MDC Bucks Trend, Forecasts Growth for ’09

NEW YORK Amid the worst industry conditions in recent memory, MDC Partners CEO Miles Nadal is forecasting increases in profits and revenue for 2009.

Nadal said MDC expects profits to grow 3-6 percent to $63-65 million on a 1-3 percent hike in revenue to $590-605 million.

“I think we can do this even if revenue is less than we expect,” Nadal told investors late Tuesday during MDC’s earnings call. “We’re comfortable with the trends of growth. This is more modest than anything we’ve forecasted before.”

In light of the global economic crisis, most multinational ad agency holding companies — currently reporting their Q4 and full-year ’08 numbers — have declined to give investors guidance about 2009, let alone forecast growth.

MDC, the Toronto-based parent of agencies like Crispin Porter + Bogusky and Kirshenbaum Bond + Partners, only derives 30 percent of its revenue from traditional advertising, and the remaining 70 percent from nontraditional media and marketing services. Within that mix, digital revenue now equals almost 23 percent, and the company expects that segment to grow to nearly 40 percent over the next five years.

Another plus: MDC lacks exposure to troubled U.S. automakers and banks.

Owing to the company’s relatively small size, Nadal also emphasized that new-business wins have an incremental impact on the bottom line. Fresh assignments from Best Buy, Activision’s Guitar Hero video game and Old Navy are already boosting results for ’09, according to Nadal.

In the fourth quarter, MDC reported a 4.3 percent drop in pre-tax profit to $17 million on a 4.9 percent decline in revenue to $145 million. Negative Q4 factors for MDC included the strengthening U.S. dollar and lower project revenue, which was down about $7 million.

For 2008, MDC’s share of partner profit totaled $61 million, at the low end of the firm’s projections. Revenue was $585 million, slightly below MDC’s forecasts of $600-610 million. All told, pre-tax profit rose 45 percent and revenue grew 9.5 percent, compared to 2007. (Click here for MDC’s complete financials.)

During the investors call, Nadal and CFO David Doft frequently referenced efforts to free cash flow, a top priority initiated in 2006. In 2008, MDC’s cash flow increased by more than 300 percent to just under $33 million. In 2009, MDC is forecasting a 3-9 percent rise to $34-36 million. “Cash management is our top priority,” Nadal emphasized.

Nadal said MDC has been “exceedingly cautious” on the acquisitions trail during the last three years or so. He is looking at “small tuck-under” companies in digital, data analysis, data mining, data management and social media to support the existing operations.

Asked about MDC’s recent parting with its 20 percent stake in New York ad shop Cliff Freeman and Partners, Nadal said the company invested $800,000 at a time when the agency was in a “turnaround phase.” He called the buyback a “mutual conclusion,” as MDC had no wish to make further investments in he agency.

This month, Cliff Freeman lost its flagship client Quiznos, the latest in a string of account losses in recent years.