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 NINE MONTHS ENDED SEPTEMBER 30, 2012

 

THIRD QUARTER HIGHLIGHTS:

·

Revenue increased to $267.8 million versus $235.7 million in Q3 2011, an increase of 13.6%

·

Organic revenue increased 6.7% for Q3 2012

·

EBITDA increased to $33.7 million versus $17.3 million in Q3 2011, an increase of 94.7%

·

EBITDA margin increased 530 basis points to 12.6% versus 7.3% in Q3 2011

·

Free Cash Flow (as defined) increased to $17.4 million versus an outflow of ($3.7) million in Q3 2011

·

Net new business wins of $23.4 million for Q3 2012

 

NINE MONTHS HIGHLIGHTS:

·

Revenue increased to $777.3 million versus $686.3 million in the nine months ended September 30, 2011, an increase of 13.2%

·

Organic revenue increased 7.2% year to date for 2012

·

EBITDA increased to $73.4 million versus $66.7 million in the nine months ended September 30, 2011, an increase of 10.0%

·

Free Cash Flow improved to $24.2 million versus $15.7 million in the nine months ended September 30, 2011, an increase of 54.2%

·

Net new business wins of $103.2 million in the nine months ended September 30, 2012, an increase of 36.4%

 

NEW YORK, NY (November 5, 2012) – MDC Partners Inc. (“MDC Partners” or the “Company”) today announced financial results for the three and nine months ended September 30, 2012.

 

Miles S. Nadal, Chairman and Chief Executive Officer of MDC Partners, said, “We are very pleased with our third quarter financial performance. Following a three-year period of investment in our business, our results in the third quarter, and particularly our growth in EBITDA and margin, are proof that our plan to broaden our service offering and to build new platforms that represent the future of the industry is working. We are well on our way to continued margin expansion in the periods to come as we leverage the investments we have made.”

 

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 third quarter of 2012 was $267.8 million, an increase of 13.6% compared to $235.7 million in the third quarter of 2011. EBITDA (as defined) for the third quarter of 2012 was $33.7 million, an increase of 94.7% compared to $17.3 million in the third quarter of 2011, as the company realized 530 basis points of EBITDA margin expansion from the leveraging of prior investments in growth initiatives. Loss attributable to MDC Partners in the third quarter was ($14.5) million compared to a loss of ($19.6) million in the third quarter of 2011. Diluted loss per share from continuing operations attributable to MDC Partners common shareholders for the third quarter of 2012 was ($0.45) compared to ($0.65) per share in the same period of 2011. Free cash flow from operations (as defined) was $17.4 million in the third quarter of 2012, compared with an outflow of ($3.7) million in the third quarter of 2011.

 

For the nine month period ended September 30, 2012, consolidated revenue was $777.3 million, an increase of 13.2% compared to $686.3 million in the nine months ended September 30, 2011. EBITDA (as defined) for the nine months ended 2012 increased 10.0% to $73.4 million compared to $66.7 million in the same period of 2011. Loss attributable to MDC Partners in the nine months ended 2012 was ($60.9) million compared to a loss of ($26.9) million in the nine months ended 2011. Diluted loss per share from continuing operations attributable to MDC Partners common shareholders for the nine months ended 2012 was ($1.89) compared to a loss of ($0.86) per share in the same period of 2011. Free cash flow from operations (as defined) was $24.2 million in the nine months ended 2012, compared with $15.7 million in the same period of 2011.

 

David Doft, CFO of MDC Partners, said, “We are making significant progress reducing our balance sheet leverage, which was at 3.46 times net debt-to-pro-forma-EBITDA as of the end of the quarter. Our focus over the next several quarters is to bring our leverage down further, and we expect it to be between 3.0 and 3.5 times net debt-to-pro-forma-EBITDA by year-end and 2.5 to 3 times net debt-to-pro forma EBITDA by the end of 2013. We believe that a stronger balance sheet in conjunction with expanding EBITDA and margin growth will result in stronger equity returns for shareholders over time.”

 

 

Conference Call

 

Management will host a conference call on Monday, November 5, 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 one hour after the call until 9:00 a.m. November 19, 2012, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10019812) 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 nine months ended September 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 nine months ended September 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 September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Revenue		$	267,817			$	235,706			$	777,269			$	686,335
Operating Expenses:
Cost of services sold			180,888				173,526				546,117				489,207
Office and general expenses			73,168				55,373				207,297				152,093
Depreciation and amortization			12,435				9,778				36,071				29,645
			266,491				238,677				789,485				670,945
Operating profit (loss)			1,326				(2,971	)			(12,216	)			15,390
Other Income (Expenses):
Other expense, net			(433	)			(3,112	)			(1,242	)			(2,350	)
Interest expense			(11,594	)			(10,800	)			(34,420	)			(31,030	)
Interest income			70				51				183				152
Loss from continuing operations before income taxes
and equity in affiliates			(10,631	)			(16,832	)			(47,695	)			(17,838	)
Income tax expense (recovery)			2,207				(42	)			6,014				904
Loss from continuing operations before equity in affiliates			(12,838	)			(16,790	)			(53,709	)			(18,742	)
Equity in earnings (loss) of non-consolidated affiliates			93				(120	)			399				214
Loss from continuing operations			(12,745	)			(16,910	)			(53,310	)			(18,528	)
Loss from discontinued operations, net of taxes			(630	)			(608	)			(3,153	)			(1,869	)
Net loss			(13,375	)			(17,518	)			(56,463	)			(20,397	)
Net income attributable to the noncontrolling interests			(1,121	)			(2,056	)			(4,428	)			(6,537	)
Net loss attributable to MDC Partners Inc.		$	(14,496	)		$	(19,574	)		$	(60,891	)		$	(26,934	)
Loss Per Common Share:
Basic and Diluted:
Loss from continuing operations attributable to MDC
Partners Inc. common shareholders		$	(0.45	)		$	(0.65	)		$	(1.89	)		$	(0.86	)
Discontinued operations attributable to MDC
Partners Inc. common shareholders		$	(0.02	)		$	(0.02	)		$	(0.10	)		$	(0.07	)
Loss attributable to MDC Partners Inc.
common shareholders		$	(0.47	)		$	(0.67	)		$	(1.99	)		$	(0.93	)
Weighted Average Number of Common Shares:
Basic and Diluted			31,051,561				29,158,703				30,606,146				29,051,450

 

 

SCHEDULE 2
MDC PARTNERS INC.
RECONCILIATION OF OPERATING INCOME (LOSS) TO EBITDA
(US$ in 000s, except percentages)
For the Three Months Ended September 30, 2012
			Strategic				Performance
			Marketing				Marketing
			Services				Services				Corporate				Total
Revenue		$	176,672			$	91,145				-			$	267,817
Operating income (loss) as reported		$	8,158			$	(214	)		$	(6,618	)		$	1,326
margin			4.6	%			-0.2	%							0.5	%
Add:
Depreciation and amortization			7,813				4,292				330				12,435
Stock-based compensation			2,769				2,009				355				5,133
Acquisition deal costs			213				160				438				811
Deferred acquisition consideration adjustments to P&L			10,964				2,667				-				13,631
Profit distributions from affiliates			-				-				376				376
EBITDA *		$	29,917			$	8,914			$	(5,119	)		$	33,712
margin			16.9	%			9.8	%							12.6	%

*

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 September 30, 2011
			Strategic				Performance
			Marketing				Marketing
			Services				Services				Corporate				Total
Revenue		$	146,130			$	89,576				-			$	235,706
Operating income (loss) as reported		$	(183	)		$	6,726			$	(9,514	)			(2,971	)
margin			-0.1	%			7.5	%							-1.3	%
Add:
Depreciation and amortization			5,353				4,200				225				9,778
Stock-based compensation			2,173				1,608				3,990				7,771
Acquisition deal costs			52				251				494				797
Deferred acquisition consideration adjustments to P&L			2,871				(1,027	)			-				1,844
Profit distributions from affiliates			-				-				100				100
EBITDA*		$	10,266			$	11,758			$	(4,705	)		$	17,319
margin			7.0	%			13.1	%							7.3	%

*

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 Nine Months Ended September 30, 2012
			Strategic				Performance
			Marketing				Marketing
			Services				Services				Corporate				Total
Revenue		$	520,518			$	256,751				-			$	777,269
Operating income (loss) as reported		$	22,044			$	(2,057	)		$	(32,203	)		$	(12,216	)
margin			4.2	%			-0.8	%							-1.6	%
Add:
Depreciation and amortization			21,738				13,326				1,007				36,071
Stock-based compensation			6,602				5,587				14,181				26,370
Acquisition deal costs			863				448				1,170				2,481
Deferred acquisition consideration adjustments to P&L			17,820				2,306				-				20,126
Profit distributions from affiliates			-				-				542				542
EBITDA *		$	69,067			$	19,610			$	(15,303	)		$	73,374
margin			13.3	%			7.6	%							9.4	%

*

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 Nine Months Ended September 30, 2011
			Strategic				Performance
			Marketing				Marketing
			Services				Services				Corporate				Total
Revenue		$	442,580			$	243,755				-			$	686,335
Operating income (loss) as reported		$	30,840			$	11,594			$	(27,044	)		$	15,390
margin			7.0	%			4.8	%							2.2	%
Add:
Depreciation and amortization			16,342				12,857				446				29,645
Stock-based compensation			3,896				2,591				11,333				17,820
Acquisition deal costs			451				635				1,352				2,438
Deferred acquisition consideration adjustments to P&L			3,428				(2,562	)			-				866
Profit distributions from affiliates			-				-				548				548
EBITDA*		$	54,957			$	25,115			$	(13,365	)		$	66,707
margin			12.4	%			10.3	%							9.7	%

*

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 September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
EBITDA		$	33,712			$	17,319			$	73,374			$	66,707
Net Income Attributable to Noncontrolling Interests			(1,121	)			(2,056	)			(4,428	)			(6,537	)
Capital Expenditures, net (1)			(4,736	)			(9,145	)			(13,679	)			(16,168	)
Cash Taxes			(572	)			(29	)			(919	)			(164	)
Cash Interest, net & Other			(9,871	)			(9,744	)			(30,138	)			(28,142	)
Free Cash Flow (2)		$	17,412			($	3,655	)		$	24,210			$	15,696
Changes in Working Capital (3)			17,742				14,257				96,421				(14,811	)
Total Free Cash Flow (2)		$	35,154			$	10,602			$	120,631			$	885
Diluted Common Shares Outstanding			31,051,561				29,158,703				30,606,146				29,051,450
Total Free Cash Flow per Share		$	1.13			$	0.36			$	3.94			$	0.03

(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)

		September 30,				December 31,
		2012				2011
Assets
Current Assets:
Cash and cash equivalents		$	72,799			$	8,096
Accounts receivable, net			313,540				238,592
Expenditures billable to clients			52,554				39,067
Other current assets			17,634				12,657
Total Current Assets			456,527				298,412
Fixed assets, net			51,852				47,737
Investment in affiliates			18				99
Goodwill			718,196				605,244
Other intangible assets, net			75,985				57,980
Deferred tax assets			15,500				15,380
Other assets			33,663				30,893
Total Assets		$	1,351,741			$	1,055,745
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable		$	311,023			$	178,282
Accrued and other liabilities			87,682				72,930
Advance billings			127,636				122,021
Current portion of long term debt			1,871				1,238
Current portion of deferred acquisition consideration			82,765				51,829
Total Current Liabilities			610,977				426,300
Long-term debt			469,780				383,936
Long-term portion of deferred acquisition consideration			85,804				85,394
Other liabilities			49,778				14,900
Deferred tax liabilities			55,248				50,724
Total Liabilities			1,271,587				961,254
Redeemable Noncontrolling Interests			100,455				107,432
Shareholders' Equity (Deficit)
Common shares			253,245				228,209
Shares to be issued			424				424
Charges in excess of capital			(58,234	)			(45,102	)
Accumulated deficit			(292,165	)			(231,274	)
Stock subscription receivable			(55	)			(55	)
Accumulated other comprehensive loss			(933	)			(4,658	)
MDC Partners Inc. Shareholders' Deficit			(97,718	)			(52,456	)
Noncontrolling Interests			77,417				39,515
Total Deficit			(20,301	)			(12,941	)
Total Liabilities, Redeemable Noncontrolling
Interests and Deficit		$	1,351,741			$	1,055,745

SCHEDULE 6
MDC PARTNERS INC.
SUMMARY CASH FLOW DATA
(US$ in 000s)

		Nine Months Ended September 30,
		2012				2011
Cash flows provided by (used in) continuing operating activities		$	18,119			$	(3,770	)
Discontinued operations			(2,313	)			(2,411	)
Net cash provided by (used in) operating activities			15,806				(6,181	)
Net cash provided by (used in) continuing investing activities			13,727				(37,660	)
Discontinued operations			46				(252	)
Net cash provided by (used in) investing activities			13,773				(37,912	)
Net cash provided by continuing financing activities			35,143				41,162
Effect of exchange rate changes on cash and cash equivalents			(19	)			(673	)
Net increase (decrease) in cash and cash equivalents		$	64,703			($	3,604	)