Good morning, and welcome to the MDC Partners Fourth Quarter and Year-End Results Conference Call. [Operator Instructions] Please note, today’s event is being recorded. I would now like to turn the conference over to Alex Delanghe, Chief Communication Officer. Please go ahead.

Thank you. Good morning, everyone. I’d like to thank you for taking the time to listen to the MDC Partners' Conference Call for the Fourth Quarter of 2018. Joining me today from MDC is Mark Penn, our newly named Chief Executive Officer; and David Doft, Chief Financial Officer. Before we begin our prepared remarks, I’d like to remind you that the following discussion contains forward-looking statements and non-GAAP financial data. Forward-looking statements about the company 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’ve posted an investor presentation to our website. We also refer you to this morning’s press release and slide presentation for definition, explanations and reconciliations of non-GAAP financial data. And now to start the call, I’d like to turn it over to our Chief Financial Officer, David Doft.

Thank you, Alex, and good morning, and welcome Mark Penn. This is an exciting morning for all of us here at MDC Partners. We have several important announcements to make and review. Before I turn it over to Mark, I’d like to take you through our fourth quarter and year-end performance as well as update you on our continued progress from an operational and go-to-market standpoint. Our fourth quarter results were impacted by pullbacks in projects across a number of clients post-Thanksgiving as well as some delays into 2019. For those of you who have been around our sector know that the fourth quarter tends to benefit from elevated levels of project-based revenues relative to the rest of the year due to the holiday season and as clients use up the rest of their marketing budget before the calendar year-end. This holiday season, which was punctuated by economic concerns, a number of clients decided not to pursue expected additional business during the fourth quarter. This was notable – most notable in the broader consumer good sectors and particularly impacted the performance of our global integrated agency segment. This impacted revenue in the quarter by 2% to 3%. Client delays, some related to the government shutdown, pushed an additional 1% of quarterly revenue into 2019. As a result, fourth quarter revenues came in at $394 million versus $403 million in the fourth quarter last year or down 2%. Remember that this is the last quarter, in which the adoption of ASC 606 impacts the year-over-year comparison of revenues. Excluding this accounting change, revenues would have been $406 million, up 1% versus a year ago. This shortfall of revenue coming late in the year occurred at the same time we were pursuing a significant cost reduction program, fell to the bottom line…

Thank you, David, and good morning. I’m thrilled to be here and honored to be entrusted with leading MDC Partners into its next phase of growth. As someone who has been in these fields for over 40 years, I believe in the growth, I believe that the growth and marketplace opportunities today for MDC and that’s why I’ve committed $100 million from my fund, including my own personal investment and made the additional commitment of serving as CEO, reporting to the Board. I’d like to take a moment to speak from the perspective of an investor. As you can imagine, this process involves significant due diligence on our part and a great deal of consideration. And over the course of the exercise, what I found was extraordinary, underappreciated assets in need of leadership and a plan. It’s no secret that the MDC agency brands enjoy uniquely strong positions in the market. They are recognized as some of the most forward-thinking, creative and strategic talent in the industry. But I also see significantly untapped opportunities, opportunities to create stronger growth, more efficient operations and real value for our shareholders. As an expert in this marketplace, I can say that no one has properties today like MDC’s flagships. They are, in my view, at the very top of the creative chain. And while some agencies have had headwinds, others are growing quite strongly. We’ll be focusing like a laser on those segments that we think have the most upside potential. I’ve presented a detailed plan to the Board with expected run rate savings by the end of year one of $35 million, renewed focus on selective properties and products, enhanced digital offerings and a series of growth synergies based on more marketing collaboration across the group and with the complementary properties at…

[Operator Instructions] Today’s first question comes from Dan Salmon of BMO Capital Markets. Please go ahead.

Mark, I’ll start with the perfunctory sort of high-level question for you. And I recognize this is very early, but I thought maybe this is an opportunity for you to just tell us a little bit more about what you’ve built at Stagwell as that’s not new but from there, may be what, therefore, drove you to be attracted to the MDC partnership here? And how much you see potentially that the two organizations working together. Maybe start there and then I’ll just come back from some modeling ones for David.

Sure. Over the last three years, I think, starting with an investment of $250 million from Steve Ballmer and myself and following with an additional investment from Alpinvest $260 million, I’ve built a series of properties, starting with digital-first in the marketing services area with a heavy concentration on platform building, performance marketing and research. There are almost no creative companies. The percentage of creative companies is about maybe 2% or 3% of the entire network that has been built up and created over that time. They run about $500 million in revenue and they have a very strong margin. Part of what I plan to do is to apply many of the metrics, I think, that we’ve been able to achieve at Stagwell to the larger scale here at MDC. So I’m extremely familiar with the economics of agencies consistent with the delivery of high quality and attracting greater talent. As I always say, every dollar you save in real estate is dollar that can go into higher and better talent that can be more productive and more profitable. And that’s the philosophy that we took to achieve both 18% organic growth last year at Stagwell and very significant profits. Let me just say that these assets, I think, are very complementary to the core assets over at MDC. And it’s my hope that we will provide sufficient economic cross incentives for each of the groups and frankly that they will get along because I think together, they can constitute an even stronger go-to-market. But – I look at the assets at MDC and I say, well, look, the flagships at MDC are really second to none in terms of large-scale contracts with big clients, in core creativity, strategy and those elements really make, I think, underappreciated assets in a marketplace, where I think those are the most desirable qualities in companies providing marketing services.

That’s very helpful. And then may be for David. Obviously, we’ll wait for the first quarter to get the full 2019 guidance from the sounds of it. But maybe just a couple of things. It sounded like there were some projects in there pushed from the government shutdown. It sounds like that’s revenue and profit moving into the first quarter versus, say, some fourth quarter projects that just never made it and likely aren’t to be pushed or come through in 2019. The other thing, Mark mentioned a proposal for $35 million in run rate savings to the board. Just curious to see how much of that may be reflected in somethings that are underway already, if we should think about that as being incremental? And then just lastly, if you could remind us, you mentioned you expect year-over-year growth in covenant EBITDA. If you could just remind us what the 1Q 2018 number was, that would be great.

Sure. Thanks, Dan, 1Q – I’ll start with that. 1Q 2018 covenant EBITDA was $16 million. As for the fourth quarter impact of the government shutdown, actually, some of that’s pushed even later in the year because it’s related to the FDA and drug approvals around our healthcare business. So there is a little bit 1Q, but actually some 2Q and beyond based on how that’s dragged out and the timing of approvals from the FDA. In terms of Mark’s plan, this is really day one. So I think while we’ve been very active in making moves over the last few months as you’re well aware, there’s additional ideas and means of driving savings that Mark has presented that we’re going to be beginning to tackle, I think, beginning next week.

That’s right.

Great. Thank you both.

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

Good morning, and thanks for taking the questions. Just following up real quickly on that last one on cost save. So David, I think at the last call you talked about $50 million. I just want to be clear that the $35 million is separate from that? Is that right?

Mark’s plan is incremental to anything we’ve done or communicated in the past.

Perfect. And then on Kingsdale, could you help us on the cash versus liability assumption split? And then you made a comment in your opening remarks that the amendment gives you flexibility with respect to proceeds. Can you elaborate on that?

Of course. Kingsdale was about $23 million of cash and the rest was a reduction of non-controlling interest and future liabilities from that standpoint. The flexibility we got around the proceeds of Kingsdale was the ability to potentially use some of those proceeds to buy in senior notes in the open market.

Excellent. Thank you for that caller. And then the DAC, I think, came in – you said was $46 million. I apologize if I’m off by a couple of million. Can you give us the schedule of how that gets paid out this year or roughly by quarter?

Sure. It was $48 million that we anticipated in 2019. That’s a mix of deferred acquisition consideration as well as anticipated put call options to be triggered during the year. Obviously, that could change if the put call options don’t get triggered, but that’s where that number comes from. We’re expecting about $4 million of payments in the first quarter, about $36 million or so in the second quarter and the remainder spread out in the second half, mostly in the third quarter.

Very helpful. Two more and then I’m done. And thank you. The first is other than the change in the Goldman conversion price, has anything else changed? I want to just be clear they’re still invested at the same level they came in at?

There has been no other change in the Goldman investment.

Excellent. And then lastly, Mark, I think you made the point that the assets are very complementary to each other and press report suggests that at one point you wanted to own more of the company or maybe the entire company. Can you maybe comment about or perhaps how you see this playing out over time? Is the end goal ultimately to combine the two? And thank you very much all for the time.

I think it’s a little too early to speculate where I think that goes. I think the – in terms of having acquiring more, I think, ultimately, such a move would have created so many fees and broken so many covenants and required so much of an increase in debt that I think this investment is really the most prudent for the shareholders because it’s a significant investment right to the balance sheet, doesn’t break any of the covenants, doesn’t make any change of control. And so it’s simple, elegant. It’s a huge commitment, as I said, from both myself and the other investors, along with the commitment to actually manage the company towards greater profits and greater shareholder return. So I think in the end, given the marketplace and the Board agreed, this was the smartest way to make an investment here to raise shareholder value.

Really, appreciate the answers. Thank you so much.

Our next question comes from Ben Clifford of Nomura Securities. Please go ahead.

Hi, guys. Good morning. I just had a few follow-up questions on Kingsdale. Was this $50-ish million impairment related to Kingsdale? And what did the company initially buy the stake in Kingsdale for?

So what we paid for the initial acquisition of Kingsdale is disclosed in our historical filings. The goodwill impairment was largely related to our media services segment, which as you can see in the reported financials underperformed in the year and in the fourth quarter. Kingsdale made up only about $4 million of that write-down.

Very helpful. And what was the – maybe the LTM EBITDA contribution of Kingsdale?

The Kingsdale divestiture was about five times.

Got it, very helpful. Thank you.

And ladies and gentlemen, this concludes the question-and-answer session. I’d like to turn the conference back over to the management team for any final remarks.

Just want to thank the investors for this call. I look forward to the next call and meeting the broader investor pool and coming forward with guidance for the rest of the year in the first quarter call. Thank you very much for having welcome to me, and I look forward to this great assignment.

Thank you sir. Today’s conference has now concluded. And we thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.