MDCA - Earnings call transcript Q4 2019

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Operator

Good day, and welcome to the MDC Partners Fourth Quarter and Year-End 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.

Alex Delanghe

Thank you. Good afternoon, everyone. you Partners the fourth conference full XXXX. thank to to quarter to year MDC this call like for time taking listen and I’d for the

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

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

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

the for also and financial reconciliations you to and release non-GAAP definitions, accompanying We explanations presentation slide of refer press data.

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

Mark Penn

have pleased an XXXX Good our discuss and quarter you you. I with Thank on business round world afternoon. finish. delivered update a join solid the on to all of performance year out a to to we to strategic plan. and made results provide our The full strong new fourth am progress

Our EBITDA XX% cost Kingsdale XX% in to increase a QX management adjusted impact growth divestiture. on year, and year-over-year profitable prudent driving and excluding full for led our the in the of focus of

revenue The year X% line in in covenant, Specialist XX% quarter revenue revenue in Communications X.X% in strong at growth our XXXX, Top the line of down back $XXX.X segment. off quarter, our of was in QX rebounded segment continued million prior expectations guidance the with particularly with totaled increase a the X% and EBITDA soft Integrated range. growth down year. organic for versus and Global organic and driven in revenue by Building a high this in nicely QX the X% organic fourth our after end also bounce

Notable Net including four the $XXX three Following Stagwell’s net Doner, products quarters new million & California and in in company, million, $XX the my and YML, years. more negative include with with $XX win Pizza XXandSunny, and at TGI over the best Media quarter CP+B, $XX our added up Johnson General business fourth XXXX, investment Mills. in the MDC previously quarter, million in business Manitoba with was last from Audi Facebook MDC along new Johnson Fridays Peps Kitchen at QX. at in performance in annual in wins surged joining the and Brewing million at Harvest with brands Anomaly at announced

Creative remarkable size third holding being that COMvergence’s fraction the Business fact, that first ranking recently a this placing This of of high MDC MDC in landed finished the ahead prompted so of comment U.S. even New barometer, has Barometer, placed both is companies massive us. despite released result In in to third, the the only and "By our CEO in rankings. study’s the behind wins time

a holding As result, the you they domestically, MarCom to that Big X could legitimate are companies." a threats argue

business last under us dramatic and QX for wins shown from in In quarters, fold addition, in improvement the down our quarter, Losses client new net positioning shrank over growth to indicate. the has as the million coming a fourth million $XX year. in seven retention three $X

our as and and Anomaly technology continued YML Instrument, seeing also partners Gale from delivering clients and We’re and solutions full-service like innovative encouraging from like production agencies in creative well technology growth for as XXandSunny.

we through $XXX our rigorous balance eliminated quarter. million. pleased year-end X.Xx new combination our million in plan how very XXXX to management target from and on of cash net when an our lowered deliver year successfully leverage the ratio This the performance wins with Xx position impressive generating started. revolver ended flow increased against us I’m and cash cash from keeps cost of $XXX over of our business the I borrowing with to Operationally, We of our as free

a been has year implementation our fast and transition XXXX plan. of of new world

We period though time, of to also have more much in accomplished of do. change there’s a a short lot

a as a data choice in are ourselves modern ways. march and combining to We marketing relentless position of on game-changing unique creativity company and

also yet of from Creative are transitioning We cost-effective one MDC the apart has kind holder nimble, to from an of its to rivals. is a alternative that companies the companies, set that and holding larger offering

growth, creativity MDC. together organic MDC all the Four technology One Network, market communications and this bring media, was the this more deals to and plan networks been within the networks have solve Gale component is Media of share Partners existing in challenges support multi-agency technology, and build new to addressability The client strategy new execution. informed into and network knowledge and best data on designed center bring bring and media resources a advertising holistically, and to to to Creative in of of capabilities. that great directly

the most Doner, other agencies, agencies Constellation, Anomaly as a brings recognized U.S. the Allison network recent most its partner in one Bodenfors our six & group The are Johnson. networks Partners fall and and The already addition These together CPB, is And with known HO, agencies. of Carl of Forsman in of made and to network collective Instrument Anomaly XXandSunny, & by in of up specialist XXXX. led our formed Redscout. highly one complementary largest Doner network advertising our the two alliance leader, place,

of have our now organized networks. revenues We in six XX% over

shared businesses creating more experienced and service of costs putting are most opportunities. We entrepreneurial our customer improving the hands while and managers streamlining in new offerings,

offerings, our competitive reorganizing more to structure and addition organization. nimbler cost a we to overall establish our trimmed have actively In

on support in the compensation-to-revenue costs been ratio, efforts and costs. in area lowering this Our reining corporate reducing administrative our focused have

palace network. our the and in to moved we promised, Avenue As excess corporate from space expensive our slanky Fifth headquarters

this When million centralization bring We World allow have in New our year, later signed starting million One annually of our efficiencies Freedom Center, will XX agencies collaboration. complete New deal York XXXX, a the now into of based to cost portfolio of $XX Trade and Tower. interagency to estate partners and better agency among real our York for alignments $XX savings significant enhanced

We will reduce of compensation-to-revenue made our to goals reducing this, plan. Adding the key ratio. in while costs significant our progress we furthering transformation

the increase past area we’ve rigor in months, Over with more agencies closely our move this targets. several to towards and worked competitive

As XXXX. a result, in partner X% comp-to-revenue ratio we by fourth expect network in and another improvements successfully of see lowered quarter our continued X.X% the to

I’m of against plan early Combined, our $XX the achieve we and we’ve savings of overhead significant and these We run efforts achieved by Overall, our wins to pleased helped to creating with alone succeed. progress reduced us energy, goal have what million. and enhancements. delivering million over very date, $X momentum rate corporate to need

in resulted incremental We’re new from excellent initial agency business. progress seeing network collaboration has strategy as our some already

ahead all MDC we today positioned far fronts. better world look to As marketing is on the to compete XXXX, in of new

activity, We’re and new a pipeline growing across seeing of supported client sectors. strong pitches by agency

of leaders and Our talented future the are the to of entrepreneurial group highly committed business. and growth motivated and the

collaboration greater and to drive blend agencies solutions across seeing evolving continued in that client game-changing marketer technology marketplace. an are We success and creativity

plan. level the of we will strategic execute In next our XXXX,

larger power pitches, media our of the hit talent closely suite than operations. the formed, new billion after more network and with ground and by Stagwell. $X.X of companies with both to new work and go ever these data along our We’ll at Now the networks be full with combinations positioned running our will harnessing

will harnessing technologies offerings ad emphasis the the Greater the time. data right and on to put be right at internally unique right to get person our

field. a products, launching this analytics predictive We internally serve and year, will It to first we’ll will be and the developed our incubate communications the subscription and best both be brands in in outside product product. agencies

complete average that cut modern, of our New XX attractive XX% will rent in that and synergies. help real cost talent estate will consolidation, together and We and yet bring in York workspace their will agencies ways marketing drive will which provide

operations business We across strategies others. agencies purchasing our the IT have now like to smart central portfolio. the and poised of legal, implement leverage is power benefit next combined formed set and group, areas to across which our a T&E, investments make We’ll new

other in by functions. are end rate run $XX an in of the to and XXXX We real IT, saving these through travel back-office committed million initiatives legal, estate, HR, additional

our another and efficiently we’re make talent. more industry by compensation-to-revenue we investing in that We’ll lowered by as ensure improving competitive, are continue profitable requires costs, to achieving ratio an and is our to evidenced continually focus This on quarter. more agencies and this both X.X% both, results work great the

in with knew the MDC organic of trends our current this I just of Chairman its invested Stagwell and XXXX Stagwell $XXX potential. and a recent in of in the ago and on was X%. because process X% revenue year I $XXX Given of million EBITDA Growth completed, outlook Group review to to annual near maintaining agency of the CEO nowhere million. $XXX we’re role and million meeting we part company as covenant took XXXX business our – the

with I the strategic but this and costs motivated emotion report network heads our of work and to all our every implemented year, down make could assets we’re profit a a in action we significantly quo. challenges that network and industry, Creative with every that extraordinary a up plan our collective knew that for structure; I’m and have net results way the we proud transformative yet, collaborative consumers new status turn this to materially; in integrated never of business; operations, results, clients importantly, reduce new outsized lowered to thrive last represent that disciplined leadership, In before. delivered and as We margins; expanded beginning see improved the world the paid inspires that day borrowings; leverage; fraction delivers category. plan.

lies position excited industry up the closing, for rightful talent the new made and claim our best the We industry-leading and ourselves to In long-term intend very deliver in success. in MDC of agencies year. many in I’m ahead ambitious growth place we as world. this sustainable what of is for

through in that, to over Frank detail. With things turn me to run financials let

Frank Lanuto

afternoon, Thanks, Mark. everyone. Good

we earlier organically million, X% revenue of As X.X%. delivered in the several mentioned, and quarter, agencies the Dip] trends improved revenue to year. sequential from relative benefited Mark at we down We fourth revenue growth as in [Audio $XXX down reported

$X.XX reported a $X.XX X.X% ago. billion, year down an from XXXX, organic revenue billion on For was basis

Excluding and full year. the impact the adjusted quarter XX% the of XX% divestiture, EBITDA for Kingsdale fourth in increased our

both in by $XXX and adjusted million initially full periods, of In EBITDA the in EBITDA taken of in and reduction Severance restructuring to XXXX. initiatives quarter $XX quarter covenant to the drove reduction cost adjusted fourth XX% was reported, and year. from actions the EBITDA the As aided continuing incremental for million XXXX other charges cost $X.X million. X% implemented million throughout increased $XX

the and restructuring of estimated savings approximately with annualized will total have million $XX at the million were be realized $XX recorded we Approximately realized on in estimated savings by annualized For EBITDA overhead actions charges, of XXXX, of office including led $X in XXXX, basis. million. rest we an the trailing covenant million, a million guidance. of half And of in XXXX. the over Notably, our $X our reduced near $XXX upper our XX-month end to total, corporate corporate in

in the strength share. they Adjusted XX% the as segment, continued X% revenue Now to the continued segment. by grew EBITDA the XX% for and for our saw results XX% and quarter Specialist full quarter breaking in market year Communications in down year. We growth delivering growth the organic capture

in Integrated, progress delivered Global our the in growth revenue growth agencies. and EBITDA segment, largest strong global fourth with X% quarter largest XX% Our organic

year XX%. client full segment increased while the rebounded was the as from beginning revenue year, the essentially of EBITDA adjusted losses flat in the For

The more domestic top X% in the businesses, as Creative took costs of the domestic the however, of our in growth we and same line All Kingsdale EBITDA segments. the softness growth segment and effect result, excluding delivered positioning delivered period. Media growth Other full than adjusted in them experience revenue organic improved Service EBITDA delivered QX, XXXX nearly time, a profitability. for adjusted XX% divestiture, and for same the Creative to offset both year. At reduce for pressure approximately continued action, We to during And of in XX% revenue

into we’re seeing In from new media, and trends higher continue third pushed early wins those business XXXX. the sequentially revenue selective quarter,

and the expect collaboration and We combination by our recently are of agency to networks media generate platform. from opportunities formed more data media for encouraged the increased our

revolver, generated performance working EBITDA, $X the We million acquisition-related interest year cash. seasonal our and We cash with during funded X.Xx, sheet. payments We a $XXX and balance operations the revolver our exited our cash million from ago our and ended capital year in approximately total media increased the quarter, sheet. from net to of moving $X $XXX distributions. $XX the on million in fourth million our quarter, on leverage reduced $XXX debt by interest deferred in flow minority to lowered in balance to million and million of improvements good driven $XX in Now million notes

Funding a total trends. obligations $XX XXXX, related liabilities of by small largest an interest performance in in approximately consistent acquisition-related $XXX acquisition-related fund the expect offset to increases remaining acquisition-related historical with to second to overall increase currently outflow liabilities minority payments partially reduced liabilities of improved DAC to the million. resulting agency million We quarter, and in with related in the net

Although seasonal capital, continued by return leverage trends goal will we affect of toward our reducing working progress expect annually. X.XX of

agencies This from space into and having $XX occupancy as by against transformation on move signed XX lease are our Mark ultimately, at bring New schedule in New Trade and we opportunities, location reducing One with annually, In we our Savings project, million will estate needs terms of collaboration, costs. most our create and, mentioned, York of one realize ongoing those shifting of reduce World will based at Center. promote XXXX. initiatives York hedge our administrative least expect to a savings the to natural beginning real cost

turning growth X% robust in client revenue the of XXXX, followed as organic Now of the We year later the full first XXXX. currently half more softer by for with anticipate X% anniversary QX year guidance. our we from losses growth to to

Assuming FX approximately expect of million prevailing we covenant EBITDA to $XXX million. $XXX rates,

be to program. is million million York XXXX CapEx $XX approximately estate inclusive to net New Our expected $XX consolidation the to costs real of related our in

to any our less of of outlook. from talent. exposure me, than point much that people and a our our than business, excuse we our X% to out let and some China made region adjustment the revenue is not concern Regarding are news so comes coronavirus, for first have Japan, of And our we – the peers. we XXXX But the me safety corona also have less

monitor will the We continue closely. to situation

division a subsidiary earn-out. to sales XXXX. that This performance-based of estimated QX sale in of note, Sloane SKDK, completes the XXXX. As in we of our million early of $XX final services Kingsdale a a approximately The is with completed the QX began sale shareholder sale Stagwell, price divestiture businesses our including

focused we strengthening excited on in look execution while our through growth are As reducing profitability ahead, and we our strategic remain continued balance improving our XXXX, about initiatives plan and sheet. simultaneously driving costs,

the open please questions. Operator, for you. Thank line

Operator

ahead. Avi of question [Operator Steiner today The Instructions] first comes from go JPMorgan. Please

Avi Steiner

And eliminate designed XX-pole you’ve a robust and change much that of got it’s we actions starting to Thank of now consolidated, an you. start deliver given with reiterated environment? existing streamline was to six partners, that does compelling ad want much designed XXXX. if Good pitching to this here, outlook the few how afternoon. your And improvement you’ve for I how relatedly, and positive how can, more then of I Mark, that And was much And to clients? in much reflect this offerings reflects like MDC-specific others. prospective and and how maybe costs? taken?

Mark Penn

was the Well, last to things. take the part. of together number do let meant of networks a coming The me

those what needs. of combining they’re varying services, First, meant off take units of They to the today different Today, typically to and important meet buy buy because eight were was enable each or and size to CMOs it them and to was multi-services. skills, individual it used six buying other, just advertising media. leverage

more first So clients. serving basis it’s and think those on foremost, clients efficient marketing about a and I to

leaders. it’s by very be Second, those the business letting driven best

think so in to far with work As greater centralized units the both terms And right through with think, decisions. down the there in winning reporting making opposed I some elements leadership is, having teams XX to each finally, into are corporate, do then a I synergy to be individually all going effective or more trenches other – ability in ability cost much business and of services. them

those we just going So formed, they – your element are What those were was baked your of of I because question? market those and getting are – all just now none to think into the plan the – reasons, now first they’re now. things the first really are of

Avi Steiner

had was you’ve if how of there ad improvement versus in in is lot of – I a any much environment, part understand and outlook apologize. the trying positive positive words taken you’ve in since really there, The of I actions to March there been just this But reflects one? kind the first

Mark Penn

I reflects ad wouldn’t say any it of not the improvement in or industry.

spending work increases I spending think that and continues decreases ad through industry and the transformation as level offline project of go increases. online to some

That went the million business, are came, door new that of that these the change. reduced think loyal that to a I clients. think, company – I back and based of major I is itself net $XX in and of of and group energized incredibly that out $X two before QX projections stabilized on in fashion, million, that trickle has a the One XXXX. the elements fully, been excited means has is

will it’s Frank there, efficiency. And leg leg then wants be if to it, off. second you want a it’s second just – do comment said, greater the on able to clearly Frank add comment, easier do they even And good following seen to of as that? to of a we positive think, new into means that to going the into into And would year, And level that fourth the had live as in losses far the growth. in following new have reverberates in quarter fourth quarter year, very the business net uptick achieve through will it’s is our margins reverberated a through just the – I we’ve typically as have the XXXX. that Frank, add emphasis business to paying wins they same greater early and with

Frank Lanuto

Mark, moment, the at sorry. Nothing

you all. said think it I

Avi Steiner

the XXXX cash through flow bit, pick a Mark, you, free cash million of appreciated. free to little what I can, in maybe was on you with if Thank Can flow XXXX? for so that’s us that reiterated. you help $XXX Great. means Frank,

Frank Lanuto

the still that investment by the we of changing on for Yes. of the lease believe target. We a is end we’re variables at Center, see year, us. significant one World which Trade of the is the Certainly, signing

we’re However, Sloane, taken, we believe of other initiatives track that we to that the with the sales that. cost on from of sale that plus we’ve all the proceeds deliver have still

Avi Steiner

Okay.

paid consideration touched deferred of and seasonality million – say, in flows, on to Just going seasonality, be I $XX you acquisition year. $XX this million of cash terms but of of out

second I help think kind through of most other year? is just that we flow us Can with thinking of cash said quarter. from in you be you any seasonality CapEx And should uses about? the away the cash

Frank Lanuto

million So we XXXX, have some traditional The DAC will of in interest. second our be Cash significant a for draw. $XX will items. so us. the semiannually It’s for obligation CapEx, quantified. are the bigger at of Those use million, $XX the cash. $X we’ve largest represent not items that million the million payments taxes course, $X And

Avi Steiner

The for in Last Am of talked million asset about, – you remind me, that? cash? me, or subsale from about quickly. think may very bond sales. Okay. two Sloane I have I And have flexibility correct buyback do you think $XX some use you you that that how

Frank Lanuto

do… We correct. That’s

Mark Penn

We cash about we think that flexibility. uses I is that correct. any haven’t any yet, do made but decisions have of

Avi Steiner

delta last one. an in EBITDA very XXXX It’s, was and adjusted The about And million. between Okay. $XX covenant one. easy hopefully,

you adjusted? should And thank guidance time other your to I and everyone. the So items get think maybe to for do severance the we I between if we – how about guess, wanted

Mark Penn

I know... Frank, don’t

Frank Lanuto

So exactly. you don’t items can’t so EBITDA, don’t forecast Avi, them adjusted EBITDA those budget know, and and because we restructuring forecast covenant between principally stands as what That’s items. for time we we we –

essentially So adjusted now, million the EBITDA. $XXX to $XXX reflects right million

Avi Steiner

Thank you. Okay.

Operator

the Chairman closing back I This concludes turn remarks. to like Penn, any Mark for question-and-answer conference session. and over CEO, our to would

Mark Penn

Thank you.

plan time, as the and that lot it and network can who’ve the implement of by of the and I able think take think this see same results, for work and best press to done to that’s kind you you of talent there fat and continue I to that, kind fruit, that for being of they’re Thank to the through the is chairmanship followed more And real plan. a partners And changing to adapt a our you out wasn’t of to to so. as the I and very time, our not companies this that quickly, there really networks, I of to much. I as these beginning that to you’re role to those the was think MDC beginning sitting do out creation, thrilled managing we’re of as doing, because long think, enable we’re forward that this the results, over period field. strategic could just being show the wins going the plan were those take CEO managed if well see best costs to the be, at work

Operator

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

now You disconnect. may

Stagwell (STGW) 28 Feb 202019 Q4 Earnings call transcript