Feb 20, 2014
Executives
Matt Chesler –Vice President-Investor Relations Miles Nadal – Chairman and Chief Executive Officer David Doft – Chief Financial Officer
Analysts
David Bank – RBC Capital Markets Dan Salmon – BMO Capital Markets Peter C. Stable – Wells Fargo Securities LLC Barry Lucas – Gabelli & Company Rich Tullo – Albert Fried & Company, LLC Eugene Fox III – Cardinal Capital Management LLC
Operator
Good afternoon and welcome to the MDC Partners Fourth Quarter Results Conference Call. All participants will be in listen-only mode.
(Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Matt Chesler, Vice President of Investor Relations. Please go ahead.
Matt Chesler
Good afternoon and thank you for joining The MDC Partners 2013 fourth quarter conference call. Joining me 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 presentations and further detailed on the Company's Form 10-K and other SEC filings.
We posted in investor presentation to our website and 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.
Miles Nadal
Thank you very much Matt and thank you very much. Good afternoon, ladies and gentlemen.
David and I will provide some brief remarks and then we’ll open it up to your questions. The fourth quarter capped another exceptional year for MDC with strong performance for our businesses across the board.
After year reporting record metrics in 2012, we delivered continuous improvement in 2013 and in fact exceeded all of our own internal metrics for the entire year. This led to industry leading organic revenue growth, strong EBITDA growth, operating leverage and solid free cash flow growth of 82%.
We also continue to make exceedingly good progress on strengthening our balance sheet in increasing our liquidity more specifically our organic revenue growth for the year was an industry leading 8.3%, outpacing the industry by three times. For reference fourth quarter organic revenue growth was an industry leading 5%, which was on the top of the 12% organic growth from last year in the fourth quarter which was a record.
Reported revenue was $1.15 billion for the year, an increase of 8.1% over the last year, keep in mind this included no acquisitions. EBITDA grew, a healthy 33% for the year again all organic, but what we are really excited about is the expanded margins of some 260 basis points to 13.9% even better than the 220 to 240 basis points that we factored into the last set of guidance metrics, which we provided which was the third guidance increase for the fiscal year 2013.
As we committed to early in 2012, we have focused exclusively on improving and driving the productivity and efficiency of our business by leveraging our investments and our increasing our talent organically, which has led us to exceed all financial metrics of performance over the last two years including increasing margins by a record 400 basis points over that time. We are getting even closer at an accelerated rate to our median term margin target of 15% to 17%.
As you can see we are now in spinning distance of that objective. During the year we significantly strengthened our balance sheet, reduced our borrowing cost dramatically, improved our flexibility to use our capital to the benefit of our shareholders.
In March, we refinanced our 11% coupon debt with 6.75% notes materially reducing our interest costs. Then in November, we opportunistically raised another $110 million at an effective yield of 5.75% representing a further improvement in our lowering cost of capital.
We have six years left on our senior notes. We have $100 million of cash at 12/31 and a completely undrawn $225 million bank facilities.
We’ve been able to do this even as we increased our quarterly dividend by 93% over the course of the year to $0.18 per share this quarter and we repurchase 7% of the shares outstanding during the year. Our current dividend represents around 25% of our free cash flow, which is basically conservative and on target with our long-term capital market strategy, the strong means by which to return cash to shareholders and demonstrate our conviction in the future cash flow generation of our business.
This year we also offer the liquidity of our stock through a three-for-two split and the early results have been very encouraging. Our trading volume is up 27% since the split in November versus the 12 months prior.
Operationally our business had an extraordinary year in 2013. Across our portfolio we continue to deliver successful, impactful award winning results for our clients.
72andsunny recently won Agency of the Year from Adweek, which follows its Agency of the Year wins at Ad Age last year. Earlier this month all my MDC Partner agencies were reorganized by Ad Age is being at top of the industry; Anomaly, 72andsunny, Vitro and Kbs+.
While Doner was reorganized as Agency of the Year by the Delaney Report. The great and successful work done by these and other partner agencies on behalf of clients to deliver industry leading return on marketing investment has led to another exceptional year of net new business as we reached $133 million of net new business wins for the year.
This included $25 million of net new business in the fourth quarter, so once again we are asked, can we continue to grow and can we be better in 2014 than we were in 2013. We believe and have conviction the answer is a resounding yes.
From a short-term perspective, our new business pipeline is a strong and robust as ever and is diversified across the spectrum of our network is ever. Recent win that we can publicly disclose include JC Penney, Starbucks, Hotels.com, BMO, Bristol-Myers Squibb and Merck.
What’s important about our pipeline is as if I said earlier its broad based from a portfolio standpoint and from a vertical standpoint from a geographic standpoint as well. It really demonstrates how our businesses evolved over the years and have our investment in collaboration and cross selling through our marketing departments across our partner firms is accelerating and how our investments in areas like PR, healthcare, media International and others are really paying off dividends at an accelerated rate.
As we have said before it’s the nature of our business for clients to come and go for seasonality to impact our quarter-to-quarter results. In 2014, that will be the case at the annual guidance David will discuss with you will be more back-end weighted in 2013 and go back to a more normalized level like ’12 – from 10 to 12 that we experience.
This is exactly why we cannot and we’ll not run our business on a quarter-to-quarter basis we will run it to grow value each and every on an annualize basis. So we look at the longer-term typically one to three years out and that’s where we are very well positioned.
For continuous improvement in market share and share wallet for the foreseeable future. Here is why we are just this confident about our financial framework as we were when we presented to you at our Investor Day in November.
First, it’s about the talent base that we have assembled and continue to increase and we will continue to build based upon the most important assets which is back which goes up and down the elevator everyday.
More importantly though we are armed with the right tools and agency models to deliver higher returns on clients marketing investments, there is no doubt that we offer a truly differentiated in superior solution. And with only 3%market share in North America we have a lot of room to run.
It’s something we are proud of that we tripled our market share though over the last five years. Second, we are building our international presence on an intelligent and profitable basis that works for the best interest of both clients, the agencies and very importantly our shareholders and stakeholders.
If you look back a few years ago, when we were a smaller business, we were essentially a 100% North American focused. Now over 7% of our revenue is in Europe and Asia, and our business in both regions is growing rapidly in excess of 30% growth each and every year.
We just opened up in Brazil, with an extraordinary management team by Crispin Porter and Bogusky further opening up an additional growth opportunity for our existing and potentially new clients. We’ve opened up the opportunity for more and more global engagement which is critical as more than half the global advertising spend is outside of North America.
But we do so on a highly profitable risk sensitive model. Third, we are seeing great contribution from our media services platforms and expect more in the months and years to come.
This investment was well timed and has exceeded our expectations both in terms of revenue growth and profitability with the convergence of data, analytics and technology, media is increasingly more of a performance than scale. The entrepreneurial opportunity that we identify sits right in our sweet spot and we see it exceedingly well positioned to capitalize on the changing media landscape.
Think about how we have been disrupting the creative services space, with a wonderful collection of the most nimble, agile firms foreign modeled without silos and armed with the tools and technology to drive higher return on investment for marketing for our clients. We are doing the exact same thing in media at a time when those changes favor the board and the entrepreneurial.
Finally as we flagged at our Investor Day, we are beginning to look at opportunistic tuck under acquisitions as we seek to maximize our growth opportunities and deploy some of our excess cash. We view our selves as proven acceleration company that can identify great businesses and very advantageous evaluations and bolster our strategic offering to clients and help them scale these business to the next level, generating exceptional shareholder returns along the way that exceed our cost of capital on multiples, in fact over the last five years we have over 44% return on invested capital on all the acquisition that we have made.
We have now completed two deals in 2013, although modest in scale they are strategically, enormously valuable and give us and enhance sustainable point of differentiation, those two or once global and Kingsdale shareholder services that we announced yesterday. Each of these is right in our sweet spot, modest in size, hugely accretive to our capabilities in strategic communication services are most profitable in highest value added area, into our future growth outlook on all financial metrics.
And so, they bit extremely well with the MDCs broader communications and strategic advisory group at now include Allison & Partners, HL Group, Sloane & Company, kwittken & company and Bryan Mills Iradesso. These deals also meet all of the financial metrics that we typically target in terms of growth margins and return invested capital as well as our 20% minimum return hurdle.
In Luntz Global we have partnered with the preeminent communications agency specializing in leveraging consumer insights for prices management, reputation management, and message creation for commercial and political clients. Utilizing proprietary message with instinct response polling and market research together with demographic segmentation Luntz customize brand base messaging and other corporate communications activities.
That client list is extraordinary and in the first six weeks of being involved we have already identified in our working on six cross selling opportunities on the significant magnitude. So, it is although one six week does not a whole carrier make we are thrilled with the bit in the opportunities that we have identified early on when we entered into the [indiscernible].
And in Kingsdale which we announced yesterday we have partnered with another highly strategic communications from that provides corporate communications investor relations, transaction communications crisis management and strategic solutions decline across North America and particularly in the sensitive area proxy situation. They are the leader with over 90% share in all areas of strategic shareholder advisory services a specialization as meaningfully enhances our total strategic communications offerings.
This area of growth which has been huge in its demand by our clients provides an opportunity especially in the Europe escalating M&A activity and increasing shareholder activisms. Our clients are in greater need of the specialized strategic communications and advise at the sweet level and the board level that Kingsdale provides.
Similar to these, we are looking for modest digestible permits that are on the cusp of breaking out. As we said before it is reasonable to expect that we will on average add between 3% and 5% a year through revenue via smaller strategic tuck under from areas such as medium analytic consumer insight strategy and console to the communications.
These elements taking together with our financial framework that we committed to in Investor Day which David will reiterate today that’s the stage or very exciting growth area to come but not only 2014 but the next three to five years. To conclude, we believe that our competitive position remains incredibly strong and increasing in fact and our unique approach to partnership with and fostering the best talent in the industry who believe success means driving tangible, measurable return on investment for our clients, making brands famous is truly and clearly working.
We own the talent mission as the place where great talent lives. We’ve been able to consistently recruit and retain the thought leaders who come to work each and every day, most importantly putting our client success first and foremost.
I have always said that financial success in our industry is a byproduct of excellence in performance for our clients and creating a culture in D&A that enables us to replicate that each and every day. We’re extremely confident in our business as we move into the remainder of 2014 and beyond and we believe that our hard work and growth strategy will translate into meaningful shareholder value appreciation.
I would like to articulate our appreciation for the tremendous support that we have received from all of our shareholders and all of our bondholders and to thank the management team for their extraordinary efforts to deliver a wonderful year for our shareholders. I’d like to now turn over the call to David.
David?
David Doft
Thank you, Miles, and good afternoon. As you know, we increased revenue guidance twice and EBITDA and free cash flow guidance three times during the year.
While well ahead of our initial guidance full year revenues felt slightly below the range, largely due to the mix shift we have long spoken about where we are generating a higher percentage of fee-based business as compared to pass-through revenue in what we had initially forecasted. This caused the company 2% of revenue growth for the year.
Reported revenue was also impacted by the accounting for some foreign currency headwinds as well as the effect from some discontinued operations of our legacy and non-core underperforming businesses as part of our ongoing portfolio optimization efforts. In this context, we are thrilled with our revenue growth for the year and our ability to covert a higher percentage of it to the bottom line.
Moving on to the economy and what we are seeing from our clients as we move through the early days of 2014. Despite the choppy beginning for the year in the stock market, we continue to be optimistic about the economic outlook and our clients’ propensity to invest in advertising and marketing.
Indeed, the early trends are highly converging. Remember, we do not have much exposure to emerging markets that have been at the root of some of the recent financial market volatility and sector growth concern.
To begin with the continued reduction in unemployment and solid trend line in initial job less claims continue to bolster consumer spending. The strength of the consumer is further bolstered by the modest expansion of household debt as household gained confidence from rising home prices.
Marketers have been eager to chase this growth with investment in new product development and advertising and marketing. Thus we see another year of solid growth in spending.
Our financial guidance is influenced by this. For 2014, we expect revenue to increase 7.1% to 9.2% to a range of $1.23 billion to $1.255 billion.
Our revenue guidance implies 5% to 7% organic growth, plus about 3% growth from the recent acquisition offset by about 1% negative impact from foreign currency headwinds, particularly the Canadian dollar. EBITDA is expected to increase 11% to 13.5% to a range of $177 million to $181 million.
This implies EBITDA margins of 14.4%, representing an expansion of margin by 50 basis points on top of the extraordinary margin expansion in the last two years. With the incremental interest from our November 2013 add-on bond offering, free cash flow is expected to increase 13.6% to 18.0% to a range of $104 million to $108 million.
It is important to note the seasonality we expect from our business in 2014. Last year was a bit of an anomaly in our quarterly progression with the first half of the year benefiting from significant leverage of prior investments combined with cost reductions that took place late in 2012.
2014 is expected to have a somewhat different progression as the combination of the impact of the reduction in certain clients plus roughly $5 million of severance in the first quarter will lead EBITDA to be flat or down for the quarter before bouncing back solidly in Q2. Thus we look at the first half, second half waiving of EBITDA to be more like 40%, 60%, rest assured with a continued strong new business pipeline.
We have excellent visibility to continued industry-leading organic growth for full year. We are highly confident in our fiscal year forecast.
Lastly, I want to remind you that our financial framework, which we committed to our Investor Day in November, is based 5% to 7% organic revenue growth and 50 to 100 basis points of margin expansion on average, thus implying roughly 10% EBITDA growth on an organic basis annually. As we have a very capital efficient model with low capital intensity and significant tax shelter, we expect it to translate into 20% free cash flow compounded 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 story.
The second part is an opportunistic and accretive acquisition strategy. As Miles noted, we expect that we should be able to add on average 3% to 5% annually in revenues via acquisition.
Our strategy remains focused on partnering with firms on the cost plus superior growth, usually with revenues in the $10 million to $30 million range. This would bring our expected revenue growth to double-digit in combination with our organic growth.
Key to our acquisition strategy is that we focused on partnering with growing, profitable agencies with target margins of 20%. This means that we should be able to add 5% to 7% EBITDA, bringing EBITDA growth to the mid-teens percent.
With our tax shelter this would bring compound free cash flow growth to 25% to 30% annually. This makes for a very strong means of driving superior equity returns over the next several years.
Thank you. We look forward to seeing many of you at upcoming investor conferences and with that we’d like to now take your questions.
Operator
(Operator Instructions) Our first question comes from David Bank at RBC.
David Bank – RBC Capital Markets
Hey, thanks very much guys. I can’t believe we’ve got to this point, but I was wondering if you have any additional color on sort of domestic versus international organic growth and a little bit sort of commentary on organic growth trends.
It seems like at least in the fourth quarter the performance versus the rest of the peer group was a little bit narrower than I might have been expecting and I’m wondering do you think you are going to trend closer to the overall peer group or do you – what’s the level of kind of outperformance you expect going forward? That’s my first question.
And second…
Miles Nadal
Let us deal with the first one.
David Bank – RBC Capital Markets
Sure.
Miles Nadal
We’re thrilled with our year. We managed the years, not quarters.
I still think that we’re over a 100% growth over our peers for the quarter, let alone for the year. I think part of it is I think as we said we overall 5% to 7% organically each and every year, despite the economic environment forwarding force measure and if anything we thing there is upside to those kind of numbers I think that’s over a 100% more than anybody would expect from our peers, so the reality is that we didn’t have much Microsoft business then we had a lot less pass through revenue then we had in the previous year, but if you look at our net fee revenue we were up over 10% actually organically.
Our international business is up 30%, but it’s a tiny amount. So it doesn’t have a profound impact.
I think it’s important to look at the company on a overall year-over-year basis, 8.3% organic were the comps were 2% to 3%, we thing its extraordinary. What’s most important to us though it is the flow through to the bottom line in terms of cash flow, cash flows up 82% at $94 million.
So going forward we are highly confident that we will continue to outpace our competitors and where we will be happy 5% to 7% organic growth as our baseline case, on a top line basis and as David said 10% plus bottom line, 20% free cash flow, if we can do that we think we will create enormous value. So David I think what we will do at all cost is insure that we avoid Q3 2011 where we over promise and under delivered, and so what we are trying to do is continue to set up a base line business model as we articulated for 5 year which predicated on under promising and over delivering.
So we have as much confidence as ever that are performance relative to our peers will continue to the extraordinary and in terms of our focus we see that the overall year did trend like that, but with pass through revenue and some fluctuations of account activity from time to time it could be a variation in a quarter but not for the year.
David Bank – RBC Capital Markets
Okay thank, I guess my second question was going be on Kingsdale and I may have missed, I apologize if I did, but did you actually give a kind of evaluation on multiple of EBITDA basis that you guys paid for Kingsdale?
Miles Nadal
No, but you could assume that it is accretive on the same terms and conditions that David articulate that we look for on all transactions. But it get at least 20% returns you can anticipate.
David Bank – RBC Capital Markets
Thank you very much.
Miles Nadal
Thank you.
Operator
The next question comes from Dan Salmon at BMO Capital Markets.
Dan Salmon – BMO Capital Markets
Hey guys, let’s talk over the last year still about expansion into the media business and internationally but one of the ones that there has been a little bit more clarity as you are work in healthcare and we’re now using that up to 7% of revenue and now you mentioned a couple of big wins in that vertical, after doing a little bit of investment there over the past few years. It sounds like the wins are coming through is that becoming a more material part of your pipeline and maybe when we look at that 7% of revenue is that some thing we could see expanding in to the double-digits, low double digits in the next few years of may be some pharma spending starts to ramp up again.
Miles Nadal
Yes. I would say that we are very pleased about the strategic focus on our healthcare group.
We made enormous headway through Concentric and Doner Healthcare. We’re very pleased about the progress we made, we see enormous opportunity there as the changing healthcare reform will change how marketing dollars are spend, pharma entrepreneur away, we see the business growing at or above our normal expected growth rate, probably in access of our growth rate.
We would like to see it as the double-digit piece of our business. The critical thing that we’ve figured out though is there are parts of healthcare which are exceedingly lucrative and there are others that are not.
We have been quite discriminating to ensure that we are focused on business that is or getting paid for the value and create not just the time we put in and ensuring that we are in high value added areas. We think there is enormous potential for expansion of that and our focus on healthcare with our corporate development team is yielding terrific results we think 2014 and 2015 will continue to show progress in that regard.
Dan Salmon – BMO Capital Markets
May be just a follow up a little bit on that focus you mentioned sort of changes in the common theme and how healthcare is sold, how it’s used versus traditional big dollars in the vertical coming from big drug launches and what not? Is that sort of the distinction that you want to be around where some of the things were changing or where would, be happy to be involved with – out there with a big drug launch?
Miles Nadal
I think because 65% of our business is now online, social media and digital. It’s our ability to bring and integrate it digitally driven, digitally centric approach to marketing that we are winning share of marketing and share of wallet.
The traditional print and radio, news paper, TV approach is declining. I think we are well positioned because of our expertise in digital and social and mobile as key areas of growth process and that’s where we want to position ourselves.
Dan Salmon – BMO Capital Markets
Great, thanks a lot.
Miles Nadal
Thank you.
Operator
The next question comes from Peter Stabler, Wells Fargo Securities.
Peter C. Stable – Wells Fargo Securities LLC
Thanks for taking the question. First of all congratulations on a terrific year.
Secondly, David could you elaborate a little bit on the pass through comments because this suggest kind of more permanent mix shift and should we be read into this that perhaps the growth for the PMS segment will trail SMS over the course of the year, and then I got one quick follow-up. Thank you very much.
David Doft
Sure, we won’t talk about a mix shift. I think we are preparing for the Investor Day November and we look at what we said at the Investor Day in 2011, we began to talk about the benefits of the mix shift to our margin, and the fact, is it accelerated, so not all revenue is created equal, and that’s really the point of all of these.
Fee based revenues is much more profitable to us than better revenue which is zero profit to us, so when we manage our business day-to-day internally we actually look at net revenue fees after pass through. On that standpoint we solve our expectations shift how we got there is little bit different and you’re right it was a little bit stronger on some of the SMS businesses and will be weaker on some of the performance marketing business.
That being said we can be very excited about performance marketing business, but there is mix shift even within that segment where we’re going to start seeing the growth emerge which will help to drive margins as well in the media business, in the analytics business which are already growing, but they are becoming a bigger piece of the pie of that segment and a bigger piece of the pie of MDC overall. And we’ll allow that segment to offset some of that maybe more legacy businesses that haven’t performed as we hoped admittedly, and begin to show growth for that again in 2014.
So we believe it’s a growth business, we believe we added into our margin expansion are going forward and you’ll begin to see that very, very soon.
Miles Nadal
Yes, I would just add so we are very we believe that PF for the performance marketing services group actually will be have even more robust growth platform for us in 2014 and 2013. Secondly, is keep in mind we did read guidance twice.
We’ve raised it once on revenue and then we raised it a second time. We actually met the first guidance target because the pass through revenue of $20 million, we’re about $15 million to $20 million less than we anticipated that was all pass through.
And that’s not something that we can forecast readily, we can forecast fees and equivalent, but it is harder to forecast pass through because some production is done either through the client directly or if there is a project that’s very pass through oriented if it doesn’t has a profound impact on revenue but not on overall profitability. So we think that kind of pass through that we had for the overall years is the kind of pass through that we’ll have going forward, I think we were just a little over zealous in terms of what we thought would happen in the fourth quarter.
But was most important to us though was extraordinary convergence of revenue to profitability throughout the entire year, and as you articulated we look at the overall year and we are thrilled about the year on all financial metrics. But we don’t think, as indicates.
Peter C. Stable – Wells Fargo Securities LLC
Great. Thank you Miles, just one quick follow-up if I could.
Can you remind us David whether the media business is it exclusively in PMS or is it [indiscernible] PMS and SMS. Thank you?
David Doft
It’s largely in the performance marketing segment but the media business that are part of integrated ad agencies are in the strategic segments. In aggregate the media business continues to grow organically at double-digit levels so it continues to be a very strong performer for us.
Peter C. Stable – Wells Fargo Securities LLC
Thanks very much.
Miles Nadal
Thank you.
Operator
The next question comes from Barry Lucas of Gabelli & Company.
Barry Lucas – Gabelli & Company
Thanks and good evening. I have a two quick ones for David, and then maybe a bigger picture question for you Miles, but David on the claim on cash, I think you’re talking about 25% payout of free cash for dividends give or take and you had a nice reduction in the deferred acquisition consideration.
So what would that number kind of look like in 2014, 2015, 2016. I mean when do we really knockout that deferred acquisition.
Miles Nadal
So the deferred acquisition is anticipated to be about $50 million or $60 million on a going forward basis consistently but David, you can give the exact numbers.
David Doft
So Barry we ended the year about $154 million, we do anticipate paying down about $65 million in 2014 and another $75 million or so in 2015. But I do want to know and it’s important, because of the two acquisitions that we just completed.
The number on the balance sheet will go up for the March 31 number, before coming down for the June 30 number, because we are paying about $50 million down in the June quarter. So you will see go up and down and then you’ll see that progression play out, but once you look at 2015 the vast majority of it’s done, and the number falls off materially obviously buying incremental acquisitions.
Miles Nadal
Look the reality is we paid off, over$400 million of contingent consideration over the last five years. We don’t see it as a material item any more.
Barry Lucas – Gabelli & Company
Right.
Miles Nadal
That is the free cash flow generation it shows significant EBITDAs growing so rapidly, that is really just, it went for being three times our EBITDA to now 0.4 trims of our EBITDA or less. So we see it and we think that it will normalize at around 25 times our EBITDA going forward start getting on in 2015, 2016, 2017, so we see that as immaterial in relation to our business.
Barry Lucas – Gabelli & Company
Great, and if I look at the guidance, the 50 basis points of incremental margin in 2014 would seem to be – it’s about certainly towards the lower end of your expectations. I’m just wondering what if anything special is playing into that conservatism?
Miles Nadal
Look as I said earlier on the call our goal is to under promise and over deliver. I think what you say is true, it’s at the lower end of our expectation level.
And if thing go according to plan, our numbers will plan up better than that.
Barry Lucas – Gabelli & Company
Okay, Miles, for you on the bigger picture you’ve got some what I would call feelers or tentacles, small tentacles in Brazil, when you put some feel out in Europe. You’ve always been very opportunistic, whether it was picking up talent or on the M&A side.
So what would make you more aggressive, in Europe, which maybe coming to a bottom and we could capitalize as others are maybe pulling back?
Miles Nadal
Look, I mean the reality is our opportunistic approach is more predicated on the quality of talent and the quality of firms rather from the geography, we are not trying to pick bottoms or tops or anything. The reality is there is a scarcity of brilliant firms and brilliant talents in the world.
The firms that we’ve found the most of are again in North America. I think in five years ago in 2009 when Warren Buffet as he said I’m going to make a ten year bet on America, he avoided Brazil, Russia, and China, we all of the same.
Our belief is that there are opportunities but it’s mostly tuck under, because there are not a lot of firms that we’ve seen in Brazil, Russia and in China all that interesting. In relation to the opportunity to attract and pull themes from other organizations and either start up or build upon we’ve got.
I think that there is nothing that we see on the horizon that tells we should deviate from our current strategy. And because of our scale we don’t need to do anything with very large that would take undue risk.
And so, we will continue to focus as we’ve on principally IT probably 60% or 70% of our growth is going to be organic. And maybe 20%, 30% of our growth will be acquisition.
But it will be modest certainly in relation to what we’ve done historically, but it will result in a much greater conversion to free cash flow as David articulated.
Barry Lucas – Gabelli & Company
Great. Thanks very much, Miles.
Miles Nadal
Thank you.
Operator
The next question comes from Rich Tullo at Albert Fried & Company.
Rich Tullo – Albert Fried & Company, LLC
In regards to the influence of the account loss, is that going to be primarily including the severance, the first quarter event?
David Doft
The severance, at this point is primarily a first quarter event. As I said, we’ll have about a $5 million impact at severance in the quarter.
But clients come and go, as you know, and our expectation with our wins and with our pipeline is that we’ll have additions that will continue to allow our business to grow, as Miles said, well in excess of our competition and then that’s the guidance that we’ve given you. So I’m not sure specifically what you’re looking for on…
Rich Tullo – Albert Fried & Company, LLC
That was fine. And because at the end of the account cycle it was kind of a jump ball basis from my understanding.
The anticipated loss in revenue from that account, does that influence the first quarter relative to what we were expecting?
David Doft
Absolutely, when a client goes there is hole to be filled in the short-term and the wins don’t always line up with it and that does impact a little bit what's going on in the first quarter for sure. But given that net wins are solidly positive and our momentum continues to be very strong in the new business environment, we have strong visibility to that ramping backup as we move through the rest of the year.
Rich Tullo – Albert Fried & Company, LLC
Fair enough. So that $25 million in net included the loss of that account?
Miles Nadal
That’s correct.
David Doft
Yes.
Rich Tullo – Albert Fried & Company, LLC
Okay. Thank you very much.
Miles Nadal
Thank you.
David Doft
Thank you.
Operator
Our next question comes from the Eugene Fox with Cardinal Capital Management.
Eugene Fox III – Cardinal Capital Management LLC
Thanks, gentlemen. Good job.
Just want to clarify this point. Your EBITDA guidance for the year includes the $5 million of severance is that correct?
David Doft
Correct.
Eugene Fox III – Cardinal Capital Management LLC
Okay. In terms of deferred acquisition cost, how much was paid in the fourth quarter, David?
David Doft
The fourth quarter number was minimal, was a few million dollars.
Miles Nadal
But it was 124 for the year.
David Doft
That’s right.
Eugene Fox III – Cardinal Capital Management LLC
About 124 for the year?
David Doft
That’s $3 million or $4 million in the fourth quarter.
Eugene Fox III – Cardinal Capital Management LLC
Okay. You have about, I guess, $100 million at the end.
I assume that that’s source of the cash for the acquisition, David?
David Doft
That’s correct.
Eugene Fox III – Cardinal Capital Management LLC
Okay. Share repurchase going forward, you obviously did a big buy in – it’s look like you did paid about $77 million for the options.
How are you thinking about it on an ongoing basis?
Miles Nadal
At this point in time with opportunities we see being so advantageous, we are not seeing share repurchase as part of our strategy in light of the fact that there is opportunities to get 20% to 30% kinds of returns on investment. So that is not something that we are contemplating in the short-term.
Eugene Fox III – Cardinal Capital Management LLC
Got it.
David Doft
This will be committed to the dividend policy
Miles Nadal
Absolutely.
David Doft
And returning capital to shareholders in that form in addition to pursuing the investments that we’re pursuing.
Miles Nadal
Yes. Just to reiterate what we said at Investor Day, where we said historically we will have a 3% dividend policy that our share price will able to reflect about a 3% dividend, which is reflective of the incremental free cash flow of the company.
As it grows we will continue to do that. And, yes, as David articulates, we’re very strong on that.
Eugene Fox III – Cardinal Capital Management LLC
Got it. Working capital assumptions going forward, David, should we assume you’re going to be basically net working capital neutral?
David Doft
So, you know our view that our business as we grow is a solid generator of cash from working capital, but we don’t really want to forecast a specific number except to tell you that we expected to be lease flat and likely additive to our cash generation for the year. Add 2013, well this was a very strong year in terms of overall cash generation on top of the free cash metric that we report to you.
Eugene Fox III – Cardinal Capital Management LLC
And last question. Any special assumption that we should have or any outliers relative to stock compensation or amortization in 2014.
David Doft
No. Stock-based compensation should fall to somewhere in the $11 million or $12 million range for the full year and amortization should come down to about $19 million give or take couple of $100,000 again borrowing incremental acquisition is what we’re looking at right now.
Eugene Fox III – Cardinal Capital Management LLC
And I’ve send a minimal cash taxes as we have for the specific [ph] years?
David Doft
That’s correct.
Eugene Fox III – Cardinal Capital Management LLC
Okay. Good job.
Thank you, gentleman.
Miles Nadal
Thank you.
David Doft
Thank you.
Operator
(Operator Instructions)
Miles Nadal
At this point in time on behalf of management, I wanted to say thank you very much for your time. If there are no further questions, we want to say thank you very much, thank you for your support and we look forward to speaking to you shortly when we announce our first quarter results.
Have a nice evening and thank you.
Operator
The conference has now concluded. Thank you for attending today’s presentation.
You may now disconnect.