Good day, and welcome to the MDC Partners Second Quarter Results Conference Call. All participants will be in a 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 Matt Chesler, Vice President of Investor Relations. Please go ahead.

Thank you, Drew. And good afternoon, everyone. I'd like to welcome you all today to discuss MDC Partners financial performance for the second quarter of 2016. Joining me today from MDC, our Chairman and CEO, Scott Kauffman; and CFO, David Doft. Before we begin our prepared remarks, I'd like to remind you all the following discussion contains 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 statement included in our earnings release and slide presentation, and are further detailed in the company's Form 10-K and subsequent SEC filings. For your reference, we posted an investor presentation to our website. 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, Scott Kauffman.

Thank you, Matt, and good afternoon, everyone. This was a challenging quarter for our business. Second quarter organic revenue growth was just 0.3% and adjusted EBITDA was down a 11.8%, which was organic revenue growth at 1.2% and adjusted EBITDA down 5% for the six months. As we indicated to you last quarter, our year is expected to be significantly back half weighted and that continues to be case. Despite what we believe will be a steep acceleration in both revenue and adjusted EBITDA growth in the third and fourth quarters, no one here is happy with our performance in the first half. Its disappointing and the slower than expected start to the year is leading us to revise our 2016 targets. David, will walk you through some of the drivers of our financial performance and our guidance change in more detail in just a moment. Notwithstanding these financial results, I have no doubt that our business model is firmly intact and as I said is poised to grow strongly in the second half of the year and into 2017 and beyond. Our partners are driving new business wins from blue chip, increasingly global clients. Looking out further than the solid year we're having in generating net new business, which is $36.9 million in the quarter and $56.8 million year-to-date. Notable wins include 21st Century Fox and E-Trade and Media, Four Seasons, NPR and PSpice Ray [ph] from Apple, Stanley Black & Decker, Vonage, Diageo Brazil, Adidas Golf, and Creative. Our partners are attracting the most innovative talent in the business with several important new hires and recent weeks and we're confident that they will outperform the market over the long-term. Importantly, two quarters of results doesn’t throw us off our strategy or have any questioning the strength of our…

Thank you, Scott, and good afternoon. I have a number of things to go through today. I'd like to provide some color on our performance this quarter and present our revised outlook including some of the assumptions underlying our view of the expected second half acceleration. Finally, I'll provide some details on the [indiscernible] acquisition to help with modeling Lets begin with revenue, Reported revenue increased 0.1% with organic revenue growth of 0.3%, and acquisition growth of 0.6% offset by foreign currency exchange headwind of 0.7% primarily due to the weaker Canadian dollar and to a lesser extent a weaker British pound. Our performance was mix across partners, discipline and sectors, geographies the US is flat Canada was down slight at negative 0.6%and international was up about 5%. While we had previously discussed the headwind affecting, our business in the first half of the year, our revenue is about $6 million short of our most recent plan. The primary reason for this is that it’s taken even longer than we had expected for some of our recent wins that translate into revenue. We can see that in an acceleration of our growth rate beginning in the third quarter and it is part of our high confidence and the improved performance in the back half. There was also about $1 million to $2 million of new business related cost associated with these wins including staffing up for revenue which would have been offset if the accounts had started on time. Second, we saw a declaration of reported international organic revenue growth, largely driven by timing and location of workload. Our international offices generate 9% to 10% of revenue now, but the dollars are still small enough that growth can be extremely lumpy based on timing of projects and revenue recognition and…

[Operator Instructions] The first question comes from James Dix of Wedbush Securities. Please go ahead. Q – James Dix: Good afternoon, gentlemen. Three things, I guess just a little bit more color that if you could provide your organic growth assumption embedded in your new guidance. And kind of how you see that ramping between the third and the fourth quarter to the extent you want to get that granular? And then secondly any further detail in terms of short fall versus plan by type of business whether its media or international or you gave that a little bit, but if you could break it down any more that might be helpful. And then given your additional cost actions is there any update you can give on kind of that, I think you have previously talked about kind of a net savings of around $10 million this year versus last, any update you have on that given the actions you've taken thus far and plan to for the rest of the year? Thanks.

Thank you, James. So in the guidance the organic assumption in the second half is somewhere in the mid-single digit, so nicely better than first half performance. The – I don't think we're going to go into the details of shortfall by type the reality is it is across two or three different areas that makes it pretty broad for us given that there aren't so many areas that we service at the end of the day. It's unfortunate, but the bulk of our business is the integrated agencies and surely the – there's some shortfall there given some of the business that we’ve talked about at the end of 1Q that had moved away from us. And the delayed ramp up with new business a big chunk of that was in the media business. So we expect to have a substantially better second half in those areas. In terms of the cost actions, so given the incremental severance that we're taking this year for the more recent actions, we’re unlikely to achieve the $10 million in the calendar year of 2016 though we’ll get fairly close to that, but the run rate now going into 2017 is actually greater, and looking at more of $12 million even $13 million run rate of lower cost as we go into next year for corporate.

Okay, great, thanks very much.

The next question comes from Avi Steiner of JP Morgan. Please go ahead.

Thanks, I have couple questions here, your first half if you can help us you’ve touched on a little bit, but kind of us understand what happened from your first Investor Day to the end of the quarter, I guess where the visibility has gone it something materialized in June almost everything just delayed and then I have got a couple of follow-ups? Thank you.

Sure. So at June 1, we had April numbers, we didn't have May numbers and obviously we didn't have June numbers at that point, April with seemingly as we expected which wasn't great in the first place. But the material difference here for the quarter was that the new business that we thought was going to ramp during 2Q did not and it is ramping now in 3Q and it has. And so that moved the significant amount of dollars or significant enough to move the needle on the quarter how does the quarter and also add of the year because it is not a situation where this is a catch up but the run rate is now there beginning in 3Q on top of that, we embarked on incremental cost moves and restructuring in how we operate here at corporate [indiscernible] that led to a couple of million dollars of severance. That broadly was not in the expectation and impacted both the quarter and to some extent the year will have some of the savings we will make up for some of that in the second half but not all of that and then generally taking a look across the portfolio as I mentioned in my prepared remarks, financial services clients, a number of them are not spending at the level that whereas in the plan or expected. And our belief is that the overall volatility in the financial market has led to little bit of a pause or reduction in some of the spend there among those clients and we are taking a bit more cautious view around our UK exposure even though it is small. It can still move the needle in a short amount of time on our expectations for full year when we are talking about a half a point or point of growth that adds up for that. In addition to some of the things you see in the news in terms of the tariff tax in various cities across Europe were being more cautious on our view on some of our travel and lodging clients where we have exposure to those sort of things and so when you add all of that up we come up with the numbers that we presented to you today.

Okay. And turning to the guidance, can you help me understand why or maybe we're misreading why there seems to be 100% flow through revenue to EBITDA in the $20 million?

So the reality is with some of the delayed revenue cost structures were ramped up there is cost of stepping up for the in some cases that incremental revenue would have offset but is now not in that care severance, incremental severance is a direct bottom-line hit from that standpoint and so just how the numbers flowed. The end of the day though we will add a substantially better run rate in the second half on cost structure and as we move into 2017 that will give us significant benefits to drive better bottom-line performance going forward.

Okay, last question before I turn it over and had back in the queue. How was the $84 million sort of acquisition consideration paid for how much is less to pay this year and then on your comments on I guess the strengthen balance sheet, leverage to pick up from our see, when include all the – that still have standing to be paid until just curious how you think about leverage from here. Thanks.

Sure. Our view on leverage has not changed. We’re really focused right now on reducing the deferred acquisition consideration exposure. The $84 million in the quarter was paid in cash as I said in the prepared remarks there is $25 million roughly expected to be paid in the remainder of the year it will largely be cash with some component of stock in that. and then we move on into next year were as you know, as you being - period in the past should have another $100 million plus of payments made in that timeframe that and which case we would have reduced that the vast majority of the deferred acquisition consideration of that currently sits on the balance sheet or that sat on the balance sheet as we enter the year as remind you we paid about $30 million in the first quarter of this year as well. Once we get past the spring of next year as we discussed in the past then a the through cash generation dynamic of the business will become much more apparent as the cash flow to business will not be account for in for not obligations that we have for acquisitions we’ve made in the past and that will allow us them to begin I think it’s fairly so quick and dramatic reduction of balance sheet leverage.

I’ll back in the queue. Thanks.

The next question comes from Michael McCaffery of Shenkman Capital. Please go ahead.

That I just I mentioned, if you answered of his last question, what that his revolver to make the deferred payment during this quarter?

We did use the revolver and remind you the timing of the seasonality of our working capital flows and such that we tend to have a fairly large outflow working capital on the first half of the year and fairly large in flow of working capital in the second half of the year due to the nature of the media buying business. That is part of our service offering and so, the reason that we carry such a larger revolver is just that for that volatility and to manage the timing around the working capital strength and the timing of the earn out payments.

Can I just clarify something else that was has said in the prepared remarks as far as the acquisition that was made during the quarter that the, you are expecting contribution six month, for the contribution from then starting I guess Q3 now?

Correct.

Okay, alright. Thank you.

[Operator Instructions] The next question comes from Tracy Young of Evercore. Please go ahead.

Yeah, hi there is still a lot of focus on other calls about the cancellation events during the quarter; the 20 basis points that you saw was that something you saw into the quarter or did you see cancellation.

We didn’t see cancellations of events and we ended up having a little bit more durable pass through in the quarter then we would have expected and which had a small benefit for the overall revenue line on a reported basis. But we didn’t see that with our client base that being said as you know we’ve had couple of years straight of, of underperforming from those sort of business case. so, it’s nice to see some renewed traction and as we hoped to happen for the second half beginning little bit earlier.

Okay, thank you.

And I see that there is a follow up from Michael McCaffery from Shenkman Capital. Please go ahead.

Thanks for taking the follow up. The reference you made to the financial services client, can you quantify how much of your total revenue comes from that segment?

Financial services is in the other, it is about 6% of revenue overall, if you look though in our slide presentation on Slide number 9, we have a pie chart of exposure by industry vertical and so in the second quarter it was 6%.

And could you just comment on the I guess elaborate on the comment you made about the travel, lodging clients that you're taking more cautious view is that, that your concern you may see a pull back in the back half based on some of the [indiscernible] that could happen there or you actually have you seen a pullback from those clients?

We have strong belief that there will be some impact from that in the second half is how I look it.

Okay. All right, thank you.

The next question comes from Eugene Fox of Cardinal Capital Management. Please go ahead.

This is for Scott. Scott to the extent that you see a weakness what other actions are you guys contemplating to try to manage your expense base to offset this revenue weakness, we will obviously you have taken a layer out of corporate but could you tell us how you think about that?

Right, it is an ongoing dialog that we have to our MDs with all of our agencies and also here at corporate, so we are always looking to align costs with the top line opportunities and we will continue to do so. At the same time, Gene we are making investments and that we think we are making great long-term bets on the future of the business, including the addition of additional CMOs in different regions and the investments we continue to make in media. So as I said before two quarters doesn’t make the company and we are disappointed with the results. We are continuing to take a very, very close look at all across the board and we are also continuing to take steps even when it sometimes have the negative impact on even profitability if it is a right decision for the long term even if it has a short term impact we are going to take it.

Thank you.

Thank you. And we have a question from Thomas Eagan of Telsey Advisory Group. Please go ahead.

Hey guys, this is Dan here for Tom. Just a quick question for you, you said international of core strategic market for you, this given macro uncertainty do you see any need to slowdown expansion internationally or you still ramping up, do you see a lot of opportunity to ramp up internationally?

Our market share overseas is so small that the overall market environment there is not a determinant for us to continue to build it because we are not necessarily chasing the growth rate in some of these markets, we are chasing the whole pie and so we have not changed our focus or the trajectory of our investment in building our international business.

Okay. Thanks and then just a quick follow up, just looking at office in general, looking at it as a percentage it is up about [indiscernible] year-over-year, is that purely adjustment of severance cost or is it something else that was kind of baked into that, if you could possibly break out that?

There is three dynamics that impact that number this quarter on a year-over-year basis, one is there is a little bit more severance costs year-over-year in the quarter, $1 million to $2 million, so it is not the whole amount of that difference but the majority of it is related to two somewhat one-time items. So last year in the second quarter is when we received a substantial repayment of paid expenses from our Former CEO, that was a direct offset to G&A expense in the quarter that has not reoccurred obviously and so it abnormally reduced last year's cost from the true run rate costs that were there. The second is as I think everyone knows every quarter we have to re-estimate our cash flow forecast for businesses that have deferred acquisition consideration on the book and any change in the result of that of our view of how much we are going to owe them in the future, that deferred acquisition payment flows through the income statement. From time to time business has underperformed and we have to reduce the estimate of what the obligation would be and the way that flows through is as income as an offset to expense in G&A. Last year in the second quarter and you could see on this on schedule three I believe in the press release on last years reconciliation to adjusted EBITDA there was $12.7 million reduction in the estimate of deferred $12.7 million offset to expenses. So when you combine that with the repayments of [indiscernible] reimbursement from our former CEO you can see that actually makes up almost the entirety of the difference in G&A year-over-year.

Okay. Perfect. Thanks for clarifying.

No problem.

This concludes our question-and-answer session. I would like to turn the conference back over to Scott Kauffman, Chairman & CEO for any closing remarks.

Thank you, Drew. This clearly hasn’t been MDCs best of couple of quarter, nor, frankly the way I would have like to start my first year. But I k now that our collection firm has all the billion they've always had and that we have hands down the most talented, most dedicated and hardest working collection of people in the industry. Together we know what we need to do to return to the company back to producing the type of growth and value creating that you expect of us. Thank you or your time and really for your support of the MDC story which I know is unmatched in the industry. And I look forward to speaking with you in the coming days in weeks. And in the meantime our job is to get back to work on delivering on building long-term value for our stakeholders. Good evening from New York City.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. +