• by Larissa Faw , August 6, 2015

MDC Partners is opening a new chapter and looking forward after the inglorious departure of former CEO Miles Nadal on July 20. He left under the cloud of an ongoing SEC investigation which has already cost the company roughly $4 million in legal fees. The investigation has uncovered (so far) about $10 million in bogus expenses claimed by Nadal — he has paid back $8.6 million of them.

But the company — now led by Scott Kauffman — is on the defensive about suggestions that the group is troubled and that its financial reporting is suspect.

"I will recapture your trust. The best days are ahead," Kauffman told analysts and investors on a Thursday afternoon conference call after the firm’s release of second quarter financial results.

The company reported that consolidated revenue for Q2 2015 was up 12.4% to $336.6 million, while net income jumped to $29.6 million from $16.5 million a year ago.

Organic revenue (which excludes the impact acquisitions, divestitures and currency fluctuations) increased 8.3%.

The word of the day from MDC officials during the call was "transparency." And executives hope to reassure the investment community that its reported financial results are accurate, although the SEC is looking into its accounting practices and trading activity.

As to suggestions that the company has liquidity problems, CFO David Doft said it just wasn’t so: "Full stop…Our obligations have sufficient cash to manage them. Our financial health is strong." There's also no truth to the rumors that its tax shield is in jeopardy. "Hard no. Nothing about our tax structure is being questioned," said Doft. 

Looking forward to Q3 results, MDC will be paid back $1.9 million in expenses improperly claimed by Nadal who will also return $6 million in bonus payments he didn’t stay at the company long enough to earn. "All that money will go back to the company," says Doft. In addition, the company will pay new CEO Kauffman less in compensation as compared to Nadal -- although the company declined to say how much less. But the new CEO’s smaller income will help to boost the firm’s margins.

Although current company bylaws mandate that MDC pay Nadal's legal fees, the company is pursuing plans to rescind the obligation. Insurance may recover some legal costs.

When asked about the SEC inquiry, executives confirmed that it remains ongoing, but that there was no material update at this time. The company waited seven months before disclosing in April that the investigation had commenced. Earlier this week, MDC, Nadal and Doft were sued in New York District Court by a shareholder (seeking class action status) citing multiple counts of U.S. Securities and Exchange violations, including numerous “false and misleading statements” about its financial condition and the level of compensation received by Nadal.

The holding company’s strongest money drivers during the quarter were in design, advertising, media, technology, international, and data science. Its fastest-growing sectors are consumer products, healthcare, and technology. Financial and retail were its weakest client sectors.

MDC also announced an agreement with 72andSunny boosting its ownership in the agency from 51% to 100%, with key executives agreeing to stay on for five years. 

New business wins, including PayPal and Hershey, totaled $27.3 million in annualized revenue for the quarter. The company is reaffirming its 2015 financial guidance. "We have not lost any business," said Kauffman in light of recent controversies, adding that there is no change in strategy.