MDC Partners Inc. Reports Results For The Three Months Ended March 31, 2017

NEW YORK, April 27, 2017 /CNW/ -- 

FIRST QUARTER HIGHLIGHTS:

  • Reported revenue increased 11.5% to $344.7 million
  • Organic revenue growth of 5.6%
  • Net loss attributable to MDC Partners common shareholders of ($11.1) million vs a loss of ($23.3) million last year
  • Adjusted EBITDA increased 9.1% to $35.8 million, with margins of 10.4% (See Schedule 2 and 3)
  • Net New Business wins totaled $25.6 million in the first quarter

(NASDAQ: MDCA) – MDC Partners Inc. ("MDC Partners" or the "Company") today announced financial results for the three months ended March 31, 2017.

Scott Kauffman, Chairman and Chief Executive Officer of MDC Partners, said, "We are pleased to enter 2017 with renewed revenue and earnings momentum and a significantly strengthened balance sheet. Our organic revenue growth accelerated to 5.6% in the quarter with very strong 8.9% growth in the U.S. as our portfolio of world-class agencies are winning market share. In the quarter we won $26 million of net annualized revenue and the new business pipeline continues to be robust. We are excited about what the remainder of the year holds."

David Doft, Chief Financial Officer of MDC Partners, said, "The solid first quarter and our favorable business outlook positions us well to achieve our 2017 financial targets, including approximately 4% organic revenue growth and an improvement in Adjusted EBITDA margins of approximately 100 basis points on a full year basis. We expect the benefits of the profitability improvement initiatives we have been undertaking to become increasingly evident as we move through the year. Importantly, the completion of the previously-announced Convertible Preference Shares offering this past quarter, as well as the smoothed working capital trends we are seeing, strengthens our balance sheet and credit profile."

First Quarter 2017 Financial Results

Revenue for the first quarter of 2017 was $344.7 million, an increase of 11.5%, compared to $309.0 million in the first quarter of 2016.  The effect of foreign exchange was negative 0.6%, the impact of Non-GAAP acquisitions (dispositions), net was positive 6.6%, and the resulting organic revenue growth was 5.6%. Organic revenue growth for the period was favorably impacted by 50 basis points from increased billable pass-through costs incurred on clients' behalf from certain of our partner firms acting as principal.

Net loss attributable to MDC Partners common shareholders in the first quarter of 2017 was ($11.1) million compared to a loss of ($23.3) million in the first quarter of 2016.  Diluted loss per share attributable to MDC Partners common shareholders for the first quarter of 2017 was ($0.21) compared to a loss of ($0.47) per share in the first quarter of 2016.  Adjusted EBITDA for the first quarter of 2017 was $35.8 million, an increase of 9.1% compared to $32.8 million in the first quarter of 2016.

Financial Outlook

Guidance for 2017 is maintained as follows: 


2017 Guidance


Organic Revenue

 approximately 4% growth 





Adjusted EBITDA Margin                                                                    

 approximately 100 basis points increase 





*

The Company has excluded a quantitative reconciliation with respect to the Company's 2017 guidance under  the "unreasonable efforts" exception in item 10(e)(1)(i)(B) of Regulation S-K.

 

Convertible Preference Shares

During the first quarter the Company completed the previously-announced sale of $95 million of non-voting Convertible Preference Shares to affiliates of The Goldman Sachs Group, Inc. In conjunction with the closing of the transaction, Bradley J. Gross, a managing director in the Merchant Banking Division of Goldman Sachs, joined the MDC Partners Board of Directors, which expanded to seven members.

Conference Call

Management will host a conference call on Thursday, April 27, 2017, at 4:30 p.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 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), May 4, 2017, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10105975), or by visiting our website at www.mdc-partners.com.

About MDC Partners Inc.

MDC Partners is one of the fastest-growing and most influential marketing and communications networks in the world.  Its 50+ advertising, public relations, branding, digital, social and event marketing agencies are responsible for some of the most memorable and engaging campaigns for the world's most respected brands.  As "The Place Where Great Talent Lives," MDC Partners is known for its unique partnership model, empowering the most entrepreneurial and innovative talent to drive competitive advantage and business growth for clients.  By leveraging technology, data analytics, insights, and strategic consulting solutions, MDC Partners drives measurable results and optimizes 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 for the three months ended March 31, 2017, 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. Prior to 2017, Adjusted EBITDA included an additional adjustment for acquisition deal costs. Beginning with 2017, on a prospective basis we no longer include the acquisition deal cost adjustment but we continue to disclose this metric on Schedule 6 for your reference.

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 2017 organic revenue growth to the corresponding GAAP measure because we are unable to predict the 2017 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 2017 increase in Adjusted EBITDA margin 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. 

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, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, 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 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 those relating to redeemable noncontrolling interests and deferred acquisition consideration;
  • the successful completion and integration of acquisitions which complement and expand the Company's business capabilities;
  • foreign currency fluctuations; and
  • risks associated with the one Canadian securities class action litigation claim.

The Company's business strategy includes ongoing efforts to engage in 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 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,



2017

2016









Revenue


$                    344,700

$                    309,042





Operating expenses:




Cost of services sold


237,563

211,446

Office and general expenses


87,840

77,828

Depreciation and amortization


10,898

11,220



336,301

300,494

Operating profit


8,399

8,548





Other income (expense):




Other, net


2,567

15,512

Interest expense and finance charges


(16,768)

(15,575)

Loss on redemption of notes


-

(33,298)

Interest income


227

178



(13,974)

(33,183)

Loss before income taxes and equity in earnings of non-consolidated affiliates


(5,575)

(24,635)

Income tax expense (benefit)


3,969

(1,972)

Loss before equity in earnings of non-consolidated affiliates


(9,544)

(22,663)

Equity in earnings (losses) of non-consolidated affiliates


(139)

229

Net loss


(9,683)

(22,434)

Net income attributable to the noncontrolling interests


(883)

(859)

Net loss attributable to MDC Partners Inc.


(10,566)

(23,293)

Accretion on convertible preference shares


(507)

-

Net loss attributable to MDC Partners Inc. common




shareholders


$                    (11,073)

$                    (23,293)





Loss per common share:




Basic and diluted:




Net loss attributable to MDC Partners Inc. common




shareholders


$                       (0.21)

$                       (0.47)





Weighted average number of common shares outstanding:




Basic and diluted


52,998,244

50,002,552





 

 

SCHEDULE 2














MDC PARTNERS INC.


UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA


(US$ in 000s, except percentages)














For the Three Months Ended March 31, 2017






































Advertising and


Reportable










Communications


Segment


All Other


Corporate


Total














Revenue


$              344,700


$              286,805


$                57,895


$                        -


$              344,700














Net loss attributable to MDC Partners Inc.










$               (10,566)


Adjustments to reconcile to operating profit (loss):












   Net income attributable to the noncontrolling interests










883


   Equity in losses of non-consolidated affiliates










139


   Income tax expense










3,969


   Interest expense and finance charges, net










16,541


   Other, net










(2,567)


Operating profit (loss)


$                16,968


$                11,577


$                  5,391


$                 (8,569)


$                  8,399


margin


4.9%


4.0%


9.3%




2.4%














Additional adjustments to reconcile to Adjusted EBITDA:












Depreciation and amortization


10,589


8,393


2,196


309


10,898


Stock-based compensation


4,346


3,913


433


604


4,950


Deferred acquisition consideration adjustments


11,431


9,371


2,060


-


11,431


Other items, net **


-


-


-


135


135














Adjusted EBITDA *


$                43,334


$                33,254


$                10,080


$                 (7,521)


$                35,813


margin


12.6%


11.6%


17.4%




10.4%














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


      adjustments, distributions from non-consolidated affiliates, and other items. Prior to 2017, Adjusted EBITDA included an additional adjustment for acquisition deal costs. Beginning with 2017, on a 


      prospective basis, we no longer include the acquisition deal cost adjustment but we continue to disclose this metric on Schedule 6 for your reference.






**   Other items, net includes (i) one-time gains related to the former CEO's repayment to the Company for certain perquisites and expenses, (ii) legal fees and related expenses, net of insurance proceeds,


      relating to the SEC investigation and related class action litigation claims, (iii) one-time charge for the balance of prior cash bonus award amounts paid to the former CEO and CAO that will not be


      recovered, (iv) write-off of certain assets related to the former CEO and CAO termination, and (v) a one-time penalty relating to the final settlement of the SEC investigation.  See Schedule 6 for


      reconciliation of amounts.












 

 

SCHEDULE 3












MDC PARTNERS INC.

UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA

(US$ in 000s, except percentages)












For the Three Months Ended March 31, 2016



































Advertising and


Reportable









Communications


Segment


All Other


Corporate


Total












Revenue


$              309,042


$              254,106


$                54,936


$                        -


$              309,042












Net loss attributable to MDC Partners Inc.










$               (23,293)

Adjustments to reconcile to operating profit (loss):











   Net income attributable to the noncontrolling interests










859

   Equity in earnings of non-consolidated affiliates










(229)

   Income tax benefit










(1,972)

   Interest expense and finance charges, net










15,397

   Loss on redemption of notes










33,298

   Other, net










(15,512)

Operating profit (loss)


$                21,678


$                19,498


$                  2,180


$               (13,130)


$                  8,548

margin


7.0%


7.7%


4.0%




2.8%












Additional adjustments to reconcile to Adjusted EBITDA:











Depreciation and amortization


10,823


7,060


3,763


397


11,220

Stock-based compensation


3,881


3,751


130


804


4,685

Acquisition deal costs


65


65


-


488


553

Deferred acquisition consideration adjustments


6,327


4,118


2,209


-


6,327

Other items, net **


-


-


-


1,486


1,486












Adjusted EBITDA *


$                42,774


$                34,492


$                  8,282


$                 (9,955)


$                32,819

margin


13.8%


13.6%


15.1%




10.6%












*    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, distributions from non-consolidated affiliates, and other items. Beginning with 2017, on a prospective basis, we no longer include an adjustment for acquisition deal costs in our 

     Adjusted EBITDA measure. For your reference, we continue to disclose this metric on Schedule 6.








**  Other items, net includes (i) one-time gains related to the former CEO's repayment to the Company for certain perquisites and expenses, (ii) legal fees and related expenses, net of insurance proceeds,

     relating to the SEC investigation and related class action litigation claims, (iii) one-time charge for the balance of prior cash bonus award amounts paid to the former CEO and CAO that will not be

     recovered, (iv) write-off of certain assets related to the former CEO and CAO termination, and (v) a one-time penalty relating to the final settlement of the SEC investigation.  See Schedule 6 for 

     reconciliation of amounts.






















Note: Results for 2016 have been recasted to reflect the reclassification of one of our CRM businesses from the Reportable Segment to All Other effective January 1, 2017.



 

 

SCHEDULE 4






MDC PARTNERS INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(US$ in 000s)













March 31,


December 31,



2017


2016



(Unaudited)



Assets





Current assets:





Cash and cash equivalents


$           23,186


$           27,921

Cash held in trusts


5,377


5,341

Accounts receivable, net


428,195


388,340

Expenditures billable to clients


37,071


33,118

Other current assets


38,606


34,862

Total current assets


532,435


489,582

Fixed assets, net


82,228


78,377

Investments in non-consolidated affiliates


4,606


4,745

Goodwill


846,124


844,759

Other intangible assets, net


80,968


85,071

Deferred tax assets


41,539


41,793

Other assets


38,753


33,051

Total assets


$       1,626,653


$       1,577,378






Liabilities, redeemable noncontrolling interests, and shareholders' deficit





Current liabilities:





Accounts payable


$         252,146


$         251,456

Trust liability


5,377


5,341

Accruals and other liabilities


294,341


303,581

Advance billings


148,679


133,925

Current portion of long-term debt


260


228

Current portion of deferred acquisition consideration


111,612


108,290

Total current liabilities


812,415


802,821

Long-term debt, less current portion


887,270


936,208

Long-term portion of deferred acquisition consideration


123,758


121,274

Other liabilities


54,611


56,012

Deferred tax liabilities


105,402


103,443

Total liabilities


1,983,456


2,019,758






Redeemable noncontrolling interests


60,383


60,180






Shareholders' deficit





Convertible preference shares (liquidation preference $95,507)


90,220


-

Common shares


323,023


317,784

Shares to be issued


-


2,360

Charges in excess of capital


(308,808)


(311,581)

Accumulated deficit


(585,498)


(574,932)

Accumulated other comprehensive loss


(2,021)


(1,824)

MDC Partners Inc. shareholders' deficit


(483,084)


(568,193)

Noncontrolling interests


65,898


65,633

Total shareholders' deficit


(417,186)


(502,560)

Total liabilities, redeemable noncontrolling interests, and shareholders' deficit


$       1,626,653


$       1,577,378






 

 

SCHEDULE 5





MDC PARTNERS INC.

UNAUDITED SUMMARY CASH FLOW DATA

(US$ in 000s)











Three Months Ended March 31,



2017

2016





Net cash used in operating activities


$                  (30,676)

$                (122,416)





Net cash used in investing activities


(11,090)

(8,128)





Net cash provided by financing activities


37,089

92,443





Effect of exchange rate changes on cash and cash equivalents


(58)

(1,517)





Net decrease in cash and cash equivalents


$                    (4,735)

$                  (39,618)





 

 

SCHEDULE 6


UNAUDITED RECONCILIATION OF COMPONENTS OF NON-GAAP MEASURES

(US$ in 000s)


















2016


2017


Q1

Q2

Q3

Q4

FY


Q1

OTHER ITEMS, NET








SEC investigation and class action litigation expenses

$     1,486

$     1,359

$        767

$        454

$         4,066


$          339

SEC final settlement payment

-

-

-

1,500

1,500


-

D&O insurance proceeds

-

(1,107)

(3,230)

(1,583)

(5,920)


(204)

CEO repayment for certain perquisites and expenses

-

-

-

-

-


-

CEO and CAO termination related expenses

-

-

-

-

-


-

Total other items, net

$     1,486

$        252

$    (2,463)

$        371

$          (354)


$          135


















2016


2017


Q1

Q2

Q3

Q4

FY


Q1

CAPITAL EXPENDITURES, NET








Capital expenditures

$    (5,539)

$    (7,909)

$    (6,275)

$    (9,709)

$     (29,432)


$      (9,413)

Landlord reimbursements

-

871

248

3,651

4,770


75

Total capital expenditures, net

$    (5,539)

$    (7,038)

$    (6,027)

$    (6,058)

$     (24,662)


$      (9,338)


















2016


2017


Q1

Q2

Q3

Q4

FY


Q1

CASH INTEREST, NET & OTHER








Cash interest paid

$  (25,703)

$    (1,212)

$    (1,063)

$  (36,692)

$     (64,670)


$         (999)

Bond interest accrual adjustment

11,995

(15,680)

(14,625)

20,800

2,490


(14,625)

Adjusted cash interest paid

(13,708)

(16,892)

(15,688)

(15,892)

(62,180)


(15,624)

Interest income

178

203

218

209

808


227

Total cash interest, net & other

$  (13,530)

$  (16,689)

$  (15,470)

$  (15,683)

$     (61,372)


$    (15,397)


















2016


2017


Q1

Q2

Q3

Q4

FY


Q1

MISCELLANEOUS OTHER DISCLOSURES








Net income attributable to the noncontrolling interests

$        859

$     1,254

$     1,059

$     2,046

$         5,218


$          883

Cash taxes

$        143

$        664

$     1,991

$          97

$         2,895


$       1,293

Acquisition deal costs

$        553

$        907

$        806

$        374

$         2,640


$          234

















Note: Actuals may not foot due to rounding








 

FOR:

MDC Partners Inc. 

CONTACT:

Matt Chesler, CFA


745 Fifth Avenue, 19th Floor 


VP, Investor Relations and Finance


New York, NY 10151 


646-412-6877




mchesler@mdc-partners.com

 

 

SOURCE MDC Partners Inc.


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