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Signs of Life at Maxxcom

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When Harold Reiter took the helm of Maxxcom in early January last year, he inherited the worst of all scenarios: The Toronto holding company had spent the previous three years undertaking an ambitious acquisition strategy. It piled on debt and earn-out liabilities, even as its own stock price languished. Then the American marketplace—which accounted for 66 percent of Maxxcom's revenue last year—hit the skids.

Reiter, a numbers-focused outsider who was responsible for the Canadian operations of Tyco Capital, was brought in to turn around the marketing-services company. The first evidence of a rebound has been seen in Maxxcom's latest earnings: Fourth-quarter net income was $1.2 million, or nearly 3 cents a share, compared with a loss of $1.3 million, or about 5 cents a share, for the same period in 2001.

Reiter credited a 30 percent fourth-quarter rebound in Maxxcom's U.S. ad operations for the improvement. The company said those gains were largely driven by its U.S. ad affiliates.

"Last year, we were more top-line focused on revenue growth," Reiter said. "In the third quarter of 2001, Maxxcom went through the pain of cost cutting. We certainly kept an eye on costs last year, but that was more about fine-tuning after what we had already done."

At the holding-company level, Reiter said his first year at Maxxcom was focused on paying down performance-related earn-outs, owed to individuals who sold their companies to Maxxcom, and reducing corporate debt. In mid-July last year, Maxxcom completed a rights offering to shareholders, which raised $18.2 million. That enabled Maxxcom to pay out the $17 million in earn-outs owed in 2002. Now, the company is in its last year of earn-outs, with $22.5 million outstanding. Reiter said Maxxcom will have no problem meeting those obligations.

MDC Corp., which spun off Maxxcom as a publicly traded company in 2000, fully subscribed to that rights offering last July, as a result increasing its stake in Maxxcom to 78.2 percent of outstanding shares, from 74.2 percent.

Reiter said Maxxcom, which owns shops including Margeotes|Fertitta + Partners, Crispin Porter + Bogusky and Colle + McVoy, has not sworn off acquisitions. "There's nothing imminent; our focus is on working with our existing partners," he said. "But clearly, we're always looking at adding outstanding value propositions to our business, in both geography and by sector—probably with a North American focus."

Reiter does not break out Maxxcom's margins. He said: "They are keeping track with the industry, but are they where they should be? It's a volume industry. After cost- cutting, margins are enhanced by revenue growth. That's what we're focused on."

While Reiter was encouraged by the company's fourth-quarter revenue gains, the chief executive, citing the cyclical nature of past years, was hesitant to project that performance into the new year. "Traditionally, our strongest quarter is the fourth quarter, and we had a very good fourth quarter," he said. "The first quarter traditionally slows down. But the fourth-quarter new-business wins showed what can happen when our business is running on six cylinders."

Given that, he said he is "cautiously optimistic about 2003, given the current geopolitical uncertainties.

"We're going to focus on growing business, not cutting costs," he said. "We need to focus on the basics. We need to make sure we manage our business well, deliver results to our clients and bring in new business."

—NOREEN O'LEARY