MDC Partners Hosts 2013 Investor Day (Transcript)

| About: MDC Partners (MDCA)

MDC Partners, Inc. (NASDAQ:MDCA)

2013 Investor Day

November 21, 2013 8:00 AM ET


Matt Chesler - Head of IR

Miles Nadal - Chairman and CEO

Bob Kantor - Chief Marketing and Business Development Officer

Lori Senecal - Chairman and CEO, KBS

Chuck Porter - Chief Strategist

Carl Johnson - Founding Partner, Anomaly

Bryan Rowles - Partner/Executive Creative Director, 72 and Sunny

David DeMuth - Co-CEO/Chief Creative Officer, Doner

David Doft - CFO

Kip Voytek - Director, Digital Innovation

Paul Rostkowski - President, Varick Media Management

David Norton - EVP, Analytics and Consumer Insights

Amie Miller - SVP and Director, Talent Management

Laura Cruz - CIO

Andre Coste - CFO, MDC Partners Network


Rich Tullo - Albert Fried & Co.

Eugene Fox - Cardinal Capital Management

Matt Chesler

Good morning, everyone. My name is Matt Chesler, I'm Head of Investor Relations. And I am truly privileged to welcome you all to the MDC Partners’ 2013 Investor Day. Three weeks ago I was an equity research analyst covering MDC’s stock. For me the call was quite simple from the moment I launched coverage nearly four years ago.

Premium organic growth and cash flow generation warrants a premium valuation, but as I got closer to the story I also picked up that there was something uniquely special about the MDC strategy, structure and D&A that bolstered its advantaged competitive positioning and that made it an attractive place to work for the industry’s top talent.

So since I was already shamelessly one of the biggest bulls on the stock, I did the next logical thing and I decided to make the ultimate stock call and joined the Company. So it’s my hope that after this morning, you’ll share the same enthusiasm for MDC as I do.

I need to start off by making -- by saying that we’ll be making forward-looking statements today. These statements are subject to risks and uncertainties which are outlined in this slide and are also further detailed in our 10-K and other filings with the SEC.

We have an exciting day for you today. In his opening remarks our Chairman and CEO, Miles Nadal will outline his vision for continuing to build our business and drive value for our shareholders and hopefully you’ll get a sense for the leadership that made MDC what it is today. Then, you’ll hear from leaders from five of our biggest and most successful agencies that will showcase examples of some of the breakthrough campaigns that are delivering transformational results for our clients.

Then two of our digital leaders in creative and media will show you how MDC is on the cutting edge of leveraging technology and innovation across our platforms. After that, there will be a panel of key MDC executives across new business, operations, IT, talent and data analytics. I hope you will see how MDC leadership is helping our partner agencies accelerate their businesses and gain market share.

Then our CFO, David Doft, will provide a financial overview of our framework for delivering premium growth and ongoing market share gains, expanding margins and driving incremental value for all of our stakeholders. Finally, we’ll wrap up the day with plenty of time for Q&A and there will be an informal launch where you’ll be joined by a small army of MDC people as well as our partner agencies.

With that we’re thrilled to start the program with some of our recent work and then Miles will begin from there.

I’d now like to turn it over to our Chairman and CEO, Miles Nadal.

Miles Nadal

Good morning, ladies and gentleman. I guess it’s been a few years since we had our last Investor Day, and we are exceedingly enthusiastic about the opportunity to be here today to showcase the brilliant talent of our partner firms and the iconic work that they are delivering and the strategies that we have employed to differentiate ourselves from everybody else in the marketplace by using tools and technology to improve the effectiveness of our work so that we establish a reputation of being delivering the most impactful, most talked about, written about, most impactful financial impact of work that we do for clients.

Because ultimately our mission and our total mandate is to change the sustainable profitable growth rate of our clients, that’s why people use marketing. They don’t do it to print -- to do pretty pictures or nice TV commercials. They do it because they believe that the combination of the art and science of marketing can change market share, sales trajectory, profitability, and ultimately share price. And so we have built our reputation as a business transformation organization.

MDC has come a long way in a long period of time. We’ve been in business 33.5 years, but we really got our mojo and refined the strategy and the culture and the focus and ultimately have been able to articulate what we will say we’re going to do, do what we say what we are going to do and deliver on that promise. And we have done some things I guess that at a point in time might have appeared to be certainly contrary and maybe controversial. But we never lost sight of what we believed was going to be the impact.

So I will tell you that MDC today is the best MDC in its 33.5 year history. You will hear today from my partners and colleagues why our opportunity is greater going forward than it has been in the last 33.5 years or specifically in the last 7 years where we have had transformational growth that I will articulate a bit about. And why we have what we think is a superior model and it is both cultural and financial, and that we believe that the 5% to 7% organic growth top-line and 7% to 10% bottom-line growth organically is a starting point for the ambitions of our organization.

We will show you a case study that with our organic growth and some modest acquisition growth, we can grow our business 10% to 15% bottom-line and still deleverage the business at the same time.

Warren Buffett said in the short-term the market is a voting machine, over the long-term it is a weighing machine. You heard me say that many times. He is the world’s smartest and world’s wealthiest guy so he is a guy worth quoting. And just to give you a step back, in 2006 MDC had 400 million in revenue and we had $36 million of EBITDA. Today we are triple the size in revenue, about $1.2 billion and our EBITDA is about $160 million. So we’re up somewhere in the neighborhood of about 4.5 times on profits, on 3 times the revenue.

I think what’s more impressive though is the organic growth story and David will talk about that, but if you recall what -- that the transformational tipping point for MDC was in 2008 when Berkshire said they were going to make a 10 year bet on America, and it became very clear to me that although everyone else talked about Brazil and Russia and India and China that the opportunity for us was in America as well, and our international expansion would be modest but it would be on the backs of American corporations where we saw the greatest resilience to the economy in relation to other alternatives.

And so over the course of 2009, we raised money at 12%. It was controversial. It was certainly not unexpected, and at the same time we put in place a dividend. Those two things people were quite concerned about. We delivered excellent growth in 2009, excellent growth in 2010, excellent growth for the first half of 2011, and we had an overinvestment hiccup in 2011 in the third quarter, had a very negative impact on our stock, didn’t affect our bonds, affected our credit rating, but it ever affected MDC’s conviction about what we believe was the right thing to do.

And from that point forward we said we will not make additional acquisitions above and beyond what we had done other than finishing off what we had done in ’10 and ’11 and we had stopped in March the 28th in 2012 we raised guidance, we gave people a commitment and dedication to get our leverage down to the 2.5 times leverage point over a period of years, we exceeded that.

We said we’d get margins up. We’d focus on organic growth. We would leverage the infrastructure. We would invest in digital innovation. We would build a world class consumer insight and CRM and analytics capability throughout the organization. And we believe that the investments we made in things like Allison & Partners and Sloane, 72 and Sunny, Anomaly, our Maxcomm-Media initiatives, et cetera, would deliver north of 20% margin and north of 20% growth and we have been correct and in some on all of those.

And as a result of that our EBITDA in 2011 was about $86 million, 2012 was about $90 million -- sorry 2010 was 86, 2011 was 90, 2012 was 118 million, which was above the range of 100 million to 115 million which was an upward range from 105 to 110 when we started the year. We had a slow first half in 2012 because we were scrolling against very difficult comps in ’11 but in the second half we blew the doors off of it as we budgeted as we articulated we would do and it took some time for the market to have confidence that the commitment and dedication to work judiciously by integrating the business we had, leveraging the infrastructure, increasing margin, increasing free cash and deleveraging would have an impact.

In 2013 we put forth a forecast of 132 million to 136 million, which was a very respectable growth year-over-year all organic. We exceeded that in the first quarter of 2013 we had 30 million of EBITDA against 8 million in the year before. In the second quarter we ended up with 43 million against 33 million. And it became very apparent at that point in time that MDC had a credible point of view -- I thought my point of view was credible maybe someone has a different point of view about it. I have no idea.

Anyways, it became very apparent that the mission that we said we had to de-lever free cash flow to continue to grow the business. And then we had paid down over $550 million of contingent payments and indebtedness all from free cash flow was actually coming through. Then we raised guidance again to -- in the second quarter to 142 to 146 then we raised guidance again to 156 -- 152 to 157. But we believe that we will do over 160.

And the kind of growth that we are experiencing is not one that you should budget year-over-year. We have gone through an extraordinary period where all of the investment spending we have put in tools and technology is having an exceptional impact on our business. And so we still go back to 5% to 7% top-line, 7% to 10% bottom-line year-over-year with upside, and that doesn’t include acquisition. We do not budget for acquisition.

Acquisition will never have the same impact on our business going forward as it did in the past; a, we don’t have the same need; and b, the scale of our business is such that when we still hit singles and doubles they will be more modest and readily digestible. And we do not see that strategy having any impact on our ability to de-lever the business down to 2.5 times and David will articulate in greater detail why we think that 15% to 17% or even as much as 18% over the next 5 years is readily achievable.

I think today we have some 10,000 full time employees we're privileged that although we're modest in size in relation to our competitors pound-for-pound we're as capable or more capable than any of them. Our reputation is the place where great talent lives and our dedication to that mission each and every day walking that talk of attracting and retaining the best people is having a big financial impact for all of our constituents.

What's nice about MDC is we are nimble and agile, we're sophisticated, we have great management but they also think like a startup. And it allows us to differentiate ourselves to be able to get important initiatives brought to the marketplace very, very quickly. We understand what investors look for, we feel privileged to have the fiduciary capital of our equity holders and our debt holders. We have some of the greatest investors in the world and we feel a personal dedication to ensure that we do all of the right things to look after their capital to make decisions that are the right ones for the right reasons.

We are not looking to be the flavor of the month. We are running a marathon not a sprint. This body doesn't looks like it runs a lot of marathons and it doesn't, but had never -- my colleagues do, but we have the discipline and what is terrific as David has pointed out numerous times, is what's good for us as management owning 30% of the Company is good for all equity holders. It's good for the equity holders it’s good for the bondholders. So there is complete alignment that as we de-lever increased free cash flow, manage our businesses with a conservative approach to risk and invest in talent which is the greatest opportunity we have that we will drive more per share value than any other firm we believe in the history of the industry and that is our dedication.

As we just articulated when we just did our bond, our modest bond issue we said we're committed to have investment grade credit statistics, although we won't be investment grade because we will never have that scale, but that same discipline and focus on deleveraging is so critical because high multiple companies have low leverage.

What you will see today is that the capabilities and the brilliance of the talent pool that we have within our organization is as good as any in the world. And there is a reason why we're experiencing all this extraordinary organic growth. It is a reflection of their brilliance, their leadership, but it's also a reflection of MDCs ability to be a good partner.

So what does that mean? First of all, we clearly define our own rules and responsibilities, we're not there to do the work, we're not there to guess the people that they hire or the decisions that they make to build the client business. Two, we understand that without success of the work they do in the marketplace we have no raise on debtor for existence. Thirdly, we give them incredible support on all levels, strategically, financially, operationally and most important in the areas of human capital management that we call talent, leadership, development, trading and requirement.

And I think that which we're most proud of is not only the incredible financial success that each has enjoyed from the beginning of our partnership, but most importantly they are our best brand evangelist to attract other people and firms, because we truly emotionally are dedicated to be their partner not their holding company, not their investor, not their owner. We're truly partners.

And I think a lot of people came in skeptically and said I wonder what this is going to be about, just give us some money and leave us alone. And over a long period of time the infrastructure and support systems and the dedication of my colleagues who have really worked judiciously to differentiate us and truly show how we can help increase their ability to sell more product to more client for more money more often really works.

It is true that when people make more and more money they think you are a better partner. We actually think that not only is that the case but in the face of adversity that's the true test of character. Not everything we get involved with goes straight up. And one of MDC’s greatest success is the value add that we bring to help those businesses write themselves and we have incredible case studies that you will see today in terms of what we do for clients and implicitly the underlying businesses that growth is all coming from their success. Of which I would say the partnership has added value.

I don't know to what extent they did or we did, we don’t' care. The nature of our partnership creates perfect alignment. If they don't have the equity we don't the equity I mean overall I think we own about 85% or 90% of the equity of the businesses because it's going on for a long period of time, but we don't operate any differently if we own half or all, we empower management, we create incentive plans for them to be empowered and to sharing the value going forward.

So in conclusion I just wanted to say we are privileged to have this kind of following. We hope our following continues to grow. I think David Doft and now Matt Chesler and the rest Mike Sabatino and our finance an operations team and it goes on and on, are really always available to answer questions. We love the following we have, we feel privileged by it and we actually enjoy the stimulation interaction and the thing that I take most pride in is we have longevity of following.

Pat McBaine from Gruber & McBaine has been with me since January the 4th 1994. It's rare to talk about a 20 year relationship, Jean Fox, I don't know how long it's been but it's been 15 years. Neil Goldman 15 years I mean so my new bosses at Fidelity who we work full time for now, only a number of years, but it’s been a growing relationship and we take great pride to be able to under promise and over deliver.

And that is some takeaway that's important for you to understand that whatever we say we're going to do, we will do everything in our power to ensure that we under promise and over deliver because we believe it’s a marathon and our credibility is all built upon being able to do those things, predict those things and to exceed them going forward.

Anyways at this point in time I'd like to turn this over to Bob Kantor, but before I do, I'd like to talk to about Bob. Bob joined the organization about five years, Bob's mission was to differentiate MDC to tangibly show that we could change the sustainable profitable growth rate of our partner firms and to work together with their chief growth officers to get us in front of more consultants, to look for opportunities for us to collaborate together on multiple clients and ultimately change our growth rate.

He has done a brilliant job recruiting a team, a fabulous team across North America. The impact has been extraordinary and growing in its impact on an ongoing basis, and it's probably the single biggest differentiator that MDC brings to the table, in that we really are dedicated to help our partners work together so that MDC partners has the ability to collaborate and bring some integrated solutions to clients in a way that no one else does.

And as a result of that we really have started to leapfrog in the organic growth success that we’ve had, is actually accelerating and our net new business wins of 108 million for the first three quarters is greater than ever before and its percentages are actually as high as ever even though the scale is growing. And so going forward we see the opportunity to leverage this strategy on an ongoing basis and to continue to grow that infrastructure, it pays off in multiples.

And so Bob really was the leader of this, he worked really hard, it was tough struggling for the first two or three years to convince partners that we would actually have impact but now it had had enormous impact and we have universal buy-in by all of our partners, he really deserves tremendous credit for his initiatives.

So without further ado, I'd like to introduce Bob Kantor.

Bob Kantor

Thanks Miles. Good morning everyone. I think today is going to be an exceptional opportunity for the audience to gain an inside perspective into the extraordinary growth of our largest five agencies, our largest five advertising agencies which are here on stage with us today. Each one of these agencies has created a very distinctive and defined culture, and I think it's that culture which has had allowed them to, I think attract the best talent in the industry. To create and produce and invent some of the world's most successful and highly recognized creative product in the industry.

And most importantly it's that culture that has allowed them, I think to build relationships with their clients that have allowed them to help accelerate the growth of their businesses, and at the end of the day I think that's by far the most important criteria for a long-term and successful relationship with the client the ability to maximize their investment in marketing and media services. I'm going to start by introducing each of our agencies and I think this is an opportunity to really gain perspective and to have your chance to ask the speakers’, the executives from each of our agencies questions that might be appropriate so that you can really understand what has helped them to fuel their 2013 success and how that is really a foundation I think going forward in 2014 and beyond and how they’ve grown their individual agencies.

And importantly there will also be an opportunity to take a look at some of the work which I think is an example of the great marketing communications being done each of our agencies to help fuel the growth of their respective clients.

We start with Lori Senecal, Lori you’ve been CEO of KBS for about four years, created one of the most highly regarded and respected agencies in the industry, digital at its core and analytics backbone extraordinary organic growth why don’t you bring to life KBS.

Lori Senecal

Thanks Bob, and I guess to kick off I will talk a little bit about how at KBS we drive transformational growth of our clients because I think each us has just a little bit of a different flavor in terms of how we go about that.

And at KBS, we really live at the intersection between creativity and technology. So, we have a pretty strong point of view in the industry and a really strong belief which is that we believe in the power of marketing invention. And what I mean by marketing invention is real first, truly new experiences that we’re creating by brining creativity and technology together and the reason that those are so valuable is because first they’re exciting, right they capture people’s attention and they really create a lot more impact than the budget that the client is spending. So, there is really simply worth more and that’s why we focus on marketing inventions. So, every challenge that we get, we try to boldly reframe it through the lens of invention.

And there is a phrase that we’ve been using to kind of capture the value of what we’re creating here and we call that return on invention. We talked about how when you create marketing inventions, they do kind of punch above their weight and they do create a greater return for our clients for their marketing spend. And so we believe that return on invention is really the new ROI and it’s really what we’re holding ourselves to and what we need to deliver for our clients.

And I think marketing invention is really in line with what clients are looking for today too because they’re investing so much in advancing their products and services. So, they actually deserve marketing that’s as inventive as using credible products and services that they’re making and it's really their expectation.

So, to deliver marketing invention the way that we’ve created the agency as it’s a highly integrated model because you need a lot of perspective to invent. Right, you need someone to say, this could be an idea and someone else to say, I can make it better by doing this and someone else to say, I could start making it and see how it can come to life. So, that’s really important but you also have to have the most advanced capabilities. So, we have a tech lab which is for rapid prototyping so we can make start to make these marketing inventions and it’s full of things that you may not see in all agencies whether it’s soldering irons, 3D printers, circuit boards resistors all those kinds of things.

And the other thing that we created is a physical news room in the agency, so we’re able to capture real-time editorial style content that can keep a conversation going at the speed of social media.

So, how do we bring all of these elements of the agency to bear to create ideas for our clients? What we do is again we put them through the invention lens so when BMW came to us with their electric car they said, we wish that consumers could see the incredible impact that the electric car will have, when it’s on the roads in terms of CO2 emissions reduction, in terms of reduced reliance on gas. And so we said, okay, what invention could we create to actually put these cars of tomorrow on the roads today and this is a marketing invention we came up with to do that.

Okay, so this is a great example of how you can bring all the integrated elements of an agency together to create an idea, so it’s a technology solution that you just saw which was captured by our content group which was then distributed through social media, amplified by our PR Group. So really it takes all of those modern capabilities to create a modern idea like that.

And I must mention the results, that was something that took place for a few days on one street in Manhattan and it really accelerated leads for those electric cars by 52% from the period previous, so again something that only happened a very small point in time in place but it had a tremendous impact in terms of driving those leads.

And the last idea, I will show you is applying invention to perhaps the most conventional medium out there which is direct mail one of the oldest mediums out there. And this was for the launch of the M6. The M6 Ford’s enthusiast it’s for a higher network individual, so you can’t create a piece of direct mail that’s just an ordinary thing, it will just end up in their garbage collection the next morning. So we had to figure out how to create direct mail that would actually be considered more of a collector’s item or something that they would really value. So this is how we created a marketing invention to address that.

So our goal here was really to create direct mail that was actually going to be an invention that would make people actually want to have this direct mail so we had people requesting it from all over the world instead of throwing it their garbage, and I think it was the first time we’ve seen a piece of our direct mail on eBay and it drove the most successful launch of the M6 and that particular piece of direct mail, it drove response 10x of what a regular piece of mail would do, so not 10% lift but a 10x lift. So that’s a power of marketing invention.

So to conclude, we talked about the power of marketing invention for our clients but what does it do for our agency? Well, it really helps to drive organic growth, you’ve seen in those ideas, you have to bring together all the different disciplines to deliver on it.

So a lot of our clients are saying, we’d like you to do our social as well or content and deal the bundle more of those services. It also attracts new clients, clients who are looking to invent their future and want those kinds of marketing solutions and it also helps us retain top talent. At the end of the day, I think people like an environment where anything is possible and they can invent and create and to call themselves an inventor is a pretty cool thing. Thank you.

Bob Kantor

Thanks Lori. Next up I want to introduce Chuck Porter, who is the Chairman of Crispin Porter, CPB, agency of the decade year after year after year doing, I think, the most innovative work in the industry, multiple offices digital at its core. I think inventing and innovating in categories like packaged goods that the industry has never seen the type of creativity that Chuck and his team have put to bear into the marketplace building client’s businesses, so Chuck why don’t you bring to life the great Crispin Porter.

Chuck Porter

Thank you. Thanks, I am that guy who has the insert sheet, and you would think because I am like a substitute guy because Andrew Keller who is our CEO, was supposed to be here, but he is homesick. So I happened to be in New York. It’s like Brett Farve goes down, or Aaron Rodgers goes down and Brett Farve happens to be fishing in Green Bay and they call him and say, put on anyone. So this is going to be kind of a shamble, so probably you’re going to want to watch because it might be on YouTube and Bloopers.

I just want to show you some of the work we do and talk a little bit about kind of the way we think. One of our clients is Dominos, and Dominos, for a long-long time we have had Dominos for a while. Miles, you have to stop doing that.

Dominos for a long-long time there promise was, “we’re real fast”; you know the pizza is not very good, but it will be a real fast. And everybody knew it. They knew it, you knew it. They knew you knew it. So ultimately they said, we got to make a better pizza. We got to do a better job here and they came in and said, we are going to make a better pizza. It’s really going to be good. We’re going to do new and improved. And we said, you know, new and improved is not very believable, maybe what you ought to do is come clean and be transparent and say well this wasn’t too good before.

So we’re going to -- we heard you, we know you don’t like it very much, we are going to make it better. And they bought it. And I said okay, this we will do that. Because the truth is transparency is the new black. I mean everybody knows everything these days. Everybody can go online. So if a brand isn’t transparent, they are going to get transparented. So they did it. We did look kind of like this, this is just one spot -- Dominos and really kind of what we do is, manipulate popular culture.

The reality is for any brand, the big enemy is indifference. It’s not the competition and it’s not, it is indifference. People don’t really care, -- did a really interesting survey, just recently where they talked to people about their feeling towards brands. And sort of what they -- I was going to say the bottom-line, but didn’t -- sort of what they came out with was, over 75% of the brands that we know could go away and nobody would care. So indifference is the problem.

A part of the way to overcome that is to become a part of popular culture. And you guys are investors, so here’s what’s Dominos has done, since we did this campaign. It makes me happy. I own stock in all of our clients that are publicly traded, so I actually care for it works.

Another one of our clients is Best Buy. Best Buy is in an interesting situation. They have a lot of competitive pressures. One of them is that people are reluctant to buy new technology because they know there is going to be something else newer coming along down the road. So we worked with them and developed a program called the buyback program. I will show you. This is what it looks like.

Really-really well so they blew it out a little bit and became a Super Bowl commercial. And I thought it might be interesting to look at what happens when you get into the Super Bowl of advertising which of course is the Super Bowl. So that’s with that -- this is what that spot looks like on the Super Bowl. This is what Best Buy looks like this year. I love Best Buy. I want to show you one other piece of work that we are doing right now at our office in London. And I think it’s interesting because it’s a really interesting use of social media.

Everybody talks about social media all the time. I don’t allow people in my house to say that words, social media, but I think that this campaign is unique because what’s really going on with technology. I mean -- everybody is like okay the whole world is going to change Monday and basically you’re screwed because you don’t know what you’re going to do, what’s really going on with technology in our business is two things; number one, technology makes it easier than ever for the audience to ignore you. They can multitask, they can tebow you. It is very-very easy for them to ignore you.

The other side of that point is it’s easier than ever for them to engage with you, if there is something engaging and that they care about they can go online and spend all day with your brand, that’s one thing. The other thing is the world is changing from announcements to a conversation. Brands have to have a conversation with their audience. They can no longer announce them for 100 years we’ve lived in a read-only society ever since the beginning of radio and now we’re back to read-write.

And so that make story telling different because stories have to go on. You can’t just say here is we are, hope you like it. And I think what we’ve done -- this is a brand called Paddy Power it’s an online betting site in the UK. The audience is mostly men, it’s kind of naughty because when you’re betting that’s kind of a guilty pleasure that’s the personality of this brand Paddy Power it always has been.

And they do edgy things and we figured out a way for us to permit them to do edgy things which is they get 1000s of tweets every day. We pick the tweet we like and make commercials out of it. And it’s been pretty interesting for them and I want to show you one. This is for race Cheltenham the race -- people bet on races over their life. This is for Cheltenham and we do this for the Cheltenham races. And I don’t know if anybody here is from the UK. Do people know what chaves are, chaves in the UK it’s sort of derogatory term for a certain kind of like redneck would be here. Anyway, here is the Cheltenham slide.

[Indiscernible] they are Cheltenham. And these people are growing like crazy they’re growing 30% quarter-over-quarter and they’re expanding and recently just a few months ago they went into Italy with Paddy Power. And when they went into Italy what was going on in Italy is there was a lot of accusations of match fixing in football and the soccer matches, people were fixing their matches. So this is the spot we did to introduce into Italy. We did it in Italian but it’s…

So that ran in Italy ran for about two days and then it got pulled off here because the pope was in Italy right so but then we did it in English and it’s gotten many-many-many millions of hits and viral is supposed to be, viral is a nirvana because it’s free media and there are a lot of ways to get viral and the best way is to be unexpected and funny so we try to do that a lot. Thanks.

Bob Kantor

Thanks Chuck. Next I want to introduce Carl Johnson who is the CEO of Anomaly and Anomaly is an Anomaly. In an industry it’s very-very difficult to really differentiate and create a different type of agency. They’ve created an extraordinary shop that has multiple offices, created I think a deep and unique and differentiated point of view on how they work with clients across some of my favorite categories from booze to beer to sports doing extraordinary work with spectacular growth globally. Carl Johnson.

Carl Johnson

Thank you. Good morning. Ron there is no way I am following with jokes and for now comment is Chuck on that so I’m going to be a straight person. So I’m very happy to be in this slot following all that. One of the things that I think that is important to understand about Anomaly is that the underpinning of our success today is the clarity of our positioning and the clarity of our principles.

Many agencies exist because they exit they don’t know why, they don’t know what they’re trying to achieve they would have immense difficulty explaining how they’re different because this identity was created from the ground up only 9 years ago when the world was changing transformational change through technology and media. We had the chance to build something that was right for the future.

That gave us the chance to essentially position ourselves against the rest of the business all everybody knew 9 years ago was that everything was up in the air. They didn’t know which way it was going and they knew it was bit of a mess clients were wondering out and saying I know I need to do something different but I’m not really very clear what that different looks like. So what we did was we said okay let’s design something from scratch that is future positive got everything that the world is looking for eliminate all that is wrong with this business and there is much that is wrong with this business.

And I think our success is built on clarity of thinking so rather than entertain you, I’m just going to explain some of the most important principles that underpin us. So I learn a lot from the American approach to the Military which is keep it big, keep it simple, keep it dumb. The idea behind the Company is the name it is just simple as that rather than anything clever we are an anomaly when clients walk in they already know we’re going to do something different.

It allows you to screen from the outset the people that want the same they would like the status quo; they don't really want to do anything differently. Our name our positioning attracts the right kind of brief and the right kind of client. And there is not many clients at the moment that don't want something different. So the positioning is the most important thing.

The question we say -- or will say to -- our articulation of the question for this morning was, demonstrate how you help your clients to be effective in the marketplace. And I didn't wanted to use case history, because I knew everybody else would show you some great ones, as I said I wanted to talk about the principles that allows as a Company to deliver that day in and day out.

Right it starts actually with the principles, most things you just start as I said we spend quite a long time thinking in what way are you different. If you are going to walk out and say you are an anomaly a cynical journalist is going to say to you okay clever clogs, in what way are you different? Let’s just get rid of all the fluff. Tell me exactly why you are different. And we had three, two of which are actually fundamental to delivering effectiveness.

The first one is we're not defined by any channel, we're not an advertising agency, we're not a digital agency, we're not an innovation agency, we’re not design agency. We circle the problem, the business challenge as defined by our client and then we are totally free to recommend whatever the right answer is.

It is obvious if you are an advertising agency whatever the client asks you the answer has to be an ad, have to be our way to getting money. That is incredibly inhibiting, it doesn't really help you, I will answer in a way with truth and honesty. We don't care what the answer is as long as it works. It is so fundamental that point, and it’s so hard for the industry to move to that point, we have immense competitive advantage, if you have giant organizations where they have all these big sellers, they are not free to answer. And as that old cliché to a man with a hammer every problem is a nail. And that is very limiting. Whereas we have complete freedom to recommend the right answer.

The second is the another area most agencies will not go, we will not put themselves at risk. We embrace entrepreneurial compensation. We do not believe all agencies are equal we would like to be paid more than other agencies. The only way you can really justify being paid more is to be better, and if you all think you are better than how much are you prepared to put your money where your mouth is? How much of your money your annual fee will you risk on the basis of your client’s success? Most agencies will not do this, we want to do it because it's a fantastic place to be in terms of aligning yourself with the client.

You get very clear on what success looks like for that client, because if you are going to be paid a lot of money if things work, everybody better be clear what work means. So once again, not only can you recommend what is the right answer you have defined success and you are betting yourself against it. And of course then you have the ability to harness all the talent around solving this problems.

Now the third pillar does not really matter but it's for this conversation, but notion of the creation of intellectual property. It doesn't directly matter, except what it does do is it reflects a culture inside organization, where you have people that are passionate driven and bold and if you harness that culture to a client’s organization you get a much more powerful relationship with clients.

So it starts with these fundamental pillars. We have a ridiculously good client list, if I would have known this when we started then this would be our client list and I would be exceptionally happy. I mean just look at it, you will obviously be familiar with all of those people. What is particularly good is that eight of them are on annual retainments.

People talk about like things like the depth of the agency of record and how it's becoming more projected. Is it hell if you are any good you earn the right to be the agency, if you keep delivering day in and day out, you build a relationship, you grow your business. So the fundamental pillars are there. The client that we basically built is exceptional. But that is a situation where we can create a strategy where we do not have to run around pitching very nearly for business we do or don't want.

Our growth can come from an enormous commitment to our existing clients, it's not -- I mean organic growth was a statement from the very beginning on how we would be different again. This business is characterized for everybody running around pitching. We should be thinking what a pitch is, if you are not careful it's four or five agencies walking in for a couple of hours randomly throwing things at a wall, unable to develop a proper relation with a client where you can really get close and talk truthfully to them. And you are hoping that what you did was better on that day and that morning.

There is a whole lot of risk and randomness in that use of your own resources. We want to diminish the amount of time spent doing that and spend a great deal more of it on the growth of our pillar clients.

What we have to do of course though is make sure that we have fewer bigger relationships, which is why I already showed you those people. You also have to have the opportunity for growth build in. So when we are determining what clients we would like to partner with, we have an eye not only what is in front of us but what lies ahead of us.

We want clients where if we are good they have more brands. They have more channels, they have more territories. It is phenomenal how much you can grow if you are not dropping off the bottom; it's not a leaky bucket. Many agencies are running around, topping up whilst the bottom clients are falling out. If you commit you have got significant growth in that client base and then you cherry pick when you pitch. So you pitch with passion, you pitch when you really, really, really want to do it then you have a greater chance of growth, because there is nothing falling out of them.

Never losing is easy to say but it is exactly what you should be doing. And the pillars -- the principles I've showed you at the beginning, the commitments are answering client's challenges with integrity, and the commitments are entrepreneurial compensation reinforce that outcome.

Now we obviously did a lot of work some of which you've seen, you know some of the these people oversea and I didn't really want to show you all this because I knew that you'd see a lot of good work, I also said what was the most useful film I could show you. Given the conversation about delivering effectiveness for clients and our commitment to organic growth I thought it was better to show you one of our client’s talking. And this is our longest standing client converse obviously part of Nike Inc., and let's see them over.

So as I said I didn't want to compete with the array of great work you've already seen and I just wanted you to understand the strong agencies delivering effectively for their clients are built around clarity of thought and clarity of strategy, so thank you very much.

Bob Kantor

Thanks Carl, next up is 72 and Sunny, an agency that is just absolutely on fire, agency of the year doing world class work on some of the most prestigious and high profile brands in the advertising industry from Starbucks to Google, Target, their working with world class marketers doing exceptional work, multiple offices around the country, outside the U.S., handling global businesses, an extraordinary organization, Bryan why don't you bring it to life.

Bryan Rowles

Hello, so I'll tell you a little bit about me, I was actually the first creative hire of 72 and Sunny which 2004 was pretty kind of no brainer decision I had an opportunity to work on designing some Bennigan's menus or do a Quicksilver snowboarding campaign, so I went with the Quicksilver snowboarding campaign, I'm currently a partner in the Company executive creative director in LA, I just got back from Amsterdam where I was the ECD for two years helping get that operation off the ground.

So jumping in to telling you a little about who we are, we are about 9 years old full service marketing communications agency, we have offices in LA and Amsterdam, about 300 plus in LA, 50 plus in Amsterdam and we talk about as being one office two doors, with talent flowing between the two. We feel like that's a pretty modern way of behaving as a global company and one of our moto’s actually is born modern which means being comfortable with change, feels like everything is constantly shifting, new technologies being introduced in the marketplace, and we use that as a way just allow of the center of gravity of every project we work on to be different.

High tempo, high collaboration, high cultural impact these are sort of the hallmarks of our work and it’s what we're built to do and we're very fortunate to have clients who are like minded and behave in similar ways. We're very fortunate to have a pretty amazing roster of clients, most of our growth in the past two years has been organic but most notably this year we've added Smirnoff, the global Smirnoff business to our roster and in the past month Starbucks.

We've also been honored by our industry in the past year, we were named Ad Agency of the year by Ad Age and also listed as one of the top 50 most innovative companies by Fast company in 2012 which is pretty cool being named alongside of like Twitter, Amazon and also Chipotle because we all have kind of a semi-addictive relationship with Chipotle so that's a pretty cool thing. But the awards we're most honored by are the effectiveness and strategic orders we've won this year.

Notably the 2013 Grand Effie for our work on Call of Duty and the Jay Chiat Strategy award for our work on Samsung the next big thing is here. So the most important thing to us is when we create market effectiveness and we have impact in the marketing culture on behalf of our brands so these are the most important ones to us.

So just want to take you quickly through Samsung case study. When Samsung first came to us in 2011 they just wanted to be part of the mobile conversation in a category obviously dominated by Apple and to be positioned as the clear choice for the Android market. What we didn’t anticipate happening is it Samsung would actually become the leader in the category. So, what started out as a tag line the next big thing is here actually moved to sort of a more behavioral thing and a Bellwether or North Star for how we behave as a brand as a Company of innovation and a Company of efforts. So if we could play the…how do I do that.

So we’re figuring out with the next big thing is but that’s a little bit about us and what we do, so thanks.

Bob Kantor

Thank you, Bryan. Next up is David DeMuth, the CEO of Doner. There is probably no agency in the industry that had as successful a new business tract record over the last several months than Doner. David and his team have created an extraordinary agency winning businesses, as diverse as healthcare to retail. They have really created an extraordinary environment and they have had both great organic and business development growth, doing business in the U.S. through North America as well as in Europe. David why don’t you check the…

David DeMuth

Thank you. Good morning. So I am sitting here, listening all these really smart people from cool agencies in New York, LA, Boulder Colorado and I’m thinking I’m from the agency that’s 76 years old and from Detroit, so how is that for excitement. But what we like to think at Doner is that we were really reborn about five or six years ago when my partner Rob Strasberg and I bought the agency and seek to turn around based on a new philosophy and a far more modern model.

We would will like say at Doner, we’ve been around 76 years but we are reborn in the digital age and we have a really great heritage but I think we’re blazing an awesome new trail, I don’t if my slides are here but I have to click, that’s me.

We talk at Doner about our philosophy that we like to say as ideas that move people and the agency’s roots are in retail and we’re very, very used to being held accountable to results and that retail orientation has helped inform everything about the culture of the agency, our strategy process, how we execute, how we analyze, how we measure. And we’re probably one of the most integrated agencies in the country in that we have everything from creative, strategy, analytics, digital, production and we still have media planning and buying. So we have by over $750 million worth of media this year and we will do that for a wide range of clients.

One of the other critical things that really helps us is our multiplatform content studio, so we operate a postproduction facility that’s really built for speed and quality that includes over 14 editing suites, 4 audio post-rooms, special effects capability everything that makes us entirely self-sufficient and fast on behalf of our clients.

And there is really, we have many clients as Bob said from healthcare to consumer packaged goods to retails. And we’re from Detroit so obviously we work in the car business and there is really no better I think expression of what we do than the work that we have been doing for Chrysler Group over the last three or four years which has been feeling a great American comeback.

Our work for Chrysler is a many splendored thing, we work across their five key brands Chrysler, Jeep, Dodge, Ram, and Fiat. And we do everything from brand work to retail work to supporting their network of dealers around the country. It’s really -- if you look at Chrysler it’s an epic turnaround that continues to gather momentum, that’s perhaps one of the most dramatic business turnarounds in the history, it’s been well chronicle whether you’ve seen Sergio Marchionne on 60 minutes talking about it or Chrysler Group which was named Ad Age's Marketer of the Year, read about the tremendous business results.

We are the AoR for all of their retail advertising and that’s really kind of the big stick in their marketing arsenal. It accounts for over $750 million in media spend, its well over 50% of their budget. In this year alone for Chrysler, we will have created over 1,500 different creative assets that’s everything from television commercials to radio to print ads to online banners to micro sites to outdoor boards, it’s a very-very deep and fast moving relationship and it’s really -- we do the work that moves the consumer along the continuum of attraction to interaction and transaction and that accountability of the results is a really important part of our agency. Most of our client relationships have a performance incentive in them and we’re heavily incentivized on Chrysler to drive business results.

The first thing I’d like to share with you is some work that we done for Fiat. If you look at the Fiat brand it’s must been publicized in the United States, it was gone for a long time, it came back, it’s very closely watched by the business press and it’s enjoyed 18 straight months of retails sales growth. This is a commercial that we made recently to launch the Fiat 500L which is the four-door version, has a little bit of fun with the Italian heritage of the brand. Ops, it somehow skipped, I’m sorry. It was there this morning. It is really funny and fun to watch. Chuck Porter liked it.

Okay that’s fine don’t worry about it. Yes, it looks, it’s called the Italian Invasion, it is in all colonial tan and that the Paul Revere character thinks the British are coming; then he realizes it’s the Italians and the Fiat and hilarity ensues, and lots of fun. This is just a little bit of the print that we have done for them as well. And it’s a brand, Fiat is a brand that’s really been great for us because it has allowed us to stretch the limits of our creativity and do some things that really get out there and pop culture. This is a print ad, and outdoor board in California for the 500E, their electric vehicle, environmentally friendly with benefits and part of the heritage of the brand and the positioning of the brand is all around fashion and style and design. So we have been having a lot of fun with that.

Moving on to the Chrysler brand, this past October was the Chryslers brands best sales month since October 2007. And one of the things we tried to do on Chrysler brand is really lean into things going on in culture. This was a spot in a little campaign that we did to tie-in with the World Series in Baseball, obviously the Detroit Tigers were in play and we partnered with Miguel Cabrera and made this commercial. And hopefully that’s there.

Apparently all my video has disappeared. 20 guys has pitching Chrysler. We work on the Ram brand as well. Ram is America’s fastest growing truck brand, do lots of competitive type advertising for them. You can see some of the imagery here. My guess is that the television commercial is not there.

I will try again, we will see, no. Another thing we do for Chrysler. We do -- if any of you are from California you know when you go to California nobody drives in American car. The only people driving American cars in California are the tourists and they’re rentals. In the big three of all identified California is a big growth opportunity. We’ve been creating a campaign the last two years for Chrysler, specifically for the state of California that has helped them become California’s fastest growing automotive manufacturer with a 51% year-over-year sales increase.

That is a pretty incredible achievement and underscores the share growth that they are experiencing there. This is again, some of the really beautiful imagery from the campaign. We target four brands, about 8 name plates, done a lot with the Jeep brand there, and again if the video we’re playing, you would be seeing a beautiful Jeep commercial right now that takes advantage of the topography of California and connects it with the Jeep brand. But it’s not there.

In summary, I said at the beginning we’re about ideas that move people and we’re an agency with a real detailed orientation. We tend to do well with brands in the middle of the country, brands from Middle America. What we have done help Chrysler do is 43 straight months of year-over-year sales increases. Chrysler Group market share has double since when they came out of bankruptcy from 5.4% to 10.8%. And in 2012 the United States auto sales were up 13%, Chrysler group was up 21%. So you can see the type of share that they are gaining.

We’ve helped them create tremendous momentum. We have helped them co-author what is a really great American comeback story. The work that we did for Chrysler was instrumental in helping us win the J.C.Penny business which our first work will break later this week and obviously another company that’s desperately in need of a comeback and they came to us after a competitive review to earn that business.

So results, integration, creativity; I wish you could have seen it but, wow, here we are. Which one you are going to show, I am sorry. Okay great. Well now I will now shut up and you go on to the work.

That is it okay thank you just hopefully you could see in that work a real tonal range and if you know anything about Chrysler the CEO Sergio Marchionne approves every single ad that goes out the door. They have a committee that meets every other Sunday morning where they sit around and watch commercials and give it a thumbs up or thumbs down. So we basically are on-call Sunday afternoon to make any changes we have people in our studios ready to do it.

So the speed at which we’re able to operate the self sufficiency of our production studios and our creative ability to channel five different brands and bring to life, bring them to life in really interesting ways has rewarded us. We started three years ago with one small project at Chrysler and now we’re creating well over 50% of their marketing content in the United States so it’s been a great story for us and has been great for us building our business with other clients as well.

Bob Kantor

Thanks, David. I think the organic growth of Doner with Chrysler as with many of our agencies is such a symbol of the success of an organization who is able to take existing businesses, build client businesses and thereby help build their agencies. What I’d love to do next is to spend the next few minutes giving you all an opportunity to ask specific questions to our panelists to allow you to have I think the inside perspective that can be quite valuable to appreciate not only the work that they’ve done that they’ve shared today, but an understanding of the perspective and foundation for growth as we move forward.

Any specific questions from the audience? Why don’t I start, one of the themes that I think you heard today was global expansion and so many of our agencies have done an extraordinary job throughout North America and their ability to expand globally with their clients has been critical to their success. Bryan, why don’t you start with discussion of 72’s global expansion?

Bryan Rowles

Well, I guess that I just got back from Amsterdam. So back in America, it’s kind of amazing. So our thing globally right we’re finding with our clients more and more is figuring out a global platform for our brands and -- but being also execute those global platforms on a local level. And so we have a few global clients, Google, Samsung and also Diageo now added to the roster. So cracking that big sort of global positioning but then being able to nuance it Berlin is different than Paris so you have to be able to go into those markets and execute at a high level to also local level.

So most of that sort of global platform thing happens out of LA but where Amsterdam has become very valuable for us is its 80 nationalities in one office. So you’ve got you can really kind of dig in and get those nuances. So in terms of our growth it is very organic. We have a lot of headroom with our existing pieces of business. We have a presence in New York because Smirnoff is if in need for Smirnoff we have to be able to execute for them in real time.

So basically our positioning on growth is well love the one you’re with and as we need to grow based on our client’s expectations we will.

Bob Kantor

And Carl, Anomaly has a different I mean you were born as a global agency. Why don’t you talk about your perspective?

Carl Johnson

Yes, I mean I think the most important thing to realize is as you’d expect me to say to be absolutely clear why you’re doing it and I think you have -- the answer is not always money there are other reasons to expand globally for us there is access to talent and then the third thing of course is this access to learning.

All of those things make you stronger. So we will open in markets where we think we would get a combination of some of those things or all of those things if we’re lucky. There are obvious markets where it’s extremely good to be in right now it’s extremely helpful for us to be in China right now because there is no client we have where China doesn’t feature on their business plan. Therefore unsurprisingly we opened this year and we were helped by the organic growth expansion of Budweiser, and Budweiser China obviously is a phenomenal growth opportunity. We also have Converse another big market for that brand.

So the key is be absolutely clear why you are opening, try and partner with the client which obviously reduces the exposure the risk of doing it, and then thirdly appoint -- building up from past don't treat them as your own offices as solos. If you have a challenge where a client and the best person is in Toronto get them on it. So we operate fluidly across our offices, and everybody in our office wants to know only work in one place but they want to be part of a bigger thing. And the final, final point I think is we want every office to be multi-national. Every single office needs to be start, there is many diverse talents and nationalities and cultural view points as possible. Because the world is too interesting to be blocked off. So that would be us.

And in terms of how many more offices do you want. We have absolutely no desire to be another version of 100 office network. I think there is no need, all the clients are frequently saying why do I get -- would I get all the overhead? All I really want is an awesome idea globally that I can then flex. I don't want to pay for 100 or 200 offices. What I want is a great idea that is flexible and [Indiscernible] to all my markets. Now there is a very big difference between one office and somewhere between five and 10, because you then become legitimate. You now can partner with the large client like Diageo with Budweiser.

So there is a point where -- there is a tipping point where you have become a real contender, so when a client is looking for the global agency you will find all the obvious network choices, but you are going to find somebody in -- what is more accurately tell them like network if you like. But our philosophy the world is interesting, there is a ton of talent out there be smart and cautious how you do it, and be clear on why.

Unidentified Analyst

Maybe the group as well, you guys had a great year and you feature the Samsung work there and in particular the launch with Jay-Z the album on the phone. And if I remember there was a little bit of blowback around that and some of it I think most of it landed on Jay-Z. But did any of that come to you guys as an agency and then just for the group, how do you -- you have done a lot of edgy work over your careers, what do you do when something goes wrong and how do you deal with that with clients and new clients and pitches.

Unidentified Company Representative

Well with the Jay-Z thing the great part about is we started the conversation, which is always what we were trying to do is make brands matter in culture and that's the way to do that to get the conversation going. And it's not limited the conversation on Jay-Z how does Billboard make this album platinum Jay-Z has sold out, other people are saying what a really amazing innovative to launch an album for the first time.

So all those conversations are really interesting and with Samsung the great thing is even with the fanboy stuff, when those things hit YouTube just like the conversation that starts from like Apple people which is like Apple is amazing and Samsung people will be like Apple sucks. You really start to roll, you learn -- I have learned a lot of features about the phones through those conversations which is kind of interesting, but you are just getting people talking about something. And that's always at the heart of everything we try to do, we try to make brands matter and culture and be timely and relevant. So any conversation is a good conversation, I guess is the answer to that.

Unidentified Analyst

So let me build on that, social media for all of our agencies is a critical part of their integrated mix and a lot of the questions with clients today are what is the right model to integrate themselves into that conversation, how do we create content? How do we produce and distribute communications on a real time basis. Lorrie why don't you talk a little about how KBS has created a model I think that addresses current client needs in that space?

Unidentified Company Representative

Sure one of the things that we most recently did was we created a physical space called the newsroom, which just gives us the opportunity to create content very rapidly first of all so that we can I think Chuck alluded to the need to have a conversation not just one way broadcast so to be able to create content with the speed of social media. But what it also allows us to do is to create a large amount of content in a short period of time.

And what's important there is that our newsroom is connected to our integrated strategy group where we're able to really mine deep audience insights, and if can find those insights what people are interested in, if we can identify where they are along the purchase journey of the purchase funnel we can create a flexible content that will really address someone's interest at the point that they are ready to get the message to help move then along the path to transaction. So that's been one of the most useful uses combining our social engagement, content creation and data and analytics.

Unidentified Analyst

I see a question.

Unidentified Analyst

I have a question for Carl, I wonder if you can elaborate on the incentive fee structure that you have created. What percentage of your total fee comes from incentive? How do you and the client actually measure the success of the incentive or create the incentive parameters, so everybody is comfortable with it. And relative to everybody else on the panel do you think this kind of composition system would be of interest to you down the road.

Unidentified Company Representative

Yes, so without going into too many details I think the main thing is no client doesn't want to talk about the agency putting themselves out there and being prepared to be paid with some degree of results, every client welcomes that conversation it makes procurement embraces rather than that go into a mode of conflict. We're immediately saying we will put our money where our mouth is, what we then do is we structure every single conversation differently.

So depending on what the task is we can have a variety of metrics, you can have intermediate variables like brand health if that's the issue or shifting consumer attitudes or you can have a hard-nosed sales objectives, all we do is we have a very clear conversation with every client about what the real objective is for each program that we're going to be paid for and define the parameters.

And as I said, we are super flexible on what they are and sometimes you can get into a conversation like, yes, but you can't control every single variable and then you just have to say, yes I know, but the overwhelming spirit is that we are fully committed. Well I've done one in the past where we simply said if you guys get a bonus, we get a bonus. Now how do you get bonus? We're launching this product, what are the measures of success that you've been tasked with by the organization, because what it does is it removes any sense of well you just want this, and you're going to be fine whether we succeed or we fail. It bombs you completely, aligns the objectives and makes everybody commit. But each make up is going to be a combination of variables and all I can say is you tailor them according to the client. But the best thing about them is the conversation itself forces clarity. We are prepared to, we want to be paid more than most people okay, the best argument is to price it so that if we fail completely and get none of the bonus, we would be paid less than they used to pay. Great, procurements exposure is not that high, if we deliver in spades we get paid a lot more, but then they have succeeded.

Nobody minds giving you some of the money that has been gained. So again there's a certain sort of truth and integrity about the conversation. It then also means on an ongoing basis that when you're having a potentially subjective conversation about why we think you should be blue and not green. The reason we're saying blue is we have a lot of money at stake on blue, we don't just like blue, we think blue will work better, and so every single subjective apparently silly little detail is coming from the point of, we think it will work, we think it will work, it makes the relationship more robust, and so we will have a large part of our profit margin like more than half of the profit margin at risk. I see, take a client, they pay us this much and we will bet that much, but then if we win we get bigger profit margins and we would rather back ourselves than be commoditized into the rest of the industry.

Unidentified Analyst

Thanks Carl, appreciate it.

Unidentified Company Representative

Because we've been doing that for 23 years I guess, 24 years something like that. And I think Miles can probably tell you, what percentage of our revenue comes from performance bonuses, so I don’t think it's all right. I think all the things you said I totally agree with.

Unidentified Analyst

Yes, I just think that most agencies won't do it.

Unidentified Company Representative

Will you do it?

Unidentified Analyst

No, I don’t mean in here.

(Multiple Speakers)

Unidentified Analyst

Most, most, the truth is this, most of the big boring networks are not allowed to do it, is the truth.

Unidentified Company Representative

Because if you could only take that approach, like a hedge fund, you can only take that approach, in essence you're setting a high water mark, in relative terms that financial people would comprehend, you can only take that point of view if you feel that you will deliver superior performance relative to expectation and because most firms deliver institutionalized mediocrity they are not prepared to take the risk. The five firms at the front are prepared to take the risk because they are highly confident in the deliverables ahead of plan which means they are highly certain that that will get an incremental reward, so the risk they're taking is risky as other firms who aren't delivering transformational impact and when you do so the reward you're getting in proportion to the risk you're taking is actually quite modest but you have to highly confident of the impact of the work you're doing. Most firms are not, they're worried about FTEs, they're worried about full time equivalence and how many people and how much time, because they don’t want to get measured.

Unidentified Company Representative

We feel we got, I'd say we average 75% of the available performance bonus, is what we would get year in year out.

Unidentified Company Representative

Well thank you I appreciate the participation and I hope the audience had a chance to have a little inside perspective on five extraordinary agencies that are really doing an exceptional job, have built spectacular agencies, their performance in 2013 has been quite stellar and I think the foundation that they built for 2014 and beyond is really quite positive so thank you, I appreciate it.

What I do is just take a few moments and try and translate their brilliant work, the unique cultures that attract great people and the transformational campaigns they put forth into how does that create value for you as stakeholders of MDC both in terms of equity holders and bond holders. So, I’ll give you some facts, I think MDC is the best deployer of capital in this industry, I think our bill part so says, you are, which our record says, you are.

So, I’ll give you some facts from day one of April 11, 1980, we have deployed about $700 million of capital, about $500 million into the cash. Our EBITDA is about $210 million maybe $220 million pre-corporate against that.

The people that stood on this dais today, our total investments of $250 million gross, net it’s less and they delivered $125 million in the last 12 months. So, our gross investment is about two times, our net investment is about one and a half times.

So, if you take a look -- so why is MDC good deployer of capital? Well, one it’s our money and we look at it as our money. Two, we’ve been privileged, fortunate and probably has stood two time when we’ve invested in people and companies in a way that allowed us to get on the ground floor of huge levels of growth, normally is up 10 fold in three years. Doner which is a 76 year old agency is up 50% in the last three years. KBS is up 400% in the last four years. CPB is up 20 fold over the last 11 years.

And so if you look that our on our total capital allocation it’s about two and half times our investment. So, we’re running at around 40%. Our threshold is to never invest in anything, no new office, no people, no technology and certainly no company that will deliver less than 20% return for us and we can do that and we have done so and we know our sweet spot of what to do and how to do it and the most important thing is we create alignment, we’ve take alignment and translated down the line. So, what’s good for our clients is good for our partners. What’s good for our partners is good for MDC and what’s good for MDC is good for our shareholders.

So, there really is true alignment to ensure that performance translates into per share value for MDC and our stakeholders. And so, what’s very interesting is our best agencies, I mean they want to talk about it but our best agencies are having organic growth of anywhere from 10%, if it’s a very mature business to 50% in certain cases. And that organic growth, even our mature businesses, some of them are growing it 20% and 30% by increasing share of valet and share of market.

So, we love doing brilliant work but as an Investor Day what we are really committed to get you to get comfortable with is that the sustainable profitable growth rate of our business is superior to any other in the industry and we’ll continue with exceptional performance over the next five years. And the benefit we have is we now have an infrastructure that we can leverage off of so the translation of an incremental dollar of revenue, and David will go into this in detail, into free cash flow is dramatic. And it’s taken us 33 and half years to get here.

But we’re now in a position where we can be more disciplined, more focused and more analytical to understand each and every imitative we take, how does that translate into driving superior return on investment for our stakeholders and at the end of the day, that’s all we care about. We guarded our equity jealously, we don’t issue it, in fact we -- by the facts recently because we think that we’re in a position to just use our free cash flow to grow our business both organically as well as through acquisition and continue to deliver and that’s a position that MDC’s never had before. It is the most unique time in our evolution and that’s why we think our return on capital so that eliminates leverage, we’ll continue to grow and accelerate and as the largest shareholder, I’m thrilled.

So, I just wanted you to know that the work they do it does translate into superior financial performance for them but also for you as an investor it translates into superior investment for you as both in equity holder and a bond holder. We’ll get into in greater detail. We’re going to have a break now for 15 minutes and then we will continue on. Thank you for your interest and your patience.


David Doft

Good morning. I am David Doft the Chief Financial Officer of MDC Partners. I’ll be talking a little bit later today but I want to introduce our next couple of speakers. As you know we talk a lot about our positioning as the most progressive network in the industry where we were early incorporating digital within the core of our agencies and thought it was appropriate that we’d have some example shown of some of the more innovative ways that we’re incorporating technology broadly and digital into the solutions for our clients. You saw some of that earlier with the agency leaders that were on stage but in order to take a bit of a deeper dive we have two of our leaders from -- one of the creative side and one from the media side of how we’re leveraging technology to drive results.

So first up is going to Kip Voytek, he is the Senior Vice President and Director of Digital Innovation at MDC at the parent company and helps us maintain that thought leadership in the industry and he is going to talk about some of the work across the network. Following Kip, he’ll bring up Paul Rostkowski, who is the President of Direct Media Management, which is our agency trading desk and taking advantage of advancements in programmatic media buying to drive just tremendous efficiencies for clients in their media spend across increasingly all media channels.

So with that I’d like to bring up Kip Voytek.

Kip Voytek

Good morning. Thank you all for joining and as David said I am Director of Digital Innovation at MDC Partners, that’s two buzz words tightly compacted into one title, so I tend to prefer to myself as MDC’s nerd and residence. And as such I thought I would start with little bit of nerd humor. You can get this on a t-shirt or a mug and it’s basically a derivative being set to constant and the idea is that change is constant. And Carl mentioned earlier this morning that back in 2004 everything was up for grabs anything could change and we have this mean for a little while about being in perpetual beta but it really feels like the more accurate way to describe things that are happening now that when a constant state of change and there is no sign of that letting up, media is changing, new technologies are emerging, we're combing software and hardware with new ideas to create new possibilities for our clients. And I honestly believe that we're on the verge of several waves of change that are comparable to what we experienced 2000 when we were all trying to get our arms around this whole thing of the Internet and PCs changing our lives.

So what are the four changes that we're talking about right now? First one is the tech savvy CMO. I am sure you have all heard the stat from Gartner that by 2017 CMOs are going to be spending as much money on information technology and services as the CTOs and CIOs of their companies do. But already today we're seeing CMOs acting in very different ways, these are very tech savvy CMOs, they have battle scars from projects they have launched; they understand the technology as well as our teams do. They have experts and people in their groups that know the technology even better many of the agencies do and as Carl showed you with his example from Converse, they actually roll up their sleeves and they get involved in the work with our agencies.

So they are demanding new things from us, they demand prototype instead of foam boards, they are demanding to see our technical architectures and flow charts and scrutinizing them with intelligent hard questions, and they are now talking about holistic customer experience, larger models not just what's the customer takeaway.

Second thing we're seeing is the Internet things, in two years we're going to see 3.5 billion devices that are network, talking to the Internet. These 3.5 billion devices will be a lot of smartphones but it's going to glasses, watches, phones -- I am sorry cars, appliances, pedometers and just about anything that you can fit a chip or a sensor in. Now just for some perspectives we have 1.7 billion PCs on the Internet right now, so this is almost double the size of the current Internet that we have. It is going to be introducing new devices, new behaviors and brands are going to have to create and invent and teach customers new behaviors and they are going to have to find new ways to behave themselves as they get involved in this new Internet that's going to be every bit challenging as the Internet of PCs.

Resurgence of hardware, last year Mark [indiscernible] read a very important article that was sort of a battle cry that software is eating the world. And to be sure we're moving from a place of large applications like Microsoft Office into very small -- much smaller pieces of software finding their way into just about everything we do in this industry. But in the background we are starting to see a revolution happening in hardware, we're seeing credit size -- credit card size computers like the Raspberry Pi, we're finding affordable easy to program radio frequency wireless and wireless transmitters and receivers and we're seeing a sea change in manufacturing materials that are allowing things like the Pebble to come to market at the same time that Samsung is bringing its Gear to market.

So there is a big change here and what's happening how is the ability to mash-up hardware and software is giving us a chance to become product designers. It's giving us a chance to test these ideas that previously we wouldn't even entertain or we couldn't validate. And now we can do product and research -- we can do product, research and design without having to set up a massive lab. Hardware is coming out of the commodity space that it's been in for the last 20 years, and it's becoming a hot bed of innovation and you will see some examples of that in our work.

And then finally there are new ways of working, as I mentioned the tech savvy CMO is making new demands on our agencies, and we're starting to respond with different types of teams. So we're no longer seeing the tram with the black turtleneck wearing planner talking to the hip art and copy guy. We're seeing teams with developers, with engineers, with interaction designers and people with interesting titles like content strategists, we're hiring journalists, we're hiring a wide range of people, and are creating teams that look nothing like mad men or the crazy ones, but actually looked like something out the Lean Startupbook by Eric Ries. Eric Ries being a person -- by the way he's starting to found a couple of agencies himself under that model.

These teams work in very different ways, they speed up the strategy phase in order to get to ideas, in order to get to market faster and testing, to iterate and do several ideas in a single day. They rely on hypothesis and they experiment with those hypothesis, Jeff Bezos had the line, if you double the number of experiments you do per year you're going to double your inventiveness throughout the year. That's how these teams actually work. They exercise on design and product thinking, they ideate, they sketch and they communicate in code and coded prototypes.

And next our campaign teams that are still doing the campaign work that is important to brand building, these guys are building and hacking platforms in the service of our client brands. So these disruptions that we're now facing in 2013 and looking at in 2014, I would argue our every bit as big as the disruptions that we had when we took on the Internet of PCs. So what we want to start to do now is talk about the ways in which our agencies are soft of jumping in. You just plunge into change, you can't resist it, you can't stay ahead of it, you just jump in, you ride the wave and as Alan Watt says you join the dance.

So let me start with a quick round up of mobile what's happening in the network. First I want to say about mobile is a lot of the industry is still talking about mobile as if it is something new, oh we've got to get on top of this new mobile device, you've got to get on top of this new Samsung Gear. What's happening with customers though as mobile has become part of their normal and it has been part of their normal for years, and what we think smart advertisers are doing, what our agencies are doing is we're trying to figure out mobile ideas that fit into that normal.

So from 72andSunny we have for Carl Jr. a fast food restaurant that has trouble attracting people to their offbeat locations and dealing with a smaller footprint. They are actually offering incentives in the game where you spin a wheel you go into the restaurant and you will get a discount there. Now this started out originally as a stunt, we got to do something on mobile, now it's turned into a full blown loyalty platform. There is some rigorous analytics behind this, we're calculating lifetime value of our customers. We're tracking which of our restaurants are performing the best for calculating the return on this investment and we now made it social by getting people to spread the words that they can actually get more discount. This is a full blown customer relationship program. It's a full blown loyalty program based in mobile perfectly timed for what people do in the normal course of the day.

Colle+McVoy has last year and some of you may have seen this last year launched a program to help time starved parents, time starved chief home officers, typically mom, better manage their home cooking. So they help them with shopping guides, they help them with nutrition guides, they are help them with just basic home economics, providing recipes and they've been expanding this, it's gone over so well and created so much customer engagement that Land O' Lakes has doubled down on it and they've actually turned into other campaigns including a pin a meal, give a meal wheel. Where if you use a recipe and you pin that interest on Pintrest now we creating verity to Bob's point about how do you build social media in from the beginning of the program. They donate money and they create more of a relationship with you. Baked right in, very much part of everyday life. From KBS for home goods this is for markets going to be coming out they're actually doing sort of an Instagram meets the whole idea of like food porn but they're doing it for home furnishing. Products that people really like that are available in stores, users are invited to become the curators of those products, they connected to the stores, people can like and share just as they do in Instagram or just as they elevate them in Pintrest and then the stores actually build a relationship with them and they just go right into their passion for home decoration and home furnishing.

And finally from 72 and Sunny, this one's a little bit more light hearted, during back to school to show their kids how to style and they have to style a Target, anyone who Tweeted a picture it had the hashtag kid's got style and @Target on it, had the chance to have their kid put in the middle of an animated movie that that could then share as part of their back to school plays. So what we think across all of these things. First of all we’re seeing advertising without messaging, brands are building their brands not by shouting messages at the customers but by in putting themselves and injecting themselves in meaningful ways into people's lives. By providing novel things that add value, so this isn’t just the classic thing that you hear about in a lot of places but how do we get an ad in there, how do we actually put our campaign into this thing that they're doing, how do we interrupt them.

We're actually doing things that are value and create real customer relationships and then as part of the new skills of an agency we're leveraging and building existing platforms. There's a whole new skill coming up to deal with all of the different platforms that are available, be it Instagram, Facebook, SnapChat, WeChat any of the new ones that are bubbling up and being offered billions of dollars, there's a skill set and a talent there being able to move quickly enough and nimbly enough to take advantage of these things.

So that's a little bit on the mobile side and what I'd like to do now is show you some pieces that come from our individual agencies and spend a little bit more time looking hopefully at the video. So the first one is from Anomaly and I'm going to ask you to play the video and let that speak for itself.

[Video Presentation]

So, we have one here that we would demonstrate it and it looks very much like a normal [indiscernible] but what’s important to catch about this is that it’s enabled with a Wi-Fi card and this is where you start to do integration pieces. You have to have Wi-Fi card that talks to an iOS and Android app, has to be connected to real time spot up, the Czech Republic just going to go that’s, here we go just for facts keep that away from the mike.

And that’s where we acquire some product thinking, I mean this is a very different think from 30 seconds or 60 seconds of film and it also slows through this scrappy roll up your sleeves kind of way that these agencies work that you can’t just have an idea and it happens, right, and someone out there figures out how to do it. They experimented with this, they read, they researched the technology, they had people test this out and that’s the kind of adoptability in nimbleness that agencies like normally and other partners in MDC has succeed.

Next movie please.

[Video Presentation]

So, this is another one relevant is an experience of marketing agency, now the line that they came up in the white hot fires of production that they’ve always been in the place of revving and building things and experimenting in doing things. And it’s really important to understand how difficult something like this could be. It’s a very small form factor and there is an RFID sensor, there is an XP for wireless, we can talk through it, there are four LEDs, there is battery and there is a microcontroller doing it that the fabricate it, design it and build the software that connects it and then wire up in entire environment to pull all of these different things together and connect to it online data base where we already knew things about the people who were at that events.

There is another one these places where there is very a lot integration going on, a lot of invention going on and lot of trying things are, it’s a very different rhythm and a very different way for agencies to be working. And the last one comes from Crispin Porter [indiscernible].

So try to picture for a second the team that would work on this, the planner, an art and copy guy, that’s not how this one work, to had a fabricator who understood materials and weights and how much weights this things could hold, talking to the team and talking to an ergonomic person make sure that was comfortable, you had Raspberry Pi programmer, a small credit card size computer that was driving it and figuring out how to talk to four or five different operating systems that you could word up different phones on top of that and then thinking the pictures and then doing usual thing of delivering those pictures somewhere on the internet so people could compare them or to an email address so people could compare them.

That’s a very different kind of team that most other agencies and most other networks have and the speed which they move to be able to pull this off is the kind of thing that you just don’t have when you have the long strategy arcs to get to the big inside and then you have a creative team go off and come up with some ideas and they drop ideas on you. This is every day figuring things out, everyday solving problems that have come up in everyday taking advantage of new opportunities.

So, against the change that we talked about at the beginning what are things we’ve seen ourselves sort of adapting to and sort of bringing up in response to these challenges. There is a spirit of invention that Lorie spoke about very eloquently this morning. There is this idea of product thinking versus campaign thinking, right. There are campaigns that have [indiscernible] and they have message in emotional takeaway but now our tech savvy CMOs want to see product ideas. We have to have teams and agencies have to be able to provide product thinking to see an idea through to the end to map it to the market to understand the feature set that’s going to make you work and you could argue that all these things you saws were products as much as they were campaigned.

This idea of thinking about hard work and soft work and ideas all sort of mixed together, one each of them inspiring the other to better thing is a start with an idea, is a start with a hard ware, is a start with the software, yes, yes, and yes. And you need team that can actually think that way. And finally the ability to adapt, I think Carl said it very well today hammers looking for nails. None of our agencies are actually doing that. We’re all actually looking for solutions and we’ve got ourselves suited up to find the best solutions for client work and respond to challenges that we just sought to begin.

With that I am going to turn things over to Paul and then we’ll some time for some Q&A.

Paul Rostkowski

You know, my wife is going to kill you because I got to get myself one of those now. We will put that right above my TV. I am Paul Rostkowski, I am President of Varick Media Management. We like to call it VMM and I quite possibly have the best job in the world [indiscernible]because we happen to be running a company that’s in one of the most fascinating places in ad-tech today and that one of the most fascinating times in that business because it’s on a pond but it’s a hockey-stick kind of industry terms of how it’s ramping and we’re growing as the industry is growing at 50%, 60%, 70% per year and this will continue for the foreseeable future.

What I’m going to talk about is me and us and here is couple of things I am going to cover quickly. I know I got about 20 minutes so I’ll get through this pretty quickly, but that’s what we’re going to talk about and we’ll get started. So VMM, we are one of the entities that Miles did not buy or MDC did not buy. We are actually spun out of KBS as a trading desk as an experiment initially. In 2008, we were in fact the first trading desk in the space. There is lots of trading desks today some of them more notable ones at the Big Boys are VivaKi, Z-Axis, Cadriove and Aquiven and they of course work with all those media holding company organizations and driving most of that programmatic media and we sell directly to midsize and independent agencies across the country.

I don’t do much business with any of the big four holding companies but we do business with 1000s of other opportunities throughout the globe. We are at the center of programmatic media. This is really real-time buying of display mobile video and beginning to be in other categories as well and I’ll cover that some samples of our clients. Our business is really a capability stack that consists of two sides, one is our proprietary capabilities that we built, we’ve built a data management platform or DMP we call the lens. We also the other set of our business which is all of our partnerships relationships where we rent capabilities and we rent technology. So we have to make decisions of what do we want to build and what do we want rent or partner with.

And as we go through with this, you will see that in some cases we made the decision to build and in other cases we made the decision to partner with some of these big other great technology power houses in the business today. We rest on what we call four key tents to differentiate ourselves from the other players. It’s a very noisy market. There is lots of VC money chasing lots of ideas out there. You are probably all familiar with the Rocket Fuel IPO and [indiscernible]IPO and Tremor and YuMe and all of these public offerings of companies that were funded lot of VC capital.

So it’s a very noisy space, we have to differentiate ourselves. We do on these four core or key tenants, one is that we call man and machine. We got the technology out there but like any formula one race car well its great piece of technology it really more important of who’s driving it, so we hired some of the best smartest people in the world. If you look at what separates me from one of the big four holding companies trading desks is the resumes of the people that work for me versus the resumes of the people that work for those organizations.

Those are mostly all media and agency people. We have very few agency media people that work for us. Most of ours are engineers, economists, and mathematicians. Multi-bid-tech which means diagnostic to the technology. Okay, we have not built a bidder. We have rented and partnered with some of the biggest and best bidding capabilities in the market such as AppNexus, Google’s DoubleClick Bid Manger, MediaMath, Turn. We sit on top of all those and that enables us to deploy what we call best-of-breed technology relative to a given exercise or set of KPIs we need to reach.

Multichannel, we’re also not limited to a single channel meeting display. Most of our competitors are either a display organization or mobile or a video. We operate across the entire ecosystem in display mobile. Video, we’ve also now going into the linear television business with addressable arrangements with different technology partners. We ran our first radio deal earlier this year. We also spent up an SEO operation not because we want to be in the SEO business but because a lot of great data in the SEO environment that we’re digesting or DMP and using that to make our other ad campaigns and display and mobile that much better.

So why trading desks even exist? What happened in the market ecosystem that enabled us and other organizations like us to actually have an opportunity to build the business. The first thing was this unique time of where AdTech and Big Data capabilities, all kind of came together, you know 2005, 2006, 2007 where some really smart guys and girls, invented essentially the Ad Exchange, and I will cover this as we go through this.

But the Ad Exchange is a real time marketplace that puts available ad inventory up for sale in an auction environment and it happens literally in real time. There is also a tremendous oversupply of ad inventory at least in display and fragmentation; meaning there is thousands and thousands of publishers. How we put all this together, and what it means, and what it provides ultimately to the agency and to their clients is a great deal of transparency and a centralized place to execute media and reach consumers.

Pre-dating this, you know 2005 was the Ad network, value clicks of the world. Torrent used to be an Ad network. Basically where they took over the unsold Ad inventory of thousands of publishers and sold them in static deals, meaning that had a handshake, I agree to a $3 CPM or whatever that is and they buy all that inventory, and then they chop it up and go resell that. That’s kind of blackbox solution because that provided very little transparency to where your media was running. You cannot control how much you ran on each individual publisher or otherwise the DSP and trade desk enables you to have tremendous control over where you are advertising is running and the frequency et cetera around that.

And it also provided an Ad network capability to an agency or your holding company. So MDC essentially has an internal AD network that we can customize for our client’s campaign, and basically that is going out to the RTB ecosystem and building networks as we need them based upon our different client demands and needs, and obviously this is also happening at the Big Four holding companies as.

So when I talk about this, why this happened in Big Data. You’re at your phone or you’re at your Mac and the page is loading on a website. You’re on As that page is loading most of that inventory is not kind of sold by the CNN sales team. About half of it, possibly more than that is unsold. So what that CNN do with that inventory. They push it into an Ad Exchange to be sold, okay in auction door. So me and a bunch of the guys like me get in Ad poll. Okay, when that page comes up on that user site, so that Ad placement on that page begins to load, a call comes out to me and dozens other like me, and says do you want to buy this user or this Ad inventory, and it gives me a lot of data components.

It tells me geography, where this user is. It tell me what kind of browser they have, what’s their web connection speed. What’s their operating system; it will tell me the user ID, which means a cookie in their browser. Have I seen this person before on one of my client's website. And all this information is put together and our algorithms determine how much we actually want to pay for this. Is this a dollar CPM, five dollar CPM, are we targeting cookie that could be a 10 dollar CPM. And we bid on it. And hopefully we win it. Okay because we think it’s worth precisely this amount. And we do micro-bids, in the fractions of pennies. And we do this about 60,000 to 100,000 times a second.

Okay this is coming across our desk. And we then buy that media, win it, and we insert it, and if we win the bid, then another call goes out to the third party Ad server, like dot or media mind, and that Ad server then injects and inserts the Ad at that point. This is all happening at about a hundred milliseconds. So obviously it’s got to be real fast and the tech is getting better web connections are getting faster, so this is enabling all of this to happen at an accelerating rate. The algorithm position is really key to this. This is where we build intelligence, artificial intelligence, around algorithmic thinking of what we actually want to buy in the market place.

And then finally, here it’s highly measurable. We can track every single Ad impression that served. In fact every single Ad impression I buy, I ingest what’s called a log file. It comes back into my DMP. So I’ve shown Ad to the user, I get some of the bunch of data. Okay, and every single Ad that we serve – we serve billions of Ads every day. That comes back into, this is the user ID, this is the auction that has happened in, this was your bid price, this was your winning price. Okay. All that data has been collected by me. Because I will be able to go out soon and start to build my own data segments that allow me to become a lot smarter about my buying mechanism and making my traders, what we call them the people who buy the media, that much smarter about delivering on our clients’ calls.

The higher measurable business is also – you know my business is primarily performance marketing. So we are doing lots of Ad campaigns to drive new banking accounts, or tracking accounts, new mutual funds accounts being opened, car dealership leads for automobile manufacturers, coupon downloads for QSR, it’s all highly performance and orientation, in terms of we’re doing. Some of the bigger holding company, once they do out more brand work to stay work with some of the bigger CPG companies, and those folks are beginning to do this because they can apply lot to their first party CRM data and reach those users specifically creating for a more engaging environment for their brands.

What does this space look like? Obviously at one end of the space we’ve got clients. Okay, these are some of my clients. The other end of the space you’ve got the publishers and you’re going back to the late 1990s, these publishers had sales teams, they sold some of their inventory, a lot of it went unsold. Then the Ad network got invented around ’98 – ’99 and they helped these guys fulfill. But it was a very inefficient process because it was a fixed hand-check CPM static environment. Those guys made a lot of money. Then the Ad Exchanges just came along. So the first Ad Exchange was created by Brian O’Kelly. Some of you may know him. He runs a company called AppNexus today. And that was called RightMedia, the RightMedia Ad Exchange. And that was around 2005-2006. Yahoo, a phenomenally large publisher, one of the largest publishers on the web, probably only sold about 20% of their inventory the rest of it was going to other ad networks to sell or just they’re giving it away for nickel CPMs. So they actually bought RightMedia so they can monetize their unsold inventory around 2008 and probably paid about $700,000 or $800,000 worth at the time and was a great investment for them so with the first real big ad exchange.

The other one is DoubleClick AdX owned by Google. Rubicon is an SSP or sell side platform much like F-MATIC is as well OpenEx Facebook launched their exchange FPX about a year and half ago. And that makes up that 30% of all the display inventory in the web comes from that one exchange FPX.

Now the tech part of this so those exchanges are the ones that create the auction environment asking buyers do you want to buy it. And they send out an ad call that next column called DSPs, demand side platforms or the tech guys that plug into those ad calls and in just that data and apply the algorithmic thinking the next I mentioned before about do we want to buy this and how much do we want to pay for it. The biggest one is probably AppNexus they measure themselves in QPS, queries per second and how many impression loads they had. All of these big boys appear are in the probably 60 billion impressions per day category and are all global. But none of them -- none of these guys see all this inventory because these guys on the exchange level they throttle the inventory being push to them.

So one of our differentiators is we work with all of them so we get to see the entire footprint across the U.S. or across world actually of where we want to find our users and optimize -- buy and optimize media. That’s where we set because we’re a trading desk because we haven’t invested in building a bidder because that market has been highly commoditized. There is dozens and dozens of bidders like AppNexus and Media Map and others. So we just partner with them, and we give them a percentage of the media that we buy so for every dollar we spend we give them x percent for use of their platform and it’s highly transparent. So I can actually buy at the UR levels so I want to buy this particular or, and this is what we’re going to pay for it.

On the agency side, so the agencies we work with are sort of a net part of the category there. We’ve worked obviously with MDC shops but we also work with hundreds of other agencies across the country. As I mentioned we are multichannel so we are in display mobile approval which is the biggest segments of what we do but we also have an SCO operation. We are beginning to get into digital out of home such as taxi, cabs and elevators that’s all becoming RTB. Television is not there yet and our relationship with television we have to buy at about two week ahead of time because of the lot of mechanics and logistics that aren’t in place yet technically speaking to allow that to happen.

But when that happens if the big TV guys ever let it happen it’s going to be an extraordinary time and then hockey stick will go higher. First radio campaign this year first TV campaign for us is all I would say. TV, I don’t mean smart TV or video in the nation in true straight up linear television.

We my business we aided a 128 clients this year and that’s a growth of little over 100%, and those are some of the new brands that we added this year in terms of who we’re working with, some of the new agencies that we began working with as well. The positioning for us on the agency independent agency most of these shops do not have the bandwidth, the resources, access to talent to spin up their own trading desks or the media spend. So the big platforms I showed you before AppNexus they were require minimum spends every months like $50,000, $100,000, we move a lot of media so we can form agreements across all of them.

But the independent shops getting talent as I mentioned before we have engineers and mathematicians that we work with it’s very hard thing to do, getting talent to run these trading desks. Some of them are markets that are so tight like Minneapolis for example we worked at a few shops up there. They complain because every time they try to build the RTBT target department stores still hold their talent so they’ve given up doing it and we’re just doing it for them.

This year is a dizzy in graph. Our chart of what our D&P and data side looks like and what we’ve built and what we’re building. So there is some of those logos again in terms of the exchanges feeding into the DSPs and we do what we call this log file and just and that comes up all the way around here goes ways around. And we’ve built a set of the dupe clusters built on AWS or Amazon Web Services, which in just data from every single ad impression that we buy and serve. We can use this platform to just any CRM data so we can ramp user names or email addresses and then we target those people online as well.

We have built our own platform for buying media on top of one of the other DSPs and other bidders so we’re going to roll that out to market on a local level. So we believe that the local community is not serve very well at the pizza shop level and we’ll give them a tool to buy mobile media and display more succinctly than Google or Facebook does it today. We’re also rolling this tool out to other ad agencies that what to begin getting into trading and buying their own media. And we’re going to probably roll that out at the end of Q4 this year. And hopefully there is not too many bugs in it.

And this is also an inside platform. So we have an agreement with a couple of data companies where we host a -- or the client host a VMM pixel on their website, on their pages. And we then will be able to extract all update on the users coming to their website, we'll be able to build insight tools of whether this person is a male or female, income category, education, household, children in home. About 150 different segments we can provide on users visiting our client site. But more importantly we can determine who these peoples are so we can determine better strategy to targeting people like this one to build ad campaigns for reaching the.

Quick little case study, this is a major retail bank, probably number five of number six. They have -- they always generate about 5% -- they came to us with a problem, only about 5% of their checking accounts were online based, and they wanted to increase that a lot. Their competitors, the big ones, bog three ones, were much higher probably in the 25% to 30% range. So they came to us with a goal of increasing that by quantum -- and they stood at the beginning of the year about 100,000 about 50,000 checking accounts a month. They are now running at 100,000 checking accounts a month. So what we did for them, is they came with a small budget of $60,000 in April or May of this year.

We ran that over the course six weeks, and they came back to with another $1.5 million because we did so well and we have been running consistently now for the market. And the success rate for them is fantastic. They came to us with a goal of $200 to set up a given checking account -- funded checking account and right now we're doing it for about 88 bucks. And as long as we can do for 80 bucks they will just keep giving us more money to keep driving more and more checking accounts for that bank. And I am one minute early on my time. Thank you every one.

Unidentified Company Representative

We will do some Q&A with Kevin.

Question-and-Answer Session

Rich Tullo - Albert Fried & Co.

Hi Rich Tullo. So we know about the big large exchanges. How many exchanges total do you think are in the marketplace? And is [Varrick] and the shops driving value from the aggregation or value from the information feedback you are providing to clients. And on the kind of an ancillary note, are these systems akin to financial markets where flash trading is a form of gaming in the system or is the fact that there is no fundamental data center kind of prevent gaming the way we see in the financial markets from time to time.

Paul Rostkowski

So I don't know exactly how many exchanges there are, there is probably 50 or 60 normal ones. But the top 10 probably are -- account for about 90% of the ad inventory. And there is a lot of overlap in the inventory because the publisher can work with multiple exchanges and that inventory can show up in multiple spots and a lot of it comes down to where the publisher puts a given exchange placement in what's called their waterfall. So they may want to have -- and they set different CPM levels of that. So CNN may say all right, if Rubicon can get me $7 per thousand you get the first crack at this. And as the million second goes by if they don't get that $7 they can go to different exchange at $5 to $3 to $2 and it goes down waterfall.

And the sooner you get that ad as a buyer of it, the better the ad is going to perform. Our data shows if you can get that ad first or within the first millisecond it's going to probably have the ability to perform twice as good as an ad that's going to come at the far end at three or four milliseconds down the chain. That’s' all because that person is possibly already off that page or scroll down beyond where they have even existed.

You had a question in terms of gaming the system or not. There is a lot of ways to game the system, because there is a lots of holes in it. And it's so new lots of people don't really know what they are doing with it yet. There is a lot of fingers that by mistake drop an extra $100,000 a day in media that shouldn't be doing that and relative to the financial market. Right now we don't -- the transparency is not there looking to a financial market. I don't get to see as you can find all the other bids coming in. Right now it's second -- the financial market is a real auction, highest bidder gets it. This is a second price auction. So I paid about $0.0001 higher than the second highest bid. So by doing that we can game it. We could actually place bids of a million dollar CPMs, just so that we know we're going to get that, we're not going to pay a million bucks we're probably going to pay $10, we're only paying a penny higher than the second highest bid for that ad.

We met with a couple -- we're thinking to building a futures market for media. So there are some players that are launching very soon, I think next week or the week after and there is a company that's launching futures market for media. And we're going to see how that plays out but we have been dabbling in investigating what opportunities there is in the futures market as well to create environment for that.

Rich Tullo - Albert Fried & Co.

How do you ensure brand safety I guess in display and video? And is programmatic problematic for video?

Paul Rostkowski

So ensuring brand safety, there is couple levels to that. So that first level, so nobody this is not going to be successful for any of these guys investing lot of money in the space if these things can't be dealt with. There is a lot of forgulant stuff happening out there. And there is different layers of it. So the first layer is the exchange, the exchange will provide basic technology to attempt to get rid of fraud. The DSPs are doing the same thing, Brain, dozens and dozens of people that actually literally review websites physically by going to them, obviously there's so many then they can't do them all over time but they'll review 10,000 websites. At my level at the trading level we can implement white listing, so I know you want to be on these URLs which we deem to be proper. Most of my big advertisers run on whitelists of about a 1000 publishers and if your URL doesn't equal x your ad won't serve there. And there's a couple of technology firms out there. You know we're probably all familiar with DoubleVerify and [indiscernible] ComScore, these guys have technologies that are allowing them to provide a sort of pre bid proof or accreditation that this ad is actually a real user, so the big users will buy, they all end up being usually in the Ukraine, but these bots come out and they’re not users they're just technology that goes out and creates a net impression, and somebody buys that, and it’s really nothing more than a bot, so there's technology companies out there as well that are providing us, so we have to systematically layer in all of the stuff, there's no one solution for it, we can't protect a 100% against it at all. You know probably about 10% of what we do serve is fraudulent to some degree but and the human side of this, we watch this stuff and we say you know what, if this particular website has a click through rate that's way beyond the need there must be something unusual there, so we pull that off or we remove it, if this website has a particularly unusual amount of spike in inventory all of a sudden that's an indicator that it shouldn’t be there. So it's a man and machine approach that we're using to it. It's not perfect but hopefully the technology [indiscernible], as smart as we get with the tech, the bad guys are getting just as smart. So is it more problematic video is your question?

Unidentified Analyst

[Question Inaudible]

Paul Rostkowski

It absolutely can be bought, material inventory on video is very slim in terms of [indiscernible], video in general is very unlike display it's a seller's market. The problem with the true tier one meaning long format content in front of Breaking Bad or in front of some television show, that's all now being packaged at the network level and they're selling it along with their actual linear TV buy, they're also forcing the client to actually buy up that premium content at that same point in time, so I don't really have access, I mean guys like me don't get much access to that inventory. Most of our inventory is in front of two or three minute spots like CNBC interview or New York Times is inventory, Yahoo, the short form content.

Unidentified Company Representative

On the question of video the other piece that I would add to that is we have a couple of arms with which we do, MDC does investments, one of them lives inside of KBS and three or four of the partners that we have invested in or that those funds have invested in are exactly in that place. Optimizing video, whether it's tier one or this whole genre of haul videos and these sort of long tail niche ones, validating them, looking for the alarms to protect the brands from advertising on the wrong ones, and then identifying particularly useful ones, so I think Paul's is right this is like it’s starting to evolve and we're trying to stay close to that conversation through our investments.

Unidentified Analyst

[Question Inaudible]

Paul Rostkowski

They create opportunity for me, is what they do, because they're not that good.

Unidentified Analyst

[Question Inaudible]

Paul Rostkowski

Sure, so true addressable one on one linear television through the [sat-casters]is available today, so the satellite providers they have that today, it's not big, it's not scalable. It's probably limited to about 15 million homes, but that's available today. When you get more homes in there that becomes more interesting, my personal view is I do believe that market is moving OVOD, I think the DVR goes away and VOD will be the way that networks really solve their programming and you know you may have times that shows begin at 9 o' clock but that show will probably release and you can watch it whenever you want and we have the ability to insert and buy that minus the upfront piece so obviously the network's going to sell most that in their upfront anyway. But the scatter market and at the local avail levels is where you'll be able to plug it in and insert in there.

Unidentified Company Representative

Great thank you very much, Paul. Thank you Paul.

Okay, moving along, we're a little bit behind schedule but I promise we’ll catch up and there'll still be ample time for Q&A at the end of the session, so while they're putting the chairs out, our next panel is geared towards answering a simple question that I myself and Miles often get in meeting with investors which is a version of what makes MDC different, aren’t you just the holding, aren’t you just the roll up something like that. And the answer is as Miles eluted in his opening remarks that has to do with the fact that we’re up partnership and MDC, we view our role as yes we want to optimize financial results but we view our role as to help our partners grow and grow faster, we partner with entrepreneurs to help them achieve their aspirations.

I’ve often talked about the fact that when we invest into new agency, it’s a self-selecting group, if an agency believe that their best days were behind them they would sell a 100% of their company but they sell it to somebody else that is not what we do. We back entrepreneurs who believe their best days are ahead of them and maybe they want to take some money off the table and that’s okay but they need help in achieving their aspirations and scaling their business and it’s a very, very difficult thing to do in our business.

So, we put together a dream team and before you saw our dream team at agency leaders, our dream team of digital leaders and now you could see the dream team of MDC executives how help our agencies everyday unburden themselves of the thing that get in the way of them scaling and growing faster. So, we can bring them on the stage, I’d really appreciate that.

So rather than myself introducing each one individually, starting at the end with David Norton, I’ll ask you to view to just talk about who you are, how you got to MDC because I think all of your backgrounds are very important to why you’re here and how you work with our partner agencies on a daily basis.

David Norton

David Norton, joined MDC in May, I started my career in credit card in MBNA and American Express. So really always that this confluence of technology analysis in marketing then I went to Harrah’s/Caesars, CMO for 13 years so help transform that business, there is famous Harvard Business School that we’re part of but really made one of the best marketing companies especially its related to analytics and customer experience. In that time we had great companies who want to spend a day with us see the board relations or what not. And it was really amazing, I mean how many great companies do wonderful brand work but really starting our journey around customers centricity and analytics. So, I knew that there is a need for help having lift through the journey and part of it too its true with the agencies is that give [indiscernible] jobs.

So, instead of Harrah’s I spend a lot of time with TPG companies and fusing to help grow revenue. And then [indiscernible] reached out to me and they came up and met Miles, he is now in the office about 10 times in two hours but because there was that we had to share vision what to do and having been in a situation at Harrah’s of great CEO reported who supported me how to vision and go in some circumstances where the CEO didn’t give you cover that is really important.

So, I knew that there is something here that’s pretty [indiscernible] but with great structure, great sort of agencies and clients. So, few things I’m trying to do on one hand actually build up practice related to CRM analytics so actually have net new clients coming to MDC family start with CRM analytics and then we cross sell to other agencies that they need advertising work or whatever else that might be. But there [indiscernible] work it has is to support those agencies when they have deeper level of question, maybe they don’t have the resource for or getting involved in lot of pictures where is a loyalty play or CRM play, compliment to the team and I think we’re seeing a good number of examples as we’re going together and have a much better chance to win because of the great work to start earlier with the differentiated skill.

Amie Miller

I’m Amie Miller, Senior Vice President, Director of Talent Development at MDC. Very lucky to have spent 18 years of Crispin Porter and Bogusky, holding various roles and agency and started there when CPB was 30 people and fortunate to be a part of the success story there as one of the most recognized creative agencies in the world. About three years ago joined MDC to take my learning from years at CPB and account management various roles throughout the agency and then my time helping though the recruiting and strategic talent development department at Crispin come and do that over at MDC on a broader scale and help some of our smaller growing agencies understand the different phases that they’ll go through as they experience hyper growth. Putting together frame works around strategic talent management and creating experiences and environments where people can come and do the best work of their careers.

Laura Cruz

I’m Laura Cruz, I’m Chief Information Officer for MDC Partners. I started my career 25 years ago something in IT, I had various positions from the bottom up so to speak about 15 years ago, I joined group of company at McCann Erickson as their SAP and Global Infrastructure so to have significant experience in the agency. I was then part of IPG’s Centralized IT organization initiative which is still underway today, I left IPG to become the CIO at the CDM group which is part of the Omnicom Family Healthcare advertising agency and I was there for about 7 years in the last two of those years I was very integral part of Omnicom's effort to also consolidate their IT efforts as part of their DAS organization.

I was fortunate enough to meet Miles, I guess about seven months ago and I joined MDC in May of this year as well so I just hit my six month anniversary and I’ve been working with the agencies to understand what their needs are, what their challenges are from a business perspective and have been developing, as well as working on our own, business continuity planning for the network as a whole and have significant plans to move us forward in the upcoming years?

Andre Coste

Andre Coste. I am French and I can hear that. I started my carrier 26 years ago as an investment banker in Japan. After that I worked in different industries, manufacturing, IT and consultancy, hotel and moved to the advertising industry more recently, I mean, 10 years ago. And before joining MDC six months ago, I was the Global CFO of Publicis Worldwide. Prior to that I was the Regional CFO of Publicis for Asia Pacific.

The reason why I joined MDC is clearly that I clearly saw that MDC was different from all the other holding companies with an approach more on talent, on sustainable growth, on also doing great works. So it was very different from what the Publicis WPP or Omnicom or this world we’re doing, and that there was a strong differentiation and there was lot of more value added to the client and also to the partners than the others we’re delivering. And what I am doing is helping the CEOs of the agencies to grow faster than if they were on a standalone. I'm doing that with the team of strategic resources existing at MDC label, in talent in business development in IT, in analytics and digital and we’re here to support all the CEOs and their management team to deliver more value to their clients, to their partners and shareholders.

Bob Kantor

Good morning, I am Bob Kantor. I am not French. I joined MDC almost five years ago. I had spent my whole carrier in advertising and marketing services. I ran a bunch of big agencies within the other holding companies, sort of legacy agencies, had an opportunity do a couple startups and exist from those and then I met Miles about five years ago with the opportunity to help build out the corporate group with a model that I think has become really our secret sauce and what has differentiated us from the other holding companies in terms of attracting great agencies to want to be a part of the portfolio as well as allowing us to provide their support and services to those agencies to achieve their full potential.

I remember the first day I joined there was a couple of people lined up outside my door from the agencies that said, hey if you could help us with that you’ve done other agencies, that’d be great and about 20 emails some other CEOs saying good luck to you Bob, we’ll a beer someday. And I think part of it what I am most proud of is that overtime, we’ve created a model where our agencies I think respect, appreciate the support that we provide for them and we’ve proven the model time after time, that we can help them to achieve their full potential by allowing us to provide the services and capabilities that complement what they have created on their own to create a great agency. So it’s been quite a five year run.

Unidentified Analyst

Great, Thank you. And I think one of the interesting things about this group of people is, they have helped us solve or fill holes in the organization that we realized we had and I think part of the evolution of MDC as we’ve scaled as a company, as Miles indicated we’ve tripled in size since we really became a focus pure play in advertising and marketing services at the end of 2006, realized that there is different needs of the organization. So one of those is as we have more demand to pull us globally is understanding how to move into new markets. And so Andre if could talk about how our agencies can be more effective for the clients and profitable for themselves in order to open in new markets around the world and the challenges that those new markets create relative to the U.S.?

Andre Coste

I think at the beginning and it’s all about more value brought to our clients and to departments and the shareholders. So that’s the starting point of every discussion, whether it’s an expansion within the U.S. or within North America and go and open an office on the West Coast or go and open in New York or go to London or go to China. And it’s all about clearly the value brought to the clients and also the ability to capture larger clients and clearly to be considered as a global player and not as only a local player.

So we are clearly helping the agencies with -- I mean helping them to grow, open new offices and not generate risk for them. We help them by taking part of the risk also at our level during the initial stage of the development, so that they can clearly deliver more growth and they can expand without fearing they have to hurt their P&L short term.

We’re helping them also because knowing the different countries, knowing the different regions, we can also make sure that they go for the right talents in the market, they go for the right place, they are not going to go for big office space and so on; so that we have a very measurable risk when we do it and obviously the fact that MDC is supporting them financially, funding the development, make it easier for them. And what we see is the result is clearly we have seen with Anomaly in China; they opened this year in China in April, their operations in China are already profitable and growing.

So we know how to manage this kind of development. We also help the different agencies that we have in some regions like Europe, go together, work together, create some opportunities for each of them and develop the market, and the access to the clients and the clients relationships.

Unidentified Analyst

Now, so much about expansion as well as about sustaining the culture of an agency as it grows, as it moves into new cities or new markets, that so Amie can you talk about how from a talent perspective we’re able to help our agencies and what advice we’re able to give them on how they can scale their company?

Amie Miller

Sure. Part of what we find in our agencies and what attracts us to our partners most and then to us is our fundamental understanding and support of organizations that focus most on creativity and a passion for what they do and we have tremendous respect for that, and we design our programs around any talent management programs or recruiting strategies around the fundamental belief that great work attracts great people. And when we rally as a group to support their efforts and their initiatives, to grow their business beyond where they are today, and that we promise to understand what drives them and where their ambitions lie, then we find alignment that works really well for all of us.

And I think in our partners as they grow, face challenges that other industries face as well, and other companies face as well, which is how do you keep your core culture in line, especially in a creative organization and grow the business in a way where when you have a very precious culture, that focuses very highly on their people and creating environment where people can do their best work of their careers; how do you scale that? And so our mission as a group within MDC to support our partners is to help them create those environments and to do some of the back office human resources and provide best in class human resources tools and applicant tracking tools and things like that to take that off their plates, so that they can focus in on their people.

It involves a lot of rigor and understanding of what motivates people and what the expectations are of them, what companies expect of their people and what people expect back of their companies. And once we learn how to bridge that we all win. So our partners ask us most to help them in recruiting, of course help us find great people. And so we put a lot of time and effort into that. The second thing we help them with is leadership development and training, especially at the top, and providing development for a bench and succession planning.

And the third thing is world class human resources. The part about talent development at the top for us is one of the most important things that we do, because once we got that right, then everything else falls in line. And so we focus a lot of our attention on that very senior group and the founder group and helping them understand how to create a legacy business and how to train people under them to rise through the ranks and take over the business and evolve it into its next phase.

Unidentified Analyst

So lastly from a scaling standpoint, obviously technology is becoming an increasing part of our business and it has been for years. And so you know we recently made a substantial investment in ramping up the corporate information technology team led by Laura. So Laura, can you talk about some of the goals that we have in putting in place infrastructure to continue to help our agency scale and I think as important, what can our smaller emerging agencies learn from some of the larger organizations you’ve worked with on how to properly leverage technology to grow their business effectively?

Laura Cruz

Well, I have the advantage of it being in 2013, when I’m starting to evaluate what the best solution is for MDC and unlike some of our competitors that I’ve worked in in the past were not taking the approach of consolidated has to be better. Just by sense of it makes sense without real formal business decisions and financial backing to do that. So what we are doing instead is we are looking at what are the business needs, what are the challenges, what are the pain points and where are the economies of scale that make business financial sense. And we are partnering with our partners and actually working with them.

Some of the organizations are very strong IT organizations. So I’ve pulled them into my inner circle and they are – I’m not good without them. I need to understand how they operate, what their needs are, what are they looking for from the center and it turns out you know across the board they’re all looking for exactly the same thing.

So we are building our solutions and building efficiencies based on specifically what they’re needing right now and those are small wins to help really build the consensus that some things really do make sense to consolidate, other things don’t and I have experience pretty extensively with IPGs and Omnicom’s consolidation in that certain things belong in the agencies and certain things may not. And the agencies and even the IT organizations don’t necessarily want to hold on to certain things.

So through the effort of collaboration and discussions and business presentations actually show the value and the benefit, we’re getting significantly more buy in and desires to actually participate in these things. So there the agencies are feeling that they’re actually part of the solution as opposed to and this is what I love about MDC, we don’t just tell them you must do this because we think it’s better. We’re doing things because it is better and it make sense for them and it helps them ultimately save money and ultimately concentrate their IT resource, their dollars on things that can help them be more strategic and more competitive such as you’ve seen all morning with the tools that they’re talking about in that side of technology and that’s really where they should be spending their efforts.

Unidentified Analyst

All right, thanks. So shifting on to the revenue side of the business, Bob, Miles, earlier when you introduced you talked a lot about the efforts that you put in place for us around collaboration and cross selling. But if you can maybe dive a little bit deeper on what are the challenges and really that mistrust even that you would to that you received when you first got there and how we were able to overcome it and why are we able to do that where other holding companies still have significant challenges in doing so?

Bob Kantor

Sure. So there is couple of issues that play here. One is you’re only as good as your portfolio of agencies. And the truth is if you were blindfolded, you really couldn’t tell the difference between IPG agency or WPP agency. For the years they bought lots of agencies, generally big, big agencies that were sort of generalists. They could do lots of different things and they were pretty safe bet for a lot of clients and they had multiple offices around the country. But they really was both no flavor and involvement or critical role of the holding company and there was no real differentiation in the culture or the character of any of the agencies relative to other agencies and other holding companies.

So I think the fundamental difference between MDC and the other holdings companies is they have tremendous consistency from top to bottom of every single agency in our portfolio. Every single one of them is entrepreneurial, one of those worth that’s over used and abuse but in this case absolutely true. So we’ve invested in founders who’ve created great agencies.

Every single agency in our portfolio with that exception, either has the founder or that next level of management running the business. And there is a difference and I have this conversation with clients all the time in doing business with an owner. And so all of our agencies were founded by people who had a clear vision of how to build their agency and they are dedicated to delivering against that mandate on behalf of their clients, number one.

Number two is, most of our agencies are relatively young, five, 10, 15 years old. So they grew up in the digital edge they have a digital backbone, they lead with digital naturally. It’s not a bolt-on solution to their agency. Over 60% of our total revenue is in the digital space, it’s probably double the industry norm. So very entrepreneurial digitally driven, which in today’s marketplace is a significant advantage for us.

And then lastly to David’s point, almost all of our agencies are specialists and I’m not graded everything and I don’t think any of you have graded everything. And so the day of a generalist I think is a tough place to compete for an agency or an individual. Clients are looking for the best capabilities to service their business. They’re not looking for people who are pretty good or agencies that are pretty good at a lot of things. So we have 50 agencies that specialize either by discipline or by vertical, healthcare, financial or even by type of work. Some of the agencies you saw earlier have a very definitive point of view and they become self-selecting. Clients want that type of agency because they think it would be a good fit. So we have specialists within the organization.

The secret for a client is to bring together the best in class agencies, and many holding companies have tried this for years, to bring them together so that they truly collaborate. I think it saves money and it elevates the quality of the work if you can actually have teams that respect each other, that work well together and then if our corporate group can give them the tools and the resources to make sure that they actually really work well together. And it’s not just a new business point of view. We do this often with existing clients where we’ve grown significantly with organic growth by creating best in class collaborative teams that come together and support our client’s needs.

And I would say that that is one of the key secrets to our success that the other holding companies, those agencies were not created to collaborate. Those people didn’t join those agencies to work with other people and other agencies. And so when they’re put together sort of an artificial basis and said one day you work at this agency and now you work together on a client, often times it’s very difficult; they compete for money, they compete for who owns the business, they compete for who owns the relationship, who owns the strategy. But we’ve created a really good vibe within our group because our agencies don’t do everything. So they love to work with other great specialized agency.

And then like most things, once you have success and we’ve had significant success over the last several years, it becomes something that everyone are comfortable with and appreciate and want to work with, because they know that together they will be able to do better work than they would be doing individually.

Unidentified Analyst

One of the interesting things that I have noticed as we built out this capability over the last few years is the early adopters of the capability you put together were the newer firms in the portfolio and as we have brought new agencies into the family they join -- one of the reasons they join is because of this; while people who have been in the portfolio for long time were little slower adopt it. So could you talk about how we were able to get the total buy in and how we’re able to get the people who maybe were used to in old agency world that lot of our competitors live into, really embrace the collaboration efforts in the best interests of their clients and their business.

Bob Kantor

Sure the short answer is slowly and carefully, because as Miles always says, we have come with a check, not a gun. So we were careful to find the agencies who appreciated and embraced the support and the capabilities. And you are right, sometimes those were some of the younger agencies, some of the newer agencies, because there is a perception in the industry that holding companies are big brother. And leave me alone, I’m delivering my numbers and business is fine, stay out of my space. But again we’ve created a model where we're here to provide resources and capabilities that the agencies can't afford. One of each of these people and several more back at our office, they can't all afford these capabilities.

So the ability for us to demonstrate time after time after time that we can provide these resource and capabilities for the agencies to achieve their full potential I think has really been the secret. And many of our agencies are highly specialized experiential, social media, database marketing. And when you can put those groups together in a way that they can compete and win business that they could not have won on their own, they recognize that this is a way for them to build business to win business and collaboratively to be better and stronger than they would have been on their own.

Unidentified Analyst

Give us an example of something where our agencies wouldn’t have been able to win on their own but were able to collaborate and win.

Bob Kantor

There are several, I'll give you one that's something I think lot of us are quite proud of. A couple of years ago Target came to us and said we're going to turn the lights on in Canada, 200 stores in one day. And they said advertising has been an important part of our history in the U.S. We'd like to invite some of your advertising agencies; you've got great agencies in Canada to participate in your advertising review. And I said to them there shouldn't be an advertising review, because everything you do when you launch is going to communicate, from the public relations, to the scaffolding that goes up and front of the other stores, to hiring 35,000 cashiers, everything is going to communicate. And they are big corporation. They said you are right, but this is an advertising review, because that's the box that they were empowered to compete in.

And so I met with our teams in Canada. We decided we were going to provide what we believe was the right solution for the client. And so we assembled best in class public relations in experiential, in advertising in digital, in in-store communications and Target had all of the folks come in from Minneapolis on the private plane and we had this big presentation. And they said this is great, you are right, it's terrific. You guys are in and you are competing against other advertising agencies. And these are one of those phone calls you never forget.

Fast forward two, three weeks later I got a phone call and said your model is so far superior to the other advertising agencies you are competing against. We're going to call off the review. It's a waste of our time, your time and the other agencies time. And since that time we have had a great success launching that.

Fast forward about a year later, they came to us and said in the U.S. we have a great agency, great agency Wieden+Kennedy. But we're asking them to do stuff beyond what they are great at. And they are great at doing a certain type of communication; we’ve asked them to do everything. And so we think that specialist approach would make more sense for us in the U.S. as well, if you would do for us in the U.S. and put that model in place as you did in Canada, we'd appreciate that opportunity. And we have actually changed out a couple of the agencies, because the model is bigger than the individual agency, but we probably handle about half of Target's advertising in the United States now with four different agencies. So five in Canada, four in the U.S.

Unidentified Analyst

Thank you. So part of that success is continuing to have the best in class specialist capabilities. So David, one of the key areas of focus for us is to really add fuel to our analytics fire power and we have been focused on it for the last few years, on really embedding capabilities within our agencies. But how can you leverage your experience from the client side, very extensive experience to help our partner agencies bolster their analytics offerings and have a more effective and successful go-to-market strategy.

David Doft

Sure I think there are two things. One of the best things we did here is a couple of years into it was create a group we called MAMs, the Marketing Analysis Managers, which were Carnegie Mellon type MBAs and similar to what Bob was saying, no one property could afford that kind of resource, but we put them throughout the market and it really elevated the surgical nature of the marketing, to take deep analytic insight and be very precise with how we could go, try to win back business with our customers, as opposed to just saying, no offense to anybody who is in advertising, just blow it out from an advertising perspective or throw more discounts at the customer.

So I think that model we're starting to leverage here as well is have people in-market where we have multiple agencies, and it really is complementing the team, because there’s a lot of analysis going on at the individual agencies, but it's when they too busy and the day job catches up and it's that next level of question having maybe a slightly level of resource or somebody who has a bit more free time to look at it. So this is the model we starting to work with, it's really helpful in pitches I think to get a view of the market and understand about the client, so the presentations are smarter.

On entangling clients which ultimately is what we want to do, is we want to be the thought partner, certainly for the CMO but eventually if we can be the thought partner for the CEO, because we know more about their business than they do, as well help them build analytic capabilities and as I said in my opening comments, a lot of people want to do things around CRM or Big Data but they really can't it get out of their way and part of that is the CMO has a day job but also they're not going to sign up for a three or four year $10 million project that's going to help their successor or their successor's successor. And a big part of what we're focused on, having lived through the journey of how do you get these quick wins, momentum, help the CMO get points on the board of transforming the experience, because some of these great companies, its product focused, they can report their product information, but you ask which customers are performing better or worse, be geography, by gender, where they live, length of relationship, whatever it is, they're really nowhere in their ability to answer that question.

So what we're trying to do with these clients and sometimes it's an existing agency relationship and help transform the businesses, what is that roadmap and more importantly how do you give value every three-six months through building momentum and maybe 18 months later you have the juice in the business case to make a more significant technology investment. So with that kind of insight to the business, hopefully our agencies won't have to go through those reviews nearly as often, because we're right there with them driving the business.

Unidentified Analyst

So a follow up to that, what's the opportunity to leverage existing assets in the business, to provide analytics based platforms for the other partner agencies?

David Doft

Partly with the Laura to understand what that's all about, Andre and I have done a tour here for the last five or six weeks, talking to all the agencies about their strategic growth plans and such. So it's been a great opportunity and again similar, and my dealer Harris [ph] has quite a hybrid structure and that's what it is here, it's being that thought partner, understanding what the needs are and I also think with talent there's an opportunity for us to maybe bring people in at the MDC level, nurture them, give them exposure to different functions, different agencies and then you have upgraded talent that can go to the agencies and I think that can be a very successful model, very much in line with the key principle of MDC.

Unidentified Analyst

So we also have several partner firms where their specialty is different aspects of analytics, whether it's database marketing, CRM, customer engagement. So can you talk about how some of those platforms can come together in order for us to scale the effort overall?

David Doft

Sure, so I think as Bob saying is that we can go to market in an integrated way and that's what we want to do with these bigger CRM engagements, because we're not going to create a whole, new replicated function at MDC. We do have great agencies. So listening to the client, within a couple of days I think, hearing about their business and understanding what the opportunities are, much like Bob did with Target. Let’s put the best team together. So whether it’s Ken on the database infrastructure side or Source doing modeling, Accent on a customer care side, let's put together the right team around data analytics and customer centric journey.

Unidentified Analyst

Great, so just last question from me and then we'll take a couple from the audience. So Bob how has our more enhanced analytics offering enabled you to have more robust collaboration among agencies?

Bob Kantor

Well, it’s interesting. I think our short term greatest new business opportunities are with existing clients, where we have a great relationship doing public relations or advertising or experiential, and so the ability to bring in a group like David and have true deep understanding and working on the client side, having been a CMO, brings a sort of a different level of expertise and I think significant. So the ability for us to add capabilities and resources with current clients with whom we already have a great relationship I think has been probably our greatest secret to organic success and that's really been where we’ve gotten most of the growth within the organization; existing agencies with deep strong relationships where we can do advertising and now we add public relations; we do public relations, now we can add loyalty. So I worked closely with David with several clients who would never looked to MDC or their traditional advertising agency for loyalty or rewards programs but now there is an opportunity because you’ve got that relationship and the trust of the agency to bring in additional capabilities and resources, and most importantly to avoid the expense and the cost of having to pitch and be involved in those complicated processes. Here's a chance to get in front of that and provide additional resources, highly profitable capabilities to existing clients.

Unidentified Analyst

And so are there any questions from the audience? Okay, so everyone. Oh, we have one right here. And just so you know, everyone on stage here will be at lunch sitting at different tables. So if you wanted to speak to them individually you could always follow up then as well.

Unidentified analyst

It's relatively easy to help someone who doesn’t need help and it seems like most of the agencies of MDC have really been seeing the ball pretty well lately. But if you could talk about what you do to help an agency that was or is struggling to turn them around, get them out of distress and what that really means, and the impact there on growth and cash flows after the process.

Unidentified company representative

Agencies lose their way, when leadership loses its focus on what is its durable competitive advantage and sustainable point of differentiation. So, usually it’s about identifying the transition of leadership of what’s transpired and what’s necessary. So, that’s why our investment in talent leadership, development training and recruitment is so critical. So, where we have had businesses struggle, it’s been about leadership and usually in transition, going from the founder to the next generation or for the first generation of leaders, sort of the next gen to third generation.

So, the first thing is to focus on two things; one is the work, is it the work where the issue is or is it in the business management leadership. It’s usually the business management leadership more than the work because the one thing about where we have been rigorous over the last two, three years is to invest in firms that have really at their core, a dedication of to doing the most talked about, written about impact for work.

The business management side is a little more sensitive. And what we’ve done is we built an enormous network of talent, of business management talent from around the world and it’s getting better now that people like David and Craig Binkley and Laura and Amie and now Andre and Bob; we’ve got 70 people now in the support group and we have our own database of knowing who, with what expertise exist anywhere in the world. So, we’re like sports franchise; no matter how good are our on field performances, it’s like the Billy Beane Moneyball book. We are in the perpetual pursued of brilliant people and what we’ve learned over the years is you hire great talent when you find it, not when you need it. And our most successful firms have enormous bench strength and they keep building on that.

Andre talks about a very important point. We take the short term economic burden off the backs of our partners by saying to them, as soon as you find someone amazing, if there isn’t the ability to deploy them full time but they are transformational in their impact to the value of our franchise, we will financially take that on for the first year, because great talent is only there when it’s there and then it’s gone and you need people who are able to change the equity value of these franchises, should that be established.

I would say the other part and I think Andre, you are in the best position to take this on, is firms that have great ability to do great work, but do not have the fiscal discipline to optimize the financial performance of their business not maximize, so it’s easy, to maximize you just cut the cost dramatically, but make the right decisions to get their metrics in line with financial performance that’s as good as the work that they do. So, why don’t you talk about that?

Andre Coste

One of the things clearly that we are focusing on as helping the CEOs to create sustainable growth and profitable growth. So, two things; it’s not about short term profitability, it’s about long term and it’s also about turning the growth into profit and knowing what to do. So, we really help them throughout the right COO, CFO people and the right organization, the right measurement at the account level, at the job level and obviously at the Company level, so that they measure their performance every day or every month and they know really where they are and it’s not only a reporting tool because -- and that would be already part of a deliverable, but it’s also about empowering their people to be in a position that they are, I would say CEOs of their account or part of an account or portfolio of account. So they can clearly manage the performance of the accounts at that level and obviously it turns into very profitable business.

I think it’s also about and it’s a strongly differentiation between MDC and the other big holding companies is we have a view of the long term. It’s not short term focus. It’s really deliver sustainable growth beyond the next 12 month of the budget. And what we have done clearly is to establish a strategic planning approach, where we ask each of the CEOs and the management team, how are you going to deliver growth in the next three years? What are going to be the decision? What is your ambition? What are the capabilities that you need to develop? What are the talents that you need to develop as well or recruit? What are the issues that you’re facing?

And by doing that, first we get a proper budget at the end of day but it’s byproduct of the strategic plan, but also we are able to anticipate the issues that some agencies may face. So instead of solving the problem when they are in a big problem at the end and they are in crisis, we try to anticipate the problem.

Unidentified Analyst

Great, so thank you very much and again everyone – oh we’ve that’s sorry [indiscernible] go ahead.

Unidentified Analyst

So are you pretty much being leader in this integrated approach and for the long time you’re probably the only player who are there. It would oscillate some of your larger competitors are starting to see how this is worked and is now emulating some of this. So how are you monitoring what your competition is doing and more importantly, how are you keeping a step ahead of them?

Bob Kantor

So, I will start that out. I think that one of the benefits of the great firms that we have and the great work coming out it is that we attract a lot of talent who want to work for us, and so actually it’s quite easy to keep track of what’s going on at our competitors because every day we’re talking to people who want to leave there and come work with us and fully understand the challenges they have around being stuck with these big legacy businesses that are very hard to change and evolve from that standpoint. Then Andre, I don’t know if you want talk a bit about your past experience and what makes it so difficult for those firms to actually change to be as nimble as we are.

Andre Coste

Well, I think the big differentiation is what are these firms and Bob was mentioning that. All these networks which are part of this large holding are in 50 - 70 countries. And the situation is because that’s clearly what I’ve seen and I’ve discussed a lot of with my peers in different holding companies, but is that at best every year one-third of the countries are doing great, one-third are average and one-third are in crisis; and then every year that’s the same and obviously if you manage to make some changes in these countries, you may be in the better position the next year or it may be averaged at best, but you can’t perform well and great and do great work and have great talents in 70 counties, it’s impossible.

So the issue of these holding companies is that they have a baggage and the baggage of the model of the past which is 70 to 50 countries presence, which is hard to sustain. On top of that and that’s what we see with our clients; they don’t want to have a presence in 70 countries. We’re able to deliver work with our largest clients in 70 places having presence in three or four countries and we know how to do that. So that’s one of the big differentiation, that’s one of the difficulties where are these big groups are.

Bob Kantor

I think we’ve taken a very modern approach to building our business, not only in the resources, but as Andre says, global is an important issues with so many of clients and I think we’ve taken a very modern approach to the way to create a centralized global model for our clients. It’s what the clients are turning to.

Many agencies, many of the legacy agencies, the big global, traditional global agencies within holding companies were built before technology enabled centralized model. So they have a structure with 5200 offices and so when there is a global client, they need to fill that infrastructure, that’s the way they’re built, and it’s extraordinarily expensive and it’s also dilutive of the work because if you have so many countries trying to put their stamp on a campaign; no great idea happens with 50 counties.

And for many of our clients, we’ve created, you saw many of them this morning, a lead centralized agency that has the skillsets strategically and creatively, has the global insights, whether it’s from our partners at North Star or some of our other partners within the organization to understand the consumer globally. We certainly need offices in key markets around the globe because there are certain markets where clients have infrastructure and we simply need to be there. But then there is an ability to just implement whether it’s trans-equivalent, trans-creation, translation, or localization, but we can create a truly global communications program that saves money and elevates the quality of the work and that’s what clients are looking for today, and it’s really tough for these other big groups to compete because that’s the structure that they have. And as successful as we’ve been, we’re still relatively small and nimble, that we’ve created a model I think is built for today’s technology and centralized global model.

Unidentified Company Representative

I will just add another thing. When you define an entrepreneurial culture, it’s about empowerment of people and it’s about alignment of interest. We have been able to find highly entrepreneurial people who had late entrepreneurial tendencies and were frustrated at being at big organizations that had practices such as we only look at raises every other Tuesday at 2 o’clock. Another one, you cannot hire anybody without the CEO of the holding company, if they make over a $150,000 a year. We have figured out, what David Ogilvy was a brilliant guy and the book, if you ever read the book, Ogilvy on Advertising, it‘s a relevant today as it was, I don’t know, say 40 years ago when he wrote it. And he said if you want to build a team of giants, surround yourself with people that are better than you and then give them the incentive and motivation to continue their success.

We have gone out of our way to find the very best and brightest, both at the support center, as well as at the agencies. And we encourage people dare to dream, to take their experiences, their knowledge, their expertise, their institutional knowhow and their insights and put it to work. And the best compliment that I think we get for people is I’ve been allowed to do more independent things that are in the best interest of the firm without having to ask permission in the last six months than I did in the last 10 years of my career. I take that as a compliment.

The second thing we say to people is, you know we have this expression, we say God gave you two ears and one mouth in proportion for a reason. If you use them accordingly and listen twice as much as you speak, we will probably accomplish more. So every management meeting that we start, we start with a question; what do you think we should do to optimize the opportunity for MDC and our partners? It’s not like we don’t have a going in point of view, but there is no point doing this whatsoever it’s stupidity, doing the same thing over and over again expecting different results.

We bring on board people who are precious assets, they are scarce resource. Brilliant talent makes a transformational difference, both at the support center as well as at the partner level. So there’s two things that can -- I don’t believe is readily replicatable. I am not going to say not possible. One is that empowerment and the localized decision making where you make people accountable but you manage by the results. You don’t dictate helicopter management, where they are having to answer every day for every minute decision. That’s why our model is so scalable.

The second thing that’s really critical is you can’t replicate the culture. You can't replicate the fact that we really take the time to understand the personalities and the value system of the people who join in our six years of partnership. I don’t know if you people here like, admire, respect, you trust enough to make the executive of your state, that have large craniums, big candle power and good judgment and that are prepared to make same sacrifices for the mission as you are.

When you do that -- so that cultural sort of belief that we are privileged to partner with, great talent; and I feel that way about 15,000 people, and we do things like every single person who has birthday that we know about, we write them a note saying thank you. We send out 1000 Starbucks cards to say, congratulations on your contribution. And it’s not me. It’s everybody now. Everybody thinks the same way; that if you make people feel special, their motivation goes well beyond their career.

And the last thing is, I think we are quite charitable on one hand and sensitive on the other end. Charitable in that, we do a lot of things in the local communities by which our agencies operate that benefit those communities, both on behalf of their organization themselves as well as their clients. And I think that’s very important.

And the last thing is people have problems in life. And I think we are very humane, and we are very supportive and we will do anything we can for their emotional, mental and physical wellbeing. And I think people feel that they’re not just a name and a position but they are a very important part of our organization. And I think that’s uniform across 60 businesses.

So those are the ways; I mean obviously all of the tactical things we do to make sure we have a competitive advantage is important, but in a business whose principal asset goes up and down as an elevator every day, I think how you motivate people and the recognition and reward you give them intrinsically is a part of why that we get a longer life cycle of peoples involvement, why we have less turnover and I think why we have better 360 evaluations as a result of that.

Unidentified Company Representative

Right, that’s enough time we have for the panel. So thank you very much. Okay, so I am the next speaker, so I am not going to introduce myself. I think all of you already know me already. But you’ve seen a lot of great people come on the stage today that highlight the fact that we have what we believe is the best talent in the industry, and I would like to bring it all together in a financial framework of how we are building a business that is not only growing and we believe will continue to grow, but will drive significant value to our shareholders. So we continue to believe that our financial success is and always will be a byproduct of excellence for our clients.

While we remain maniacally focused on ensuring our partner agencies are in the best position to deliver transformational results for clients, we are also very focused on a framework to create value for our shareholders. Our job as a management team is to maximize per share value of MDC Partners stock and to that end we have constructed a framework that we believe shows how and when applying today’s multiples to our forecasted financials, one would come up with a stock valuation of approximately double what it is today.

It should be exceedingly clear that we have begun to realize the benefits of the growth investments made over the last couple of years. Organic revenue continues at a high rate. We have compounded organic growth of 9.7% over the last seven years. Even as we have scaled and built the business, that is triple the size of what it was when we became a pure play in advertising and marketing services in late 2006. Year-to-date organic growth is 9.4%, equivalent to the long term track record with approximately 3% market share in North America and business just beginning to emerge overseas. We’ve got tremendous amount of room to run to continue to grow our business organically.

While MDC has scaled the individual partner agencies within the network still have significant growth potential here domestically as well as overseas. Larger and larger brands are seeking out MDC agencies to improve their businesses and our client roster has grown to include Budweiser, Target, Samsung, BMW, Chrysler, Google, Microsoft, Best Buy, J.C. Penny, Diageo, Verizon, Toyota, Bacardi, Craft and the list goes on and on. We are actively pursuing new clients and we are actively mining existing clients for new work. We are collaborating to drive cross selling and expanding into new geographies. We are building value added service offerings and improving existing ones.

We have long talked about a long term organic growth rate of 5% to 7%, which implies that we expect to be able to at least double the expected industry growth rate annually. While this represents a lower number than we have been delivering consistently in the past, it makes sense to be conservative as we plan and forecast our business. Now revenue growth is great but higher margin revenue growth is better. I want to reinforce that we’d expect to reach EBITDA margins of 15% to 17% within the next three years. This implies on average 50 to 100 basis points of margin improvement per year from the current EBITDA margin guidance of 13.5% to 13.7% for 2013.

I hope it is clear that we have made great strides in increasing margins this year, and really since we cycled through the ramp up in investment spend. EBITDA margins this year are on track to increase 220 to 240 basis points, as indicated on our third quarter results call. Our confidence in our efforts to improve margins further stems from many of the initiatives that we have in place.

First, we have begun to leverage the investments we made in 2011 in a very big way. During that year, we pulled margins back 350 basis points to make substantial investments in various growth initiatives; including, accelerating our international office openings; ramping up our talent leadership development and training efforts; adding firepower to our new business development resources; and bolstering the senior leadership team at several of our partners agencies to put them in a position to scale.

We saw the very large brass ring in front of us and we decided to grab it. The payoff is coming in our sustained growth rate and the margin points we gave up are now beginning to come back. We still have some ways to go to fully realize both the revenue and margin potential of these efforts, most notably in our overseas offices which have successfully moved from losing money to breakeven. In aggregate the offices will be modestly profitable in 2013.

Over the next two to three years, we expect the businesses to ramp to normalized profit margins, which for a typical agency is in the 20% range. If you do the math, international is now 6% of revenue and growing. If the businesses were operating at normalized margins today, it would add over 100 basis points to our margins overall. The previous panel also showed how MDC has enhanced its management team over the last two years to make us better operators and smarter businesses builders.

We have enhanced our group that manages the relationships with our partner agencies to be filled with experienced agency operators. This is helping us to better anticipate issues as they arise and address them quickly and effectively. It is allowing us to help our partners grow more effectively by working with them to solve staffing issues leverage network resources, manage real-estate expansions and negative better contracts. This is helping optimize margins for each and every business across the network and increase the conversion of incremental revenue to EBITDA and ultimately free cash flow.

The last key driver of margin expansion is the change in the mix of the services we provide. There is a very simple tailwind to our margins in that our higher margin businesses are also our fastest growing businesses. You only need to look at our segments to see quite clearly that our higher margin strategic marketing services segment has consistently grown faster than the lower margin performance marketing services segment. This has led our mix of revenues coming from retainer based relationships which are now 75% of the total, up from just 63% in 2009. This is more stable and visible revenue streams and allows for better planning of cost and higher margins.

The performance marketing segment is still an important piece of the pie. We're actively building out our media and analytics platforms which we expect to garner larger shares of segment revenue and drive overall growth in margins. We expect this to become much more visible in 2014 and beyond.

So with 5% to 7% organic revenue growth and 50 to 100 basis points of margin expansion, this implies roughly 10% EBITDA growth on an ongoing organic basis. As we have a very capital efficient model with low capital intensity in a significant tax shelter, we expect this trend to 20% free cash flow growth annually, assuming debt levels stay constant.

As an organic growth model we believe this is extremely compelling, but that is just part of the financial framework we're committed to. The second part is an opportunistic and accretive acquisition strategy. Over the years we have successfully built MDC Partners, both through an aggressive organic growth strategy and via acquisitions. In fact, if you look at the sources of our growth over the last few years it is almost equally split between organic and acquired growth. Our success in augmenting our growth through highly strategic acquisitions has made MDC Partners the company it is today.

We have previously discussed the financial success of these transactions., Since becoming a focused pure play advertising and marketing services company in late 2006, we have averaged an annual return on our investments of 44%, net of the cash on hand; 44%.

As promised we spent the last 1.5 years digesting the companies we acquired from 2010 through early 2012. We reduced the leverage on our balance sheet by one full turn, even as we paid down $180 million of deferred acquisition consideration. This has set us up to again pursue new growth opportunities in areas such as media, analytics and insights as well as our ongoing search for the next great creative agency.

Going forward, we expect that we should be able to add 3% to 5% annually to revenues via acquisition. Our strategy remains focused on partnering with firms on the cusp of superior growth, usually with revenues in the $10 million to $30 million range. This would bring our expected revenue growth to double digits in combination with our organic growth. Key to our acquisition strategy is that we focus on partnering with growing profitable agencies with target margins of 20%. This means that we should be able to add 5% to 7% to EBITDA, bringing EBITDA growth to the mid-teens percent as a result.

With our tax shelter, this would add at least 10% to free cash flow, meaning that our expectations we can compound free cash flow, add 25% to 30% more annually. The free cash we generate will fund the deferred acquisition consideration remaining from our prior acquisitions, as well our ongoing dividend, and still allow us to continue to de-lever our balance sheet as we work towards our targeted net debt to EBITDA ratio below 2.5 times over the next two to three years. The combination of the growing EBITDA and free cash flow with the reduction of leverage means significant value to our shareholders. Assuming the same multiple we trade at today, this would imply a share prices in excess of $60 per share.

So let's recap. We believe that we should be able to generate annual organic growth, revenue growth of 5% to 7%, EBITDA growth of 10% and free cash flow growth of 20%. With a modest acquisition strategy we believe that total revenue growth should reach double digits, EBITDA growth of mid-teens and free cash flow growth of 25% to 30%. Based on this financial framework, and given our current trading multiples, the math calls for a market value that is roughly double compared to today. We are excited about this and about this prospect and this framework and we hope you are as well.

So with that I’d like to have Miles come up and we'll be happy to take questions. So any questions?

Eugene Fox - Cardinal Capital Management

With respect to the business model can you talk about the tax assets in terms of how large they are and how you see them adding value over the five year period?

Miles Nadal

Sure. So as we have long talked about, we structure our acquisitions to be as tax efficient as possible. The downside of that that it's not always GAAP EPS efficient, but we focus on maximizing the cash generation for the business as a true reflection of the value we create. And so the goodwill on our balance sheet is entirely a tax asset. It's over $700 million. It's amortizable over 15 years. The first $40 million plus a year of pretax income is sheltered from tax. We have about 12 years left on that. In addition we have NOLs both in the U.S. and Canada that also adds incremental tax shelter. We touched that very little right now, little bit in Canada but we haven't touched that in the U.S. as of yet. We don't believe we'll be a material cash tax payer for at least the next five to seven years. We pay $1 million, maybe $2 million a year in various state taxes right now and we don't expect to be a full cash tax payer for at least 12 years.

Unidentified Analyst

And maybe Paul will jump in on this one, but the opportunity to take VMM and work it with other independent agencies, it sounds like that's growing pretty well. So maybe just a little more on that opportunity for the Company. And then the second one is with building this business outside of MDC agencies, would you ever look at an IPO of it?

Unidentified company representative

Our direction and mandate to Paul to Lori was how do we make VMM 10 times larger. And that is a joke, really it's a beehive, it's a big hairy, audacious goal, but we say what can we do to help magnify the opportunity and dare to dream on a much bigger scale, and they're coming back with plans about how they can grow it dramatically, because it is probably the most exciting opportunity we have about something that is truly scalable with triple the margin, quadruple the margins that we have today in anything else.

I think we tried the idea that you should take Pieces public. We have found in our experience it's a mug's game, that you get a short term lift and then you get complexity. We have worked very hard at MDC to try and consolidate our platforms. We will continue to do so, so that we have fewer integrated platforms. So it might be in the short term a value creator but then it deals with complexities and you deal with accessing the cash, et cetera.

We believe that as we deliver on this superior model we will trade at a premium multiple. It may trade at a lower value than what a standalone big fuel like business will but for the long game, which is how we're building our business we see [indiscernible] capability as an integral part of MDCs overall business and it's media platform and it is leveragable, the technology and knowledge is leveragable and is a competitive advantage from a new business perspective as well, to differentiate our marketing services offering but our media offering.

So we truly believe, first of all, he is a spectacular executive we are very lucky to have him. And the team he has built is amazing. And if you go there and you will see what we have generated from zero, this is a completely organic initiative and the level of sophistication in what they've accomplished and we did that giving them zero resources, like zero, they self-funded it. And now that we recognized that we say okay, we have lots of extra resources, what could you utilize and what would the rate of return be? And we think we have multiples of growth that's afforded to us, that will lead to huge value creation for us.

And so I think we're in the second inning of a nine inning ballgame, maybe the first inning and now what we've said is what else can we do with that and what we would look at; are there other players in this space that are subscale, that we could acquire and integrate because they're superb operators and there is big scalability. So that is interesting to us because that would deliver exponential returns on invested capital.

Unidentified company representative

And just to add on that, because I think it's important to contrast our capability with some of the peer play public companies out there. I want to be very clear, we actually make money and they don’t. And while Wall Street is driving them on a promise of profitability, we've already proven that we can make money at a very healthy margin as we scale this business, even while we deliver extraordinary results for clients and I think that's something that the peer play competitors are struggling to do. In reality it is to really justify to clients that the revenues they're getting, they're investing in millions and millions in sales and marketing, that for us our performance for clients is the calling card and I think has enabled us to do it a lot more efficiently than them. So there is huge scalability here and I would say that the value to MDC is quite substantial , especially when you keep in mind that we're actually able to operate and our team is able to operate it with a strong bottom line whereas the peer play companies that are out there can't.

Unidentified company representative

I mean the advantageous position that MDC is in today, is we're in the best position possible to afford to be exceedingly patient, very deliberate, very conservative and only take initiatives that meet all of our criteria. And the reason for that is because our organic growth that we see for the foreseeable future is, as David articulated so well double or triple what the industry is. And for us it's a long game, look the S&P 500 grows at 5%. If we grow at double that, that's okay, no [indiscernible] the world for us, but if that's our worst case scenario we are real happy and if you look at MDC, and I think we have a point of view with some credibility, we have been greedy when others were fearful and we were fearful when others were greedy and we did lots of things that people didn’t necessarily see why we did what we did when we did it but it worked very, very well. And there will be a point in time in the next six years where the world will be not so terrific and we are going to be very well position to capitalize on opportunities at that point in time. And if not we’ll just be boring growing 10% a year, 15% or 20% bottom line free cash flow and as my children would say, that doesn’t suck.

And the nice thing is we've always prided ourselves or having great management, but if you see the depth of talent and this is 10% of what you’d see if you went to our agencies and you’ll just came see the rest of what exist in Toronto and at 745 5th Avenue, we have attracted amazing people but we’ve also empowered them to do great things and one nice thing about MDC, a year in MDC is like dog year. It’s like nine times. It’s like people get more stuff done in a very short period of time because we empower them and we believe that if we’ve acquired talent that’s so able and experienced, well do it, and it’s amazing what we could accomplish.

So, the thing about the M&A activity is, we said we wouldn’t do anything till we proved out our model, de-levered the business, dramatically grew margin, dramatically grew return on invested capital, showed the integration and that the capital deployed as David says, 44% returns and we don’t see a lot at this point in time and I think we are probably more conservative now than ever before because we could afford to be. We don’t have to do anything.

Warren Buffet once said, we’re like baseball players, the only difference is we don’t have to swing. We are nimble and agile and we do look for opportunities to expand our existing platforms, especially our five largest platforms. You should feed your biggest winners and that’s what we have tried to do it. I think we’re exceedingly disciplined and we have, I think, the best structure of any firm that aligns what’s good for management ends up in their hands of good alignment with the shareholders and bondholders.

And we won’t ever do, ever do another transaction anywhere that’s not accretive immediately. We don’t need to do that. Because when you hear these organic opportunities, why would you do anything that depletes value from the shareholders especially when you’re as greedy as I am? I want per share value, I sand on the same platform as everybody else.

So, we figured out what works for us. It took us long time to figure it out, but in the last eight years we really figured out and we know what works for us. So one of the questions was what are the other competitors doing? I played in a Pro M with Tiger Woods. We didn’t play golf together. He played golf and I played golf but it wasn’t the same game. What worked for him didn’t work for me. And that’s the same thing about how we run our business. We run our business differently. We’re much smaller scale, and as a result of that we figure out what’s works for us and what works for us is a differentiation of making transformational campaigns that provide returns for clients and like I didn’t say India is a bad place, didn’t say China is a bad place or Brazil or Russia, but we only go to markets where we have specific client demand that will ensure that we are breakeven or profitable immediately. And we don’t need to be global. You wouldn’t feel that the big holding companies, you would not build those from scratch today in the same why that they were built.

The internet leveled the playing field and I think as Carl Johnson said, from four or five offices in a micro network we can service global clients quite readily. So, we are in an advantageous position. So, that’s why we’re aware of what other people are doing, but it take a 100 hours a week for us to just focus on our partners and their clients and their needs.

Unidentified Analyst

We’re seeing these major mega acquisitions now in the industry; Omnicom being the obvious and rumors running around on IPG and WPP and so and so forth. What are the implications of this for the industry and more importantly, what are the implications for your company in terms of the opportunity to grab talent or grab clients or both.

Unidentified Company Representative

I think all the industries will continue to consolidate. The reality is most companies, especially those in our industry have very strong balance sheets, unlimited access to capital and practical terms at very low cost and marginal organic growth. So consolidation is teed up to continue to accelerate over the next number of years.

For us, it is a wonderful opportunity. Clients have never been the beneficiary of consolidation. In another words, it’s never enabled a consolidated firm to attract better talent, to do better work and to focus on that partnership like structure of putting at risk fees when what you’re trying to promise is $500 million of synergies. It makes the focus all about cost reduction. So I understand why they did it but we’re different. We’ve never done anything saying the cost synergies would rationalize the merger. For us it’s all about capability, expertise, and about accelerated growth.

I think the ability to attract talent, as David articulates our phone rings more than ever about people who want to be in an entrepreneurial culture and don’t see consolidation being good for their career about doing brilliant work. As relates to M&A, it also creates greater opportunities. Obviously there people are distracted. They’re busy dealing with existing mergers; Aegis with Dentsu, Publicom. So there will be very few ++ there will a lot less competition for the kind of opportunities we want.

And also for clients it just further reinforces that our dedication to their mission is uninterrupted. I certainly don’t think it hurts our valuation long term but we will continue to build the business and try and do everything we can as David so eloquently articulated to increase per share value at a very rapid rate.

Unidentified Analyst

Publicom, that’s classic. Should we be thinking about debt-to-EBITDA, 2.5 times; is that a baseline consistent number or is there a delta around that number and do you have a similar metric when you add deferred compensation to it, so we should be thinking about the pacing of deals over the long term, not to pin you down for an estimate for a point in time but just a general?

Unidentified Company Representative

So we’ve talked about a target net debt-to-EBITDA leverage 2.5 times or lower and that would be a comfortable place for us live longer term that with the free cash flow generation of our business also allows u to be very opportunistic to fund growth initiative either organic or via acquisition, to fund shareholder friendly moves like the recent reduction of our share count by 2.4 million shares, like the dividend increase of 41%, we just announced in the third quarter. And so it gives us a lot of flexibility. If bulletproofs us when times gets tough and seems like it is from our standpoint a good place to live.

The reality is we don’t want to become too under-levered because we’re also trying to drive equity returns. So there is a balance, right. And in the balance where we come out in our analysis is, 2 and 2.5 times is a great place to be. From a deferred acquisition consideration standpoint, the free cash flow of the business is so substantial now and as we get past the last big chunk from our active M&A period in 2010 and 2012, which take place really over the next six to nine months, the amount of deferred acquisition consideration relative for our free cash flow become fairly immaterial. So as we’ve articulated the acquisition strategy that we’re focused is a moderate one, instead of we can add just 3% to 5% a year over revenue. You’re talking about $40 million, $50 million, $60 million of revenue a year. That’s two or three firms at the average size that we typically look at. We will be able to drive substantial equity value appreciation and still de-lever the balance sheet and that’s even as we fund deferred acquisition consideration overtime from those deals.

Unidentified Company Representative

I would just add, within the next two years or by the end of ’15, maybe into ’16, we should be able to do all of our own M&A with just the excess free cash flow and not using any incremental leverage. So that’s our commitment, to just use free cash flow to do so and not incrementally lever and I am certain there will be a point in time that we will find nothing worth buying that will justify itself and we will at go through periods of time where we have an abundance of excess cash and liquidity, but our goal is to figure out how to deploy that over a long period of time. We feel no compulsive need that we must do something each and every year because what we’ve learnt is if you think about what MDC has done, we didn’t buy anything for 19 months and the share price is up 257%.

So just from a peer [indiscernible] perspective, doing nothing was exceedingly well rewarded. And even a monkey like me could figure out that if you did nothing but climb the tree, get the bananas and bring them back and don’t buy anything it was very rewarding. So we know that the lower our leverage, the higher the multiple we will trade at, contemporaneously with driving much higher returns on invested capital, much higher margin expansion.

And so we’ve gotten to a scale that most people never thought we’d get to. We’ gotten to margins way faster than we anticipated and we now see clear opportunities to be able to expand upon that and take less and less risk to do so. So that’s our plan. And at the end of the day if we do that, the kind of numbers David has talked about are numbers that we are very confident will take place. It won’t take place each and every year. That’s not linear. Like if you even saw what we had done over the last three years, it didn’t really get translated at the beginning, it didn’t get translated the second year and then we caught up in the third year. I mean Richard Schuster has been with me for, I don’t know, 15 years. You’ve watched the cycle, but we never had a propensity to deviate away from what we thought was right thing, despite the fact that the market wasn’t rewarding us, Richard.

Richard Schuster

We worked.

Unidentified Company Representative

No, but you got our question.

Richard Schuster

I just want to add one thing to that because I think it’s important to understand. So the reality is that we’ve been rewarded on the equity side, we’ve been exceedingly rewarded on the debt side. In that we’ve won a lot a fans I think in the credit markets, for laying out a plan and a framework and delivering against it and that included modest acquisitions, longer terms. This is not a surprise that we are talking about it. We’ve talked about getting back in the M&A market now for few months. We just haven’t turned it in a material way at this point. And so we’re able to just raise capital at 5.75%; think about that.

On the other hand we’ve averaged a 44% return on our capital over the last seven years. It is a tremendous opportunity for us that continue to be very smart and disciplined to allocate capital properly to drive growth of our business and with that satisfy our shareholders’ desire for appreciation of the stock and our bondholders’ desire to de-lever the balance sheet and everybody wins.

Unidentified Analyst

You’ve done this amazing job. You bought things well. You timed things well. Can you talk a little bit about foreign, you know 18 months ago, 19 months ago, you decided to make an investment. You have, I don’t know a percentage of your business, flaring I think it’s less than 10 or whatever it is. But when we look out five years, it is hard to know what this looks like because you played the chess game well. But when you envision this all looking like five years from now, what does this look like?

Unidentified Company Representative

Our foreign exposure is about -- well we don’t call Canada foreign, you might. But we have 6% of our business coming from Sweden, Amsterdam, London, The Caribbean, Shanghai, Beijing. I don’t see it being more than about 10% of our business from what I see today. Now looking at out five years, because think about it like this; I am a simple guy. Everyone says you should go to Europe. I said why should I go to Europe. I’ll pay twice the multiple for half the growth. You don’t have to go to MIT to figure out that that’s not creating value for shareholders.

And so when we look at the emerging markets, they’re interesting but one major piece of business in United States, as big as any of the firms we would look at in any – a lot of these markets, in what is still 50% of the global advertising spends here, and we have the most synergies and shared services ability to add value, et cetera.

So we are going on the backs of our clients. Our clients are giving us more business. But we don’t walk around with a map with dots on it and say we need global domination and therefore we need to be in these markets. We only need to go to places that conform to two “L”s; legal and lucrative. Not that it’s complicated.

So we will do everything at our power to service our clients from our existing infrastructure, because that’s how you drive the greatest return. But none of the global brands that we are acquiring are mandating that we have to have offices in all of these places. And so I think we’ll have a little more exposure, but do I think it’s dramatically more? Not from what we see today. And I think you’ll see us try and consolidate where we have duplication of resources in geographies, to try and gain more leveragability of the scale of our operations. And a dollar worth of earnings in America to me, I like that more than any other place in the world. It’s just more stable and I think the market will reward us the best. And I think David brought up a very important point; think about where we were in 2009. We had a cost of capital of long term debt of 12%. And now we have a long term cost of capital of about 5.7%. That’s an enormous differential. That took us from being completely outside the market to now having being highly competitive in the extra 200 basis points differential from a double-d plus or A minus credit isn’t that material. But as David said, we’re doing everything we can to reward the confidence that the 143 bondholders put in us to ensure that we say what we mean, mean what we say, do what we say we’re going to do and make sure we never end up on the wall of shame.

Unidentified Company Representative

Okay, I think we have time for one last question.

Unidentified Analyst

Thank you and thanks for joining us today. Just going back to value creation, assuming you can hit the revenue targets, which seem fairly reasonable what is the risk of any kind of expense; we’ve seen some great talent here today. What is the risk of talent inflation in terms of cost?

Unidentified Company Representative

Look I think the good news is that the most talented people in the world do cost more. But the average age of our employee base is also going down because the people in our organization who are most sophisticated and understanding how consumers consume influence in a digital economy, who are native to technology are very young. They’re sort of 21 to 27. So as a result of that and they are less costly than the more senior people in major markets. The other thing is we are offshore producing a lot of our production and we’re looking to do more of that.

One of the beautiful things about Doner is besides the fact that it’s an incredible institution, it has a pedigree of doing brilliant work, that Mr. Doner was an amazing guy, that they have 35 wonderful clients, great leadership, they also have much lower cost infrastructure being in the Midwest. It gives us a huge opportunity to be able to leverage that in production, media, et cetera. And so we love Detroit, we love Cleveland and we love Doner because it does give us a real competitive advantage on the labor market.

So we’re trying to balance it so we don’t see expense creep. We still stand by John our belief that we think we can take 300 basis points out of our cost of labor over a three to five year period because we have been very ambitious about investment spending and that investment spending is now being harvest. So we’re very comfortable that the margin targets we’ve set we think, not only are we confident but we think they could be conservative on the long end.

Unidentified Company Representative

Okay, so thank you very much to everyone for coming. We’re going to continue with lunch downstairs in the restaurant if you go down the stairs to the left. All of our senior leadership at MDC will be there, as well as the leadership of several of our agencies, not just ones who spoke and just looking around the room Barry Lowenthal from the Media Kitchen, David DeMuth from Doner. I see Craig Brinkley and Tricia Benn from North Star, Paul Rostkowski from VMM and there might be others I just don’t see. And so it’s an opportunity for you to interact informally with our people and ask further questions and I think it’s really good food as well. So we look forward to see you downstairs. Thank you.

Unidentified Company Representative

Thank you for your time.

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