MDCA - Earnings call transcript Q1 2019

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Operator

Hello and welcome to the MDC Partners First Quarter Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alex Delanghe, Chief Communications Officer. Please go ahead.

Alex Delanghe

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

Officer are Joining from Officer. Mark and David Penn, me Doft, MDC Chief today Financial Chief Executive

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

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

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

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

Mark Penn

talented can company CEO, you MDC has morning. job strong. Thank great highest and services. extraordinarily its as of nearly group changes I the the of X the the to future affirm that operating adopts on at is group months people it as the marketing I across After an is operations very and industry and in all controls believe improves that levels the and

continues is group emphasis on us The seeing the issued those agencies firms providing our TODAY for this for the margin industry Meter. We preliminary have to of MDC large year we top agencies, now Super our to is return XXandSunny, NFL celebrate topflight born and A the the a out Ad that can growth. X for creativity, despite and in the share about watch. in year’s recent continued positioned anticipate Bowl There to well to we’re at X% can disruptions USA worked desire on innovation marketplace. projects are of having from on and of industry increases guidance for and guidance the next the year had took and the marketplace rest the of Ad spot list agencies agencies that for the ranking standards and XX lists that Age

Assembly agency recently lead media was agency named Forrester. by Our a

customers Veritas and with Solo, firms, been bring clients agency in winning communications across look year talent PR of and Content’s basis routinely which including showing Team the some our Hunter clients Allison roster are digital digital for agencies Adweeks’ and the the Both as is the Several for industry Anomaly and customers the an work conventional that in the to acknowledge relationships. of an trends. Report strong catch size are single growing daytime agencies relations, of also our documentary Emmy along Partners, certain connect research the same to very are offer data, their entertainment increased services The the with work format firms digital This or in client finalists rankings. reach of Holmes in best a places Hayes are Truth creative and years and public media. Experiential purchasing disrupting time, seeking clients for new contracts services is marketplace and decreasing is and assignments with housed time, has growth more the were honored competitive Initiative this named more among and for Awards. agencies fully Our a record. the our earned industry project are our on is creativity producer Evan top appointing segment with winning enormous analytics, short Oscar At The ACE Free long-standing of than and those program. XXandSunny the media work to sector, and both shrinking and bundled better creator. specialist At showing same ways of strategy, evolving for our growth

to We groups ensure new our with expect to This digital, along coordinated start services. a of and have will at our plan agencies developed grow world agency to that research, and media highest deploying marketing. be major data strategy all in soon will plan able production, fashion offer in creative analysis, this levels for a the

space, leveraging by Importantly, we bundled again creativity, being significant this rather will an strong talent investments. in operation. will new the award-winning the agencies can our be coordinated There the on award-winning properties support through that we and as data be ensure than offerings media have with with state-of-the-art we for of the operations built network aligning focus a have to media and online have operations network deployment. heightened in media media Especially the our have achieved our creative all programmatic creative new rest is the

client the cutting this of beginning return clear deploy the U.S. occurred we cycle us become worth dislocations fear firm economy in As while some accounts won, the back plan, we new year, It’s to a that at and through are now also ground. were to on companies it’s to growth. of relatively that is expect that also as noting enabling recession,

of showed consumer quarter has goods portfolio in U.S. the top cutbacks. going in also contractions and We trajectory higher disruptive clients to grows a more larger client economy especially opportunities holding as smaller technology the who grow in those us cutting-edge of the clients some brands, forward. saw companies up include companies sustainable with balance greater more X% our packaged Meanwhile, percentages to with This gives

the cost we’ll competitive. While realigning this also our and our world, for make services nimble trim organization more to new

the greater media, by rationalizing is and freelance ratio rightsizing inter-network marketplaces compensation in center, revenue creating This estate this tech for IT internal will cost, the and at to to development. we talent, production, do cost creating reining real plan Our means corporation. be

can drive rates significant to flow we paying to be structure, by in incremental more we we This extent $XX has essentially line. efficient place business what I’ve or of increased. million already internal for, the people simple run rate use to that utilization dollars estate for enhancements So real can can year-end. the bottom a reductions targeted in be are cost

acquisition X-year We between expect agency I cost. any to end of time take time flow and as after the on of will deferred that It it trends. plan and that of million implement of while industry program $XXX began all XXXX range generate do way our can scheduled this the capitalizing the in CEO, anticipating a in free our and of change, engages partners cash

changes, scale. make reach more more calls for some environment targeting ways, plan will than us consumers the earning more As ever details investor unfolds, marketing enabling meetings. greater to to in and are The We it we are tech greater talent many surging, is financial on undergoing sales can far-reaching even to the subsequent year needs we investors available with discipline. companies before. services Direct-to-consumer across a and the MDC XX% great market to do over believe big network tap growing growing harness into at

goal of position agencies providing is marketplace, shareholders. Our in the the significant for MDC strengthen to returns in its

quarter. it specific David Let turn me the over the to now results for of

David Doft

reductions and XXX% savings on Thank in with to revenue line organic quarter Net efficiency client our and focused for growth to margins the staff, an consistent versus to budgets ago. revenue declined delivered business. continued while into impact and opportunity our remain X.X% year shy relationships due drive revenue shifts adjusted with of XXXX reinvigorating initiatives Overall we you, opposed the see cost some XXXX basis. variability year. in which to bottom prior compared historical project-based X% real clear XXXX, provided a optimizing on We declined helping expense of Mark. corporate as estate We annual more to streams. in The X.X%. are retainers, EBITDA solid while existing profit a the during much of just and revenue increased was to This improvement organic start had in the

adopt are in to working, referenced, to key as change We this marketplace. the Mark

The other the double-digits. driver media segment, weakness revenue declined was which services our of

Excluding positive. have been this revenue organic segment, would

We release of about Schedule reduce business figure quarter Covenant quarter forma fourth which which reconciling X.X% occupancy of continued our cost the million. wins a in to restructuring by provided and significant a impact Covenant both Kingsdale and how the segment figure from net falls of million of After in a $XX.X of the And calculated. included in covenants overseas, $XX.X in This adjusted XQ year so improved EBITDA remains of overseas million quarters in see the network. quarter by with in schedule costs The million bank to and Outside new our came $XX.X These contractually effort costs new figure and declines Global changes EBITDA divestiture. segments. staff year’s other in last growth strong reflecting corporate our positive within faced XX-month the can XXX% also for $XXX.X within business it press is Agencies cost, absolute pro in of was after you of restructuring from the business broader offices. and shutting reductions new is X, $X all large first XXXX. which we growth the growth several media at of and are were a of a money-losing net cost million, Integrated efforts. were strong $XX.X agency decline trailing of overall is XXXX, the opportunity communications that highlighting costs volatility, of We’re areas in continued the services, million focused positioning of those at one digital in new quarter within from client calculated wins EBITDA the several admin XXXX to seeing is specialist our grouping. units. driven

completion most The Our Stagwell progress from balance in notably million make Group continues March. to the of investment the $XXX with sheet

the I our one mid should delay that system discussed allowed fund not into place improvement investment due won’t We to million the further agencies, typically take in $XX than pay interest our acquisition $XX details and quarter of go and capital We reverse the which second so semiannual working of on A outflow down more and catch the the invoicing. again. of have this million payments million of the lead call, and in $XX it million, up in quarter. last But would’ve bulk us collections second if for deferred upgrade a first in our our revolver. This payment. offset quarter already that the to of seasonal delayed $XX is largely the investor shown it to see on of financial we reminder our at

the So to in XX. we remain June expect revolver at

we year and the out position. in revolver a do expect of solid end cash However, to the

X.XXx, covenant. below X.XXx Our at bank end year the the leverage ended fell from down X.Xx at our covenant ratio quarter per and

million, of from $XXX and consideration the interest progress XX continued reducing acquisition level make balance the year. This largely our non-controlling sum lowest ratio on of leverage over to down years. our remainder the interest was due our expect of to is the the our of We in on sheet over The in Kingsdale. sale $XXX from year-end, at million NCI reduction deferred

further second reduced the With made figure this payments at expect be the June quarter, XX. in will I

far indicated by guidance the how its these Given to company up in position come cash the earlier. going we a balance cash to deliver generation puts provided it as liabilities, have sheet Mark to clean strong forward

between terms XXXX, we we come on revenue now, X%. in expect and see guidance, of up flat growth In what for right based to organic

by X% should XX net dispositions revenue acquisitions rates points. of the revenue by and decrease exchange basis decrease should Foreign and

million. expect We EBITDA $XXX between covenant and of million $XXX

part cash XXXX, deferred X% along of plus planned we to after the implying improvement to margin as of X-year on XXX to has the range. basis, generation $XXX $XXX to $XXX points already looking out basis EBITDA acquisition-related at are X% organic million of cumulative million Covenant with a payments Mark Looking growth that Mark’s currently improved preliminary of million, for least discussed. plan,

back I’d for like it over of to Mark Before we a couple your questions, comments. take turn to

Mark Penn

Thank you, David.

us a here earlier, future. the As for that working I to I’ve enable to the and spent to opportunities with last mentioned will closely plan growth develop build assess X months the team for

Counsel, comes Chief complex and Financial agency announcing As worked that accounting and [indiscernible], we’re an for corporate expertise with transactions. of experience XX Jonathan years who plan, new to General Officer, over deep Interpublic corporate experienced technical in Mirsky, experience us part attorney appointment having with Omnicom, tremendous Publicis with and the a of

well and David to to we continue Gendel, building integral network have months, into ensuring Frank order and Partners grateful the remarkable introducing been for and in thrive seamless forward. David is as to look to to Mitch the the coming footing us firm ensure future me extremely Mitch going transition and calls. over to it MDC to are the will as Jonathan of today forward to to We you a work both who company’s on

for like it we questions. up open to would Now,

Operator

[Operator BMO question with first Instructions] Markets. Salmon Dan And comes the Capital from

Caroline Rehfuss

on portfolio start, about for bit the what Mark, Hi if guys. little future? collaboration Caroline further XX% so, drive of talk And you curious and to longer-term like if longer-term to second, some Dan. in margin in Stagwell could the outlook? then the changes, discuss this can look could between light This Are targeting is what I target? guys you upside MDC still And EBITDA to was XX%? might you

Mark Penn

plan that we’ve first, as yet been hold So taking just forward. collaboration for developing there problem any hasn’t say Stagwell really, going firms time let much with been in of the me MDC

agencies in synergies it the have complementary that agencies there get I over together. will other. be Stagwell be but services are some that to met Some each to up at believe will

meeting be or areas sense. introduced We’re each and agencies having they whether where not make Stagwell, firm. media a month a have other will at over the of don’t out the buy In partners’ synergies particular, later media in but certain a to lot work in

very MDC to at on they’ll able MDC. over very have very, hand, and the capabilities of possibly outside Northstar limited other And at Stagwell use extensive research Media have they capabilities be research so Services and

opportunities the collaboration but to So some come I there’ll in good for future. think be that’s

address The you those want second on know, part, her I David If question don’t to numbers? her,

David Doft

Sure.

to margin a XX%. about So, long of talked for a we time, XX% target

centralized overall talked a more revenue capabilities, drive little a but back we bit Mark it I we to efficient some upper margin the the level. the that talk to more teens as surely manage about our in compensation focuses we have has come, and beginning on more which on and the office to of times some real we’ll would company plans to about expect room think that use on appropriate ratios estate based

Caroline Rehfuss

thank Great guys. you

Operator

question JPMorgan. next the And from comes with Avi Steiner you. Thank

Avi Steiner

with Thank you us quarter. give importantly, sit rather involved the do give guys a know today business biz drove you’re got given new guess for that? and without of you that can’t or And what more here. sure but improving the throughout wins pitch we on in more you where specifics, I’m few net taking a One, you year? accelerating kind see you the the was negative I questions little I’ve Can color

Mark Penn

a that they of I came last I mean, the I end particular happened noted in the beginning and number and to at one things Yes. of think discussion, opening the that year operation. were year of affect two there this media that areas, seem as together. the agency And

a those from you’re agencies I months I look themselves once their don’t And able the look continuing and new of business today looking important to mega see out you lot that it’s into many the next project size more have. areas, found what I extent and clients, wins net very operation. because means great the of make clients it’s dig especially outside like now when what vibrant back trends that agencies quite happens, numbers any Good clients these the work existing number a how though there continue accurate that strong that opposite. we to typically change is to other new the decisions at while, pretty I as of time. those, as even certain actually so, then activity. beyond it’s expand a very out, at the very, a haven’t new business clients same process. actually see typical And number set have pointed right a was of growth, to take in a at significant pitch you as number have two find

based the jarring are groups of given over there they reforming all I’ll that, that be So be of accurately exactly I don’t a flow business. because a pretty different want tried on clear those lot all transition, and having more to and But of knowing meetings a the be time, where understanding actually metric. are. in portray going said but we it revenue on. here conservative we’ll looking I’ve pitches reasonably the I’ve kept And projection to that’s XX of across have to

Avi Steiner

Or Great. opportunities client size other need tackle about opening its data of decreasing Okay. your your in on would abilities either something those Or on client and you that question. agencies comments and remarks that side? seeking that prior a are there the that kind analytics the more bring then help I’m And you assignments, the out data, of MDC view, top Group some the have on made Stagwell do the to agencies in there is area? in? analytics building of kind own, But

Mark Penn

interesting actually, to can assets data up. I’ve again operations. MDC It’s built they’ve media But data for has award-winning because within time find, example, kind The basis. are biggest system, up, has time the to into right, global the come that the the that here. more been operation Stagwell programmatic look capabilities, also a is seen are I tremendous of and play are there quite issue time the within assets very for state-of-the-art advertising the built that on long marketing performance group, a operation analysis extent

there advertising the hasn’t lead significant really full network. agencies within We been services. have and enough connection integrating hasn’t the of is What stack excellent programmatic five right X are operations the the happened agencies, that there lead between and strong

dividing years, a for everything of were number your plans So, remember, up.

Now services generally bid X collection they’re sense. a actually having them they appointing or but and agencies in X also greater a of want roster

bear have sales and sales will the in disconnected the X-top be agencies. really we talents able have from incredible we network a through And operations we that been so, I the flow bring that to that to fashion have in that the large-size believe coordinated plan on this better

Avi Steiner

covenant Great. And to items, relative some thinking what dollar just EBITDA would it couple EBITDA, housekeeping/modeling the a reported is add to reconcile we be guide then should of about? there back possible Is be?

David Doft

is there onetime that a about yet. There we are that reason in savings way haven’t because that based been haven’t implemented being future No. that have spoken is on costs it plans developed will

million first as that you EBITDA indication it finalize $X thought is the even where Schedule costs, was is X mentioned see we quarter cost schedule whatever as number for so, And the those to onetime to to the a back given forma better EBITDA excluded have guide within you divestiture I to and in my which number, the add impact we can was the adjusted we those in the make made only That covenant quarter. of acquisitions And see a EBITDA. the plans add what pro of was that point, is some press issue in Obviously, remarks, which other in a the covenant the have release is the clear cost. it number will the this But Street. there at sense and drag right? on of in back first dispositions, the

we’ll what color we as better give on So, we might go visibility be. along, and costs those have

Avi Steiner

received about there the QX we else any Is non-collection first million talked else couple quarter? I’m or that? and of in. came here items this that out a higher in done. would slightly you so I million payments $XXX me million reconcile you with just One, A can call quarter. promise other to more Great. help anything the can maybe in expect you know anything $XX I cash just $XX I cash balance, to cash then

David Doft

in cash acquisition a We quarter, million deferred that of funded outflow. $X.X also Sure. consideration was the

Otherwise, working $X see, a quarter was had the million as swing. over in CapEx just well. it As the capital you of can we little

flow. came large in particularly. have working Our quarter what otherwise business the to had business it quarter, of similar of in the capital quarter In had a which historically first in, this at to come impact of seasonality tied would outside system year’s has last outflow fairly the X change, in seasonality first of an the agency, terms media the the

within mentioned, as that the typical back we So, quarter level not largely expect for a reverse, to to entirely, second get and I midyear. if more

Avi Steiner

am I may I there. leave going to back. it you, come gentlemen. Thank

David Doft

Avi. Thanks Sure.

Operator

question Thank TSA. [Operator from Instructions] Walter with comes Ryan And next you. the

Ryan Walter

Good morning. guys. Hi

leading revenue right sort Just you’re disposition flat following the to to revenue, way growth it X%, kind to of comments and to up X% is on covenant outlook FX on the covenant of of if think EBITDA outlook, flattish the the the on covenant of acquisition but talking some it, about EBITDA? EBITDA that that’s obvious is about organic headwind headwind

David Doft

XQ, EBITDA, the $XXX what million. here Kingsdale divesture it’s we look at Well, disclosed you given was for about covenant

it’s our, up, EBITDA So, this year flat. is about the we’re not for talking then

line X% FX just would with bit. X% argue headwind about bottom the we indicated. I that little X%, Ultimately, line impacts a So, as by definitely to top

couple fit We of are that over and impacted profitable Europe Canada have in that businesses in fairly by both a that.

there. ultimately, lot bit are, some in cost is our contract they’re a EBITDA. So, there there’s back being we sort made little the added can per with But of banks while and are be year, have that this that of covenant moves restructuring

are need make that for Mark initiatives this driving we year’s numbers to that Some cost of the around room referred earlier. collaborations some and in growth to

in to normally around earlier for of XXXX, do. And which we us want so, made year, is again some we sets that a nice it give ramp Ultimately assumptions than preliminary up view why we that. much a

Mark Penn

I that Again, the in we’re a second-year the is plan. implementing guidance which that providing was think point this in the year

think conservative that general, to a or increase and reasonably EBITDA. of things wrong. be I lot A this the pro when implement go definite the try increase, right in we’ve is the few measures to forma And an in over we that you, back for got covenant next projections divestiture. And hedge in could think, for so, months. I But

Ryan Walter

that? you think and on the could from them cost detail you timing get saves timing of when just the more a And and cost them, all standpoint the and of

Mark Penn

it will become the and XX days. clearer in think clearer next I

David Doft

the XXXX looking initiatives, in surely saves very here as been significant we’ve think I incremental And at and clear from well. on right. XXXX opportunities we’re cost That’s

Ryan Walter

Okay.

what about trends the Just for Mark, from talk still one of away of maybe you’re retainer project talked pace about sort you business agency record gears, the moving industry change with the versus percent people is seeing? you your Can of shifting in that and of trends, the that.

Mark Penn

but you of contracts is on in retainer roster, give project have figure that X be lot the X specific roster. and a or versus hybrid there you here and Couldn’t a be be there’ll which of will the you’ll retainer do on maybe a then agencies

of means services. on So companies that don’t companies more see are bundled those a more opposite in direction. sort that then kind coming restructuring for And retainers the are you’re companies the way, the very of still there. in hand, which and seeing fact, through that while maybe other countertrend, there’s is midsized I need largest RFPs the trending

in of give project a gives win seen the all the time, healthy of you also the of time, So, But quickly size what top a projects. they’ll the we’ve a business at frequent growth reviewed of And be major I of XX% because Having clients. our decisions at new client you same client. the seen to same a couldn’t relationships, we’ve way of ability making number. lot specific kind more of in fact, decrease about about a is marketing the

kinds decisions. of across an a pick that to across the given nimble, if you’ve these operation is skills, ability much a So, have greater got if up network you you’re business

within to services and think and who greater I of buying it’s mean larger a guaranteed a a in clients midsize of And clients. kind upside amount, companies going need together. multiple these a the coming So, media in digital particular lower together

Ryan Walter

on probably on the for lot in What the that mention the are can the sort services media expand outlook? on Alright. David, then working given bundled opportunity you you transition, If of clients ask I shortfall And capital? could are you effects looking more this on could maybe more, quarter? just a services good the can side chime the especially your thoughts one

Mark Penn

Sure.

issue. selling this $X I multiple relation be side. selling media well we along, too even on a board, have And will spent amount across therefore, can small particular were separated billion all right of the As that now, from from upside creative and significant interviews, the my I bringing many occur call you on think time the a and in to frankly, of we creative kind over is there of in And that on tell fees see as because across lot I media the script, together. we’re that that, last all said should clients very, in division the of that ways very the is organized in the connection think

upside incalculable would I trend. almost it we’re how reconnecting if that at think that big is successful that

David Doft

modeling can working we and our based stabilize as the we But capital the it In terms been initiatives on business, of ultimately, and in if large in out. last managing to, this business had capital frankly, outflow upside I at expect get appropriately XXXX the from that working media substantial as we media year point on last and us given trends, don’t that to actually the year. grow referred from capital impact, surely, provides to to an sheet. working we’ve where balance benefit sit here, Mark

Ryan Walter

Great guys. thanks

Operator

comes Morgan Thank next And Todd question you. from the Jefferies. with

Todd Morgan

magnitude bit a there. the question you speak opportunity about year I sense Is the of Can the There’s reports you. of in kind been you about real just a press steps had about Thank estate some of the a number further little more talked cost that? particularly that cash the of just year benefits of event? Any of it the or a next event, of deserves? opportunity this the of you. sort sort Thank of timing about.

Mark Penn

Sure.

that industry say, across to $XX Stagwell the XXX I look metrics the closer $XX million look opportunity it, there believe is in magnitude I just the the foot, to you’d that where of achieved let’s square say agency. have at a and property percent in properties metrics basis Let or I call me I when the, standard million an at at,

So, as I opportunity. look is at significant this, there

those Now take to time realize. opportunities

have now and right we how to can rejigger underway look into We studies realign. several

trim opportunity it what time there, it to months the $XXX,XXX could realize know, in months. the X is to X very, some But million very move. take just I’ve that there to because headquarters to X $X moves, a estate. for right real X or really As will put take fully X be But things subletting in to you take X, close to significant even up year sublet

kind So, growth than spent terms I’m the that research we’ll more that in that line something thing CapEx, shoot the year. more of desk try And projects, the of disciplined where in target more of tend project to more I real is is also, then also have really the into the think palaces some build ever sharing we real before. clean, And particularly for there be right-size area so is next really space, spaces about not for an it work, And CapEx estate in that to of modern, X% doing issues. is making will but to other efficient overall. any a than estate sure people a to no to lot

trying a of change overnight. it’s an important there and I money there significant to but unlock amount it I’m be very is think that won’t

Todd Morgan

you. really Thank That’s helpful.

Operator

with Galloway And Pioneer. question from Amundi the Jeff you. Thank next comes

Jeff Galloway

good Hi thank morning, you.

clarify. Just to

baked million estate real into $XX kind $XX is opportunities long-term XXXX So, preliminary that to of guidance? your million from

Mark Penn

modest No. real I’ve there. in much more modest reduction baked estate

Jeff Galloway

throughout last that of some that you disclosed any I’m months. cash curious, you’ve to flow and thank you around flexibility you. guidance also on in is, covenant how around that question regard? second Great, to you free And your possibly quarter coming expect the over some update some expectations gained us move repurchase notes. in year color thoughts the you Can some given revolver the the balance With had mind,

David Doft

put now wet, get before for or to in his on have the we’ll think take going we to balance notes. continue keep to potentially whether for capital not time the place use want repurchased we the note determined Mark allow Sure. here, With Up we now. initiatives that evaluate I to it And wanted that forward. on any sheet him he to feet understand repurchases to

Jeff Galloway

you. Thank

Operator

closing the comments. more floor at the Penn time, Mark are like Thank you. I any there no to as And to questions for present would turn

Mark Penn

I all. just want to thank you. Thank you

the we I quarter, significant start think to in way. in off all. shareholder we’re changes that think this I value to Thank enhance expect make you of and a reasonably a kind really good

Operator

conference concluded. The presentation. Thank Thank you. now for today’s you is attending

your may disconnect now You lines.

Stagwell (STGW) 13 May 192019 Q1 Earnings call transcript