Good day, ladies and gentlemen. Welcome to your MDC Partners Third Quarter Results Conference Call. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to your host, Alexandra Delanghe. Ma'am, the floor is yours.

Thank you, operator, and good morning, everyone. Welcome to the MDC Partners Conference Call for the Third Quarter of 2020. Joining me today 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 statements 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 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 Chief Executive Officer, Mark Penn.

Thank you, and good morning. I'm pleased to announce a strong performance this quarter despite the continued but reduced drag of the COVID-19 pandemic. We are in line to meet my prediction of a 10% to 15% decline in revenue this year, but now expect that we will meet or exceed last year's Covenant EBITDA. This is a result of continued success in bringing our partners together into networks, centralizing back office operations and real estate, while modernizing our services and offerings. Specifically, Covenant EBITDA improved 12% year-over-year in the quarter and 14% on an LTM basis to $56 million and $199 million, respectively. We reduced our cost base by 16% year-to-date, or $123 million as compared to the prior year, with nearly 40% of those cost reductions taking place in the third quarter. Improving fundamentals also led to the strong margin expansion. With pitch activity resuming in earnest in the quarter, revenue rebounded nicely off of the second quarter lows, increasing 9% on a sequential basis. This was driven by revenue growth in 3 of 4 reporting units, where only our All Other segment's seen continued contraction due to softness in our experiential business. Year-over-year, organic revenue declined 16% in Q3 and 14% year-to-date, consistent with our outlook and expectations. Net revenue, excluding pass-through costs, declined 15% in Q3 and 12% year-to-date on an organic basis. This quarter, we increased the financial strength of our balance sheet, adding $31 million in cash flow from operations. We ended the quarter with $37 million in cash and no borrowing on our revolver, even after having repurchased $30 million in bonds earlier in the year. We also brought our leverage ratio down to 4.4 from 5 a year ago. Looking more closely at our revenue trends in Q3, the overwhelming reason for…

Thanks, Mark. Good morning, everyone. We have made good progress this year, despite ongoing disruption from the pandemic. We took actions early and swiftly implemented comprehensive cost measures across the company that more than offset our revenue decline and helped us deliver higher year-over-year EBITDA in the third quarter and year-to-date. Margin surpassed previous high points and our balance sheet improved further from the prior year. For the quarter, organic revenue declined 16% to $283 million and on a year-to-date basis declined 14% to $870 million. Pandemic-related slowdowns in our experiential and technology clients accounted for approximately 70% and 50% of the organic declines for the quarter and year-to-date periods, respectively. Partially offsetting these declines, our digital business continued to grow rapidly, up 50% year-over-year in Q3 and up 19% sequentially. Specialist communications also grew in the third quarter, continuing the trend we've seen for several periods. Sequentially, revenue rebounded from the pandemic-driven lows of the second quarter, increasing by 9%. Revenue rose in 3 of the 4 reported segments, led by Integrated Networks B up 20%, Media and Data up 18% and Integrated Networks A up 5%. The All Other segment declined 8% from the second quarter, driven principally by continued softness in our experiential business. With respect to operating expenses, we continued to benefit from actions taken at the outset of the pandemic as well as those made in the latter part of 2019. For the third quarter controllable costs were lower by $46 million or 19% compared to prior year, with over 70% of the savings coming from staff costs. Through 9 months, costs were lower by $123 million or 16% from the prior year, with similar percentage savings coming from staff costs. We recorded $2 million in charges in Q3 and approximately $10 million year-to-date, primarily…

[Operator Instructions]. Mr. Penn, it appears at this time we have no signals for questions or comments.

Sure. I will give people another minute if anybody has a question.

And we do have a signal from Matt Swope with Baird.

Very nice quarter. Just a couple, if I could. Mark, could you guys talk about, you bought some bonds back in April, I know, and, obviously, they're at much higher price levels now, but whether you'd be interested in buying any more back. And any update you could give us on the timing from the special committee and how you think things might play out next there?

I think in terms of bonds, we, at the time, bought the allowable basket that we had. So now, and we looked at those and thought at the prices they were then trading, they were a considerable bargain. Wish I had been able to buy more. So right now they're in an entirely different price level and so presumably we have other uses for capital at this kind of price level that they're at now. In terms of the special committee, I have to let the special committee speak for itself. Obviously, like Stagwell, we announced an agreement in principle. And so the next steps obviously are to go into the next level of agreement. And beyond the fact that I think I remain hopeful that - optimistic that we'll be able to bring the companies together. And their specific requests should go to the special committee.

Could I just ask, is this taking longer than expected or sort of on the time line as expected?

In the modern world, complex combinations simply just have a lot of evaluative and legal steps. So I won't comment directly. But there is nothing unusual in the process that I've seen so far. It's just, in some sense, an education in just how one has to dot every I and T in a very significant transaction such as this.

And Mr. Penn, there are no further signals. Would you like to go on to closing remarks?

Sure. I just want to I guess thank everyone for continued faith and interest in MDC Partners. As you can see, how the reorganization of the firm positioned it to come through kind of the worst of the pandemic in strong financial shape. You'll remember that at the beginning, before the pandemic, we actually had reversed revenue declines, had actually industry-setting growth and that we hope to be able to resume growth once, again, as these client sectors that have pulled back come back here eventually over time as the pandemic recedes. It may take a little longer than everybody wanted, but it will happen and it will then bring back both us and the marketing sector into, I think, a strong and vibrant way coming out of that. Thank you all very much.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.