MDCA - Earnings call transcript Q3 2018

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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 Alex Delanghe. Please go ahead.

Alex Delanghe

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

David David today and Development EVP and Chief MDC me Development Nerlich, of are Partner Joining Financial and from Stephanie Officer; Talent. Ross, of Corporate EVP Strategy Doft,

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

our company the the cautionary are subject release referenced and uncertainties presentation the in and company's subsequent in about to statements SEC in are included filings. statements earnings XX-K detailed slide and Forward-looking further Form

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

now, you turn David presentation this and Doft. non-GAAP our explanations over to also press release call, And to Officer, of to I'd like start for refer it Chief the to definitions, and slide Financial reconciliations We data. morning’s financial

David Doft

third on we cost brief, and recent topics. A Thank my keep you, strategic structure everyone. of comments financial to Alex I'm address three announcements. our specific taking going to quarter good results, focusing and morning, review are actions

have recovery note that, Number strategic opportunity. on to business to new prospects few progress important want have in our we marketplace focused of have the business get cost to agency performance, value million in invested in XXXX. on diminish annualized, under-performance and and creative Number we is expanded with for in it talent the review Number we our LionTree business is $XX on in and improve in future focused of in shareholder structure business in development our I cost alternatives. diligently one, brands hired several which a reducing I three, not the senior us off at several you does paying Morgan company's advise in agencies, particularly significant that two, across continue units, that we a to to reductions be four, made overall investment us pipeline. renewed firms the are and acquisitions. over remain creating an Before Number earnings working new advisors sets know to up demand new which JP and are

have for led Spencer business new Stuart. search a attained we have attaining launched have addition, on summary, cost In we a CEO, reductions by new In excellent refocused and wins.

results incurred from include increase first MillerCoors’ basis favorably Organic wins we by quarter was XXX from $XX acting revenue the quarter million certain in half’s behalf up [indiscernible] a impacted revenue pass-through Notable This more follows. in $XX cycled difficult are combined as our on million growth with in clients’ totaled of the partner principal. losses. million, of point Leinenkugel. past was in This X.X%. of year-over-year organic QX. net an by QX, decline, wins in firms, billable Third Gross costs new as comparison wins improving business growth trend a and $XX is QX, Match.com, offset as

finished the revenue and the to We primarily up $XXX.X Total of for of or XXXX period, revenue revenue year, XXX, prior adoption flat remainder the roughly which ASC QX achieve $X.X X.X%. due expect was organic approximately for positive the by with growth to negative million reduced year of X%. million by

was of X.X%. acquisitions to primarily billion adoption non-GAAP million by The nine $X.XX versus due negative The was $X.XX the Revenue X.X%. exchange $XX.X decline foreign was months effective a X.X% reduced the the prior for net X.X%. exchange was foreign the ASC first XXX, the which positive positive of was and year revenue Additionally, impact of effect in or period. billion

cost structure essentially we continued net to are profitability a QX. From So revenues our flat. of this, optimize standpoint, all during

we've to year XX% the This the that Overall, We lower corporate million position steps $XX of related have including costs $XX savings deliver of process, will one-time continue of of structure to our staff the savings actions connection of benefit already of for of strategic action $XX long-term cost for million, XXXX. excess will the in MDC all our our maximize In about year ensure in agencies our in with targeted profitability, million success to to value these costs. prospects annualized agencies. throughout to taken date, and of strength over shareholders the incurred with actions. and we commitment take review to

on focus do we've adjusted generation not is result, EBITDA XXXX, company's a of the profitability means respect sense XXXX cash guidance we to believe defined of on lieu In as focus credit the This as planned that short facility. XXXX. to As our and accelerated when we with the makes EBITDA for restructure effectively additional it visibility margin guidance, greater a in EBITDA into term under can adjusted XXXX to increased with maximization company senior its give for recovery costs providing to strategy margin the company remainder a is withdrawing commentary and beyond. secured profit margin

approximately complete EBITDA. covenant expect million We to fiscal year $XXX XXXX with of

estimated has in forma the covenant $XX EBITDA company certain approximately applied and pro other million the aggregate Additionally, derive our forecast. to of adjustments XXXX

balance Now, sheet. let our me briefly discuss

the a the profitability during As of in quarter. anticipated, leverage and strength ratio cash decline seasonality drove flows our in

We our finish times. ratio leverage X for in to less of expect a year a the the remainder ratio the total leverage of than continue and decline with to year

our evaluate in CEO. LionTree on alternatives, to that the to today's entire questions, comment and sale This either necessary we to on note take on or the steps of is process should financially with the our comment This Finally, strategic strategic process ongoing position and possible potential identify Partners appropriate process review Advisors all I shareholders. JP review business, Morgan. time. CEO process the and search questions. focus the search all a the success being long or busy is thank leaders exceptionally their commitment parallel our financial at of company’s explore both an by we these agencies efforts. employees to proceeding maximize We'll It CEO for the strategic strengthen taking levels month, was a term we updates search further agency MDC the before for to recent led on for turn cannot advisors call. I now I company. things provide and strategic for briefly and at want our remain review announcements. to questions further Last and including quarter I committed and value open want over strategic and We're for to announced intention successor

Operator

from Salmon of Capital Markets. comes question first BMO Our Dan Instructions] [Operator

Dan Salmon

David, a couple questions. of just

just headcount and I the level and an would in comments to their if acquisition just compensation real performance interesting, your your remind incremental your first, you think, to incremental income to to deferred for of us secondly, consolidation. years be the several refresh to some moment In then agencies that million as in from you can, you it's actions maybe that current estate one reconcile investment reductions already well. review Just taken did And you for of help release, want the ago, take just statement, mentioned help us, just continuing you of the could would the what difference you be XXXX from XX firstly. extent figure in could but clarify, talked expectations Goldman XXXX are remind compares XX ago of a Can figures? two, versus when place through balance have that flow already those just in actioned from if sort the clarify ones a now how about Thanks. I savings you million everyone that to at

David Doft

Sure. Thank you, Dan.

hopefully The will of been annual and to realized But higher taken through continue $XX in $XX savings actually XXXX, it’s million the have the number in is impact. cycle incremental XXXX. of some as So throughout so underway, we that full $XX is million that $XX moves plus the given are the reduction. of million, the XXXX, million in some move the excess still

this In $XX We a in hope the I million third year. acquisition So quarter. in $XX about deferred funded or clear? that’s XXXX, there's little million of consideration, left terms

I quarter. think in million it's fourth sub the $X

out we're there full XXXX, acquisition of -- acquisition quarter related of bit year first to that related for million a So $XX a majority payments. transactions The the deferred about done consideration. there's goes about at basically little XXXX, the XXXX for little be non-controlling looking is we're could of and There's potentially interests. from in vast that step-up

come Historically, So acquisition be down by in aggregate the the that bit we've a quite terms deferred levels. right, consideration you're of would amount.

the given couple nine that XXXX, of we've historically, consideration know. back we’re $XXX a years in that's as sitting And now years we're $XXX made. if the deferred million. of lower total of payments. million lows Just the million terms about eight, down $XXX almost and seven, ago, this we're you at look acquisition between was point, back the a been near of year-end looking towards And company, you non-controlling and focus real interest progress The

has of been made. progress a lot So,

Dan Salmon

It new maybe then did by review sounds I net slide bit if some the see And business if a in Great. just vertical. bit we in us news little of coming like you give business performance can about overall positive, just CPG. on David, out remains record follow-up, one could a a of

as healthcare an other is likewise, one to of area the strength, that hear be any particularly to I verticals? just recently notable across that I you've interested interested So movements hear there, highlighting or continues the if major would been think momentum

David Doft

Sure.

strength The solid financials in as as transportation, quite we've of been some up solid So, time. begun well has real travel, healthcare, been in this pick category to solid some for in late. for seen us has year has communications, real

to extremely continue few the the gain upbeat We years. in about to over continue next healthcare potential share be to

in tip and nice really as kind and be fantastic there some We spear for broader gaining the is category us concentric when market then the helped extremely have agency share of consumer well. has of the well core a into to work specialist been that positioned was

before among business most companies, to few that to on in we're that world are MDC their broader talked based for more of those continue more activity But the really the strong companies brands. order category. visibility revenue make FENG build growth also companies real are there's in high now agencies there their and continue in acronym that have X% the a to some group We recent leveraging the like the business of company, overall the we've Group in X%, disruptive progress is pleased that about disruptive build and and

Operator

next of comes from question RBC. Steven Our Cahall

Steven Cahall

David, first. maybe

trimmed of growth the organic to range. you I guidance for lower think the end

slipping pipeline into the about convert timing I the out previously, to of some year, had new in think talked just you of business. the some

DAC growth. organic just or then maybe And the would end Maybe think usually So for update cash? any quarter, includes leverage your on can the around for for just the are for what of on as not whether payments that's working capital resulted of provide trimming expectations quarter what in you and at the target the said be X color year. also, in times since I your positive an guidance your a fourth you that

David Doft

Sure. Thanks, Steve.

organic reasonable, prior underperformers had and to the optimistic we where everyone range some you have sign where our And the And the continue models to bit that us that is high great do that those marketplace, of pointing bit the the being market pipeline stretch also at have bottom how a to pace flow get has end pipeline, So, low the brands fairly of of business converting refocused but in things at coming on succeed this a line said, just on incremental things know that's around based That of not only from that's I things based their to least the correct. also should but is higher as of are environment, end, one the next were a pipelines to much and difficult only firms first Anyway, reality is been in we in. get half and ahead growth, set ultimately, in this continue makes think seen mid restructured was out the moves that on the seem feel not their in new that the should those business, revenue quarter. of heading new we're substantial. talent, in little doesn't made or to costs, particularly more already year is the we they into agencies. the particular resonate seen through cost go about that the year that pretty pick-ups

year-end times and because by our in leverage not does that’s leverage, as in credit ratio That our the that of credit our include just to of agreement. below five In clarify, not terms was agreement. defined said the for what total I is terms formula DAC,

to dollars the you a is quarter, valued little that the accretion, bit it pay incremental expected future around value probably and up And million looking is because number performance. a to quarter, from it recalculate Given accretion, where at is should of at in fourth we that a know, do means not but much tick so of There number, it's end expect have of a present fair we end. value number based value similar couple a every time is it's time year generally, on fair as down DAC there which now. we're

expectations or still agencies could So go acquisition of in the it's possible in those consideration deferred changes down mode. based are on that it up

Steven Cahall

you'll follow-up, you're that as moving just covenant and that still about why any maybe makes EBITDA run about you then just us your XX appreciate EBITDA cost savings for And the of I costs to are you those and million think too, have a understand kind sense, -- but talked adjusted for so XXXX? what this that rate of to to achieve thinking I year quick do achieve your

David Doft

XX clear, next the the be done. part million go XXXX get million into as to recognized already year. The we year and to in being continues is a cycled the not just of the piece So, thus XX through, that is and XX million it’s is

are one-time I pro of formula cost So done. million press had and X In of EBITDA. about acquisitions, the one it script of the for of is is overall full release year million maybe $XX EBITDA, to costs is other covenant the to too, I XX in that and the which mentioned adjustments the the was that pro-forma get for million terms of forma covenant

Operator

comes Avi of Steiner [Operator JPMorgan. from Instructions] Our question next

Avi Steiner

one sheet here the Just balance really.

you'll Your above revolver of down bit about ’XX? in comfort although think you and can the first and little year you end about it compliance talk came balance XXX still a the do feel you sequentially, how covenant half where

David Doft

Sure.

would point it's unreasonable the I has that expect revolver to shifts come seasonal continue in to end. the we revolver fourth substantial year, for clear expect sit quarter ultimately made around that. think of what we At to we revolver getting you where be at So media but budgets the cash Historically, to very be a below on the do basis a has the that quarter reduction out math do us The year and right like. able it from down to quarter. been the there, we’ll see could I on strong a that we we're end the five fourth think not this in in should going times, look of get now for year and think to

we that in with be compliance we covenants. our compliance, comfortable able In covenant are terms will be of to

under given in of of the half did managed we obviously stress, period see it. performance successfully we the the a first year, through While

we and we and remain half reductions, compliance cost be one the as not with nice up capital of underlying the past of to as expect of substantially leverage the that to come a should be able in We should in that in for which and comfortable ratio we of it much is will seen first years flows, drives given pick outflow down working of timing have -- the the the we've in byproducts that that volatility media the the nature EBITDA. the combine year-end

our the do adding we EBITDA related of rate benefit back costs get we restructuring, the the formula the get covenant the restructuring. is, to of while nuances and one-time benefit of of that run savings not covenant One of

in beginning have us to standpoint. a nice room the we covenant of gives than EBITDA phase lift enough half that and the should earning so and of a earn roll next We from through lead that that. to are That the of first in more year

Avi Steiner

working follow maybe the QX shifts on HX, buying side. going And made in and media the point less coming capital out about on deferred less question on up you the consideration just in earlier a acquisition in

in apologize to I may refresh half earlier DACs, I number, the guess, missed it. first said a just out think is and the if can about you. So you you largest have and move I Thank

David Doft

And than XQ, intra-quarter more time It's So would earlier the million the gave for half. those more not of expect capital although expect the working at that XXXX. and second than XX give even covenant of compliance, that one that but to The quarters, outflows again is quarter number test but outflows the even draw leaves as I there is peak that the was, we paid end would enough expect are should we room. that, during in have. covenant we more what are us and in it's DAC around points of about be of as where be only the possible bad so I biggest in majority room that at some peak and periods,

Operator

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

David Doft

and XXXX. team, everyone Thank the want our thank I the members, the we to improved network. Partners I know and fourth room, hard you. this for our to everyone's MDC people a executive to forward team the I everyone corporate performance employed in joining in thank particularly want morning Thank extremely and going order better across you. working forward and to look drive quarter

Operator

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

now disconnect. may You

Stagwell (STGW) 29 Oct 182018 Q3 Earnings call transcript