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Stagwell Inc - Quarter Report: 2020 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One) 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
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.)
 
 
 
 
330 Hudson Street, 10th Floor
 
 
New York,
New York
 
10013
(Address of principal executive offices)
 
(Zip Code)
(646) 429-1800
(Registrant’s telephone number, including area code)

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
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     No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes  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
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  
The number of common shares outstanding as of July 24, 2020 was 72,740,767 Class A subordinate voting shares and 3,743 Class B multiple voting shares.




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.

References in this Quarterly Report on Form 10-Q to “MDC Partners,” “MDC,” the “Company,” “we,” “us” and “our” refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries. References in this Quarterly Report on Form 10-Q to “Partner Firms” generally refer to the Company’s subsidiary agencies.
All dollar amounts are stated in U.S. dollars unless otherwise stated.
                
Note About Forward-Looking Statements
This document contains forward-looking statements. The Company’s representatives may also make forward-looking statements orally or in writing from time to time. Statements in this document that are not historical facts, including, 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. 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. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. 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.

2


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 international, national and regional unfavorable economic conditions that could affect the Company or its clients, including as a result of the novel coronavirus pandemic (“COVID-19”);
the effects of the outbreak of COVID-19, including the measures to reduce its spread, and the impact on the economy and demand for our services, which may precipitate or exacerbate other risks and uncertainties;
developments involving the proposal by Stagwell Media LP to enter into a business combination with the Company;
the Company’s ability to attract new clients and retain existing clients;
reduction in client spending and changes in client advertising, marketing and corporate communications requirements;
financial failure of the Company’s clients;
the Company’s ability to retain and attract key employees;
the Company’s ability to achieve the full amount of its stated cost saving initiatives;
the Company’s implementation of strategic initiatives;
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 those relating 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, other risk factors described herein, and the additional risk factors outlined in more detail in the Company’s 2019 Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2020 and accessible on the SEC’s website at www.sec.gov., under the caption “Risk Factors,” and in the Company’s other SEC filings.


3


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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenue:
 

 
 

 
 
 
 
Services
$
259,678

 
$
362,130

 
$
587,420

 
$
690,921

Operating Expenses:
 
 
 
 
 
 
 
Cost of services sold
165,632

 
240,749

 
388,325

 
477,903

Office and general expenses
66,210

 
87,276

 
132,563

 
154,394

Depreciation and amortization
8,899

 
10,663

 
18,105

 
19,501

Impairment and other losses
18,839

 

 
19,000

 

 
259,580

 
338,688

 
557,993

 
651,798

Operating income
98

 
23,442

 
29,427

 
39,123

Other Income (Expenses):
 
 
 
 
 
 
 
Interest expense and finance charges, net
(15,941
)
 
(16,413
)
 
(31,553
)
 
(33,174
)
Foreign exchange gain (loss)
5,342

 
2,932

 
(9,415
)
 
8,374

Other, net
5,884

 
(746
)
 
22,218

 
(4,128
)
 
(4,715
)
 
(14,227
)
 
(18,750
)
 
(28,928
)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
(4,617
)
 
9,215

 
10,677

 
10,195

Income tax expense (benefit)
(7,923
)
 
2,088

 
5,577

 
2,835

Income before equity in earnings of non-consolidated affiliates
3,306

 
7,127

 
5,100

 
7,360

Equity in earnings (losses) of non-consolidated affiliates
(798
)
 
206

 
(798
)
 
289

Net income
2,508

 
7,333

 
4,302

 
7,649

Net income attributable to the noncontrolling interest
(3,101
)
 
(3,043
)
 
(3,892
)
 
(3,472
)
Net income (loss) attributable to MDC Partners Inc.
(593
)
 
4,290

 
410

 
4,177

Accretion on and net income allocated to convertible preference shares
(3,509
)
 
(3,515
)
 
(6,949
)
 
(5,625
)
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(4,102
)
 
$
775

 
$
(6,539
)
 
$
(1,448
)
Income (loss) Per Common Share:
 

 
 

 
 
 
 
Basic
 

 
 

 
 
 
 
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(0.06
)
 
$
0.01

 
$
(0.09
)
 
$
(0.02
)
Diluted
 
 
 
 
 
 
 
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(0.06
)
 
$
0.01

 
$
(0.09
)
 
$
(0.02
)
Weighted Average Number of Common Shares Outstanding:
 

 
 

 
 
 
 
Basic
72,528,455

 
71,915,832

 
72,463,058

 
66,118,749

Diluted
72,528,455

 
72,024,689

 
72,463,058

 
66,118,749


See notes to the Unaudited Condensed Consolidated Financial Statements.

4


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(thousands of United States dollars)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Comprehensive Income (Loss)
 
 
 

 
 
 
 
Net income
$
2,508

 
$
7,333

 
$
4,302

 
$
7,649

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

 
 

 
 
 
 
Foreign currency translation adjustment
1,367

 
(1,385
)
 
8,796

 
(6,044
)
Other comprehensive income (loss)
1,367

 
(1,385
)
 
8,796

 
(6,044
)
Comprehensive income (loss) for the period
3,875

 
5,948

 
13,098

 
1,605

Comprehensive income attributable to the noncontrolling interests
(3,511
)
 
(3,081
)
 
(3,793
)
 
(3,861
)
Comprehensive income (loss) attributable to MDC Partners Inc.
$
364

 
$
2,867

 
$
9,305

 
$
(2,256
)
See notes to the Unaudited Condensed Consolidated Financial Statements.

5


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of United States dollars)
 
June 30,
2020
 
December 31,
2019
 
 
 
(as adjusted) 
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
85,483

 
$
106,933

Accounts receivable, less allowance for doubtful accounts of $1,875 and $3,304
359,306

 
449,288

Expenditures billable to clients
19,426

 
30,133

Other current assets
66,318

 
35,613

Total Current Assets
530,533

 
621,967

Fixed assets, at cost, less accumulated depreciation of $134,529 and $129,579
70,787

 
81,054

Right of use assets - operating leases
238,230

 
223,622

Goodwill
706,946

 
731,691

Other intangible assets, net
48,904

 
54,893

Deferred tax assets
82,696

 
84,900

Other assets
27,356

 
30,179

Total Assets
$
1,705,452

 
$
1,828,306

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
 
 
 

Current Liabilities:
 

 
 

Accounts payable
$
148,349

 
$
200,148

Accruals and other liabilities
264,572

 
353,575

Advance billings
136,196

 
171,742

Current portion of lease liabilities - operating leases
38,377

 
48,659

Current portion of deferred acquisition consideration
36,655

 
45,521

Total Current Liabilities
624,149

 
819,645

Long-term debt
922,537

 
887,630

Long-term portion of deferred acquisition consideration
2,597

 
29,699

Long-term lease liabilities - operating leases
267,559

 
219,163

Other liabilities
36,503

 
25,771

Total Liabilities
1,853,345

 
1,981,908

Redeemable Noncontrolling Interests
36,710

 
36,973

Commitments, Contingencies, and Guarantees (Note 9)


 


Shareholders’ Deficit:
 
 
 
Convertible preference shares, 145,000 authorized, issued and outstanding at June 30, 2020 and December 31, 2019
152,746

 
152,746

Common stock and other paid-in capital
98,234

 
101,469

Accumulated deficit
(480,368
)
 
(480,779
)
Accumulated other comprehensive loss (income)
4,627

 
(4,269
)
MDC Partners Inc. Shareholders' Deficit
(224,761
)
 
(230,833
)
Noncontrolling interests
40,158

 
40,258

Total Shareholders' Deficit
(184,603
)
 
(190,575
)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit
$
1,705,452

 
$
1,828,306

See notes to the Unaudited Condensed Consolidated Financial Statements.

6


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


 
Six Months Ended June 30,

2020
 
2019
Cash flows from operating activities:
 

 
 

Net income
$
4,302

 
$
7,649

Adjustments to reconcile net income to cash used in operating activities:
 
 
 
Stock-based compensation
4,109

 
6,606

Depreciation and amortization
18,105

 
19,501

Impairment and other losses
19,000

 

Adjustment to deferred acquisition consideration
(2,288
)
 
(5,570
)
Deferred income taxes
2,114

 
2,835

Foreign exchange and other
(4,578
)
 
(6,721
)
Changes in working capital:
 
 
 
Accounts receivable
88,039

 
(21,570
)
Expenditures billable to clients
10,707

 
1,763

Prepaid expenses and other current assets
(4,363
)
 
(3,345
)
Accounts payable, accruals and other current liabilities
(127,188
)
 
(66,343
)
Acquisition related payments
(6,215
)
 
(4,376
)
Advance billings
(35,422
)
 
29,334

Net cash used in operating activities
(33,678
)

(40,237
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(3,690
)
 
(7,923
)
Proceeds from sale of assets
19,616

 
23,050

Acquisitions, net of cash acquired
(729
)
 
(5,130
)
Other investments
(554
)
 
(179
)
Net cash provided by investing activities
14,643


9,818

Cash flows from financing activities:
 

 
 

Repayments of borrowings under revolving credit facility
(251,328
)
 
(834,538
)
Proceeds from borrowings under revolving credit facility
313,828

 
793,940

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

 
98,620

Acquisition related payments
(30,885
)
 
(24,219
)
Other
(11,050
)
 
(8,091
)
Repurchase of Senior Notes
(21,999
)
 

Net cash provided by (used in) financing activities
(1,434
)

25,712

Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts
(981
)
 
4

Net decrease in cash and cash equivalents, including cash classified within current assets held for sale
(21,450
)
 
(4,703
)
Change in cash and cash equivalents held in trusts classified within held for sale

 
(3,307
)
Change in cash and cash equivalents classified within assets held for sale

 
4,441

Net decrease in cash and cash equivalents
(21,450
)
 
(3,569
)
Cash and cash equivalents at beginning of period
106,933


30,873

Cash and cash equivalents at end of period
$
85,483


$
27,304

Supplemental disclosures:
 

 
 

Cash income taxes paid
$
2,566


$
3,494

Cash interest paid
$
28,736


$
31,643

See notes to the Unaudited Condensed Consolidated Financial Statements.

7


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(thousands of United States dollars, except share amounts)






 
Three Months Ended
 
June 30, 2020
 
Convertible Preference Shares

Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)

MDC Partners Inc. Shareholders' Deficit

Noncontrolling Interests

Total Shareholder's Deficit
 

 
 
 



 
Shares
 
Amount

Shares
 
 
 



Balance at March 31, 2020 (as adjusted)
145,000

 
$
152,746

 
72,483,166

 
$
99,587

 
$
(479,694
)
 
$
3,669

 
$
(223,692
)
 
$
39,749

 
$
(183,943
)
Net loss attributable to MDC Partners Inc.

 

 

 

 
(593
)
 

 
(593
)
 

 
(593
)
Other comprehensive income

 

 

 

 

 
957

 
957

 
410

 
1,367

Vesting of restricted awards

 

 
173,334

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(69,110
)
 
(95
)
 

 

 
(95
)
 

 
(95
)
Stock-based compensation

 

 

 
557

 

 

 
557

 

 
557

Changes in redemption value of redeemable noncontrolling interests

 

 

 
(1,412
)
 

 

 
(1,412
)
 

 
(1,412
)
Other

 

 

 
(403
)
 
(81
)
 
1

 
(483
)
 
(1
)
 
(484
)
Balance at June 30, 2020
145,000

 
$
152,746

 
72,587,390

 
$
98,234

 
$
(480,368
)
 
$
4,627

 
$
(224,761
)
 
$
40,158

 
$
(184,603
)

 
Six Months Ended
 
June 30, 2020
 
Convertible Preference Shares
 
Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
MDC Partners Inc. Shareholders' Deficit
 
Noncontrolling Interests
 
Total Shareholder's Deficit
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
 
 
 
 
 
Balance at December 31, 2019 (as adjusted)
145,000

 
$
152,746

 
72,154,603

 
$
101,469

 
$
(480,779
)
 
$
(4,269
)
 
$
(230,833
)
 
$
40,258

 
$
(190,575
)
Net income attributable to MDC Partners Inc.

 

 

 

 
410

 

 
410

 

 
410

Other comprehensive income

 

 

 

 

 
8,895

 
8,895

 
(99
)
 
8,796

Vesting of restricted awards

 

 
760,561

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(327,774
)
 
(732
)
 

 

 
(732
)
 

 
(732
)
Stock-based compensation

 

 

 
1,033

 

 

 
1,033

 

 
1,033

Changes in redemption value of redeemable noncontrolling interests

 

 

 
(2,630
)
 

 

 
(2,630
)
 

 
(2,630
)
Business acquisitions and step-up transactions, net of tax

 

 

 
(503
)
 

 

 
(503
)
 

 
(503
)
Other

 

 

 
(403
)
 
1

 
1

 
(401
)
 
(1
)
 
(402
)
Balance at June 30, 2020
145,000

 
$
152,746

 
72,587,390

 
$
98,234

 
$
(480,368
)
 
$
4,627

 
$
(224,761
)
 
$
40,158

 
$
(184,603
)














See notes to the Unaudited Condensed Consolidated Financial Statements.


8


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT - (continued)
(thousands of United States dollars, except share amounts)


 
Three Months Ended
 
June 30, 2019
 
Convertible Preference Shares
 
Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
MDC Partners Inc. Shareholders' Deficit
 
Noncontrolling Interests
 
Total Shareholder's Deficit
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
 
 
 
 
 
Balance at March 31, 2019 (as adjusted)
145,000

 
$
152,117

 
71,890,021

 
$
98,693

 
$
(475,639
)
 
$
(290
)
 
$
(225,119
)
 
$
40,223

 
$
(184,896
)
Net income attributable to MDC Partners Inc.

 

 

 

 
4,290

 

 
4,290

 

 
4,290

Other comprehensive loss

 

 

 

 

 
(1,423
)
 
(1,423
)
 
38

 
(1,385
)
Issuance of common and convertible preference shares

 
629

 

 
362

 

 

 
991

 

 
991

Vesting of restricted awards

 

 
76,979

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(19,257
)
 
(22
)
 

 

 
(22
)
 

 
(22
)
Stock-based compensation

 

 

 
1,800

 

 

 
1,800

 

 
1,800

Changes in redemption value of redeemable noncontrolling interests

 

 

 
(3,190
)
 

 

 
(3,190
)
 

 
(3,190
)
Business acquisitions and step-up transactions, net of tax

 

 

 
(97
)
 

 

 
(97
)
 

 
(97
)
Changes in ownership interest

 

 

 
(91
)
 

 

 
(91
)
 

 
(91
)
Balance at June 30, 2019 (as adjusted)
145,000

 
$
152,746

 
71,947,743

 
$
97,455

 
$
(471,349
)
 
$
(1,713
)
 
$
(222,861
)
 
$
40,261

 
$
(182,600
)

 
Six Months Ended
 
June 30, 2019
 
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 Shareholder's Deficit
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
 
 
 
 
 
Balance at December 31, 2018 (as adjusted)
95,000

 
$
90,123

 
57,521,323

 
$
58,579

 
$
(475,526
)
 
$
4,720

 
$
(322,104
)
 
$
64,514

 
$
(257,590
)
Net income attributable to MDC Partners Inc.

 

 

 

 
4,177

 

 
4,177

 

 
4,177

Other comprehensive loss

 

 

 

 

 
(6,433
)
 
(6,433
)
 
389

 
(6,044
)
Issuance of common and convertible preference shares
50,000

 
62,623

 
14,285,714

 
35,997

 

 

 
98,620

 

 
98,620

Vesting of restricted awards

 

 
193,979

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(53,273
)
 
(78
)
 

 

 
(78
)
 

 
(78
)
Stock-based compensation

 

 

 
509

 

 

 
509

 

 
509

Changes in redemption value of redeemable noncontrolling interests

 

 

 
2,729

 

 

 
2,729

 

 
2,729

Business acquisitions and step-up transactions, net of tax

 

 

 
(97
)
 

 

 
(97
)
 

 
(97
)
Changes in ownership interest

 

 

 
(184
)
 

 

 
(184
)
 
(24,642
)
 
(24,826
)
Balance at June 30, 2019 (as adjusted)
145,000

 
$
152,746

 
71,947,743

 
$
97,455

 
$
(471,349
)
 
$
(1,713
)
 
$
(222,861
)
 
$
40,261

 
$
(182,600
)












See notes to the Unaudited Condensed Consolidated Financial Statements.

9


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
MDC Partners Inc. (the “Company” or “MDC”), incorporated under the laws of Canada, is a leading provider of global marketing, advertising, activation, communications and strategic consulting solutions. Through its Networks (and underlying agencies generally referred to as “Partner Firms”), MDC delivers a wide range of customized services in order to drive growth and business performance for its clients.
The accompanying consolidated financial statements include the accounts of MDC, its subsidiaries and variable interest entities for which the Company is the primary beneficiary. MDC 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 about current and future results of operations and cash flows 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, 2019 (“2019 Form 10-K”).
The COVID-19 pandemic has negatively impacted the Company’s results of operations, financial position, and cash flows. While it is difficult to predict the full scale of the impact, the Company has taken actions to address the impact of the pandemic, such as working closely with our clients, reducing our expenses and monitoring liquidity. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. However, if the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the judgments, assumptions and estimates will be updated and could result in different results in the future.
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.
The Company reorganized its management structure in 2020 which resulted in a change to our reportable segments. Prior periods presented have been recast to reflect the change in reportable segments. The Company began to present the Integrated Agencies Network reportable segment, which aggregated four operating segments (Constellation, Anomaly Alliance, Doner Partner Network and Colle McVoy), in the first quarter of 2020. In connection with our discussions with the SEC, the Company has changed the prior presentation for the Integrated Agencies Network. Beginning in the second quarter of 2020, the Company separated the Integrated Agencies Network into two reportable segments: Integrated Networks - Group A (Anomaly and Colle McVoy) and Integrated Networks - Group B (Constellation and Doner Partner Network). The change was made to aggregate the operating segments that have the most similar historical average long-term profitability. See Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
Recent Developments
On June 26, 2020, MDC announced that its Board of Directors formed a Special Committee of independent directors to review the preliminary, non-binding proposal made by Stagwell Media LP with respect to a potential business combination between the Company and Stagwell Media LP (the “Potential Transaction”). Mark Penn, Chairman and Chief Executive Officer of the Company, is also the manager of the general partner of Stagwell Media LP. The Special Committee has retained legal counsel and an independent financial advisor to assist in its evaluation of the Potential Transaction. The Special Committee has not reached any conclusion regarding the Potential Transaction.
2. Acquisitions and Dispositions
2020 Acquisition
On March 19, 2020, the Company acquired the remaining 22.5% ownership interest of KWT Global it did not already own for an aggregate purchase price of $2,118, comprised of a closing cash payment of $729 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $1,389. The contingent deferred payments are based on the financial results of the underlying business from 2019 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $1,615. The difference between the purchase price and the redeemable noncontrolling interest of $503 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.

10


2020 Disposition
On February 14, 2020, the Company sold substantially all the assets and certain liabilities of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company, to an affiliate of The Stagwell Group LLC (“Stagwell”), for an aggregate sale price of $26,696, consisting of cash received at closing plus contingent deferred payments expected to be paid over the next two years. The sale resulted in a gain of $16,827, which is included in Other, net within the Unaudited Condensed Consolidated Statements of Operations. Sloane was included within Allison & Partners which is included within the All Other category.
2019 Acquisitions
On November 15, 2019, the Company acquired the remaining 35% ownership interest of Laird + Partners it did not already own for an aggregate purchase price of $2,389, comprised of a closing cash payment of $1,588 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $801. The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $5,045. The difference between the purchase price and the redeemable noncontrolling interest of $2,656 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
Effective April 1, 2019, the Company acquired the remaining 35% ownership interest of HPR Partners LLC (Hunter) it did not already own for an aggregate purchase price of $10,234, comprised of a closing cash payment of $3,890 and additional contingent deferred acquisition payments with an estimated present value at the acquisition date of $6,344. The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $9,486. The difference between the purchase price and the redeemable noncontrolling interest of $745 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
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 advisory services. As consideration for the sale, the Company received cash plus the assumption of certain liabilities totaling approximately $50,000 in the aggregate. The sale resulted in a loss of $3,000, which was included in Other, net within the Unaudited Condensed Consolidated Statements of Operations.
3. Revenue
The Company’s revenue recognition policies are established in accordance with 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 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 or interdependent, and that do not 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.

11


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 following table presents revenue disaggregated by client industry vertical for the three and six months ended June 30, 2020 and 2019:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Industry
Reportable Segment
 
2020
 
2019
 
2020
 
2019
Food & Beverage
All
 
$
46,811

 
$
73,305

 
$
104,396

 
$
139,969

Retail
All
 
32,728

 
39,894

 
69,537

 
72,350

Consumer Products
All
 
34,855

 
45,296

 
74,189

 
78,232

Communications
All
 
16,172

 
47,793

 
38,014

 
87,490

Automotive
All
 
13,020

 
18,541

 
38,212

 
36,732

Technology
All
 
38,846

 
28,876

 
88,341

 
54,279

Healthcare
All
 
23,112

 
25,954

 
46,843

 
49,161

Financials
All
 
19,748

 
27,868

 
43,753

 
52,795

Transportation and Travel/Lodging
All
 
9,053

 
27,050

 
25,552

 
44,085

Other
All
 
25,333

 
27,553

 
58,583

 
75,828

 
 
 
$
259,678

 
$
362,130

 
$
587,420

 
$
690,921




12


MDC has historically focused its operations primarily where the Company was founded in North America, the largest market for its services in the world. MDC’s Partner Firms are located in the United States, Canada, and an additional eleven 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 for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,
 
Six Months Ended June 30,
Geographic Location
Reportable Segment
 
2020
 
2019
 
2020
 
2019
United States
All
 
$
210,342

 
$
284,659

 
$
474,903

 
$
547,676

Canada
All
 
16,609

 
24,564

 
34,865

 
46,942

Other
All
 
32,727

 
52,907

 
77,652

 
96,303

 
 
 
$
259,678

 
$
362,130

 
$
587,420

 
$
690,921



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 $77,927 and $65,004 at June 30, 2020 and December 31, 2019, 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 $19,426 and $30,133 at June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019 were $136,196 and $171,742, respectively. The decrease in the advance billings balance of $35,546 for the six months ended June 30, 2020 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $136,400 of revenues recognized that were included in the advance billings balances as of December 31, 2019 and reductions due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the six months ended June 30, 2020 were not materially impacted by write offs, impairment losses or any other factors.
The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we had approximately $25,821 of unsatisfied performance obligations as of June 30, 2020, of which we expect to recognize approximately 84% in 2020, 14% in 2021 and 2% in 2022.

13


4. Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted income (loss) per common share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Numerator:
 


 

 
 
 
 
Net income (loss) attributable to MDC Partners Inc.
$
(593
)
 
$
4,290

 
$
410

 
$
4,177

Accretion on convertible preference shares
(3,509
)

(3,242
)
 
(6,949
)
 
(5,625
)
Net income allocated to convertible preference shares

 
(273
)
 

 

Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(4,102
)

$
775

 
$
(6,539
)
 
$
(1,448
)
Denominator:
 
 
 
 
 
 
 
Basic weighted average number of common shares outstanding
72,528,455


71,915,832

 
72,463,058

 
66,118,749

Impact of stock options and non-vested stock under employee stock incentive plans

 
108,857

 

 

Diluted weighted average number of common shares outstanding
72,528,455


72,024,689

 
72,463,058

 
66,118,749

Basic
$
(0.06
)

$
0.01

 
$
(0.09
)
 
$
(0.02
)
Diluted
$
(0.06
)
 
$
0.01

 
$
(0.09
)
 
$
(0.02
)

Anti-dilutive stock awards 2,912,436 2,662,666 2,912,436 4,406,206

Restricted stock and restricted stock unit awards of 2,203,717 and 242,338 as of June 30, 2020 and 2019 respectively, are excluded from the computation of diluted income (loss) per common share because the performance contingency necessary for vesting has not been met as of the reporting date or all the terms and conditions to establish a grant date were not yet known. In addition, there were 145,000 Preference Shares outstanding which were convertible into 27,733,199 and 25,621,189 Class A common shares at June 30, 2020 and 2019, respectively. These Preference Shares were anti-dilutive for each period presented in the table above and are therefore excluded from the diluted income (loss) per common share calculation.

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, or net interest expense, for 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 June 30, 2020 and December 31, 2019.
 
June 30,
 
December 31,
 
2020
 
2019
Beginning Balance of contingent payments
$
74,671

 
$
82,598

Payments
(35,987
)
 
(30,719
)
Redemption value adjustments (1)
(759
)
 
15,451

Additions - acquisitions and step-up transactions
1,389

 
7,145

Other (2)
(325
)
 
196

Ending Balance of contingent payments
$
38,989

 
$
74,671

Fixed payments
263

 
549

 
$
39,252

 
$
75,220

    
(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments

14


and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
(2) Other primarily consists of translation adjustments.
The following table presents the impact to the Company’s statements of operations due to the redemption value adjustments for the contingent deferred acquisition consideration:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Loss (Income) attributable to fair value adjustments
$
2,312

 
$
2,073

 
$
(2,288
)
 
$
(5,570
)
Stock-based compensation
(496
)
 
(1,339
)
 
1,529

 
(530
)
Redemption value adjustments
$
1,816

 
$
734

 
$
(759
)
 
$
(6,100
)

6. Leases
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 2020 through 2032. The Company’s finance leases are immaterial.
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 lease 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 lease 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 Unaudited Condensed Consolidated Statements 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.
Some of the Company’s leases include options to extend or renew the leases 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 2020 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 Australia.
As of June 30, 2020, the Company has entered into two operating leases for which the commencement date has not yet occurred as the premises are in the process of being prepared for occupancy by the landlord. Accordingly, these two leases represent an obligation of the Company that is not reflected within the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020. The aggregate future liability related to these leases is approximately $11,817.
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.

15


The following table presents lease costs and other quantitative information for the three and six months ended June 30, 2020 and 2019:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Lease Cost:
 
 
 
 
 
 
 
Operating lease cost
$
18,511

 
$
17,473

 
$
34,902

 
$
33,914

Variable lease cost
3,573

 
4,361

 
8,228

 
9,325

Sublease rental income
(2,892
)
 
(2,590
)
 
(5,697
)
 
(4,189
)
Total lease cost
$
19,192

 
$
19,244

 
$
37,433

 
$
39,050

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

 

 

 

Operating cash flows
$
17,592

 
$
19,523

 
$
35,227

 
$
35,175

 
 
 
 
 
 
 
 
Right-of-use assets obtained in exchange for operating lease liabilities
$
30,815

 
$
2,195

 
$
37,934

 
$
259,013

Weighted average remaining lease term (in years) - Operating leases
7.4

 
7.0

 
7.4

 
7.0

Weighted average discount rate - Operating leases
10.5

 
8.6

 
10.5

 
8.6



In the six months ended June 30, 2020, the Company recorded a charge of $5,619 primarily to reduce the carrying value of its right-of-use lease assets and related leasehold improvements of two of its agencies within its Integrated Networks - Group B reportable segment and leased space of Corporate. The Company evaluated the facts and circumstances related to the use of the asset which indicated that it may not be recoverable. Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the asset was less than its carrying value. This impairment charge is included in Impairment and other losses within the Unaudited Condensed Consolidated Statements of Operations.
In the three and six months ended June 30, 2019, the Company did not record any impairment charge to reduce the carrying value of its right-of-use lease assets or related leasehold improvements.
Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated Statements of Operations. The Company’s lease expense for leases with a term of 12 months or less is immaterial.
The following table presents minimum future rental payments under the Company’s leases at June 30, 2020 and their reconciliation to the corresponding lease liabilities:
 
Maturity Analysis
Remaining 2020
$
33,790

2021
67,713

2022
61,480

2023
57,344

2024
50,777

Thereafter
190,274

Total
461,378

Less: Present value discount
(155,442
)
Lease liability
$
305,936



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7. Debt
As of June 30, 2020 and December 31, 2019, the Company’s indebtedness was comprised as follows:

June 30, 2020

December 31, 2019
Revolving credit agreement
$
62,500

 
$

6.50% Notes due 2024
870,256

 
900,000

Debt issuance costs
(10,219
)
 
(12,370
)
 
$
922,537

 
$
887,630


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 defined below), 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 notes due 2024 (the “6.50% Notes”). The 6.50% Notes were sold in a private placement in reliance on exemptions 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.
In April 2020, the Company repurchased $29,744 of the 6.50% Notes, at a weighted average price equal to 73.90% of the principal amount totaling $21,999, and accrued interest of $946. As a result of the repurchase, we recognized an extinguishment gain of $7,388.
MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, at varying prices based on the timing of the redemption.
If MDC experiences certain kinds of changes of control (as defined in the Indenture), holders of the 6.50% Notes may require MDC to repurchase any 6.50% Notes held by them at a price equal to 101% of the principal amount of the 6.50% Notes plus accrued and unpaid interest. In addition, if MDC sells assets under certain circumstances, it must apply the proceeds from such sale and offer to repurchase the 6.50% Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest.
The Indenture includes covenants that, among other things, restrict MDC’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants 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 June 30, 2020.
Revolving Credit Agreement
The Company is party to a $211,500 secured revolving credit facility due February 3, 2022.
On May 29, 2020, the Company, Maxxcom Inc., a subsidiary of the Company (“Maxxcom”), and each of their subsidiaries party thereto entered into an amendment (the “Second 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 Capital Finance, LLC, as agent (“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 Second Amendment reduced the aggregate maximum amount of revolving commitments provided by the lenders to $211,500 from $250,000, extended the maturity date of the Credit Agreement from May 3, 2021 to February 3, 2022, and expanded the eligibility criteria for certain of the Company’s receivables to be included in the borrowing base.

Advances under the Credit Agreement, as amended by the Second Amendment, will bear interest as follows: (i) Non-Prime Rate Loans bear interest at the Non-Prime Rate plus the Non-Prime Rate Margin and (ii) all other Obligations bear interest at the Prime Rate, plus the Prime Rate Margin. The Non-Prime Rate Margin and Prime Rate Margin will range from 2.50% to 3.00% for Non-Prime Rate Loans and from 1.75% to 2.25% for Prime 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.


17


The Second Amendment increased the required minimum earnings before interest, taxes and depreciation and amortization from $105 million to $120 million measured on a trailing 12-month basis. Total leverage ratio applicable on each testing date through the period ending December 31, 2020 remained at 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will be 5.5:1.0.

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 as of June 30, 2020.
At June 30, 2020 and December 31, 2019, the Company had issued undrawn outstanding letters of credit of $18,576 and $4,836, respectively.
8. 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 Unaudited Condensed Consolidated Balance Sheets. 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 Sheets.
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, 2019 and six months ended June 30, 2020 were as follows:
 
Noncontrolling
Interests
Balance, December 31, 2018
$
9,278

Income attributable to noncontrolling interests
16,156

Distributions made
(11,392
)
Other (1)
(14
)
Balance, December 31, 2019
$
14,028

Income attributable to noncontrolling interests
3,892

Distributions made
(10,318
)
Other (1)
(415
)
Balance, June 30, 2020
$
7,187


(1) Other primarily consists of translation adjustments.

18


Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and six months ended June 30, 2020 and 2019 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Net income (loss) attributable to MDC Partners Inc.
$
(593
)
 
$
4,290

 
$
410

 
$
4,177

Transfers from the noncontrolling interest:
 
 
 
 
 
 
 
Decrease in MDC Partners Inc. paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests

 
(97
)
 
(503
)
 
(97
)
Net transfers from noncontrolling interests
$

 
$
(97
)
 
$
(503
)
 
$
(97
)
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests
$
(593
)
 
$
4,193

 
$
(93
)
 
$
4,080


Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
 
Six Months Ended June 30, 2020
 
Year Ended December 31, 2019
Beginning Balance
$
36,973

 
$
51,546

Redemptions
(1,615
)
 
(14,530
)
Changes in redemption value
2,630

 
(3,163
)
Currency translation adjustments
(724
)
 
3

Other (1)
(554
)
 
3,117

Ending Balance
$
36,710

 
$
36,973

(1) Other primarily consists of the redeemable noncontrolling interest balance related to a foreign entity that was classified as held for sale as of December 31, 2018 and reclassified in 2019.
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 2020 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 $36,710 as of June 30, 2020, consists of $21,227 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, $14,496 upon termination of such owner’s employment with the applicable subsidiary or death and $987 representing the initial redemption 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 six months ended June 30, 2020 and 2019, there was no related impact on the Company’s loss per share calculation.  
9. 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 8 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 and six months ended June 30, 2020 and 2019, these operations did not incur any material costs related to damages resulting from hurricanes.
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

19


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 June 30, 2020, the Company had $18,576 of undrawn letters of credit.
The Company entered into operating leases for which the commencement date has not yet occurred as of June 30, 2020. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information.
10. Share Capital
The authorized and outstanding 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 Agency Holdings LLC (“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 $50,000. The Company received proceeds of approximately $98,620 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 $35,997 and to Series 6 Preference Shares were $62,623 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 two nominees designated by Stagwell Holdings. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of Stagwell Holdings.
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 preference per share 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 six months ended June 30, 2020, the Series 6 Preference Shares accreted at a monthly rate of $7.24, for total accretion of $2,152, bringing the aggregate liquidation preference to $55,413 as of June 30, 2020. The accretion is considered in the calculation of net loss attributable to MDC Partners Inc. common shareholders. See Note 4 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.

20


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 preference per share 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 Holdings, the Conversion Price per Series 4 Preference Share was reduced to $7.42 from the initial Conversion Price of $10.00.
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 six months ended June 30, 2020, the Series 4 Preference Shares accreted at a monthly rate of approximately $8.50 per Series 4 Preference Share, for total accretion of $4,797, bringing the aggregate liquidation preference to $123,548 as of June 30, 2020. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 4 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”)
These are an unlimited number of subordinate voting shares, carrying one vote each, with a par value of $0, 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 72,583,647 and 72,150,854 Class A Shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively.
Class B Common Shares (“Class B Shares”)
These are an unlimited number of voting shares, carrying twenty votes each, with a par value of $0, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,743 and 3,749 Class B Shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively.
11. 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: 

21


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 June 30, 2020 and December 31, 2019:
 
 
June 30, 2020

December 31, 2019
 
 
Carrying
Amount

Fair Value

Carrying
Amount

Fair Value
Liabilities:
 
 


 


 


 

6.50% Senior Notes due 2024
 
$
870,256

 
$
807,162

 
$
900,000

 
$
812,250


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 (Level 3 fair value measurement) is 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 and is dependent upon significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate. These growth rates are consistent with the Company’s long-term forecasts. As of June 30, 2020, the discount rate used to measure these liabilities was 11.41%.
As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation, the fair value measurements presented on the Unaudited Condensed Consolidated Balance Sheets are subject to material uncertainty.
See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.
At June 30, 2020 and December 31, 2019, 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, intangible assets (Level 3 fair value measurement) and right-of-use lease assets (Level 2 fair value measurement). 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 recognized an impairment of goodwill of $13,382 in the three months ended June 30, 2020. The company did not recognize an impairment of goodwill or intangible assets in the three and six months ended June 30, 2019.
The Company recognized a charge of $5,619 primarily to reduce the carrying value of its right-of-use lease assets and leasehold improvements in the six months ended June 30, 2020. The company did not recognize an impairment of right-of-use assets and leasehold improvements in the three and six months ended June 30, 2019. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
12. Supplemental Information
Accruals and Other Liabilities
At June 30, 2020 and December 31, 2019, Accruals and other liabilities included accrued media of $172,691 and $216,931, respectively; and also included amounts due to noncontrolling interest holders for their share of profits. See Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding noncontrolling interest holders’ share of profits.
Impairment and Other Losses
The Company recognized a charge of $19,000 for the six months ended June 30, 2020 consisting of a goodwill impairment of $13,382 and an impairment of right-of-use lease assets and losses of $5,619.

22


Given the impact of the COVID-19 pandemic, the Company performed interim goodwill impairment tests in 2020. The company recognized a goodwill impairment of $13,382 for the six months ended June 30, 2020. Additionally, the interim test resulted in the fair value of one reporting unit, with goodwill of approximately $130,000, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future. The Company used an income approach to measure its goodwill for impairment. This methodology incorporates the use of the discounted cash flow method. The income approach requires the exercise of significant judgment and inputs, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the impairment of right-of-use lease assets and losses.
During the first quarter of 2020, the Company reassessed its estimate of the useful life of a trademark in the amount of $14,600, acquired as a result of a business combination. The Company revised the useful life to 5 years from indefinite lived.
Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and the new legislation contains several key tax provisions, including the five-year net operating loss carryback, an adjusted business interest limitation, and payroll tax deferral. The Company is required to recognize the effect of tax law changes in the period of enactment, which required the Company to reassess the net realizability of its deferred tax assets and liabilities. The Company has assessed the applicability of the CARES Act and determined there is no impact.
The Company had an income tax benefit for the three months ended June 30, 2020 of $7,923 (on a pre-tax loss of $4,617 resulting in an effective tax rate of 171.6%) compared to income tax expense of $2,088 (on pre-tax income of $9,215 resulting in an effective tax rate of 22.7%) for the three months ended June 30, 2019.
The effective tax rate of 171.6% in the three months ended June 30, 2020 as compared to 22.7% in the same period in 2019 was primarily attributable to the impact of applying the estimated annual effective tax rate to the pre-tax loss in the current period.
The Company had income tax expense for the six months ended June 30, 2020 of $5,577 (on pre-tax income of $10,677 resulting in an effective tax rate of 52.2%) compared to an expense of $2,835 (on pre-tax income of $10,195 resulting in an effective tax rate of 27.8%) for the six months ended June 30, 2019.
The effective tax rate of 52.2% in the six months ended June 30, 2020 as compared to 27.8% in same period in 2019 was primarily attributable to an increase in base erosion and anti-abuse tax (“BEAT”) in 2020.
Payroll Taxes
In accordance with the payroll tax deferral provision under the CARES Act, the Company is deferring the employer portion of the social security payroll tax of 6.2%. The Company anticipates the deferral through December 31, 2020 to be approximately $16,000 which is payable in equal installments on December 31, 2021 and 2022.

Revision of Previously Issued Financial Statements for Immaterial Misstatements
During the quarter ended June 30, 2020, the Company identified certain errors related to prior periods that were not material to any of the Company’s prior period financial statements; however, the cumulative effect of these errors could be considered material to our current year financial statements. As such, the Company revised the prior period financial statements, as presented below, and will similarly revise previously presented historical financial statements for these immaterial errors in future filings.
The adjustments by year and financial statement area are as follows:
Calendar Years 2019 through 2017 - The Company identified an understatement of its deferred tax assets and the related impact on goodwill impairment charges recognized in previous years. This resulted in correcting adjustments to increase deferred tax assets and reduce deferred tax expense by $217 in 2019, $1,988 in 2018 and $294 in 2017 and to recognize an incremental goodwill impairment charge and reduction of goodwill by $780 in 2019, $7,147 in 2018 and $1,056 in 2017. These amounts were recorded to reflect required adjustments in connection with the impairment of tax deductible goodwill.
Calendar Year 2018 - The Company recorded a correcting adjustment of $1,115 to reduce revenue and accounts receivable that was incorrectly recognized in 2018 in connection with the adoption of ASC 606.

23


Calendar Year 2016 - The Company recorded a correcting adjustment to increase tax expense and reduce deferred tax assets by $3,587 for previously unidentified deemed dividends treated as U.S. taxable income in connection with certain U.S. controlled foreign corporation assets which were pledged as security for a U.S. loan.
The following table presents the impact of the revisions on the Consolidated Statements of Operations for the periods presented:
 
For the Twelve Months Ended December 31,
 
2019
 
2018
 
2017
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
 
As Reported
 
Adjustment
 
As Revised
Revenue
$
1,415,803

 
$

 
$
1,415,803

 
$
1,476,203

 
$
(1,115
)
 
$
1,475,088

 
$
1,513,779

 
$

 
$
1,513,779

Impairment and other losses
7,819

 
780

 
8,599

 
80,057

 
7,147

 
87,204

 
4,415

 
1,056

 
5,471

Total operating expenses
1,335,563

 
780

 
1,336,343

 
1,466,507

 
7,147

 
1,473,654

 
1,381,820

 
1,056

 
1,382,876

Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
21,647

 
(780
)
 
20,867

 
(80,407
)
 
(8,262
)
 
(88,669
)
 
87,078

 
(1,056
)
 
86,022

Income tax expense (benefit)
10,533

 
(217
)
 
10,316

 
31,603

 
(1,988
)
 
29,615

 
(168,064
)
 
(294
)
 
(168,358
)



 


 


 


 


 


 


 


 


Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(16,994
)
 
$
(563
)
 
$
(17,557
)
 
$
(132,088
)
 
$
(6,274
)
 
$
(138,362
)
 
$
205,594

 
$
(762
)
 
$
204,832




 


 


 


 


 


 


 


 


Weighted Average Number of Common Shares Outstanding:


 


 


 


 


 


 


 


 


Basic
69,132,100

 

 
69,132,100

 
57,218,994

 

 
57,218,994

 
55,255,797

 

 
55,255,797

Diluted
69,132,100

 

 
69,132,100

 
57,218,994

 

 
57,218,994

 
55,481,786

 

 
55,481,786




 


 


 


 


 


 


 


 


Income (loss) Per Common Share:


 


 


 


 


 


 


 


 


Basic
$
(0.25
)
 
$

 
$
(0.25
)
 
$
(2.31
)
 
$
(0.11
)
 
$
(2.42
)
 
$
3.72

 
$
(0.01
)
 
$
3.71

Diluted
$
(0.25
)
 
$

 
$
(0.25
)
 
$
(2.31
)
 
$
(0.11
)
 
$
(2.42
)
 
$
3.71

 
$
(0.01
)
 
$
3.70


The following table presents the impact of the revisions on the Consolidated Balance Sheets for the periods presented:

 
December 31, 2019
 
December 31, 2018
 
As Reported

Adjustment

As Revised

As Reported

Adjustment

As Revised
Accounts receivable
$
450,403

 
$
(1,115
)
 
$
449,288

 
$
395,200

 
$
(1,115
)
 
$
394,085

Goodwill
740,674

 
(8,983
)
 
731,691

 
740,955

 
(8,203
)
 
732,752

Deferred tax assets
85,988

 
(1,088
)
 
84,900

 
92,741

 
(1,305
)
 
91,436

Total Assets
$
1,839,492

 
$
(11,186
)
 
$
1,828,306

 
$
1,611,573

 
$
(10,623
)
 
$
1,600,950

Accumulated deficit
(469,593
)
 
(11,186
)
 
(480,779
)
 
(464,903
)
 
(10,623
)
 
(475,526
)
Total Shareholders' Deficit
(179,389
)
 
(11,186
)
 
(190,575
)
 
(246,967
)
 
(10,623
)
 
(257,590
)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit
$
1,839,492

 
$
(11,186
)
 
$
1,828,306

 
$
1,611,573

 
$
(10,623
)
 
$
1,600,950



13. Related Party Transactions

24


In the ordinary course of business, the Company enters into transactions with related parties, including Stagwell and its affiliates. The transactions may range in the nature and value of services underlying the arrangements. Below are the related party transactions that are significant in nature:
In October 2019, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate, in which the Stagwell affiliate and the Partner Firm will collaborate to provide various services to a client of the Partner Firm. The Partner Firm and the Stagwell affiliate pitched and won this business together, with the client ultimately determining the general scope of work for each agency. Under the arrangement, which was structured as a sub-contract due to client preference, the Partner Firm is expected to pay the Stagwell affiliate, for services provided by the Stagwell affiliate in connection with serving the client, approximately $723 which is expected to be recognized through the end of 2020. As of June 30, 2020, $200 was owed to the affiliate.
During 2020, a Partner Firm of the Company entered into an arrangement with certain Stagwell affiliates to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $1,167, which is expected to be recognized through the end of 2020. As of June 30, 2020, $82 was due from the affiliate. 

In January 2020, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate to develop advertising technology for the Partner Firm. Under the arrangement the Partner Firm is expected to pay the Stagwell affiliate approximately $460, which is expected to be recognized through May 2020. As of June 30, 2020, $170 was owed to the affiliate.
On February 14, 2020, Sloane sold substantially all its assets and certain liabilities to an affiliate of Stagwell. See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to this transaction. 
The Company entered into an agreement commencing on January 1, 2020 to sublease office space through July 2021 to a company whose chairman is a member of the Company’s Board of Directors. As of June 30, 2020, the total future rental income related to the sublease is approximately $185.
14. 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”), who is Mark Penn, Chief Executive Officer and Chairman, 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.
The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income (loss) attributable to MDC Partners Inc. common shareholders plus or minus adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses). Other items, net includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.

25


Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”). Mr. Penn, appointed key agency executives, that report directly into him, to lead each Network. In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments. See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding a change in reportable segments between the first and second quarter of 2020.
The three reportable segments that result from applying the aggregation criteria are as follows: “Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses 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 2019 Form 10-K.
The Integrated Networks - Group A reportable segment is comprised of the Anomaly Alliance (Anomaly, Concentric Partners, Hunter, Mono, Y Media Labs) and Colle McVoy operating segments.
The Integrated Networks - Group B reportable segment is comprised of the Constellation (72andSunny, CPB, Instrument and Redscout) and Doner Partner Network (6degrees, Doner, KWT, Union, Veritas and Yamamoto) operating segments.
The operating segments aggregated within the Integrated Networks - Group A and B reportable segments provide a range of services for its clients, primarily including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast) as well as public relations and communications services, experiential, social media and influencer marketing. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of 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. While the operating segments are similar in nature, the distinction between the Integrated Networks - Group A and B is the aggregation of operating segments that have the most similar historical and expected average long-term profitability.
The Media & Data Network reportable segment is comprised of a single operating segment that combines media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast) with technology and data capabilities. The Media & Data Network includes Gale Partners, Kenna, MDC Media and Northstar.
All Other consists of the Company’s remaining operating segments that provide a range of services including advertising, public relations and 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 Allison & Partners, Bruce Mau, Forsman & Bodenfors, Hello, Team and Vitro.
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.

26


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenue:
 
Integrated Networks - Group A
$
82,735

 
$
103,248


$
173,356


$
176,987

Integrated Networks - Group B
93,398

 
133,394

 
211,105

 
266,565

Media & Data Network
28,551

 
39,456

 
69,609

 
82,688

All Other
54,994

 
86,032

 
133,350

 
164,681

Total
$
259,678

 
$
362,130

 
$
587,420

 
$
690,921

 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Integrated Networks - Group A
$
17,205

 
$
18,241

 
$
33,507

 
$
19,156

Integrated Networks - Group B
16,387


24,848


33,523


43,128

Media & Data Network
892


1,004


2,679


1,036

All Other
6,885


10,937


16,790


17,737

Corporate
(5,208
)

(8,593
)

(10,770
)

(13,146
)
Total Adjusted EBITDA
$
36,161

 
$
46,437

 
$
75,729

 
$
67,911

 
 
 
 
 
 
 
 
Depreciation and amortization
$
(8,899
)
 
$
(10,663
)
 
$
(18,105
)
 
$
(19,501
)
Impairment and other losses
(18,839
)
 

 
(19,000
)
 

Stock-based compensation
(1,039
)
 
(3,634
)
 
(4,109
)
 
(6,606
)
Deferred acquisition consideration adjustments
(2,312
)
 
(2,073
)
 
2,288

 
5,570

Distributions from non-consolidated affiliates
(1,079
)
 
(31
)
 
(1,065
)
 
(31
)
Other items, net
(3,895
)
 
(6,594
)
 
(6,311
)
 
(8,220
)
Total Operating Income
$
98

 
$
23,442

 
$
29,427

 
$
39,123

 
 
 
 
 
 
 
 
Other Income (Expenses):
 
 
 
 
 
 
 
Interest expense and finance charges, net
$
(15,941
)
 
$
(16,413
)
 
$
(31,553
)
 
$
(33,174
)
Foreign exchange gain (loss)
5,342

 
2,932

 
(9,415
)
 
8,374

Other, net
5,884

 
(746
)
 
22,218

 
(4,128
)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
(4,617
)
 
9,215

 
10,677

 
10,195

Income tax expense (benefit)
(7,923
)
 
2,088

 
5,577

 
2,835

Income before equity in earnings of non-consolidated affiliates
3,306

 
7,127

 
5,100

 
7,360

Equity in earnings (losses) of non-consolidated affiliates
(798
)
 
206

 
(798
)
 
289

Net income
2,508

 
7,333

 
4,302

 
7,649

Net income attributable to the noncontrolling interest
(3,101
)
 
(3,043
)
 
(3,892
)
 
(3,472
)
Net income (loss) attributable to MDC Partners Inc.
(593
)
 
4,290

 
410

 
4,177

Accretion on and net income allocated to convertible preference shares
(3,509
)
 
(3,515
)
 
(6,949
)
 
(5,625
)
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(4,102
)
 
$
775

 
$
(6,539
)
 
$
(1,448
)




27


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Depreciation and amortization:
(Dollars in Thousands)
Integrated Networks - Group A
$
1,566

 
$
2,348

 
$
3,307

 
$
4,289

Integrated Networks - Group B
4,387

 
4,318

 
8,913

 
8,092

Media & Data Network
807

 
1,335

 
1,615

 
2,328

All Other
1,903

 
2,441

 
3,802

 
4,354

Corporate
236

 
221

 
468

 
438

Total
$
8,899

 
$
10,663

 
$
18,105

 
$
19,501

 
 
 
 
 
 
 
 
Stock-based compensation:
 
 
 
 
 
 
 
Integrated Networks - Group A
$
(105
)
 
$
639

 
$
1,856

 
$
4,234

Integrated Networks - Group B
746

 
1,627

 
1,646

 
2,491

Media & Data Network
4

 
6

 
(9
)
 
6

All Other
118

 
170

 
198

 
256

Corporate
276

 
1,192

 
418

 
(381
)
Total
$
1,039

 
$
3,634

 
$
4,109

 
$
6,606

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
Integrated Networks - Group A
$
208


$
2,157

 
$
566

 
$
4,038

Integrated Networks - Group B
(272
)
 
1,013

 
205

 
2,181

Media & Data Network
111

 
206

 
197

 
344

All Other
134

 
923

 
457

 
1,341

Corporate
1,963

 
18

 
2,265

 
19

Total
$
2,144

 
$
4,317

 
$
3,690

 
$
7,923


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 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for the three and six months ended June 30, 2020 and 2019.
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” mean the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2020 means the period beginning January 1, 2020, and ending December 31, 2020).
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In addition, the Company has included certain non-GAAP financial measures and ratios, which management uses to operate the business, which it believes provide useful supplemental information to both management and readers of this report in making period-to-period comparisons in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures determined in accordance with GAAP. Certain non-GAAP measures are “organic revenue growth” or “organic revenue decline” and “Adjusted EBITDA.”
Organic revenue growth or organic revenue decline 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

28


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.
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 this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Certain Factors Affecting our Business.”
Adjusted EBITDA is defined as Net income (loss) attributable to MDC Partners Inc. common shareholders plus or minus adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items, net distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses). Other items includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.
The following discussion focuses on the operating performance of the Company for the three and six months ended June 30, 2020 or June 30, 2019 and the financial condition of the Company as of June 30, 2020. 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 2019 Form 10-K.
Direct costs represent billable or non-billable internal and third-party expenses that are directly tied to providing services to our clients where we are principal in the arrangement. Direct costs exclude staff costs, which are presented separately.
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.
The percentage changes included in the tables herein Item 2 that are not considered meaningful are presented as “NM.”
Executive Summary
The novel coronavirus (“COVID-19”) is a pandemic that has altered how society interacts across the world. The outbreak of COVID-19 and the measures put in place to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have adversely impacted the global economy. The Company implemented comprehensive controls and procedures to protect our employees, families, clients, and their communities. This included implementing a world-wide work-from-home policy and stress-testing our infrastructure to ensure that all employees had the tools and resources to work virtually. Our leadership and business continuity teams also proactively took thorough measures to ensure the highest level of continued service and partnership for our clients.
The effects of the COVID-19 pandemic have negatively impacted our results of operations, financial position and cash flows; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19. While it is difficult to predict the full scale of the impact, the Company has taken actions to address the pandemic. Our Partner Firms have altered how they work and respond to client challenges around the world, generating impactful creative work, rapid pivots, and inventive business solutions for brands in every sector. We have also moved quickly to align our operating expenses with changes in revenue. We have implemented freezes on hiring, staff reductions, furloughs, salary reductions, benefit reductions and a significant reduction in discretionary spending. In addition to expense reductions, we tightened our capital expenditures where possible to preserve our cash flow. Given these measures, the Company believes it is well positioned to successfully work through the effects of COVID-19.

29


MDC conducts its business through its network of Partner Firms, which provide marketing and business solutions that realize the potential of combining data and creativity. MDC’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. MDC’s differentiation lies in its best-in-class creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. MDC leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and media-agnostic. The Company’s work is designed to challenge the industry status quo, realize outsized returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
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 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.
Effective in 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”). Mark Penn, Chief Executive Officer and Chairman of the Company, appointed key agency executives, that report directly into him, to lead each Network. In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments. See Notes 1 and 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a description of each of our reportable segments, the All Other category, as well as information regarding a change in reportable segments between the first and second quarter of 2020.
The three reportable segments that result from applying the aggregation criteria are as follows: “Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses 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 2019 Form 10-K.
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, including interest expense and public company overhead costs. 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.
Certain Factors Affecting Our Business
See the Executive Summary section of Item 7 of the Company’s 2019 Form 10-K for information regarding certain factors affecting our business.



30


Results of Operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020

2019
Revenue:
(Dollars in Thousands)
Integrated Networks - Group A
$
82,735

 
$
103,248

 
$
173,356

 
$
176,987

Integrated Networks - Group B
93,398

 
133,394

 
211,105


266,565

Media & Data Network
28,551

 
39,456

 
69,609


82,688

All Other
54,994

 
86,032

 
133,350


164,681

Total
$
259,678

 
$
362,130

 
$
587,420


$
690,921

 
 
 
 
 
 
 
 
Operating Income (Loss):
 
 
 
 
 
 
 
Integrated Networks - Group A
$
14,605

 
$
14,963

 
$
26,637


$
11,112

Integrated Networks - Group B
(7,717
)
 
17,338

 
9,444


36,701

Media & Data Network
46

 
278

 
663


(1,371
)
All Other
4,987

 
7,494

 
12,844


14,135

Corporate
(11,823
)
 
(16,631
)
 
(20,161
)

(21,454
)
Total Operating Income
$
98

 
$
23,442

 
$
29,427


$
39,123

 
 
 
 
 
 
 
 
Other Income (Expenses):
 
 
 
 
 
 
 
Interest expense and finance charges, net
$
(15,941
)
 
$
(16,413
)
 
$
(31,553
)

$
(33,174
)
Foreign exchange gain (loss)
5,342

 
2,932

 
(9,415
)

8,374

Other, net
5,884

 
(746
)
 
22,218


(4,128
)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
(4,617
)
 
9,215

 
10,677


10,195

Income tax expense (benefit)
(7,923
)
 
2,088

 
5,577


2,835

Income before equity in earnings of non-consolidated affiliates
3,306

 
7,127

 
5,100


7,360

Equity in earnings (losses) of non-consolidated affiliates
(798
)
 
206

 
(798
)

289

Net income
2,508

 
7,333

 
4,302


7,649

Net income attributable to the noncontrolling interest
(3,101
)
 
(3,043
)
 
(3,892
)

(3,472
)
Net income (loss) attributable to MDC Partners Inc.
(593
)
 
4,290

 
410


4,177

Accretion on and net income allocated to convertible preference shares
(3,509
)
 
(3,515
)
 
(6,949
)
 
(5,625
)
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
(4,102
)
 
$
775

 
$
(6,539
)
 
$
(1,448
)
 
 
 
 
 
 
 
 
Adjusted EBITDA:
 
 
 
 
 
 
 
Integrated Networks - Group A
$
17,205

 
$
18,241

 
$
33,507

 
$
19,156

Integrated Networks - Group B
16,387

 
24,848

 
33,523

 
43,128

Media & Data Network
892

 
1,004

 
2,679

 
1,036

All Other
6,885

 
10,937

 
16,790

 
17,737

Corporate
(5,208
)
 
(8,593
)
 
(10,770
)
 
(13,146
)
Total Adjusted EBITDA
$
36,161

 
$
46,437

 
$
75,729

 
$
67,911




31



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Capital expenditures:
 
 
 
 
 
 
 
Integrated Networks - Group A
$
208

 
$
2,157

 
$
566

 
$
4,038

Integrated Networks - Group B
(272
)
 
1,013

 
205

 
2,181

Media & Data Network
111

 
206

 
197

 
344

All Other
134

 
923

 
457

 
1,341

Corporate
1,963

 
18

 
2,265

 
19

Total
$
2,144

 
$
4,317

 
$
3,690

 
$
7,923



The following tables reconcile Net income (loss) attributable to MDC Partners Inc. common shareholders (GAAP) to Adjusted EBITDA (non-GAAP) for the three and six months ended June 30, 2020 and 2019. The adjustments from Net income (loss) attributable to MDC Partners Inc. common shareholders to Operating income (loss) are detailed in the table above.
 
Three Months Ended June 30, 2020
 
Integrated Networks - Group A
 
Integrated Networks - Group B
 
Media & Data Network
 
All Other
 
Corporate
 
Total
Net loss attributable to MDC Partners Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
$
(4,102
)
Adjustments
 
 
 
 
 
 
 
 
 
 
4,200

Operating income (loss)
$
14,605

 
$
(7,717
)
 
$
46

 
$
4,987

 
$
(11,823
)
 
$
98

 


 
 
 
 
 
 
 
 
 
 
Adjustments:

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
1,566

 
4,387

 
807

 
1,903

 
236

6,097

8,899

Impairment and other losses

 
17,468

 
35

 
207

 
1,129

11

18,839

Stock-based compensation
(105
)
 
746

 
4

 
118

 
276

563

1,039

Deferred acquisition consideration adjustments
1,139

 
1,503

 

 
(330
)
 


2,312

Distributions from non-consolidated affiliates

 

 

 

 
1,079


1,079

Other items, net

 

 

 

 
3,895

 
3,895

Adjusted EBITDA
$
17,205

 
$
16,387

 
$
892

 
$
6,885

 
$
(5,208
)
 
$
36,161



32


 
Three Months Ended June 30, 2019

Integrated Networks - Group A

Integrated Networks - Group B
 
Media & Data Network
 
All Other
 
Corporate
 
Total
Net income attributable to MDC Partners Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
$
775

Adjustments

 
 
 
 
 
 
 
 
 
 
22,667

Operating income (loss)
$
14,963

 
$
17,338

 
$
278

 
$
7,494

 
$
(16,631
)
 
$
23,442

 
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
2,348

 
4,318

 
1,335

 
2,441

 
221

 
10,663

Stock-based compensation
639

 
1,627

 
6

 
170

 
1,192

 
3,634

Deferred acquisition consideration adjustments
291

 
1,565

 
(615
)
 
832

 

 
2,073

Distributions from non-consolidated affiliates

 





 
31

 
31

Other items, net

 



 

 
6,594

 
6,594

Adjusted EBITDA
$
18,241

 
$
24,848

 
$
1,004

 
$
10,937

 
$
(8,593
)
 
$
46,437




 
Six Months Ended June 30, 2020
 
Integrated Networks - Group A

Integrated Networks - Group B
 
Media & Data Network
 
All Other
 
Corporate
 
Total
Net loss attributable to MDC Partners Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
$
(6,539
)
Adjustments

 
 
 
 
 
 
 
 
 
 
35,966

Operating income (loss)
$
26,637

 
$
9,444

 
$
663

 
$
12,844

 
$
(20,161
)
 
$
29,427

 
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
3,307

 
8,913

 
1,615

 
3,802

 
468

 
18,105

Impairment and other losses

 
17,629

 
35

 
207

 
1,129

 
19,000

Stock-based compensation
1,856

 
1,646

 
(9
)
 
198

 
418

 
4,109

Deferred acquisition consideration adjustments
1,707

 
(4,109
)
 
375

 
(261
)
 

 
(2,288
)
Distributions from non-consolidated affiliates

 

 

 

 
1,065

 
1,065

Other items, net

 

 

 

 
6,311

 
6,311

Adjusted EBITDA
$
33,507

 
$
33,523

 
$
2,679

 
$
16,790

 
$
(10,770
)
 
$
75,729




33


 
Six Months Ended June 30, 2019

Integrated Networks - Group A
 
Integrated Networks - Group B
 
Media & Data Network
 
All Other
 
Corporate
 
Total
Net loss attributable to MDC Partners Inc. common shareholders
 
 
 
 
 
 
 
 
 
 
$
(1,448
)
Adjustments

 
 
 
 
 
 
 
 
 
 
40,571

Operating income (loss)
$
11,112

 
$
36,701

 
$
(1,371
)
 
$
14,135

 
$
(21,454
)
 
$
39,123


 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
4,289

 
8,092

 
2,328

 
4,354

 
438

 
19,501

Impairment and other losses

 

 

 

 

 

Stock-based compensation
4,234

 
2,491

 
6

 
256

 
(381
)
 
6,606

Deferred acquisition consideration adjustments
(479
)
 
(4,156
)
 
73

 
(1,008
)
 

 
(5,570
)
Distributions from non- consolidated affiliates

 

 

 

 
31

 
31

Other items, net

 

 

 

 
8,220

 
8,220

Adjusted EBITDA
$
19,156

 
$
43,128

 
$
1,036

 
$
17,737

 
$
(13,146
)
 
$
67,911


 

34


THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO THREE MONTHS ENDED JUNE 30, 2019
Consolidated Results of Operations
Revenues
Revenue was $259.7 million for the three months ended June 30, 2020 compared to revenue of $362.1 million for the three months ended June 30, 2019.
The components of the fluctuations in revenues for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 are as follows:
 
Total
 
United States
 
Canada
 
Other
 
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
June 30, 2019
$
362,130

 
 
 
$
284,659

 
 
 
$
24,564

 
 
 
$
52,907

 
 
Components of revenue change:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign exchange impact
(2,909
)
 
(0.8
)%
 

 
 %
 
(847
)
 
(3.4
)%
 
(2,062
)
 
(3.9
)%
   Non-GAAP acquisitions (dispositions), net
(4,106
)
 
(1.1
)%
 
(4,106
)
 
(1.4
)%
 

 
 %
 

 
 %
   Organic revenue
(95,437
)
 
(26.4
)%
 
(70,211
)
 
(24.7
)%
 
(7,108
)
 
(28.9
)%
 
(18,118
)
 
(34.2
)%
Total Change
$
(102,452
)
 
(28.3
)%
 
$
(74,317
)
 
(26.1
)%
 
$
(7,955
)
 
(32.4
)%
 
$
(20,180
)
 
(38.1
)%
June 30, 2020
$
259,678

 
 
 
$
210,342

 
 
 
$
16,609

 
 
 
$
32,727

 
 
The negative foreign exchange impact of $2.9 million, or 0.8%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.
For the three months ended June 30, 2020, organic revenue declined $95.4 million, or 26.4%, primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The table below provides a reconciliation between revenue from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the three months ended June 30, 2020:
        
 
All Other
 
Total
 
(Dollars in Thousands)
GAAP revenue from 2019 and 2020 acquisitions
$

 
$

Foreign exchange impact

 

Contribution to non-GAAP organic revenue growth (decline)

 

Prior year revenue from dispositions
(4,106
)
 
(4,106
)
Non-GAAP acquisitions (dispositions), net
$
(4,106
)
 
$
(4,106
)
The geographic mix in revenues for the three months ended June 30, 2020 and 2019 is as follows:
        
 
2020
 
2019
United States
81.0
%
 
78.6
%
Canada
6.4
%
 
6.8
%
Other
12.6
%
 
14.6
%

Impairment and Other Losses
The Company recognized a charge of $18.8 million for the three months ended June 30, 2020 consisting of goodwill impairment of $13.4 million and an impairment of right-of-use lease assets and loss of $5.5 million.
Given the impact of the COVID-19 pandemic, the Company performed an interim goodwill impairment test in the second quarter of 2020. The interim test resulted in an impairment of goodwill of $13.4 million to write-down the excess carrying value above the fair value of goodwill of one reporting unit within the Integrated Networks - Group B reportable segment. Additionally, the interim test resulted in the fair value of one reporting unit, with goodwill of approximately $130.0 million, exceeding its

35


carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize another impairment of goodwill in the future.
The Company recorded a loss of $5.5 million primarily to reduce the excess carrying value of certain right-of-use lease assets and related leasehold improvements above the fair value.
Operating Income (Loss)
Operating income for the three months ended June 30, 2020 was $0.1 million, compared to operating income of $23.4 million for the three months ended June 30, 2019, representing a change of $23.3 million, primarily driven by the impairment charge of $18.8 million. In addition, the decline in revenues were mostly offset by a reduction in operating expenses to align our costs with revenues impacted by the COVID-19 pandemic.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 30, 2020 was $36.2 million, compared to $46.4 million for the three months ended June 30, 2019, representing a decrease of $10.3 million, principally resulting from the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily from the exclusion of the goodwill impairment for the three months ended June 30, 2020.
Other, Net
Other, net, for the three months ended June 30, 2020 was income of $5.9 million, primarily driven by a gain of $7.4 million on the repurchase of $29.7 million of the Company’s senior notes due 2024 (the “6.50% Notes”), partially offset by a charge to write-down certain assets, compared to a loss of $0.7 million for the three months ended June 30, 2019.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange gain for the three months ended June 30, 2020 was $5.3 million compared to $2.9 million for the three months ended June 30, 2019. The change in the foreign exchange impact was primarily attributable to the strengthening of the Canadian dollar against the U.S. dollar in 2020 compared to the prior year period. The change is 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 June 30, 2020 was $15.9 million compared to $16.4 million for the three months ended June 30, 2019, representing a decrease of $0.5 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility.
Income Tax Expense (Benefit)
Income tax benefit for the three months ended June 30, 2020 was $7.9 million (on a pre-tax loss of $4.6 million resulting in an effective tax rate of 171.6%) compared to an income tax expense of $2.1 million (on pre-tax income of $9.2 million resulting in an effective tax rate of 22.7%) for the three months ended June 30, 2019.
The effective tax rate of 171.6% in the three months ended June 30, 2020 as compared to 22.7% in the same period in 2019 was primarily attributable to the impact of applying the estimated annual effective tax rate to the pre-tax loss in the current period.
Noncontrolling Interests
The effect of noncontrolling interests for the three months ended June 30, 2020 was $3.1 million compared to $3.0 million for the three months ended June 30, 2019.
Net 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 June 30, 2020 was $4.1 million, or $0.06 diluted loss per share, compared to net income attributable to MDC Partners Inc. common shareholders of $0.8 million, or $0.01 diluted income per share, for the three months ended June 30, 2019.

36


Integrated Networks - Group A
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group A reportable segment for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group A
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue:
 
$
82,735

 
 
 
$
103,248

 
 
 
$
(20,513
)
 
(19.9
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
53,193

 
64.3
%
 
71,251

 
69.0
%
 
(18,058
)
 
(25.3
)%
Office and general expenses
 
13,371

 
16.2
%
 
14,686

 
14.2
%
 
(1,315
)
 
(9.0
)%
Depreciation and amortization
 
1,566

 
1.9
%
 
2,348

 
2.3
%
 
(782
)
 
(33.3
)%
 
 
$
68,130

 
82.3
%
 
$
88,285

 
85.5
%
 
$
(20,155
)
 
(22.8
)%
Operating income
 
$
14,605

 
17.7
%
 
$
14,963

 
14.5
%
 
$
(358
)
 
(2.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
17,205

 
20.8
%
 
$
18,241

 
17.7
%
 
$
(1,036
)
 
(5.7
)%
The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group A reportable segment for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group A
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
7,630

 
9.2
 %
 
$
14,996

 
14.5
%
 
$
(7,366
)
 
(49.1
)%
Staff costs
 
49,045

 
59.3
 %
 
59,206

 
57.3
%
 
(10,161
)
 
(17.2
)%
Administrative
 
8,855

 
10.7
 %
 
10,805

 
10.5
%
 
(1,950
)
 
(18.0
)%
Deferred acquisition consideration
 
1,139

 
1.4
 %
 
291

 
0.3
%
 
848

 
NM

Stock-based compensation
 
(105
)
 
(0.1
)%
 
639

 
0.6
%
 
(744
)
 
NM

Depreciation and amortization
 
1,566

 
1.9
 %
 
2,348

 
2.3
%
 
(782
)
 
(33.3
)%
Total operating expenses
 
$
68,130

 
82.3
 %
 
$
88,285

 
85.5
%
 
$
(20,155
)
 
(22.8
)%
Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The change in deferred acquisition consideration for the three months ended June 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income for the three months ended June 30, 2020.


37


Integrated Networks - Group B
The change in expenses, operating income (loss) and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group B
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue:
 
$
93,398

 
 
 
$
133,394

 
 
 
$
(39,996
)
 
(30.0
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
55,282

 
59.2
 %
 
79,356

 
59.5
%
 
(24,074
)
 
(30.3
)%
Office and general expenses
 
23,978

 
25.7
 %
 
32,382

 
24.3
%
 
(8,404
)
 
(26.0
)%
Depreciation and amortization
 
4,387


4.7
 %

4,318


3.2
%

69


1.6
 %
Impairment and other losses
 
17,468


18.7
 %



%

17,468


 %
 
 
$
101,115

 
108.3
 %
 
$
116,056

 
87.0
%
 
$
(14,941
)
 
(12.9
)%
Operating income (loss)
 
$
(7,717
)
 
(8.3
)%
 
$
17,338

 
13.0
%
 
$
(25,055
)
 
NM

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
16,387

 
17.5
 %
 
$
24,848

 
18.6
%
 
$
(8,461
)
 
(34.1
)%
The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group B
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
7,661

 
8.2
%
 
$
16,519

 
12.4
%
 
$
(8,858
)
 
(53.6
)%
Staff costs
 
58,614

 
62.8
%
 
75,369

 
56.5
%
 
(16,755
)
 
(22.2
)%
Administrative
 
10,736

 
11.5
%
 
16,658

 
12.5
%
 
(5,922
)
 
(35.6
)%
Deferred acquisition consideration
 
1,503

 
1.6
%
 
1,565

 
1.2
%
 
(62
)
 
(4.0
)%
Stock-based compensation
 
746

 
0.8
%
 
1,627

 
1.2
%
 
(881
)
 
(54.1
)%
Depreciation and amortization
 
4,387

 
4.7
%
 
4,318

 
3.2
%
 
69

 
1.6
 %
Impairment and other losses
 
17,468

 
18.7
%
 

 
%
 
17,468

 
 %
Total operating expenses
 
$
101,115

 
108.3
%
 
$
116,056

 
87.0
%
 
$
(14,941
)
 
(12.9
)%
Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The change in deferred acquisition consideration for the three months ended June 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, and the exclusion of the goodwill and right-of-use lease asset impairments for the three months ended June 30, 2020.

38


Media & Data Network
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Media & Data Network
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
28,551

 
 
 
$
39,456

 
 
 
$
(10,905
)
 
(27.6
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
20,882

 
73.1
%
 
29,407

 
74.5
%
 
(8,525
)
 
(29.0
)%
Office and general expenses
 
6,781

 
23.8
%
 
8,436

 
21.4
%
 
(1,655
)
 
(19.6
)%
Depreciation and amortization

807


2.8
%

1,335


3.4
%

(528
)

(39.6
)%
Impairment and other losses

35


0.1
%



%

35


 %
 
 
$
28,505

 
99.8
%
 
$
39,178

 
99.3
%
 
$
(10,673
)
 
(27.2
)%
Operating income
 
$
46

 
0.2
%
 
$
278

 
0.7
%
 
$
(232
)
 
(83.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
892

 
3.1
%
 
$
1,004

 
2.5
%
 
$
(112
)
 
(11.2
)%
The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was attributable to the decline in revenue, offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Media & Data Network
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
6,556

 
23.0
%
 
$
10,166

 
25.8
 %
 
$
(3,610
)
 
(35.5
)%
Staff costs
 
16,713

 
58.5
%
 
21,926

 
55.6
 %
 
(5,213
)
 
(23.8
)%
Administrative
 
4,390

 
15.4
%
 
6,360

 
16.1
 %
 
(1,970
)
 
(31.0
)%
Deferred acquisition consideration
 

 
%
 
(615
)
 
(1.6
)%
 
615

 
(100.0
)%
Stock-based compensation
 
4

 
%
 
6

 
 %
 
(2
)
 
(33.3
)%
Depreciation and amortization
 
807

 
2.8
%
 
1,335

 
3.4
 %
 
(528
)
 
(39.6
)%
Impairment and other losses
 
35

 
0.1
%
 

 
 %
 
35

 
 %
Total operating expenses
 
$
28,505

 
99.8
%
 
$
39,178

 
99.3
 %
 
$
(10,673
)
 
(27.2
)%
Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income.

39


All Other
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the All Other category for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
54,994

 
 
 
$
86,032

 
 
 
$
(31,038
)
 
(36.1
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
36,275

 
66.0
%
 
60,469

 
70.3
%
 
(24,194
)
 
(40.0
)%
Office and general expenses
 
11,622

 
21.1
%
 
15,628

 
18.2
%
 
(4,006
)
 
(25.6
)%
Depreciation and amortization
 
1,903

 
3.5
%
 
2,441

 
2.8
%
 
(538
)
 
(22.0
)%
Impairment and other losses

207


0.4
%



%

207


 %
 
 
$
50,007


90.9
%
 
$
78,538

 
91.3
%
 
$
(28,531
)
 
(36.3
)%
Operating income
 
$
4,987

 
9.1
%
 
$
7,494

 
8.7
%
 
$
(2,507
)
 
(33.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
6,885

 
12.5
%
 
$
10,937

 
12.7
%
 
$
(4,052
)
 
(37.0
)%

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the All Other category for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
7,695

 
14.0
 %
 
$
18,358

 
21.3
%
 
$
(10,663
)
 
(58.1
)%
Staff costs
 
34,332

 
62.4
 %
 
47,945

 
55.7
%
 
(13,613
)
 
(28.4
)%
Administrative
 
6,082

 
11.1
 %
 
8,792

 
10.2
%
 
(2,710
)
 
(30.8
)%
Deferred acquisition consideration
 
(330
)
 
(0.6
)%
 
832

 
1.0
%
 
(1,162
)
 
NM

Stock-based compensation
 
118

 
0.2
 %
 
170

 
0.2
%
 
(52
)
 
(30.6
)%
Depreciation and amortization
 
1,903

 
3.5
 %
 
2,441

 
2.8
%
 
(538
)
 
(22.0
)%
Impairment and other losses
 
207

 
0.4
 %
 

 
%
 
207

 
 %
Total operating expenses
 
$
50,007

 
90.9
 %
 
$
78,538

 
91.3
%
 
$
(28,531
)
 
(36.3
)%
Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was primarily attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The change in deferred acquisition consideration for the three months ended June 30, 2020 was primarily attributable to a decrease in the projected performance of certain Partner Firms relative to previously projected expectations.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, and the exclusion of the deferred acquisition consideration benefit from the three months ended June 30, 2020.

40


Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the three months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Corporate
 
$
 
$
 
$
 
%
 
 
(Dollars in Thousands)
Staff costs
 
$
3,772

 
$
11,325

 
$
(7,553
)
 
(66.7
)%
Administrative
 
6,410

 
3,893

 
2,517

 
64.7
 %
Stock-based compensation
 
276

 
1,192

 
(916
)
 
(76.8
)%
Depreciation and amortization
 
236

 
221

 
15

 
6.8
 %
Impairment and other losses
 
1,129

 

 
1,129

 
 %
Total operating expenses
 
$
11,823

 
$
16,631

 
$
(4,808
)
 
(28.9
)%
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
(5,208
)
 
$
(8,593
)
 
$
3,385

 
(39.4
)%
The reduction in staff costs is primarily driven by a severance charge in 2019 not repeated in 2020.
Administrative costs were higher due to an increase in occupancy costs related to the Company’s new space at One World Trade Center as part of the centralization of its New York real estate portfolio.
Stock-based compensation declined primarily as a result of a reduced level of awards outstanding and lesser stock-based compensation being recorded in 2020 due to the expectation that certain performance vesting conditions will not be met.
The impairment was recognized to write-down the carrying value of a right-of-use lease asset to its fair value.
The improvement in Adjusted EBITDA is a result of the change in operating expenses, and the exclusion of the impairment charge, severance expense and occupancy costs associated with the centralization of our New York real estate portfolio.
SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO SIX MONTHS ENDED JUNE 30, 2019
Consolidated Results of Operations
Revenues
Revenue was $587.4 million for the six months ended June 30, 2020 compared to revenue of $690.9 million for the six months ended June 30, 2019. The components of the fluctuations in revenues for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 are as follows:
 
Total
 
United States
 
Canada
 
Other
 
$
 
%
 
$
 
%
 
$
 
%
 
$
 
%
 
(Dollars in Thousands)
June 30, 2019
$
690,921

 
 
 
$
547,676

 
 
 
$
46,942

 
 
 
$
96,303

 
 
Components of revenue change:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Foreign exchange impact
(4,709
)
 
(0.7
)%
 

 
 %
 
(876
)
 
(1.9
)%
 
(3,833
)
 
(4.0
)%
   Non-GAAP acquisitions (dispositions), net
(9,789
)
 
(1.4
)%
 
(6,084
)
 
(1.1
)%
 
(3,705
)
 
(7.9
)%
 

 
 %
   Organic revenue
(89,003
)
 
(12.9
)%
 
(66,689
)
 
(12.2
)%
 
(7,496
)
 
(16.0
)%
 
(14,818
)
 
(15.4
)%
Total Change
$
(103,501
)
 
(15.0
)%
 
$
(72,773
)
 
(13.3
)%
 
$
(12,077
)
 
(25.7
)%
 
$
(18,651
)
 
(19.4
)%
June 30, 2020
$
587,420

 
 
 
$
474,903

 
 
 
$
34,865

 
 
 
$
77,652

 
 
The negative foreign exchange impact of $4.7 million, or 0.7%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.
For the six months ended June 30, 2020, organic revenue declined $89.0 million, or 12.9%, primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

41


The table below provides a reconciliation between the revenue from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the six months ended June 30, 2020:
        
 
All Other
 
Total
 
(Dollars in Thousands)
GAAP revenue from 2019 and 2020 acquisitions
$

 
$

Foreign exchange impact
(248
)
 
(248
)
Contribution to non-GAAP organic revenue growth
(411
)
 
(411
)
Prior year revenue from dispositions
(9,130
)
 
(9,130
)
Non-GAAP acquisitions (dispositions), net
$
(9,789
)
 
$
(9,789
)
The geographic mix in revenues for the six months ended June 30, 2020 and 2019 is as follows:
        
 
2020
 
2019
United States
80.9
%
 
79.3
%
Canada
5.9
%
 
6.8
%
Other
13.2
%
 
13.9
%
Impairment and Other Losses
The Company recognized a charge of $19.0 million for the six months ended June 30, 2020 consisting of a goodwill impairment of $13.4 million and an impairment of right-of-use lease assets and loss of $5.6 million.
Given the impact of the COVID-19 pandemic, the Company performed an interim goodwill impairment test in the second quarter of 2020. The interim test resulted in an impairment of goodwill of $13.4 million to write-down the excess carrying value above the fair value of goodwill of one reporting unit within the Integrated Networks - Group B reportable segment.
The Company recorded a loss of $5.6 million primarily to reduce the excess carrying value of certain right-of-use lease assets and related leasehold improvements above the fair value.
Operating Income
Operating income for the six months ended June 30, 2020 was $29.4 million compared to $39.1 million for the six months ended June 30, 2019, representing a decline of $9.7 million, driven by the decline in revenues, partially offset by a reduction in operating expenses to align our costs with revenues impacted by the COVID-19 pandemic.
Adjusted EBITDA
Adjusted EBITDA for the six months ended June 30, 2020 was $75.7 million, compared to $67.9 million for the six months ended June 30, 2019, representing an increase of $7.8 million, principally resulting from the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily from the exclusion of the impairment and other losses of $19.0 million.
Other, Net
Other, net, for the six months ended June 30, 2020 was income of $22.2 million, driven by a gain on the sale of Sloane and on the repurchase of a portion of the Company’s 6.50% Notes, compared to a loss of $4.1 million for the six months ended June 30, 2019, primarily driven by a loss on the sale of Kingsdale.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange loss for the six months ended June 30, 2020 was $9.4 million compared to a gain of $8.4 million for the six months ended June 30, 2019. The change in foreign exchange was primarily attributable to the weakening 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.

42


Interest Expense and Finance Charges, Net
Interest expense and finance charges, net, for the six months ended June 30, 2020 was $31.6 million compared to $33.2 million for the six months ended June 30, 2019, representing a decrease of $1.6 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility.
Income Tax Expense (Benefit)
Income tax expense for the six months ended June 30, 2020 was $5.6 million (on pre-tax income of $10.7 million resulting in an effective tax rate of 52.2%) compared to an expense of $2.8 million (on pre-tax income of $10.2 million resulting in an effective tax rate of 27.8%) for the six months ended June 30, 2019.
The effective tax rate of 52.2% in the six months ended June 30, 2020 as compared to 27.8% in same period in 2019 was primarily attributable to an increase in the base erosion and anti-abuse tax (“BEAT”) in 2020.
Noncontrolling Interests
The effect of noncontrolling interests for the six months ended June 30, 2020 was $3.9 million compared to $3.5 million for the six months ended June 30, 2019.
Net Loss Attributable to MDC Partners Inc. Common Shareholders
As a result of the foregoing and the impact of accretion on and net income allocated to convertible preference shares, net loss attributable to MDC Partners Inc. common shareholders for the six months ended June 30, 2020 was $6.5 million, or $0.09 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $1.4 million, or $0.02 diluted loss per share, for the six months ended June 30, 2019.
Integrated Networks - Group A
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group A reportable segment for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group A
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
173,356

 
 
 
$
176,987

 
 
 
$
(3,631
)
 
(2.1
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
115,717

 
66.8
%
 
133,086

 
75.2
%
 
(17,369
)
 
(13.1
)%
Office and general expenses
 
27,695

 
16.0
%
 
28,500

 
16.1
%
 
(805
)
 
(2.8
)%
Depreciation and amortization
 
3,307


1.9
%

4,289


2.4
%

(982
)

(22.9
)%
 
 
$
146,719


84.6
%
 
$
165,875

 
93.7
%
 
$
(19,156
)
 
(11.5
)%
Operating income
 
$
26,637

 
15.4
%
 
$
11,112

 
6.3
%
 
$
15,525

 
NM

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
33,507

 
19.3
%
 
$
19,156

 
10.8
%
 
$
14,351

 
74.9
 %
The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was primarily attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.

43


The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group A reportable segment for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group A
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
18,403

 
10.6
%
 
$
23,809

 
13.5
 %
 
$
(5,406
)
 
(22.7
)%
Staff costs
 
102,555

 
59.2
%
 
112,471

 
63.5
 %
 
(9,916
)
 
(8.8
)%
Administrative
 
18,891

 
10.9
%
 
21,551

 
12.2
 %
 
(2,660
)
 
(12.3
)%
Deferred acquisition consideration
 
1,707

 
1.0
%
 
(479
)
 
(0.3
)%
 
2,186

 
NM

Stock-based compensation
 
1,856

 
1.1
%
 
4,234

 
2.4
 %
 
(2,378
)
 
(56.2
)%
Depreciation and amortization
 
3,307

 
1.9
%
 
4,289

 
2.4
 %
 
(982
)
 
(22.9
)%
Total operating expenses
 
$
146,719

 
84.6
%
 
$
165,875

 
93.7
 %
 
$
(19,156
)
 
(11.5
)%
    Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The change in deferred acquisition consideration for the six months ended June 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income for the six months ended June 30, 2020.

Integrated Networks - Group B
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group B
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
211,105

 
 
 
$
266,565

 
 
 
$
(55,459
)
 
(20.8
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
129,303

 
61.3
%
 
165,135

 
61.9
%
 
(35,832
)
 
(21.7
)%
Office and general expenses
 
45,816

 
21.7
%
 
56,637

 
21.2
%
 
(10,821
)
 
(19.1
)%
Depreciation and amortization
 
8,913


4.2
%

8,092


3.0
%

821


10.1
 %
Impairment and other losses

17,629


8.4
%



%

17,629


 %
 
 
$
201,661

 
95.5
%
 
$
229,864

 
86.2
%
 
$
(28,203
)

(12.3
)%
Operating income
 
$
9,444

 
4.5
%
 
$
36,701

 
13.8
%
 
$
(27,256
)
 
(74.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
33,523

 
15.9
%
 
$
43,128

 
16.2
%
 
$
(9,605
)
 
(22.3
)%
The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was primarily attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.

44


The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Integrated Networks - Group B
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
22,100

 
10.5
 %
 
$
34,725

 
13.0
 %
 
$
(12,625
)
 
(36.4
)%
Staff costs
 
129,190

 
61.2
 %
 
154,752

 
58.1
 %
 
(25,562
)
 
(16.5
)%
Administrative
 
26,292

 
12.5
 %
 
33,960

 
12.7
 %
 
(7,668
)
 
(22.6
)%
Deferred acquisition consideration
 
(4,109
)
 
(1.9
)%
 
(4,156
)
 
(1.6
)%
 
47

 
(1.1
)%
Stock-based compensation
 
1,646

 
0.8
 %
 
2,491

 
0.9
 %
 
(845
)
 
(33.9
)%
Depreciation and amortization
 
8,913

 
4.2
 %
 
8,092

 
3.0
 %
 
821

 
10.1
 %
Impairment and other losses
 
17,629

 
8.4
 %
 

 
 %
 
17,629

 
 %
Total operating expenses
 
$
201,661

 
95.5
 %
 
$
229,864

 
86.2
 %
 
$
(28,203
)
 
(12.3
)%
    Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The change in deferred acquisition consideration for the six months ended June 30, 2020 was primarily attributable to a decrease in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily from the exclusion of the goodwill and right-of-use lease asset impairments.
Media & Data Network
The change in expenses, operating income (loss) and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Media & Data Network
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
69,609

 
 
 
$
82,688

 
 
 
$
(13,079
)
 
(15.8
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
50,788

 
73.0
%
 
63,587

 
76.9
 %
 
(12,799
)
 
(20.1
)%
Office and general expenses
 
16,508

 
23.7
%
 
18,144

 
21.9
 %
 
(1,636
)
 
(9.0
)%
Depreciation and amortization
 
1,615


2.3
%

2,328


2.8
 %

(713
)

(30.6
)%
Impairment and other losses

35


0.1
%



 %

35


 %
 
 
$
68,946


99.0
%

$
84,059


101.7
 %

$
(15,113
)

(18.0
)%
Operating income (loss)
 
$
663

 
1.0
%
 
$
(1,371
)
 
(1.7
)%
 
$
2,034

 
NM

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
2,679

 
3.8
%
 
$
1,036

 
1.3
 %
 
$
1,643

 
NM

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The change in operating income (loss) was primarily attributable to the decline in revenue, more than offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the six months ended June 30, 2020 and 2019 was as follows:

45


 
 
2020
 
2019
 
Change
Media & Data Network
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
18,684

 
26.8
 %
 
$
24,840

 
30.0
%
 
$
(6,156
)
 
(24.8
)%
Staff costs
 
37,313

 
53.6
 %
 
43,787

 
53.0
%
 
(6,474
)
 
(14.8
)%
Administrative
 
10,933

 
15.7
 %
 
13,025

 
15.8
%
 
(2,092
)
 
(16.1
)%
Deferred acquisition consideration
 
375

 
0.5
 %
 
73

 
0.1
%
 
302

 
NM

Stock-based compensation
 
(9
)
 
 %
 
6

 
%
 
(15
)
 
NM

Depreciation and amortization
 
1,615

 
2.3
 %
 
2,328

 
2.8
%
 
(713
)
 
(30.6
)%
Impairment and other losses
 
35

 
0.1
 %
 

 
%
 
35

 
 %
Total operating expenses
 
$
68,946

 
99.0
 %
 
$
84,059

 
101.7
%
 
$
(15,113
)
 
(18.0
)%
Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income (loss).
All Other
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the All Other category for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Revenue
 
$
133,350

 
 
 
$
164,681

 
 
 
$
(31,331
)
 
(19.0
)%
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
Cost of services sold
 
92,517

 
69.4
%
 
116,095

 
70.5
%
 
(23,578
)
 
(20.3
)%
Office and general expenses
 
23,980

 
18.0
%
 
30,097

 
18.3
%
 
(6,117
)
 
(20.3
)%
Depreciation and amortization
 
3,802


2.9
%

4,354


2.6
%

(552
)

(12.7
)%
Impairment and other losses

207


0.2
%



%

207


 %
 
 
$
120,506

 
90.4
%
 
$
150,546

 
91.4
%
 
$
(30,040
)
 
(20.0
)%
Operating income
 
$
12,844

 
9.6
%
 
$
14,135

 
8.6
%
 
$
(1,291
)
 
(9.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
16,790

 
12.6
%
 
$
17,737

 
10.8
%
 
$
(947
)
 
(5.3
)%
The decrease in revenue was primarily attributable to lower spending by clients due to the COVID-19 pandemic and a reduction in revenues in connection with the sale of Sloane in 2020 and Kingsdale in 2019.
The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.

46


The change in the categories of expenses as a percentage of revenue in the All Other category for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
All Other
 
$
 
% of
Revenue
 
$
 
% of
Revenue
 
$
 
%
 
 
(Dollars in Thousands)
Direct costs
 
$
26,919

 
20.2
 %
 
$
33,118

 
20.1
 %
 
$
(6,199
)

(18.7
)%
Staff costs
 
76,415

 
57.3
 %
 
94,988

 
57.7
 %
 
(18,573
)

(19.6
)%
Administrative
 
13,226

 
9.9
 %
 
18,838

 
11.4
 %
 
(5,612
)

(29.8
)%
Deferred acquisition consideration
 
(261
)
 
(0.2
)%
 
(1,008
)
 
(0.6
)%
 
747


(74.1
)%
Stock-based compensation
 
198

 
0.1
 %
 
256

 
0.2
 %
 
(58
)

(22.7
)%
Depreciation and amortization
 
3,802

 
2.9
 %
 
4,354

 
2.6
 %
 
(552
)
 
(12.7
)%
Impairment and other losses
 
207

 
0.2
 %
 

 
 %
 
207

 
 %
Total operating expenses
 
$
120,506

 
90.4
 %
 
$
150,546

 
91.4
 %
 
$
(30,040
)
 
(20.0
)%
Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was primarily attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income.
Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the six months ended June 30, 2020 and 2019 was as follows:
 
 
2020
 
2019
 
Change
Corporate
 
$
 
$
 
$
 
%
 
 
(Dollars in Thousands)
Staff costs
 
$
8,690

 
$
13,851

 
$
(5,161
)
 
(37.3
)%
Administrative
 
9,456

 
7,546

 
1,910

 
25.3
 %
Stock-based compensation
 
418

 
(381
)
 
799

 
NM

Depreciation and amortization
 
468

 
438

 
30

 
6.8
 %
Impairment and other losses
 
1,129

 

 
1,129

 
 %
Total operating expenses
 
$
20,161

 
$
21,454

 
$
(1,293
)
 
(6.0
)%
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
(10,770
)
 
$
(13,146
)
 
$
2,376

 
(18.1
)%
The reduction in staff costs is primarily driven by a severance charge in 2019 not repeated in 2020.
Administrative costs were higher due to an increase in occupancy costs related to the Company’s new space at One World Trade Center as part of the centralization of its New York real estate portfolio.
In connection with the forfeiture of performance-based equity awards, stock-based compensation expense in the prior year included the reversal of expense previously recognized.
The impairment was recognized to write-down the carrying value of a right-of-use lease asset to its fair value.
The improvement in Adjusted EBITDA is a result of the change in operating expenses, and the exclusion of the impairment charge and occupancy costs associated with the centralization of our New York real estate portfolio.
Liquidity and Capital Resources:
Liquidity
The following table provides summary information about the Company’s liquidity position:

June 30, 2020
 
June 30, 2019
Net cash used in operating activities
$
(33,678
)
 
$
(40,237
)
Net cash provided by investing activities
$
14,643

 
$
9,818

Net cash provided by (used in) financing activities
$
(1,434
)
 
$
25,712

The effects of the COVID-19 pandemic have negatively impacted the Company’s cash flows; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19. While it is difficult to predict the full scale of the impact, the Company has taken various actions as discussed in the Executive Summary section above. In order to maintain financial flexibility, we borrowed $125 million under our revolving credit facility, of which half was repaid and $62.5 million remains outstanding as of June 30, 2020.
The Company had cash and cash equivalents of $85.5 million and $106.9 million as of June 30, 2020 and December 31, 2019, respectively. 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 June 30, 2020, the Company had $62.5 million of borrowings outstanding and $111.8 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% 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 next twelve months. 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 2019 Form 10-K and in the Company’s other SEC filings.
Cash Flows
Operating Activities
Cash flows used in operating activities for the six months ended June 30, 2020 was $33.7 million, primarily reflecting unfavorable working capital requirements, driven by seasonal media flows and other supplier payments.
Cash flows used in operating activities for the six months ended June 30, 2019 was $40.2 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.
Investing Activities
During the six months ended June 30, 2020, cash flows provided by investing activities was $14.6 million, which primarily consisted of proceeds of $19.6 million from the sale of the Company’s equity interest in Sloane, partially offset by $3.7 million of capital expenditures and $0.7 million paid for acquisitions.
During the six months ended June 30, 2019, cash flows provided by investing activities was $9.8 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by $7.9 million of capital expenditures.
Financing Activities
During the six months ended June 30, 2020, cash flows used in financing activities was $1.4 million, primarily driven by $62.5 million in net borrowings under the Credit Agreement, offset by $30.9 million in deferred acquisition consideration payments, $22.0 million for a portion of the 6.50% Notes and $10.3 million in distributions for minority interest.
During the six months ended June 30, 2019, cash flows provided by financing activities was $25.7 million, driven by $98.6 million in proceeds from the issuance of common and preferred shares, partially offset by $40.6 million in net repayments under the Credit Agreement, and $24.2 million in deferred acquisition consideration payments.

47


Total Debt
Debt, net of debt issuance costs, as of June 30, 2020 was $922.5 million as compared to $887.6 million outstanding at December 31, 2019. The increase of $34.9 million was primarily a result of the Company’s borrowings under the Credit Agreement, partially offset by the repurchase of a portion of its 6.50% Notes. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s 6.50% Notes and $211.5 million senior secured revolving credit agreement due February 3, 2022 (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) total 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 June 30, 2020, 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:
 
June 30, 2020
Total Senior Leverage Ratio
0.10

Maximum per covenant
2.00

 
 

Total Leverage Ratio
4.60

Maximum per covenant
6.25

 
 

Fixed Charges Ratio
2.94

Minimum per covenant
1.00

 
 

Earnings before interest, taxes, depreciation and amortization (in millions)
$
193.3

Minimum per covenant (in millions)
$
120.0

These ratios and measures are not based on GAAP 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.
Contractual Obligations and Other Commercial Commitments
The Company’s agencies enter into contractual commitments with media providers and agreements with production companies on behalf of its 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 and Accruals and other liabilities 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.

48


The following table presents the changes in the deferred acquisition consideration by segment for the six months ended June 30, 2020:
 
June 30, 2020
 
Integrated Networks - Group A
 
Integrated Networks - Group B
 
Media & Data Network
 
All Other
 
Total
 
 
 
 
Beginning Balance of contingent payments
$
36,124

 
$
27,060

 
$

 
$
11,487

 
$
74,671

Payments
(17,792
)
 
(15,242
)
 
(375
)
 
(2,578
)
 
(35,987
)
Additions - acquisitions and step-up transactions

 
1,389

 

 

 
1,389

Redemption value adjustments (1)
1,707

 
(4,109
)
 
375

 
(261
)
 
(2,288
)
Stock-based compensation
720

 
809

 

 

 
1,529

Other (2)

 
(130
)
 

 
(195
)
 
(325
)
Ending Balance of contingent payments
20,759

 
9,777

 

 
8,453

 
38,989

Fixed payments

 
263

 

 

 
263

 
$
20,759

 
$
10,040

 
$

 
$
8,453

 
$
39,252


(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.
(2) Other primarily consists of translation adjustments.
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 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding redeemable noncontrolling interests.
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 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.
Critical Accounting Policies
See the Company’s 2019 Form 10-K for information regarding the Company’s critical accounting policies.
Website Access to Company Reports and Information
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 Securities Exchange Act of 1934, as amended (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 SEC.  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 June 30, 2020, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the 6.5% Notes. The 6.5% Notes bear a fixed 6.50% interest rate. The Credit Agreement bears interest at variable rates based upon the Euro 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 $62.5 million in borrowings under the Credit Agreement, as of June 30, 2020, a 1.0% increase or decrease in the weighted average interest rate, which was 2.71% at June 30, 2020, would have an interest impact of approximately $0.6 million.

49


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 2019 Form 10-K. 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 (loss). 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 $1.4 million.
Impairment Risk: At June 30, 2020, the Company had goodwill of $706.9 million. The Company reviews goodwill 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 2019 Form 10-K for information related to impairment testing and the risk of potential impairment charges in future periods. Given the impact of the COVID-19 pandemic, the Company performed interim goodwill impairment tests in 2020. The company recognized a goodwill impairment of $13.4 million for the six months ended June 30, 2020. Additionally, the interim test resulted in the fair value of one reporting unit, with goodwill of approximately $130.0 million, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future.
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, 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, and in light of the material weakness identified in our internal controls over financial reporting with respect to accounting for income taxes, as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, our CEO and CFO concluded that, as of June 30, 2020, our disclosure controls and procedures are ineffective 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 June 30, 2020 is appropriate.
Changes in Internal Control Over Financial Reporting
We have given consideration to the impact of the COVID-19 and have concluded that there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the period covered by this Quarterly Report on Form 10-Q, we are actively engaged in remediation efforts to enhance and improve our internal controls over financial reporting with respect to accounting for income taxes, but have not yet remediated the material weakness described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our remediation efforts will continue to be implemented throughout our 2020 fiscal year. We believe the controls that will be put in place will eliminate the material weakness with respect to accounting for income taxes and solidify the effectiveness of our internal control over financial reporting.


50


PART II. OTHER INFORMATION
 
Item 1.    Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not currently expect that these proceedings will have a material adverse effect on our results of operations, cash flows or financial position.
Item 1A.    Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the factors discussed in “Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the Risk Factors described below, which could materially and adversely affect our business, results of operations or financial condition.
Our business, results of operations and financial condition have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic. 
The COVID-19 pandemic is adversely impacting, and is expected to continue to adversely impact, our business, results of operations and financial condition.
As part of efforts to contain the spread of COVID-19, governmental authorities have imposed various restrictions, such as travel bans, stay-at-home orders and quarantines, social distancing measures and temporary business closures. COVID-19 and the actions taken by governments, businesses and individuals in response to the pandemic have resulted in, and are expected to continue to result in, a substantial curtailment of business activities, weakened economic conditions, and significant economic uncertainty.
The downturn in the economy is having, and we expect will continue to have, a negative impact on our clients. Many clients have responded to weak economic and financial conditions by reducing their marketing budgets, thereby decreasing the market and demand for our services. This is adversely impacting and is expected to continue to adversely impact our business, results of operations and financial condition.
We are also facing increased operational challenges as we take measures to support and protect employee health and safety, including limiting employee travel, closing offices, and implementing work-from-home policies for employees. In particular, our remote work arrangements, coupled with stay-at-home orders and quarantines, pose new challenges for our employees and our IT systems and extended periods of remote work arrangements could strain our business continuity plans and introduce operational risk, including but not limited to cybersecurity and IT systems management risks. 
The effects of the COVID-19 pandemic may also limit the resources afforded to or delay the implementation of our strategic initiatives and make it more difficult to develop and market innovative services.  If our strategic initiatives are delayed or otherwise modified, such initiatives may not achieve some or all of the expected benefits, which could adversely impact our competitive position, business, results of operations and financial condition. 
We continue to have substantial sources of liquidity, including cash, cash from operations and access to our Credit Facility, but a prolonged period of generating lower cash from operations could adversely affect our financial condition.
The extent to which COVID-19 will continue to adversely impact our business, results of operations and financial condition is highly uncertain, cannot be predicted, and will depend on:
the duration and scope of the pandemic;
governmental, business and individual actions that have been and continue to be taken in response to the pandemic;
the impact of the pandemic and the economic downturn on our clients; and
the duration of the downturn in the economy.
Any of the foregoing factors could materially adversely affect our business, results of operations or financial condition.
Potential uncertainty resulting from a proposed business combination and related matters may adversely affect our business.
On June 26, 2020, MDC announced that its Board of Directors formed a Special Committee of independent directors to review the preliminary, non-binding proposal made by Stagwell Media LP with respect to a potential merger with the Company (the “Potential Transaction”). Mark Penn, Chairman and Chief Executive Officer of the Company, is also the manager of The Stagwell Group LLC, the general partner of Stagwell Media LP. The Special Committee has retained legal counsel and an independent financial advisor to assist in its evaluation of the Potential Transaction. The Special Committee has not reached any conclusion regarding the Potential Transaction. There can be no assurance that the Potential Transaction will be completed, or as to the terms of any such potential transaction. The review and consideration of the Potential Transaction, as well as any alternatives that may become available to the Company, may require the expenditure of significant time and resources by us. Such a proposal may create unce

51


rtainty for our employees, customers and business partners. The market price of our Class A shares may reflect various assumptions as to whether the proposed transaction with Stagwell Media LP will occur or perceived uncertainties in our future direction and variations in our share price may occur as a result of changing assumptions or perceptions regarding the Potential Transaction. A definitive agreement regarding a transaction, or a failure to reach a definitive agreement regarding a transaction, could result in a significant change in the market price of our Class A shares. These matters, alone or in combination, may harm our business.
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 June 30, 2020, 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 as to the dollar amount of shares it may repurchase in the open market.
For the three months ended June 30, 2020, 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 June 30, 2020. The following table details those shares withheld during the second quarter of 2020:
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
4/1/2020 - 4/30/2020
 

 
$

 

 

5/1/2020 - 5/31/2020
 
29,860

 
1.29

 

 

6/1/2020 - 6/30/2020
 
39,250

 
1.36

 

 

Total
 
69,110

 
$
1.33

 

 


Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.

52


Item 5.    Other Information
None
Item 6.    Exhibits
The exhibits required by this item are listed on the Exhibit Index.

53


EXHIBIT INDEX
 
Exhibit No.
 
Description
 
Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 10, 2004).
 
Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed on August 4, 2004).
 
Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 30, 2010).
 
Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 2, 2011).
 
Articles of Amalgamation, dated January 1, 2013 (incorporated by reference to Exhibit 3.1.4 to the Company’s Form 10-K filed on March 10, 2014).
 
Articles of Amalgamation, dated April 1, 2013 (incorporated by reference to Exhibit 3.1.5 to the Company’s Form 10-K filed on March 10, 2014).
 
Articles of Amalgamation, dated July 1, 2013 (incorporated by reference to Exhibit 3.1.6 to the Company’s Form 10-K filed on March 10, 2014).
 
Articles of Amendment, dated March 7, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 7, 2017).
 
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).
 
General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed on March 16, 2007).
 
Second Amendment, dated as of May 29, 2020, to the Second Amended and Restated Credit Agreement, dated as of May 3, 2016, among the Company, Maxxcom Inc., each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, 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 June 1, 2020).
 
MDC Partners Inc. Amended and Restated 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 29, 2020).†
 
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.
† Indicates management contract or compensatory plan.


 
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.
 

54


MDC PARTNERS INC.
 
/s/ Frank Lanuto
Frank Lanuto
Chief Financial Officer
(Principal Financial Officer)
August 10, 2020
 
 
/s/ Mark Penn
Mark Penn
Chairman of the Board and Chief Executive Officer


(Authorized Signatory)
August 10, 2020

55