MDC Misses Q1 Expectations But Vigorously Denies Gotham City Claims

MDC Partners today downplayed Gotham City Research's 40-page report that questions its worth equating the advertising holding company to Valeant Pharmaceuticals, but with understated debts. On a call with analysts to discuss its first quarter financial results, MDC CEO Scott Kauffman called the Gotham report "misleading and inaccurate." 

"We take strong issue with every single element of this report," said Kauffman. The report "raises issues that have long been addressed" in a way that is designed to "destroy shareholder value." 

Still, the company's revenue growth missed analyst expectations for the first quarter, with a gain of 2.3% to $309 million. Wall Street’s consensus estimate was between $320 million-$323 million. Organic revenue increased 2.2% and net new business wins totaled $19.8 million (on a revenue basis). The company added clients including Campbell's, Jose Cuervo, and Four Seasons. It expects to make two to three acquisitions this year.  

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“We remain on track to achieve our annual financial guidance despite uneven organic revenue growth in the first quarter," said Kauffman. "Adjusted [earnings before interest, taxes, depreciation and amortization] grew 5.3% and the underlying business fundamentals and our prospects remain as solid as ever.” 

While investors have become concerned about MDC’s balance sheet, the company says it is in a "competitive and enviable position." The company's net loss attributable to shareholders was $23.3 million compared to $32.1 million in Q1 2015.  

MDC addressed specific issues raised by Gotham City's report saying the research "cherry-picked" numbers and that it represented a "fundamental lack of understanding of our industry." Kauffman added that the SEC investigation remains on-going without any expectations of when it will officially be resolved.  

Although Gotham City Research continues to stand by its findings, other Wall Street analysts are lining up behind MDC. BMO's Dan Salmon issued an equity report that advises "putting aside the Homer Simpson quotes, typos, and flamboyant comparisons to Valeant and others, we found miscalculations and mostly old news." Although "we may examine the report in more detail, an early read provides no materially new or compelling arguments." 

Responding to a query late Tuesday, Gotham issued this response via email: “After listening to the call, we are more confident that we are (at least) approximately right. It's better to be approximately right, than precisely wrong." Gotham added, "You will note that [in response to] every single article we published [the target company has] reacted in the same manner.  The fraudsters always behave the same way. They never admit to their deceptions." 

Albert Fried's Richard Tullo says that since MDC added cash to the balance sheet and a recent debt offering was well received in the market, "we think the credit rating agencies will view the move as modestly positive to positive and may even upgrade MDCA sometime in late 2016 or early 2017." 

However, Tullo's bounty on uncovering the identity of Gotham City's founder continues to remain unclaimed. Tullo notes "no one in the media has been able to or willing to vet Gotham City - a blog site with no SEC registrations, address, or telephone number," he says. "Right or wrong, Gotham City, if it actually exists needs to be transparent."  

1 comment about "MDC Misses Q1 Expectations But Vigorously Denies Gotham City Claims".
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  1. Russel Wohlwerth from Wohlwerh Consulting Group LLC, May 4, 2016 at 6:18 p.m.

    A quote for the ages: "Its better to be approximately right than precisely wrong."

    Never trust a financial analyst, a job that demands precision, that claims to be "approximately right."

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