MDC Partners Cites ‘Poor’ First-Half Results and Promises to Reduce Costs on Earnings Call – Info Advertisement

Ad agency network MDC Partners called its financial performance for the first half of 2018 “poor” in an earnings call today but sounded more optimistic about the last six months of the fiscal year.

Executives focused on several recent moves to reduce costs and improve efficiency, along with major hires including, most prominently, that of CP+B co-founder Alex Bogusky.

Overall revenue for the second quarter fell 2.8 percent year over year—from $390.5 million in 2017 to $379.7 million this year—while organic revenue was down 1.7 percent.

EBITDA also went from $47 million to $43 million.

CEO Scott Kauffman opened the call by saying the quarter “continued to be challenging, as expected” thanks to “headwinds” created by a “prolonged new business sales cycle and continued client cutbacks.”

The network reported $17.1 million in net new business wins for the quarter, and Kauffman cited MDC Partners agencies’ expanding relationships with such clients as Hyatt, MillerCoors and Fox Networks.

A recent new business report by international consultancy R3 listed MDC as the only ad industry “holding group” to lose money in the first half of 2018 with a total new business gain of negative $9 million.

Both Kauffman and chief financial officer David Doft emphasized recent attempts to reduce overall expenses, with Kauffman citing last week’s corporate restructuring. “We parted ways with a number of individuals, resulting in a smaller real estate footprint,” he said, while Doft listed “annualized staff cost savings” at $40 million.

“Given poor first half results,” the network’s leverage ratio had increased during the quarter, Doft said.

According to Kauffmann, MDC will not fixate exclusively on cost-cutting but will instead spend the second half of 2018 “refocusing on the core growth pillars” of creative, media and analytics.

The CEO also said he was “thrilled to announce the return” of Bogusky, who “needs no introduction” and “steered many of the most memorable marketing campaigns in recent memory.”

News of the CP+B co-founder’s arrival was optimally timed to influence both the call and the stock market. It was not enough to drive up MDC stock prices, which fell more than 8 percent before the markets closed ahead of the call today. In May, the stock dropped more than 30 percent after Kauffman called first-quarter results “unacceptable.”

“You keep talking about paying down debt, but when I look at balance sheet it keeps going up,” a caller said during the subsequent question-and-answer session. Doft responded that MDC expects its debt to be “significantly lower” at the end of the calendar year, referencing an expected “midyear spike” in revenue as “longstanding reviews” come to a close.

Some new business wins, he noted, cannot be made public until their respective agencies’ debut campaigns launch, per the wishes of individual clients.

“We’re looking at any and all steps necessary” to deliver shareholder value, Kauffman said, confirming that the network is “looking at dispositions of assets that are not core or might be more valuable in someone else’s hands” but does not plan to make any M&A moves beyond the April acquisition of indie agency Instrument.

“It’s an ongoing conversation, and when we have something to announce, we will,” Kauffman said.