MDCA - Earnings call transcript Q2 2019

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Operator

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

Alexandra 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 second call

Chief are Joining from Chief Mark Executive Officer Penn, Financial me Officer. and MDC Chairman today Lanuto, Frank and

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

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

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

you presentation this and non-GAAP explanations We press release of to for also definitions, and slide reconciliations refer data. morning’s financial

the to I’d it Penn. call, turn Mark Officer, start our Executive to over like now And Chief to

Mark Penn

for well be to the Good us morning. here second our performance to Thank as quarter returning strategic MDC’s to you am today. for growth. in I pleased as joining discuss plan

pleased in delivered was given XXX prior versus year, continued and new terms you adjust quarter. in business Kingsdale if as down performance, net XX% negative quarter. Revenue, cash In up basis of generation first with we reduction modestly year-over-year in EBITDA, were points the adjusted quarter with I divestiture leverage. Margins delivered our expected, X% in We of for the growth strong second in execution March. am the the in

number to rebounded years. new net $XX in our strongly business positive in However, million QX, a strongest

new up new return pipeline with These out, has XXXX wins through growth. Mills together Notable account. Porsche account, strategy business financial BMW’s our sets profitable AutoTrader, roll momentum net guidance. wins gives Häagen-Dazs expanded William in continued the to revenue the global The EBITDA confidence us reaffirm for and PokerStars, begun General to a the and wins, company This progress to we’ve remains in and quarter Hill, experiential July strong. include the business

results and and guidance. a is progress an considered ups Given so and am our far, of to the not CEO ultimately such this But make downs business raising positive I the carefully adjustment. new this understands time I who decided

We cash million I in and XXXX. since XXXX guidance became the free March of both are as XXXX $XXX flow up as CEO well reaffirming until financial

also agencies for Our its Johnnie their client for its the be with work Awards winning continued with accolades Prix, breakthrough to accolade Walker the Anomaly securing recognized and the for Effie work, with possible Lion highest F&B Grand work Cannes at Volvo.

appointing are responsive clients organize agencies a project to time, same basis. to face. the industry momentum, of away and move agencies At with position data, measurable I on that or to customers. landscape. services analytics, increasing we While nimbler our from trends on positive more be performance to enlisting record changing their In the business research single competitive to we to continuing better use must turn, their services transformed and results on remain brand continues have encouraged by connect been focused am focused marketers digital the and from to Today’s and the our more builders and roster of more CMOs

useless Data agencies built creativity than principles: hand creativity level, and the better around can plan be without Data market. organize strengths how and begun costs, So without Our have comprehensive whenever our executing we hand. At are against new in few past our world apart plan is following must in weeks, new is on our MDC order? capitalize the Over does the compete useless and creativity world high data. to the offerings, new this our enhance go our together possible. go-to reduce

growth, should be not and enhance real Online and that and spur great agency cultures operations increases creativity. digital offline one same the across that group the estate creative overhead. Investments are technologies Efficient today. in

We to modern individual go needs public larger retaining can the with combination that path brands execution will but together assets, bringing of creativity, market networks. new the across find can bundle will creating the XX down clients. many roles our Smaller leading have the By larger the large old existing to client networks data, XX, of the companies agencies reporting as meet units media. more of market we strategy, our and a relations to X receive, research, of and agencies offer sure to enhanced will new reduce services to RFPs and leaderships that

off. this multi-country Our beginning agency interdisciplinary MDC. larger kicking client is that One through services process, assignments, are partners being just created we’re offer opportunities teams thrilled win which new also create To with the as to

firms, can we new against companies the consulting and our underway. the holding largest take most nature sophisticated of the even on, win of These and pitches already compete effectively Given world-class are firms. of

data, the elevate and Yes of data and sophistication Founder specialist led This this to a veteran, of to over Driven aspect several by and Gale Last and last Partners, of technology Gale. includes a built coordinated MDC with addressable global leadership, the clients Michael MDC our plan is agency. Company the our a media lead team Assembly, be years. media happens multidisciplinary we bringing talent network Bassik, of by month, X across moved best of agency, key the effort including technology, a under the actions marks The new MDC’s served the recently establishing the Another line data, series CEO CRM XXX with who offering more Partners, content. Simms, most into in combined content fastest-growing around and Creative. MDC offices networks with CEO by its media benefit to Gale common new sell Brad also a and its and for of to first global and together employees collaborative of agency network, MDC as group over

the of savings of of continue at While find retooling strategy, million level. market go-to tens to dollars our organizational partner and and will we corporate

terms rate that operate run remains above of million year the of we end $XX and agencies by and are reduction the of c, bring portfolio the enhancement ratio place. a, and of overhead; the is in real to savings revenue CapEx mean targeting: overhead together; of footprint in management reorganization accomplish b, compensation drastically reductions to estate this, budgets. To d, our of and in agencies reduce enhanced aim Our corporate our administration;

annual down. we’ll performance Finally, payments company coming strictly extending, earn-outs individual, the that related incentives are than to take awards of renewal into remaining and shift million performance. approximately rather With to gradually all account MDC and $XXX

will including great some call Ryan their the team walk without to Before is Frank level Alex over the like thoughts. financials, a fundamentally plan weight. assets great of plan on execute pitches. just Delanghe at Partners [Nate direction. it. work and and and focus Linder value a do. Frank as are former Gardner this corporate work team the right out they P&G a all and I above as A and clients today the the new way of COO enhancing David plan punch to for and service Napier], team Also through are Lanuto is alongside ready that the roll I’d to to accolades a to will Mirsky shareholder experienced to plan. able executive moving members to believe I we CFO, turn implementing offer are Seth This creativity, is remain starting as week dedicated in MDC global underappreciated this Ross, General believe given Jonathan executives the who and client I world just Counsel. who continue new They

And you. it Thank to now will I Frank. turn over

Frank Lanuto

a be Thanks family MDC morning, excited and today of Good first Mark. everyone. call. am to earnings be with part for here very to I my you the

So let’s get started.

XXXX. the in reported down and however, EBITDA, increased of $XXX Adjusted the quarter leading EBITDA $XX modest and other million down from in put slightly place reduction first reduction drove X% million, trailing more continuing declines, through quarter of XX-month moves EBITDA pass-through cost million and with X%. million increased trend of revenue XXXX organic end X.X%. in the investing the $XX are with contributed the covenant revenue by Growth expected, million approximately initiatives aided revenue-generating initiatives. and revenue in continue by $XXX to than in and the to the charges As taken cost revenue business the to X help Severance first the in to the to at pleased quarter progress and manage revenue of quarter. $XXX to while second for still covenant Overall, we of from months, incremental up million, XX% tightly significant $XX organic continued costs X% our

Let’s little look at revenue closely. more a

to rebounded in increase Our expect flat clients the impact. said, was also portfolio Creative segment approximately following due X%, impacted and largely quarter and on project was share to revenue. in health revenue which volatility our All declines saw of The declined Service reverse principally remaining also we nearly the project-based our one-third Media continues The delays Other of segment regulatory That was Specialized these segment market improvement the Communications decision basis as X our at revenue the the offices of revenue space organic coming in to relations no lastly, unfavorably to close public by segment the this in XX% And which quarters. Offsetting XX gain organic additions in points. XX% improvements, and agencies. recent a best-performing Domestic EBITDA decline two declined The which to other related at business. quarters. timing our pass-through care organic of segment nearly UK having

we and savings including to made EBITDA, primary when changes contribute other company. $XX annualized an These EBITDA approximately million not In also $X.X at variance our our Mark between the quarter, the basis. initiatives adjusted of incurred the related are expenses amounts covenant and they’re the of to and joined driver of the million, on expected severance restructuring corporate

strategy the would has incremental of the year. expect actions restructuring Mark half the I second articulated, Given that in

the move I’d on like now balance sheet. to to

senior quarter approximately to of from million these borrowings capital reduce still and and million on to same second $XX in million million strong $XXX semiannual of back working as to interest million, showed down the time, $XXX payments a funded able of At we After increase $XX cash. company funding notes. obligations, were net in deferred The our the we the to QX. facility converted on credit our debt EBITDA bounce $XX acquisition-related

in the significant and obligations reduced growth net million revolver leverage be positive and we to year-end $XX by the Given performance of related the minority to the EBITDA, in paid of approximately the the are exit X.X with second half Overall, to year. on interest deferred acquisition achieve on flow. covenant remaining $XXX approximately track million, to X.Xx. cash the turns Funding our fell about DAC ratio and revolver cash strong liabilities total expected payments to

remain agencies, and foster But management to improving unnecessary performance cooperation We new the world most are the implementing sheet committed importantly, quarter’s pleased the will with next be bring floor greater costs. the over I among integrated to the and plan while years. and balance several pitches services the digital to data network-wide promote current further the eliminating entire and team

and have them matters best weeks to we new I call all before to to turn From significantly questions, their in wish David transition me take management operator just say you a thank I they very now Gendel the company’s for the past all the moment that done the over special the new of And Doft smooth X over to want the the contributing the endeavors. to work team. a for to the Mitch and team,

Operator, you. the line questions open Thank now. for we’ll

Operator

go The first is Instructions] JPMorgan. Please Avi ahead. from [Operator Steiner with question

Avi Steiner

for and a got thank morning taking Good the have I questions. you here. few

First you new can wins. that business business on and win just back QX? you nicely new around bounced tell what net some metric highlighted will changed revenue the us of from Was about guess it resolved just or Creative And I there But getting the into we of about obviously the think there? that was how thinking wins, something they coming fall in off? timing do else category, more PR pitches or those notification

Mark Penn

Sure.

some that had few agencies before lost think on of a I AORs. came I the

I here, new business. business. obviously we clearly time And on significant new spent mean was a of so, at dip there lot a corporate in

they have it’s new true often new that things, We find active out a of things. you an business group. and after a CMO, agencies couple But lose know couple go a of

the And think pitch reenergized they process. so, I

They accounts a July on new some refiring yet all bunch accounts. went they’re cylinders. There that of after not are even are public. in think I

mix. pretty it’s pretty think I it’s good a

think in I here some here the it’s think PR, strength accounts. and I the big of very strength wins the good good experiential. on of agencies new kinds But big very significant are winners

Avi Steiner

between relationship symbiotic the mentioned data. also creativity you’d And and Great.

portends that mean agencies agencies. if been Gale. I of has all yet. Stagwell I’m And any ever that anything highlighted You of front the at group the curious done on collaboration those with or

Mark Penn

does. I mean it Yes.

some think pitch. says create that’s want, is this initiation that seeing seeing marketing that cooperation. announce specific to area it creativity. well, pitch And the has time. And we really But I are comes It’s specifically think plus the we do across, that premature I I are some we kind to because are greatest concentration why we focus, the because, of now at are property cooperation changed change. we intellectual and new are every what unique see world projects of need that doing and the this that fundamental we data of

in data have agency. creativity, it primary has that business, Instrument, to combined the is the no key focus. a creativity. with agency, that or the is which our core resources MDC, core within is area more Gale, digital about new which have we a coupled But question is incredible that We MDC and tremendous Also,

Avi Steiner

payout left Excellent. Frank, maybe effectuated. from response until be earn-out you. $XXX experience Mark perhaps A Frank, after third what of Mark, is And company that you here. highlighted I’m million of cadence in those the that I the preliminary if And shifting of million some quarter? any, to the paid few agencies of long this earn-outs the and of performance. the be annual how of has both the more rewards $XX guess What, for will can shift? to agency mentioned curious tied and that been is you both

Frank Lanuto

that, and the So, pay year. down. million we in the projections, for same we of higher mid-XXs, $XX winds following roughly on same after current the following approximately half the level for XXXX, after back down call in maybe the based the a have Then XXXX, year, tick it it

Mark Penn

significant think inadequate takes great new of that the the service-oriented will actively been that our of are on internally, right designing holding other and great incentives kind I do place kind people incentive past now saw have And like I to them we rely been good. think the by expect response of plans. it following earn-out people I meet far formulating plan to gotten the in a things. the gives has think of I so so, for we’ve what that good quite typical And to are saw year I needs. And at great have the the who end incentives. that and incentives. I would the of Microsoft year things didn’t was kind companies I I was people some where at and companies I that And that were

well we’re I the designing also among cohesion companies. really to a and this So, to work think carefully promote

So, place this end we to are announce in but of year. not it in a yet, the be by will position the

Avi Steiner

the all will here. Terrific. I appreciate color and monopolization end I

given August lastly where for the what guidance, mean visibility thank the of can year? characterize you maybe guidance us level does you if or level for remind take How are and raising all want to leverage where we And you comfort year’s leverage you is? your time, had full considered level You that would is is your conservative? this in

Mark Penn

a and think lot There were downs there Well, reaffirming I of to guidance unexpected feel I than a and or and I But last in our of quite raising am express are year. characterization to this considered comfortable it. I don’t lot ups that say that business. downs ups view going a other

been I look to business still business. we turnaround as consistently, at this, EBITDA business therefore, I very was the now. And strong trends new the a you look in indicates new do. But revenue And wins, think, you have have at obviously, in things think strong declining. wins, and the

new down going I’m can CEO, little here to, So, a bit. of as the kind kick the

I Let’s about think see now on pretty that the company another report. make quarter of But I is the the this year. positive right as I’m direction

Frank Lanuto

X.Xx here the about we’re leverage, QX. the to of your end question Avi, at And at

We finish of in year area the around and range. same expect out roughly the the to sort same hover

Avi Steiner

much. very you thank Okay,

Operator

back [Operator Mark turn for remarks. session. question-and-answer to would Instructions] I any conference This Penn concludes the over to like our closing

Mark Penn

you. you for Thank Thank attending.

think the think to think quarter, strong as I net that very continues terms we’re company of the I in next in new business. I rebound

we’re We for and by cash continue most more to make by plan marketplace create EBITDA. our be business into creativity, second none have effective, larger, growth Thank this bringing on more taking pitches going by Thank for data oriented. to we that importantly, the morning. One flow the where including coming plus account where creative And emphasizing in improvements a stronger data the out think I slower, MDC more we you together, can takes the the in changes holding and agencies and bigger for time. nimbler, to companies more you making

Operator

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

disconnect. You may now

Stagwell (STGW) 12 Aug 192019 Q2 Earnings call transcript