MDC Partners Inc. Reports Results For The Three Months Ended March 31, 2015

NEW YORK, April 27, 2015 /CNW/ --

FIRST QUARTER HIGHLIGHTS:

  • Revenue increased to $302.2 million from $274.9 million, an increase of 10.0%
  • Net loss attributable to MDC Partners of ($32.1) million versus ($8.8) million in the same period last year
  • Organic revenue increased 7.4%
  • Adjusted EBITDA of $31.2 million versus $35.8 million in the same period last year (see Schedules 2 and 3)
  • Adjusted EBITDA margin of 10.3% versus 13.0% in the same period last year (see Schedules 2 and 3)
  • Adjusted EBITDA Available for General Capital Purposes of $10.3 million versus $20.5 million in the same period last year (see Schedule 4)
  • Net New Business wins totaled $27.9 million
  • Declared cash dividend of $0.21 per share

(NASDAQ: MDCA; TSX: MDZ.A) – MDC Partners Inc. ("MDC Partners" or the "Company") today announced financial results for the three months ended March 31, 2015.

Miles S. Nadal, Chairman and Chief Executive Officer of MDC Partners, said, "We are pleased with our operational and financial results in the first quarter, which included organic revenue growth of 7.4% and profitability that is tracking according to our full-year plan. The $28 million of net new business in the first quarter, last year's record new business performance, and our ongoing focus on profitable organic growth, expanding margins, and improved cash generation, positions us nicely to deliver on our annual projections and we are therefore reiterating our 2015 financial guidance."

Guidance for 2015 is maintained as follows:








Implied





2014


2015


Year over Year





Actuals


Guidance


Change












Revenue


 $1.22 billion 


 $1.300 - $1.330 billion 


 +6.5% to +8.5% 












Adjusted EBITDA


 $179.4 million 


 $195 - $205 million 


 +8.7% to +14.3% 



Implied Adjusted EBITDA Margin


14.7%


15.0% to 15.4%


+35 to 75 basis points












Adjusted EBITDA Available for


 $98.8 million 


 $109 - $119 million 


 +10.3% to +20.4% 



General Capital Purposes



































Consolidated revenue for the first quarter of 2015 was $302.2 million, an increase of 10.0%, compared to $274.9 million in the first quarter of 2014.  Adjusted EBITDA for the first quarter of 2015 was $31.2 million compared to $35.8 million in the first quarter of 2014.  Net loss attributable to MDC Partners in the first quarter was ($32.1) million compared to a loss of ($8.8) million in the first quarter of 2014.  Loss per share from continuing operations attributable to MDC Partners common shareholders for the first quarter of 2015 was ($0.52) compared to a loss of ($0.17) per share in the first quarter of 2014.  Adjusted EBITDA Available for General Capital Purposes was $10.3 million in the first quarter of 2015 compared to $20.5 million in the first quarter of 2014.

David Doft, CFO of MDC Partners, said, "This was a solid performance this quarter despite continued currency headwinds that negatively impacted reported revenue by two percent and the previously disclosed timing of revenue recognition for some of our larger, more complicated pieces of new business. Notwithstanding these factors, the year is very much on track with our projections as we expect profitability growth to accelerate as the year progresses.  Our business is strong and we remain highly focused on executing the strategic and financial framework that we have previously presented, which we are confident will drive increasing value to our shareholders over time."

Perquisite Repayment; Implementation of New Policies and Procedures

MDC Partners is committed to the highest standards of corporate governance and transparency in its reporting practices.  Since October 5, 2014, the Company has been actively cooperating with the production of documents for review by the Securities and Exchange Commission (the "SEC") pursuant to a Subpoena.  In connection with this production of documents, the Company formed a Special Committee of independent directors to review certain matters relating to the reimbursement of expenses incurred by the CEO.  The Special Committee is being advised by Bruch Hanna LLP, as special independent advisor, and by Simpson Thacher & Bartlett LLP, as legal counsel. The Special Committee, through its counsel, received full cooperation from Company management and Board members, reviewed and analyzed thousands of documents, emails and other accounting information, and interviewed several individuals.

The Special Committee completed an extensive review of perquisites and payments made by the Company to or on behalf of Miles Nadal and Nadal Management Limited during the six-year period from 2009 through 2014. The review included a detailed analysis of the available back-up documentation supporting such payments, as well as consideration of the Management Services Agreement among Mr. Nadal, Nadal Management Limited and the Company and certain historical practices. These payments included, among other things, travel and commutation expenses, charitable donations, medical expenses, and certain expenses for which the information was incomplete.

Mr. Nadal cooperated fully with the review. Following the review, Mr. Nadal agreed to reimburse the Company for perquisites and payments for which the Company sought reimbursement, in the aggregate amount of $8.6 million.  The Company does not expect there will be any impact to its previously issued financial statements as a result of the review.

During the quarter ended March 31, 2015, the Company incurred approximately $5.8 million in legal fees and other related expenses relating to the SEC inquiry.  The Company expects to recognize a gain of $8.6 million in the quarter ending June 30, 2015, relating to the reimbursement of perquisites and payments by the CEO.

In addition to this reimbursement, the Special Committee recommended, the Audit Committee has adopted, and the Company has adopted and implemented, a series of remedial steps to improve and strengthen the Company's internal controls and procedures regarding travel, entertainment and related expenses. The remedial steps include:

  • Adoption and implementation of a new Private Aircraft Usage Policy and a new Travel & Entertainment Policy.
  • Hiring two (2) new senior executives, including a Senior Vice President, Internal Controls and Compliance and a Director, Compliance & Risk Management. These new senior executives are responsible for managing internal controls, reviewing monthly expense reports and ensuring full compliance with the Company's new policies. Both senior executives report to the Company's independent Audit Committee.
  • Quarterly review and reporting to the Company's Audit Committee with respect to compliance by the Company's executive officers with travel and expense reimbursement policies.

The Subpoena received from the SEC also requested production of documents relating to the Company's goodwill and certain other accounting practices, as well as information relating to trading in the Company's securities by third parties.  The Company has been fully cooperating with the SEC and believes that the inquiries are at an early stage.

Effective as of April 23, 2015, the Company's prior Chief Accounting Officer, Michael Sabatino, transitioned to a new role in the company, in which he will work on special projects.  In connection with this transition in Mr. Sabatino's role and responsibilities, Mr. Doft has assumed the additional role as the Company's principal accounting officer.

MDC Partners Announces $0.21 per Share Quarterly Cash Dividend

MDC Partners today also announced that its Board of Directors has declared a cash dividend of $0.21 per share on all of its outstanding Class A shares and Class B shares.  The quarterly dividend will be payable on or about May 22, 2015, to shareholders of record at the close of business on May 8, 2015.

Conference Call

Management will host a conference call on Monday, April 27, 2015, at 4:30 p.m. (ET) to discuss results.  Access the conference call by dialing 1-412-902-4266 or toll free 1-888-346-6216.  An investor presentation has been posted on our website 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 9:00 a.m. (ET), May 12, 2015, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10064651), or by visiting our website at www.mdc-partners.com.

About MDC Partners Inc.

MDC Partners is one of the world's largest Business Transformation Organizations that utilizes technology, marketing communications, data analytics, insights and strategic consulting solutions to drive meaningful returns on Marketing and Communications Investments for multinational clients in the United States, Canada, Europe, Asia and Latin America. 

MDC Partners' durable competitive advantage is to Empower the Most Talented Entrepreneurial Thought Leaders to Drive Business Success to new levels of Achievement, for both our Clients and our Shareholders, reinforcing the Company's reputation as "The Place Where Great Talent Lives." 

MDC Partners' Class A shares are publicly traded on NASDAQ under the symbol "MDCA" and on the Toronto Stock Exchange under the symbol "MDZ.A".

Please visit us: www.mdc-partners.com
Follow us on Twitter: 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. These non-GAAP financial measures relate to: (1) presenting Adjusted EBITDA and EBITDA margin (as defined) for the three months ended March 31, 2015, and 2014; and (2) presenting Adjusted EBITDA Available for General Capital Purposes for the three ended March 31, 2015, and 2014.  Included in this earnings release are tables reconciling MDC Partners' reported results to arrive at these non-GAAP financial measures.

This press release contains forward-looking statements. The Company's representatives may also make forward-looking statements orally from time to time. Statements in this press release that are not historical facts, including statements about the Company's beliefs and expectations, earnings guidance, recent business and economic trends, potential acquisitions, estimates of amounts for deferred acquisition consideration and "put" option rights, constitute 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 the Subpoena and ongoing SEC investigation outlined in this press release;
  • risks associated with severe effects of international, national and regional economic downturn;
  • 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 those relating to "put" option right and deferred acquisition consideration;
  • the successful completion and integration of acquisitions which complement and expand the Company's business capabilities; and
  • foreign currency fluctuations.

The Company's business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry.  The Company intends to finance these acquisitions by using available cash from operations, from borrowings under its credit facility and through incurrence of bridge or other debt financing, any of which may increase the Company's leverage ratios, or by issuing equity, which may have a dilutive impact on existing shareholders proportionate ownership.  At any given time the Company may be engaged in a number of discussions that may result in one or more material acquisitions.  These opportunities require confidentiality and may involve negotiations that require quick responses by the Company.  Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of the Company's securities. 

Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in the Annual Report on Form 10-K under the caption "Risk Factors" and in the Company's other SEC filings.

 

SCHEDULE 1





MDC PARTNERS INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(US$ in 000s, except share and per share amounts)







Three Months Ended March 31, 



2015

2014









Revenue


$302,222

$274,854





Operating Expenses:




Cost of services sold


210,419

181,468

Office and general expenses


74,308

71,336

Depreciation and amortization


12,300

10,482



297,027

263,286





Operating profit


5,195

11,568





Other Income (Expenses):




Other, net


(18,040)

(6,571)

Interest expense and finance charges


(15,096)

(12,759)

Interest income


119

140





Loss from continuing operations before income taxes




  and equity in non-consolidated affiliates


(27,822)

(7,622)





Income tax benefit


(4,054)

(346)





Loss from continuing operations before equity in non-consolidated affiliates


(23,768)

(7,276)

Equity in earnings of non-consolidated affiliates


351

63





Loss from continuing operations


(23,417)

(7,213)

Loss from discontinued operations attributable to MDC Partners Inc., net of taxes


(6,294)

(271)

Net loss


(29,711)

(7,484)

Net income attributable to the noncontrolling interests


(2,380)

(1,362)

Net loss attributable to MDC Partners Inc.


($32,091)

($8,846)





Loss Per Common Share:




Basic and Diluted




Loss from continuing operations attributable to MDC




   Partners Inc. common shareholders


($0.52)

($0.17)

Discontinued operations attributable to MDC




   Partners Inc. common shareholders


($0.13)

($0.01)

Net loss attributable to MDC Partners Inc.




   common shareholders


($0.65)

($0.18)









Weighted Average Number of Common Shares Outstanding:




Basic and Diluted


49,754,961

49,338,332









 

SCHEDULE 2










MDC PARTNERS INC.

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA

(US$ in 000s, except percentages)










For the Three Months Ended March 31, 2015




















Strategic 


Performance







Marketing


Marketing







Services


Services


Corporate


Total





































Revenue


$240,436


$61,786


$                -


$302,222




























Net loss attributable to MDC Partners Inc.








($32,091)

Adjustments to reconcile to Operating profit (loss):









   Net income attributable to the noncontrolling interests








2,380

   Loss from discontinued operations attributable to 









MDC Partners Inc., net of taxes








6,294

   Equity in earnings of non-consolidated affiliates








(351)

   Income tax benefit








(4,054)

   Interest expense and finance charges, net








14,977

   Other, net








18,040

Operating profit (loss)


$18,831


$809


($14,445)


5,195

margin


7.8%


1.3%




1.7%










Additional adjustments to reconcile to Adjusted EBITDA:









Depreciation and amortization


6,423


5,430


447


12,300

Stock-based compensation


2,524


1,121


800


4,445

Acquisition deal costs


449


6


419


874

Deferred acquisition consideration adjustments to P&L


1,548


700


-


2,248

Profit distributions from non-consolidated affiliates


304


30


8


342

Other non-recurring items **


-


-


5,762


5,762










Adjusted EBITDA *


$30,079


$8,096


($7,009)


$31,166

margin


12.5%


13.1%




10.3%




























* Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization,

stock-based compensation, acquisition deal costs, deferred acquisition consideration adjustments, profit distributions from affiliates, and other non-recurring items.

** Other non-recurring items includes ongoing legal fees and other related expenses related to the SEC inquiry. Additional costs may be incurred in future periods 

related to these matters.









 

SCHEDULE 3










MDC PARTNERS INC.

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA

(US$ in 000s, except percentages)










For the Three Months Ended March 31, 2014




















Strategic 


Performance







Marketing


Marketing







Services


Services


Corporate


Total





































Revenue


$214,804


$60,050


$                -


$274,854




























Net loss attributable to MDC Partners Inc.








($8,846)

Adjustments to reconcile to Operating profit (loss):









   Net loss attributable to the noncontrolling interests








1,362

   Loss from discontinued operations attributable to 









MDC Partners Inc., net of taxes








271

   Equity in earnings of non-consolidated affiliates








(63)

   Income tax benefit








(346)

   Interest expense and finance charges, net








12,619

   Other, net








6,571

Operating profit (loss)


$24,050


($2,005)


($10,477)


$11,568

margin


11.2%


-3.3%




4.2%










Additional adjustments to reconcile to Adjusted EBITDA:









Depreciation and amortization


5,148


4,832


502


10,482

Stock-based compensation


2,139


1,277


952


4,368

Acquisition deal costs


155


584


332


1,071

Deferred acquisition consideration adjustments to P&L


4,445


3,577


-


8,022

Profit distributions from non-consolidated affiliates


-


238


43


281










Adjusted EBITDA *


$35,937


$8,503


($8,648)


$35,792

margin


16.7%


14.2%




13.0%



















*Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, 

acquisition deal costs, deferred acquisition consideration adjustments and profit distributions from affiliates.





 

SCHEDULE 4




MDC PARTNERS INC.

ADJUSTED EBITDA AVAILABLE FOR GENERAL CAPITAL PURPOSES

(US$ in 000s)








Three Months Ended March 31, 


2015

2014

Adjusted EBITDA (1)

$31,166

$35,792

Net income attributable to noncontrolling interests

(2,380)

(1,362)

Capital expenditures, net (2)

(5,300)

(2,496)

Cash taxes

(540)

(83)

Cash interest, net & other (3)

(12,651)

(11,331)




Adjusted EBITDA Available for General Capital Purposes (4)

$10,295

$20,520
















(1) Adjusted EBITDA is a non GAAP measure.  See schedules 2 and 3 for a reconciliation of Net income (loss) to Adjusted EBITDA.  

(2) Capital expenditures, net represents capital expenditures net of landlord reimbursements.

(3) Cash interest, net & other represents the quarterly accrual of cash interest under our Senior Notes.

(4) Adjusted EBITDA Available for General Capital Purposes is a non-GAAP measure, and represents funds available for repayment of debt, acquisitions, deferred acquisition consideration, dividends, and other general corporate initiatives.

 

SCHEDULE 5






MDC PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(US$ in 000s)













March 31,


December 31,



2015


2014











Assets





Current Assets:





Cash and cash equivalents


$17,612


$119,767

Accounts receivable, net


453,362


355,295

Expenditures billable to clients


45,854


40,202

Other current assets


48,892


36,978

Total Current Assets


565,720


552,242






Fixed assets, net


59,598


60,240

Investment in non-consolidated affiliates


8,888


6,110

Goodwill


838,857


851,373

Other intangible assets, net


77,365


86,121

Deferred tax assets


23,570


18,758

Other assets


66,127


74,046

Total Assets


$1,640,125


$1,648,890











Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit



Current Liabilities:





Accounts payable


$251,892


$316,285

Accruals and other liabilities


324,021


271,273

Advance billings


173,104


142,608

Current portion of long term debt


532


534

Current portion of deferred acquisition consideration

100,131


90,804

Total Current Liabilities


849,680


821,504






Long-term debt, less current portion


761,799


742,593

Long-term portion of deferred acquisition consideration

100,673


114,564

Other liabilities


45,814


45,861

Deferred tax liabilities


78,740


77,997

Total Liabilities


1,836,706


1,802,519






Redeemable Noncontrolling Interests


202,338


194,951






Shareholders' Deficit





Common shares


268,822


265,818

Charges in excess of capital


(229,622)


(209,668)

Accumulated deficit


(521,724)


(489,633)

Accumulated other comprehensive loss


(40)


(7,752)

MDC Partners Inc. Shareholders' Deficit


(482,564)


(441,235)

Noncontrolling Interests


83,645


92,655

Total Shareholders' Deficit


(398,919)


(348,580)






Total Liabilities, Redeemable Noncontrolling 





   Interests and Shareholders' Deficit


$1,640,125


$1,648,890






 

 

SCHEDULE 6





MDC PARTNERS INC.

SUMMARY CASH FLOW DATA

(US$ in 000s)











Three Months Ended March 31, 



2015

2014





Cash flows used in continuing operating activities


($118,552)

($40,049)

Discontinued operations


(1,294)

746

Net cash used in operating activities


(119,846)

(39,303)





Cash flows used in continuing investing activities


(8,913)

(44,243)

Discontinued operations


(153)

(500)

Net cash used in investing activities


(9,066)

(44,743)





Net cash provided by (used in) continuing financing activities


26,086

(451)

  Discontinued operations


(40)

(40)

Net cash provided by (used in) financing activities


26,046

(491)





Effect of exchange rate changes on cash and cash equivalents


711

27





Net increase in cash and cash equivalents


($102,155)

($84,510)





  

FOR:

MDC Partners Inc.

CONTACT:

Matt Chesler, CFA


745 Fifth Avenue, 19th Floor


VP, Investor Relations


New York, NY 10151


646-412-6877




mchesler@mdc-partners.com

 

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SOURCE MDC Partners Inc.


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