Revenue Increases, but Corporate Expenses Still High

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NEW YORK ( -- While MDC Partners’ third-quarter revenue soared 45% compared to the prior-year period and new business wins were up, losses persist.

The Canadian company, parent of such hot agencies as Crispin Porter & Bogusky, Zig and Kirshenbaum Bond & Partners, reported a loss of $1.6 million for the quarter ended Sept. 30, its fifth consecutive quarterly loss, on revenue of $118.9 million.

Revenue up 41%
For the nine months ended Sept. 30, revenue rose 41% to $316.8 million from $225.2 million, while net losses were $6.4 million, or 28 cents per share, versus income of $6.5 million, or 28 cents per share, for the same period last year. Profit margins were essentially unchanged at 13% for the third quarter and at 10.3% for the nine-month period. The reason: high corporate expenses. “Everything else is in line,” said one analyst.

For the quarter corporate expenses were $7.3 million, compared to $1.9 million a year ago. For the nine months, they hit $16.2 million, double the $8 million for the nine-month period ended Sept. 2004.

Big wins
Miles Nadal, chairman-CEO of MDC, said net new-business wins from agencies in its marketing services group in the last three months marked the “best in the company’s history.” Wins in the period were valued at $50 million in fees and include Crispin Porter’s win of Volkswagen of America, which in 2004 spent $330 million in measured media in the U.S., as well as creative duties on Coca-Cola Co.’s Sprite brand, which spent $44 million in measured media in 2004. The $50 million in net fees did include Kirshenbaum’s loss of the $50 million Liberty Mutual account.

“It’s tough to bad-mouth what Crispin Porter’s doing,” said Jeff Tkachuk, analyst at BMO Nesbitt Burns. “I get the sense that Crispin is driving the bus here.”

MDC operates in two areas: marketing services, which includes advertising, customer relationship management and specialized communication agencies; and secure products, which makes electronic transaction products and stamps.

Marketing services contributed $97 million of third-quarter revenue, while secure products brought in $22 million. The company intends to sell the secure products business, and expects to complete a deal in 2006.

Partnership model
The company’s approach to agency ownership, which it calls the perpetual partnership model, is to take partial stakes in agencies and allow management to retain a significant portion, in theory so that management remains involved and committed to the business. The approach differs from most other holding companies, which generally buy agencies in full. MDC’s partner agencies include Margeottes Fertitta Powell, New York; Mono, Minneapolis; Vitro Robertson, San Diego: and Bruce Mao Design and Henderson Bas, both Toronto.

Mr. Nadal said he was pleased by the marketing communications group’s organic growth of 11.6%.

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