MDC Partners Reports 2.5% Annual Revenue Drop But Still Claims Best New Business Quarter in Two Years

New CEO Mark Penn voices confidence in 'flagship' agencies

Stagwell Group bought a 30% stake for $100 million.
MDC Partners/Adweek

One day after confirming a $100 million investment from Mark Penn’s Stagwell Group, agency holding company MDC Partners reported net new business gains in today’s earnings call despite a challenging year and fourth quarter.

Penn, who will assume the CEO role, also expressed confidence in the company’s “flagship” properties like 72andSunny, CPB and Forsman & Bodenfors, calling them “second to none.”

MDC’s stock price shot up in early trading before leveling off. At press time, shares were up approximately 5 percent and trading at $2.13.

"As an expert in this marketplace, I can say that no one has properties today like MDC's flagships."
Mark Penn, CEO, MDC Partners

Overall revenue for 2018 dipped from $1.51 billion to $1.48 billion, and fourth-quarter totals dropped year over year to $393.7 million from $402.7 million. CFO David Doft attributed much of that 2.5% 12-month dip to ASC 606, an accounting-rule change that the company has repeatedly cited in explaining its financial results over the past year.

EBITDA, generally considered a more reliable number, was $162.6 million in 2018 versus $203.5 the previous year, while net loss for MDC shareholders totaled $132.1 million.

Still, Doft claimed that Q4 was the best for new business in two years, citing recent account wins including Ancestry.com, Booking.com, Petco and the NFL.

Doft also said 2019 would bring announcements regarding “further real estate savings opportunities pursued in the U.S. and overseas” along with “continuing efforts to reduce the number of reporting units in the company.” Additionally, he confirmed the sale of Kingsdale, a shareholder services and advisory firm with offices in New York and Toronto, saying it was “not strategic” to the rest of MDC.

Perhaps most important, Doft confirmed that Stagwell is now the company’s largest shareholder, at just under 30 percent.

Incoming CEO Mark Penn told listeners that he believes in “the growth and marketplace opportunities today for MDC,” calling the network’s agencies “extraordinary, underappreciated assets in need of leadership and a plan.”

“As an expert in this marketplace, I can say that no one has properties today like MDC’s flagships,” he said, adding that the new leadership team would be focused on areas of greatest potential growth—especially digital offerings and “synergies” with existing agencies in the Stagwell portfolio.

Penn downplayed stories of other holding companies’ struggles, implying that their ties to legacy business models do not apply as thoroughly to MDC.

"I don’t understand what this changes fundamentally. Agencies still have the exact same issues."
Jon Bond, co-founder, KBS

Investors had somewhat mixed reactions.

“I don’t understand what this changes fundamentally,” said Jon Bond, cofounder of MDC’s KBS (now Forsman & Bodenfors). The executive, who also holds a very small amount of stock in the group, added that agencies still “have the same exact issues” including “a ridiculous amount of debt and earn-out payments.”

Another investor, who spoke to Adweek on condition of anonymity, had a more positive outlook.

Frankly, just having a real leader there is going to be good for both shareholders and employees,” said this individual, who implied that outgoing CEO Scott Kauffman was “never meant to be there for the long term.” He noted a particular interest in the “synergies” mentioned by Penn and said the company’s cost-cutting measures might not result in as many layoffs as one would think at first glance.

While this person said the report was “positive” for shareholders—particularly given the fact that Penn bought his shares at an 18 percent premium—he told Adweek he hoped a consulting firm like Accenture had acquired one of the larger MDC agencies, thereby deleveraging the company’s problematic balance sheet.

Another source with direct knowledge of the machinations preceding yesterday’s acquisition news predicted that Penn’s biggest challenge moving forward will be satisfying agency principals, who remain MDC’s biggest sources of revenue. He cited CPB’s struggles in the wake of Alex Bogusky’s departure, adding, “They’re not indentured servants. When their earn-outs are over they certainly don’t have to keep doing it.”

If [Penn] can get cost savings, this will be a home run,” said the investor. “All that said, it’s an industry in change. We will see how it goes.”

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