Good day and welcome to the MDC Partners First Quarter 2013 Earnings Results Conference Call. All participants will be in listen only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Ms. Christine LaPlaca. Ms. LaPlaca, the floor is yours ma'am.

Thank you. Good afternoon and thank you for joining MDC Partners 2013 first quarter conference call. Joining me on the call today are Miles Nadal, Chairman and Chief Executive Officer; David Doft, Chief Financial Officer; and Mike Sabatino, Chief Accounting Officer. During the call, we will refer to forward-looking statements and non-GAAP financial data. Forward-looking statements about the Company are subject to uncertainties referenced in the cautionary statements included in our earnings release and slide presentation and further details on the Company's form 10-K for its fiscal year ended December 31, 2012 and subsequent SEC filings. We have posted an investor presentation to our website and we will refer to this presentation during our prepared remarks. We also refer you to this afternoon's press release and slide presentation for definitions, explanations, and reconciliations of non-GAAP financial data. I would now like to turn the call over to Miles Nadal.

Thank you very much, Christine, very much appreciated. Good afternoon ladies and gentlemen. Thank you very much for your time. We are very excited to have the opportunity this afternoon to discuss our performance, which as you can see really speaks for itself. So my comments will be very brief. In the first quarter of 2013, we started off with a real bang and we're building upon the momentum from our record-breaking year in 2012. Revenues in the first quarter not only exceeded our own internal expectations but they increased 13.6% to $267 million from last year. Our organic growth was increased a very impressive 10.1%. With our continued focus on optimizing the conversion of revenue to cash flow, by reducing costs and increasing productivity and efficiency, our EBITDA increased 262.7% to $30.4 million, representing a 780 basis point increase in EBITDA margin on a year-over-year basis. With the higher EBITDA, our free cash flow increased to $15 million from an outflow of $7 million in Q1 of last year. Please keep in mind that Q1 is always our weakest quarter. On the new business front, we had $53 million of net new business wins in the first quarter, a record for MDC, which gives us tremendous confidence and visibility into over revenues for the remainder of the year. Our wins were across the board amongst many of our partner firms and include brands such as Charles Schwab, Xbox, [Forcehead, Cody] (ph) amongst others. We are seeing more new business opportunities than ever before and the investments we've made in new business personnel across the spectrum of our network is really paying dividends. These opportunities are more significant both in scale and in breadth and are being awarded across many different disciplines of our partners. Our partner firms are winning…

Thank you Miles and good afternoon. The first quarter was a momentous one for our Company in many ways. We posted outstanding financial results and are now realizing the benefits of several years of financial planning with the refinancing of our debt. Ex the make-whole payments of the over-redemption of our prior senior notes, we would have reported positive income from continuing operations in the first quarter. The refinancing was an accretive event for our shareholders. In absolute dollars, as Miles said, we reduced our interest expense by $10 million annually on a net basis. Because of our tax strategies, this savings should flow directly to free cash flow. More specifically on the terms of the refinancing, the rate of the new $550 million in senior notes due 2020 is 6.75%, 525 basis points lower than the original issuance of the senior notes that were previously outstanding initiated in 2009. Our new five-year $225 million revolving bank facility provides us with additional credit but also it comes at a rate that is 50 basis points lower than our previous revolver. All-in, our blended rate for the entire $775 million is 5.5%, providing us with an enviable cost of capital and a tremendous amount of flexibility to take the right steps to accelerate our organic growth. Now, I would like to speak to our increased guidance for 2013. We are clearly on a faster growth trajectory in 2013 than we laid out to you when we reported 4Q 2012 results. We now expect revenues of $1.145 billion to $1.170 billion or an increase of 7% to 9% over 2012. This is $20 million more than our prior guidance range of $1.125 billion to $1.150 billion. EBITDA is now expected to reach $142 million to $146 million or an increase of 20% to 23% over 2012. This compares to our prior $132 million to $135 million range. The revised EBITDA guidance implies EBITDA margin of 12.4% to 12.5% or an increase of 130 to 140 basis points over the 11.1% EBITDA margin delivered in 2012. From a free cash flow standpoint, we see upside both from the higher EBITDA guidance and the lower interest expense, given the refinancing I just discussed. We now expect free cash flow of $70 million to $75 million, an increase of 41% to 51% as compared to the $49.6 million of free cash flow generated in 2012 and as compared to our initial guidance of $55 million to $60 million. We look forward to providing you with updates on our progress as the year goes on. I would now like to open the call to your questions.

(Operator Instructions) The first question we have comes from John Janedis of UBS. Please go ahead. John Janedis – UBS: David, you revised the guidance, as you mentioned, it implies margin growth of about twice your original expectation for the year. Is that a function of business mix, credit cost controls, or something else you can help us there or share with us?

Thank you, John. It's all of that but it's also evidence of the success that we've had in how we've approached the budgeting and planning our business, and as we talked about, I think outlined last year on numerous earnings calls, we've been incredibly focused on having the right staffing levels within our firm as well as managing the growth of revenue relative to the staffing going forward. One of the benefits of having such strong new business wins is that it allows us a lot more flexibility to put the right staffing in place and we see the benefit of that as it flows to the bottom line in our margin. So, when we talk about our long-term margin target of 15% to 17% at a minimum, we're not making that up. I mean that's based on how we know that this operates, we know how these companies should operate in terms of cost structure. It's based on what we see in terms of success of firms within our portfolio and how we believe we can translate that to the rest of the portfolio as we continue to build this business going forward, and frankly as we leverage the investments that we've put in place over the last two to three years.

I will just add as well John that we have changed our compensation model with clients to much more align ourselves to be paid for the performance of the value we create, not just the time we put in, and because of the impact of the work we are doing, we are gaining greater recognition of that and our compensation from our clients is reflective of that value and that's why you're getting greater conversion and greater margin expansion.

That's helpful, Miles, thanks. And then David, maybe on a somewhat related topic, can you give us an update on your international growth and profitability and are you planning on entering any new markets this year?

Sure. So our international businesses grew about 24% in the first quarter and if you look at it on a two-year basis, it's growing 75%. So clearly, we are making great progress in our efforts to build our capabilities overseas. From a profitability standpoint, we have always told you that we expect those businesses to turn the corner or breakeven in aggregate in 2013 and surely we're well on our way to doing that and it looks like we'll do even better than that as the year moves forward. In terms of new markets, most notably in the first quarter, we did enter China, we mentioned on our last earnings call. Allison and Partners, one of our PR platforms, entered the market with several new clients, as well as Anomaly on the backs of winning the Budweiser China account.

And we've entered those with significant new clients and existing client commitments that make us confident that we will be profitable within the first 12 months of operation.

The next question we have comes from Lee Cooperman of Omega Advisors.

Miles and David, you probably don't know this but you're giving me birthday present, today is my 70th.

Happy birthday.

Happy birthday, Lee.

Thank you, I like the extent of your beat. Now, I just want to focus on – you covered the cash generation for the year, I think that the stock looks very mispriced to me but I think probably one of the issues is the need to delever. I was wondering what goals you could share with us on your plans for delevering the Company over time?

Okay, so we had said that we were committed to get the 2.5 times levered. At the end of the year, we were about 3 times levered. At the end of Q1, after paying out about $70 million including make-whole payments and fees, we were supposed to be at 3.8 times, we're actually at 3.4 times. We're about $30 million ahead of plan. As of today, we have about $50 million in cash, we paid out $65 million in contingent payments, we have $225 million of undrawn credit. By the end of the year, we anticipate getting down to about $85 million in cash, so net debt of about $465 million, $225 million of undrawn credit, and on a run rate, we will be less than 3 times. So we are probably a year ahead of where we thought we would be but we think that by the end of 2014, middle of 2015, we will be 2.5 times or below. So, we're very confident in our deleveraging and our cash generation as our EBITDA grows, as David articulates, a 100% of that fall to the bottom line. As the margins expand on the revenue, that cash generation will allow an acceleration of that deleveraged. So we're more confident in those objectives than ever before and we think that that will reflect itself in our share price, because we believe that high return on invested capital, high return on equity, with a low leveraged balance sheet is going to translate into superior shareholder value creation.

Thank you. Good luck and thank you very much for the present today.

The next question I have comes from James Morris of Piper Jaffray.

I guess Miles you said you guys are hitting on all cylinders, but I was hoping you could give us a little color on how sort of the individual verticals were growing during the quarter, any doing better, any doing worse?

Look, across the whole spectrum, our PR business has been doing great, our integrated agencies though are shooting the lights out. We are winning huge amounts of new business, we're getting huge organic growth from our clients, we are getting even larger assignments, our media business has been spectacular, our analytics and consumer insight business has been doing terrifically well. Obviously, all of our digital operations have been doing very, very well. So, I would say overall we've been, across the board it's been excellent, but I'd say our integrated agencies though have been spectacular.

Okay, that's helpful. And then, David, could you just remind us what the key covenants are on the new note and revolver?

Sure. One of the benefits of the new financing is that there aren't many covenants at all, which is great. From a leverage ratio standpoint, we're looking at a 2 times senior leverage covenant on the bank line and a 5.5 times total leverage covenant on the bank line. There are no maintenance covenants in terms of the senior notes.

Next we have Dan Salmon of BMO Capital Markets. Please go ahead.

First, just a quick one for David just to make sure, I assume you would have highlighted it at this point, but nothing in the beat from maybe being paid a little bit earlier, something shifting out of a future quarter? And then one for Miles, just several years ago, I think you talked a lot about MDC working with challenger brands, and we saw your work really focused around more I think what people would call edgier work, and not that talk to chuck wasn't a nice branding situation but when you pick up clients like Charles Schwab and whatnot, it seems like you're picking up clients here that are a little bit maybe more mature and not quite looking for edginess necessarily. Do you find that your agencies are in a sense growing up a little bit in that way?

It's a very good question. First of all, I'll just take the first part at the same time, the business, there's nothing that's moved from Q2 to Q1. In fact, our momentum sequentially will accelerate. So, no, this is not a one-time aberration, this is just the momentum of the net new business wins translating into incremental revenue and profitability. It's an interesting question that you ask. I believe that every brand is a challenger brand. There's no brand that aren't a challenger brand. McDonald's was the leader, they are now a challenger brand. There is no, I don't know a single brand in the world that isn't facing the challenges of trying to recreate themselves as an insurgent, challenging conventional wisdom, recreating their relationship with consumers to get that emotional attraction and bonding with their consumers. There's no question that the approach we have within our network of thought leaders is now being adopted by major mainstream marketers who are not just the edgy challenger brands that you would have thought of in traditional sense but by major marketers that are mainstream marketers, and the good part of that is they have bigger budgets, they have much more diversified needs, and they have opportunity for us to expand our involvement on a much broader basis, a much larger fee opportunity, and a much bigger geographic platform. So, the fact that you would've thought of some of our firms only dealing in that regard, you now see that we are taking on just great marketers as clients and bringing that insurgency, that urgency, and that innovation and creativity to them, and that, it's the result orientation that's really enabling us to win more clients, getting more business, and being able to expand geographically, and I think you'll see that continue on going forward. And so we think being able to cut into the mainstream agency networks in that regard is going to be the key for us to be able to scale up and continue to build as we get larger and more significant mandates from the biggest Fortune 100 marketers around the world.

Next we have Peter Stabler with Wells Fargo Securities.

So going back to the margins, a couple here. I look at this 11.4%, and it is well ahead over the past five years. Anything you guys have been able to do? And so can you help us think a little bit how does the saving here – obviously you saw huge leverage on the salary line due to the lapping of the investment, and I'm assuming that on the PMS line, you had a significant amount of growth in pass-through cost, kind of the nature of that business, but I'm looking at this 11.4% and I'm wondering, this guidance looks pretty conservative for the year on the margin side, can you give us a sense where the 11.4% compares to kind of historical high watermarks, seasonally like Q1?

Okay. So it is the highest we've ever had in Q1. We have had higher in other quarters. We had 14.3% in Q4 of last year. It is mostly on the leveraging of the infrastructure on the labor side that you are getting the largest amount of increase in margin appreciation. As we have said, we spent 500 basis points at least more than any of our competitors on labor and we are monitoring and getting rid of excess investment in labor while still ensuring that we are investing in the most innovative people, the most innovative processes and technology. I think the fact that we were the most invested in digital of any other networks in the world early on has given us scalability in digital and a greater return on investment in that regard than most. In addition to that, the most talented people are the most effective and they're also the most productive, and so our productivity per employee is probably much higher, not only much higher now than ever before, but it is higher than the industry. Our overheads have always been paired down, but the good news is our overheads don't grow as our business scales, so actually overheads as a percentage of revenue are declining. So it's a combination of accelerated revenue growth, lower labor per dollar of revenue, lower overheads, and greater productivity per employee that's giving us that dramatically expanded margin.

Okay, thanks Miles. I guess that's helpful. I just want to attack it from a slightly different way. When I look at historical relationship between Q1 margins, not just for yourselves but kind of across the industry, and compare that to full year, obviously the seasonal benefit of Q4 is very dramatic. So that leads me to look at this 11.4% and then look at your full year guidance to say, wow, that full-year guidance looks pretty conservative, unless of course there is something in here which would suggest you're not going to see a normal relationship between seasonally like Q1 and full-year. I hope this makes sense.

Sure. So first of all, we don't guide for quarters, we guide for a year, okay, and we don't know exactly how revenue will fall and what the composition will be for the year. We're very, very comfortable with the guidance we have given. It would be a wonderful pleasant surprise to all if that was conservative, but because we don't really know what taxes will happen, et cetera, what the composition will be, it's hard for us to just straight-line extrapolate and say, everything that happened last year should happen this year. If you recall, last year, we earned $73 million in EBITDA out of a $118.4 million in the second half of the year. We earned $46 million in Q4 out of $118 million. The composition, if you go back five years, has moved around. Last year in Q1, we only earned $7.7 million, which was call it 5% of our EBITDA. So, the reality is, that has moved around and it's not scientific in how the composition falls in place. But what we are exceedingly confident in is the overall year guidance of $1.145 billion to $1.170 billion and $142 million to $146 million. What you didn't focus on, which is more significant, is that we are increasing revenue by $20 million in our guidance but we are increasing EBITDA guidance by $10 million. So implicitly, we're seeing a greater conversion, which is almost 50%, in that conversation to the bottom line. That's extraordinary and that's indicative of why the efficiency of productivity programs we put in place are going to continue to increase the translation.

Very helpful, thank you.

Next we have Matt Chesler, Deutsche Bank.

So a lot to talk about that new business win number of $53 million which you highlighted, it was a record. Can you talk about that a little bit more, speaking to the driver of that, whether to what extent it's due to simply your largest scale, going after larger accounts, or just a better win success rate?

Well, the number one most important thing is, we have made huge investments in talent in the Chief Growth Officer function at all of our agencies. We have a bolstered, reinforced and much more significant Chief Growth Officer function at all of our main agencies which allows us to pitch and be proactive at nurturing relationships with major marketers, even though we're exceedingly busy. So that investment is really paying off. You see it at Doner, you see it at Crispin Porter Bogusky, you see it at KBS+, you see it at Anomaly, 72andSunny, you see it at Redscout, Colle and McVoy, you see it at VitroRobertson, you see it at mono, you see it at Allison Partners, at Kenna, I mean across the board. So, we probably hired 25 people in that regard and that investment has been significantly successful. In addition to that, our conversion of pitches to wins has increased very significantly and we're getting a whole bunch of business that we are not pitching that's actually coming to us proactively and we're getting the business without a pitch. In addition obviously we are getting larger pieces of business, as I articulated in my brief remarks. But it's all driven from a very simple thing. It's the results for clients. When people see the impact of the programs we are initiating for clients, they all say to themselves, we want some of that, and that's when the phone rings and that's what's really leading to net new business wins.

So your philosophy around guidance in the full year has always been that you're managing the business for a full year, and then here you are after just one quarter picking up the goals for the full year. Can you tell us what really happened, what clicked for you this quarter, what was the upside, what worked so well for you in the quarter that you were comfortable enough but didn't want to bake into guidance when we spoke a month and a half ago?

You could appreciate that we hate guidance. If we had our way, we would never give guidance. The guidance is really a mugged game, because it only – you have no upside. But having said that, we understand why we need to participate in the game because that's our fiscal responsibility to our shareholders. We knew at the end of Q4 that we had an extraordinary amount of momentum ahead of ourselves, and because of what we experienced in Q3 2011, where we for the first time in five years overpromised and under-delivered, we always said, as Richard Schuster from (indiscernible) said, we should play Mickey Mouse Olympics, we should always just set the bar higher than everybody else but sufficiently that we could jump over it. We thought in light of an uncertain economic environment based upon competitors that were showing North American organic growth of 2% or 3%, we thought we were pretty impressed with the kind of benchmarks of performance that we've set for ourselves. When we actually saw Q1 results, we thought that really smart people like you, Matt, would go backwards and say, okay, what's the LTM. If you do the LTM, you'd realize that we'd be at about $141 million of EBITDA just taking last year first three quarters – sorry, this first quarter and the last three quarters of the last year, so we said, smart guys like Matt are going to do that, we have to increase our guidance. We wouldn't like to increase our guidance but we had no choice because we knew that people would do the math. So then we said, okay let's raise the guidance to 1.42 to 1.46. So that's what's transpired. We were positively surprised at the acceleration of net new business wins that happened in the quarter, okay. But we knew that – so we knew that we were going to give very good guidance that was modest relative to what we could accomplish but it gotten even better. And we're at a scale now that there is no new business in the country we can't pitch. So we are scaled enough to handle anything, but small and nimble enough to be able to deliver superior performance and translate that into superior results not only for the clients but for ourselves. So that's what our philosophy has been. So, the reason why we upped the guidance is because our results were so much better than we anticipated, and on an LTM basis, it would have made no sense to not up that guidance. So that's why we did what we did.

Okay, and just shifting the conversation off of guidance necessarily but just, you highlighted so many parts of your business that are performing very, very well, from PR to integrated agencies and so forth. In order for you guys to sort of repeat expectations from here, what do you think that – what would you need to see out of your agencies, and is there any part of that you didn't highlight, I mean probably don't want to throw anybody out of the box, but is there anybody that's underperforming that you think that if they could do their part and catch up, they would start contributing to your overall result as well?

For us, it's about the ability to consistently overachieve expectoration of clients so that we get greater share of wallet, it's about consistently pitching more and converting more to wins, and keeping that discipline, which we actually think the next two years we can show continued significant improvement, and that's under a real mandate, to increase productivity and efficiency and margin conversion, and there is no question that we think we can be the leading firm in terms of financial metrics or performance over the next 36 months. And so it's not about any one firm, it's about just do blocking and tackling and keeping that discipline that we've got in place. We've invested in some extraordinary people who have done a phenomenal job in building their businesses and we've been very right. I've always said, wealth is created by being bold, early and right, but bold and early doesn't make up for being wrong. If you think about it, Warren Buffett made that big commitment, a 10 year bet on America, we did the same thing. We made a big bet in 2009, 10 and 11, a little bit 12, on America and we spent $300 million, $150 million net of the cash that was on the balance sheet and have probably delivered $75 million of EBITDA. So we bet very big and those businesses are enhancing our growth rate, our margin expansion, our return on invested capital, and they are also enabling us to cross-sell services, and it's one thing that we haven't talked about, but Bob Kantor and the entire Chief Growth Officer function at MDC has done a spectacular job, a collaborative activity with multiple agencies doing work, with having MDC days at our office with multiple agencies, and so we really are cultivating across agency relationships with clients and proactively going to existing or new clients and getting more revenue from them in a way that we don't think anyone else is doing, and that is translating into the acceleration of revenue and the acceleration of margin.

Next we have [Eugene Sox of Kernel Capital Management] (ph).

First, congratulations, numbers were obviously very good. I missed the early part of the call, I just had a couple of questions. The profit distribution that you called out of $3.1 million, can you explain that and how we just haven't seen it before?

We have this wonderful little investment in real estate which was one of our operation real estate and we sold an interest in that, and that interest where we owned 50%, we sold down to 30% and that was our share of profit paid in cash to us, and the residual value is still on the books at probably zero and probably has a value of somewhere between $10 million and $15 million.

But you know that line item has been in our EBITDA calculation forever and it recognizes distributions from businesses that are not majority-owned.

I understand David. It's just in the material, that was the reason for the question. A big working capital swing in Q1, would you still say you expect it to be relatively flat for the year?

Yes, we always budget it to be flat, but obviously if you have – it depends on the composition of the business, but there's still more that we can do, but Q1 was obviously very positive. David?

Right. Eugene, Q1 seasonally is always an outflow, and if you look at the last several years, that's the case, and the way our year flows generally is 1Q money flows out, it's exactly trended a bit better than we expected, as Miles alluded to. 2Q tends to trend in as we hit the April, late April, May timeframe and tends to be a generator for us, and then the second half, we tend to get a fairly substantial swing in, especially as we move into 4Q. So, our expectations for the year are at a minimum to be neutral on it and our hope and goal is actually to drive some material cash from continued improvement in managing the working capital.

Got it. David, the earn-outs, give or take, has been $100 million in the current item of your balance sheet. When do you expect to pay those?

Sure. So, in 2Q, the quarter we're in right now, we've already paid $65 million or so and there's another $10 million or so to go out. So, you'll see that number start to come down materially on the June 30 balance sheet. For the second half of this year, we're looking at another $30 million plus that's going out, and then next year, we'll have about $65 million to $70 million go out. And that makes up the bulk of the remaining deferred acquisition consideration on the balance sheet. So one of the exciting things for as about where we sit right now, and I think one of the things that resonated really well with the bond investors is that not only are we focused on bringing the balance sheet leverage down to 2.5 times and below in the next couple of years, but while we do that, we are going to fund $170 million, $180 million of deferred acquisition consideration which is substantial incremental equity value that shifts from the debt side of the balance sheet.

And just to articulate, I said we have $15 million of cash. That's as of today. That's after paying $70 million of prepayments and fees and it's after paying $65 million of deferred acquisition consideration. So when we pay the other $110 million, $115 million of deferred acquisition consideration, we will have paid, we will have translated $170 million or about $0.05 to $0.06 a share of debt to equity. So we will have paid down the debt by that amount and that shifts right to the equity side of value, and when we said that we will have $85 million approximately of cash on the balance sheet, or net debt of $465 million, that's after the $70 million of one-time payments for the make-whole and the fees, that's after approximately $100 million of deferred acquisition consideration. So if you think about our cash generation, it's really been extraordinary. And so, that's what we are very excited about. So the cash generation way higher than we anticipated and the deferred acquisition consideration is on plan, but the cash generation is much ahead of plan and that's why we're translating more equity value at a more accelerated rate.

I want to clarify one thing I said. When I talked of the June 30 balance sheet, I was talking about the total deferred acquisition consideration which is the combination of current and long-term. The current bucket will stay at a higher level because it will start to flow in 2Q of next year, which is the next big chunk of the earn-outs that need to be funded in 2014, but that will shift from the long-term bucket, and so in aggregate it will come down.

Thank you, David. In terms of going into the second quarter, as I recall, the acquisitions that were done last year, all closed in Q1, so should the organic growth rate and the total growth rate start to converge with FX only being the difference beginning in Q2?

That's correct, yes.

Okay, I'll leave it at that. Congratulations again, excellent job.

Next we have David Bank of RBC Capital Markets. Please go ahead.

Thanks guys. A couple of questions, but first one, I don't know if you have these at the tip of your fingers but if you could just give us a ballpark, what percent of your clients are using services of these two agencies, and then what percent do you think would using of these three, and how has that number changed over the past couple of years?

Let me answer that while I still remember the first part. We have about 1,000 clients. It's probably the 80-20 principle, probably 80% of revenue coming from 20% of the clients, but there's probably 200 very large clients in that regard. I would say to you that of the top Fortune 100 clients, we probably have 50 of them, and of those 50, probably 70% of those are using at least two agencies, maybe 50% are using three agencies, and only 10% are using four or more. That is accelerating on an ongoing basis as we implement the MDC partner cross-fertilization plan, and that's happening on an accelerated rate, and the amount of net new business that they are getting is probably growing 40% a year. Mind you, it's from a modest base. So that's probably a good ballpark perspective.

So I guess the second part of that question before I get to my next question was, if you look at how that – how do you think that number has – I know it's accelerated, I get it, but like in real market terms, how do you think it was different than say three years ago or probably five years ago?

Probably I would bet you it's up 100% in the last two to three years, and it's probably up 200% or 300% over five years. It's a dramatic change.

Okay, and then I guess I know it's early days tale but in terms of – I don't know what countries list on the Fortune 100 side but the percent of clients using both your media buying services as well as creative, can you talk about how that's kind of phasing in?

It's 5% of our clients. We have enormous opportunity. On a scale of 1 to 10, we're at 1 at a 10 relative to the potential. Because Maxxcom has just celebrated its first anniversary, we're nowhere in relation to penetrating our creative agencies and partnering with them on the integrated offering. So, we see enormous upside in that regard.

(Operator Instructions) The next question we have comes from Rich Tullo of AFCL.

In terms of ridiculous quarter, congratulations. First question, speaking of Mickey Mouse and accounting, not to put the take on you, but on the next with spaces, if I use 18% tax rate, is it fair to say, you would have made to that $0.08 a year this quarter?

First of all, we don't have a tax rate like that but we haven't done the exact calculation but you know that the $15 million is both at pre-tax and after-tax kind of amt.

Rich, you have to keep in mind, we have all sorts of non-cash items related to our acquisitions as well as the refinancing that impact our GAAP reported numbers. So, I don’t think we're going to put forth a number to you of what we think EPS would or wouldn't be. Our numbers are reported as numbers and we believe that you should focus on EBITDA and free cash flow in how you evaluate our performance.

Yes, I know it's the right way of doing it, I was just asking.

It would have been a positive number, we haven't calculated it.

That's fair enough. And regarding the margin expansion, when we look at the two businesses, SMS and PMS, it seems like the opportunity for expansion comes out of PMS. Is that how we should be kind of handicapping that?

There's surely more margin upside in the Performance Marketing Services segment than the Strategic segment. The Strategic segment, while it did have the bulk of our investment over the last couple of years, has had double-digit organic growth for 10 of the last 12 quarters, and so it's surely a lot easier to scale into those investments when you drive that sort of growth, and the Performance segment just now, we're accelerating in terms of its growth profile in the first quarter. We expect that that segment, the Performance segment, will have margins that should be about 10% by the time you see the full year numbers reported.

That's very helpful, thank you. Just kind of a industry question, did Crispin Porter and Bogusky and 72andSunny contribute to the Best Buy and Samsung deal?

We don't know that answer. We're not familiar with the information.

Fair enough. And then the last question for Miles, is it fair to say that TV kind of gives you a picture of a brand, a window so to speak, and digital is kind of like the core of the store, the things that are in the store that make the store successful, and if so, it seems to me that MDC being digitally focused, having a lot of performance based accounts and the willingness to take on that performance based fee, it is going to be integral how advertising needs to happen, I mean how could it not?

I'm not an advertising expert per se about media, but I would say the following. The mainstream storytelling and the emotional bond between the consumer and the brand, the best way to reach a vast audience still is television. There is nothing that has replaced it. Television will continue to play an important role, it won't just be your TV, it will come, that kind of content will come in various forms. The television advertising still is very impactful. That's why Super Bowl advertising trades at an all-time premium, that's why the Academy awards, et cetera trade at all-time premiums. What you're finding now is that pricing is increasing at a decelerating rate and that over time TV probably will be a marginally smaller share of market and digital and mobile and social and those other areas will grow at a more accelerated rate. We don't look at any one thing as an isolated tool, we look at the marketing and media mix as an integrated offering. It's like a symphony. It's th3e ability of all of the parts to work together collaboratively to drive both impactful message, make a brand famous, and be a call to action to get consumer, induce consumers to make a purchase to enable like our clients to sell more products to more consumers for more average order value more frequently. So, the thing that digital and analytics enable our marketers and ourselves to do is to measure impact and be able to predict the impact of what we will do so that we can starve our losers and feed our winners in terms of campaigns and ideas to drive that incremental marginal return on the next dollar of spend. So, I think it's all of those disciplines together that is really, really critical. I think the firms that are trying deal with television, isolated from direct, isolated from digital or social or mobile or experiential or public relations, they don't get the benefit of the economies of scale, but also more importantly, the benefit of the symphony of integration and the overall impact of that marketing spend. And it's as much – marketing success is as much about art as it is science, it's about telling the story but it's also about the scientific aspect of thinking about how to deliver that message, where to deliver that message, and how to measure that impact and continue to mak4e modifications as you go along, and that's the difference between the firms that are successful and not.

I really couldn't agree more. It seems to me that whether it's Maxxcom or elements within IPG, the companies that are embracing digital and working on a performance basis, are getting ahead.

The critical thing is, one thing to work – everybody is focused on digital. That's like – that's not a unique selling proposition. Everyone's trying to be in a position to try and get greater pay for performance but very few are actually delivering the performance. They got to deliver the performance in order to justify the incremental pay for performance. So, it's the firms that are hiring the talent that is in tune with how consumers consume and pull into the digital economy that are delivering programs and ideas that actually resonates and delivers the performance that are actually winning. I think what's been key to MDC is just this plethora of new talent that is just switched on to the new realities of the economy and the digital environment, and able to create ideas and programs that resonate, that's critical to our success.

Next we have [Eugene Sox of Kernel Capital Management] (ph).

Last question guys and I apologize if you answered it already. David, can you tell me what's the sort of the new quarterly run rate for interest expense is going to be given the refinancing?

Sure, it should be about $10 million.

It appears that we have no further questions at this time. We will go ahead and conclude our question-and-answer session. I will now like to turn the conference back over to management for any closing remarks.

Thank you very much, ladies and gentlemen. We appreciate your conscientious interest and your enthusiastic support of us. We look forward to speaking to you soon and we won't speak to you till sometime in the middle of this summer probably, and so we hope you're enjoying the summer season and we thank you again. Have a nice evening.

We thank you sir and the rest of the management team for your time. The conference is now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you and take care everyone.