Organic revenue tumbles by 26.4% at MDC

Despite the sharp drop due to the pandemic, CEO Mark Penn struck an optimistic tone due to increased business and pitch activity.
mdcpartners

Holding company MDC Partners is the latest to detail exactly how big on an impact the pandemic has had on its business in its Q2 financial results. And while it may be some time before client spending gets back up to pre-pandemic levels, signs of normalcy are beginning to emerge.

Organic revenue was down by 26.4% year-over-year in the quarter ended June 30, largely due to decreased client spend during the height of the COVID-19 pandemic. In Canada alone, organic growth fell by 28.9% year-over-year in Q2, down by 16% for the year-to-date.

Despite the declines, Mark Penn, chairman and CEO of MDC Partners, said in an investors call that he was pleased with the state of the company heading into the rest of the year. While the company is still not providing financial guidance due to the uncertainty caused by the pandemic, he pointed to signs that made him optimistic. Namely, while client spending is still down, the type of work MDC agencies are doing is beginning to develop a degree of normalcy, with less reactive crisis management work, and more movement toward brand building campaigns.

Also, in the six weeks since Q2 ended, Penn said there has been significant increase in pitch activity – both in terms of reviews that were paused and new ones – across different types of assignments. In many cases, he says pitch times have been shorter than usual, as clients are eager to “get going again” with their efforts.

Net new business – the difference between new business and business lost – totalled $20.5 million in Q2.

Prior to the pandemic, MDC had been working on restructuring its operations, organizing its agencies into new networks: one with Doner at the centre, and another with Anomaly at the centre. Penn said this structure helped reduce costs, to the tune of $82 million compared to a year ago.

In this quarter, MDC’s segments were changed, to have its integrated networks divided into two groups. Frank Lanuto, MDC’s CFO, said this division was based on discussions with the SEC in the U.S., and based on agencies that have historically been the most economically similar – the company has not yet detailed which agencies fall into which group, so it may not align with its new network structure.

“Group A” of these integrated agencies reported a 19.2% year-over-year organic revenue decline in Q2, with “Group B” reporting a 29% decline. MDC’s media and data segment had a 26.7% decline, with all other agencies reporting a 30.7% decline.