MDCA - Earnings call transcript Q4 2018

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Operator

Good morning, and welcome to the MDC Partners Fourth Quarter and Year-End Results Conference Call. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Alex Delanghe, Chief Communication Officer. Please go ahead.

Alex Delanghe

Thank you. everyone. morning, Good thank to to Fourth taking time the of I’d MDC you Partners' listen the the Conference to XXXX. like for Call Quarter for

Chief Mark Joining Officer. Financial our MDC today and is me newly Doft, from named Executive Chief Officer; David Penn,

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

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

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

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

David Doft

Thank morning, you, Penn. at an exciting welcome us for This MDC is Mark here Alex, all of good morning Partners. and and

announcements important review. to and several have We make

you like it turn update our I Before an as continued well standpoint. progress year-end operational you take over fourth as on from Mark, I’d quarter and go-to-market performance and to through to our

Our well quarter some post-Thanksgiving a clients number into results as projects by were of in fourth pullbacks XXXX. across delays as impacted

year a This the you revenue quarterly use into before fourth X% the good holiday our have the to levels related – notable clients of the to quarter by some to their benefit additional the X% particularly the the around year-end. of to as know sectors our from pursue of was X%. holiday in an agency impacted expected the XXXX. and of to by up project-based in of revenue the sector due quarter. season, the was shutdown, economic those This punctuated notable marketing pushed For of consumer delays, who of concerns, calendar rest elevated not most integrated fourth This performance been the clients Client season that quarter tends and rest number revenues to which budget impacted segment. broader government global additional business decided during relative

result, down the As $XXX in or adoption that at quarter million this X%. year the revenues impacts versus quarter, million revenues. Remember quarter of fourth in in which last the is a comparison $XXX XXX last ASC year-over-year the of fourth came

new our $XX give ended from $XX year debt the million. the business, net us was to program, year results cost balance bottom improvement net wins this accounting a a X% million, time year to From pursuing $XXX XXXX. line $XXX.X ended Petco, came million. in revenue within would versus the This quarter back million of $XX NFL. the were bulk years, too reduction same Adjusted of revenues year been it These million quarter of agencies in covenant EBITDA, shortfall revenue the of to drawn late improved cash the the period. the a million including reductions fourth for sheet and effectively the best answerstreet.com, EBITDA perspective, with related a million onetime two adding have note, costs visibility in versus with of net on positive year pro as not to third their achieve target forma or Excluding occurred of of change, $XXX our new we we an the ago. million. prior fell coming late up offset On we which acquisitions at saw cost significant of in does our expenses $XX.X business booking.com which add and the is $XXX Therefore, revolver,

X.X times. leverage And today’s ratio after ratio times. investment, dropped our our X.X leverage was total per to Our facility credit

acquisition million, We MDC’s of payments expect payments that stock should Initial During the $XX made million cash acquisition-related of $X of million. XXXX $XX up year, acquisition balance means accrue we which more $XX XXXX totaled generates of cash funded business deferred currently the of in sheet. million of acquisition $XX and deferred payments. $XXX million, and of in million payments to

fourth Moving on financials future up flexibility. management the $XX new set and a significant earlier year. XXXX the moment. we made The over The quarter from Board in the of with last into began this were to the that progress annualized few throughout greater saving. in of in efforts expect savings the company costs million reductions us team over costs offset the needed This continued restructuring aggregate, for In for have half months out and the XXXX XXXX, XXXX. through annualized of system estate costs achieve real financials benefit by flowed we will through. onetime the where taken cycle these in and staff to About in restructuring $X success million the

savings estate in We pursued opportunities overseas. with on both efficiency and are United States opportunities focused XXXX in real the incremental being further for

We our will on progress future on update calls. to here continue you

are We continuing units to the of number company. of the reporting efforts our also reduce

the may believe can ago, we XX early XXXX, In with too reduced better we Hall, of the of had in Wes Kingsdale, Founder, leverage liabilities. and reporting number Kingsdale units. assumption of $XX certain have also for Chairman the efficiencies proceeds we talented company cash the Today, long to including XX. that and most XXXX announced XX recall, the million, you exited partners managers. approximately of As of and the not appropriate units already We Executive and reporting exchange sale consolidation units increased provide total

Thus, and sheet. the will MDC the the an it client offering. MDC redeploy sense made the is to services to outstanding is post it rest While Kingsdale Kingsdale sell not to proceeds provides and of sale, strengthening shareholder strategic remain the a business balance

strategic to Now of I’d like the review. discuss our conclusion

various company, divestiture a or shareholder $X of investment were last accretes per issued brings split Sachs makes largely of converted of the at assets of as made as the of portfolio. preference the preference Directors team review comprehensive EBITDA. X% investment sale shares of new share the price. and an largest MDC’s in Kingsdale, shareholders. including forms a Stagwell converts aggregate, the The our the at down investment that the million $XX being common its share complete consolidation value basis. class, investment six Stagwell new Stagwell sale into of number our Board greatly between of the strategic Goldman premium The Mark conducted and investment million preference The which investment facility company, with evaluated, the share a of all conversion announced and annually. at the conditions recent a aligns that Over except MDC’s of Over CEO the price the certain for million by a per $X.XX Penn stock along strategic and as In makes $XX our Mark of in ratio leverage further terms with months, This million a Group up Stagwell of in The mirrors amendment to our of the share CEO XXXX merger of investment shares on also MDC’s have naming management and XX% of X.X process. Today’s a at for $XXX delivering turns along company’s price. investment review. time, $XXX share investment options is current from credit with and totals the is our and a

to to the As preference made per Goldman of bank incremental total to flexibility no investment, related long-term times we prior to covenant, part – Sachs the room of facility the the under amendment XXXX interest our The the X.X of value necessary lender, leverage from strategic rights which more Sachs amendment at The $X.XX expands provides Fargo, make company reduced charge price change $XX its gives times the the shareholders. no has the with credit to to rate share. to antidilution moves X.XX conversion maximum. improve Wells through been for end Goldman at investment from existing

In sale. of proceeds Kingsdale the the as to of use addition, gives amendment the flexibility

given first seen covenant have annual EBITDA the to facility the million. million amendment, will in we is to guidance begins date. the we exercised quarter the as With impact his right own does actual quarter based to borrowing Mark trends our announcements over turn call questions. like have that I’d then we company. to earnings with and the Mark, implement we in base level now have to receivables $XXX for asset-backed plan I conjunction the borrowability. $XXX can CEO, the the the the and these take from decided to Finally, not deal, he call move to strategic with line under reduce of growth your This say expect in first on and company current becoming overall we the current to all just capacity its under with more of

Mark Penn

you, leading MDC here and its thrilled with to and Partners to morning. entrusted good of into David, next growth. Thank phase I’m be be honored

someone including like MDC for As million growth, to years, investor. and and made a own as why these been in my additional the fund, XX today to the CEO, believe over my has the from that’s personal fields take an Board. commitment committed investment I speak the opportunities I of the who moment perspective believe and I’d I’ve from to reporting for growth $XXX marketplace in of that serving

course They forward-thinking, a It’s I and talent involves our a of opportunities, significant great can strategic stronger no value significantly was in and shareholders. And and are most on brands uniquely consideration. plan. of and untapped the agency creative that opportunities the what as leadership underappreciated industry. our more market. As enjoy imagine, MDC of operations of for positions create the process in growth, efficient need exercise, this assets in some the you due also the found I diligence see secret the real extraordinary, over strong recognized deal to part But

properties synergies across end Stagwell passion based million, complementary company. commitment growth offerings growing top have have be marketplace, that that presented plan this are to And and savings on $XX exactly quite can against series properties a on with like go-to-market Board hungry of big our on those one say expected in of one are, and a my of of I and for. a innovation technological focus year data for expert They I’ve had creativity to marketing segments in are an focus to at detailed view, and MDC’s very the upside enhanced agencies today creative chain. talent, most with run products, As the think at focusing properties We’ll while on the by flagships. holding digital collaboration selective group more like has MDC’s clients strongly. the potential. and laser rate the headwinds, some renewed the the others strengthen what the are we no

on positioned meet in the generation media place creative a MDC component well of marketing in has is many the business the think be and positioned demands the And digital all Core about than believe holding stories of in us U.S. that partners specialty creative master sheet, that do in of place we agencies same taking well high-priority strengthen marketplace. are changes of thrive to and business, extension, are We value. the formed that changes balance growth in in points with spending MDC growing and areas investment as by I bigger collaboration, have nurturing can companies, transformation capabilities important clients' superior can of industry the create solving X% reclaim expenditures a critically invest pain the and we pleased step media to the for stability and areas. new for I look forward. moves and platforms are while time, and at of to partner scale. taking forward more companies for with analytics, core, lock the a X% CMOs. opportunity to to time dislocations a of of this This of shareholder the thankfully, company’s of each I broader can the and going along implementing role our we major our our is At behind greater MDC’s an job as that become the discussed made to I’m start better plan allows focusing parts lost increased competitive some the creating healthy in leaders successful today’s return other more to through and even midst services disruption. in for leaders investment today the year, our right all our modern services profitable. the the other And before to more delivering

outset, company come strengthen investment the complementary at assets not role. along I As go-t the $XXX million just and but the I with new o-market that said a CEO, in of

your our mentioned keeping you and up are interests rebuild, his earlier aligned. with and in informed confidence. remarks, to committed open David like very As questions. now I’m shareholder Thank our know getting progress my base, you well for all and for of to and time, greater to your engaging we’d to it much trust you

Operator

question from Today’s Capital comes Markets. first Please ahead. Instructions] go Salmon BMO [Operator of Dan

Dan Salmon

much you Mark, built I’ll is that’s see working perfunctory Maybe how what question therefore, start at be then come maybe thought some I for what, new partnership a very for tell drove recognize but you just more an the may there, David. with Stagwell high-level organizations two to this attracted us bit modeling I’ll to of early, ones MDC just the start the And I opportunity you. that is there you’ve and back sort potentially for together. to here? And this from little you but not from about as be

Mark Penn

Sure.

Over revenue of that a and from the and and in investment $XXX Steve about MDC. They properties, a $XXX X% able of to that almost very at built about entire performance we’ve marketing many I metrics, been creative with from I’ve do in I Stagwell area are the I network Ballmer of an series companies. starting think, plan starting last is million $XXX and created with the at Part to apply or to services have and maybe with There concentration three the million Alpinvest an following X% is companies achieve building, that platform over margin. been scale of additional myself investment years, research. they creative heavy has of built percentage million, The run what the to a here with digital-first of larger strong no up on time. think, marketing

of delivery extremely I’m the attracting the quality and agencies familiar economics of So talent. with with high consistent greater

last dollar the As save into achieve both productive significant is that Stagwell talent can say, we you and And more dollar to organic I every profitable. philosophy always estate and took can real at that be profits. go and better more in very that XX% growth year higher that’s

assets providing in at assets flagships are really think to creativity, MDC those most core marketplace, elements it’s well, frankly big make, But assets companies in for assets, and look the sufficient large-scale that think, hope get where that constitute clients, terms economic to just at an over the me contracts at in and of none the think, second these that we really Let say of at I MDC. And they are I provide incentives each say, stronger complementary very I – and are along core will I a with my go-to-market. the think marketing will I strategy MDC can underappreciated groups cross services. because in together, look, those qualities they desirable the I even

Dan Salmon

aren’t for may wait a XXXX. we’ll in sounds there And pushed moving from the pushed maybe just first never get say, of David. projects quarter it revenue were helpful. fourth like there through the and things. just the the shutdown. sounds projects likely quarter guidance the government very like sounded Obviously, to and made full then for It It versus, into come couple to from some XXXX it. or first of some that that’s quarter profit in be That��s But be

the in run for proposal The mentioned savings a other to board. $XX rate thing, Mark million

incremental? then in you you underway see may that lastly, EBITDA. Just reflected about somethings if us, remind curious to as think growth that you we already, year-over-year And could that if of just should being expect be mentioned how are much in covenant

great. If you the us number be could what was, XXXX just XQ remind that would

David Doft

Dan, Thanks, with that. million. was XQ XXXX EBITDA Sure. – I’ll XQ covenant $XX start

year later because for approvals impact the As shutdown, business. in around drug government to quarter the and our the healthcare fourth pushed some even that’s of the of it’s FDA related actually,

the So approvals how of XQ, the bit out on but and timing and FDA. that’s some from there XQ based dragged is little actually a beyond

In terms this of day Mark’s really one. is plan,

been I months few beginning going savings think has we’re while additional moves to active ideas driving making there’s the well tackle, presented I that Mark think, to over aware, So in we’ve very you’re and means last as that be beginning week. next of

Mark Penn

right. That’s

Dan Salmon

Thank Great. you both.

Operator

Our next of JP question ahead. comes from Steiner Please Avi Morgan. go

Avi Steiner

the morning, Good and thanks taking for questions.

on Just on cost following save. real that up last one quickly

about Is that? $XX I last So call is just $XX the be from right? that separate to talked David, you I that clear at the million. million want think

David Doft

done communicated incremental is past. the we’ve in anything or plan Mark’s to

Avi Steiner

Kingsdale, the elaborate that liability And on then then the on your comment you us versus respect proceeds. opening you split? in And to flexibility you Can could Perfect. amendment that? you gives on assumption made with help a cash remarks

David Doft

was Kingsdale standpoint. and ability buy was of open market. got to $XX in non-controlling potentially and notes about of use cash was of Of the proceeds around interest course. from The a to we Kingsdale the million rest senior flexibility the proceeds some the future of liabilities that in those reduction

Avi Steiner

quarter? Excellent. by schedule that that And the caller. of million. you the if I Thank couple us for Can you or then said out how gets million. of this I give think, you $XX in year was DAC, paid came off a I’m apologize roughly – by

David Doft

during that It change call that acquisition deferred as a from. well $XX if the to Obviously, in put the could year. was options get as Sure. that’s put where call anticipated triggered comes anticipated million XXXX. triggered, but consideration number that don’t we of That’s mix be options

out second the third quarter quarter. mostly expecting million in the so and quarter, payments the the $X of million first $XX the half, spread in second remainder about in or We’re in about

Avi Steiner

then Two I’m Very more you. thank helpful. done. and And

anything want clear in I changed? conversion price, change came just the same Goldman at? has the than other invested at to they is the in else still they’re first The be level

David Doft

has Goldman been change There the no in other investment.

Avi Steiner

I the own or the the playing the wanted you you at assets to point to each you entire company point that made this the goal thank maybe the maybe lastly, one then you And all other company. Is see how to about suggests much Mark, end And you Excellent. time? for comment combine very that complementary the out think ultimately of and over press Can more are report time. or very perhaps two?

Mark Penn

early little goes. I think too think it’s a speculate that I to where

that having a move I I broken in created have and acquiring such I any investment for an significant would – prudent make break the any sheet, many is control. covenants because the debt think, think change this think many right terms much the balance required a the shareholders in ultimately, so investment to of more, covenants, the of increase of really it’s so doesn’t most fees so doesn’t and of

from so investors, myself a both profits greater commitment, It’s it’s along elegant. company as the And simple, commitment with said, to actually manage and return. and I the huge the greater other shareholder towards

think the shareholder raise and make smartest given an the here in agreed, to end, was investment the Board value. marketplace this So the to way I

Avi Steiner

appreciate much. Really, the answers. Thank you so

Operator

Our ahead. next Nomura Clifford question go Please from comes of Ben Securities.

Ben Clifford

Kingsdale? had in on company morning. Hi, did just the $XX-ish Kingsdale. impairment Kingsdale related to Was the a this buy questions guys. for? stake And initially I million Good follow-up what few

David Doft

the related made underperformed $X in what our goodwill reported fourth segment, write-down. only financials impairment which So year about media our see is acquisition of as The largely for filings. in the paid services to and Kingsdale the you in million of we the can that in up disclosed quarter. was historical initial Kingsdale

Ben Clifford

what was And Kingsdale? maybe of – the EBITDA the contribution LTM Very helpful.

David Doft

times. divestiture was five The Kingsdale about

Ben Clifford

Got it, very helpful. Thank you.

Operator

for the the this conference concludes remarks. and like team gentlemen, over final the session. ladies question-and-answer any turn management I’d back to And to

Mark Penn

much forward forward for coming in me, great thank the to the this call. to this quarter first investor the with forward the welcome rest pool assignment. broader look guidance and want next Just for meeting for to having year I Thank call. to call and the I look you investors of very the and

Operator

you all Thank And we now thank concluded. attending has today’s conference presentation. sir. for Today’s you

a have and lines, your wonderful disconnect now may day. You

Stagwell (STGW) 15 Mar 192018 Q4 Earnings call transcript