Market Overview

MDC Partners Inc. Reports Results for the Three and Six Months Ended June 30, 2019

Share:

Executing on Strategic Plan

Company Reaffirms Financial Guidance

NEW YORK, Aug. 7, 2019 /PRNewswire/ --

SECOND QUARTER HIGHLIGHTS:

  • Revenue of $362.1 million versus $379.7 million a year ago, a decline of 4.6%.
  • Organic revenue decrease of 2.4%.
  • Net income attributable to MDC Partners common shareholders of $0.8 million in the second quarter of 2019 versus $1.1 million a year ago. Net loss attributable to MDC Partners common shareholders for the last twelve months (LTM) of $103.7 million as of June 30, 2019 versus $103.3 million loss as of March 31, 2019.
  • Adjusted EBITDA of $46.4 million versus $43.0 million a year ago, an increase of 7.9%. Adjusted EBITDA Margin of 12.8%, an increase of 150 basis points compared to prior year quarter.
  • Covenant EBITDA (LTM) of $187.9 million versus $183.8 million for the first quarter of 2019, an increase of 2.2%. (Refer to Schedule 7)
  • Net new business wins totaled a positive $43.0 million in the second quarter versus a decline of $11.7 million in the first quarter of 2019.

(NASDAQ:MDCA) – MDC Partners Inc. ("MDC Partners" or the "Company") today announced financial results for the three and six months ended June 30, 2019.

"Our solid execution in the second quarter delivered year-over-year growth in margins and adjusted EBITDA -- plus 20% Adjusted EBITDA growth, excluding the sale of Kingsdale -- along with strong cash generation," said Mark Penn, Chairman and CEO and MDC Partners. "Net new business also rebounded from a decline of $11.7 million in the first quarter to a positive $43 million in the second quarter, as our agencies took advantage of the continued strength of our pipeline.  We began aggressively executing against a comprehensive two year plan that will create a more nimble organization and return this business to consistent revenue growth. The plan is built around agency cooperation and network collaboration, with digital-first thinking and media and creative integration across agencies. Our recent move to align MDC Media Partners with GALE is just one example of one of many initiatives we are pursuing to create a more cohesive network. We believe this plan will create a more efficient organization that delivers consistent financial returns and allows partner agencies to thrive in a rapidly changing and increasingly competitive marketplace."

Frank Lanuto, Chief Financial Officer, added, "Aided by continued cost-savings initiatives, Adjusted EBITDA was up 8% versus the prior year, while margins improved over 150 basis points year-over-year. We continue to manage costs tightly while taking the appropriate steps to optimize our business for growth. Based on our performance in the quarter, we reiterate our 2019 financial guidance."

Second Quarter and Year-to-Date 2019 Financial Results

Revenue for second quarter of 2019 was $362.1 million versus $379.7 million for the second quarter of 2018, a decline of 4.6%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 1.1%, the impact of non-GAAP acquisitions (dispositions), net was negative 1.1%, and the organic revenue decrease was 2.4%. Organic revenue was favorably impacted by 200 basis points from increased billable pass-through costs incurred on clients' behalf from certain of our partner firms acting as principal.

Net New Business wins in the second quarter of 2019 totaled $43.0 million.

Net income attributable to MDC Partners common shareholders for the second quarter of 2019 was $0.8 million versus $1.1 million for the second quarter of 2018. This change results from lower expenses primarily driven by a reduction in staff costs and a foreign exchange gain in the second quarter of 2019 versus the prior year second quarter loss, offset by the decline in revenues. Diluted income per share attributable to MDC Partners common shareholders for the second quarter of 2019 was $0.01 versus diluted income per share of $0.02 for the second quarter of 2018.

Adjusted EBITDA for the second quarter of 2019 was $46.4 million versus $43.0 million for the second quarter of 2018, an increase of 7.9%. The improvement was primarily driven by reduced staff costs at Partner agencies and lower staff costs and professional fees at corporate. This led to a 150 basis-point improvement in Adjusted EBITDA margin in the second quarter of 2019 to 12.8% from 11.3% in the second quarter of 2018.

Net loss attributable to MDC Partners common shareholders for the last twelve months (LTM) was $103.7 million as of June 30, 2019 versus a $103.3 million loss as of March 31,  2019.

Covenant EBITDA for the last twelve months (LTM) was $187.9 million at June 30, 2019 versus $183.8 million at March 31, 2019, an increase of 2.2%. The change was primarily driven by the increase in Adjusted EBITDA.

Revenue for the first six months of 2019 was $690.9 million versus $706.7 million for the first six months of 2018,   a decrease of 2.2%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 1.3%, the impact of non-GAAP acquisitions (dispositions), net was positive 0.8%, and the organic revenue decrease was 1.7%. Organic revenue was favorably impacted by 209 basis points from increased billable pass-through costs incurred on clients' behalf from certain of our partner firms acting as principal.

Net New Business wins for the first six months of 2019 totaled $31.3 million. Net loss attributable to MDC Partners common shareholders for the first six months of 2019 was $1.4 million, an improvement versus a net loss of $30.1 million for the first six months of 2018. This change is a result of lower expenses primarily driven by a reduction in staff and deferred acquisition costs and a foreign exchange gain in the second quarter of 2019, versus the prior year second quarter loss, partially offset by the decline in revenue. Diluted loss per share attributable to MDC Partners common shareholders for the six months of 2019 was $0.02 versus a diluted loss per share of $0.53 for the first six months of 2018.

Adjusted EBITDA for the first six months of 2019 was $67.9 million versus $50.8 million for the first six months of 2018, an increase of 33.7%. The improvement was primarily driven by reduced staff costs at Partner agencies and lower staff costs and professional fees at corporate.  This led to a 260 basis-point improvement in Adjusted EBITDA margin in the first six months of 2019 to 9.8% from 7.2% in the first six months of 2018.

 

Financial Outlook


2019 financial guidance is maintained as follows:



2019 Outlook Commentary *







Organic Revenue Growth

We expect approximately 0% to 2% growth in organic revenue.










Foreign Exchange Impact, net

Assuming currency rates remain where they are, and based on our most recent projections, the net impact of foreign exchange is expected to decrease revenue by 1%.










Impact of Non-GAAP Acquisitions (Dispositions), net

Our current expectations are that the impact of acquisitions, net of disposition activity, will decrease revenue by approximately 90 basis points.










Covenant EBITDA and Adjustments

The Company expects to complete fiscal year 2019 with approximately $175 million to $185 million of Covenant EBITDA.  The Company has applied certain pro forma and other adjustments, as expressly provided under the credit facility to derive its 2019E Covenant EBITDA forecast.






















* The Company has excluded a quantitative reconciliation with respect to the Company's 2019 guidance under the "unreasonable efforts" exception in item 10(e)(1)(i)(B) of Regulation S-K See "Non-GAAP Financial Measures" below for additional information


 

Conference Call

Management will host a conference call on Wednesday, August 7, 2019, at 8:30 a.m. (ET) to discuss results.  The conference call will be accessible by dialing 1-412-902-4266 or toll free 1-888-346-6216.  An investor presentation has been posted on our website at www.mdc-partners.com and may be referred to during the conference call.

A recording of the conference call will be available one hour after the call until 12:00 a.m. (ET), August 14, 2019, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10133745), or by visiting our website at www.mdc-partners.com.

About MDC Partners Inc.

MDC Partners is one of the most influential marketing and communications networks in the world. As "The Place Where Great Talent Lives," MDC Partners is celebrated for its innovative advertising, public relations, branding, digital, social and event marketing agency partners, which are responsible for some of the most memorable and effective campaigns for the world's most respected brands. By leveraging technology, data analytics, insights and strategic consulting solutions, MDC Partners drives creative excellence, business growth and measurable return on marketing investment for over 1,700 clients worldwide. For more information about MDC Partners and its partner firms, visit our website at www.mdc-partners.com and follow us on Twitter at http://www.twitter.com/mdcpartners.

Non-GAAP Financial Measures

In addition to its reported results, MDC Partners has included in this earnings release certain financial results that the Securities and Exchange Commission defines as "non-GAAP financial measures."  Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results. Such non-GAAP financial measures include the following:

(1) Organic Revenue: "Organic revenue growth" and "organic revenue decline" refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) "non-GAAP acquisitions (dispositions), net". Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.

(2) Net New Business: Estimate of annualized revenue for new wins less annualized revenue for losses incurred in the period.

(3) Adjusted EBITDA: Adjusted EBITDA is a non-GAAP measure that represents operating profit plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.

(4) Covenant EBITDA: Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. We believe that the presentation of Covenant EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company's underlying operating performance. In addition, the presentation of Covenant EBITDA provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Agreement.

Included in this earnings release are tables reconciling MDC Partners' reported results to arrive at certain of these non-GAAP financial measures. We are unable to reconcile our projected 2019 Organic Revenue Growth to the corresponding GAAP measure because we are unable to predict the 2019 impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates and because we are unable to predict the occurrence or impact of any acquisitions, dispositions, or other potential changes. We are unable to reconcile our projected 2019 Covenant EBITDA to the corresponding GAAP measure because the amount and timing of many future charges that impact these measures (such as amortization of future acquired intangible assets, foreign exchange transaction gains or losses, impairment charges, provision or benefit for income taxes, and certain assumptions used in the calculation of deferred acquisition consideration) are variable, uncertain, or out of our control and therefore cannot be reasonably predicted without unreasonable effort, if at all. As a result, we are unable to provide reconciliations of these measures.  In addition, we believe such reconciliations could imply a degree of precision that might be confusing or misleading to investors. For the same reasons, we are unable to address the probable significance of the unavailable information, which could have a potentially unpredictable, and potentially significant, impact on future GAAP financial results.

This press release contains forward-looking statements. Statements in this press release that are not historical facts, including without limitation statements about the Company's beliefs and expectations, earnings guidance, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as "estimates", "expects", "contemplates", "will", "anticipates", "projects", "plans", "intends", "believes", "forecasts", "may", "should", and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section.  Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.

Forward-looking statements involve inherent risks and uncertainties.  A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:

  • risks associated with severe effects of international, national and regional economic conditions;
  • the Company's ability to attract new clients and retain existing clients;
  • the spending patterns and financial success of the Company's clients;
  • the Company's ability to retain and attract key employees;
  • the Company's ability to remain in compliance with its debt agreements and the Company's ability to finance its contingent payment obligations when due and payable, including but not limited to
View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com