Good day, and welcome to the MDC Partners Fourth Quarter and Year-End Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Alex Delanghe, Chief Communications Officer.

Thank you. Good afternoon, everyone. I’d like to thank you for taking the time to listen to this MDC Partners conference call for the fourth quarter and full year 2019. Joining me today from MDC are Mark Penn, Chairman and Chief Executive Officer; and Frank Lanuto, 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, including those related to earnings guidance, 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 subsequent SEC filings. For your reference, we posted an investor presentation to our website. We also refer you to the accompanying 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 Chief Executive Officer, Mark Penn.

Thank you. Good afternoon. I am pleased to join all of you to discuss our fourth quarter and full year results and to provide an update on the progress we have made on our new world strategic plan. The business delivered a solid performance to round out 2019 with a strong finish. Our prudent cost management and focus on driving profitable growth led to a year-over-year increase in adjusted EBITDA of 14% in Q4 and 13% for the full year, excluding the impact of our Kingsdale divestiture. Building off this covenant, EBITDA totaled $184.2 million in the fourth quarter, a 7% increase versus prior year and at the high end of our guidance range. Top line revenue also rebounded nicely after a soft Q3 with organic revenue down 1.5% in Q4 and down 3% in 2019, in line with expectations for the year. The revenue bounce back in the quarter was driven by particularly strong continued organic revenue growth of 15% in our Specialist Communications segment and 3% organic growth in our Global Integrated segment. Following Stagwell’s investment in MDC and my joining the company, net new business in the last three quarters surged $105 million, including $37 million in the fourth quarter, up from negative $11 million in Q1. Net new business was over $93 million in 2019, our best annual performance in four years. Notable wins in the quarter include the previously announced win with Audi at 72andSunny, Johnson & Johnson at Doner, along with California Pizza Kitchen and TGI Fridays at YML, Manitoba Harvest at CP+B, Peps Brewing at MDC Media and Anomaly added products with Facebook and more brands with General Mills. In fact, COMvergence’s recently released U.S. Creative New Business Barometer, in that barometer, MDC placed third in the ranking of wins despite being only…

Thanks, Mark. Good afternoon, everyone. As Mark mentioned, in the fourth quarter, we delivered sequential revenue growth [Audio Dip] at several agencies as we benefited from improved revenue trends relative to earlier in the year. We reported revenue of $382 million, down 3% and organically down 1.5%. For 2019, reported revenue was $1.42 billion, down 3.1% on an organic basis from $1.48 billion a year ago. Excluding the impact of our Kingsdale divestiture, adjusted EBITDA increased 14% in the fourth quarter and 13% for the full year. As reported, adjusted EBITDA increased 10% to $57 million in the quarter and 7% to $174 million for the full year. In both periods, adjusted EBITDA was aided by the cost reduction initiatives implemented initially in 2018 and continuing throughout 2019. Severance and other restructuring charges of $3.2 million from incremental cost reduction actions taken in the fourth quarter drove covenant EBITDA of $61 million. For 2019, we recorded a total of $11 million in restructuring charges, including $2 million at the corporate office with estimated annualized savings of approximately $35 million. Approximately half of the estimated savings were realized in 2019, and the rest will be realized in 2020. Notably, we have reduced our corporate overhead by over $8 million on an annualized basis. And in total, our actions led to trailing 12-month covenant EBITDA of $184 million, near the upper end of our guidance. Now breaking down the results by segment. We saw continued strength in our Specialist Communications segment, delivering 15% organic revenue growth in the quarter and 9% growth for the year as they continued to capture market share. Adjusted EBITDA grew 90% in the quarter and 26% for the full year. Our largest segment, Global Integrated, delivered 3% organic revenue growth and 24% EBITDA growth in the fourth…

[Operator Instructions] The first question today comes from Avi Steiner of JPMorgan. Please go ahead.

Thank you. Good afternoon. I want to start here, if I can, starting with your reiterated positive outlook for 2020. Mark, how much of this reflects MDC-specific actions that you’ve taken? And how much does this reflect an improvement in the ad and pitching environment? And relatedly, given you’ve consolidated, now it’s like six 10-pole partners, how much of that change was designed to deliver maybe more compelling and robust offerings to existing and prospective clients? And how much of that was designed to streamline and eliminate costs? And then we got a few others.

Well, let me take the last part. The coming together of the networks was meant to do a number of things. First, it was meant to take what were individual units of varying size and enable them to leverage off of each other, combining the skills, because CMOs typically buy today multi-services. They used to just buy advertising and media. Today, they’re buying six or eight different services, and it was important to meet those needs. So first and foremost, I think it’s about serving clients and marketing on a more efficient basis to those clients. Second, it’s letting the business be driven by those very best leaders. As opposed to all 25 units or so individually reporting into corporate, having them work with in leadership teams with each other right down in the trenches is, I think, going to be far more effective in terms of both winning business and making decisions. And then finally, I think there are some cost synergy elements through the ability – a much greater ability to do centralized services. So I think those are – all of those reasons, now none of those things are really baked into the plan because they were just formed, and we are now getting the – they’re just going to market now. What was your first – the first element of your question?

The first part was – and I had a lot of words in there, I apologize. But really just trying to understand how much of this positive outlook reflects the positive actions you’ve taken since you’ve been there in March versus any kind of improvement in the ad environment, if there is one?

I wouldn’t say any of it reflects improvement or not in the ad industry. I think that the ad industry continues to go through some level of transformation as offline spending decreases and online spending increases and project work increases. I think that the – these projections are based on two major elements of change. One is that the net new business, before I came, $60 million went out the back door in Q1 of 2019. That has been reduced to a trickle of $8 million, and that means that the company itself is fully, I think, stabilized in that fashion, has a group of incredibly loyal and energized and excited clients. And that means it’s far easier with even the same level of new business to achieve net positive growth. And we’ve seen a very good uptick in new business wins going into the fourth quarter that typically reverberates into the following year, just as early losses in the fourth quarter would have reverberated into the following year, as we had to live through in 2019. And then on the second leg of it, the second leg is that they will do – they will be able to have greater margins through greater efficiency. And our emphasis there, I think, as Frank said, and if Frank wants to add a comment, it’s just – it’s clearly paying off. Frank, do you want to add a comment to that?

Nothing at the moment, Mark, sorry. I think you said it all.

Great. Thank you, Mark, that’s appreciated. Frank, maybe to pick on you a little bit, if I can, so the $100 million of free cash flow through 2020 was reiterated. Can you help us with what that means for free cash flow in 2020?

Yes. We see that by the end of the year, we believe we’re still on target. Certainly, one of the changing variables is the signing of the lease at World Trade Center, which is a significant investment for us. However, we believe that with the sales proceeds that we have from the sale of Sloane, plus all of the other cost initiatives we’ve taken, that we’re still on track to deliver that.

Okay. Just in terms of seasonality, you touched on $65 million of – and I say, seasonality of cash flows, but $65 million of deferred acquisition consideration going to be paid out this year. I think you said most of that is in the second quarter. Can you just help us with kind of cash flow seasonality through the year? And any other cash uses away from CapEx we should be thinking about?

So we have the traditional items that will use cash. It’s $30 million semiannually for our interest. The CapEx, we’ve quantified. Cash taxes will be $7 million, $8 million in 2020, so not a significant draw. Those are some of the bigger items. And of course, the DAC payments at $65 million represent the second largest obligation for us.

Okay. Last two for me, very quickly. The $26 million Sloane subsale that you talked about, I think you have – or remind me, you may have some bond buyback flexibility from asset sales. Am I correct in that? And how do you think about that use of cash?

That’s correct. We do…

I think we haven’t made any decisions about any uses of cash yet, but that is correct. We do have that flexibility.

Okay. And very last one. It’s, hopefully, an easy one. The delta between covenant and adjusted EBITDA in 2019 was about $10 million. So I guess, how do we – should we think about the severance and maybe other items between your guidance if I wanted to get to adjusted? And thank you for the time everyone.

Frank, I don’t know...

So Avi, we – as you know, we don’t forecast and budget for restructuring items. That’s principally what stands between adjusted EBITDA and covenant EBITDA, so we don’t forecast those items because we can’t time them exactly. So right now, the $200 million to $210 million reflects essentially adjusted EBITDA.

Okay. Thank you.

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

Thank you. I think for those of you who’ve followed MDC for a long period of time, I was really thrilled to take over the chairmanship and CEO role and to implement the strategic plan. And I think that, as you can see through these results, the kind of wins that they’re doing, the creation, I think, of the networks, the kind of work that’s being done out there by our companies and partners that this plan is beginning to show real fruit, that we’re managing to take a lot of the fat out of the costs that were sitting there because the network wasn’t as well managed as it could be, and at the same time, being able to enable our best talent to do the best work and to adapt to this changing field. And I think that you’re beginning to see those results, and we’re going to continue to press this plan forward just as quickly, if not more so. Thank you very much.

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