Q2 2021 MDC Partners Inc and Stagwell Marketing Group LLC Earnings Call
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Good day, everyone and welcome to today's MDC partners Dog low global earnings call. At this time all participants are in a listen only mode. Later, you'll have an opportunity to ask questions. During the question and answer session.
They registered to ask a question at any time by pressing the star and 1 on your Touchtone phone.
Please note today's call may be recorded I will be standing by should you need any assistance. It is now my pleasure to turn the call over to Michela Parsky Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone and welcome to the Stag World Conference call for the second quarter of 2021 to discuss Standalone financial results for MDC partners, instead, well marketing group on.
On today's call Mark Penn Chairman and Chief Executive Officer will first provide an overview of stack wells network wide second quarter results.
My comments from Stonewall President Jay Levitan, and a review of financial results from our Chief Financial Officer, Frank When you're done you will then be joined by Scott <unk>, Chief Operating Officer, Brian Green for a Q&A session.
Before we begin our prepared remarks I'd like to remind you that the following discussion contains forward looking statements and non-GAAP financial data forward looking statements about the company, including those relating to earnings guidance are subject to certain uncertainties referenced in the cautionary statements included in our earnings release and free.
<unk> presentation on our further detailed in the company's form 10-K, and subsequent SEC filings for your reference we've posted to investor presentation to our website at stag low global Dot Com. We also refer you to this morning's press releases and slide presentation for definitions explanations and.
<unk> non-GAAP financial data announced to start the call I'd like to turn it over to our chairman and Chief Executive Officer, Mark Penn.
Thank you Mikael good morning, and thank you for joining us.
Memphis week for Star growth with the closing of the combination on our first day of trading on NASDAQ under the new ticker T. G. W.
S T GW.
Thank you to all our employees and shareholders, who supported our vision.
And made it happen I'll be outlining the results of both legacy MDC and legacy Stag well. This is the last time results will be reported separately in 2 separate releases were issued as well.
This was an excellent quarter for both companies and the combination.
Legacy MDC continue to come back from the depths of the pandemic faster than expected and legacy star growth accelerated its off election cycle growth across the board.
Legacy MDC reported GAAP revenue of $346 million up 33% year over year, and net revenue of $298 million up 29%.
Reporting organic revenue growth of 31%.
Legacy Stag, while reported impressive gross number growth numbers as well GAAP revenue for legacy <unk> growth was $210 million up 29% year over year net revenue of $182 million was up 40% on organic growth was 24% on a GAAP basis and 33%.
On a net revenue basis Scott.
<unk> was a rare business and marketing that showed growth even during the pandemic last year and this growth comes on top of last year's expansion, even though its travel and tourism business remain subdued.
Legacy MDC adjusted EBITDA climbed to $60 million, the highest second quarter in the company's history growing 67% legacy stag well increased its adjusted EBITDA to $39 million up 92% over last year.
Excellent numbers turned in by both legacy companies as we come out of the gate ready for the combination.
Beyond Air.
And the solid results from the first quarter.
<unk> legacy MDC and <unk> delivered strong results for the first half of 2021, MDC GAAP revenue was $653 million up 11% from 2020 legacy stag growth delivered $391 million in GAAP revenue up 13% or 7.5% on and on.
Eric basis.
For adjusted EBITDA legacy MDC delivered $112 million in the first half up 48% from a year ago, our legacy <unk> delivered $63 million up 50% from <unk> 2020, if you combine the results of the 2 companies in the first half.
That sums to GAAP revenue of 1.14 billion up 12% year over year net revenue of $909 million up 15% year on year and adjusted EBITDA of $175 million in the first half of 2021 up 49 per.
Percent year over year.
On an LTM basis, the 2 companies if combined delivered GAAP revenue of $2.2 billion and adjusted EBITDA of $378 million.
The most important factor behind the growth we are seeing because of the pandemic appears to have sped up the adaptation to digital marketing and E Commerce.
This in turn has helped spur growth at the most digital first agencies at legacy MDC the digital businesses.
Grew their combined revenue by over 70% on a year over year basis for the quarter Stag growth saw its digital marketing and digital content segments combined grew by 47%. These results mean, 40% of the combined revenue will now come from high growth digital businesses with online companies.
Expect it to grow 10% or more in the long term.
Another factor behind these numbers is the return on even expansion of online research our research services for Hollywood movie Studio Studios, and OTT streaming services jumped 84% from <unk> 20, as movie theaters reopen and content production ramped up.
The Harris poll, which had the most accurate election poll last year saw a significant pickup in business and is having success with its SaaS based Harris brand platform, which has come from zero to a run rate of sales of $4 million a strong start for a new way delivering and analyzing research.
Despite these gross numbers some areas Nevertheless, still face headwinds and are not expected to make a full recovery until 2022, our experiential business grew 22% year over year this quarter as in person events gradually restarted similarly, an uptick in investment on our clients and lodging transportation.
On travel sectors contributed to network network wide growth. However.
Experiential and travel related services of publishing remains significantly below their pre pandemic levels. We expect these businesses to pick up heading into 2022, which is also expected to be a banner midterm election year for our political consulting and on Ryan online fundraising agencies.
As businesses return on our work force recovered margins have expanded and remained high.
Legacy MDC adjusted EBITDA margins expanded year over year by 350 basis points to 17, 4% on a GAAP basis, and by 460 basis points to 22% on a net revenue basis legacy Stag will showed similarly robust margins of 18, 5%.
Against GAAP revenue and 21, 3% against net revenue.
We have announced the new management team from <unk>, Inc.
And the team is headed by myself on.
With Jay Levitan, who will serve as president of the New combined company Franklin <unk> will continue to serve as CFO, Brian Greene will work with him as CEO to do will be our chief brand and Communications Officer, and Ryan Linder will continue to serve as chief marketing Officer.
We also welcome Stephanie Holly as Chief people Officer, Stefanie joins us from <unk> and brings more than 20 years of experience in people operations on strategy. She will lead <unk> people operations on foster a culture of collaboration as well as focus on diversity and inclusion.
In terms of new client activity.
Our net new business.
Number for legacy MDC agencies was a positive $57 million.
Certainly a record since ive been here it was a strong quarter as our creative agencies capitalized on the TQ pitch season, which was particularly busy this year given the economic recovery our legacy MDC agencies have 1 on $129 million and LTM net new business up from 90.
$2 million in the first quarter.
Notable recent wins include United Airlines hub spot <unk> and team USA at 72 on Sunny Facebooks Oculus touch rewards on Netflix Asian representation at anomaly Aspen dental at Mono, California Pizza kitchen at Allison and partners.
And <unk> Party city, and Amazon basics across the donor partner network.
Our digital shops continue to add exciting clients, such as rocket mortgage champion and Clover network at Y amount showcasing the power of collaboration across the networks Media Agency Assembly and digital transformation shop code on theory, when an exciting day to transform con Edison.
Digital consumer experience.
Our agencies not only 1 business in the quarter.
They also on industry recognition.
I'm, taking home 17 of the awards at the Cannes Lions Festival, the industry's preeminent event 72, and Sunny received a prestigious Grand Prix prescribed Knight and in App collective user experience created for Tinder F&B won several awards for its Falvo Eva program at age also named.
Gail the data analytics agency of the year.
On its annual list and designated for AML agency standout for us.
Digital transformation network with the thrive network market. This year's cohort of recognize work proves the best of modern marketing lies at the cross section of culture, moving creativity technology and data driven insights.
The previously announced global affiliate program is fully operational we designed the program to quickly scale capabilities and targeted international markets without investing capital we're on pace to achieve our target of 50 affiliates by the end of the year, which will better position us to win large sticky global contracts and the affiliates.
Will also serve as a pre vetted source for potential M&A.
Activity.
On the talent front, we recently welcomed Toby Southgate as global CEO of Forsman and burden for us drawing from his past experience as chief growth officer of Mccann Worldgroup Toby will lead.
F&B is continued global expansion alongside the global F&B team out of Sweden.
Our strategy in the New company remains the same reduce back office expenses, while providing maximum freedom for the creative and digital agencies to hire the best talent and growth. We will continue to invest in the newly created networks and even expand them with the addition of legacy stag oil companies.
We will bring together all our media companies to take advantage of growing scale, while maintaining our go to market brands. We will re open the window for M&A transactions to fill up the global network and invest in cutting edge digital services, we will tell the story of a new company with the best and creativity and the <unk>.
Best in connected experiences that can transform marketing and growth to compete against the majors, we're off to a great start.
In the coming days, we plan to launch a refinancing of our bonds.
Hoping to take advantage of our stronger balance sheet and lower rates to enhance our capital structure and save a potential $20 million of interest annually. This is on top of the planned $30 million on cost synergies simultaneous with the merger closing on Monday, we put in place a $500 million revolver and envision a simple flexible low.
Cost capital structure, consistent long term bonds on the revolver.
Of course, I would not be remiss, if I did not put out a cautionary flag about the delta variant and its potential to slow down the economy and with it marketing.
However, our business is largely concentrated in the United States, where the effects are much smaller than in other parts of the world and we've seen no direct impact so far on our business, which remains strong.
Consequently, we are reaffirming our recent guidance for legacy MDC for the combination.
We believe that this year, we can deliver adjusted EBITDA between 372 million on $387 million on a pro forma basis, and including <unk>, and including synergies, which is between $342 million and $357 million without such synergies.
These are impressive numbers coming off the pandemic floor.
We believe we're setting a strong new pace for the industry and these numbers reflect the underlying strength of these assets and the ability of management lay out our strategy and execute it even under pressure and on a short period of time on.
I'll now turn it over to new <unk>, President Jay Levitan for some additional comments about the exciting developments at Stag low Inc.
Thank you Mark and good morning, everyone on J <unk> President of <unk>, Inc, and it's a pleasure to be with you. This morning and to serve in this role in the combined company.
With the combination closing in the last 48 hours and a strong Q2 financial results from both companies. It is certainly an exciting time to be at stag low.
I've spent more than 20 years working in marketing services, specifically in the market research and public relations vertical managing agencies at scale globally.
I'm not a lawyer or accountant with someone who has done client work and pitch for new business in the same way 10000 people here at stag low do every day.
I understand these businesses firsthand and to truly lead them you have to have locked in these professional shoes.
Specifically for the last 6 years at the legacy Stag low group I help lead the team with Mark that started from nothing in 2015 to what became an $880 million on revenue and $145 million EBITDA company in 2020.
We accomplished a significant amount of time, a significant amount in a short period of time on.
I'm very pleased those corporate executives that Mark mentioned earlier and every single 1 of our legacy Stag While agency business leaders are continued on in this new journey and what is now <unk>, Inc. A $2 billion company.
It is a watershed moment for all of us.
We are excited to partner with the many iconic MDC marketing companies in this new chapter.
In my role as President of <unk>, Inc. My Northstar is growth.
Growth creates shareholder value, we create opportunity for our 10000 professionals to progress in their careers, whether they are running some of our largest businesses are just starting out as an assistant account manager and growth better equips all of us to solve business challenges on behalf of our clients.
Growth will come from staying on the cutting edge of the industry. We will continue to enhance our offerings in fast growing segments of digital transformation digital media buying influencer marketing data analytics and digital products, we can sell and service.
These digital lines of businesses make up a significant amount of our revenue today.
And while our competitors are focused on consolidating brands. We're focused on growth through collaboration we have strong independent brands that will scale by working together seamlessly on behalf of clients at the end of the day as the challenger in this space. We are 1 team with a mandate from mutual success.
Coming out of the pandemic marketers are looking for new and different ways to reach their most critical stakeholders, whether they are seeking big creative advertising solutions to communicate with consumers regulators investors or Influencers drive e-commerce sales or work to take offline processes online.
I would tell them that <unk> is the best positioned at scale to help them achieve these important business objectives.
With that I'd like to turn it over to my colleague Franklin.
CFO of <unk> to review the financial results and I'd like to thank him personally for the critical role. He played in getting this transaction across the finish line.
Over to you Frank.
Thanks Jay.
Good morning, everyone as.
As previously disclosed stag low marketing group LLC at MDC completed its business combination earlier this week and change the combined company's name to stag willing.
My discussion of the financial results. This morning, we will cover the quarter ended June 30th and will address the pre combination results of each company.
All future disclosure will address the consolidated results for <unk>.
Let me begin with MDC results.
The company delivered record Q2 revenue growth and its highest adjusted EBITDA in the company's history as a recovery from the pandemic accelerated during the quarter.
For the quarter revenue grew 33% to $346 million or <unk>, 31% on an organic basis.
Net revenue excluding pass through costs increased 28% to $298 million or 27% on an organic basis.
Looking at our revenue from our client sector standpoint, we saw growth across all sectors.
Healthcare technology consumer products, and food and beverage so the biggest year over year improvements, primarily driven by strong organic growth with existing clients.
Lodging transportation and travel clients also saw an uptick.
But is rebounding more slowly as clients remain cautious around the global travel outlook.
We expect the travel sector as well as our experiential businesses to see gradual sequential improvement throughout the second half of the year.
Turning to our segments revenue growth for the quarter was broad based as each of our reportable segments posted double digit percentage revenue increases as compared to Q1.2020.
In integrated network.
Revenue increased 43% from Q2 versus the prior year driven by growth in digital PR and our health care business.
In integrated network be rare.
Revenue increased 32% in Q2 versus prior year, driven by strong momentum in our creative digital and PR businesses.
In media and data revenue was up 31% in Q2 versus the prior year driven by strong growth in our data and analytics business.
In all other revenue increased 21% against prior year, driven by experiential and public relations.
Turning to costs, our strong control over cost during the quarter led to a smaller increase in operating expenses as compared to our revenue.
Driven by improvements in our compensation to revenue ratio of approximately 130 basis points.
As well as a 60 basis point decrease in occupancy as a percentage of revenue.
With respect to adjusted EBITDA, our adjusted EBITDA for the second quarter increased 67% to $60 million from $36 million in the prior year on what.
The highest Q2 reported amount in the company's history.
Adjusted EBITDA margins also expanded 350 basis points to 17, 4% versus 13, 9% a year ago.
Trailing 12 month Covenant EBITDA increased to a record $220 million up 14% year over year and 10 percentage sequentially.
Moving to our balance sheet, we ended the second quarter with cash of 108 million against $89 million of.
On revolver borrowings.
Our total leverage ratio was 4.1 times down from 4.6 times a year ago.
That sequentially against Q1.
With respect to acquisition related liabilities, we funded approximately $45 million during the second quarter, primarily related to our digital businesses lowered.
Lowering our M&A obligations to $133 million from $159 million in Q1.
We expect to fund an additional $10 million through the rest of the year as the company continues to lower its acquisition related liabilities.
With respect to Capex, we've incurred approximately $2 million through 6 months and expect no major expenditures through the end of the year.
That concludes our discussion of MDC results.
I will now discuss the second quarter pre combination stag well results.
Spangled growth strong revenue growth in the quarter, despite a tough comp against the political cycle a year ago.
Second quarter revenue was $210 million up 29% from the prior year.
With 24% organic growth.
Net revenue grew 39, 5% to $182 million with 33% net organic growth.
<unk> growth was also broad based with nearly all segments growing revenue and a solid double digits.
The digital marketing and content segments grew a combined 47% year over year continuing to benefit from the shift to digital accelerated by the pandemic.
The entertainment extreme and content research segment grew 84% year over year as movie and TV production ramped and theaters broadly reopened.
Corporate research grew 38% from Q2.2020 as Harris poll saw strong demand for its enterprise advisory services as well as at Paris brand platform, which is part of our growing portfolio of digital SaaS products.
Communications Public affairs, and advocacy saw an expected modest revenue decline of 7% as 2021 is an off cycle election year.
Turning to costs, excluding transaction costs and earn out accretion operating expense grew at a slower pace than revenue.
With respect to EBITDA, our adjusted EBITDA for the second quarter increased 91% to $39 million from $20 million in the prior year.
We also saw strong margin expansion in the quarter with adjusted EBITDA margins, expanding 600 basis points to 18, 5% versus 12, 5% a year ago.
Moving to the balance sheet, we ended the second quarter with cash cash equivalents of $73.5 million.
On a $188 million of balanced on a revolver.
Our total leverage ratio was 1.2 times down from 2.3 times a year ago.
And from 1.3 times last quarter.
Our deferred acquisition cost balance was $16.3 million at quarter end up slightly from $14.7 million in the first quarter.
We incurred $7.3 million in Capex from the 6 month period related to new hires and investments in digital products.
Now moving to our guidance with respect to the combined company guidance for <unk>, We expect revenue for 2021 on a pro forma basis, giving effect to the combination is that their work completed on January 1.2021 to be between 213.5 billion.
1.8 billion.
Including an estimated $762 million for MDC from a 7 month period, ending July 31.2021.
Adjusted EBITDA for 2021 on the same pro forma basis.
Estimated to be $342 million to $357 million excluding synergies.
This includes an estimated $128 million.
For MDC from a 7 month period ended July 31.
With our business combination now complete we are now focused on taking advantage of the favorable interest rate environment and refinancing our senior notes.
We have given notice to bondholders of our intention to redeem the notes and we expect to launch the process for a new issued very shortly.
In closing I want to thank all our employees, who contributed to making this combination a reality as well as the MDC Partners' Special Committee for all their hard work.
Thank you.
Operator, we will now open it up for Q&A.
At this time, if you'd like to ask a question. Please press the star and on on your Touchtone phone may remove yourself from the queue by pressing the pound key again that is star 1.
We will take our first question from Tom White with D. A Davidson.
Your line is open.
Hi, This is Travis on for Tom Thanks for taking a question on Im wondering if I could hear your view about the evolution of the competitive landscape or Bagwell, Inc. And legacy MDC over the course of the pandemic what does it look like is it significantly different now during the past few months, we've seen on an emerging trend of the pandemic and are you guys getting a better simple.
Everything, including the potential ramifications of periods of volatility.
Delta variant and 1 more if I may.
Mentioned in your prepared remarks your desire to further.
Down the line on the combination could you elaborate on that thank you.
Sure first I don't think <unk> seen any real change in the competitive set.
But.
You really seen however is a shift.
As a result of the pandemic what I would say is look at the 3 to 5 year shift in digital habits, and so the trend towards people shifting away from fully conventional marketing in or traditional marketing into online marketing I think it was accelerated.
I would say we had into card, but nobody used it we have zoom, but nobody should you use debt. We have all of these things that people use now that they didn't use in that.
Online and E. Commerce is up I believe 30 or 35%. So the competitive landscape shifts only in the sense that business now shifts I think more favorably in our direction favoring our ability to gain market share because of our much higher percentage of such services.
<unk> and <unk> and the collection that we have created here that we've put together.
High growth digital services.
I think in terms of the Delta as I said, we're not seeing any direct effect.
To date, obviously, you have to put out a cautionary it doesn't look like businesses are going to want to shut down it looks like that would be obviously.
Office commercial pool lots of impact in those areas. The question is whether or not it's going to impact.
Commerce in the same way that it did last March April and May I think thats unlikely I think there could be some some effects.
The government again has consistently stepped in.
Or is anything serious to put money in people's pockets, but I don't see that we're headed for that kind of net economic slowdown and as I said I think that may not be as true in <unk>.
Some of the other countries.
But our revenue is really.
80% to 85%.
In the U S. At this point and that also goes to the third question is when it comes to M&A obviously are.
We're planning to get our leverage down.
Down to about 3 times, that's where we want to operate as we have additional cash flow, we will look at appropriate M&A and there are 2 areas.
Broadening out the global marketplace, which we need to get larger contracts right. Now we started the affiliate program a step 1 to do that we'll be certain limited acquisitions in that area and of course, you have to stay current on new and emerging digital marketplaces.
Services, and it's quite important for a marketing service company.
To continue to invest and we're going to continue to invest in our own technology SaaS products, we continue to invest.
And companies.
As a vital part of the growth in the industry I think it's a vital part of being such a company and being successful.
Other question. Thank you.
If there are similar type growth.
If there are questions from the phone lines, we have a question just that cash.
This is from Martin Keane mentioned, how important fast products are for Scott.
Can you give us an update on your overall plans for product development.
Well.
I think we've been closed for about a day.
So it's a little early for an update.
Above what I've been saying, which is we have developed about 9 products. We're out in the marketplace with profit, which was a comp tool that enables you to predict how news releases will be covered we're very strongly in the market with.
Harris brand platform, which is really showing very very fast pickup.
And adoption.
We're about finishing Q, which is the.
Consumer.
Understanding and engagement platform, which will be used by our agencies too.
To construct target audiences.
Without reliance on cookies.
Second and we're now getting into the market and qualified.
And qualified which is an influencer brand platform.
My plan is to put more structure around this put additional leadership have a single sales team have a group of entrepreneurs here, who are pushing on selling the products. So 1 of the first things we're going to do now that were a single company is go to the next step in terms of organizing that process, where we are in <unk>.
With 3 or 4 of the product.
We're expecting to put more in markets, we're expecting to put more emphasis on systematizing fee development that sales process. So that we realize our plan.
Great. Thanks, 1 more question from the channel.
Outstanding debt deal just closed. Please can you talk about your plan for integrating the network.
Devising collaboration.
I think that we've been working.
Very hard really for the last 2 and a half years, both within MDC and staff growth from making collaboration and important part of the culture a lot of what we did in creating the networks was by creating the networks on creating.
Cross incentives across groups of companies.
Groups of companies that that created an incentive for people to get an incentive for themselves for their company for their network and of course greater emphasis on stock based compensation to some extent will also create a greater emphasis on looking at the organization.
We have some plans that will be coming out in the coming days about about how we will strengthen the network what legacy Sigler comfort zone for the networks and how we will be organizing.
This media team, which will now have about.
$5 billion of media that it manages.
Under <unk>.
Still have some go to market brands, but also be under.
Coherent leadership.
That I think could really take that forward. So we will be announcing those plans I think you can expect announcements shortly.
I think that's on the questions that we have from them.
Operator, you can conclude the call.
We're going to finish.
So is that going to wrap up.
We'll turn it back to Mike for some closing comments.
I just wanted to thank you for the call I am sorry that this is the last time that will give you a jigsaw puzzle of all the different.
Of all the different areas, we will house.
Now that we've closed.
It will be 1 company with 1 mission transform marketing.
We're going to do that with market leading growth for our full service creative and technology based company.
Same time, we expect to provide strong margins and we hope that will provide for investors strong returns increased liquidity and that we will get from the marketplace full value for these incredible assets and this incredible company going forward. We look forward to keep you updated as we follow as you follow our progress.
Starting with an investor introduction events slated for September 20th at our 1 World Trade Center campus, followed by hosting 1 on 1 meetings at Goldman Sachs commuter Copia conference during the week for more information or to receive our weekly investor newsletter, Please reach out to IR.
At Stag low global Dot com.
Have a great day.