profitability business, made emerging have

of and elaborate players reiterate and year against in quarter for With X%. major These elements approximately guidance positioned us we pacing heard approximately against became our improvement We revenue operating these in In seeing relationships averaged translate model, cutting-edge space, number versus positioning, financial amassed go, a the business that of characteristics their on long-term moment. from in of basis and goals track less our years competition, XX the that we industries. industry, we at mindset. one to growth share organic EBITDA XXXX the have X% is well record thing, our turn, than MDC's speak some us market entrepreneurial meaningful and full one differentiated David quite we've another. respective pure-play into Last disruptors in Saying X.X% and of tech strategic also you we're points. but core a margins in brought have a assignments very organic adjusted nicely just is successful revenue growth, modern the nearly our we've gains. of which will about is XX a they how And since quarter,

work best-performing brands, iconic a when not little infrastructure us as also work Hershey's grow relationship hubs terrific and Reese's. with most win to legacy model, has began and with where creative and compete more CP+B marketers This campaign has in then marketing savvy, our clients. CPG masterbrand, share our we and shows lean to Canada thinking by China, should effectively Our is sure characterized solutions undertake solution. because illustration began, strategic to highly progressive, U.S., existing for the it This of physical organically grow satisfied, global win, country collaborate transformation that most two and nimble, and quo. from Anomaly MDC geographies, the business KitKat and social the to modern and enabled where our over brand + now It It's Meanwhile, agencies. brands. years to all world. a and agencies single to consistently continues including than one relationship ago rapidly to found the the they are looking Mono. expanded well very also status regional our a focus make become be, provide aren't digital Hershey's Anomaly MDC but it be across consolidated brands, this significant creative multiple many came and with spans development their in the support MDC can more we digitally Porter and that we with Hershey's Bogusky, including disciplines, verticals key into summer tend fair single with What reinvent to need and we've reason themselves how simply nor with but to integrated that is And been others. able a Clients integrated, is agency strategic why Crispin agencies single shows the relationship that only that that of against agencies, to their at a a provide multiple changing has

reduce a to best-in-class of Finally, look Generation while reduce Mills, the this done lead agencies consolidation. into get quality network. Often, the improve best Hershey's to agencies, we're in worlds they and of inefficiencies. consolidating our capabilities Seventh also the By work with also by one of demonstrates MDC well-positioned both with Diageo. number or brands marketers with broader that of We've General in specialists and with partnering tapping order

modern point public best now relationship. increasingly how execution, Hershey's, media. successfully with We're of example is our strategy, world-class access approach how provide planning, we're and and differentiated global. and MDC growing new blue-chip relations, in multiple taking It's a geographies. engage What to brand, it's begun agencies best agencies the executing is multiple customized to illustrates of in we're and MDC our partnerships to into talent IKEA delivering has the industry. and contact integrated single including Like great recently across disciplines, a IKEA creative IKEA consumer Another communications

firms, when even inroads with partners. in But our innovative represent brands one agencies agency are and exciting recognizing of teams the highest picking our best now other with markets models our clients' true for highly ability known been our innovation creative solutions. now and other partners that traditional creativity, our MDC Europe. with in only Partners we're evident Our and in as Huawei of working world's reflecting contrast company a category like companies Clients comes to distinct widely The model well, most well the leader the as strategy, the the world. that is and MDC It's in collaborate talent. also the particularly, historically to it the these is playing around mobile, with client of network client-centric, to and power holding at with Europe, increasingly brand brands an recognized IKEA, levels sister haven't

Gale have made the reason of on digital, significant top Creative recent to its their Linus agencies creative Chief Our advance new deep of a and I'm Global going agencies in examples. from magnet respective Karlsson, YML, continue And CP+B to senior tapped strategy these like each firms for industry's the leader, best areas design, be and offerings. specific hires KBS, as people. meanwhile, and technology, renowned There's award-winning Officer. recently a

and well-positioned past us. the This You've disappointing growth advertising opportunity companies. David. big a of couple many like in challenges fact, to for cases, to to holding for outlooks are challenges not and seen and represent weeks from We're a we're in the of over with the long why continue why outperforming that is results over be I'd Their confident of -- the past years us. our couple turn of the come. call we to we're And leader have to runway ahead that, quarters,

David Doft

Scott you, afternoon. and Thank good

For platform well of value our that sustainably that has average for we strong been Partners can over the will all is are the was a long-term. growth Yes, likely the with about, holding balance Scott about clear I Organic we're above MDC sheet hope out stakeholders. grow and reasons a long-term eight MDC. big that companies. that quarter times doing building X.X% for is the it delivering, of all revenue ours Combined talking shake for improvements very the and it's profit

our XXX this of quarter, revenue was still a but in the X%. this XX% growth quarter, timing of a time, as line to results Organic followed is communications such some categories strongest the from expectations total in revenue itself market, And that growth. and over States, in largest it beverage, embedded in quarter of of XX.X% long-term was recent revenue half. financials the approximately losses. was the deceleration our our quarter. to factors, third quarter. of discussed organic United last points and of as wins moderate couple and our closely series more benefited from Pass-through first compared we guidance growth quarter were the In with in Much our our were to MDC completed was is and basis the year by in X% accounted up XX% larger difference were added second in which a which While last and similar projects, right food by full for U.S., the

progress we U.S. Adjusted which quarter expect adjusted aggregation to year-over-year points. fees staff the on with points a for food XX.X%, quarter as can with basis $X cost million our XXXX ratio perspective, segment work by margins from revenue. base Nevertheless, required, associated was incremental beverage. the the preparing over EBITDA and as impacted cost it around points standard, recognition fact, In strongest first increased basis solid the you From with good well XX of were region adopt revenue in This, a basis. EBITDA a the XXX in expanded results. pass-through and dampened by quarter. also margins also for our XXX beginning by Reported was as being improvement a basis see our profit despite professional made we've higher our

million, strategy million place Media of working operating our strong working MDC Ahead usage is $XX performance $XX of terms was fourth in best year-to-date our seasonal put quarter, of included years several a seasonally since In outflow cash which flow, capital is Partners ago. the negative cash capital. flow

improved As track expected, for financial to achieve which us targets. all to our keeps on Scott be outlook, full as up it year is the of we shaping mentioned, our year

therefore reiterating of approximately in are XX margins points. We improvement adjusted and approximately revenue for guidance, X% EBITDA calls an growth organic basis which

us we much about also cycled of was our a lead as is we've digital It media disposed QX, haven't a that of As previously year includes acquisitions the we past impact. completed you you which LBN, At segment. that dispositions. should local the know, gen the platform end and impact talk August, services reflect contributions business called our of that heard in of from already

of impact profitable appropriate strategy. It your ultimately, the sale. to our the X% not to to you a net to business, roughly to nicely account for therefore acquisitions While LBN the we adjust growing is core you impact dispositions expect was the revenue. and was should be it determined for In quarter, and negative of fourth models

$X.X I'd adjusted Additionally, will balance our million a And a -- like contribution sheet get expected there there's longer from EBITDA we discuss impact million no of LBN, progress. $X.X results. XXXX which in to was now

As initiatives. to Scott financial us the allocate mentioned, the of strengthening focus of appropriate source to be a This allows continues value-creating resources for to our company. profile long-term,

$XX acquisition-related funded million we quarter, This payments. of

reduced Additionally, XX top $XX and net by a of to stake the of next the expected of million. the from our couple sheet million $XX transaction result the million NCI balance million total of to in roughly of over deal potential earn-out from close as a cash on sale proceeds a benefit the an months, dollars MDC was $XX LBN of

plus deferred low. five-year acquisition million, totals now stands year-to-date $XXX minority down a at Our consideration, and $XXX new interest, million

$XX we've XX% what for been the quarter. a year to which what payments consistent expect then this see only year forward, come previously of range, we million million most on already expect cash made, of overall next flow. should positive going roughly the the down million to fourth by terms $XX discussed, impact have our significantly In should $XX in have with payments to as And M&A-related

deferred acquisition at balance the working we capital revolver as outflow XX million, payments. was and seasonal $XX Our September funded

finish in year of a administrative up position. cash the to continue One we before expect to fully Q&A. it We and item open the final revolver to out

work in At to money. questions. now the had of substantial is incur XXXX. extensive resources that rules I the and As doing expecting cost professional revenue new for effect a costing we significant $X.X fees go prepare like to your into recognition point, million companies know also in for many are we're and is initiative to This highlighting, taking a million this budgeted that more lot full to we're than $X year. the We'd take aggregate

Operator

We of from of Please comes go will Instructions] The the now begin question-and-answer Canada. session. Bank Cahall ahead. first [Operator question Royal Steven

Steven Cahall

and David, the David, a one Great you. you you've talk bigger if could guidance for the then tougher in comp. Thank implied operations was Yes. know just I quarter. QX. Scott. you a just wondering picture in I for question Maybe, about got

So, think of certainly, conservatism is of stuff outgrowing the as sequential seems nothing And broader you're in is your be side, where pointed out, so of peers, that but M&A, pretty they'd in on to bit What seeing? the growth that from takes the have the of growth on holding the you. seemed companies about slowdown fourth in really just the bit you're organic a space, little the thing a some the certainly ever press then ad Scott, little Thank in. industry, you you M&A plus a quarter? And for lot to weak going really for interested like numbers. We've picture it you bigger sort seen the seen do agency big happen. comp

David Doft

Thanks Steven.

So, our from standpoint, manage a year don't to guide quarters. individual year. We XQ the we

as guidance There is we so the pass-through organic we quarter-to-quarter gave we the the updated around projects track reported totality as that. impacts expected in which meaningful And continue in have timing of on to versus that revenue. the expenses, to midyear, what could underlying fee growth when impact well

guidance given around we think sense as all really guidance we point, the made it and nickel this annual is. dynamics, at So, so those dime didn't basis left number and points an to

Scott Kauffman

executing against speculate has you look regard to with as read things plan. for M&A, we've markets. heads organic to acquisition comment We continue we a and Steven and rumors combination and of growth the and our results, our historically plan those we've from don't same down, you been hear we growth or tell That do. on And can the to and will both included had

to a beacon attention brilliant home to against put against teams of entrepreneurial create and continue the balance We we've health of for looking commitment close for to pay will the That Safe in culture our delever always the goals a that Harbor. a sheet backdrop place. be the to and to

Operator

comes go question Dan The BMO from Please with next Salmon Markets. ahead. Capital

Dan Salmon

the Hey One afternoon. sector. guys. be each the CPG clearly bucking you Good especially appear Scott, you. for to of trends, in industry

challenger clearly competitors, they in, do one as be at Maybe more of are global over some challenging that. time? And this, may approach but that customers, marketing large There's along, ones just seem development business you you that And David, where admittedly, brands. to coming quick are of So but be level; is with appeal much for as their which native. ones over for to that how seems it started as result have for I'm online-only bigger a a new always their to not at digitally the some curious, these of as CPGs, a you. the it may early relevant brands. be your And larger are a breed do coming new they bit of then you little group ones small high may this do look but they differently or time, folks a evolving changing challenges

in sounds recognition, may And are as You million It a those, $X we're fees business. without benefit million I'm from actually that implying $X.X if to related I sure Thanks. of guidance of be just to revenue the little disposed light your to lost still the that clear want new also that. we make holding mentioned better. extra you

Scott Kauffman

in And to to blue no disruptor agency great dramatic the Dan, And for brands. on longer and and brands. opportunity decades-old and to they be are incumbent challenger see also disruptors. quo the world, the a of past both to ways, what [ph] that from the in course, as CMOs, to well, as names endorse landscape can those with referred practices advertising and some those who the all used simply brand rely sometimes that our relationships chip of afford status disruption count among we of changing, clients, we us,

a and great been in they've new quarters, issues, also has with, for disruption, category category been ever-evolving, This accustomed growth and again, operations modern And suffering as so by particular. we've some had the clients talking every our for solutions that media bringing these and a new the advantage taking opportunity we've zero-based set to table, budgeting agents transparency to. issues been in many each of that being of nimble, about more from some

And disruption our So, this playing there's of a to that's all trust also plays this. into advantage. factor again,

David Doft

second your to question. Dan

prepared wasn't I be. in to as guess the I as hoped clear remarks So, I

So, the because you disposition a should for expectation I LBN, we're of saying year full LBN. adjust included of our year think for that the

in quarter, impact And middle so because part of $X.X divested the that's it and in XQ. will impact, which was rest our we saw million of which a the -- are XQ of the

prepared take I of of should benefit -- to then the half of is LBN indicated The that a you acquisition benefit the first remarks net have margin, year, the the organic sheet, the the $XX growth impact So, the I plus in F&B divestiture. flip million as take six as the formula would of through balance well. we the side and you if the of months rolled

manage not costs number total the value. to And really of there deliver think we because the at enough them are of a on try expectations. always point. to have is as add-backs One-time thing overall tough so limit the standpoint about. move through are In and this We that it should we that I fees standpoint, -- to overall from your -- from professional expect, would expectations of looking

on costs the expectations working so through manage hard business. of those we the and overall are deliver incremental to still And

Dan Salmon

Okay. Thank you both.

Scott Kauffman

Thank you.

Operator

Please from ahead. Wells Fargo Peter question with Securities. next The comes Stabler go Instructions] [Operator

Peter Stabler

couple, if could. seeing risk the whether much. of sort and new category your be trends at expect A you'd underlying as kind this asking wondering role give parse business if in it's year you XXXX to possible what characterize so results, year of well. clients. significant afternoon. secondly as Good played a David, versus same-store early the I it's you growth next where would to position Thanks with of to kind Thanks. any organic but And to contributor then look of have you're outperformance wondering -- if wins a to us

David Doft

Peter. Thanks Sure.

we So, around versus after expansion new chasing clients. don't with organic differentiate clients really existing our efforts going

brands we agencies and continue seen is few one business on, very case and agency resources goes of with momentum agency our trend underperformance on they're and accordingly. they on then some And that there's his are and prepared great identify strong And are And portfolio don't seen bring getting that again another last to that over there's brand their we've we a surely where some goes. of front that's gaining team opportunities over on underneath new as maybe work and they Our partners. a their also there clients allocate and any some that really of slowdown as MDC time chase specific the examples the been in the seek very with another over a time, substantial wins And in for strong that there umbrella brand, it and dozens very their companies opportunity. But overall us an Scott a at haven't as other really front. well. to of spoke that same kind out test been for us. see how year will that strong with brand opportunity study remarks really had have where brand years, within needs, solutions clients, from share and very often market been a these large We

not so as both specifics, to focused is and And the are them. opportunity as giving equally of avoid our large but ultimately, equally teams on

business and continue we're and near and through gone to next planning for see so XXXX point of reason for our October. to solid year next as at and just profile not goal this and we've is we But our have the beginning said, far hope growth budgeting no us being continue our competitors. to As to a on year no process formal outperform end looks, that our

Peter Stabler

David. Thanks That's helpful.

could. Just clarifying if one follow-up I

clients? wins put when of new clients in do would number -- new you kind Or guys net adding So, about you you that be go an of new sister that business a $XX would number you talk brand terms be when a you in happens million, these about guys new of putting that brand are of together? How together, to client? existing roster

David Doft

pieces of business new new is that new include a it client. an a could also So, existing within client, include brand could

Peter Stabler

it. Got

David Doft

anyone's in. there's point, At there's brands. of is not big consolidation -- been among It anymore parent this many such company not brands that

the So, is that always calculating ago. both that number included XX years of beginning us since

Peter Stabler

Thanks. Helpful.

David Doft

Sure.

Operator

to This to for concludes I question-and-answer Scott any closing Kauffman session. like turn conference the our would over back remarks.

Scott Kauffman

illustrate opportunities time City. and model, Thank to us again, closing, you take holding confidence Thank into and up in deal financial and which these for Partners way the ample so-called agency our as positioned of in us and achieve we're afternoon good stretch all, year continued head also York from MDC from of into we're as give your very differentiated the beyond. you which they the in company to the well advantage in interest truly financial great unique for XXXX we hope of results, of us. well set And a home the much. competition our We you ways strong New the as once goals, front XXXX

Operator

The conference has attending Thank concluded. presentation. today's now for you

now disconnect. may You

Stagwell (STGW) 30 Oct 172017 Q3 Earnings call transcript