The Works, bought by digital consulting business RXP in 2017, didn't make its final earn-out payment at the close of the June financial year.
The acquisition of The Works included a maximum payout of $33 million, with $25 million over the first 12 months, a further payment of up to $6 million a year later, and another based on 2019 financial year earnings.
Among papers in RXP's annual results lodged with the ASX is the statement: "With the stretch target not being achieved by The Works in FY19, no final earn-out payment was payable."
How much was at stake in the final payment wasn't stated. However, previous papers lodged with the ASX indicate the amount to be about $2 million if all previous targets were met.
The Works agency is still highly valued by RXP.
Chairman John Pritchard says the addition of The Works has been critical for the company's service model and continues to deliver positive results.
"This has enabled us to engage in a broader range of conversations with CMOs and senior marketers, a group that previously had limited exposure to RXP," he says.
The Works, founded by Damian Pincus and Kevin Macmillan 17 years ago, was purchased by RXP as a way of growing its digital services.
At the time, Pincus, a co-founder at The Works, said: "In RXP we have found a future focused, innovative and culturally aligned partner at a time when the business of marketing communications continues to undergo significant disruption."
The Works, a former AdNews Customer Experience Agency of the Year, had 61 staff and was on track to bring in $16.5 million in annual revenue when it was bought by RXP.
The payout for each founder isn't known.
The latest RXP annual results show $9 million, a mix of cash and det, relating to The Works acquisition was paid in the first quarter of the financial year. This would have related to targets in the 2018 financial year.
Another line in the financial statements shows $13.5 million of investment, primarily related to The Works acquisition.
In October last year, RXP announced that The Works founders, Pincus and Macmillian, would move to work deeper within the RXP business. Two others, Paul Swann and Tom Harber, were appointed to newly created roles of managing partner at The Works.
RXP posted flat revenue of $141.14 million for the year to June and a loss of $1.35 million, compared to a profit of $7.83 million last year.
The result included a non-cash impairment of $10.8 million to goodwill.
EBITDA (earnings before interest, tax, depreciation and amortisation) was up 26.2% to $16.4million.
The company declared a fully franked dividend of 2.5 cents plus a special dividend of 0.5 cents, bringing the total payout for the year to 4.75 cents.
RXP, in its annual results, noted significant new client wins including VicRoads, Aurora Energy, The Smith Family, Sydney Bridge Climb and H&R Block.
CEO Ross Fielding says revenue is now more predictable and more resilient.
"We have been able to grow our digital transformation work, and this now accounts for around 80% of our total revenue," he says.
"Pleasingly, this means we now have less reliance on large consulting agreements.
“The growth in digital, combined with an organisational realignment that has improved operational leverage in the business, has meant we have been able to achieve our earnings guidance and deliver strong growth in underlying earnings, as well as deliver improved margins and strong staff utilisation levels."
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