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Stagwell Inc - Quarter Report: 2019 March (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One) 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-13718 
MDC Partners Inc.
(Exact name of registrant as specified in its charter)
Canada
 
98-0364441
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
745 Fifth Avenue
New York, New York
 
10151
(Address of principal executive offices)
 
(Zip Code)
(646) 429-1800
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ý   No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   ý No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer  ¨
Accelerated filer  x
Non-accelerated Filer  ¨ 
Smaller reporting company  ¨
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨ No   ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Subordinate Voting Shares, no par value
MDCA
NASDAQ
The number of common shares outstanding as of April 30, 2019 was 71,896,266 Class A subordinate voting shares and 3,755 Class B multiple voting shares.

Table of Contents


MDC PARTNERS INC.
 
QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
Page
 
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2
Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of United States dollars, except per share amounts)
 
Three Months Ended March 31,
 
2019
 
2018
Revenue:
 

 
 

Services
$
328,791

 
$
326,968

Operating expenses:
 
 
 
Cost of services sold
237,153

 
243,030

Office and general expenses
67,118

 
83,879

Depreciation and amortization
8,838

 
12,375

Other asset impairment
—

 
2,317

 
313,109

 
341,601

Operating income (loss)
15,682

 
(14,633
)
Other Income (Expenses):
 
 
 
Interest expense and finance charges, net
(16,760
)
 
(16,083
)
Foreign exchange gain (loss)
5,442

 
(6,660
)
Other, net
(3,383
)
 
441

 
(14,701
)
 
(22,302
)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
981

 
(36,935
)
Income tax expense (benefit)
748

 
(8,330
)
Income (loss) before equity in earnings of non-consolidated affiliates
233

 
(28,605
)
Equity in earnings of non-consolidated affiliates
83

 
86

Net income (loss)
316

 
(28,519
)
Net income attributable to the noncontrolling interests
(429
)
 
(897
)
Net loss attributable to MDC Partners Inc.
(113
)
 
(29,416
)
Accretion on convertible preference shares
(2,383
)
 
(2,027
)
Net loss attributable to MDC Partners Inc. common shareholders
$
(2,496
)
 
$
(31,443
)
Loss Per Common Share:
 

 
 

Basic
 


 

Net loss attributable to MDC Partners Inc. common shareholders
$
(0.04
)
 
$
(0.56
)
Diluted
 
 
 
Net loss attributable to MDC Partners Inc. common shareholders
$
(0.04
)
 
$
(0.56
)
Weighted Average Number of Common Shares Outstanding:
 

 
 

  Basic
60,258,102

 
56,415,042

  Diluted
60,258,102

 
56,415,042

Stock-based compensation expense is included in the following line items above:
 

 
 

Cost of services sold
$
4,545

 
$
3,347

Office and general expenses
(1,573
)
 
1,690

Total
$
2,972

 
$
5,037

See notes to the unaudited condensed consolidated financial statements.

3
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(thousands of United States dollars)
 
Three Months Ended March 31,
 
2019
 
2018
Comprehensive Income (Loss)
 

 
 

Net income (loss)
$
316

 
$
(28,519
)
Other comprehensive income (loss), net of applicable tax:
 

 
 

Foreign currency translation adjustment
(4,659
)
 
2,278

Other comprehensive income (loss)
(4,659
)
 
2,278

Comprehensive loss for the period
(4,343
)
 
(26,241
)
Comprehensive loss (income) attributable to the noncontrolling interests
(780
)
 
204

Comprehensive loss attributable to MDC Partners Inc.
$
(5,123
)
 
$
(26,037
)
See notes to the unaudited condensed consolidated financial statements.

4
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of United States dollars)
 
March 31,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
26,372

 
$
30,873

Accounts receivable, less allowance for doubtful accounts of $2,066 and $1,879
438,648

 
395,200

Expenditures billable to clients
46,663

 
42,369

Assets held for sale
11,861

 
78,913

Other current assets
44,689

 
42,499

Total Current Assets
568,233

 
589,854

Fixed assets, at cost, less accumulated depreciation of $133,879 and $128,546
85,456

 
88,189

Right of use assets - operating leases
246,643

 
—

Investment in non-consolidated affiliates
6,586

 
6,556

Goodwill
742,775

 
740,955

Other intangible assets, net, less accumulated amortization of $164,347 and $161,868
64,858

 
67,765

Deferred tax assets
92,439

 
92,741

Other assets
26,129

 
25,513

Total Assets
$
1,833,119

 
$
1,611,573

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
 

 
 

Current Liabilities:
 

 
 

Accounts payable
$
214,694

 
$
221,995

Accruals and other liabilities
251,300

 
313,141

Liabilities held for sale
11,218

 
35,967

Advance billings
171,151

 
138,505

Current portion of lease liabilities - operating leases
44,129

 
—

Current portion of deferred acquisition consideration
36,521

 
32,928

Total Current Liabilities
729,013

 
742,536

Long-term debt
919,050

 
954,107

Long-term portion of deferred acquisition consideration
39,862

 
50,767

Long-term lease liabilities - operating leases
248,609

 
—

Other Liabilities
17,523

 
54,255

Deferred tax liabilities
5,329

 
5,329

Total Liabilities
1,959,386

 
1,806,994

Redeemable Noncontrolling Interests
48,006

 
51,546

Commitments, Contingencies and Guarantees (Note 13)


 


Shareholders' Deficit:


 


Convertible preference shares, 145,000 authorized, issued and outstanding at March 31, 2019 and 95,000 at December 31, 2018
152,117

 
90,123

Common stock and other paid-in capital
98,693

 
58,579

Accumulated deficit
(465,016
)
 
(464,903
)
Accumulated other comprehensive (loss) income
(290
)
 
4,720

MDC Partners Inc. Shareholders' Deficit
(214,496
)
 
(311,481
)
Noncontrolling Interests
40,223

 
64,514

Total Shareholders' Deficit
(174,273
)
 
(246,967
)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit
$
1,833,119

 
$
1,611,573

See notes to the unaudited condensed consolidated financial statements.

5
Table of Contents

MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of United States dollars)


 
Three Months Ended March 31,
 
2019
 
2018
Cash flows used in operating activities:
 

 
 

Net income (loss)
$
316

 
$
(28,519
)
Adjustments to reconcile income (loss) to cash provided by (used in) operating activities:


 


Stock-based compensation
2,972

 
5,037

Depreciation
6,359

 
8,402

Amortization of intangibles
2,479

 
3,973

Amortization of deferred finance charges and debt discount
826

 
807

Other asset impairment
—

 
2,317

Adjustment to deferred acquisition consideration
(7,643
)
 
2,586

Deferred income taxes
748

 
(10,786
)
Loss on sale of assets
3,592

 
19

Earnings of non-consolidated affiliates
(83
)
 
(86
)
Other and non-current assets and liabilities
(1,755
)
 
(1,004
)
Foreign exchange
(5,188
)
 
6,864

Changes in working capital:
 
 
 
Accounts receivable
(29,957
)
 
12,358

Expenditures billable to clients
(4,294
)
 
(26,739
)
Prepaid expenses and other current assets
(3,373
)
 
(9,734
)
Accounts payable, accruals and other current liabilities
(75,105
)
 
(76,826
)
Acquisition related payments
(3,657
)
 
(6,665
)
Advance billings
32,563

 
56,963

Net cash used in operating activities
(81,200
)

(61,033
)
Cash flows provided by (used in) investing activities:


 


Capital expenditures
(3,606
)
 
(3,799
)
Proceeds from sale of assets
23,050

 
—

Acquisitions, net of cash acquired
(1,050
)
 
—

Other investments
(293
)
 
(69
)
Net cash provided by (used in) investing activities
18,101


(3,868
)
Cash flows provided by financing activities:
 

 
 

Repayments of revolving credit facility
(466,437
)
 
(250,800
)
Proceeds from revolving credit facility
431,097

 
309,816

Proceeds from issuance of common and convertible preference shares, net of issuance costs
97,629

 
—

Acquisition related payments
—

 
(7,422
)
Distributions to noncontrolling interests
(1,501
)
 
(3,295
)
Payment of dividends
—

 
(146
)
Purchase of shares
—

 
(456
)
Other
(35
)
 
(79
)
Net cash provided by financing activities
60,753


47,618

Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts
(576
)
 
306


6
Table of Contents

 
Three Months Ended March 31,
 
2019
 
2018
Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale
(2,922
)
 
(16,977
)
Change in cash and cash equivalents held in trusts classified within held for sale
(3,307
)
 
(165
)
Change in cash and cash equivalents classified within assets held for sale
1,728

 
—

Net decrease in cash and cash equivalents
(4,501
)
 
(17,142
)
Cash, cash equivalents, and cash held in trusts at beginning of period
30,873

 
50,811

Cash, cash equivalents, and cash held in trusts at end of period
$
26,372

 
$
33,669

Supplemental disclosures:
 

 
 

Cash income taxes paid
$
1,677

 
$
1,333

Cash interest paid
$
1,629

 
$
649

See notes to the unaudited condensed consolidated financial statements.

7
Table of Contents

MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(thousands of United States dollars)
 
Convertible Preference Shares
 
Common Shares
Common Stock and Other Paid-in Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income
 
MDC Partners Inc.
Shareholders’
Deficit
 
Noncontrolling
Interests
 
Total
Shareholders’
Deficit
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
 
 
 
 
Balance at December 31, 2018
95,000

 
$
90,123

 
57,521,323

$
58,579

 
$
(464,903
)
 
$
4,720

 
$
(311,481
)
 
$
64,514

 
$
(246,967
)
Net loss attributable to MDC Partners Inc.
—

 
—

 
—

—

 
(113
)
 
—

 
(113
)
 
—

 
(113
)
Other comprehensive income (loss)
—

 
—

 
—

—

 
—

 
(5,010
)
 
(5,010
)
 
351

 
(4,659
)
Issuance of common and convertible preference shares
50,000

 
61,994

 
14,285,714

35,635

 
—

 
—

 
97,629

 
—

 
97,629

Issuance of restricted stock
—

 
—

 
117,000

—

 
—

 
—

 
—

 
—

 
—

Shares acquired and cancelled
—

 
—

 
(34,016
)
(56
)
 
—

 
—

 
(56
)
 
—

 
(56
)
Stock-based compensation
—

 
—

 
—

(1,291
)
 
—

 
—

 
(1,291
)
 
—

 
(1,291
)
Changes in redemption value of redeemable noncontrolling interests
—

 
—

 
—

5,919

 
—

 
—

 
5,919

 
 
 
5,919

Changes in ownership interest
—

 
—

 
—

(93
)
 
—

 
—

 
(93
)
 
(24,642
)
 
(24,735
)
Balance at March 31, 2019
145,000

 
$
152,117

 
71,890,021

$
98,693

 
$
(465,016
)
 
$
(290
)
 
$
(214,496
)
 
$
40,223

 
$
(174,273
)
 
Convertible Preference Shares
 
Common Shares
Common Stock and Other Paid-in Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income
 
MDC Partners Inc.
Shareholders’
Deficit
 
Noncontrolling
Interests
 
Total
Shareholders’
Deficit
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
 
 
 
 
Balance at December 31, 2017
95,000

 
$
90,220

 
56,375,131

$
38,191

 
$
(340,000
)
 
$
(1,954
)
 
$
(213,543
)
 
$
58,030

 
$
(155,513
)
Net loss attributable to MDC Partners Inc.
—

 
—

 
—

—

 
(29,416
)
 
—

 
(29,416
)
 
—

 
(29,416
)
Other comprehensive income (loss)
—

 
—

 
—

—

 
—

 
3,379

 
3,379

 
(1,101
)
 
2,278

Expenses for convertible preference shares
—

 
(97
)
 
—

—

 
—

 
—

 
(97
)
 
—

 
(97
)
Issuance of restricted stock
—

 
—

 
109,444

—

 
—

 
—

 
—

 
—

 
—

Shares acquired and cancelled
—

 
—

 
(48,508
)
(455
)
 
—

 
—

 
(455
)
 
—

 
(455
)
Stock-based compensation
—

 
—

 
—

2,217

 
—

 
—

 
2,217

 
—

 
2,217

Changes in redemption value of redeemable noncontrolling interests
—

 
—

 
—

(375
)
 
—

 
—

 
(375
)
 
—

 
(375
)
Business acquisitions and step-up transactions, net of tax
—

 
—

 
—

(1,166
)
 
—

 
—

 
(1,166
)
 
—

 
(1,166
)
Changes in ownership interest
—

 
—

 
—

—

 
—

 
—

 
—

 
(5,965
)
 
(5,965
)
Cumulative effect of adoption of ASC 606
—

 
—

 
—

—

 
(1,170
)
 
—

 
(1,170
)
 
—

 
(1,170
)
Balance at March 31, 2018
95,000

 
$
90,123

 
56,436,067

$
38,412

 
(370,586
)
 
$
1,425

 
$
(240,626
)
 
$
50,964

 
$
(189,662
)

See notes to the unaudited condensed consolidated financial statements.

8
Table of Contents

MDC PARTNERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(thousands of United States dollars, except per share amounts, unless otherwise stated)
1. Basis of Presentation and Recent Developments
The accompanying consolidated financial statements include the accounts of MDC Partners Inc. (the “Company” or “MDC”), its subsidiaries and variable interest entities for which the Company is the primary beneficiary. References herein to “Partner Firms” generally refer to the Company’s subsidiary agencies.
MDC Partners Inc. has prepared the unaudited condensed consolidated interim financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, the financial statements have been condensed and do not include certain information and disclosures pursuant to these rules. The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”).
The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior year financial information to conform to the current year presentation.
Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
Recent Developments
Issuance of Shares and Appointment of Chief Executive Officer
On March 14, 2019, the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell Group LLC (“Stagwell”). See Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding the issuance of the Class A and Series 6 convertible preference shares.
Effective March 18, 2019, the Company’s Board of Directors (the “Board”) appointed Mark Penn as the Chief Executive Officer and as a director of the Board. Mr. Penn is manager of Stagwell. Effective April 18, 2019, Mr. Penn was also appointed as Chairman of the Board.
Amendment to Credit Agreement
On March 12, 2019 , the Company, Maxxcom Inc. (a subsidiary of the Company) (“Maxxcom”) and each of their subsidiaries party thereto entered into an amendment (the “Amendment”) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), and the lenders from time to time party thereto. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the amendments to the Credit Agreement.
Sale of Kingsdale
On March 8, 2019, the Company consummated the sale of its equity interest in Kingsdale. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the sale of Kingsdale.

2. Revenue
The Company’s revenue recognition policies are established in accordance with the Revenue Recognition topics of ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The MDC network provides an extensive range of services to our clients offering a variety of marketing and communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social

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Table of Contents

media, television broadcast), public relations services including strategy, editorial, crisis support or issues management, media training, influencer engagement and events management. We also provide media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast), experiential marketing and application/website design and development.
The primary source of the Company’s revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost plus margin.
The determination of our performance obligations is specific to the services included within each contract. Based on a client’s requirements within the contract, and how these services are provided, multiple services could represent separate performance obligations or be combined and considered one performance obligation. Contracts that contain services that are not significantly integrated nor interdependent, nor that significantly modify or customize each other, are considered separate performance obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing services to be separate performance obligations if included in the same contract as each of these services can be provided on a stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website design and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output.
We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation.                                            
Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date.
Within each contract, we identify whether the Company is principal or agent at the performance obligation level. In arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other arrangements where a third-party supplier, rather than the Company is primarily responsible for the integration of services into the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client, we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of MDC’s agencies under a production services agreement is to facilitate a client’s purchasing of production capabilities from a third-party production company in accordance with the client’s strategy and guidelines. The obligation of MDC’s agencies under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its media plan. We do not obtain control prior to transferring these services to our clients; therefore, we primarily act as agent for production and media buying services.                                    
A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related to performance incentives as we satisfy the performance obligation to which the performance incentives are related.
Disaggregated Revenue Data
The Company provides a broad range of services to a large base of clients across the full spectrum of industry verticals on a global basis. The primary source of revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Partner Firms. Representation of a client rarely means that MDC handles marketing communications for all brands or product lines of the client in every geographical location. The Company’s Partner firms often cooperate with one another through referrals and the sharing of both services and expertise, which enables MDC to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate, independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing clients across the MDC network.

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The following table presents revenue disaggregated by client industry vertical for the three months ended March 31, 2019 and 2018:
 
 
 
Three months ended March 31,
Industry
Reportable Segment
 
2019
 
2018
Food & Beverage
All
 
$
66,663

 
$
64,285

Retail
All
 
32,580

 
35,772

Consumer Products
All
 
35,001

 
31,802

Communications
All
 
39,798

 
29,657

Automotive
All
 
18,191

 
20,494

Technology
All
 
26,616

 
34,144

Healthcare
All
 
23,297

 
33,170

Financials
All
 
25,126

 
21,838

Transportation and Travel/Lodging
All
 
17,441

 
14,848

Other
All
 
44,078

 
40,958



 
$
328,791

 
$
326,968


MDC has historically largely focused where the Company was founded in North America, the largest market for its services in the world. In recent years the Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets. Today, MDC’s Partner Firms are located in the United States, Canada, and an additional twelve countries around the world. In the past, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses.

The following table presents revenue disaggregated by geography:

Three Months Ended March 31,
Geographic Location
Reportable Segment
 
2019

2018
United States
All
 
$
263,017


$
256,524

Canada
All, excluding Media Services
 
22,378


26,379

Other
All, excluding Media Services
 
43,396


44,065



 
$
328,791


$
326,968


Contract assets and liabilities
Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees were $87,054 and $64,362 at March 31, 2019 and December 31, 2018, respectively, and are included as a component of accounts receivable on the unaudited condensed consolidated balance sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $46,663 and $42,369 at March 31, 2019 and December 31, 2018, respectively, and are included on the unaudited condensed consolidated balance sheets as expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services.
Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are classified as advance billings on the Company’s unaudited condensed consolidated balance sheets. Advance billings at March 31, 2019 and December 31, 2018 were $171,151 and $138,505, respectively. The increase in the advance billings balance of $32,646 for the three months ended March 31, 2019 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $60,941 of revenues recognized that were included in the advance billings balances as of December 31, 2018 and reductions due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the three months ended March 31, 2019 and December 31, 2018 were not materially impacted by write offs, impairment losses or any other factors.

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3. Loss Per Common Share
The following table sets forth the computation of basic and diluted loss per common share:
 
Three Months Ended 
 March 31,
 
2019

2018
Numerator:
 

 

Net loss attributable to MDC Partners Inc.
$
(113
)
 
$
(29,416
)
Accretion on convertible preference shares
(2,383
)

(2,027
)
Net loss attributable to MDC Partners Inc. common shareholders
$
(2,496
)

$
(31,443
)
Denominator:




Basic weighted average number of common shares outstanding
60,258,102


56,415,042

Diluted weighted average number of common shares outstanding
60,258,102


56,415,042

Basic
$
(0.04
)

$
(0.56
)
Diluted
$
(0.04
)
 
$
(0.56
)
Anti-dilutive stock awards          1,633,464 1,560,856

Restricted stock and restricted stock unit awards of 257,280 and 1,343,781 for the three months ended March 31, 2019 and 2018, respectively, which are contingent upon the Company meeting a cumulative three year earnings target and contingent upon continued employment, are excluded from the computation of diluted income per common share as the contingencies were not satisfied at March 31, 2019 and 2018, respectively. In addition, there were 95,000 shares of Preference Shares outstanding which were convertible into 15,081,035 and 10,337,949 Class A common shares at March 31, 2019 and 2018, respectively and 50,000 Preference Shares outstanding which were convertible into 10,037,778 Class A common shares at March 31, 2019. These Preference Shares were anti-dilutive for the three months ended March 31, 2019 and 2018 and are therefore excluded from the diluted loss per common share calculation.

4. Acquisitions and Dispositions
2019 Disposition
On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City, that provides shareholder services. As consideration for the sale, the Company was paid cash plus the assumption of certain liabilities totaling approximately $50 million in the aggregate. The sale resulted in a loss of approximately $3 million, which is included in Other, net within the Unaudited Condensed Consolidated Statement of Operations.
2018 Acquisitions
On September 7, 2018, a subsidiary of the Company purchased 100% interests of OneChocolate Communications Limited and OneChocolate Communications LLC, PR (“OneChocolate”) a digital marketing consultancy headquartered in London, UK, for an aggregate purchase price of $3,231, working capital of $966 and additional deferred acquisition payments estimated present value of $2,146. OneChocolate’s results are reflected in the Allison & Partners operating segment which is included in the Specialist Communications reportable segment which had an immaterial impact on our results.
On July 1, 2018, the Company acquired the remaining 14.87% and 3% of membership interests of Doner Partners, LLC and Source Marketing LLC respectively for an aggregate purchase price of $7,618, comprised of a closing cash payment of $3,279 and additional deferred acquisition payments with an estimated present value of $4,305 as of December 31, 2018. As of the acquisition date, the fair value of the additional interests acquired was $16,361 for Doner Partners LLC. The fair values were measured using a discounted cash flow model. As a result of the transaction, the Company reduced noncontrolling interest by $11,946 and redeemable noncontrolling interest by $933.
On April 2, 2018, the Company purchased 51% of the membership interests of Instrument LLC (“Instrument”), a digital creative agency based in Portland, Oregon, for an aggregate purchase price of $35,591. The acquisition is expected to facilitate the Company’s growth and help to build its portfolio of modern, innovative and digital-first agencies. The purchase price consisted of a cash payment of $28,561 and the issuance of 1,011,561 shares of the Company’s Class A subordinate voting stock with an acquisition date fair value of $7,030. The Company issued these shares in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act.

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Table of Contents

The purchase price allocation for Instrument resulted in tangible assets of $10,304, identifiable intangibles of $23,130, consisting primarily of customer lists and a trade name, and goodwill of $32,776. In addition, the Company has recorded $27,357 as the fair value of noncontrolling interests, which was derived from the Company’s purchase price less a discount related to the noncontrolling parties’ lack of control. The identified assets have a weighted average useful life of approximately six years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. The goodwill is tax deductible. Instruments’ results are included in the All Other category from a segment reporting perspective. The Company has a controlling financial interest in Instrument through its majority voting interest, and as such, has aggregated the acquired Partner Firm’s financial data into the Company’s consolidated financial statements. The operating results of Instrument in the current year is not material.
Effective January 1, 2018, the Company acquired the remaining 24.5% ownership interest of Allison & Partners LLC for an aggregate purchase price of $10,023, comprised of a closing cash payment of $300 and additional deferred acquisition payments with an estimated present value at the acquisition date of $9,723. The deferred payments are based on the future financial results of the underlying business from 2017 to 2020 with final payments due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,096. The fair value was measured using a discounted cash flow model. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $8,857. The difference between the purchase price and the noncontrolling interest of $1,166 was recorded in additional paid-in capital.

5. Deferred Acquisition Consideration
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each reporting period through operating income, for contingent purchase price payments, net interest expense, and fixed purchase price payments. The Company accounts for retention payments through operating income as stock-based compensation over the required retention period.
The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the balance sheets as of March 31, 2019 and December 31, 2018.
 
March 31,
 
December 31,
 
2019
 
2018
Beginning Balance of contingent payments
$
82,598

 
$
119,086

Payments
(275
)
 
(54,947
)
Redemption value adjustments (1)
(6,834
)
 
3,512

Additions - acquisitions and step up transactions
—

 
14,943

Foreign translation adjustment
59

 
4

Ending balance of contingent payments
$
75,548

 
$
82,598

Fixed payments
835

 
1,097

 
$
76,383

 
$
83,695

    
(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within cost of services sold and office and general expenses on the unaudited condensed Consolidated Statements of Operations.
The following table presents the impact to the Company’s statement of operations due to the redemption value adjustments for the contingent deferred acquisition consideration:
 
Three months ended March 31,
 
2019
 
2018
Income (loss) attributable to fair value adjustments
$
(7,643
)
 
$
2,586

Stock-based compensation
809

 
2,361

Redemption value adjustments
$
(6,834
)
 
$
4,947


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6. Leases

Effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases (“ASC 842”). As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 840, Leases. See Note 14 of the Notes to the Consolidated Financial Statements included herein for additional information regarding the Company’s adoption of ASC 842. The policies described herein refer to those in effect as of January 1, 2019.
The Company leases office space in North America, Europe, Asia, South America, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years 2019 through 2032. Finance leases are considered to be immaterial to the Company.
The Company’s leasing policies are established in accordance with ASC 842, and accordingly, the Company recognizes on the balance sheet at the time of lease commencement a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All right-of-use assets are reviewed for impairment. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease costs are recognized in the Consolidated Statement of Operations over the lease term on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. 
Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate. Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities. Lease liabilities are not remeasured as a result of changes in the index or rate, rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred. In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other variable operating expenses. Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances on which the variable lease payments are based upon occur.
The Company’s leases include options to extend or renew the lease through 2040. The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option.
From time to time, the Company enters into sublease arrangements both with unrelated third-parties and with our partner agencies. These leases are classified as operating leases and expire between years 2019 through 2024. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Europe and Asia.
As of March 31, 2019, the Company has entered into certain operating leases for which the commencement date has not yet occurred as these lease spaces are in the process of being prepared by the landlord for occupancy. Accordingly, these leases represent obligations of the Company that are not on the Consolidated Balance Sheet as of March 31, 2019. The future liability related to these leases is approximately $8 million.
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.

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Table of Contents

The following table presents lease costs and other quantitative information for the three months ended March 31, 2019:

 
Three Months Ended March 31,
 
2019
Lease Cost:
 
Operating lease cost
$
16,441

Variable lease cost
4,964

Sublease rental income
(1,599
)
Total lease cost
$
19,806

Additional information:
 
Cash paid for amounts included in the measurement of lease liabilities for operating leases

Operating cash flows
$
15,652

 
 
Right-of-use assets obtained in exchange for operating lease liabilities
$
256,818

Weighted average remaining lease term (in years) - Operating leases
7.3

Weighted average discount rate - Operating leases
8.7


Operating lease expense is included in office and general expenses in the unaudited condensed Consolidated Statement of Operations. Short term lease expense is immaterial to the Company. Rental expense for the three months ended March 31, 2018 was $17,560 offset by $713 in sublease rental income.
 
The following table presents minimum future rental payments under the Company’s leases at March 31, 2019 and their reconciliation to the corresponding lease liabilities:

 
Maturity Analysis
Remaining 2019
$
50,672

2020
65,996

2021
56,032

2022
46,124

2023
42,778

Thereafter
140,202

Total
401,804

Less: Present value discount
$
(109,066
)
Lease liability
$
292,738


15
Table of Contents

7. Debt
As of March 31, 2019 and December 31, 2018, the Company’s indebtedness was comprised as follows:

March 31,
2019

December 31, 2018
Revolving credit agreement
$
32,803

 
$
68,143

6.50% Notes due 2024
900,000

 
900,000

Debt issuance costs
(13,753
)
 
(14,036
)
 
$
919,050

 
$
954,107

6.50% Notes
On March 23, 2016, MDC entered into an indenture (the “Indenture”) among MDC, its existing and future restricted subsidiaries that guarantee, are co-borrowers under, or grant liens to secure, the Credit Agreement, as guarantors (the “Guarantors”) and The Bank of New York Mellon, as trustee, relating to the issuance by MDC of $900,000 aggregate principal amount of the senior unsecured notes due 2024 (the “6.50% Notes”) . The 6.50% Notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933. The 6.50% Notes bear interest, payable semiannually in arrears on May 1 and November 1, at a rate of 6.50% per annum. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased.
MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, on and after May 1, 2019, at varying prices based on the timing of the redemption.
The Indenture includes covenants that are subject to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of default, including a cross-payment default and cross-acceleration provision. The Company was in compliance with all covenants at March 31, 2019.
Credit Agreement
The Company is party to a $250,000 secured revolving credit facility due May 3, 2021. The amounts outstanding under the revolving credit facility as of March 31, 2019 and December 31, 2018 are presented in the table above and additional details are provided below.
On March 12, 2019 (the “Amendment Effective Date”), the Company, Maxxcom Inc. and each of their subsidiaries party thereto entered into an Amendment to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo, and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement.
The Amendment provides financial covenant relief by increasing the total leverage ratio applicable on each testing date after the Amendment Effective Date through the period ending December 31, 2020 from 5.5:1.0 to 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will revert to 5.5:1.0.
In connection with the Amendment, the Company reduced the aggregate maximum amount of revolving commitments provided by the lenders under the Credit Agreement to $250.0 million from $325.0 million.
Advances under the Credit Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is 0.75% in the case of Base Rate Loans and 1.50% in the case of LIBOR Rate Loans. In addition to paying interest on outstanding principal under the Credit Agreement, MDC is required to pay an unused revolver fee to lenders under the Credit Agreement in respect of unused commitments thereunder.
The Credit Agreement, which includes financial and non-financial covenants, is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary exceptions and collateralized by a portion of MDC’s outstanding receivable balance. The Company is currently in compliance with all of the terms and conditions of its Credit Agreement.
At March 31, 2019 and December 31, 2018, the Company had issued $4,701 of undrawn outstanding letters of credit.


16
Table of Contents

8. Share Capital
The authorized share capital of the Company is as follows:
Series 6 Convertible Preference Shares
On March 14, 2019 (the “Series 6 Issue Date”), the Company entered into a securities purchase agreement with Stagwell Holdings, an affiliate of Stagwell, pursuant to which Stagwell Holdings agreed to purchase, (i) 14,285,714 newly authorized Class A shares (the “Stagwell Class A Shares”) for an aggregate contractual purchase price of $50,000 and (ii) 50,000 newly authorized Series 6 convertible preference shares (“Series 6 Preference Shares”) for an aggregate contractual purchase price of $50 million. The Company received proceeds of approximately $97,629, net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. The proceeds allocated to the Stagwell Class A Shares were $35,635 and to Series 6 Preference Shares were $61,994 based on their relative fair value calculated by utilizing a Monte Carlo Simulation model. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.
The holders of the Series 6 Preference Shares have the right to convert their Series 6 Preference Shares in whole at any time and from time to time, and in part at any time and from time to time, into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation per share preference of each Series 6 Preference Share is $1,000. The initial Conversion Price is $5.00 per Series 6 Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities.
The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date. During the three months ended March 31, 2019, the Series 6 Preference Shares had accretion of $189, bringing the aggregate liquidation preference to $50,189 as of March 31, 2019. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 6 Preference Shares.
Holders of the Series 6 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 6 Preference Shares. The Series 6 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Series 6 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.
Following certain change in control transactions of the Company in which holders of Series 6 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the Series 6 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.

Series 4 Convertible Preference Shares
On March 7, 2017 (the “Series 4 Issue Date”), the Company issued 95,000 newly created Preference Shares (“Series 4 Preference Shares”) to affiliates of The Goldman Sachs Group, Inc. (collectively, the “Purchaser”) pursuant to a $95,000 private placement. The Company received proceeds of approximately $90,123, net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 4 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.
Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation per share preference of each Series 4 Preference Share is $1,000. The Conversion Price of a Series 4 Preference Share is subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities. In connection with the anti-dilution protection provision triggered by the issuance of equity securities to Stagwell, the Conversion Price per Series 4 Preference Share was reduced to $7.42 from the initial Conversion Price of $10.00.

17
Table of Contents

The Series 4 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 4 Issue Date. During the three months ended March 31, 2019, the Series 4 Preference Shares accreted at a monthly rate of approximately $7.70 per Series 4 Preference Share, for total accretion of $2,194, bringing the aggregate liquidation preference to $111,901 as of March 31, 2019. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 4 Preference Shares.
Holders of the Series 4 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 4 Preference Shares. The Series 4 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Series 4 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.
Following certain change in control transactions of the Company in which holders of Series 4 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the Series 4 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.
Class A Common Shares (“Class A Shares”)
An unlimited number of subordinate voting shares, carrying one vote each, entitled to dividends equal to or greater than Class B Shares, convertible at the option of the holder into one Class B Share for each Class A Share after the occurrence of certain events related to an offer to purchase all Class B shares. There were 71,886,266 (including the Class A Shares issued to Stagwell) and 57,517,568 Class A Shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively.
Class B Common Shares (“Class B Shares”)
An unlimited number of voting shares, carrying 20 votes each, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,755 Class B Shares issued and outstanding as of March 31, 2019 and December 31, 2018.

9. Noncontrolling and Redeemable Noncontrolling Interests
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the Company’s balance sheet. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their estimated acquisition date redemption value and adjusted at each reporting period for changes to their estimated redemption value through additional paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments. On occasion, the Company may initiate a renegotiation to acquire an incremental ownership interest and the amount of consideration paid may differ materially from the amounts recorded in the Company’s unaudited condensed Consolidated Balance Sheet.

18
Table of Contents

Noncontrolling Interests
Changes in amounts due to noncontrolling interest holders included in accruals and other liabilities on the unaudited condensed Consolidated Balance Sheets for the year ended December 31, 2018 and three months ended March 31, 2019 were as follows:
 
Noncontrolling
Interests
Balance, December 31, 2017
$
11,030

Income attributable to noncontrolling interests
11,785

Distributions made
(13,419
)
Other (1)
(118
)
Balance, December 31, 2018
$
9,278

Income attributable to noncontrolling interests
429

Distributions made
(1,501
)
Other (1)
43

Balance, March 31, 2019
$
8,249

(1)
Other consists of cumulative translation adjustments.
Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three months ended March 31, 2019 and 2018 were as follows:
 
Three Months Ended March 31,
 
2019
 
2018
Net loss attributable to MDC Partners Inc.
$
(113
)
 
$
(29,416
)
Transfers from the noncontrolling interest:
 
 
 
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of redeemable noncontrolling interests and noncontrolling interests
—

 
(1,166
)
Net transfers from noncontrolling interests
$
—

 
$
(1,166
)
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interests
$
(113
)
 
$
(30,582
)
Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
 
Three Months Ended March 31, 2019
 
Year Ended December 31, 2018
Beginning Balance
$
51,546

 
$
62,886

Redemptions
—

 
(11,943
)
Granted
—

 
—

Changes in redemption value
(3,574
)
 
1,067

Currency translation adjustments
34

 
(464
)
Ending Balance
$
48,006

 
$
51,546

The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 2019 to 2024. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.
The redeemable noncontrolling interest of $48,006 as of March 31, 2019, consists of $15,618 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, $28,921 upon termination of such owner’s employment with the applicable subsidiary or death and $3,467 representing the initial redemption

19
Table of Contents

value (required floor) recorded for certain acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership interests for such subsidiaries.
These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the three months ended March 31, 2019 and 2018, there was no related impact on the Company’s loss per share calculation.  

10. Fair Value Measurements
A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below: 
•
Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
•
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
•
Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Financial Liabilities that are not Measured at Fair Value on a Recurring Basis
The following table presents certain information for our financial liability that is not measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018:
 
March 31, 2019

December 31, 2018
 
Carrying
Amount

Fair Value

Carrying
Amount

Fair Value
Liabilities:
 


 


 


 

6.50% Senior Notes due 2024
$
900,000

 
$
750,375

 
$
900,000

 
$
834,750

Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices in markets that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy.
Financial Liabilities Measured at Fair Value on a Recurring Basis
Contingent deferred acquisition consideration are recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent upon future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and, in some cases, the currency exchange rate as of the date of payment (Level 3). See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.
At March 31, 2019 and December 31, 2018, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill and intangible assets (a Level 3 fair value assessment). Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment. The Company did not recognize an impairment of goodwill or intangible assets in the three months ended March 31, 2019 or March 31, 2018.

11. Supplemental Information
Accounts Payable, Accruals and Other Liabilities
At March 31, 2019 and December 31, 2018, accruals and other liabilities included accrued media of $137,975 and $180,586, respectively; and also included amounts due to noncontrolling interest holders for their share of profits. See Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding noncontrolling interest holders share of profits.

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Goodwill and Indefinite Lived Intangibles
Goodwill and indefinite life intangible assets (trademarks) acquired as a result of a business combination which are not subject to amortization are tested for impairment annually as of October 1st of each year, or more frequently if indicators of potential impairment exist. For goodwill, impairment is assessed at the reporting unit level. For the three months ended March 31, 2019 and the year ended December 31, 2018, goodwill was $742,775 and $740,955, respectively.

Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the quarter.
Income tax expense for the three months ended March 31, 2019 was $748 (on income of $981 resulting in an effective tax rate of 76.3%) compared to a benefit of $8,330 (on a loss of $36,935 resulting in an effective tax rate of 22.6%) for the three months ended March 31, 2018.  The effective tax rate of 76.3% was primarily related to the impact of certain discrete items recognized for the three months ended March 31, 2019.

12. Segment Information
The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.
Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments. The changes were as follows:
•
Doner, previously within the Global Integrated Agencies reportable segment is now included within the Domestic Creative Agencies reportable segment.
•
HL Group Partners, previously within the Specialist Communications reportable segment, and Redscout, previously within the All Other category, are now included in the Yes & Company operating segment. The Yes & Company operating segment previously within the Media Services reportable segment is now included within the Domestic Creative Agencies reportable segment.
•
Attention, previously within the Forsman & Bodenfors operating segment has operationally merged into MDC Media Partners, which is included within the Media Services reportable segment.
The four reportable segments that result from applying the aggregation criteria are as follows: “Global Integrated Agencies” “Domestic Creative Agencies” “Specialist Communications” and “Media Services.” In addition, the Company combines and discloses those operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein and Note 2 of the Company’s Form 10-K for the year ended December 31, 2018.
•
The Global Integrated Agencies reportable segment is comprised of the Company’s four global, integrated operating segments (72andSunny, Anomaly, Crispin Porter + Bogusky, and Forsman & Bodenfors) serving multinational clients around the world. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of global clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Global Integrated Agencies reportable segment.
The operating segments within the Global Integrated Agencies reportable segment provides a range of different services for its clients, including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast).
•
The Domestic Creative Agencies reportable segment is comprised of seven operating segments that are primarily national advertising agencies (Colle + McVoy, Doner, Laird + Partners, Mono Advertising, Union, Yamamoto, and Yes & Company) leveraging creative capabilities at their core. These operating segments share similar characteristics related to (i) the

21
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nature of their services; (ii) the type of domestic client accounts and the methods used to provide services; and (iii) the extent to which they may be impacted by domestic economic and policy factors within North America. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long- term profitability is similar among the operating segments aggregated in the Domestic Creative Agencies reportable segment.
The operating segments within the Domestic Creative Agencies reportable segment provide similar services as the Global Integrated Agencies.

•
The Specialist Communications reportable segment is comprised of four operating segments that are each communications agencies (Allison & Partners, Hunter, KWT Global, and Veritas) with core service offerings in public relations and related communications services. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of client accounts and the methods used to provide services; (iii) the extent to which they may be impacted by domestic economic and policy factors within North America; and (iv) the regulatory environment regarding public relations and social media. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Specialist Communications reportable segment.
The operating segments within the Specialist Communications reportable segment provide public relations and communications services including strategy, editorial, crisis support or issues management, media training, influencer engagement, and events management.

•
The Media Services reportable segment is comprised of a single operating segment known as MDC Media Partners. MDC Media Partners, which operates primarily in North America, performs media buying and planning as their core competency across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast).
•
All Other consists of the Company’s remaining operating segments that provide a range of diverse marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregated in the reportable segments. The All Other category includes 6Degrees Communications, Concentric Partners, Gale Partners, Kenna, Kingsdale (through the date of sale on March 8, 2019), Instrument, Relevent, Team, Vitro, and Y Media Labs. The nature of the specialist services provided by these operating segments vary among each other and from those operating segments aggregated into the reportable segments. This results in these operating segments having current and long-term performance expectations inconsistent with those operating segments aggregated in the reportable segments. The operating segments within All Other provide a range of diverse marketing communication services, including application and website design and development, data and analytics, experiential marketing, customer research management, creative services, and branding.
•
Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category.

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Three Months Ended 
 March 31,
 
2019
 
2018
Revenue:
 
 
 
Global Integrated Agencies
$
129,719

 
$
129,524

Domestic Creative Agencies
67,007

 
66,654

Specialist Communications
38,953

 
38,824

Media Services
20,179

 
24,684

All Other
72,933

 
67,282

Total
$
328,791

 
$
326,968

 
 
 
 
Segment operating income (loss):
 
 
 
Global Integrated Agencies
$
3,770

 
$
(13,593
)
Domestic Creative Agencies
5,477

 
2,878

Specialist Communications
7,077

 
3,728

Media Services
(1,834
)
 
(19
)
All Other
6,014

 
6,445

Corporate
(4,822
)
 
(14,072
)
Total
$
15,682

 
$
(14,633
)
 
 
 
 
Other Income (Expenses):
 
 
 
Interest expense and finance charges, net
(16,760
)
 
(16,083
)
Foreign exchange gain (loss)
5,442

 
(6,660
)
Other, net
(3,383
)
 
441

Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates
981

 
(36,935
)
Income tax expense (benefit)
748

 
(8,330
)
Income (loss) before equity in earnings (losses) of non-consolidated affiliates
233

 
(28,605
)
Equity in earnings of non-consolidated affiliates
83

 
86

Net income (loss)
316

 
(28,519
)
Net income attributable to the noncontrolling interest
(429
)
 
(897
)
Net loss attributable to MDC Partners Inc.
$
(113
)
 
$
(29,416
)




23
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Three Months Ended 
 March 31,
 
2019
 
2018
Depreciation and amortization:
 
 
 
Global Integrated Agencies
$
4,065

 
$
7,410

Domestic Creative Agencies
1,239

 
1,293

Specialist Communications
567

 
966

Media Services
691

 
637

All Other
2,059

 
1,845

Corporate
217

 
224

Total
$
8,838

 
$
12,375

 
 
 
 
 
 
 
 
Stock-based compensation:
 
 
 
Global Integrated Agencies
$
3,767

 
$
2,460

Domestic Creative Agencies
464

 
410

Specialist Communications
26

 
187

Media Services
—

 
74

All Other
288

 
658

Corporate
(1,573
)
 
1,248

Total
$
2,972

 
$
5,037

 
 
 
 
Capital expenditures:
 
 
 
Global Integrated Agencies
$
1,418

 
$
2,243

Domestic Creative Agencies
694

 
903

Specialist Communications
251

 
236

Media Services
41

 
184

All Other
1,201

 
225

Corporate
1

 
8

Total
$
3,606

 
$
3,799


The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.
See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for three months ended March 31, 2019 and 2018.

13. Commitments, Contingencies, and Guarantees
Legal Proceedings. The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.
Deferred Acquisition Consideration and Options to Purchase. See Notes 5 and 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding potential payments associated with deferred acquisition consideration and the acquisition of noncontrolling shareholders’ ownership interest in subsidiaries.
Natural Disasters. Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the three months ended March 31, 2019 and 2018, these operations did not incur any material costs related to damages resulting from hurricanes.

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Guarantees. Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable.
Commitments.  At March 31, 2019, the Company had $4,701 of undrawn letters of credit.

14. New Accounting Pronouncements
Adopted In The Current Reporting Period
Effective January 1, 2019, the Company adopted ASC 842. As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 840, Leases. With the adoption of ASC 842, the Company has elected to apply the package of practical expedients: (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. Additionally, the Company elected the practical expedient to not separate non-lease components from lease components for all operating leases.
The adoption of ASC 842 had a material impact on the Company’s unaudited condensed Consolidated Balance Sheet, resulting in the recognition, on January 1, 2019, of a lease liability of $299,243 which represents the present value of the remaining lease payments, and a right-of-use asset of $254,245 which represents the lease liability, offset by adjustments as appropriate under ASC 842. The adoption of ASC 842 did not have a material impact on the Company’s other unaudited condensed consolidated financial statements.


Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, references to the “Company” or “MDC” mean MDC Partners Inc. and its subsidiaries, and references to a “fiscal year” means the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2019 means the period beginning January 1, 2019, and ending December 31, 2019).
The Company reports its financial results in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”). In addition, the Company has included certain non-U.S. GAAP financial measures and ratios, which it believes provide useful supplemental information to both management and readers of this report in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by U.S. GAAP and should not be construed as an alternative to other titled measures determined in accordance with U.S. GAAP.
Two such non-U.S. GAAP measures are “organic revenue growth” or “organic revenue decline” that refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating the prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of in the current period. The organic revenue growth (decline) component reflects the constant currency impact (a) of the change in revenue of the Partner Firms which the Company has held throughout each of the comparable periods presented and (b) “non-GAAP acquisitions (dispositions), net.” Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year or same period as the current reportable period, taking into account their respective pre-acquisition revenues for the applicable periods and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year. The Company believes that isolating the impact of acquisition activity and foreign currency impacts is an important and informative component to understand the overall change in the Company’s consolidated revenue. The change in the consolidated revenue that remains after these adjustments illustrates the underlying financial performance of the Company’s businesses. Specifically, it represents the impact of the Company’s management oversight, investments and resources dedicated to supporting the businesses’ growth strategy and operations. In addition, it reflects the network benefit of inclusion in the broader portfolio of firms that includes, but is not limited to, cross-selling and sharing of best practices. This approach isolates changes in performance of the business that take place under the Company’s stewardship, whether favorable or unfavorable, and thereby reflects the potential benefits and risks associated with owning and managing a talent-driven services business.

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Accordingly, during the first twelve months of ownership by the Company, the organic growth measure may credit the Company with growth from an acquired business that is dependent on work performed prior to the acquisition date, and may include the impact of prior work in progress, existing contracts and backlog of the acquired businesses. It is the presumption of the Company that positive developments that may have taken place at an acquired business during the period preceding the acquisition will continue to result in value creation in the post-acquisition period.
While the Company believes that the methodology used in the calculation of organic revenue change is entirely consistent with our closest U.S. competitors, the calculations may not be comparable to similarly titled measures presented by other publicly traded companies in other industries. Additional information regarding the Company’s acquisition activity as it relates to potential revenue growth is provided in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Certain Factors Affecting our Business.”
The following discussion focuses on the operating performance of the Company for the three months ended March 31, 2019 and 2018 and the financial condition of the Company as of March 31, 2019. This analysis should be read in conjunction with the interim unaudited condensed consolidated financial statements presented in this interim report and the annual audited consolidated financial statements and Management’s Discussion and Analysis presented in the Annual Report for the year ended December 31, 2018 as reported on the Form 10-K (the “Annual Report on Form 10-K”). All amounts are in dollars unless otherwise stated. Amounts reported in millions herein are computed based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.
Recent Developments
Issuance of Shares and Appointment of Chief Executive Officer

On March 14, 2019, the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell Group LLC (“Stagwell”). See Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the issuance of the Class A and Series 6 convertible preference shares.
Effective March 18, 2019, the Company’s Board of Directors (the “Board”) appointed Mark Penn as the Chief Executive Officer and as a director of the Board. Mr. Penn is manager of Stagwell. Effective April 18, 2019, Mr. Penn was also appointed as Chairman of the Board.
Amendment to Credit Agreement
On March 12, 2019 , the Company, Maxxcom Inc. (a subsidiary of the Company) (“Maxxcom”) and each of their subsidiaries party thereto entered into an amendment (the “Amendment”) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), and the lenders from time to time party thereto. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the amendments to the Credit Agreement.
Sale of Kingsdale
On March 8, 2019, the Company consummated the sale of its equity interest in Kingsdale. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the sale of Kingsdale.
Executive Summary
MDC conducts its business through its network of Partner Firms, the “Advertising and Communications Group,” who provide a comprehensive array of marketing and communications services for clients both domestically and globally. The Company’s objective is to create shareholder value by building, growing and acquiring market-leading Partner Firms that deliver innovative, value-added marketing, activation, communications and strategic consulting to their clients. Management believes that shareholder value is maximized with an operating philosophy of “Perpetual Partnership” with proven committed industry leaders in marketing communications.
MDC manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenues, operating expenses and capital expenditures. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth by client industry vertical, (iii) growth from existing clients and the addition of new clients, (iv) growth by primary discipline (v) growth from currency changes, and (vi) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our Partner Firms. These indicators may include a Partner Firm’s recent new client win/loss record; the depth and scope of a pipeline of potential new client account activity; the overall quality of

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the services provided to clients; and the relative strength of the Partner Firm’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.
As discussed in Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for the Company aggregates operating segments that meet the aggregation criteria detailed in ASC 280 into one of the four reportable segments and combines and discloses those operating segments that do not meet the aggregation criteria in the All Other category. Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a description of each of our reportable segments and All Other category and further information regarding the reclassification of certain businesses between segments.
In addition, MDC reports its corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate. Corporate provides client and business development support to the Partner Firms as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions. Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the appropriate reportable segment and the All Other category.
Certain Factors Affecting Our Business
See the Executive Summary section of Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for information regarding certain factors affecting our business.



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Results of Operations:

 
Three Months Ended 
 March 31,
 
2019
 
2018
Revenue:
(Dollars in Thousands)
Global Integrated Agencies
$
129,719

 
$
129,524

Domestic Creative Agencies
67,007

 
66,654

Specialist Communications
38,953

 
38,824

Media Services
20,179

 
24,684

All Other
72,933

 
67,282

Total
$
328,791

 
$
326,968

 
 
 
 
Segment operating income (loss):
 
 
 
Global Integrated Agencies
$
3,770

 
$
(13,593
)
Domestic Creative Agencies
5,477

 
2,878

Specialist Communications
7,077

 
3,728

Media Services
(1,834
)
 
(19
)
All Other
6,014

 
6,445

Corporate
(4,822
)
 
(14,072
)
Total
$
15,682

 
$
(14,633
)
 
 
 
 
Other Income (Expenses):
 
 
 
Interest expense and finance charges, net
(16,760
)
 
(16,083
)
Foreign exchange gain (loss)
5,442

 
(6,660
)
Other, net
(3,383
)
 
441

Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates
981

 
(36,935
)
Income tax expense (benefit)
748

 
(8,330
)
Income (loss) before equity in earnings (losses) of non-consolidated affiliates
233

 
(28,605
)
Equity in earnings of non-consolidated affiliates
83

 
86

Net income (loss)
316

 
(28,519
)
Net income attributable to the noncontrolling interest
(429
)
 
(897
)
Net loss attributable to MDC Partners Inc.
$
(113
)
 
$
(29,416
)



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Three Months Ended 
 March 31,
 
2019
 
2018
Depreciation and amortization:
(Dollars in Thousands)
Global Integrated Agencies
$
4,065

 
$
7,410

Domestic Creative Agencies
1,239

 
1,293

Specialist Communications
567

 
966

Media Services
691

 
637

All Other
2,059

 
1,845

Corporate
217

 
224

Total
$
8,838

 
$
12,375

 
 
 
 
 
 
 
 
Stock-based compensation:
 
 
 
Global Integrated Agencies
$
3,767

 
$
2,460

Domestic Creative Agencies
464

 
410

Specialist Communications
26

 
187

Media Services
—

 
74

All Other
288

 
658

Corporate
(1,573
)
 
1,248

Total
$
2,972

 
$
5,037

 
 
 
 
Capital expenditures:
 
 
 
Global Integrated Agencies
$
1,418

 
$
2,243

Domestic Creative Agencies
694

 
903

Specialist Communications
251

 
236

Media Services
41

 
184

All Other
1,201

 
225

Corporate
1

 
8

Total
$
3,606

 
$
3,799



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THREE MONTHS ENDED MARCH 31, 2019 COMPARED TO THREE MONTHS ENDED MARCH 31, 2018

Consolidated Results of Operations

Revenues
Revenue was $328.8 million for the three months ended March 31, 2019 compared to revenue of $327.0 million for the three months ended March 31, 2018. See the Advertising and Communications Group section below for a discussion regarding consolidated revenues for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.
Operating Income
Operating income for the three months ended March 31, 2019 was $15.7 million, compared to loss of $14.6 million for the three months ended March 31, 2018, representing a change of $30.3 million. The change was primarily driven by an increase in operating income in the Advertising and Communications Group of $21.1 million. Additionally, Corporate operating expenses decreased by $9.3 million, primarily related to lower compensation expense, stock-based compensation and professional fees as well as an impairment charge of $2.3 million recognized in 2018.
Other, Net
Other, net, for the three months ended March 31, 2019 was loss of $3.4 million compared to income of $0.4 million for the three months ended March 31, 2018, primarily driven by a loss on the sale of Kingsdale.
Foreign Exchange Gain (Loss)
Foreign exchange gain for the three months ended March 31, 2019 was $5.4 million compared to loss of $6.7 million for the three months ended March 31, 2018. The decline in the foreign exchange loss is primarily attributable to the strengthening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.
Interest Expense and Finance Charges, Net
Interest expense and finance charges, net, for the three months ended March 31, 2019 was $16.8 million compared to $16.1 million for the three months ended March 31, 2018, representing an increase of $0.8 million.
Income Tax Expense (Benefit)
Income tax expense for the three months ended March 31, 2019 was $0.7 million (on income of $1.0 million resulting in an effective tax rate of 76.3%) compared to a benefit of $8.3 million (on a loss of $36.9 million resulting in an effective tax rate of 22.6%) for the three months ended March 31, 2018.  The effective tax rate of 76.3% was primarily related to the impact of certain discrete items recognized for the three months ended March 31, 2019.
Equity in Earnings of Non-Consolidated Affiliates
Equity in earnings of non-consolidated affiliates represents the income or losses attributable to equity method investments. Income recorded for the three months ended March 31, 2019 and 2018 remained flat at $0.1 million.
Noncontrolling Interests
The effect of noncontrolling interests for the three months ended March 31, 2019 was $0.4 million compared to $0.9 million for the three months ended March 31, 2018.

Net Income (Loss) Attributable to MDC Partners Inc. Common Shareholders
As a result of the foregoing, net loss attributable to MDC Partners Inc. common shareholders for the three months ended March 31, 2019 was $2.5 million, or $0.04 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $31.4 million, or $0.56 diluted loss per share, for the three months ended March 31, 2018.
Advertising and Communications Group
The following discussion provides additional detailed disclosure for each of the Company’s four (4) reportable segments, plus the “All Other” category, within the Advertising and Communications Group.
Revenue was $328.8 million for the three months ended March 31, 2019 compared to revenue of $327.0 million for the three months ended March 31, 2018, representing an increase of $1.8 million.

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The change in revenue included a negative foreign exchange impact of $5.1 million, or 1.6% and a decrease in revenue from existing Partner Firms of $6.9 million, or 2.1%, partially offset by revenue from acquired Partner Firms of $15.7 million, or 4.8%. The decline in revenue from existing Partner Firms was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins. Additionally, the change in revenue was driven by a decline in categories including automotive and retailers, offset by growth in technology.
Revenue growth was mixed through the geographic regions with growth in the United States of 2.5%, offset by a decline in Canada of 15.2%, 1.5% in the other regions outside of North America partially attributable to the strengthening of the U.S. dollar.
The Company also utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above. For the three months ended March 31, 2019, organic revenue decreased by $2.9 million, or 0.9%, of which $6.9 million, or 2.1% pertained to Partner Firms the Company has owned throughout each of the comparable periods presented. The remaining revenue growth of $4.0 million, or 1.2%, was generated from acquired Partner Firms.
The components of the fluctuations in revenues for the three months ended March 31, 2019 compared to the three months ended March 31, 2018 are as follows:
 
Total
 
United States
 
Canada
 
Other
 
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
March 31, 2018
$
326,968

 
 
 
$
256,524

 
 
 
$
26,379

 
 
 
$
44,065

 
 
Components of revenue change:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange impact
(5,139
)
 
(1.6
)%
 
—

 
—
 %
 
(1,252
)
 
(4.7
)%
 
(3,887
)
 
(8.8
)%
Non-GAAP acquisitions (dispositions), net
9,852

 
3.0
 %
 
$
10,738

 
4.2
 %
 
(1,737
)
 
(6.6
)%
 
851

 
1.9
 %
Organic revenue growth (decline)
(2,890
)
 
(0.9
)%
 
(4,245
)
 
(1.7
)%
 
(1,012
)
 
(3.8
)%
 
2,367

 
5.4
 %
Total Change
$
1,823

 
0.6
 %
 
$
6,493

 
2.5
 %
 
$
(4,001
)
 
(15.2
)%
 
$
(669
)
 
(1.5
)%
March 31, 2019
$
328,791

 
 
 
$
263,017

 
 
 
$
22,378

 
 
 
$
43,396

 
 
The table below provides a reconciliation between the revenue in the Advertising and Communications Group from acquired businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the three months ended March 31, 2019:
 
Specialist Communications
 
All Other
 
Total
 
(Dollars in Thousands)
GAAP revenue from 2018 acquisitions
$
1,243

 
$
14,442

 
$
15,685

Contribution to non-GAAP organic revenue (growth) decline
(203
)
—

(3,805
)
—

(4,008
)
Prior year revenue from dispositions
—

 
(1,825
)
 
(1,825
)
Non-GAAP acquisitions (dispositions), net
$
1,040

 
$
8,812

 
$
9,852


The geographic mix in revenues for the three months ended March 31, 2019 and 2018 is as follows:
 
2019
 
2018
United States
80.0
%
 
78.5
%
Canada
6.8
%
 
8.0
%
Other
13.2
%
 
13.5
%
The United States and Canada had organic revenue decline of 1.7% and 3.8%, respectively. Organic revenue growth outside of North America was 5.4%. Organic revenue performance in the United States and Canada was attributable to client losses and a reduction in spending by some clients, partially offset by a contribution from new client wins.
The negative foreign exchange impact of $5.1 million, or 1.6%, was attributed to the strengthening of the U.S. dollar against the Canadian dollar and Swedish Króna.

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The change in expenses and operating profit as a percentage of revenue in the Advertising and Communications Group for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Advertising and Communications Group
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
328,791

 
 
 
$
326,968

 
 
 
$
1,823

 
0.6
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
237,421

 
72.2
%
 
243,030

 
74.3
 %
 
(5,609
)
 
(2.3
)%
Office and general expenses
 
62,246

 
18.9
%
 
72,348

 
22.1
 %
 
(10,102
)
 
(14.0
)%
Depreciation and amortization
 
8,620

 
2.6
%
 
12,151

 
3.7
 %
 
(3,531
)
 
(29.1
)%
 
 
$
308,287

 
93.8
%
 
$
327,529

 
100.2
 %
 
$
(19,242
)
 
(5.9
)%
Operating profit (loss)
 
$
20,504

 
6.2
%
 
$
(561
)
 
(0.2
)%
 
$
21,065

 
NM (1)

(1) NM - Not meaningful
The change in operating profit was attributable to lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Advertising and Communications Group
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs (1)
 
$
56,450

 
17.2
 %
 
$
48,514

 
14.8
%
 
$
7,936

 
16.4
 %
Staff costs (2)
 
201,558

 
61.3
 %
 
213,074

 
65.2
%
 
(11,516
)
 
(5.4
)%
Administrative cost
 
44,757

 
13.6
 %
 
47,415

 
14.5
%
 
(2,658
)
 
(5.6
)%
Deferred acquisition consideration
 
(7,643
)
 
(2.3
)%
 
2,586

 
0.8
%
 
(10,229
)
 
(395.6
)%
Stock-based compensation
 
4,545

 
1.4
 %
 
3,789

 
1.2
%
 
756

 
20.0
 %
Depreciation and amortization
 
8,620

 
2.6
 %
 
12,151

 
3.7
%
 
(3,531
)
 
(29.1
)%
Total operating expenses
 
$
308,287

 
93.8
 %
 
$
327,529

 
100.2
%
 
$
(19,242
)
 
(5.9
)%
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
The decrease in staff costs was primarily attributed to staffing reductions at Partner Firms, and lower costs to support the operations of Partner Firms.
Deferred acquisition consideration change for the three months ended March 31, 2019 was primarily attributed to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.



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Table of Contents

Global Integrated Agencies
The change in expenses and operating profit as a percentage of revenue in the Global Integrated Agencies reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Global Integrated Agencies
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
129,719

 
 
 
$
129,524

 
 
 
$
195

 
0.2
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
97,276

 
75.0
%
 
103,037

 
79.6
 %
 
(5,761
)
 
(5.6
)%
Office and general expenses
 
24,608

 
19.0
%
 
32,670

 
25.2
 %
 
(8,062
)
 
(24.7
)%
Depreciation and amortization
 
4,065

 
3.1
%
 
7,410

 
5.7
 %
 
(3,345
)
 
(45.1
)%
 
 
$
125,949

 
97.1
%
 
$
143,117

 
110.5
 %
 
$
(17,168
)
 
(12.0
)%
Operating profit (loss)
 
$
3,770

 
2.9
%
 
$
(13,593
)
 
(10.5
)%
 
$
17,363

 
(127.7
)%
The change in revenue includes an increase in revenue from existing Partner Firms of $3.8 million, or 2.9%, due to net client wins, offset by cutbacks and spending delays from several existing clients and a negative impact from foreign exchange of $3.6 million, or 2.8%.
The change in operating profit was primarily attributed to lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Global Integrated Agencies
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs (1)
 
$
14,496

 
11.2
 %
 
$
6,501

 
5.0
%
 
$
7,995

 
123.0
 %
Staff costs (2)
 
89,242

 
68.8
 %
 
102,401

 
79.1
%
 
(13,159
)
 
(12.9
)%
Administrative
 
19,343

 
14.9
 %
 
22,911

 
17.7
%
 
(3,568
)
 
(15.6
)%
Deferred acquisition consideration
 
(4,964
)
 
(3.8
)%
 
1,434

 
1.1
%
 
(6,398
)
 
(446.2
)%
Stock-based compensation
 
3,767

 
2.9
 %
 
2,460

 
1.9
%
 
1,307

 
53.1
 %
Depreciation and amortization
 
4,065

 
3.1
 %
 
7,410

 
5.7
%
 
(3,345
)
 
(45.1
)%
Total operating expenses
 
$
125,949

 
97.1
 %
 
$
143,117

 
110.5
%
 
$
(17,168
)
 
(12.0
)%
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
The decrease in staff costs was attributed to staffing reductions at certain Partner Firms.
Deferred acquisition consideration change for the three months ended March 31, 2019 was primarily attributed to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.

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Table of Contents

Domestic Creative Agencies
The change in expenses and operating profit as a percentage of revenue in the Domestic Creative Agencies reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Domestic Creative Agencies
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
67,007

 
 
 
$
66,654

 
 
 
$
353

 
0.5
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
47,724

 
71.2
%
 
48,595

 
72.9
%
 
(871
)
 
(1.8
)%
Office and general expenses
 
12,567

 
18.8
%
 
13,888

 
20.8
%
 
(1,321
)
 
(9.5
)%
Depreciation and amortization
 
1,239

 
1.8
%
 
1,293

 
1.9
%
 
(54
)
 
(4.2
)%
 
 
$
61,530

 
91.8
%
 
$
63,776

 
95.7
%
 
$
(2,246
)
 
(3.5
)%
Operating profit
 
$
5,477

 
8.2
%
 
$
2,878

 
4.3
%
 
$
2,599

 
90.3
 %
The increase in operating profit was primarily attributed lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Domestic Creative Agencies
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs (1)
 
$
14,687

 
21.9
 %
 
$
10,873

 
16.3
%
 
$
3,814

 
35.1
 %
Staff costs (2)
 
37,869

 
56.5
 %
 
42,400

 
63.6
%
 
(4,531
)
 
(10.7
)%
Administrative
 
7,874

 
11.8
 %
 
8,571

 
12.9
%
 
(697
)
 
(8.1
)%
Deferred acquisition consideration
 
(603
)
 
(0.9
)%
 
229

 
0.3
%
 
(832
)
 
(363.3
)%
Stock-based compensation
 
464

 
0.7
 %
 
410

 
0.6
%
 
54

 
13.2
 %
Depreciation and amortization
 
1,239

 
1.8
 %
 
1,293

 
1.9
%
 
(54
)
 
(4.2
)%
Total operating expenses
 
$
61,530

 
91.8
 %
 
$
63,776

 
95.7
%
 
$
(2,246
)
 
(3.5
)%
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
The decrease in staff costs was attributed to staffing reductions at certain Partner Firms.


34
Table of Contents

Specialist Communications
The change in expenses and operating profit as a percentage of revenue in the Specialist Communications reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Specialist Communications
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
38,953

 
 
 
$
38,824

 
 
 
$
129

 
0.3
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
25,873

 
66.4
%
 
26,743

 
68.9
%
 
(870
)
 
(3.3
)%
Office and general expenses
 
5,436

 
14.0
%
 
7,387

 
19.0
%
 
(1,951
)
 
(26.4
)%
Depreciation and amortization
 
567

 
1.5
%
 
966

 
2.5
%
 
(399
)
 
(41.3
)%
 
 
$
31,876

 
81.8
%
 
$
35,096

 
90.4
%
 
$
(3,220
)
 
(9.2
)%
Operating profit
 
$
7,077

 
18.2
%
 
$
3,728

 
9.6
%
 
$
3,349

 
89.8
 %
The increase in operating profit was primarily attributed to lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Specialist Communications reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Specialist Communications
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs (1)
 
$
7,824

 
20.1
 %
 
$
9,479

 
24.4
%
 
$
(1,655
)
 
(17.5
)%
Staff costs (2)
 
20,171

 
51.8
 %
 
18,964

 
48.8
%
 
1,207

 
6.4
 %
Administrative
 
5,082

 
13.0
 %
 
4,992

 
12.9
%
 
90

 
1.8
 %
Deferred acquisition consideration
 
(1,794
)
 
(4.6
)%
 
508

 
1.3
%
 
(2,302
)
 
(453.1
)%
Stock-based compensation
 
26

 
0.1
 %
 
187

 
0.5
%
 
(161
)
 
(86.1
)%
Depreciation and amortization
 
567

 
1.5
 %
 
966

 
2.5
%
 
(399
)
 
(41.3
)%
Total operating expenses
 
$
31,876

 
81.8
 %
 
$
35,096

 
90.4
%
 
$
(3,220
)
 
(9.2
)%
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
Deferred acquisition consideration change for the three months ended March 31, 2019 was primarily attributed to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.
Media Services
The change in expenses and operating profit as a percentage of revenue in the Media Services reportable segment for the three months ended March 31, 2019 and 2018 was as follows:

35
Table of Contents

 
 
2019
 
2018
 
Change
Media Services
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
20,179

 
 
 
$
24,684

 
 
 
$
(4,505
)
 
(18.3
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
14,794

 
73.3
 %
 
16,775

 
68.0
 %
 
(1,981
)
 
(11.8
)%
Office and general expenses
 
6,528

 
32.4
 %
 
7,291

 
29.5
 %
 
(763
)
 
(10.5
)%
Depreciation and amortization
 
691

 
3.4
 %
 
637

 
2.6
 %
 
54

 
8.5
 %
 
 
$
22,013

 
109.1
 %
 
$
24,703

 
100.1
 %
 
$
(2,690
)
 
(10.9
)%
Operating loss
 
$
(1,834
)
 
(9.1
)%
 
$
(19
)
 
(0.1
)%
 
$
(1,815
)
 
NM

The decrease in operating profit was primarily attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below. The decline in revenue was primarily driven by net client losses as well as spending cutbacks from certain clients.
The change in the categories of expenses as a percentage of revenue in the Media Services reportable segment for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
Media Services
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs (1)
 
$
3,929

 
19.5
%
 
$
3,804

 
15.4
%
 
$
125

 
3.3
 %
Staff costs (2)
 
12,476

 
61.8
%
 
15,751

 
63.8
%
 
(3,275
)
 
(20.8
)%
Administrative
 
4,230

 
21.0
%
 
4,355

 
17.6
%
 
(125
)
 
(2.9
)%
Deferred acquisition consideration
 
687

 
3.4
%
 
82

 
0.3
%
 
605

 
737.8
 %
Stock-based compensation
 
—

 
—
%
 
74

 
0.3
%
 
(74
)
 
(100.0
)%
Depreciation and amortization
 
691

 
3.4
%
 
637

 
2.6
%
 
54

 
8.5
 %
Total operating expenses
 
$
22,013

 
109.1
%
 
$
24,703

 
100.1
%
 
$
(2,690
)
 
(10.9
)%
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
The decrease in staff costs was attributed to staffing reductions at certain Partner Firms.

36
Table of Contents


All Other
The change in expenses and operating profit as a percentage of revenue in the All Other category for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
72,933

 
 
 
$
67,282

 
 
 
$
5,651

 
8.4
 %
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
51,754

 
71.0
%
 
47,881

 
71.2
%
 
3,873

 
8.1
 %
Office and general expenses
 
13,106

 
18.0
%
 
11,111

 
16.5
%
 
1,995

 
18.0
 %
Depreciation and amortization
 
2,059

 
2.8
%
 
1,845

 
2.7
%
 
214

 
11.6
 %
 
 
$
66,919

 
91.8
%
 
$
60,837

 
90.4
%
 
$
6,082

 
10.0
 %
Operating profit
 
$
6,014

 
8.2
%
 
$
6,445

 
9.6
%
 
$
(431
)
 
(6.7
)%
The increase in revenue was primarily attributable to revenue contributions of $13.3 million from an acquired Partner Firm, offset by decline from existing Partner Firms of $7.1 million, or 10.6%, primarily in transportation and travel/lodging and healthcare and negative foreign exchange impact of $0.6 million, or 1.2%.
The change in the categories of expenses as a percentage of revenue in the All Other category for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs (1)
 
$
15,515

 
21.3
 %
 
$
17,857

 
26.5
%
 
$
(2,342
)
 
(13.1
)%
Staff costs (2)
 
41,798

 
57.3
 %
 
33,559

 
49.9
%
 
8,239

 
24.6
 %
Administrative
 
8,228

 
11.3
 %
 
6,586

 
9.8
%
 
1,642

 
24.9
 %
Deferred acquisition consideration
 
(969
)
 
(1.3
)%
 
332

 
0.5
%
 
(1,301
)
 
(391.9
)%
Stock-based compensation
 
288

 
0.4
 %
 
658

 
1.0
%
 
(370
)
 
(56.2
)%
Depreciation and amortization
 
2,059

 
2.8
 %
 
1,845

 
2.7
%
 
214

 
11.6
 %
Total operating expenses
 
$
66,919

 
91.8
 %
 
$
60,837

 
90.4
%
 
$
6,082

 
10.0
 %
(1)
Excludes staff costs.
(2)
Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.
The increase in staff costs was primarily attributed to contributions from an acquired Partner Firm and increased staffing for certain Partner Firms to support revenue growth.
Deferred acquisition consideration change for the three months ended March 31, 2019 was primarily attributed to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.


37
Table of Contents

Corporate
The change in operating expenses for Corporate for the three months ended March 31, 2019 and 2018 was as follows:
 
 
2019
 
2018
 
Variance
Corporate
 
$
 
$
 
$
 
%
 
 
(Dollars in Thousands)
Staff costs (1)
 
$
2,525

 
$
5,364

 
$
(2,839
)
 
(52.9
)%
Administrative
 
3,653

 
4,919

 
(1,266
)
 
(25.7
)%
Stock-based compensation
 
(1,573
)
 
1,248

 
(2,821
)
 
(226.0
)%
Depreciation and amortization
 
217

 
224

 
(7
)
 
(3.1
)%
Other asset impairment
 
—

 
2,317

 
(2,317
)
 
(100.0
)%
Total operating expenses
 
$
4,822

 
$
14,072

 
$
(9,250
)
 
(65.7
)%
(1)
Excludes stock-based compensation.
Staff costs declined as a result of lower compensation expense primarily associated with reductions in staff.
The decrease in administrative costs was primarily related to lower professional fees as the prior year included fees related to the implementation of a new accounting pronouncement.
Stock-based compensation was a credit in the three months ended of 2019 due to the reversal of expense previously recognized in connection with the forfeiture of a performance based equity award.


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Liquidity and Capital Resources:
Liquidity
The following table provides summary information about the Company’s liquidity position:

As of and for the three months ended March 31, 2019

As of and for the three months ended March 31, 2018

As of and for the year ended December 31, 2018
 
(In Thousands, Except for Long-Term Debt to
Shareholders’ Equity Ratio)

Cash and cash equivalents
$
26,372


$
29,202


$
30,873

Working capital (deficit)
$
(160,780
)

$
(195,925
)

$
(152,682
)
Cash provided by (used in) operating activities
$
(81,200
)
 
$
(61,033
)

$
17,280

Cash provided by (used in) investing activities
$
18,101

 
$
(3,868
)

$
(50,431
)
Cash provided by financing activities
$
60,753

 
$
47,618


$
21,434

Ratio of long-term debt to shareholders' deficit
(5.27
)

(4.97
)

(3.87
)
The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months. The Company has historically been able to maintain and expand its business using cash generated from operating activities, funds available under its Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing. At March 31, 2019, the Company had $32.8 million of borrowings outstanding and $201.3 million available under the Credit Agreement.
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 6.50% Senior Notes due 2024. Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Company’s Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the foreseeable future. The Company’s ability to make scheduled deferred acquisition payments, principal and interest payments, to refinance indebtedness or to fund planned capital expenditures will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in the Company’s 2018 Annual Report on Form 10-K and in the Company’s other SEC filings.
As market conditions warrant, the Company may from time to time seek to purchase its notes, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing its indebtedness, any purchase made by the Company may be funded by the net proceeds from any asset dispositions or the use of cash on its balance sheet. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.
Working Capital
At March 31, 2019, the Company had a working capital deficit of $160.8 million compared to a deficit of $152.7 million at December 31, 2018. The Company’s working capital is impacted by seasonality in media buying, amounts spent by clients, and timing of amounts received from clients and subsequently paid to suppliers. Media buying is impacted by the timing of certain events, such as major sporting competitions and national holidays, and there can be a quarter to quarter lag between the time amounts received from clients for the media buying are subsequently paid to suppliers. The Company intends to maintain sufficient cash or availability of funds under the Credit Agreement at any particular time to adequately fund working capital should there be a need to do so from time to time.
Cash Flows
Operating Activities
Cash flows used in operating activities for the three months ended March 31, 2019 was 81.2 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.
Cash flows used in operating activities for the three months ended March 31, 2018 was $61.0 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments as well as net income (loss) adjusted to reconcile to net cash used in operating activities.



Investing Activities

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During the three months ended March 31, 2019, cash flows provided by investing activities was $18.1 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by $3.6 million of capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements.
During the three months ended March 31, 2018, cash flows used in investing activities was $3.9 million, primarily consisting of capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements of $3.8 million.
Financing Activities
During the three months ended March 31, 2019, cash flows provided by financing activities was $60.8 million, driven by $100.0 million in proceeds from the issuance of common and preferred shares, partially offset by $35.3 million in net repayments under the Credit Agreement.
During the three months ended March 31, 2018, cash flows provided by financing activities was $47.6 million, primarily driven by $59.0 million in net borrowings under the Credit Agreement and $7.4 million of acquisition related payments.
Total Debt
Debt, net of debt issuance costs, as of March 31, 2019 was $919.1 million as compared to $954.1 million outstanding at December 31, 2018. The decrease of $35.1 million in debt was primarily a result of the Company’s net repayments on the Credit Agreement. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s $900 million aggregate principal amount of its senior unsecured notes due 2024 and $250 million senior secured revolving credit agreement due May 3, 2021 (the “Credit Agreement”).
The Company is currently in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.
If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the Credit Agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.
Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) senior leverage ratio, (ii) total leverage ratio, (iii) fixed charges ratio, and (iv) minimum earnings before interest, taxes and depreciation and amortization, in each case as such term is specifically defined in the Credit Agreement. For the period ended March 31, 2019, the Company’s calculation of each of these covenants, and the specific requirements under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:
 
March 31, 2019
Total Senior Leverage Ratio
0.14

Maximum per covenant
2.00

 
 

Total Leverage Ratio
5.05

Maximum per covenant
6.25

 
 

Fixed Charges Ratio
2.38

Minimum per covenant
1.00

 
 

Earnings before interest, taxes, depreciation and amortization
$
183,779

Minimum per covenant
$
105,000

These ratios and measures are not based on generally accepted accounting principles and are not presented as alternative measures of operating performance or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.

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Commitments, Contingencies, and Guarantees
The Company’s agencies enter into contractual commitments with media providers and agreements with production companies on behalf of our clients at levels that exceed the revenue from services. Some of our agencies purchase media for clients and act as an agent for a disclosed principal. These commitments are included in accounts payable when the media services are delivered by the media providers. MDC takes precautions against default on payment for these services and has historically had a very low incidence of default. MDC is still exposed to the risk of significant uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic downturn.
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding contingent deferred acquisition consideration.
The following table presents the changes in the deferred acquisition consideration by segment for the three months ended March 31, 2019:
 
March 31, 2019
 
Global Integrated Agencies
 
Domestic Creative Agencies
 
Specialist Communication Agencies
 
Media Services
 
All Other
 
Total
 
(Dollars in Thousands)
Beginning Balance of contingent payments
$
47,880

 
$
3,747

 
$
13,193

 
$
2,689

 
$
15,089

 
$
82,598

Payments
—

 
—

 
—

 
—

 
(275
)
 
(275
)
Redemption value adjustments (1)
(4,964
)
 
(603
)
 
(1,794
)
 
687

 
(969
)
 
(7,643
)
Stock-based compensation
644

 
—

 
—

 
—

 
165

 
809

Foreign translation adjustment
—

 
—

 
—

 
—

 
59

 
59

Ending Balance of contingent payments
43,560

 
3,144

 
11,399

 
3,376

 
14,069

 
75,548

Fixed payments, net
262

 
573

 
—

 
—

 
—

 
835

 
$
43,822

 
$
3,717

 
$
11,399

 
$
3,376

 
$
14,069

 
$
76,383


(1)
Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment.
Deferred acquisition consideration excludes future payments with an estimated fair value of $14.2 million that are contingent upon employment terms as well as financial performance and will be expensed as stock-based compensation over the required retention period. Of this amount, the Company estimates $1.2 million will be paid in the current year and $13 million will be paid in one to three years
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding redeemable noncontrolling interest.
The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the Credit Agreement (and refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity. The ultimate amount payable and the incremental operating income in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.

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The following table summarizes the potential timing of the consideration and incremental operating income before depreciation and amortization based on assumptions as described above:
Consideration (4)
 
2019
 
2020
 
2021
 
2022
 
2023 &
Thereafter
 
Total
 
 
 
(Dollars in Thousands)
 
Cash
 
$
4,485

 
$
1,375

 
$
3,757

 
$
2,754

 
$
3,118

 
$
15,489

 
Shares
 
15

 
31

 
43

 
28

 
12

 
$
129

 
 
 
$
4,500

 
$
1,406

 
$
3,800

 
$
2,782

 
$
3,130

 
$
15,618

(1) 
Operating income before depreciation and amortization to be received (2)
 
$
1,829

 
$
57

 
$
1,761

 
$
—

 
$
227

 
$
3,874

 
Cumulative operating income before depreciation and amortization (3)
 
$
1,829

 
$
1,886

 
$
3,647

 
$
3,647

 
$
3,874

 
 
(5) 
(1)
This amount is in addition to (i) the $28.9 million of options to purchase only exercisable upon termination not within the control of the Company, or death, and (ii) the $3.5 million excess of the initial redemption value recorded in redeemable noncontrolling interests over the amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests.
(2)
This financial measure is presented because it is the basis of the calculation used in the underlying agreements relating to the put rights and is based on actual operating results. This amount represents additional amounts to be attributable to MDC Partners Inc., commencing in the year the put is exercised.
(3)
Cumulative operating income before depreciation and amortization represents the cumulative amounts to be received by the Company.
(4)
The timing of consideration to be paid varies by contract and does not necessarily correspond to the date of the exercise of the put.
(5)
Amounts are not presented as they would not be meaningful due to multiple periods included.

Critical Accounting Policies
See the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for information regarding the Company’s critical accounting policies.

New Accounting Pronouncements
Information regarding new accounting pronouncements can be found in Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein.
Risks and Uncertainties
This document contains forward-looking statements. The Company’s representatives may also make forward-looking statements orally from time to time. Statements in this document that are not historical facts, including, without limitation, statements about the Company’s beliefs and expectations, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
•
risks associated with severe effects of international, national and regional economic conditions;
•
the Company’s ability to attract new clients and retain existing clients;
•
the spending patterns and financial success of the Company’s clients;

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•
the Company’s ability to retain and attract key employees;
•
the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to redeemable noncontrolling interests and deferred acquisition consideration;
•
the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; and
•
foreign currency fluctuations
Investors should carefully consider these risk factors, and the risk factors outlined in more detail in Company’s Annual Report for the year ended December 31, 2018 under the caption “Risk Factors,” and in the Company’s other SEC filings.
Website Access to Company Reports
MDC Partners Inc.’s Internet website address is www.mdc-partners.com. The Company’s Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act, will be made available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the Securities and Exchange Commission.  The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this quarterly report on Form 10-Q. From time to time, the Company may use its website as a channel of distribution of material company information.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to interest rates, foreign currencies and impairment risk.
Debt Instruments:  At March 31, 2019, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the Senior Notes. The Senior Notes bear a fixed 6.50% interest rate. The Credit Agreement bears interest at variable rates based upon the Eurodollar rate, U.S. bank prime rate and U.S. base rate, at the Company’s option. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of syndication. Given that there were $32.8 million borrowings under the Credit Agreement, as of March 31, 2019, a 1.0% increase or decrease in the weighted average interest rate, which was 4.89% at March 31, 2019, would have an interest impact of approximately $0.3 million.
Foreign Exchange:  While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For the most part, revenues and expenses incurred related to the non-U.S. operations are denominated in their functional currency. This minimizes the impact that fluctuations in exchange rates will have on profit margins. Translation of intercompany debt, which is not intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany balances are included in net earnings. The Company generally does not enter into foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
The Company is exposed to foreign currency fluctuations relating to its intercompany balances between the U.S. and Canada. For every one cent change in the foreign exchange rate between the U.S. and Canada, the impact to the Company’s financial statements would be approximately $3.0 million.
Impairment Risk: At March 31, 2019, the Company had goodwill of $742.8 million and other intangible assets of $64.9 million. The Company reviews goodwill and other intangible assets with indefinite lives not subject to amortization for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exist. See the Critical Accounting Policies and Estimates section in the Company’s 2018 Form 10-K for information related to impairment testing and the risk of potential impairment charges in future periods.
Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as appropriate,

43
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to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. However, our disclosure controls and procedures are designed to provide reasonable assurances of achieving our control objectives.
We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, our CEO and CFO concluded that, as of March 31, 2019, our disclosure controls and procedures are effective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 is appropriate.
Changes in Internal Control Over Financial Reporting
Except as described below, there have been no changes in our internal controls over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We implemented the new lease standard under ASC 842 as of January 1, 2019. The Company has substantially centralized the accounting and disclosure requirements under ASC 842 utilizing a newly implemented third-party software solution. In connection with these changes, we implemented certain modifications to our internal controls over financial reporting, including the documentation of our policy for the new accounting for leases, implementation of processes to address various judgments and assessments necessary during the life of a lease; as well as implementing new controls to capture the expanded disclosures required under ASC 842.

44
Table of Contents

PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings
The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on its financial condition or results of operations.
Item 1A.    Risk Factors
There are no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
For the three months ended March 31, 2019, the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement and the indenture governing the 6.50% Notes, the Company is currently limited from repurchasing its shares in the open market.
During 2019, the Company’s employees surrendered Class A shares in connection with the required tax withholding resulting from the vesting of restricted stock. The Company paid these withholding taxes on behalf of the related employees. These Class A shares were subsequently retired and no longer remain outstanding as of March 31, 2019. The following table details those shares withheld during the first quarter of 2019:
Period
 
Total Number of Shares Purchased
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Program
 
Maximum Number of Shares That May Yet Be Purchased Under the Program
1/1/2019 - 1/31/2019
 
$
—

 
$
—

 
$
—

 
$
—

2/1/2019 - 2/28/2019
 
19,559

 
2.94

 
—

 
—

3/1/2019 - 3/31/2019
 
14,457

 
2.50

 
—

 
—

Total
 
$
34,016

 
$
2.85

 
$
—

 
$
—


Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
Separation and Release Agreement with David Doft
On May 8, 2019, the Company and David Doft mutually agreed to separate his employment as the Company’s Executive Vice President, Chief Financial Officer.  In connection with his pending departure, Mr. Doft entered into a Separation and Release Agreement, a copy of which is attached hereto as Exhibit 10.5 (the “CFO Separation Agreement”). Pursuant to the CFO Separation Agreement, Mr. Doft will remain as an executive of the Company until his termination date on or about July 31, 2019.  During that period of time, he will coordinate an appropriate transition of duties and responsibilities to Frank Lanuto, the Company’s newly-appointed Chief Financial Officer. Effective on his termination date, Mr. Doft will receive the severance benefits described in his employment agreement for a termination without cause, including a cash payment equal to $1,655,000, in addition to payment of his previously disclosed 2018 retention bonus; vesting of his outstanding restricted shares of the Company’s Class A subordinate voting stock; and eligibility to receive a pro-rated amount of his previously granted 2018 LTIP Award, each as further described in, and subject to the terms and conditions of, the CFO Separation Agreement. In addition, Mr. Doft provided the Company with a release of claims, reaffirmed his restrictive covenants and agreed to mutual non-disparagement provisions.

Separation and Release Agreement with Mitchell Gendel

On May 6, 2019, the Company and Mitchell Gendel mutually agreed to separate his employment as the Company’s Executive Vice President, General Counsel and Corporate Secretary.  In connection with his pending departure, Mr. Gendel entered into a Separation and Release Agreement, a copy of which is attached hereto as Exhibit 10.6 (the “GC Separation Agreement”). Pursuant to the GC Separation Agreement, Mr. Gendel will remain as an executive of the Company until his termination date on

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or about July 31, 2019.  During that period of time, he will coordinate an appropriate transition of duties and responsibilities to Jonathan Mirsky, the Company’s newly-appointed General Counsel. Effective on his termination date, Mr. Gendel will receive the severance benefits described in his employment agreement for a termination without cause, including a cash payment equal to $1,550,000, in addition to payment of his previously disclosed 2018 retention bonus; vesting of his outstanding restricted shares of the Company’s Class A subordinate voting stock; and eligibility to receive a pro-rated amount of his previously granted 2018 LTIP Award, each as further described in, and subject to the terms and conditions of, the GC Separation Agreement. In addition, Mr. Gendel provided the Company with a release of claims, reaffirmed his restrictive covenants and agreed to mutual non-disparagement provisions.


Item 6.    Exhibits
The exhibits required by this item are listed on the Exhibit Index.

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EXHIBIT INDEX
 
Exhibit No.
 
Description
 
Articles of Amendment, dated March 14, 2019 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on March 15, 2019).

 
Consent and First Amendment to the Second Amended and Restated Credit Agreement, dated as of May 3, 2016, among the Company, Maxxcom Inc., a Delaware corporation, each of their subsidiaries party thereto, Wells Fargo Bank, N.A., as agent, and the lenders from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on March 15, 2019).
 
Securities Purchase Agreement, by and between the Company and Stagwell Agency Holdings LLC, dated as of March 14, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on March 15, 2019).
 
Employment Agreement, effective March 18, 2019, by and between the Company and Mark Penn (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on March 15, 2019).

 
Agreement, dated April 19, 2019, by and between the Company and FrontFour Capital Group LLC, on behalf of itself and its affiliates (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 22, 2019).
 
Separation and Release Agreement, dated as of May 8, 2019, by and between the Company and David Doft.*
 
Separation and Release Agreement, dated as of May 6, 2019, by and between the Company and Mitchell Gendel.*
 
Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
 
Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
 
Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
Schedule of Advertising and Communications Companies.*
101
 
Interactive data file.*
* Filed electronically herewith.

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
MDC PARTNERS INC.
 
/s/ David Doft
David Doft
Chief Financial Officer and Authorized Signatory
 
May 9, 2019

47