PRESS RELEASE

 

FOR:	MDC Partners Inc.	CONTACT:	David Doft
	745 Fifth Avenue, 19th Floor		Chief Financial Officer
	New York, NY 10151		646-429-1818
			ddoft@mdc-partners.com

 

MDC PARTNERS INC. REPORTS RESULTS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 2012

 

SECOND QUARTER HIGHLIGHTS:

·

Revenue increased to $274.1 million versus $238.0 million in Q2 2011, an increase of 15.2%

·

Organic revenue increased 8.3% for Q2 2012

·

EBITDA decreased to $31.3 million versus $33.0 million in Q2 2011, impacted by increased costs related to investments made in prior quarters

·

Total Free Cash Flow including working capital declined to $16.6 million versus $20.1 million in Q2 2011

·

Net new business wins of $30.3 million for Q2 2012

 

FIRST SIX MONTHS HIGHLIGHTS:

·

Revenue increased to $509.8 million versus $453.1 million in the first six months of 2011, an increase of 12.5%

·

Organic revenue increased 6.9% year to date for 2012

·

EBITDA decreased to $39.2 million versus $48.7 million in the first six months of 2011, impacted by increased costs related to investments made in prior quarters

·

Total Free Cash Flow including working capital improved to $84.8 million versus an outflow of ($9.1) million in the first six months of 2011

·

Net new business wins of $79.8 million in the first six months of 2012, an increase of 70.5%

 

NEW YORK, NY (July 30, 2012) – MDC Partners Inc. (“MDC Partners” or the “Company”) today announced financial results for the three and six months ended June 30, 2012.

 

Miles S. Nadal, Chairman and Chief Executive Officer of MDC Partners, said, “Our business performed very well in the first half of the year and we are on a good trajectory to achieve our 2012 financial targets.  During the second quarter, organic revenue increased 8.3%, and EBITDA was in line with last year despite the continued impact of historical investment spending.  In addition, cumulative net new business wins for the first half of the year were $80 million, a 71% increase from the $47 million we had in the first half of last year. Given the strong trends we are seeing across our business, we like where we stand heading into the second half of the year, especially as our strategic investments increasingly show benefits in the form of new business wins, quality of work, performance for clients and improved profitability.  We remain focused on cost efficiency and on de-levering the balance sheet, which will result in a material amount of incremental EBITDA flowing through to free cash flow.  As we move into the third and fourth quarters, we expect both EBITDA and margins to outperform 2011 levels.”

 

 

Guidance for 2012 is maintained as follows:

 

				Implied
		2012		Year over Year
		Guidance		Change
Revenue		$1,050 - $1,075 million		+11.3% to +14.0%
EBITDA		$110 - $115 million		+21.2% to +26.7%
Free Cash Flow		$35 - $40 million		+50.8% to +72.3%
+ Change in Working Capital and Other		+$25 million
Total Free Cash Flow		$60 - $65 million		+10.6% to +19.8%
Implied EBITDA Margin		10.5% - 10.7%		+90 to +110 basis points

 

Consolidated revenue for the second quarter of 2012 was $274.1 million, an increase of 15.2% compared to $238.0 million in the second quarter of 2011. EBITDA (as defined) for the second quarter of 2012 was $31.3 million compared to $33.0 million in the second quarter of 2011, due to the impact of investment activity in the second half of 2011. Loss attributable to MDC Partners in the second quarter was ($20.1) million compared to income of $1.3 million in the second quarter of 2011. Diluted loss per share from continuing operations attributable to MDC Partners common shareholders for the second quarter of 2012 was ($0.60) compared to income of $0.05 per share in the same period of 2011. Free cash flow from operations (as defined) was $14.2 million in the second quarter of 2012, compared with $17.1 million in the second quarter of 2011.

 

For the six month period ended June 30, 2012, consolidated revenue was $509.8 million, an increase of 12.5% compared to $453.1 million in the first six months of 2011. EBITDA (as defined) for the first half of 2012 was $39.2 million compared to $48.7 million in the same period of 2011, due to the impact of investment activity in the second half of 2011. Loss attributable to MDC Partners in the first six months of 2012 was ($46.4) million compared to a loss of ($7.4) million in the first six months of 2011. Diluted loss per share from continuing operations attributable to MDC Partners common shareholders for the first six months of 2012 was ($1.45) compared to a loss of ($0.22) per share in the same period of 2011. Free cash flow from operations (as defined) was $6.5 million in the first six months of 2012, compared with $19.0 million in the same period of 2011.

 

“Our plans to improve our balance sheet remain on track," said David Doft, CFO of MDC Partners.  "While leverage increased as expected in the second quarter due to a substantial amount of deferred acquisition consideration as well as the timing of working capital, we remain confident that we will achieve our target net-debt to EBITDA ratio of between 3.0-3.5 times by the end of the year, and below 2.5 times over the long-term.”

 

Conference Call

 

Management will host a conference call on Monday, July 30, 2012 at 4:30 p.m. (EDT) to discuss results. The conference call will be accessible by dialing 1-412-858-4600 or toll free 1-800-860-2442. An investor presentation has been posted on our website www.mdc-partners.com and will be referred to during the conference call.

 

A recording of the conference call will be available until Monday, August 13, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10016791) or by visiting our website at www.mdc-partners.com.

 

 

About MDC Partners Inc.

 

MDC is a Business Transformation Organization that utilizes technology, marketing communications, data analytics and insights and strategic consulting solutions to drive meaningful returns on Marketing and Communications Investments for multinational clients in the United States, Canada, Europe, and the Caribbean.

 

MDC’s 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 MDC'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".

 

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 EBITDA and EBITDA margin (as defined) for the three and six months ended June 30, 2012 and 2011; and (2) presenting Total Free Cash Flow, Free Cash Flow and Free Cash Flow per Share (as defined) for the three and six months ended June 30, 2012 and 2011. Included in this earnings release are tables reconciling MDC’s 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 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.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2012				2011				2012				2011
Revenue		$	274,102			$	238,020			$	509,758			$	453,111
Operating Expenses:
Cost of services sold			188,929				161,078				365,889				318,631
Office and general expenses			74,245				52,508				134,279				96,932
Depreciation and amortization			13,645				9,569				23,644				19,872
			276,819				223,155				523,812				435,435
Operating profit (loss)			(2,717	)			14,865				(14,054	)			17,676
Other Income (Expenses):
Other income (expense), net			214				448				(809	)			762
Interest expense			(11,830	)			(10,666	)			(22,826	)			(20,230	)
Interest income			21				33				70				71
Income (Loss) from continuing operations before income taxes and equity in affiliates			(14,312	)			4,680				(37,619	)			(1,721	)
Income tax expense			2,544				588				3,807				946
Income (Loss) from continuing operations before equity in affiliates			(16,856	)			4,092				(41,426	)			(2,667	)
Equity in earnings of non-consolidated affiliates			34				79				306				334
Income (Loss) from continuing operations			(16,822	)			4,171				(41,120	)			(2,333	)
Loss from discontinued operations, net of taxes			(1,687	)			(321	)			(2,240	)			(895	)
Net income (loss)			(18,509	)			3,850				(43,360	)			(3,228	)
Net income attributable to the noncontrolling interests			(1,605	)			(2,527	)			(3,035	)			(4,132	)
Net income (loss) attributable to MDC Partners Inc.		$	(20,114	)		$	1,323			$	(46,395	)		$	(7,360	)
Income (Loss) Per Common Share:
Basic:
Income (Loss) from continuing operations attributable to MDC Partners Inc. common shareholders		$	(0.60	)		$	0.06			$	(1.45	)		$	(0.22	)
Discontinued operations attributable to MDC Partners Inc. common shareholders		$	(0.05	)		$	(0.01	)		$	(0.07	)		$	(0.03	)
Income (Loss) attributable to MDC Partners Inc. common shareholders		$	(0.65	)		$	0.05			$	(1.52	)		$	(0.25	)
Income (Loss) Per Common Share:
Diluted:
Income (Loss) from continuing operations attributable to MDC Partners Inc. common shareholders		$	(0.60	)		$	0.05			$	(1.45	)		$	(0.22	)
Discontinued operations		$	(0.05	)		$	(0.01	)		$	(0.07	)		$	(0.03	)
Net Income (Loss) attributable to MDC Partners Inc. common shareholders		$	(0.65	)		$	0.04			$	(1.52	)		$	(0.25	)
Weighted Average Number of Common Shares:
Basic			30,872,050				29,016,384				30,380,991				28,952,182
Diluted			30,872,050				32,301,722				30,380,991				28,952,182

 

 

SCHEDULE 2

 

MDC PARTNERS INC.

RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA

(US$ in 000s, except percentages)

 

For the Three Months Ended June 30, 2012

 

		Strategic				Performance
		Marketing				Marketing
		Services				Services				Corporate				Total
Revenue		$	183,750			$	90,352				-			$	274,102
Operating income (loss) as reported		$	13,080			$	1,507			$	(17,304	)		$	(2,717	)
margin			7.1	%			1.7	%							-1.0	%
Add:
Depreciation and amortization			8,828				4,488				329				13,645
Stock-based compensation			1,967				1,887				11,499				15,353
Acquisition deal costs			567				201				162				930
Deferred acquisition consideration adjustments to P&L			4,430				(463	)			-				3,967
Profit distributions from affiliates			-				-				166				166
EBITDA *		$	28,872			$	7,620			$	(5,148	)		$	31,344
margin			15.7	%			8.4	%							11.4	%

 

*

EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization, stock-based compensation, acquisition deal costs, deferred acquisition consideration adjustments and profit distributions from affiliates.

*  

MDC PARTNERS INC.

RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA

(US$ in 000s, except percentages)

 

For the Three Months Ended June 30, 2011

 

		Strategic				Performance
		Marketing				Marketing
		Services				Services				Corporate				Total
Revenue		$	154,957			$	83,063				-			$	238,020
Operating income (loss) as reported		$	23,051			$	2,534			$	(10,720	)			14,865
margin			14.9	%			3.1	%							6.2	%
Add:
Depreciation and amortization			5,182				4,270				117				9,569
Stock-based compensation			176				478				5,121				5,775
Acquisition deal costs			112				103				429				644
Deferred acquisition consideration adjustments to P&L			954				1,046				-				2,000
Profit distributions from affiliates			-				-				181				181
EBITDA*		$	29,475			$	8,431			$	(4,872	)		$	33,034
margin			19.0	%			10.2	%							13.9	%

  

*

EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization, stock-based compensation, acquisition deal costs, deferred acquisition consideration adjustments and profit distributions from affiliates.

 

 

SCHEDULE 3

 

MDC PARTNERS INC.

RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA

(US$ in 000s, except percentages)

 

For the Six Months Ended June 30, 2012

 

		Strategic				Performance
		Marketing				Marketing
		Services				Services				Corporate				Total
Revenue		$	343,846			$	165,912				-			$	509,758
Operating income (loss) as reported		$	13,886			$	(2,355	)		$	(25,585	)		$	(14,054	)
margin			4.0	%			-1.4	%							-2.8	%
Add:
Depreciation and amortization			13,925				9,042				677				23,644
Stock-based compensation			3,833				3,578				13,826				21,237
Acquisition deal costs			650				288				732				1,670
Deferred acquisition consideration adjustments to P&L			6,856				(361	)			-				6,495
Profit distributions from affiliates			-				-				166				166
EBITDA *		$	39,150			$	10,192			$	(10,184	)		$	39,158
margin			11.4	%			6.1	%							7.7	%

 

*

EBITDA is a non-GAAP measure, but as shown above it represents operating income (loss) plus depreciation and amortization, stock-based compensation, acquisition deal costs, deferred acquisition consideration adjustments and profit distributions from affiliates.

 

MDC PARTNERS INC.

RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA

(US$ in 000s, except percentages)

 

For the Six Months Ended June 30, 2011

 

		Strategic				Performance
		Marketing				Marketing
		Services				Services				Corporate				Total
Revenue		$	296,450			$	156,661				-			$	453,111
Operating income (loss) as reported		$	31,023			$	4,183			$	(17,530	)		$	17,676
margin			10.5	%			2.7	%							3.9	%
Add:
Depreciation and amortization			10,989				8,662				221				19,872
Stock-based compensation			1,723				983				7,343				10,049
Acquisition deal costs			399				384				858				1,641
Deferred acquisition consideration adjustments to P&L			558				(1,535	)			-				(977	)
Profit distributions from affiliates			-				-				448				448
EBITDA*		$	44,692			$	12,677			$	(8,660	)		$	48,709
margin			15.1	%			8.1	%							10.7	%

 

*

EBITDA is a non-GAAP measure, but as shown above it represents operating income (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

FREE CASH FLOW

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

 

		Three Months Ended June 30,								Six Months Ended June 31,
		2012				2011				2012				2011
EBITDA		$	31,344			$	33,034			$	39,158			$	48,709
Net Income Attributable to Noncontrolling Interests			(1,605	)			(2,527	)			(3,035	)			(4,132	)
Capital Expenditures, net (1)			(4,349	)			(3,283	)			(8,943	)			(7,024	)
Cash Taxes			(323	)			(71	)			(347	)			(135	)
Cash Interest, net & Other			(10,871	)			(10,069	)			(20,310	)			(18,428	)
Free Cash Flow (2)		$	14,196			$	17,084			$	6,523			$	18,990
Changes in Working Capital (3)			2,384				2,969				78,245				(28,053	)
Total Free Cash Flow (2)		$	16,580			$	20,053			$	84,768			$	(9,063	)
Diluted Common Shares Outstanding			30,872,050				32,301,722				30,380,991				28,952,182
Total Free Cash Flow per Share		$	0.54			$	0.62			$	2.79			$	(0.31	)

 

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

(2) Free Cash Flow and Total Free Cash Flow are non-GAAP measures. As shown above, Free Cash Flow represents EBITDA less net income attributable to noncontrolling interests, less capital expenditures, less cash taxes, less net cash interest (including interest paid and other).

(3) Changes in Working Capital includes cash acquired in acquisitions.

 

 

SCHEDULE 5

 

MDC PARTNERS INC.

CONSOLIDATED BALANCE SHEETS

(US$ in 000s)

 

		June 30,				December 31,
		2012				2011
Assets
Current Assets:
Cash and cash equivalents		$	71,696			$	8,096
Accounts receivable, net			334,375				238,592
Expenditures billable to clients			70,553				39,067
Other current assets			16,669				12,657
Total Current Assets			493,293				298,412
Fixed assets, net			51,775				47,737
Investment in affiliates			124				99
Goodwill			736,886				605,244
Other intangible assets, net			65,116				57,980
Deferred tax assets			15,422				15,380
Other assets			30,821				30,893
Total Assets		$	1,393,437			$	1,055,745
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable		$	322,970			$	178,282
Accrued and other liabilities			78,834				72,930
Advance billings			157,373				122,021
Current portion of long term debt			1,267				1,238
Current portion of deferred acquisition consideration			90,686				51,829
Total Current Liabilities			651,130				426,300
Long-term debt			470,128				383,936
Long-term portion of deferred acquisition consideration			82,638				85,394
Other liabilities			47,922				14,900
Deferred tax liabilities			53,467				50,724
Total Liabilities			1,305,285				961,254
Redeemable Noncontrolling Interests			102,794				107,432
Shareholders' Equity (Deficit)
Common shares			253,217				228,209
Shares to be issued			424				424
Charges in excess of capital			(63,835	)			(45,102	)
Accumulated deficit			(277,669	)			(231,274	)
Stock subscription receivable			(55	)			(55	)
Accumulated other comprehensive loss			(4,130	)			(4,658	)
MDC Partners Inc. Shareholders' Equity (Deficit)			(92,048	)			(52,456	)
Noncontrolling Interests			77,406				39,515
Total Equity (Deficit)			(14,642	)			(12,941	)
Total Liabilities, Redeemable Noncontrolling Interests and Equity		$	1,393,437			$	1,055,745

 

 

SCHEDULE 6

 

MDC PARTNERS INC.

SUMMARY CASH FLOW DATA

(US$ in 000s)

 

		Six Months Ended June 31,
		2012				2011
Cash flows used in continuing operating activities		$	(5,076	)		$	(25,520	)
Discontinued operations			(1,485	)			(182	)
Net cash used in operating activities			(6,561	)			(25,702	)
Net cash provided by (used in) continuing investing activities			26,328				(18,744	)
Discontinued operations			22				(161	)
Net cash provided by (used in) investing activities			26,350				(18,905	)
Net cash provided by continuing financing activities			44,187				39,534
Effect of exchange rate changes on cash and cash equivalents			(376	)			(172	)
Net increase (decrease) in cash and cash equivalents		$	63,600			$	(5,245	)