Stagwell Inc. (STGW) Q4 2014 Earnings Report, Transcript and Summary

Good day and welcome to the MDC Partners' Fourth Quarter and Year-End Results Conference Call and Webcast. 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'd now like to turn the conference call over to Mr. Matt Chesler, Vice President of Investor Relations. Mr. Chesler, the floor is yours, sir.

Good afternoon and thank you for joining the MDC Partners 2014 fourth quarter and year-end conference call. On the call today from MDC are Chairman and CEO, Miles Nadal; CFO, David Doft; and Chief Accounting Officer, Mike Sabatino. During the call, we will refer to forward-looking statements and non-GAAP financial data. As we all know 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 detailed on the company's Form 10 K and subsequent Secretary Filings. Please note that as a reminder, beginning this quarter, we are no longer consolidating the financial results of our customer engagement business ACCENT. As a result, Accent will be excluded from all GAAP and non-GAAP financial metrics referenced from continuing operations. For your reference we have posted an Investor presentation to our Web site. We also refer you to this afternoon's press release and slide presentation for definitions, explanations and reconciliations of non-GAAP financial data. And now to start the call, I'd like to turn it over to our Chairman and CEO, Miles Nadal.

Thank you very much. Thank you very much ladies and gentlemen for joining us on our Q4 and year-end conference call. David and I will provide some brief remarks and then we would like to open it up to your questions. As Bill Parcells said, you are what your record says you are, and as you can see from the numbers that we posted and the data points that we have now shared, MDC delivered another very impressive year of financial performance in fiscal 2014. We delivered industry leading organic growth, record net new business, healthy adjusted EBITDA growth and operating leverage and robust overall cash flow generation. In fact, our balance sheet is not only the strongest ever; it is in an exceptionally strong position on an absolute basis. More specifically, our organic revenue growth for the year accelerated to 10.8%. The rate outpaces the industry by nearly 3x. Our fourth quarter organic revenue growth was an industry leading and very impressive 12.5%, accelerating from the recent trend and significantly outpacing our own internal expectations. Our best-in-class agencies who have a commitment and dedication to do brilliant work that drives financial performance for clients continue to gain market share and tap into new growth opportunities such as international and media services. Reported revenue was 15.2% positive relative to last year. Our adjusted EBITDA grew a healthy 17% for the year. We're pleased with this result, and it is within the guidance range and an impressive growth year-over-year, but note that we delivered on this commitment despite the incremental new business related expense incurred primarily in Q3, and the unfavorable shifts in foreign currency late in the year among other factors. At 14.7% for the year, our margins have increased an astonishing 500 basis points over the last three years, and we see a clear path to our revised upward margin range of 17% to 19% over the next three years to five years as we articulated in our recent Investor Day in December. Our adjusted EBITDA available for general corporate purposes was $99 million, slightly below the guidance range due to an increase in one-time CapEx of approximately $9 million given the rapid expansion of several of our partner agencies as they integrate significant net new business. That said, our overall cash generated significantly exceeded our expectations due to solid working capital gains over the course of the year where we generated $129 million cash operations. In fact, so the totality of our cash generation was approximately $128 million in totality. Our new business is booming at MDC. Net new business across the entire spectrum is at a robust pace, and we recorded net new business of a record $163 million in 2014, up 28% from the year before, showing the power and appeal of our unique model and more impressively the unique and capable expertise that we have and its impact for clients. Recent wins include Infiniti, Diageo's Johnnie Walker, Unilever's Magnum Ice Cream, and the InBev’s Corona in Brazil. What is really exciting to us as management is that many of these high-profile assignments are global or international in nature. And all are within the multinational marketers with extensive product portfolios with huge incremental opportunity for upward mobility and further expansion for MDC. Add this to a number of wins already in Q1; for example Unilever's Axe, Highmark Health in Major League Baseball, and a pipeline that continues to be very active as brands remain under pressure to grow and are increasing looking to MDC and our partner firms for solutions that can deliver exceptional performance and drive tangible, measurable, incremental return on market investment. As always, we are committed to organic as well as new business growth, and we are truly excited for what we see ahead of us in 2015. During the year, we took some very important strategic steps to ensure that MDC continues to have the financial strength, flexibility, and availability of capital to continue winning and leading on a global scale. This includes increasing our capital base, further reducing our cost of capital, and providing further financial flexibility to help fund our expanding business. In April, we opportunistically raised $75 million of additional capital at an effective rate of 5.28%, and in October we expanded our credit facility by an additional $100 million and extended the maturity out an additional 18 months. We have 5 plus years left on our senior notes; we have $120 million of cash as of 12/31 and a completely undrawn $325 million bank facility. We remain committed to deleverage the balance sheet on a net debt [ph] basis towards the 2.5x target or below over time, especially as we approach the April 2016 call date for our notes which could set us up for an accretive opportunity as we get closer. As you can see from our results and Dave will talk further, we have continued to delever our business. Our goal is to balance prudent leverage levels with an initiative that can drive significant incremental shareholder returns. We do this with our accretive acquisition strategy and by allocating a portion of our growing cash generation to paying a dividend. But most importantly, we do so by driving organic growth from our existing businesses. As a result, we are increasing our quarterly dividend again by almost 11% to $0.21 per share this quarter. Our current dividend represents an annualized yield of 3.3% underscoring our commitment to returning excess cash to our shareholders. Every year, every quarter, every day we strive to be effective, responsible, accountable stewards of your capital and that is our firm and highest commitment and dedication and will be so for many years to come. And so while this marked an important and rewarding year, what truly makes us very excited as a management team is the foundation that we have led and built over the last number of years and how we position ourselves for sustained growth and improved profitability in cash conversion. We are the growth story in our industry, and we will work tirelessly day in and day out to continue to outpace our competitors. In 2015, we will continue to pursue our successful strategies that we outlined in our recent Investor Day. First, we will continue to extend our capabilities outside of North America, while we have a highly visible near-term client opportunity where we can do so efficiently by leveraging existing resources. As you know we now have a strong slate of international firms with plenty of room to run. We're making great strides in China and more recently in Brazil. International has also one of our biggest margin opportunities. While we are not doing this by replicating it in the expense of infrastructure of our competitors, instead we have deployed a more modern approach of regional hubs and are increasingly leverage off our existing agencies to scale our capabilities on a broad geographic basis. In aggregate, our international operations are now modestly profitable after a loss in 2013 and we expect significant further progress in 2015 as the businesses continue to scale. As we have articulated, this is a very exciting new opportunity for MDC over the last few years and one which we think we can sustain 20% to 30% kind of growth for the next number of years. Second, our media services business is kicking into gear beautifully with better than company average organic revenue growth for the year and numerous recent wins such as the pharmaceutical launch and including multiple cross sales from MDC creative agencies such as American Legacy Foundation, anti-smoking campaign and elevate financial. Media is one of our biggest long-term growth opportunities. We think we're well positioned to capitalize on the changing dynamic. This change in new technology is one where MDC is poised to win a disproportionate piece of the pie, take advantage with more progressive performance driven solutions and increase our margins and growth rate. Third, we're bolstering our data science and technology capabilities to ensure that we have the newest platforms and tools across our broader business to remain on the cutting edge. We highlight some of these efforts at our Investor Day in December. Stay tuned for further exciting developments in 2015. Fourth, as you know we supplement and amplify our organic growth efforts with targeted strategic highly accretive M&A. In 2014, we welcomed six new firms into the MDC family. Luntz Global, Kingsdale Shareholder Services, The House Worldwide, Trapeze, Hunter PR and Albion. Each addition has contributed to our financial performance and our strategic capabilities. They have raised the bar of our expertise and further reinforced MDC's repetition is the place where great talent lives. In aggregate these firms added approximately 5% to our top line in 2014 important but not hugely material. For 2015 and beyond we're committed to the continued discipline strategic approach targeting firms with great capabilities, financial metrics that are accretive to ours that meet our 20% minimum return hurdle. We are uncovering wonderful opportunities to invest in partner with these companies with superior growth and strong margins that will improve our strategic offering and our competitive advantage. As we have said before it is reasonable to expect that MDC will add on average 3% to 5% a year of revenue growth through acquisitions in key areas such as media, digital, analytics, consumer insight, strategic communications and data science. Everything at MDC begins and ends with our people, our talent, our core assets. We cannot attack any of these growth areas if we do not continue to support, train and develop the most talented men and women in our organization and continue to attract those people. We will continue to uphold our people as our most valuable asset to ensure that we remain not only a place where great talent lives, but where great talent thrives. Paramount to producing meaningful and measurable results for our growing roster of clients is preserving the culture and DNA to rigorous standards and collective visions for the future as we've become a larger enterprise. We have built a team of collaborative innovators and disruptors that challenge incumbents, MDC is just different. We're different in a good way and it all starts with our culture. It is something that we think is precious and what we are proud of is only gotten stronger as we have gotten larger. To finish let's recap where we stand. And why as the CEO I am so optimistic about the future of our business going forward. We make long-term strategic investments in our business, as a mentioned target a minimum of 20% return on capital. If you recall just over 20 years ago in 2009, we've raised capital in the markets at a time when everybody had no access. We paid an astounding 12% interest rate then use the proceeds to make a long-term bet on America. We followed Warren Buffett. He said he is making a ten new bet on America and so did MDC. That capital was invested in opportunities in digitally centric businesses and then the acquisition of outstanding entrepreneurial talent. We told you that these investments would allow us to grow faster, drive higher margins, increase cash dividends – cash generation, increase our return on invested capital and over time delever our balance sheet. Only thing that happened that we didn't anticipate is the magnitude of the transformation and the returns really outstripped any of our wildest expectations. From March 2012, the end of 2013 we bought nothing. We focused on our business. We decided to run the store and do everything we can, could to reinforce our culture as a place where great talent lives. We invested in new business capabilities, digital and the science disciplines and most importantly we leveraged the infrastructure to show the fruits of the investments we have made and the labor of our partners. That most importantly, we delivered outstanding results. We remain the fastest growing company in our industry and our margins move from the low end of the industry to the high end. Our records indicate that we have the discipline and operational expertise to outperform the industry in any economic environment and that we have been strategic, effective, disciplined, accountable deployers of capital. Importantly, because we as management eat our own cooking, we own 15% of the company, myself included. We are as focused on maximizing value creation as you could possibly be. Since embarking on this strategy as a pure play in the advertising and marketing services space in 2001, our returns to shareholders have been exceptional. MDC shares have increased 687% versus an average of 159% for our publicly traded peers over the last five years. Over the next 5 to 10 years, we believe we have the opportunity to sustain that kind of impressive out performance. We believe that strongly in our long-term operational revenue and profitable goals were we continue to drive industry leading financial metrics, this is a big goal and you get there by pursuing a multiyear strategy one day at a time like the one we have laid out to you and being disciplined to pursue only those investments that improve your competitive and financial position and enhance shareholder value. In sum, we entered the year in a best competitive and financial position in our history and I have never been more enthusiastic about the future of our business. With that, I'll now turn over the call to David to discuss our financial results and outlook in more detail. Thank you.

Thank you, Miles, and good afternoon. I'd like to speak to our 2014 results and discuss our outlook in more detail. As Miles explained, it was a great year for us on many fronts. For the full year, we came in at the high-end of the guidance range for revenue and met our adjusted EBITDA target. We did come in below our target range for adjusted EBITDA, available for general capital purposes due largely to the ramping growth CapEx given the expansion of award-winning agencies like 72andSunny, Anomaly, kbs+ and CP&B both in the United States and overseas, but all on the back of strong new business. For 2015, we expect revenue to increase 6.5% to 8.5% to a range of $1.3 billion to $1.33 billion. Our revenue guidance implies 7% to 9% organic growth plus about 1.5% growth from last year's acquisitions trailing through offset by about 2% negative impact from foreign currency headwinds. Adjusted EBITDA is expected to increase 8.7% to 14.3% to a range of $195 million to $205 million. This implies adjusted EBITDA margin of 15.0% to 15.4%. Adjusted EBITDA available for general capital purposes is expected to increase 10.3% to 20.4% to a range of $109 million to $119 million. More specifically on our revenue momentum, the new business success of our firms has been outstanding due to our endurably strong position in the U.S. as well as our more recent expansion of global capability, which should give us more visibility on revenue going into this year than we had a year ago. That being said, the timing of the ramping of revenue recognition from new business can often be difficult to predict with the same degree of certainty as existing relationships. While many aspects of the current environment favor continued investment in marketing by brands particularly the healthy jobs trend and lower oil prices which benefit customers, we're also mindful of the uncertainty in the timing of the ramp of some of the recent new business wins as well as the volatility of foreign currency movement. These factors warrant a bit of conservatism in our forecast and mean that our year should be a more second half weighted from a profitability standpoint. While we do have considerably less exposure to foreign currency fluctuations versus our public peers, we're not immune to the impacts of the strengthening U.S. dollar especially as it relates to the Canadian dollar. Implied in our full year guidance and assuming FX rates stay where they are, is a roughly 2% negative impact on reported revenue and approximately 3% negative impact on reported adjusted EBITDA from the changes in foreign currency translation. Meaning, our agencies in Canada are continuing to grow and expand in local currency, but upon conversion to U.S. dollars the results do not indicate that. Despite this, we expect to be able to expand margins by 35 to 75 basis points in 2015 on a reported basis. As across the network we are scaling into our past growth investments. You should also expect that we will get some leverage on CapEx in 2015 which should be about flat for 2014. One other comment related to our guidance versus consensus expectation is that while our framework calls for adding 3% to 5% annually to revenue via acquisition as a matter of practice we have always only guided based on acquisitions that have already closed. Our 2015 guidance includes just 150 basis points as I said of contribution to revenue from 2014 acquisitions versus about 300 basis points embedded in consensus 2015 estimates from what we can see which accounts for about $3 million of a delta between our guidance and consensus estimate for 2015 adjusted EBITDA. Finally, I would like to provide an update on the ACCENT strategic review. I'm sure you have noted that the reported financials from continuing operations exclude ACCENT both in the current and prior period as the business has been moved to discontinued operations given the pending divestiture. We are running an active process and are engaged in productive conversation which gives us considerable confidence that a transaction will take place during the first half of this year. As we discussed at the Investor Day, we believe the plan to ACCENT transaction will make MDC a faster growing, higher margin and less capital-intensive business overall. We will provide an update on the process in the future as appropriate. With that, we would now like to take your questions.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have comes from Bill Bird of FBR. Please go ahead.

Good afternoon. Miles you touched on it, but I just wondered if you could elaborate a little bit more on just your current new business pipeline and just your general thoughts on the new business environment? Thank you.

Our new business pipeline is extremely robust. It is hard to forecast a year, but we would anticipate that if things go according to plan, our new business wins net for the year will be as good as they were in 2014. We have certainly started off quite nicely. So we're very optimistic that the momentum we had in 2014 is continuing in 2015 and will do so for the rest of the year.

Bill, I would add, we don't need to match 2014 to reach the guidance expectation, and so we do try to plan our business conservatively for the coming year because there is a bit of unpredictability about the pipeline as you look toward the second half of the year.

Yes. I mean just overall we as management I think why we've gained a lot of credibility is because we have a philosophy of under promising and over delivering. And we continue to do so. We have put forth, I think, very excellent forecast for the year, but still they are not as ambitious as we would like to see delivered ultimately, but we believe that our credibility of under promising and over delivering is the right strategy.

And separately on margins, David, you touched on some of the factors that are in your outlook. I guess I was just wondering if you could talk a bit about your outlook which is now about plus 50 basis points at the midpoint, what are kind of the key things that changed from December when you aspire to 100 basis points? Thank you.

Thank you, Bill. So as I alluded to in the prepared remarks, there are really two key dynamics that play. One is the foreign currency swings became quite dramatic in the early part of 2015, and while our exposure to Europe and Asia is not that material, our exposure to Canada is a bit more so and the Canadian dollar has moved about 20% over the last three months or so against us, and there is a bit of a margin impact from that in addition to the revenue impact from that. The second is, it's just the ramping of the new business where some of the larger more complicated pieces of business, it doesn't all roll out at once, it rolls out sometimes region by region. And so, the revenue will pick up as we move through into 2Q and beyond which means that there is a bit of a margin drag as we ramp that business and have some expenses of staffing up ahead of when the revenue starts to come in. And so the way those both play out is a little bit more conservative on the margin expectation for the year. To ensure that we're putting ourselves in a position as Miles said to reach the expectations we put forth and then we will work our best to do better.

And to say it is our expectation that if things did ramp up faster and acquisitions were more significant than what David articulated, that would have a positive impact on margins beyond the 35 to 75 basis points that David articulated.

And David what did you say those two factors were at play as well in the fourth quarter? It looked like your incremental margin was a little bit lower than trend line.

They definitely were at play in the fourth quarter, similarly the new business definitely didn't ramp at the exact date that we initially expected. Though it is there, so it is not anything that we are concerned about, it is purely a timing mechanism. And the Canadian dollar did begin to weaken quite substantially in 4Q. Revenues in the fourth quarter were impacted by almost [indiscernible] from the weakening foreign currency exchange rate and that in the short-term has been a bit of a drag. Though over time I think we're fairly – we tend to be fairly reasonable at FX especially as it relates to Canada, because I think in the long run as oil begins to get a bit of a base and [indiscernible] Canadian dollar should strengthen and it should come back our way. So no way do we think these changes anything about the long-term trajectory and financial performance of MDC.

Great. Thank you.

Thank you.

Next we have Dan Salmon of BMO Capital.

Hi. Good afternoon everyone. For Miles or David I guess, Miles you reiterated in your prepared remarks the discipline that you guys aim to maintain around M&A and particularly around how accretive it has been. And I am just curious as you look out at potential investments now and particularly in light of your own margins coming up so much, how much more of it is a challenge to find potential targets that fit your parameters? It just seems like your own company's improvement in margin over the last few years makes hitting those sort of bars a little bit more difficult. Then, I will follow up with a quick follow up question after that.

Look I think they're very good questions. The first thing I would say is, our minimum target of 20% to 25% is something that we are highly, highly comfortable. Do we continue to sustain 40% kind of rates of return that we have over the last seven years? No, we are not. I think it will gravitate more towards the 25% kind of direction. But, I'm highly confident based upon what we see today, we are seeing a number of wonderful opportunities. Pricing was a little bit of a challenge over the last quarter, although we are now getting closer on some transactions that are reasonably priced with extraordinary growth prospects, wonderful margins, great capability and expertise that we think will enhance the level of our capability and expertise and sustainable point of differentiation. The businesses that we are looking at investing in all have superior margins and superior growth rates to the average of what MDC is today and as impressive as that our overall businesses these businesses will be accretive. I think it is not easy, but we are very comfortable that we will – I think we have always said we will spend $51 million to $100 million a year on average on acquisitions and that is something we are comfortable with. The good thing that we have demonstrated over the last seven years is when things didn't makes sense, March 28, 2012, December 19, 2013, we allowed the organic growth of our business to speak for itself and that's where we delivered 273% shareholder value appreciation during that period of time. So we are seeing good pipeline, we're being very discriminating. Although we have a lot of capital, Buffett said we're like a baseball player; the only difference is, we don't have to swing. If we don't find things that we are highly confident that not only can perform in terms of the expertise and the impact of the work they do, but also from a financial performance and a value perspective, we will just sit tight. If you look at what MDC did and how we created the value in the last seven years, Buffett said you should be greedy when others are fearful and you should be fearful when others are greedy. We were highly ambitious in 2009, 2010, 2011 and in the beginning of 2012. And that is when the world was very uncertain. There will be that time, I don't know when, over the next 5 or 10 years to capitalize on that and that is really the best opportunity for us to create dramatic shareholder value appreciation and that is what we are positioning ourselves for. In the interim, we will continue to hit singles and doubles and continue to enhance the performance on a very intelligent highly accretive basis.

Okay. Thanks Miles. And then David a quick follow up, more housekeeping thing than anything else. But can we assume that the guidance for the year is inclusive of targets wind-down in Canada?

Yes. Dan, it does include that and that's an excellent point. We don't really like to talk but individual clients on our calls but surely there is a sense of conservatism about the impact of that, the business did go into receivership which means that we have taken into account our exposure on receivables front in that guidance.

And we did take a negative hit in 2014 after year-end as a result of that.

That is correct. The small accrual in 4Q was relatively conservative.

Great. Thanks guys.

Thank you.

Next we have Peter Stabler, Wells Fargo Securities.

Good afternoon. Thanks for taking the question. So a quick one, David could you remind us of your policy on digital media buying? Are you taking a principal position on that? And then secondly, wondering if you could comment just on the traction you are saying with the media operation. I'm not sure if you have recently sized the level of the operations inside MDC and maybe how the growth rate there compares to company as a whole? Thanks very much.

Sure. Thank you, Peter. So there is a small portion that continues to take a principal position, but not in a way I think that some of our competitors who are there actually pre-buying media but the contracts do provide for a small amount of gross revenue accounting. It is a pretty minimal impact and it's not the core component and growth strategy behind our media business which is more of a fully transparent approach. On a full year basis, about 0.5% impact on our revenue from the difference in accounting on that front, just to put some numbers on it. In terms of the media business overall, it continues to be very strong performer for us. There has been a number of new business wins, some have come public, some have not, but overall that business did grow organically well in excess of MDC overall in 2014.

And one quick follow up if I could, David on the FX, I'm sorry to come back to this topic. But your competitors are generally naturally hedged and you guys are actually seeing a pretty substantial negative impact to EBITDA. So I'm just wondering if you could help us a little bit – explain why you guys have more EBITDA and margin exposure than some of your peers who are more naturally hedged? Thanks.

So I think that with our business and I can't speak to our competitors, similarly we have expenses in the same local currency as the revenues in those cases, but we are fairly scaled in Canada. It is the origins of MDC. And over time, a lot of our natural hedges we had a substantial corporate capability in Canada, but it is increasingly moved to the U.S. And so there is less of that offset on the expense side then we have had before. And at the operating level we have some very strong high-margin businesses that operate in the Canadian marketplace. And so that is what let the impact to be a little bit more to – little bit more than what the revenue is. And what we did was in doing the analysis, as we looked at our budget on a local currency level versus last year and then on a same currency level and looked at the discrepancies between that and that's just how the numbers played out given the evolution of our business.

Yes. I just wanted to add to that. If you actually look at our competitors especially the ones that report in U.S. dollars, you will see that we have actually far less impact from foreign exchange. People that have benefit are the international players who report in a currency other than U.S. but if you actually look at their U.S. equivalent, they have actually been hurt as well. We actually have the lowest amount of foreign exchange impact as a result of our business, but everybody is being impacted but I think if you were to compare the U.S. reporting agency networks, you will see that they were actually more impacted than we are.

Thanks very much.

Thank you.

Your next question we have comes from James Marsh with Piper Jaffray.

Great. Thanks very much. Just a couple of bigger picture questions. First, what you guys seeing currently on shifts in client advertising and marketing budgets? And maybe you can just discuss what you see as the drivers there and then just how that MDCA portfolio is positioned in light of these potential shifts. And then the second question just relates backs to the outlook for the upcoming, up front both broadcasting cable, I mean what you guys seeing and thinking on that front, I know it's a little early but just any insight there would be helpful.

So on the last question probably better to have maybe Martin Cass or Paul Rostkowski, one of our people in the media space to give you a more accurate and up to date perspective. It is really not our core expertise. In terms of what we are seeing, we are seeing clients shift dollars to smaller more nimble firms which has been a trend that is accelerating for, I guess 6 years. MDC has been a beneficiary of. We have seen them go more and more dollars toward online activity specifically mobile, data science, analytics, programmatic is obviously growing very, very rapidly. And what you are seeing is clients are investing in campaigns that are really working so it's not just amongst as much about a shift of media, but to specific opportunities that are really working in the marketplace and they are investing behind the real winners. I think clients are probably more nimble and agile and so more responsive to move quickly where they see opportunity and they are less inclined to take the long-term view on things that aren't showing performance in the marketplace. I think in a difficult economic environment with uncertain economic situations around the world on a broader geographic and geopolitical basis, I think you are going to see that trend. Our clients are very well positioned. They have got incredibly good balance sheets. They have got a very good environment that David described from a financial perspective of the economy, not euphoric but certainly quite good. And so we still believe and we're saying that companies that maintain or increase marketing spending in difficult economic times, maintain or increase market share. And we're seeing that we believe that to be the case going forward.

That's very helpful. Thank you, Miles.

Thank you.

The next question we have comes from Tracy Young of Evercore ISI. Please go ahead.

Hi. I have two questions. The first I just want to confirm the comment that you made regarding the change versus your outlook on the Investor Day in CapEx and that is surely just related to new business wins. And the second is related to – I know you don't talk normally about accounts, but we talked about this on the third quarter call. On the Infiniti win, you expect to see some ramp up this quarter in terms of expenses and then revenues ongoing. Thank you.

Thank you, Tracy. Yes. We have several office expansions and moves, some were known and obviously planned through the course of 2014, but there was a deemed need for acceleration of some of that activity in order to account for and handle new business that we're ramping up and obviously going into new space we are there for many, many years and you get the payoff of many years of business from that. So that is a large extent what took place there. The other half of it is, some of the smaller items that impacted adjusted EBITDA being at the lower end of the range as opposed to middle or higher end of the range and we alluded to some of those things in terms of the ramp of new business FX even the Target Canada situation all that adds up. And so you have CapEx coming in a little bit above the range and you have the EBITDA number coming in at the lower end and that is really at the end of the day where the adjusted EBITDA and although for general capital purposes, we are off by a little bit. In terms of Infiniti, that is the case where there is some staffing and hiring that comes ahead of the rollout of different parts of that work that is the case with – often with some of the larger global piece of business and as you can see from some of the headlines we have been increasingly winning that sort of business. So this is one of those really good things that happens with us, we're happy to take on the cost of that given that we have substantial revenue coming in on the back of it fairly quickly it's just the timing of how that falls.

Thank you.

Thank you.

[Operator Instructions] Next we have Richard Tullo of Albert Fried & Company.

Hey, guys. Thank you for taking my question. On the income statement, the $9 million was -- $9.145 million is that related to the CapEx or is that related to Canada.

Richard, are you referring to the other income line?

Yes, the other nets.

Right. So that relates to the topic that we tend to talk about a lot in explaining the impact of the change in foreign currency through the intercompany receivable that we have between our U.S. entity and our Canadian entity. We never have to settle it. It's totally non-cash and it's totally an accounting item. So that made up well over $8 million of that $9 million number. When the Canadian dollar strengthened relative to the U.S. dollar, we get quite a nice gain. And again, we tell you to disregard at that point as well.

Just want to make sure, I was on base on that. Second question is, when – kind of look at the year, you said EBITDA was going to be back-end loaded, are we talking about 60%, 70% back-end loaded or something more aggressive than that?

I don't think it will be as extreme or more aggressive than that. I think what we are alluding to is the first quarter that will not – well, it's unlikely to match last year from a bottom-line standpoint. And then ramp more materially in 2Q and beyond. And if you look at the history of MDC, the reality is that, no two years are likes for us in terms of the exact seasonality of the business and so I expressed that 2015 will likely will go up more like 2012 in terms of the timing of how things will allow where 1Q is a little bit smaller then 2Q gets quite a lot bigger and then build through the second half of the year.

I think if you look at our history, the lowest that second half has been have been 55%. And the highest is probably 68% and so it's always 60:40 is probably just an average year 40% in the first half, 60% in the second half. This could be as much as 65%. But, it all depends. I mean some of this is – stuff that we don't really know in terms of – so you define, but the future looks like a revenue recognition. But, even this year we had a lot of backend waiting, our fourth quarter was a more important part of our – the year than it was in the year pervious. So in that regard, it's pretty consistent. We are just not – we are a year-over-year business not a quarter-over-quarter business.

Yes. I mean just to make sure, I'm going along the right line this year. And then my last question is, ACCENT, what was the – what would have been the contribution to the top line in 2014 had the business being consolidated?

I'm sorry, the ACCENT business?

Yes.

Yes. That's something that we actually can't disclose given the move to discontinued operation. Half is shown in summary there. There will be some further details that will be available in the 10-K when it's filed at the end of the week.

But it was about 5% of our revenue.

Yes. That's why I was just trying to kind of finalize my estimate number to see how it –

I had it pulled out that $70 million, so exactly spot on to the estimate that we gave you at the Investor Day when we indicated what the impact would be.

Excellent. I had $69 million. Okay, good. Thank you very much. It's a terrific year. Look forward to great things in 2015.

Thank you for all your support.

And next we have a follow-up from Peter Stabler with Wells Fargo Securities.

Thanks. Quick one for David. You guys mentioned 2.5x net debt target, leverage target. Can you help us with the timing on that at all, is that two years, four years, six years, any sort of framework? Thank you.

We generally were thinking two to three years is what we indicated at the Investor Day. So that's certainly the timeframe. I will say that depending on the opportunities out there to invest in the business, gets a right acquisitions aren't there, it could be faster. And if the dry ones are there, it could be three or three and a half years or something like that. If not that's surely something that we put in stone, but generally we are thinking about two to three years.

And the most important thing is, we are dedicated to continue to show year-over-year progress in that regard. It's not going to be just a step function. It's going to be continued progress toward that.

Thank you.

Next we have Eugene Fox of Cardinal Capital.

Guys, I may have missed this. How you guys thinking about the potential refinancing opportunity on your [indiscernible]?

Well, we are in a very advantageous position. The current yield is in the fives. We are very happy to hold them at this point in time. On the other hand the current payout yield is probably on average closer to six or little into sixes. Our bank debt is about 2.5. So we are basically opportunistic, if we can see opportunity to refinance at that point in time on a much more advantageous basis, we will. And if not, we are very happy to hold. We have got five years a very attractive. We always said if MDC could finance a 10% or below we were doing well. We won the lottery relative to our long-term expectation. Having said that, we are optimistic that at some point in time in the next couple of years we should be after April 2016, if the world continues to be attractive that we will be able to increase the flexibility and lower the cost of capital and we will continue to drive for that Gene going forward as we have over the last 10 years.

Sure. Miles, one other question, I missed the first part of the call, but you referenced sort of early business momentum going into 2015 could you elaborate on that Miles?

So we had an extraordinary year last year. The momentum is good as it was last year. In order to meet our organic targets we don't have to have as good a year as last year, but we are optimistic that we will. I think David referenced in the numbers about $165 million, $168 million worth of net new business wins, can't remember off the top of my head. We are seeing that pace continue, but we haven't forecasted that in our numbers going forward. So we always said if we could grow 5% to 7% top line and 7% to 10% bottom line, we will be doing well. But, we're obviously forecasting beyond that this year and as we start to invest further and expand our data science capabilities, we hope that there will be an increase in the expected growth rate – organic growth rate but in terms of revenue and margins going forward and as we progress in that regard, we will update the investors to change their model.

Thanks Miles.

Thank you.

I'm showing no further questions at this time. We will go ahead and conclude our question-and-answer session. I would now like to turn the conference back over to the management team for any closing remarks. Gentlemen?

Thank you very much. So on behalf of all of us at MDC, our management team personally we wanted to thank our partners for their extraordinary dedication and commitment and outstanding accomplishments on behalf of their clients and our shareholders. I just want to thank our management team who continue to do a superb job at attracting talent and leveraging the infrastructure to deliver superior financial performance. We are most appreciative of the wonderful support we have from all of our constituents, bondholders, our shareholders and the management and we just want to say thank you very much and we look forward to speaking to you at the end of April after our Q1 is complete. Have a nice day and thank you very much.

And we thank you sir and to the rest of the management team for your time today. Again, we thank you all for participating on today's conference call. At this time you may disconnect your lines. Have a great day.