Alexandra Delanghe Ewing - SVP, Corporate Communications Miles Nadal - Chairman and Chief Executive Officer David Doft - Chief Financial Officer

Peter Stabler - Wells Fargo Securities Matt Chesler - Deutsche Bank David Bank - RBC Capital Markets Eugene Fox - Cardinal Capital Management Richard Tullo - Albert Fried & Co. Barry Lucas - Gabelli & Company

Thank you. Good afternoon and thank you for joining MDC Partners 2013 second quarter conference call.

Joining me on the call today are Miles Nadal, Chairman and Chief Executive Officer; David Doft, Chief Financial Officer; and Mike Sabatino, Chief Accounting Officer. During the call we will refer to forward-looking statements and non-GAAP financial data.

Forward-looking statements about the company are subject to uncertainties referenced in the cautionary statements, included in our earnings release and slide presentation and further details on the company's Form 10-K for its fiscal year ended December 31, 2012 and subsequent SEC filings. We have posted an investor presentation to our website and we will refer to this presentation during our prepared remarks.

We also refer you to this afternoon's press release and slide presentation for definitions, explanations, and reconciliations of non-GAAP financial data. I would now like to turn the call over to Miles Nadal.

Thank you very much, Alex and good afternoon, ladies and gentlemen. The second quarter we had a very strong performance for MDC Partners across the board.

Our revenue increased 5.3% over the last year to $188 million. Our organic growth was a very impressive 5.7%, in with better growth in our fee revenue as we had a lot less pass-through revenue.

Our EBITDA increased a much more impressive 35% to $43.4 million, representing 330 basis point increase in EBITDA on a year-over-year basis to 15.1%. We continue to drive closer and closer at an accelerated basis and ahead of our own plan toward our long term established objective of margins of 15% to 17%.

Our free cash flow increased at an accelerated 73% to $25.9 million from $15 million in Q2 of last year, and that is only operating free cash flow. Net new business wins were $20 million in the quarter and our pipeline remained exceedingly strong.

We are still trending very well for the year. Our year-to-date net new business wins are a stellar $73 million, giving us very strong visibility on our top line for the rest of the year and going into 2014.

Our revenue, organic growth, EBITDA and free cash flow all exceeded our own internal expectations and means that we are on pace to significantly beat the upgraded and updated guidance that we provided during the first quarter call. Because of this we are once again raising our 2013 financial guidance which David will discuss in detail in a moment.

In addition because of the significant cash generation that we have generated to-date, which is significantly ahead of our own plans as well as what we expect to generate for the remainder of the year, we believe that it is prudent and consistent with our strategy to return a modest portion of our excess cash to shareholders in the form of an increased dividend. We are returning to paying our dividend on a quarterly basis on a specific time that you can expect every quarter and we are increasing the payout to $0.17 per share or 21% higher than the implied $0.14 per quarter that we have previously paid.

With that I'd like to sum up MDC's performance. The investment thesis is quite simple.

We committed in 2009 to invest in our business to deliver tangible measurable financial results for our clients which in turn solidifies our strong client relationships, allows us to produce higher value added works and opportunities to increase and provide important strategic solutions for clients across our MDC partner firms driving a higher return on marketing investment for our clients. This has enabled us to increase our share of wallet and increase our share of market.

Five years ago in the depths of the financial crisis we moved forward with an aggressive investment strategy predicated on our belief that the smartest who understood how consumers consumed, the importance of a digital economy would win. We also focused on the growth of United States, that the great American companies were the ones to back.

We did so believing that we would have greater financial performance and shareholder return by pursuing that strategy. We pursued great businesses and invested in new capabilities and talent that have allowed us to be a company focused on business transformation for our clients, which has resulted in extraordinary business transformation for our business.

To-date this strategy continues to work well and is accelerating as our share of revenue and wallet continues to contribute to accelerated increased shareholder value. It has allowed MDC to produce organic growth many times the multiple of our peers, leverage our infrastructure and technology investments to lower our labor costs and deliver higher margins than we could have anticipated at this point in time getting us to the top end of the industry and enabling us to translate this into appreciating and accelerating shareholder value accretion.

While we have made very good progress and we are pleased we are still early in the game and feel there is a lot more opportunity for improvements. Our model is built to deliver accelerating growth in free cash flow as we scale.

Over the next several years on an organic basis as we have been focused for the last 18 months we expect to translate mid to high single digit revenue growth into double digit EBITDA growth. This would flow to free cash flow well north of 20%.

With even modest accretive opportunistic acquisitions our free cash flow growth would be over 30% annually. Our revised guidance for this year is indicative of this model and we are very excited by this proposition.

We still remained very dedicated to the idea that low leverage companies have high multiples and we believe that we are well on our way to get to our two and a half times leverage as indicative of the results we produced where leverage reduced from 3.4 times to 3.1 times in the quarter from the first quarter. We look forward to provide you with updates on our progress as the year goes on and at this point I would like to turn the call over to David Doft, our Chief Financial Officer.

Thank you, Miles and good afternoon. First I want to speak about our progress on margins.

We are confident that we are in a good trajectory to deliver EBITDA margins between 15% and 17% within the next three years. It is not only because our business is firing on all cylinders, which it is.

It is also because we have reached a different level of maturity at the business in terms of the visibility and predictability of revenues and process. As we have scaled our business we have reduced relying on any one client or agency partner.

We have increased our portion of revenues from our occurring with [thinner] based relationships to an excess of 70% of revenues. This stability enabled us to better plan and allocate our resources to optimize bottom line performance even as we remain in growth mode.

This is very much the story behind our increased guidance for the year, speaking of which we now expect revenue of $1.255 billion to $1.180 billion or an increase of 8% to 10% over 2012. This is $30 million more than the guidance range given at the beginning of the year of $1.125 billion to $1.150 billion.

EBITDA is now expected to reach $152 million to $157 million or an increase of 28% to 33% over 2012. This compares to guidance of $132 million to $135 million provided at the beginning of the year or $20 million to $21 million higher.

The revived EBITDA guidance increased EBITDA margin of 13.1% to 13.3%, or an increase of 200 to 220 basis points over the 11.1% EBITDA margin delivered in 2012. From a free cash flow standpoint we now expect free cash flow of $80 million to $85 million, an increase of 61% to 71% as compared to the $49.6 million of free cash flow generated in 2012.

The increased cash generation we are able to drive from the business has allowed us to continue to make great stride in reducing leverage on our balance sheet as we have promised. We are tracking well ahead of expectations in terms of cash generation at higher EBITDA and better than expected working capital management has allowed us to reduce our net debt to trailing 12 months EBITDA ratio to 3.1 times from 3.4 times at March 31 as Miles said, despite funding $76 million in deferred acquisition consideration in the second quarter.

We expect to continue to de-lever the balance sheet and expect leverage to fall solidly below 3.0 times at year-end and maintain our progression to our target leverage of below 2.5 times in the next 18 to 24 months. In terms of our long-term plan for cash usage, as we look forward we expect our cash balance to increase as we continue to grow and scale our platform and since a significant portion of our incremental revenue flows through to the bottom line.

Currently our overall liquidity stands at roughly $300 million with $77 million of cash at quarter end and an undrawn bank facility. Our cash position remains a meaningful asset in driving long-term shareholder value and we’re looking at a variety of ways to use that cash to drive returns for our shareholders.

In the past we used our cash to invest in businesses that we believe would differentiate us from our competitors and would help us provide cutting age solutions for clients as Miles spoke about in his remarks. That’s worked out nicely for us.

And it’s meant the best organic growth rate in the industry and significant value creation for our shareholders. Today, we are investing in our existing businesses and have been committed to returning a portion of our cash to you in the form of a dividend.

We believe that at least for now that is the best approach and it's worked out well from a financial growth standpoint as well as from a valuation standpoint. Going forward we expect to target a 3% dividend yield for our equity.

That said we must look for ways to continue to grow our business beyond organically. As such we are always looking to invest in businesses that we believe will provide a strong return on capital; areas such analytics and insights, media multi-cultural, digital and strong creative agencies are top of mind as we evaluate areas that can help MDC scale.

You should know that we have a high hurdle rate for acquisition. We target a minimum of 20% return, trust me.

Miles expectations are likely a lot higher than yours and as you know we have a pretty good track record in this area. We’ll certainly keep you posted as our plans for potential investments progress and want to reaffirm that anything we pursue in this area would be in the context of both our margins and leverage goals.

With that let’s open up the lines for your questions.

Good afternoon. Thanks very much and a great quarter guys.

So two quick questions if I could, one is it sounds like the appetite for acquisitions is back after a pause. Just want to make sure I am hearing that correct but again you continue to have a high hurdle?

And then secondly David wondering if you could talk a little bit about the media business, it's been a shining star I think relatively speaking across all the other holding companies in terms of particular assets and just would love to get an update how your media assets are doing and the outlook for the remainder of the year? Thanks very much.

Peter, thank you. So with regard to M&A we are for the most part still completely focused on organic growth and expansion of our business by hiring talent and building from our existing infrastructure.

What we are looking at is if there are small tuck unders that will accelerate some of our progression in the areas of analytics, media and experiential and consumer insight as well as multi-cultural we would look at that. But they will be modest.

Our organic growth is so good that we could afford to just focus on our existing models. It’s been 18 months where we’ve done zero.

I anticipate over the next 18 months it won’t be zero but it will be very modest in relation to the historic activity that we have had, number one. David could talk about the media business from a financial perspective I'll just say strategically.

Our media investments, especially in digital media have been extraordinary. The returns for us are beyond our expectations and north of 25%.

Our margins are well north of 20% and it has been a phenomenal area of opportunity for us especially in the digital and direct response area. David?

Sure. Overall Peter, the media business has been growing faster than the company as a whole.

Year-to-date it's really growing in the double-digits from a top line standpoint and from a bottom-line standpoint north of 20%. So it’s been a very strong addition.

As Miles said, margins were in excess of MDC as a whole and pushing the mid-20. So we are very pleased with the progress of digital and I still believe it’s very early days in terms of our opportunity to drive accelerated growth and market share gains in that sector.

Great, thank you both.

Thank you.

Hi, good afternoon guys. Just give a little update on the international expansion plans and particularly how margins are tracking there specifically relative to your expectations?

So you know we haven’t done a lot incrementally in the quarter. You know China is now up and running for both Allison Partners and Anomaly.

The other parts, all of our international expansion is going probably ahead of where would expect overall and we are getting a lot of traction from our American clients internationally. So we are thrilled both from the work we are doing, the quality of talent we have attracted and the traction we have with our clients and financially it is either on or ahead of expectation across the board.

And maybe just one quick follow-up. How much is your work around programmatic buying helping those strong media margins?

I don't quite. Do you want to?

Sure. Absolutely our business at media management is doing exceedingly well.

And it’s been beneficial to the overall media product offering that we have as well as the margin profile of the business. As we have discussed before our focus on driving performance, leveraging data and technology is a big opportunity for us to make a difference for our client, drive return on marketing investment for them, which in turn drives very strong return for us.

Yes and you know we would wish that it could be ten times larger because it’s been a phenomenal success story for us but more importantly it’s been a phenomenal success story for our clients that the customer acquisition cost is dramatically lower through them and the life time value of the customer is much higher. So it’s really one of these wonderful win-win things.

It’s great for clients, it’s great for Varick and it’s great for us as a company. We continue to scale that business but you got to keep in mind that business is about 2% of our revenue.

So as wonderful as it is it's maybe you got an extra 0.1% or 0.2% appreciation on our margin relative to the norm. As it scales it will hopefully have a greater impact but we are obviously thrilled with the business both strategically and financially.

That’s really helpful. Thanks.

Good afternoon.

Hello.

Couple of questions around deferred acquisition consideration. The first would just be, of the 78 million current portion how much is due to be paid and the balance of calendar’13 and then the second would be I just want to understand how it evolves from here in a scenario where there are no more acquisitions, where there is zero over the next 18 months and we are not seeing that.

So you paid down $76 million in the quarter. It only declined by $64 million from $198 million to $134 million, so I get that I mean your agencies performed well which is a good thing problem to have, high class problem that it can go up.

Just like to understand given how much you paid in this quarter are you at a point right now where if your agencies continue to kill it that we wouldn’t see that continue to go up?

So Matt, I want to clarify one thing because you need to look at the totality of the deferred acquisition consideration with any step ups we might have done in the quarter. So there is a reduction concurrently in the redeemable non-controlling interest in the non-controlling interest line that offset the large majority of the gap between what we paid in the second quarter in terms of deferred acquisition payment and the decline in the deferred acquisition line on the balance sheet.

So $76 million is reduction in our total obligations?

So just to clarify that, in terms of how we see the coming 18 months going forward we expect about $40 million to be paid in the second half of the year of this year and in 2014 about $70 million. So the vast majority of the remaining deferreds will be paid in the next 18 months at which point the number becomes largely relevant to the overall capital needs of the company.

Just to explain most of the things we’ve already hit the tap. So there is no more additional contingent consideration in a number of them and those that have a little bit more or less it ends in 2013.

And so the payment in ’14 is very modest and it basically goes to a negligible amount. So we will have completed all of the payments for our existing acquisitions that are on the balance sheet by the end of Q2 of 2014 other than a few bucks.

As it relates to going forward we don’t see, we see generating probably 50 million of free cash flow going forward on a growing basis and we don’t see contingent consideration being anywhere significant in relation to historic levels, in addition to the fact that our free cash flow is so strong. So we will have the high class problem of having dramatically increased free cash flow and no future obligation of any material amount from the enormous success what we have enjoyed.

We probably spent about $300 million on acquisitions over the last three and half years. We probably generated between $90 million and $100 million of EBITDA from those acquisitions and net of the cash probably $200 million of total payments and about $90 million to $100 million of EBITDA.

So it’s been extraordinarily successful for us and that includes the contingent consideration. So going forward we do not see, basically we’ve come through the big issues of contingent considerations going forward, it’s very small amounts, probably less than 40% of our current EBITDA and that will drop off to probably 10% or 20% of our EBITDA in ’15 and beyond.

And we do not see making acquisitions that we will increase deferred consideration on any significant amount going forward.

So thanks for that clarification and additional explanation. Just wanted to shift to the PMS segment which had a 2% organic decline in the quarter.

So can you provide some more color around what drove that and what the near term outlook is for that segment?

That’s just timing issues by the end of the year we anticipate that the performance marketing services group will grow into high single digits, mid to high single digits organic top line but bottom line will be more significant than that. And so that’s just a timing issue.

You will see a much stronger second half of the year and going forward those numbers are both organic growth and margin will be as good as the rest of the average of our business going forward.

Appreciate that, thank you.

Thank you.

Thank you. Two sort of related questions on operating leverage, that's really impressive by the way.

So the first question I guess more near term you are a little -- versus our estimate you had really strong operating leverage, a little light on revenue. It sounds like part of that was timing issue on the revenue side but that’s a kind of lay terms and just you can just give anymore color but where did all the incremental operating leverage come from, was there anything that just sort of kicked or so?

Yeah I mean it’s important to understand the comments that David made. we have less flow through revenue, meaning out of pocket expenses where we have no markup and we have much more increase in fee revenue as a result of that, that’s much higher margin.

So a big part of it is -- think about what transpired, revenue grew $13 million, but profitability grew $10 million. So we literally had 80% conversion on the incremental revenue dollar to the bottom line.

In addition to that we have lower labor costs. So as we said we thought we had 400 to 500 basis points of labor at a higher rate than the rest of the industry and we are looking and improving that as we go forward so we are getting a higher conversion as labor drops and I would say that labor has probably dropped somewhere in the neighborhood of 100 basis points already as a percentage of our revenue.

So it’s from lower labor cost, its higher fee and equivalent revenue and it’s also you get scaled by leveraging the infrastructure. So the conversion of aggressive new business wins accelerates your overall profitability.

We believe that we will see in the second half of the year the consistency of appreciation in our conversion and that’s why we have raised our guidance on margin again but there is no question that we, the only thing that we can predict is how much pass through revenue will happen. What we are forecasting is on the basis of the fee and equivalent revenue that we see today.

Our revenue could be a little higher if pass through increases but what we care about is the conversion and the margin and so we don't think that 80% conversion is the norm, I think we had an extra ordinary period but we have always talked about that 30% to 40% margin conversion, sorry the conversion of incremental revenue to the bottom line would be about 30% or 40% on an ongoing basis. This was exceptional but it’s exceptional because of the amount of fee revenue and also the significant initiatives we had to reduce labor cost.

Thank you. And if I can ask a follow-up, a little bit longer term.

I think question is kind of more directed to David, the convention I think for investors in this space is often to look at EBIT margin or maybe even more quicker to size in on EBITDA margin before amortization and asset depreciation. Would you kind of -- could you throw out kind of an equivalent target on EBIT, you're matching that 15% to 17% EBITDA margins over a similar timeframe?

In other words, I guess the question is when do you think you get the kind of industry standard EBIT margins?

Here is the problem. We don't control foreign exchange translation and we don't control amortization of intangibles.

So those things are the things that get us a little bit out of whack. Our amortization number alone is 15% to 20%.

Our total amortization of intangibles and deprecation is $30 million, $40 million?

It’s up $40 million, we are expecting this year but if at overall you know we earned about 1.5% to 2% of revenue from depreciation. So if you wanted to net out the impact of acquisitions on amortization intangibles and just look at EBITDA minus depreciation you would be looking at the 15% to 17% EBITDA, take 1.5% to 2% out of that to get to a implied EBIT ex acquisition.

But if you ask us long term could we get this 16% PBT margin we should be able to get to that kind of level over a five year period. There is nothing that we have that doesn’t allow us to have superior margins than every single one of our competitors and we will do so with a lot less real leverage netting out the cash that belongs to clients.

So we are very comfortable. We have given you 15% to 17%.

As you saw in the quarter we had 15.1%. We are tracking at least 100 to 150 basis points more than we would have thought at this point in time.

So the 15% to 17% level is we think a conservative level if you look at our three to five plan. So if you look at what we could accomplish there is probably another 100 basis points at least, 150 basis points of upside if you took the timeframe out.

And the accounting of depreciation and amortization of intangibles as long as the accounting rules don’t change we are very comfortable with the guidance that we are giving you.

Thank you very much, guys.

Thanks gentlemen. Miles could you elaborate a little bit on why you expect to see more strengthened performance measurement in the second half?

Because we have high visibility, we have had great new business wins, the revenue recognition of that will happen much more in the second half it is always a much stronger second half business, probably 60% of this business happens, to 65 in the second half of the year. So as a result of that just a seasonal adjustment and the timing of stuff that we have visibility on our pipeline and our net new business wins will trend right into that.

Got it. In terms of the free cash flow that’s in your hand out dividend what is that 80 to 85 is that -- does that include working capital or just want to be clear as to what that is?

It does not include working capital. It as we define is EBITDA minus minority interest payments minus capital expenditures minus cash interest net minus cash taxes and that’s the number.

From working capital standpoint we are tracking well ahead of that number and I forgot, I think it’s $28 million. It’s in the schedule in the press release in terms of the working capital generating cash for us.

But as you know we moved ago to guiding just the free cash flow from operations and with a target of having positive cash generation from working capital on ongoing basis we are tracking very well on all aspects of that. But the 80 million to 85 million is before working capital.

So the total we are looking at this point if we don’t generate any more working capital appreciation the sort of 110 million to 115 million of total cash generation.

Miles in terms of your ability to accelerate your margin expansion you talked about part of it mix of the business less pass-thrus. I am not sure is that something that you can control, one?

And as it relates to labor how do you go about driving down the labor content or the mix in that business?

Two things, first of all pass through is pass-through what we look at though is we look at profitability EBITDA as a percentage of being equivalent revenue and that continues to appreciate because we are getting bigger assignments from our clients. When you get bigger assignments you have better margins.

In addition we have incredible organic growth from our existing clients. So you have the same staffing on a much bigger revenue basis.

So you have much more flow through. In addition to that what we have looked at and – has been helpful to the rest of our team as we are looking areas of labor that are much more infrastructure and overhead and not giving with the services we provide clients, and we have identified areas which were nice to have but not essential and that’s allowed us to look at things in a different way.

In addition we are leveraging our infrastructure. So we are looking at infrastructure cost that are individual at the company level that we are now starting to centralize in our shared services activity which is allowing us to reduce cost.

In addition to that we have changed our compensation model so that our senior partners are rewarded not only on overall growth but margin appreciation and overhead reduction and conversion. So we believe that would get measured, get done and if you want to have performance you should give people economic rewards for rewarding their performance.

It has changed the behavior a number of our other partner firms that has led to not only significantly higher margin but the prospects that we see over the next 24 months to 36 months that trend continue on all of our businesses as we continue to scale it. And we are doing so also with the notion that we don’t want to starve our businesses for investment and those then that make high return for people who are very good capital -- see opportunities we will continue to invest in despite that we can still have superior margin appreciation and get to the best in industry margin performance.

Terrific job guys. Thanks for the answer Miles.

Thank you.

Hey guys congratulations on terrific quarter I never seen that any company -- can see yourself as doing a really great job. Operating profit you guys never leave my estimate you beat my estimate by $5 million it looks like OGNA was a big contributor to that down roughly $11 million, $12 million year-on-year.

What percentage of that is coming from this non-cash compensation and this is a size of your footprint on facilities just kind of a big number of that looks terrific and I am wondering if we should be looking at this quarter’s number as kind of a starting off point as we look at other quarters?

Rich there are really two things that are benefiting that. And one is surely the leverage we are getting as we scale our business, there is a portion of that it’s a bit more fixed in terms of our expense structure and we will continue to benefit from that going forward.

The other I mean something that we’ve talked about before but it impacts the financials in this quarter is as you know Miles had a historical loan out from the company that we paid back in April this year about $5 million and it has been previously reserved and so kicks in as offset to extent and benefit the bottom line in the quarter.

Okay. If you look at things that are going on in digital media…

I need to clarify one more thing. We are actually expanding our footprint 72 [inaudible] now in almost 80,000 seats they were in 20,000 seats.

We are hiring people, we have record employment and we’re expanding our facilities our best businesses are expanding significantly so we are not starting anything. But we are…

No, no, I didn't mean to assume that, I mean I was just looking….

So we are expanding actually significantly and we are investing but the benefit that we have of the overall leverage some of that by the way you have seen that. Because you remember late year by the way you haven’t seen it because you remember last year we earned somewhere in the neighborhood of $41 million in the first half, you earned $77 million in the second half that was more back end weighted.

This will not be quite as back end weighted but if you look at what we are forecasting we have done approximately $73 million in the first half of the year against as I said last year 40 million. So we are up you call it 80% but in second half of the year we are forecasting at this level to earn approximately $82 million to $85 million I think 77 million.

So that’s how it’s not quite back end weighted as last year you are going through around 55% from 65%.

Thank you that was helpful. Follow up question on digital.

Disney, all the partners making $750 million investment in Hulu, I think we are going to see more investments in businesses and some of those investments make way down the marketing how does MDC positioned to benefit and what kind of services do you provide for a company like Hulu who will or any other company that you provide for and how does that kind of secular sea change influence your opportunities just generally speaking.

We are the biggest beneficiary of the disruption in technology between the ones that are public Microsoft, Google, Samsung, Hewlett Packard, Intel. We are one of the biggest players of increasing share in the technology sector because of the transformational nature of the work we do.

So we see the more change, the more disruption, the more uncertainty the more competition, the better it is for our businesses to win new business and incremental share of wallet from the tech sector. Tech sector is probably been one of the fastest growing areas of growth for us and we see huge opportunity for that on domestically and internationally.

And one additional question, is there any notable pitching activity in the quarter that we should just kind of look out for it seems pretty quiet out there right now.

We do not find it quiet. We have a robust pipeline across the entire [60] agency sector.

So we have the benefit because we have a small share of market that any amount of activity that we win has a significant impact on our business. We just won yesterday I think it was announced Siemens which was actually a cross referral opportunity that happened within the group.

The amount of cross referral net new business wins in the company has been spectacular and it continues to accelerate. So we are seeing a lot of activity.

We are converting more and more of our pitches to win I bet you our win ratio is probably up 100% over the last two years. We are pitching very fewer things, we are getting a lot of things just being given to us and we are being much more selective which has enabled us to lower our pitching cost and increasing our conversion.

Thank you very much and again congratulations.

Thank you.

Actually all of my questions have been asked. Thank you very much.

Thank you.

Hi, just wanted to ask a clarification David on your comment regarding the deferred acquisition payment of the use of $76 million. It looks like just from what’s in press release that was made after the quarter closed, is that correct?

No that was what was paid in the second quarter.

In the second quarter. So can I just ask or I guess if I just look at -- you ended the quarter with a cash balance of 77 and change after paying out 76 million.

Correct, that’s correct.

Was the revolver drawn?

No, zero. The entire revolver is undrawn.

Okay and you said roughly $40 million for the balance of the year.

Correct.

Perfect. Thank you very much.

Thank you. I mean it’s important to understand how much cash we generated actually for the first six months.

So David why don’t you talk about that.

Sure. So with the combined free cash flow of the business which is on schedule IV of the press release there is $40.8 million of free cash flow just from the operations of the business and in addition to that the benefit of working capital was $25.8 million.

So overall we are looking at $67 million of overall cash generation in the first half, which is seasonally typically our smallest half of the year in terms of cash generation. So we are always looking at higher EBITDA in the second half as well as better working capital performance historically in the second half.

So we have very high hopes as Miles alluded to earlier about cash generation overall for the company that will be in excess $100 million which is the 80 million to 85 million free cash flow guidance from our definition operations plus the incremental cash generation from working capital.

In addition to that what we don’t include is media float movements. And so we had additional benefits of additional media float and that’s why the cash actually went higher and that’s why you are able to get $77 million of payments made in the quarter and still deleverage the business because we don't -- what David described is permanent cash.

We don't look at temporary cash but we were the beneficiary of the significant amount of media payments and prepayments on production in the quarter but that’s temporary. So that’s the reconciliation of why you paid us $77 million, $76 million but you had $77 million in the paid out and you still have even more cash generation, but that cash generation is from the float and that float will go up and down over the course of the year.

We don't count that as our money. So that’s why if you add that there was even more significant cash generation if you include that but that’s not something that we count on.

So David, to that same point, that was helpful. I assume that money should flow out in the second half of the year, is that a reasonable assumption?

No, which front you are referring to?

The media, the incremental media.

The answer is no. If our media business grows our float grows.

We just don't talk about it because it moves around on a given day but as our media business grows our float grows. But our float tiny in relation to our competitors but it will continue to grow on a trending basis as the media business grows but we are talking about we can’t predict it on a day-to-day basis.

So that’s why we don't look at it and our forecast is for any quarter but over the course of time it should increase but we don't look at that as our money, we put that aside as just excess flow that belongs to our clients.

Okay, just a couple of follow-ups. CapEx in the quarter David and I am sure you have it somewhere around, I am just perhaps I missed it.

Yeah CapEx for the quarter was, one moment, $9.6 million with year-to-date and we had about 3 million in the first quarter so it’s little north of 6 million in the quarter.

Okay. And did you actually, you paid out the dividend in the second quarter?

We did. We paid out the dividend with the six months dividend was $9.2 million.

Okay, makes sense. Going forward we are going to pay $0.17 a quarter.

Correct.

Is how we should model. Okay, thanks guys.

Thank you.

Hey, sorry, didn't ask this one before. Since we are now going to regular dividend as well as increasing it a little bit or we do assume that management is sending a signals that they want cash flow, A, to think about cash flows being there and for real and B, the Board is kind of being very how do you say you know the Board is trying to send a signal about discipline in capital?

I would hope that we have sent that signals in 2008 that we are very prudent on husbanding our capital and we are very focused on transitioning the conversion of revenues, EBITDA and EBITDA out of the cash flow. We are tracking, as David articulates probably 30 or 40 million of free cash flow ahead of our own expectations.

The increase of the dividend although in a percentage terms is significant on an absolute amount of increase of the dividends that the dividend is irrelevant, it’s about you know if you include $0.12 a year on 30 million shares at $3.6 million that’s less than 4.5% of our free cash flow. So it’s a tiny amount of the increase but as we stated in the presentation we anticipate as the free cash flow grows the dividend will grow and we would like to target and the Board believes that a 3% dividend yield is very attractive for investors.

It still gives us oodles amounts of excess free cash flow to run our business to grow our business to capitalized on opportunities if as and when they are there. So it’s as we stayed a long time ago we think that dividend should represent 20% to 25% of our free cash flow.

And that’s our expectation on a going forward basis which allows us conservative husbanding of cash to look at other opportunities but rewarding the patience of our shareholders at the same time.

We do obviously deals very confident in the long-term stability of the cash flow and the cash generation of the business.

Right. Thank you very much.

Thank you.

Thanks and good evening Miles I was hoping may be you could provide a little bit more color on that new business pipeline in terms of may be an economic outlook or either your existing clients or new clients sounding a little bit more optimistic about accelerated economic growth or is there something else that is changing below the surface here?

So we’ve hired approximately 15 new business people over the last 18 months for our partner firms and ourselves. At the corporate group alone in the support center we have Bob Kantor in New York, we have Chad Saul in LA, we have Ryan Linder in Miami, we have Terry Donnelly in Toronto – support center looking for new business opportunities with clients and with the consultants.

We’ve hired another probably dozen people at the partner level to be much more aggressive at prospecting every business on an ongoing basis. The win that the aggressive sort of the successful pipeline that we see, we think there is a reflection of three things.

Clients have seen the impact of the work we do. Some of it is exceedingly high profile and has defined the expectations of the industry for instance the work we did for Samsung and Samsung Galaxy phones was transformational.

The work we’ve done for Domino’s where they’ve grown 67%yesterday in an industry that’s flat and on honing home goods et cetera. We go through case by case.

So better impact of the work for our clients too winning greater share of quality if you have higher return on marketing investment then getting elsewhere you have a propensity to spend more money with us. And thirdly share of market because we are winning new business.

It is not a reflection that everybody says the world’s wonderful we see the same things that everybody else does. We are seeing slow GDP growth that should accelerate the second half.

People are talking about sort of 2.5 to 3% GDP growth started in the second half of the year, up from both 1.5% to 1.8% now, still not material. But what we are seeing is that there is a polarization between the haves and the have-nots.

The companies that are enjoying better market share gains are investing behind that. But for us really the story is share of wallet.

We are just getting more of dollars from our clients at the expense of more competitors more of them seeing accelerated growth keep in mind that our growth is all North American. Our international business is still minuscule, it’s less than 5% of our business, our North American business is still 95% of our business.

So we are not getting the benefit of growth in China and some other markets that are growing rapidly even though they are much slower than they used to be. So I would say the message we are hearing from clients is cautious.

I think it’s probably better though than the numbers indicate but the issues, uncertainty with government has really could have damper on the enthusiasm of corporate America and their propensity to more aggressive in their expansion both in terms of M&A and capital deployment. So I don’t think we hear much different than what you hear but what we do see is when you can the prime success in measureable terms there is a lot of excess cash on the balance sheets of our clients to put to work in marketing innovation.

Great and you've offered me a pretty good segue there with your comments on international. You are telling what you talked about China and you got a couple of offices opened in Europe and I think you would start to do some work in Brazil as well so any updates you can provide in terms of how those business is maturing in admittedly difficult environments particularly continental Europe.

We have been right on the money in our call five years ago where to be that the bet to make on America was the bet to make. I am not going to take authorship of [inaudible] take the authorship, I am just a late riser who followed it but we are seeing that Brazil is not nearly what it was cracked up to be but we don't have any capital deployed there, we have a joint-venture.

Our revenues internationally are up 27%, be it from the very modest days so we are very pleased. We are going where our client needed to be.

We don't go anywhere where there isn’t a commitment in writing of revenue to justify our investment. So for instance our China businesses will be profitable in the first year of operation and that’s because of the revenue we had committed.

We do not see any need to expand our European footprint at this point in time, the uncertainty that exists cause us consternation of why we would deploy additional capital in relation to the business we have. We are comfortable with the quality of those businesses, depth of talent that exists there.

As it relates to India and China we are not in India. I don't see a need at this point of time and our Chinese footprint is adequate to service the existing and anticipated needs of our current clients.

What we do see though is that America is the best place to be for advertising spend although it’s growth is not that significant overall our ability to capture share leads us to be very confident that our long term plan of at least 5% to 7% top line growth and 7% to 10% bottom line growth focused mostly in North America is very comfortable long term ambition that we continue to keep as our goal going forward.

Great. Thanks for that Miles.

Thank you.

Thank you very much for your enthusiastic participation and excellent questions and very positive affirmation of our results. We appreciate it.

We look forward to being back with you again in October and on behalf of our management team we hope that you enjoy the rest of your summer and we look forward to speaking with you soon. Have a very good evening.

Take care.