MDC: Q2 Profit Up Despite Revenue Slip

NEW YORK MDC Partners reported a 14.1 percent drop in second-quarter revenue but still managed to post a 3.1 percent hike in profits. Organic revenue slipped 12 percent.

MDC posted revenue of $135 million in the second quarter, down from $157 million, and a profit of $17.5 million, up from $17 million in the year-earlier period. MDC chief executive Miles Nadal said 28 percent of MDC’s revenue now comes from digital and he plans to grow that amount to 40 percent in the “next three to five years.” The company plans to announce a new social media practice before the end of the year that will see social media resources in place at MDC’s agencies, but Nadal gave no other details about it.

MDC’s agencies fared better than the company’s other operations: Organic growth in strategic marketing services declined 5.2 percent in the quarter compared to a drop of 24.1 percent in specialized communications services and a drop of 17 percent in customer relationship management.

In a conference call with analysts, Nadal and chief financial officer David Doft continued to be unusually upbeat in a year of grim industry earnings results.

“I can’t tell you how pleased I am with the financial performance of MDC Partners this year,” Nadal said, calling his partner companies “stunning stalwarts” in their cost-control efforts that helped boost MDC’s margin in the quarter to 13.7 percent, from 12.8 percent in the year-earlier period. “I’ve never been more excited about the future of the business,” he said.

The Toronto-based parent of Crispin Porter + Bogusky and Kirshenbaum Bond + Partners revised its revenue guidance for the full year to $545-575 million, down from $590-605 million originally projected, which would be a decrease of 6.8 to 1.7 percent over 2008.

The company’s forecast for MDC’s share of its partner companies’ income remains unchanged at $63-65 million, an increase of 3.3 to 6.6 percent. Increasing cash flow has been a priority at MDC over the past three years and the company now expects that to increase to $37-39 million, a 12.5 to 18.5 percent gain, revised up from the $34-36 million originally expected.

Nadal said those assumptions factor in the loss of the $275 million Wendy’s account at KBP this week. He said the agency has “significant” unannounced wins that “almost” replace the loss of revenue from Wendy’s.

Nadal said MDC has cut 1,300 employees over the past 18 months and now has a headcount of 5,300. Revenue per staffer has increased 10 percent. He stressed, however, that MDC is still recruiting “higher quality talent at lower costs going forward.”

Next year, MDC projects earn-outs of $52 million, $40.5 million of which is cash to partner companies Crispin and KBP, although those performance-related amounts could change. This year, MDC expects a $3.1 million cash earn-out obligation.  

Nadal said that after the payment of convertible notes coming due next year, the company could be “completely debt-free within 2 1/2 years” if it makes no acquisitions.