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
As of June 30, 2021, 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, 2020 (“2020 10-K”).
The Company’s business improved in the second quarter of 2021 compared to the second quarter of 2020, primarily due to recovery from the COVID-19 pandemic. Although the pandemic did not begin to impact the Company’s operations in the first quarter of 2020, it did have a significant impact on the Company’s operations in the second quarter of 2020. Therefore, the quarterly period-over-period comparisons reflect the recovery in the second quarter of 2021 and the negative impact in the second quarter of 2020.
While a recovery from the pandemic is underway, economic conditions will be volatile as long as COVID-19 remains a public health threat. The Company continues to monitor developments. We will continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on the overall economy, our clients and operations. If the impact of the pandemic continues to go beyond expectations, the Company believes it is well positioned through the actions implemented at the onset of the pandemic to successfully work through the effects of COVID-19 on our business. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the continued impact of the COVID-19 pandemic.
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.
Recent Developments
On December 21, 2020, MDC and Stagwell entered into a definitive transaction agreement (as amended on June 4, 2021 and as of July 8, 2021, the “Transaction Agreement”) providing for the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”). The combination and related transactions, including the domestication of MDC to a Delaware corporation, are referred to as the “Transactions.” See “Item 1. Business – Recent Developments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 16, 2021, for a description of the Transactions.
On July 26, 2021, the Company’s shareholders approved the Transactions, and on August 2, 2021 (the effective date), the combined company began to conduct business as Stagwell Inc. On August 3, 2021, Stagwell Inc. began to trade on the NASDAQ Stock Exchange under the ticker symbol STGW.
On July 26, 2021, the Company sent a notice of redemption to the holders of its 7.50% senior notes due 2024 (the “Senior Notes”). The redemption date is scheduled for August 20, 2021 at a redemption price equal to 101.625% of the outstanding principal amount of the Senior Notes being redeemed (the “Redemption Price”), plus, accrued and unpaid interest on the principal amount of such Senior Notes (the “Redemption Payment”). The Redemption Payment is approximately $904 million,
consisting of the Redemption Price of approximately $884 million (principal of $870 million and a premium of $14 million) and accrued and unpaid interest of approximately $20 million.
On August 2, 2021, the Company repaid the total amount outstanding and terminated its revolving credit facility due February 3, 2022.
The plan to redeem the Senior Notes and the termination of the revolving credit facility were initiated in connection with the closing of the Transactions and the plan to refinance the liquidity position of the combined company.
On July 8, 2021, the Company entered into agreements with Stagwell and affiliates of The Goldman Sachs Group amending certain terms of their preference shares (see Note 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements), which, among other things, reduced the accretion rate on the base liquidation preference of the combined company to zero percent per annum from and after the date that is two business days following the closing of the combination until the one year anniversary thereof.
As the information provided throughout this report is historical, it primarily reflects information about the Company as of June 30, 2021, without giving effect to the Transactions or the Stagwell Entities.
2. Acquisitions and Dispositions
2021 Acquisition
On April 26, 2021, the Company acquired the remaining 40% ownership interest of Gale it did not already own for an aggregate purchase price of approximately $20,000, comprised of $7,695, which was settled with Company stock and deferred payments with an estimated present value at the acquisition date of $11,406, to be paid in 2022 and 2023. The difference between the purchase price and the noncontrolling interest of $10,339 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
2020 Acquisition
On July 1, 2020, the Company acquired the remaining 10% ownership interest of Veritas it did not already own for an aggregate purchase price of $2,187, of which $1,087 was a deferred cash payment. As a result of the transaction, the Company reduced noncontrolling and redeemable noncontrolling interests by $2,651. The difference between the purchase price and the noncontrolling interest of $464 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
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 were based on the financial results of the underlying business from 2019 to 2020 with final payment made 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.
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.
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.
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 globally. The primary source of revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Partner Firms. Representation of a client rarely means that MDC handles marketing communications for all brands or product lines of the client in every geographical location. The Company’s Partner Firms often cooperate with one another through referrals and the sharing of both services and expertise, which enables MDC to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate,
independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing clients across the MDC network.
The following table presents revenue disaggregated by client industry vertical for the three and six months ended June 30, 2021 and 2020:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Industry
|
Reportable Segment
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Food & Beverage
|
All
|
|
$
|
62,462
|
|
|
$
|
46,811
|
|
|
$
|
117,640
|
|
|
$
|
104,396
|
|
|
Retail
|
All
|
|
33,901
|
|
|
32,728
|
|
|
64,678
|
|
|
69,537
|
|
|
Consumer Products
|
All
|
|
48,784
|
|
|
34,855
|
|
|
94,189
|
|
|
74,189
|
|
|
Communications
|
All
|
|
19,215
|
|
|
16,172
|
|
|
36,205
|
|
|
38,014
|
|
|
Automotive
|
All
|
|
13,945
|
|
|
13,020
|
|
|
29,574
|
|
|
38,212
|
|
|
Technology
|
All
|
|
54,810
|
|
|
38,846
|
|
|
101,200
|
|
|
88,341
|
|
|
Healthcare
|
All
|
|
37,074
|
|
|
23,112
|
|
|
68,568
|
|
|
46,843
|
|
|
Financials
|
All
|
|
24,138
|
|
|
19,748
|
|
|
48,580
|
|
|
43,753
|
|
|
Transportation and Travel/Lodging
|
All
|
|
11,917
|
|
|
9,053
|
|
|
21,865
|
|
|
25,552
|
|
|
Other
|
All
|
|
39,359
|
|
|
25,332
|
|
|
70,691
|
|
|
58,582
|
|
|
|
|
|
$
|
345,605
|
|
|
$
|
259,677
|
|
|
$
|
653,190
|
|
|
$
|
587,419
|
|
MDC has historically largely focused where the Company was founded in North America, the largest market for its services in the world. The Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets. 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, 2021 and 2020:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Geographical Location
|
Reportable Segment
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
United States
|
All
|
|
$
|
277,542
|
|
|
$
|
210,342
|
|
|
$
|
520,122
|
|
|
$
|
474,903
|
|
|
Canada
|
All
|
|
22,992
|
|
|
16,609
|
|
|
45,642
|
|
|
34,865
|
|
|
Other
|
All
|
|
45,071
|
|
|
32,726
|
|
|
87,426
|
|
|
77,651
|
|
|
|
|
|
$
|
345,605
|
|
|
$
|
259,677
|
|
|
$
|
653,190
|
|
|
$
|
587,419
|
|
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 $73,446 and $49,110 at June 30, 2021 and December 31, 2020, 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 $16,793 and $10,552 at June 30, 2021 and December 31, 2020, 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 and also are included within Accruals and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets. In arrangements in which we are acting as an agent, the revenue recognition related to the contract liability is presented on a net basis within the Unaudited Condensed Consolidated Statements of Operations. Advance billings at June 30, 2021 and December 31, 2020 were $211,248 and $152,956, respectively. The increase in the Advance billings balance of $58,292 for the six months ended June 30, 2021 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $118,934 of revenues recognized that were included in the Advance billings
balances as of December 31, 2020 and reductions due to the incurrence of third-party costs. Contract liabilities classified within Accruals and other liabilities at June 30, 2021 and December 31, 2020 were $118,589 and $112,755, respectively. The increase in the balance of $5,834 for the six months ended June 30, 2021 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $78,780 of revenues recognized that were included in the balance as of December 31, 2020 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, 2021 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 $8,033 of unsatisfied performance obligations as of June 30, 2021, of which we expect to recognize approximately 58% in 2021 and 42% in 2022.
4. Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted income (loss) per common share:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to MDC Partners Inc.
|
$
|
6,106
|
|
|
$
|
(595)
|
|
|
$
|
11,116
|
|
|
$
|
407
|
|
|
Accretion on convertible preference shares
|
(3,798)
|
|
|
(3,509)
|
|
|
(7,522)
|
|
|
(6,949)
|
|
|
Net income allocated to convertible preference shares
|
(653)
|
|
|
—
|
|
|
(1,018)
|
|
|
—
|
|
|
Net income (loss) attributable to MDC Partners Inc. common shareholders
|
$
|
1,655
|
|
|
$
|
(4,104)
|
|
|
$
|
2,576
|
|
|
$
|
(6,542)
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to net income allocated to convertible preference shares
|
20
|
|
|
—
|
|
|
26
|
|
—
|
|
|
Net income (loss) attributable to MDC Partners Inc. common shareholders - Diluted
|
$
|
1,675
|
|
|
$
|
(4,104)
|
|
|
$
|
2,602
|
|
|
$
|
(6,542)
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average number of common shares outstanding
|
75,078,755
|
|
|
72,528,455
|
|
|
74,240,447
|
|
|
72,463,058
|
|
|
Diluted weighted average number of common shares outstanding
|
78,459,483
|
|
|
72,528,455
|
|
|
77,001,526
|
|
|
72,463,058
|
|
|
Basic
|
$
|
0.02
|
|
|
$
|
(0.06)
|
|
|
$
|
0.03
|
|
|
$
|
(0.09)
|
|
|
Diluted
|
$
|
0.02
|
|
|
$
|
(0.06)
|
|
|
$
|
0.03
|
|
|
$
|
(0.09)
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive stock awards
|
308,800
|
|
2,912,436
|
|
|
1,653,634
|
|
|
2,912,436
|
|
Restricted stock and restricted stock unit awards of 0 and 2,203,717 as of June 30, 2021 and 2020, 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. In addition, there were 145,000 Preference Shares outstanding which were convertible into 30,019,307 and 27,733,199 Class A common shares at June 30, 2021 and 2020, 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 certain 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, 2021 and December 31, 2020.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2021
|
|
2020
|
|
Beginning Balance of Contingent Payments
|
$
|
82,802
|
|
|
$
|
74,671
|
|
|
Payments
|
(44,324)
|
|
|
(46,792)
|
|
|
Redemption value adjustments (1)
|
18,552
|
|
|
44,993
|
|
|
Additions - Acquisitions and step-up transactions
|
11,406
|
|
|
7,703
|
|
|
Other
|
(768)
|
|
|
2,227
|
|
|
Ending balance of contingent payments
|
$
|
67,668
|
|
|
$
|
82,802
|
|
|
Fixed Payments
|
—
|
|
|
263
|
|
|
|
$
|
67,668
|
|
|
$
|
83,065
|
|
(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Loss (income) attributable to fair value adjustments
|
$
|
5,612
|
|
|
$
|
2,312
|
|
|
$
|
17,297
|
|
|
$
|
(2,288)
|
|
|
Stock-based compensation
|
548
|
|
|
(496)
|
|
|
1,255
|
|
|
1,529
|
|
|
Redemption value adjustments
|
$
|
6,160
|
|
|
$
|
1,816
|
|
|
$
|
18,552
|
|
|
$
|
(759)
|
|
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 2021 through 2034. 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 which the variable lease payments are based upon occur.
Some of the Company’s leases include options to extend or renew the leases through 2044. 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 2021 through 2027. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Asia, Europe and Australia.
As of June 30, 2021, the Company has entered into six 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 or the term of the move-out space has not yet expired. Accordingly, these six leases represent an obligation of the Company that is not reflected within the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021. The aggregate future liability related to these leases is approximately $38,238.
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.
The following table presents lease costs and other quantitative information for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Lease Cost:
|
|
|
|
|
|
|
|
|
Operating lease cost
|
$
|
16,898
|
|
|
$
|
18,511
|
|
|
$
|
34,025
|
|
|
$
|
34,902
|
|
|
Variable lease cost
|
2,328
|
|
|
3,573
|
|
|
4,921
|
|
|
8,228
|
|
|
Sublease rental income
|
(2,311)
|
|
|
(2,892)
|
|
|
(4,875)
|
|
|
(5,697)
|
|
|
Total lease cost
|
$
|
16,915
|
|
|
$
|
19,192
|
|
|
$
|
34,071
|
|
|
$
|
37,433
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities for operating leases
|
|
|
|
|
|
|
|
|
Operating cash flows
|
$
|
17,463
|
|
|
$
|
17,592
|
|
|
$
|
34,259
|
|
|
$
|
35,227
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments
|
$
|
620
|
|
|
$
|
30,815
|
|
|
$
|
4,436
|
|
|
$
|
37,934
|
|
|
Weighted average remaining lease term (in years) - Operating leases
|
7.1
|
|
7.4
|
|
7.1
|
|
7.4
|
|
Weighted average discount rate - Operating leases
|
10.7
|
|
|
10.5
|
|
|
10.7
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the six months ended June 30, 2021, the Company recorded a charge of $875 to reduce the carrying value of two of its right-of-use lease assets and accelerate the operating expenses of one of its right-of-use lease assets. These right-of-use lease assets related to three agencies within its Integrated Networks - Group B reportable segment. The Company evaluated the facts and circumstances related to the use of the assets which indicated that they may not be recoverable. Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the assets were less than their carrying value. This impairment charge is included in Impairment and other losses within the Unaudited Condensed Consolidated Statements of Operations.
In the six months ended June 30, 2020, the Company recorded an impairment charge of $5,619 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, in addition to accelerating the operating expenses of four leases.
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, 2021 and their reconciliation to the corresponding lease liabilities:
|
|
|
|
|
|
|
|
|
Maturity Analysis
|
|
Remaining 2021
|
$35,383
|
|
2022
|
61,205
|
|
|
2023
|
56,935
|
|
|
2024
|
50,683
|
|
|
2025
|
39,640
|
|
|
2026 and thereafter
|
152,753
|
|
|
Total
|
396,599
|
|
|
Less: Present value discount
|
(123,388)
|
|
|
Lease liability
|
$
|
273,211
|
|
7. Debt
As of June 30, 2021 and December 31, 2020, the Company’s indebtedness was comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
Revolving Credit Agreement
|
$
|
88,602
|
|
|
$
|
—
|
|
|
Senior Notes
|
870,256
|
|
|
870,256
|
|
|
Debt Issuance Cost
|
(23,786)
|
|
|
(27,072)
|
|
|
|
$
|
935,072
|
|
|
$
|
843,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s plan to redeem the Senior Notes and the termination of its Revolving Credit Agreement subsequent to June 30, 2021.
Senior Notes
The aggregate principal amount of the senior notes totaling $870.3 million mature on May 1, 2024 bear interest, payable semiannually in arrears on May 1 and November 1, at a rate of 7.50% per annum (the “Senior Notes”). MDC may, at its option, redeem the Senior Notes in whole at any time or in part from time to time, at varying prices based on the timing of the redemption. The Company was in compliance with all covenants at June 30, 2021.
Revolving Credit Agreement
The Company is party to a $211,500 secured revolving credit facility due February 3, 2022. The Company had $88,602 outstanding under the revolving credit facility as of June 30, 2021.
Advances under the Credit Agreement 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.
The Company was in compliance with all of the terms and conditions of its Credit Agreement as of June 30, 2021.
At June 30, 2021 and December 31, 2020, the Company had issued undrawn outstanding letters of credit of $19,533 and $18,651, 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, 2020 and six months ended June 30, 2021 were as follows:
|
|
|
|
|
|
|
|
|
Noncontrolling
Interests
|
|
Balance at December 31, 2019
|
$
|
14,028
|
|
|
Income attributable to noncontrolling interests
|
21,774
|
|
|
Distributions made
|
(15,192)
|
|
|
Other
|
94
|
|
|
Balance at December 31, 2020
|
$
|
20,704
|
|
|
Income attributable to noncontrolling interests
|
12,722
|
|
|
Distributions made
|
(20,855)
|
|
|
Other
|
165
|
|
|
Balance at June 30, 2021
|
$
|
12,736
|
|
Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net income (loss) attributable to MDC Partners Inc.
|
$
|
6,106
|
|
|
$
|
(595)
|
|
|
$
|
11,116
|
|
|
$
|
407
|
|
|
Transfers from the noncontrolling interest:
|
|
|
|
|
|
|
|
|
Decrease in MDC Partners Inc. paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests
|
(10,339)
|
|
|
—
|
|
|
(10,669)
|
|
|
(503)
|
|
|
Net transfers from noncontrolling interests
|
$
|
(10,339)
|
|
|
$
|
—
|
|
|
$
|
(10,669)
|
|
|
$
|
(503)
|
|
|
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests
|
$
|
(4,233)
|
|
|
$
|
(595)
|
|
|
$
|
447
|
|
|
$
|
(96)
|
|
Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
Year Ended December 31, 2020
|
|
Beginning Balance
|
$
|
27,137
|
|
|
$
|
36,973
|
|
|
Redemptions
|
—
|
|
|
(12,289)
|
|
|
Granted
|
—
|
|
|
—
|
|
|
Changes in redemption value
|
(2,000)
|
|
|
2,800
|
|
|
Currency translation adjustments
|
86
|
|
|
(347)
|
|
|
Other
|
(584)
|
|
|
—
|
|
|
Ending Balance
|
$
|
24,639
|
|
|
$
|
27,137
|
|
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 2021 to 2025. 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 $24,639 as of June 30, 2021, consists of $16,040, assuming that the subsidiaries perform over the relevant periods at their current profit levels, $8,599 upon termination of such owner’s employment with the
applicable subsidiary or death and $0 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. There is no related impact on the Company’s income per share calculations.
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, 2021 and 2020, 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 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, 2021, the Company had $19,533 of undrawn letters of credit.
The Company entered into operating leases for which the commencement date has not yet occurred as of June 30, 2021. 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 as of June 30, 2021 is below. See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Transactions.
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. 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, 2021, the Series 6 Preference Shares accreted at a monthly rate of $7.84, for total accretion of $2,329, bringing the aggregate liquidation preference to $59,980 as of June 30, 2021. 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 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.
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. Except as required by law, the Series 4 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.
Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation 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, 2021, the Series 4 Preference Shares accreted at a monthly rate of approximately $9.20 per Series 4 Preference Share, for total accretion of $5,193, bringing the aggregate liquidation preference to $133,732 as of June 30, 2021. 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.
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 77,254,378 and 73,529,105 Class A Shares issued and outstanding as of June 30, 2021 and December 31, 2020, 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 3,743 Class B Shares issued and outstanding as of June 30, 2021 and December 31, 2020, 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:
•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, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Senior Notes
|
|
$
|
870,256
|
|
|
$
|
882,222
|
|
|
$
|
870,256
|
|
|
$
|
883,580
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021, the discount rate used to measure these liabilities was 5.1%.
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, 2021 and December 31, 2020, 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 did not recognize an impairment of goodwill or intangible assets for the three and six months ended June 30, 2021. The company recognized an impairment of goodwill of $13,382 for the three and six months ended June 30, 2020.
The Company recognized a charge of $875 to reduce the carrying value of its right-of-use lease assets in the six months ended June 30, 2021. The company recognized an impairment charge of $5,619 to reduce the carrying value of one of its right-of-use lease assets in the six months ended June 30, 2020. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
12. Supplemental Information
Impairment and Other Losses
The Company recognized a charge of $875 for the six months ended June 30, 2021 to reduce the carrying value of two of its right-of-use lease assets and accelerate the operating expenses of one of its right-of-use lease assets. These right-of-use lease assets related to three agencies within its Integrated Networks - Group B reportable segment.
The company recognized an impairment of goodwill of $13,382 for the three and six months ended June 30, 2020.
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.
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 signed into law. The CARES Act includes provisions relating to delaying certain payroll tax payments, refundable payroll tax credits, net operating loss carryback periods, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision.
The Company had an income tax expense for the three months ended June 30, 2021 of $1,387 (on a pre-tax income of $15,875 resulting in an effective tax rate of 8.7%) compared to an income tax benefit of $7,923 (on pre-tax loss of $4,619 resulting in an effective tax rate of 171.5%) for the three months ended June 30, 2020.
The effective tax rate of 8.7% for the three months ended June 30, 2021 was primarily due to minimal tax expense recognized on U.S. earnings as a result of being subject to a valuation allowance.
The effective tax rate of 171.5% for the three months ended June 30, 2020 was primarily driven by the benefit of losses particularly in the U.S. and the profits in foreign jurisdictions subject to valuation allowances.
The Company had an income tax expense for the six months ended June 30, 2021 of $2,689 (on a pre-tax income of $27,171 resulting in an effective tax rate of 9.9%) compared to income tax expense of $5,577 (on pre-tax income of $10,674 resulting in an effective tax rate of 52.2%) for the six months ended June 30, 2020.
The effective tax rate of 9.9% for the six months ended June 30, 2021 was primarily due to minimal tax expense recognized on U.S. earnings as a result of being subject to a valuation allowance.
The effective tax rate of 52.2% for the six months ended June 30, 2020 was primarily driven by the base erosion and anti-abuse tax (“BEAT”), the related valuation allowances on certain foreign jurisdictions, and the jurisdictional mix of earnings.
Noncash Investing and Financing Activity
The Company's acquisition of the remaining 40% ownership interest of Gale (see Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements) comprised of the issuance of Company stock with a fair value of $7,695 (noncash investing activity) and deferred payments of $11,406 (noncash financing activity).
13. Related Party Transactions
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 collaborated 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 $2,000 which has been fully recognized in March 2021. As of June 30, 2021, $22 was owed to the affiliate.
In May 2020, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform programmatic media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $2,397, which has been fully recognized in May 2021. As of June 30, 2021, $582 was due from the affiliate.
In November 2020, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform Event Management Services. Under the arrangement, the Partner Firm expected to receive from the Stagwell affiliate approximately $456, which was fully recognized in March of 2021. As of June 30, 2021, $0 was due from the affiliate.
In 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media buying services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $1,060 which is expected to be fully recognized as of December 2021. As of June 30, 2021, $0 was due from the affiliate.
In January 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm expected to receive from the Stagwell affiliate approximately $6,429, which was fully recognized in June 2021. As of June 30, 2021, $0 was due from the affiliate.
In February 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform requirements gathering and concept features for a future-leaning ad platform for the augmented reality space. Under the arrangement, the Stagwell affiliate is expected to receive from the Partner Firm approximately $140, which has been fully recognized in April 2021. As of June 30, 2021, $140 was due to the affiliate.
In March 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media relations support and outreach services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $190, which is expected to be fully recognized as of September 2022. As of June 30, 2021, $180 was due from the affiliate.
In April 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $3,291, which is expected to be fully recognized as of March 2023. As of June 30, 2021, $434 was due from the affiliate.
In April 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform specialized digital strategy, user experience design, analytics and reporting. Under the arrangement, the Partner Firm is expected to pay the Stagwell affiliate approximately $1,123, which is expected to be fully recognized as of the first quarter of 2022. As of June 30, 2021, $659 was due to the affiliate.
In May 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform website design and development services. Under the arrangement, the Partner Firm is expected to pay the Stagwell affiliate approximately $708, which is expected to be fully recognized as of December 2021. As of June 30, 2021, $0 was due to the affiliate.
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, 2021, the total future rental income related to the sublease is approximately $8.
In June 2021, a Partner Firm of the Company entered into an arrangement to perform media planning, buying and reporting services to an organization whose Chief Executive Officer is the wife of the Chief Executive Officer and Chairman of the Company. Under the arrangement, the Partner Firm is expected to receive from the organization approximately $884, which is expected to be fully recognized as of July 2021. As of June 30, 2021, $0 was due from the affiliate.
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 non-operating items 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 merger related costs, severance 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 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 2020 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 their 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Revenue:
|
(Dollars in Thousands)
|
|
Integrated Networks - Group A
|
$
|
117,984
|
|
|
$
|
82,735
|
|
|
$
|
220,370
|
|
|
$
|
173,356
|
|
|
Integrated Networks - Group B
|
123,486
|
|
|
93,398
|
|
|
234,637
|
|
|
211,105
|
|
|
Media & Data Network
|
37,517
|
|
|
28,551
|
|
|
74,300
|
|
|
69,609
|
|
|
All Other
|
66,618
|
|
|
54,993
|
|
|
123,883
|
|
|
133,349
|
|
|
Total
|
$
|
345,605
|
|
|
$
|
259,677
|
|
|
$
|
653,190
|
|
|
$
|
587,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
Integrated Networks - Group A
|
$
|
27,250
|
|
|
$
|
17,206
|
|
|
$
|
49,712
|
|
|
$
|
33,507
|
|
|
Integrated Networks - Group B
|
26,544
|
|
|
16,387
|
|
|
52,413
|
|
|
33,523
|
|
|
Media & Data Network
|
6,895
|
|
|
892
|
|
|
11,976
|
|
|
2,679
|
|
|
All Other
|
8,231
|
|
|
6,884
|
|
|
14,273
|
|
|
16,788
|
|
|
Corporate
|
(8,640)
|
|
|
(5,208)
|
|
|
(16,160)
|
|
|
(10,770)
|
|
|
Total Adjusted EBITDA
|
$
|
60,280
|
|
|
$
|
36,161
|
|
|
$
|
112,214
|
|
|
$
|
75,727
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
(8,005)
|
|
|
$
|
(8,898)
|
|
|
$
|
(16,181)
|
|
|
$
|
(18,104)
|
|
|
Impairment and other losses
|
—
|
|
|
(18,840)
|
|
|
(875)
|
|
|
(19,001)
|
|
|
Stock-based compensation
|
(6,938)
|
|
|
(1,039)
|
|
|
(4,975)
|
|
|
(4,109)
|
|
|
Deferred acquisition consideration
|
(5,612)
|
|
|
(2,312)
|
|
|
(17,297)
|
|
|
2,288
|
|
|
Distributions from non-consolidated affiliates
|
(463)
|
|
|
(1,079)
|
|
|
(472)
|
|
|
(1,065)
|
|
|
Other items, net
|
(6,619)
|
|
|
(3,895)
|
|
|
(12,104)
|
|
|
(6,311)
|
|
|
Total Operating Income
|
$
|
32,643
|
|
|
$
|
98
|
|
|
$
|
60,310
|
|
|
$
|
29,425
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expenses):
|
|
|
|
|
|
|
|
|
Interest expense and finance charges, net
|
$
|
(19,512)
|
|
|
$
|
(15,942)
|
|
|
$
|
(38,577)
|
|
|
$
|
(31,553)
|
|
|
Foreign exchange gain (loss)
|
1,902
|
|
|
5,342
|
|
|
3,982
|
|
|
(9,415)
|
|
|
Other, net
|
842
|
|
|
5,883
|
|
|
1,456
|
|
|
22,217
|
|
|
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
|
15,875
|
|
|
(4,619)
|
|
|
27,171
|
|
|
10,674
|
|
|
Income tax expense (benefit)
|
1,387
|
|
|
(7,923)
|
|
|
2,689
|
|
|
5,577
|
|
|
Income before equity in earnings of non-consolidated affiliates
|
14,488
|
|
|
3,304
|
|
|
24,482
|
|
|
5,097
|
|
|
Equity in losses of non-consolidated affiliates
|
(151)
|
|
|
(798)
|
|
|
(644)
|
|
|
(798)
|
|
|
Net income
|
14,337
|
|
|
2,506
|
|
|
23,838
|
|
|
4,299
|
|
|
Net income attributable to the noncontrolling interest
|
(8,231)
|
|
|
(3,101)
|
|
|
(12,722)
|
|
|
(3,892)
|
|
|
Net income (loss) attributable to MDC Partners Inc.
|
6,106
|
|
|
(595)
|
|
|
11,116
|
|
|
407
|
|
|
Accretion on and net income allocated to convertible preference shares
|
(4,451)
|
|
|
(3,509)
|
|
|
(8,540)
|
|
|
(6,949)
|
|
|
Net income (loss) attributable to MDC Partners Inc. common shareholders
|
$
|
1,655
|
|
|
$
|
(4,104)
|
|
|
$
|
2,576
|
|
|
$
|
(6,542)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Depreciation and amortization:
|
(Dollars in Thousands)
|
|
Integrated Networks - Group A
|
$
|
1,322
|
|
|
$
|
1,566
|
|
|
$
|
2,616
|
|
|
$
|
3,307
|
|
|
Integrated Networks - Group B
|
3,589
|
|
|
4,387
|
|
|
7,246
|
|
|
8,913
|
|
|
Media & Data Network
|
457
|
|
|
807
|
|
|
929
|
|
|
1,615
|
|
|
All Other
|
1,452
|
|
|
1,902
|
|
|
2,989
|
|
|
3,801
|
|
|
Corporate
|
1,185
|
|
|
236
|
|
|
2,401
|
|
|
468
|
|
|
Total
|
$
|
8,005
|
|
|
$
|
8,898
|
|
|
$
|
16,181
|
|
|
$
|
18,104
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation:
|
|
|
|
|
|
|
|
|
Integrated Networks - Group A
|
$
|
4,756
|
|
|
$
|
(105)
|
|
|
$
|
1,128
|
|
|
$
|
1,856
|
|
|
Integrated Networks - Group B
|
1,384
|
|
|
746
|
|
|
2,337
|
|
|
1,646
|
|
|
Media & Data Network
|
63
|
|
|
4
|
|
|
84
|
|
|
(9)
|
|
|
All Other
|
181
|
|
|
118
|
|
|
242
|
|
|
198
|
|
|
Corporate
|
554
|
|
|
276
|
|
|
1,184
|
|
|
418
|
|
|
Total
|
$
|
6,938
|
|
|
$
|
1,039
|
|
|
$
|
4,975
|
|
|
$
|
4,109
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Integrated Networks - Group A
|
$
|
655
|
|
|
$
|
208
|
|
|
$
|
930
|
|
|
$
|
566
|
|
|
Integrated Networks - Group B
|
271
|
|
|
(272)
|
|
|
484
|
|
|
205
|
|
|
Media & Data Network
|
431
|
|
|
112
|
|
|
495
|
|
|
197
|
|
|
All Other
|
188
|
|
|
132
|
|
|
322
|
|
|
456
|
|
|
Corporate
|
22
|
|
|
1,963
|
|
|
(148)
|
|
|
2,265
|
|
|
Total
|
$
|
1,567
|
|
|
$
|
2,143
|
|
|
$
|
2,083
|
|
|
$
|
3,689
|
|
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, 2021 and 2020.
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 2021 means the period beginning January 1, 2021, and ending December 31, 2021). Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. As the information provided throughout this report is historical, it primarily reflects information about the Company as of June 30, 2021, without giving effect to the Transactions or the Stagwell Entities.
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 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. The non-GAAP measures included 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 revenues for the applicable periods and (iii) for dispositions, the revenue effect from such dispositions 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 non-operating items 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 merger related costs, severance and 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, 2021 and 2020 and the financial condition of the Company as of June 30, 2021. 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 2020 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.”
Recent Developments
On December 21, 2020, MDC and Stagwell entered into a definitive transaction agreement (as amended on June 4, 2021 and as of July 8, 2021, the “Transaction Agreement”) providing for the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”). The combination and related transactions, including the domestication of MDC to a Delaware corporation, are referred to as the “Transactions.” See “Item 1. Business – Recent Developments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 16, 2021, for a description of the Transactions.
On July 26, 2021, the Company’s shareholders approved the combination and on August 2, 2021 (the effective date), the combined company began to conduct business as Stagwell Inc. On August 3, 2021, Stagwell Inc. began to trade on the NASDAQ Stock Exchange under the ticker symbol STGW.
On July 26, 2021, the Company sent a notice of redemption to the bondholders of its Senior Notes. The redemption date is scheduled for August 20, 2021 at a redemption price equal to 101.625% of the outstanding principal amount of the Senior Notes being redeemed (the “Redemption Price”), plus, accrued and unpaid interest on the principal amount of such Senior Notes (the
“Redemption Payment”). The Redemption Payment is approximately $904 million, consisting of the Redemption Price of approximately $884 million (principal of $870 million and a premium of $14 million) and accrued and unpaid interest of approximately $20 million.
On August 2, 2021, the Company repaid the total amount outstanding and terminated its revolving credit facility due February 3, 2022.
The redemption of the Senior Notes and the termination of the revolving credit facility were initiated in connection with the closing of the combination and the plan to refinance the liquidity position of the combined company.
On July 8, 2021, the Company entered into agreements with Stagwell and affiliates of The Goldman Sachs Group amending certain terms of their preference shares (see Note 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements), which, among other things, reduced the accretion rate on the base liquidation preference of the combined company to zero percent per annum from and after the date that is two business days following the closing of the combination until the one year anniversary thereof.
Executive Summary
The Company’s business improved in the second quarter of 2021 compared to the second quarter of 2020, primarily from the recovery from the COVID-19 pandemic. Although the pandemic did not begin to impact the Company’s operations in the first quarter of 2020, it did have a significant impact on the Company’s operations in the second quarter of 2020. Therefore, the quarterly period-over-period comparisons reflects the recovery in the second quarter of 2021 and the negative impact in the second quarter of 2020.
While a recovery from the pandemic is underway, economic conditions will be volatile as long as COVID-19 remains a public health threat. The Company continues to monitor developments, We will continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on the overall economy, our clients and operations. If the impact of the pandemic continues to go beyond expectations, the Company believes it is well positioned through the actions implemented at the onset of the pandemic to successfully work through the effects of COVID-19 on our business. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the continued impact of the COVID-19 pandemic.
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, capital expenditures and non-GAAP measures described above. 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.
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 non-operating items 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 merger related costs, severance 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 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 2020 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.
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Revenue:
|
(Dollars in Thousands)
|
|
Integrated Networks - Group A
|
$
|
117,984
|
|
|
$
|
82,735
|
|
|
$
|
220,370
|
|
|
$
|
173,356
|
|
|
Integrated Networks - Group B
|
123,486
|
|
|
93,398
|
|
|
234,637
|
|
|
211,105
|
|
|
Media & Data Network
|
37,517
|
|
|
28,551
|
|
|
74,300
|
|
|
69,609
|
|
|
All Other
|
66,618
|
|
|
54,993
|
|
|
123,883
|
|
|
133,349
|
|
|
Total Revenue
|
$
|
345,605
|
|
|
$
|
259,677
|
|
|
$
|
653,190
|
|
|
$
|
587,419
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Integrated Networks - Group A
|
$
|
14,273
|
|
|
$
|
14,607
|
|
|
$
|
25,723
|
|
|
$
|
26,637
|
|
|
Integrated Networks - Group B
|
21,326
|
|
|
(7,717)
|
|
|
41,236
|
|
|
9,444
|
|
|
Media & Data Network
|
5,052
|
|
|
46
|
|
|
8,444
|
|
|
663
|
|
|
All Other
|
6,036
|
|
|
4,985
|
|
|
10,693
|
|
|
12,842
|
|
|
Corporate
|
(14,044)
|
|
|
(11,823)
|
|
|
(25,786)
|
|
|
(20,161)
|
|
|
Total Operating Income
|
$
|
32,643
|
|
|
$
|
98
|
|
|
$
|
60,310
|
|
|
$
|
29,425
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses):
|
|
|
|
|
|
|
|
|
Interest expense and finance charges, net
|
$
|
(19,512)
|
|
|
$
|
(15,942)
|
|
|
$
|
(38,577)
|
|
|
$
|
(31,553)
|
|
|
Foreign exchange gain (loss)
|
1,902
|
|
|
5,342
|
|
|
3,982
|
|
|
(9,415)
|
|
|
Other, net
|
842
|
|
|
5,883
|
|
|
1,456
|
|
|
22,217
|
|
|
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
|
15,875
|
|
|
(4,619)
|
|
|
27,171
|
|
|
10,674
|
|
|
Income tax expense (benefit)
|
1,387
|
|
|
(7,923)
|
|
|
2,689
|
|
|
5,577
|
|
|
Income before equity in earnings of non-consolidated affiliates
|
14,488
|
|
|
3,304
|
|
|
24,482
|
|
|
5,097
|
|
|
Equity in losses of non-consolidated affiliates
|
(151)
|
|
|
(798)
|
|
|
(644)
|
|
|
(798)
|
|
|
Net income
|
14,337
|
|
|
2,506
|
|
|
23,838
|
|
|
4,299
|
|
|
Net income attributable to the noncontrolling interest
|
(8,231)
|
|
|
(3,101)
|
|
|
(12,722)
|
|
|
(3,892)
|
|
|
Net income (loss) attributable to MDC Partners Inc.
|
6,106
|
|
|
(595)
|
|
|
11,116
|
|
|
407
|
|
|
Accretion on and net income allocated to convertible preference shares
|
(4,451)
|
|
|
(3,509)
|
|
|
(8,540)
|
|
|
(6,949)
|
|
|
Net income (loss) attributable to MDC Partners Inc. common shareholders
|
$
|
1,655
|
|
|
$
|
(4,104)
|
|
|
$
|
2,576
|
|
|
$
|
(6,542)
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
Integrated Networks - Group A
|
$
|
27,250
|
|
|
$
|
17,206
|
|
|
$
|
49,712
|
|
|
$
|
33,507
|
|
|
Integrated Networks - Group B
|
26,544
|
|
|
16,387
|
|
|
52,413
|
|
|
33,523
|
|
|
Media & Data Network
|
6,895
|
|
|
892
|
|
|
11,976
|
|
|
2,679
|
|
|
All Other
|
8,231
|
|
|
6,884
|
|
|
14,273
|
|
|
16,788
|
|
|
Corporate
|
(8,640)
|
|
|
(5,208)
|
|
|
(16,160)
|
|
|
(10,770)
|
|
|
Total Adjusted EBITDA
|
$
|
60,280
|
|
|
$
|
36,161
|
|
|
$
|
112,214
|
|
|
$
|
75,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
(Dollars in Thousands)
|
|
Integrated Networks - Group A
|
$
|
655
|
|
|
$
|
208
|
|
|
$
|
930
|
|
|
$
|
566
|
|
|
Integrated Networks - Group B
|
271
|
|
|
(272)
|
|
|
484
|
|
|
205
|
|
|
Media & Data Network
|
431
|
|
|
112
|
|
|
495
|
|
|
197
|
|
|
All Other
|
188
|
|
|
132
|
|
|
322
|
|
|
456
|
|
|
Corporate
|
22
|
|
|
1,963
|
|
|
(148)
|
|
|
2,265
|
|
|
Total
|
$
|
1,567
|
|
|
$
|
2,143
|
|
|
$
|
2,083
|
|
|
$
|
3,689
|
|
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, 2021 and 2020. 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, 2021
|
|
|
Integrated Networks - Group A
|
|
Integrated Networks - Group B
|
|
Media & Data Network
|
|
All Other
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Net income attributable to MDC Partners Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
1,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items
|
|
|
|
|
|
|
|
|
|
|
30,988
|
|
|
Operating income (loss)
|
$
|
14,273
|
|
|
$
|
21,326
|
|
|
$
|
5,052
|
|
|
$
|
6,036
|
|
|
$
|
(14,044)
|
|
|
$
|
32,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
1,322
|
|
|
3,589
|
|
|
457
|
|
|
1,452
|
|
|
1,185
|
|
|
8,005
|
|
|
Impairment and other losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation
|
4,756
|
|
|
1,384
|
|
|
63
|
|
|
181
|
|
|
554
|
|
|
6,938
|
|
|
Deferred acquisition consideration
|
5,382
|
|
|
49
|
|
|
102
|
|
|
79
|
|
|
—
|
|
|
5,612
|
|
|
Distributions from non-consolidated affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
463
|
|
|
463
|
|
|
Other items, net
|
1,517
|
|
|
196
|
|
|
1,221
|
|
|
483
|
|
|
3,202
|
|
|
6,619
|
|
|
Adjusted EBITDA
|
$
|
27,250
|
|
|
$
|
26,544
|
|
|
$
|
6,895
|
|
|
$
|
8,231
|
|
|
$
|
(8,640)
|
|
|
$
|
60,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
Integrated Networks - Group A
|
|
Integrated Networks - Group B
|
|
Media & Data Network
|
|
All Other
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Net loss attributable to MDC Partners Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,104)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items
|
|
|
|
|
|
|
|
|
|
|
4,202
|
|
|
Operating income (loss)
|
$
|
14,607
|
|
|
$
|
(7,717)
|
|
|
$
|
46
|
|
|
$
|
4,985
|
|
|
$
|
(11,823)
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
1,566
|
|
|
4,387
|
|
|
807
|
|
|
1,902
|
|
|
236
|
|
|
8,898
|
|
|
Impairment and other losses
|
—
|
|
|
17,468
|
|
|
35
|
|
|
208
|
|
|
1,129
|
|
|
18,840
|
|
|
Stock-based compensation
|
(105)
|
|
|
746
|
|
|
4
|
|
|
118
|
|
|
276
|
|
|
1,039
|
|
|
Deferred acquisition consideration
|
1,138
|
|
|
1,503
|
|
|
—
|
|
|
(329)
|
|
|
—
|
|
|
2,312
|
|
|
Distributions from non-consolidated affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,079
|
|
|
1,079
|
|
|
Other items, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,895
|
|
|
3,895
|
|
|
Adjusted EBITDA
|
$
|
17,206
|
|
|
$
|
16,387
|
|
|
$
|
892
|
|
|
$
|
6,884
|
|
|
$
|
(5,208)
|
|
|
$
|
36,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
Integrated Networks - Group A
|
|
Integrated Networks - Group B
|
|
Media & Data Network
|
|
All Other
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Net income attributable to MDC Partners Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
$
|
2,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items
|
|
|
|
|
|
|
|
|
|
|
57,734
|
|
|
Operating income (loss)
|
$
|
25,723
|
|
|
$
|
41,236
|
|
|
$
|
8,444
|
|
|
$
|
10,693
|
|
|
$
|
(25,786)
|
|
|
$
|
60,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
2,616
|
|
|
7,246
|
|
|
929
|
|
|
2,989
|
|
|
2,401
|
|
|
16,181
|
|
|
Impairment and other losses
|
—
|
|
|
875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
875
|
|
|
Stock-based compensation
|
1,128
|
|
|
2,337
|
|
|
84
|
|
|
242
|
|
|
1,184
|
|
|
4,975
|
|
|
Deferred acquisition consideration adjustments
|
17,206
|
|
|
177
|
|
|
102
|
|
|
(188)
|
|
|
—
|
|
|
17,297
|
|
|
Distributions from non-consolidated affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
472
|
|
|
472
|
|
|
Other items, net
|
3,039
|
|
|
542
|
|
|
2,417
|
|
|
537
|
|
|
5,569
|
|
|
12,104
|
|
|
Adjusted EBITDA
|
$
|
49,712
|
|
|
$
|
52,413
|
|
|
$
|
11,976
|
|
|
$
|
14,273
|
|
|
$
|
(16,160)
|
|
|
$
|
112,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Integrated Networks - Group A
|
|
Integrated Networks - Group B
|
|
Media & Data Network
|
|
All Other
|
|
Corporate
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Net loss attributable to MDC Partners Inc. common shareholders
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,542)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items
|
|
|
|
|
|
|
|
|
|
|
35,967
|
|
|
Operating income (loss)
|
$
|
26,637
|
|
|
$
|
9,444
|
|
|
$
|
663
|
|
|
$
|
12,842
|
|
|
$
|
(20,161)
|
|
|
$
|
29,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
3,307
|
|
|
8,913
|
|
|
1,615
|
|
|
3,801
|
|
|
468
|
|
|
18,104
|
|
|
Impairment and other losses
|
—
|
|
|
17,629
|
|
|
35
|
|
|
208
|
|
|
1,129
|
|
|
19,001
|
|
|
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
|
|
|
$
|
16,788
|
|
|
$
|
(10,770)
|
|
|
$
|
75,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain Factors Affecting Our Business
See the Executive Summary section of Item 7 of the Company’s 2020 Form 10-K for information regarding certain factors affecting our business.
THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED JUNE 30, 2020
Consolidated Results of Operations
Revenues
Revenue was $345.6 million for the three months ended June 30, 2021 compared to revenue of $259.7 million for the three months ended June 30, 2020.
The components of the fluctuations in revenues for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
United States
|
|
Canada
|
|
Other
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(Dollars in Thousands)
|
|
June 30, 2020
|
$
|
259,677
|
|
|
|
|
$
|
210,342
|
|
|
|
|
$
|
16,609
|
|
|
|
|
$
|
32,726
|
|
|
|
|
Components of revenue change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange impact
|
4,593
|
|
|
1.8
|
%
|
|
—
|
|
|
—
|
%
|
|
1,677
|
|
|
10.1
|
%
|
|
2,916
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Organic revenue
|
81,335
|
|
|
31.3
|
%
|
|
67,200
|
|
|
31.9
|
%
|
|
4,706
|
|
|
28.3
|
%
|
|
9,429
|
|
|
28.8
|
%
|
|
Total Change
|
$
|
85,928
|
|
|
33.1
|
%
|
|
$
|
67,200
|
|
|
31.9
|
%
|
|
$
|
6,383
|
|
|
38.4
|
%
|
|
$
|
12,345
|
|
|
37.7
|
%
|
|
June 30, 2021
|
$
|
345,605
|
|
|
|
|
$
|
277,542
|
|
|
|
|
$
|
22,992
|
|
|
|
|
$
|
45,071
|
|
|
|
The positive foreign exchange impact of $4.6 million, or 1.8%, 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, 2021, organic revenue increased $81.3 million, or 31.3%, primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic.
The geographic mix in revenues for the three months ended June 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
United States
|
80.3
|
%
|
|
81.0
|
%
|
|
Canada
|
6.7
|
%
|
|
6.4
|
%
|
|
Other
|
13.0
|
%
|
|
12.6
|
%
|
Operating Income
Operating income for the three months ended June 30, 2021 was $32.6 million, compared to operating income of $0.1 million for the three months ended June 30, 2020, representing an increase of $32.5 million, primarily driven by the increase in revenue, partially offset by the increase in operating expense. The operating income for the three months ended June 30, 2020 was also impacted by the impairment and other losses of $18.8 million in connection with a write-down of the carrying value of goodwill and right-of-use lease assets and related leasehold improvements as compared to no impairment for the same period in 2021.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 30, 2021 was $60.3 million, compared to $36.2 million for the three months ended June 30, 2020, representing an increase of $24.1 million, principally resulting from an increase in revenue, partially offset by higher operating expenses.
Other, Net
Other, net, for the three months ended June 30, 2021 was income of $0.8 million compared to income of $5.9 million for the three months ended June 30, 2020, when we recognized a gain of approximately $7.4 million related to the repurchase of $29.7 million of the Company’s Senior Notes due 2024.
Foreign Exchange Gain (Loss)
The foreign exchange gain for the three months ended June 30, 2021 was $1.9 million compared to a gain of $5.3 million for the three months ended June 30, 2020. The change in foreign exchange was primarily attributable to the weakening of the Canadian dollar against the U.S. dollar in 2021 compared to the prior year period, in connection with a 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, 2021 was $19.5 million compared to $15.9 million for the three months ended June 30, 2020, representing an increase of $3.6 million, primarily driven by the impact of a 1% increase in the interest rate of the Company’s Senior Notes and the amortization of consent fees paid to holders of the Senior Notes, both in connection with obtaining consent in December 2020 for the consummation of the Transactions.
Income Tax Expense (Benefit)
Income tax expense for the three months ended June 30, 2021 was $1.4 million (on a pre-tax income of $15.9 million resulting in an effective tax rate of 8.7%) compared to an income tax benefit of $7.9 million (on pre-tax loss of $4.6 million resulting in an effective tax rate of 171.5%) for the three months ended June 30, 2020.
The effective tax rate of 8.7% for the three months ended June 30, 2021 was primarily due to minimal tax expense recognized on U.S. earnings as a result of being subject to a valuation allowance.
The effective tax rate of 171.5% for the three months ended June 30, 2020 was primarily driven by the benefit of losses particularly in the U.S. and the profits in foreign jurisdictions subject to valuation allowances.
Noncontrolling Interests
The effect of noncontrolling interests for the three months ended June 30, 2021 was $8.2 million compared to $3.1 million for the three months ended June 30, 2020.
Net Income (Loss) Attributable to MDC Partners Inc. Common Shareholders
As a result of the foregoing, net income attributable to MDC Partners Inc. common shareholders for the three months ended June 30, 2021 was $1.7 million, with $0.02 diluted income per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $4.1 million, or $0.06 diluted loss per share, for the three months ended June 30, 2020.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group A
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue:
|
|
$
|
117,984
|
|
|
|
|
$
|
82,735
|
|
|
|
|
$
|
35,249
|
|
|
42.6
|
%
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
83,811
|
|
|
71.0
|
%
|
|
53,193
|
|
|
64.3
|
%
|
|
30,618
|
|
|
57.6
|
%
|
|
Office and general expenses
|
|
18,578
|
|
|
15.7
|
%
|
|
13,369
|
|
|
16.2
|
%
|
|
5,209
|
|
|
39.0
|
%
|
|
Depreciation and amortization
|
|
1,322
|
|
|
1.1
|
%
|
|
1,566
|
|
|
1.9
|
%
|
|
(244)
|
|
|
(15.6)
|
%
|
|
|
|
$
|
103,711
|
|
|
87.9
|
%
|
|
$
|
68,128
|
|
|
82.3
|
%
|
|
$
|
35,583
|
|
|
52.2
|
%
|
|
Operating income
|
|
$
|
14,273
|
|
|
12.1
|
%
|
|
$
|
14,607
|
|
|
17.7
|
%
|
|
$
|
(334)
|
|
|
(2.3)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
27,250
|
|
|
23.1
|
%
|
|
$
|
17,206
|
|
|
20.8
|
%
|
|
$
|
10,044
|
|
|
58.4
|
%
|
The increase in revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic in the second quarter of 2021.
The operating income remained flat as the increase in revenue was offset by the increase in 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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group A
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
17,466
|
|
|
14.8
|
%
|
|
$
|
7,629
|
|
|
9.2
|
%
|
|
$
|
9,837
|
|
|
NM
|
|
Staff costs
|
|
63,979
|
|
|
54.2
|
%
|
|
49,045
|
|
|
59.3
|
%
|
|
14,934
|
|
|
30.4
|
%
|
|
Administrative costs
|
|
10,806
|
|
|
9.2
|
%
|
|
8,855
|
|
|
10.7
|
%
|
|
1,951
|
|
|
22.0
|
%
|
|
Deferred acquisition consideration
|
|
5,382
|
|
|
4.6
|
%
|
|
1,138
|
|
|
1.4
|
%
|
|
4,244
|
|
|
NM
|
|
Stock-based compensation
|
|
4,756
|
|
|
4.0
|
%
|
|
(105)
|
|
|
(0.1)
|
%
|
|
4,861
|
|
|
NM
|
|
Depreciation and amortization
|
|
1,322
|
|
|
1.1
|
%
|
|
1,566
|
|
|
1.9
|
%
|
|
(244)
|
|
|
(15.6)
|
%
|
|
Total operating expenses
|
|
$
|
103,711
|
|
|
87.9
|
%
|
|
$
|
68,128
|
|
|
82.3
|
%
|
|
$
|
35,583
|
|
|
52.2
|
%
|
The increase in direct costs was in connection with higher revenues in public relations and digital services in the second quarter of 2021.
The increase in staff and administrative costs was primarily attributable to support the growth in public relations and digital marketing services in the second quarter of 2021.
The increase in deferred acquisition consideration was primarily attributable to the favorable performance of a Partner Firm achieving incremental contractual targets.
Stock-based compensation expense increased in the second quarter of 2021, driven by an increase in previously projected results in connection with awards tied to performance.
The increase in Adjusted EBITDA was driven by higher revenue, partially offset by higher expenses.
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 three months ended June 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group B
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue:
|
|
$
|
123,486
|
|
|
|
|
$
|
93,398
|
|
|
|
|
$
|
30,088
|
|
|
32.2
|
%
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
73,520
|
|
|
59.5
|
%
|
|
55,282
|
|
|
59.2
|
%
|
|
18,238
|
|
|
33.0
|
%
|
|
Office and general expenses
|
|
25,051
|
|
|
20.3
|
%
|
|
23,978
|
|
|
25.7
|
%
|
|
1,073
|
|
|
4.5
|
%
|
|
Depreciation and amortization
|
|
3,589
|
|
|
2.9
|
%
|
|
4,387
|
|
|
4.7
|
%
|
|
(798)
|
|
|
(18.2)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
17,468
|
|
|
18.7
|
%
|
|
(17,468)
|
|
|
(100.0)
|
%
|
|
|
|
$
|
102,160
|
|
|
82.7
|
%
|
|
$
|
101,115
|
|
|
108.3
|
%
|
|
$
|
1,045
|
|
|
1.0
|
%
|
|
Operating income (loss)
|
|
$
|
21,326
|
|
|
17.3
|
%
|
|
$
|
(7,717)
|
|
|
(8.3)
|
%
|
|
$
|
29,043
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
26,544
|
|
|
21.5
|
%
|
|
$
|
16,387
|
|
|
17.5
|
%
|
|
$
|
10,157
|
|
|
62.0
|
%
|
The increase in revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic in the second quarter of 2021.
The increase in operating income was attributable to higher revenue, partially offset by the increase in operating expense.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group B
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
13,870
|
|
|
11.2
|
%
|
|
$
|
7,661
|
|
|
8.2
|
%
|
|
$
|
6,209
|
|
|
81.0
|
%
|
|
Staff costs
|
|
71,028
|
|
|
57.5
|
%
|
|
58,614
|
|
|
62.8
|
%
|
|
12,414
|
|
|
21.2
|
%
|
|
Administrative costs
|
|
12,240
|
|
|
9.9
|
%
|
|
10,736
|
|
|
11.5
|
%
|
|
1,504
|
|
|
14.0
|
%
|
|
Deferred acquisition consideration
|
|
49
|
|
|
—
|
%
|
|
1,503
|
|
|
1.6
|
%
|
|
(1,454)
|
|
|
(96.7)
|
%
|
|
Stock-based compensation
|
|
1,384
|
|
|
1.1
|
%
|
|
746
|
|
|
0.8
|
%
|
|
638
|
|
|
85.5
|
%
|
|
Depreciation and amortization
|
|
3,589
|
|
|
2.9
|
%
|
|
4,387
|
|
|
4.7
|
%
|
|
(798)
|
|
|
(18.2)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
17,468
|
|
|
18.7
|
%
|
|
(17,468)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
102,160
|
|
|
82.7
|
%
|
|
$
|
101,115
|
|
|
108.3
|
%
|
|
$
|
1,045
|
|
|
1.0
|
%
|
Direct costs increased in connection with the increase in revenue as discussed above.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The decrease in deferred acquisition consideration was primarily attributable to the payment of deferred acquisition liability in 2021.
The impairment and other losses for the three months ended June 30, 2021 was attributable to impairment and other losses of $18.8 million in connection with a write-down of the carrying value of goodwill and right-of-use lease assets and related leasehold improvements.
The increase in Adjusted EBITDA was for the same reasons as the change in operating income.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Media & Data Network
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue:
|
|
$
|
37,517
|
|
|
|
|
$
|
28,551
|
|
|
|
|
$
|
8,966
|
|
|
31.4
|
%
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
23,290
|
|
|
62.1
|
%
|
|
20,882
|
|
|
73.1
|
%
|
|
2,408
|
|
|
11.5
|
%
|
|
Office and general expenses
|
|
8,718
|
|
|
23.2
|
%
|
|
6,781
|
|
|
23.8
|
%
|
|
1,937
|
|
|
28.6
|
%
|
|
Depreciation and amortization
|
|
457
|
|
|
1.2
|
%
|
|
807
|
|
|
2.8
|
%
|
|
(350)
|
|
|
(43.4)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
$
|
35
|
|
|
0.1
|
%
|
|
$
|
(35)
|
|
|
(100.0)
|
%
|
|
|
|
$
|
32,465
|
|
|
86.5
|
%
|
|
$
|
28,505
|
|
|
99.8
|
%
|
|
$
|
3,960
|
|
|
13.9
|
%
|
|
Operating income
|
|
5,052
|
|
|
13.5
|
%
|
|
46
|
|
|
0.2
|
%
|
|
5,006
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
6,895
|
|
|
18.4
|
%
|
|
$
|
892
|
|
|
3.1
|
%
|
|
$
|
6,003
|
|
|
NM
|
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was attributable to higher revenue, partially offset by the increase in operating expense.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Media & Data Network
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
3,761
|
|
|
10.0
|
%
|
|
$
|
6,556
|
|
|
23.0
|
%
|
|
$
|
(2,795)
|
|
|
(42.6)
|
%
|
|
Staff costs
|
|
22,273
|
|
|
59.4
|
%
|
|
16,713
|
|
|
58.5
|
%
|
|
5,560
|
|
|
33.3
|
%
|
|
Administrative costs
|
|
5,809
|
|
|
15.5
|
%
|
|
4,390
|
|
|
15.4
|
%
|
|
1,419
|
|
|
32.3
|
%
|
|
Deferred acquisition consideration
|
|
102
|
|
|
0.3
|
%
|
|
—
|
|
|
—
|
%
|
|
102
|
|
|
—
|
%
|
|
Stock-based compensation
|
|
63
|
|
|
0.2
|
%
|
|
4
|
|
|
—
|
%
|
|
59
|
|
|
NM
|
|
Depreciation and amortization
|
|
457
|
|
|
1.2
|
%
|
|
807
|
|
|
2.8
|
%
|
|
(350)
|
|
|
(43.4)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
35
|
|
|
0.1
|
%
|
|
(35)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
32,465
|
|
|
86.5
|
%
|
|
$
|
28,505
|
|
|
99.8
|
%
|
|
$
|
3,960
|
|
|
13.9
|
%
|
Direct costs declined, while total revenue increased, in connection with the mix of revenue where the agency is principal versus agent in the arrangement.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The increase in Adjusted EBITDA was principally for the same reasons as the change in operating income.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
All Other
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue:
|
|
$
|
66,618
|
|
|
|
|
$
|
54,993
|
|
|
|
|
$
|
11,625
|
|
|
21.1
|
%
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
43,790
|
|
|
65.7
|
%
|
|
36,274
|
|
|
66.0
|
%
|
|
7,516
|
|
|
20.7
|
%
|
|
Office and general expenses
|
|
15,340
|
|
|
23.0
|
%
|
|
11,624
|
|
|
21.1
|
%
|
|
3,716
|
|
|
32.0
|
%
|
|
Depreciation and amortization
|
|
1,452
|
|
|
2.2
|
%
|
|
1,902
|
|
|
3.5
|
%
|
|
(450)
|
|
|
(23.7)
|
%
|
|
Impairment and other losses
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
208
|
|
|
0.4
|
%
|
|
$
|
(208)
|
|
|
(100.0)
|
%
|
|
|
|
$
|
60,582
|
|
|
90.9
|
%
|
|
$
|
50,008
|
|
|
90.9
|
%
|
|
$
|
10,574
|
|
|
21.1
|
%
|
|
Operating income
|
|
$
|
6,036
|
|
|
9.1
|
%
|
|
$
|
4,985
|
|
|
9.1
|
%
|
|
$
|
1,051
|
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
8,231
|
|
|
12.4
|
%
|
|
$
|
6,884
|
|
|
12.5
|
%
|
|
$
|
1,347
|
|
|
19.6
|
%
|
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was attributable to the increase in revenue, partially offset by higher 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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
All Other
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
11,849
|
|
|
17.8
|
%
|
|
$
|
7,696
|
|
|
14.0
|
%
|
|
$
|
4,153
|
|
|
54.0
|
%
|
|
Staff costs
|
|
38,640
|
|
|
58.0
|
%
|
|
34,332
|
|
|
62.4
|
%
|
|
4,308
|
|
|
12.5
|
%
|
|
Administrative costs
|
|
8,381
|
|
|
12.6
|
%
|
|
6,081
|
|
|
11.1
|
%
|
|
2,300
|
|
|
37.8
|
%
|
|
Deferred acquisition consideration
|
|
79
|
|
|
0.1
|
%
|
|
(329)
|
|
|
(0.6)
|
%
|
|
408
|
|
|
NM
|
|
Stock-based compensation
|
|
181
|
|
|
0.3
|
%
|
|
118
|
|
|
0.2
|
%
|
|
63
|
|
|
53.4
|
%
|
|
Depreciation and amortization
|
|
1,452
|
|
|
2.2
|
%
|
|
1,902
|
|
|
3.5
|
%
|
|
(450)
|
|
|
(23.7)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
208
|
|
|
0.4
|
%
|
|
(208)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
60,582
|
|
|
90.9
|
%
|
|
$
|
50,008
|
|
|
90.9
|
%
|
|
$
|
10,574
|
|
|
21.1
|
%
|
Direct costs increased in line with the increase in revenues as discussed above.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The increase in Adjusted EBITDA was principally for the same reasons as the change in operating income.
Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the three months ended June 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Corporate
|
|
$
|
|
$
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Staff costs
|
|
$
|
8,448
|
|
|
$
|
3,773
|
|
|
$
|
4,675
|
|
|
NM
|
|
Administrative costs
|
|
3,857
|
|
|
6,409
|
|
|
(2,552)
|
|
|
(39.8)
|
%
|
|
Stock-based compensation
|
|
554
|
|
|
276
|
|
|
278
|
|
|
NM
|
|
Depreciation and amortization
|
|
$
|
1,185
|
|
|
$
|
236
|
|
|
$
|
949
|
|
|
NM
|
|
Impairment and other losses
|
|
$
|
—
|
|
|
$
|
1,129
|
|
|
$
|
(1,129)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
14,044
|
|
|
$
|
11,823
|
|
|
$
|
2,221
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(8,640)
|
|
|
$
|
(5,208)
|
|
|
$
|
(3,432)
|
|
|
65.9
|
%
|
Operating expenses increased primarily due to higher costs for employee health benefits, partially offset by lower administrative costs primarily driven by a decline in occupancy costs, driving the change in Adjusted EBITDA,
Adjusted EBITDA was impacted principally for the same reasons as the change in operating expenses.
SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
Consolidated Results of Operations
Revenues
Revenue was $653.2 million for the six months ended June 30, 2021 compared to revenue of $587.4 million for the six months ended June 30, 2020. The components of the fluctuations in revenues for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
United States
|
|
Canada
|
|
Other
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(Dollars in Thousands)
|
|
June 30, 2020
|
$
|
587,419
|
|
|
|
|
$
|
474,903
|
|
|
|
|
$
|
34,865
|
|
|
|
|
$
|
77,651
|
|
|
|
|
Components of revenue change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange impact
|
9,152
|
|
|
1.6
|
%
|
|
—
|
|
|
—
|
%
|
|
2,869
|
|
|
8.2
|
%
|
|
6,283
|
|
|
8.1
|
%
|
|
Non-GAAP acquisitions (dispositions), net
|
(2,101)
|
|
|
(0.4)
|
%
|
|
(2,101)
|
|
|
(0.4)
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
Organic revenue
|
58,720
|
|
|
10.0
|
%
|
|
47,320
|
|
|
10.0
|
%
|
|
7,908
|
|
|
22.7
|
%
|
|
3,492
|
|
|
4.5
|
%
|
|
Total Change
|
$
|
65,771
|
|
|
11.2
|
%
|
|
$
|
45,219
|
|
|
9.5
|
%
|
|
$
|
10,777
|
|
|
30.9
|
%
|
|
$
|
9,775
|
|
|
12.6
|
%
|
|
June 30, 2021
|
$
|
653,190
|
|
|
|
|
$
|
520,122
|
|
|
|
|
$
|
45,642
|
|
|
|
|
$
|
87,426
|
|
|
|
The positive foreign exchange impact of $9.2 million, or 1.6%, 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, 2021, organic revenue increased $58.7 million, or 10.0%, primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
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, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Total
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
GAAP revenue from 2020 and 2021 acquisitions
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange impact
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Contribution to non-GAAP organic revenue growth
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Prior year revenue from dispositions
|
|
|
|
|
|
|
(2,101)
|
|
|
(2,101)
|
|
|
Non-GAAP dispositions, net
|
|
|
|
|
|
|
$
|
(2,101)
|
|
|
$
|
(2,101)
|
|
The geographic mix in revenues for the six months ended June 30, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
United States
|
79.6
|
%
|
|
80.8
|
%
|
|
Canada
|
7.0
|
%
|
|
5.9
|
%
|
|
Other
|
13.4
|
%
|
|
13.3
|
%
|
Impairment and Other Losses
The Company recognized a charge of $0.9 million for the six months ended June 30, 2021 to reduce the carrying value of two of its right-of-use lease assets and accelerate the operating expenses of one of its right-of-use lease assets. These right-of-use lease assets related to three agencies within its Integrated Networks - Group B reportable segment.
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 losses of $5.6 million.
Operating Income
Operating income for the six months ended June 30, 2021 was $60.3 million compared to $29.4 million for the six months ended June 30, 2020, representing an increase of $30.9 million, driven by the increase in revenue, partially offset by an increase in operating expenses.
Adjusted EBITDA
Adjusted EBITDA for the six months ended June 30, 2021 was $112.2 million, compared to $75.7 million for the six months ended June 30, 2020, representing an increase of $36.5 million, principally resulting from the same reasons as the increase in operating income.
Other, Net
Other, net, for the six months ended June 30, 2021 was income of $1.5 million, compared to income of $22.2 million for the six months ended June 30, 2020, primarily driven by a gain on the sale of Sloane and on the repurchase of a portion of the Company’s Senior Notes.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange gain for the six months ended June 30, 2021 was $4.0 million compared to a loss of $9.4 million for the six months ended June 30, 2020. The change in foreign exchange was primarily attributable to the strengthening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.
Interest Expense and Finance Charges, Net
Interest expense and finance charges, net, for the six months ended June 30, 2021 was $38.6 million compared to $31.6 million for the six months ended June 30, 2020, representing an increase of $7.0 million, primarily driven by the impact of a 1% increase in the interest rate of the Company’s Senior Notes and the amortization of consent fees paid to holders of the Senior Notes, both in connection with obtaining consent in December 2020 for the consummation of the Transactions.
Income Tax Expense (Benefit)
Income tax expense for the six months ended June 30, 2021 was $2.7 million (on pre-tax income of $27.2 million resulting in an effective tax rate of 9.9%) compared to an expense of $5.6 million (on pre-tax income of $10.7 million resulting in an effective tax rate of 52.2%) for the six months ended June 30, 2020.
The effective tax rate of 9.9% for the six months ended June 30, 2021 was primarily due to minimal tax expense recognized on U.S. earnings as a result of being subject to a valuation allowance.
The effective tax rate of 52.2% for the six months ended June 30, 2020 was primarily driven by the base erosion and anti-abuse tax (“BEAT”), the related valuation allowances on certain foreign jurisdictions, and the jurisdictional mix of earnings.
Noncontrolling Interests
The effect of noncontrolling interests for the six months ended June 30, 2021 was $12.7 million compared to $3.9 million for the six months ended June 30, 2020.
Net Income (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 income attributable to MDC Partners Inc. common shareholders for the six months ended June 30, 2021 was $2.6 million, or $0.03 diluted income per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $6.5 million, or $0.09 diluted loss per share, for the six months ended June 30, 2020.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group A
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue
|
|
$
|
220,370
|
|
|
|
|
$
|
173,356
|
|
|
|
|
$
|
47,014
|
|
|
27.1
|
%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
146,057
|
|
|
66.3
|
%
|
|
115,717
|
|
|
66.8
|
%
|
|
30,340
|
|
|
26.2
|
%
|
|
Office and general expenses
|
|
45,974
|
|
|
20.9
|
%
|
|
27,695
|
|
|
16.0
|
%
|
|
18,279
|
|
|
66.0
|
%
|
|
Depreciation and amortization
|
|
2,616
|
|
|
1.2
|
%
|
|
3,307
|
|
|
1.9
|
%
|
|
(691)
|
|
|
(20.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
194,647
|
|
|
88.3
|
%
|
|
$
|
146,719
|
|
|
84.6
|
%
|
|
$
|
47,928
|
|
|
32.7
|
%
|
|
Operating income
|
|
$
|
25,723
|
|
|
11.7
|
%
|
|
$
|
26,637
|
|
|
15.4
|
%
|
|
$
|
(914)
|
|
|
(3.4)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
49,712
|
|
|
22.6
|
%
|
|
$
|
33,507
|
|
|
19.3
|
%
|
|
$
|
16,205
|
|
|
48.4
|
%
|
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The decrease in operating income was attributable to an increase in operating expenses, as outlined below, partially offset by higher revenue.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group A
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
31,442
|
|
|
14.3
|
%
|
|
$
|
18,403
|
|
|
10.6
|
%
|
|
$
|
13,039
|
|
|
70.9
|
%
|
|
Staff costs
|
|
121,189
|
|
|
55.0
|
%
|
|
102,555
|
|
|
59.2
|
%
|
|
18,634
|
|
|
18.2
|
%
|
|
Administrative
|
|
21,066
|
|
|
9.6
|
%
|
|
18,891
|
|
|
10.9
|
%
|
|
2,175
|
|
|
11.5
|
%
|
|
Deferred acquisition consideration
|
|
17,206
|
|
|
7.8
|
%
|
|
1,707
|
|
|
1.0
|
%
|
|
15,499
|
|
|
NM
|
|
Stock-based compensation
|
|
1,128
|
|
|
0.5
|
%
|
|
1,856
|
|
|
1.1
|
%
|
|
(728)
|
|
|
(39.2)
|
%
|
|
Depreciation and amortization
|
|
2,616
|
|
|
1.2
|
%
|
|
3,307
|
|
|
1.9
|
%
|
|
(691)
|
|
|
(20.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
194,647
|
|
|
88.3
|
%
|
|
$
|
146,719
|
|
|
84.6
|
%
|
|
$
|
47,928
|
|
|
32.7
|
%
|
Direct costs increased in connection with the increase in revenues as discussed above.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The change in deferred acquisition consideration for the six months ended June 30, 2021 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA was principally for the same reasons as the change in operating income for the six months ended June 30, 2021.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group B
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue
|
|
$
|
234,637
|
|
|
|
|
$
|
211,105
|
|
|
|
|
$
|
23,532
|
|
|
11.1
|
%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
135,101
|
|
|
57.6
|
%
|
|
129,303
|
|
|
61.3
|
%
|
|
5,798
|
|
|
4.5
|
%
|
|
Office and general expenses
|
|
50,179
|
|
|
21.4
|
%
|
|
45,816
|
|
|
21.7
|
%
|
|
4,363
|
|
|
9.5
|
%
|
|
Depreciation and amortization
|
|
7,246
|
|
|
3.1
|
%
|
|
8,913
|
|
|
4.2
|
%
|
|
(1,667)
|
|
|
(18.7)
|
%
|
|
Impairment and other losses
|
|
875
|
|
|
0.4
|
%
|
|
17,629
|
|
|
8.4
|
%
|
|
(16,754)
|
|
|
(95.0)
|
%
|
|
|
|
$
|
193,401
|
|
|
82.4
|
%
|
|
$
|
201,661
|
|
|
95.5
|
%
|
|
$
|
(8,260)
|
|
|
(4.1)
|
%
|
|
Operating income
|
|
$
|
41,236
|
|
|
17.6
|
%
|
|
$
|
9,444
|
|
|
4.5
|
%
|
|
$
|
31,792
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
52,413
|
|
|
22.3
|
%
|
|
$
|
33,523
|
|
|
15.9
|
%
|
|
$
|
18,890
|
|
|
56.3
|
%
|
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was primarily attributable to the increase in revenue and lower operating expense.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Integrated Networks - Group B
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
21,631
|
|
|
9.2
|
%
|
|
$
|
22,100
|
|
|
10.5
|
%
|
|
$
|
(469)
|
|
|
(2.1)
|
%
|
|
Staff costs
|
|
137,425
|
|
|
58.6
|
%
|
|
129,190
|
|
|
61.2
|
%
|
|
8,235
|
|
|
6.4
|
%
|
|
Administrative
|
|
23,710
|
|
|
10.1
|
%
|
|
26,292
|
|
|
12.5
|
%
|
|
(2,582)
|
|
|
(9.8)
|
%
|
|
Deferred acquisition consideration
|
|
177
|
|
|
0.1
|
%
|
|
(4,109)
|
|
|
(1.9)
|
%
|
|
4,286
|
|
|
NM
|
|
Stock-based compensation
|
|
2,337
|
|
|
1.0
|
%
|
|
1,646
|
|
|
0.8
|
%
|
|
691
|
|
|
42.0
|
%
|
|
Depreciation and amortization
|
|
7,246
|
|
|
3.1
|
%
|
|
8,913
|
|
|
4.2
|
%
|
|
(1,667)
|
|
|
(18.7)
|
%
|
|
Impairment and other losses
|
|
875
|
|
|
0.4
|
%
|
|
17,629
|
|
|
8.4
|
%
|
|
(16,754)
|
|
|
(95.0)
|
%
|
|
Total operating expenses
|
|
$
|
193,401
|
|
|
82.4
|
%
|
|
$
|
201,661
|
|
|
95.5
|
%
|
|
$
|
(8,260)
|
|
|
(4.1)
|
%
|
The increase in staff costs was attributable to support the growth in revenues in the second quarter of 2021.
The change in deferred acquisition consideration for the six months ended June 30, 2021 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA was principally for the same reasons as the increase in operating income for the six months ended June 30, 2021.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
Media & Data Network
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
|
(Dollars in Thousands)
|
|
|
Revenue
|
|
$
|
74,300
|
|
|
|
|
$
|
69,609
|
|
|
|
|
$
|
4,691
|
|
|
6.7
|
%
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
48,864
|
|
|
65.8
|
%
|
|
50,788
|
|
|
73.0
|
%
|
|
(1,924)
|
|
|
(3.8)
|
%
|
|
|
Office and general expenses
|
|
16,063
|
|
|
21.6
|
%
|
|
16,508
|
|
|
23.7
|
%
|
|
(445)
|
|
|
(2.7)
|
%
|
|
|
Depreciation and amortization
|
|
929
|
|
|
1.3
|
%
|
|
1,615
|
|
|
2.3
|
%
|
|
(686)
|
|
|
(42.5)
|
%
|
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
35
|
|
|
0.1
|
%
|
|
(35)
|
|
|
(100.0)
|
%
|
|
|
|
|
$
|
65,856
|
|
|
88.6
|
%
|
|
$
|
68,946
|
|
|
99.0
|
%
|
|
$
|
(3,090)
|
|
|
(4.5)
|
%
|
|
|
Operating income
|
|
$
|
8,444
|
|
|
11.4
|
%
|
|
$
|
663
|
|
|
1.0
|
%
|
|
$
|
7,781
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
11,976
|
|
|
16.1
|
%
|
|
$
|
2,679
|
|
|
3.8
|
%
|
|
$
|
9,297
|
|
|
NM
|
|
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was primarily attributable to the increase in revenue and lower operating expense.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Media & Data Network
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
11,792
|
|
|
15.9
|
%
|
|
$
|
18,684
|
|
|
26.8
|
%
|
|
$
|
(6,892)
|
|
|
(36.9)
|
%
|
|
Staff costs
|
|
42,063
|
|
|
56.6
|
%
|
|
37,313
|
|
|
53.6
|
%
|
|
4,750
|
|
|
12.7
|
%
|
|
Administrative
|
|
10,886
|
|
|
14.7
|
%
|
|
10,933
|
|
|
15.7
|
%
|
|
(47)
|
|
|
(0.4)
|
%
|
|
Deferred acquisition consideration
|
|
102
|
|
|
0.1
|
%
|
|
375
|
|
|
0.5
|
%
|
|
(273)
|
|
|
(72.8)
|
%
|
|
Stock-based compensation
|
|
84
|
|
|
0.1
|
%
|
|
(9)
|
|
|
—
|
%
|
|
93
|
|
|
NM
|
|
Depreciation and amortization
|
|
929
|
|
|
1.3
|
%
|
|
1,615
|
|
|
2.3
|
%
|
|
(686)
|
|
|
(42.5)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
35
|
|
|
0.1
|
%
|
|
(35)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
65,856
|
|
|
88.6
|
%
|
|
$
|
68,946
|
|
|
99.0
|
%
|
|
$
|
(3,090)
|
|
|
(4.5)
|
%
|
Direct costs declined, while total revenue increased, in connection with the mix of revenue period-over-period where the agency is principal versus agent in the arrangement.
The increase in staff costs was attributable to support the growth in revenues in the second quarter of 2021.
The increase in Adjusted EBITDA was principally for the same reasons as the increase in operating income.
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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
All Other
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Revenue
|
|
$
|
123,883
|
|
|
|
|
$
|
133,349
|
|
|
|
|
$
|
(9,466)
|
|
|
(7.1)
|
%
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services sold
|
|
81,310
|
|
|
65.6
|
%
|
|
92,517
|
|
|
69.4
|
%
|
|
(11,207)
|
|
|
(12.1)
|
%
|
|
Office and general expenses
|
|
28,891
|
|
|
23.3
|
%
|
|
23,981
|
|
|
18.0
|
%
|
|
4,910
|
|
|
20.5
|
%
|
|
Depreciation and amortization
|
|
2,989
|
|
|
2.4
|
%
|
|
3,801
|
|
|
2.9
|
%
|
|
(812)
|
|
|
(21.4)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
208
|
|
|
0.2
|
%
|
|
(208)
|
|
|
(100.0)
|
%
|
|
|
|
$
|
113,190
|
|
|
91.4
|
%
|
|
$
|
120,507
|
|
|
90.4
|
%
|
|
$
|
(7,317)
|
|
|
(6.1)
|
%
|
|
Operating income
|
|
$
|
10,693
|
|
|
8.6
|
%
|
|
$
|
12,842
|
|
|
9.6
|
%
|
|
$
|
(2,149)
|
|
|
(16.7)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
14,273
|
|
|
11.5
|
%
|
|
$
|
16,788
|
|
|
12.6
|
%
|
|
$
|
(2,515)
|
|
|
(15.0)
|
%
|
The decline in revenue was primarily attributable to the experiential marketing business which was significantly impacted by the COVID-19 pandemic. While the experiential marketing business began to recover in the second quarter and reflected revenue growth, the decline in the first quarter more than offset such growth.
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 six months ended June 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
All Other
|
|
$
|
|
% of
Revenue
|
|
$
|
|
% of
Revenue
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Direct costs
|
|
$
|
19,686
|
|
|
15.9
|
%
|
|
$
|
26,920
|
|
|
20.2
|
%
|
|
$
|
(7,234)
|
|
|
(26.9)
|
%
|
|
Staff costs
|
|
74,353
|
|
|
60.0
|
%
|
|
76,415
|
|
|
57.3
|
%
|
|
(2,062)
|
|
|
(2.7)
|
%
|
|
Administrative
|
|
16,108
|
|
|
13.0
|
%
|
|
13,226
|
|
|
9.9
|
%
|
|
2,882
|
|
|
21.8
|
%
|
|
Deferred acquisition consideration
|
|
(188)
|
|
|
(0.2)
|
%
|
|
(261)
|
|
|
(0.2)
|
%
|
|
73
|
|
|
(28.0)
|
%
|
|
Stock-based compensation
|
|
242
|
|
|
0.2
|
%
|
|
198
|
|
|
0.1
|
%
|
|
44
|
|
|
22.2
|
%
|
|
Depreciation and amortization
|
|
2,989
|
|
|
2.4
|
%
|
|
3,801
|
|
|
2.9
|
%
|
|
(812)
|
|
|
(21.4)
|
%
|
|
Impairment and other losses
|
|
—
|
|
|
—
|
%
|
|
208
|
|
|
0.2
|
%
|
|
(208)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
113,190
|
|
|
91.4
|
%
|
|
$
|
120,507
|
|
|
90.4
|
%
|
|
$
|
(7,317)
|
|
|
(6.1)
|
%
|
Direct costs declined in connection with the reduction in revenues as discussed above.
The decline in Adjusted EBITDA was 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, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Corporate
|
|
$
|
|
$
|
|
$
|
|
%
|
|
|
|
(Dollars in Thousands)
|
|
Staff costs
|
|
$
|
15,574
|
|
|
$
|
8,690
|
|
|
$
|
6,884
|
|
|
79.2
|
%
|
|
Administrative
|
|
6,627
|
|
|
9,456
|
|
|
(2,829)
|
|
|
(29.9)
|
%
|
|
Stock-based compensation
|
|
1,184
|
|
|
418
|
|
|
766
|
|
|
NM
|
|
Depreciation and amortization
|
|
2,401
|
|
|
468
|
|
|
1,933
|
|
|
NM
|
|
Impairment and other losses
|
|
—
|
|
|
1,129
|
|
|
(1,129)
|
|
|
(100.0)
|
%
|
|
Total operating expenses
|
|
$
|
25,786
|
|
|
$
|
20,161
|
|
|
$
|
5,625
|
|
|
27.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
(16,160)
|
|
|
$
|
(10,770)
|
|
|
$
|
(5,390)
|
|
|
50.0
|
%
|
Operating expenses increased primarily due to higher costs for employee health benefits and depreciation expense in connection with the Company’s new headquarters, partially offset by lower administrative costs primarily driven by lower occupancy costs.
Adjusted EBITDA was impacted principally for the same reasons as the change in operating expenses.
Liquidity and Capital Resources:
Liquidity
The following table provides summary information about the Company’s liquidity position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
|
|
|
(Dollars in Thousands)
|
|
|
Net cash provided by (used in) operating activities
|
$
|
10,409
|
|
|
$
|
(33,681)
|
|
|
|
Net cash provided by (used in) investing activities
|
$
|
(9,574)
|
|
|
$
|
14,643
|
|
|
|
Net cash provided by (used in) financing activities
|
$
|
46,898
|
|
|
$
|
(1,434)
|
|
|
We continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on our liquidity. If the impact of the pandemic is beyond our expectation, the Company believes it is well positioned through the actions implemented at the beginning of the pandemic to successfully work through the effects of COVID-19 for the foreseeable future.
The Company had cash and cash equivalents of $108.3 million and $60.8 million as of June 30, 2021 and December 31, 2020, 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, 2021, the Company had $88.6 million of borrowings outstanding and $103.4 million available under the Credit Agreement.
See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s plan to redeem its Senior Notes and termination of its revolving credit agreement in connection with the closing of the Transactions and the plan to refinance the liquidity position of the combined company.
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 Senior Notes. 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 2020 Form 10-K and in the Company’s other SEC filings.
Cash Flows
Operating Activities
Cash flows provided by operating activities for the six months ended June 30, 2021 were $10.4 million, primarily reflecting earnings and favorable working capital requirements.
Cash flows used in operating activities for the six months ended June 30, 2020 were $33.7 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.
Investing Activities
During the six months ended June 30, 2021, cash flows used in investing activities were $9.6 million, which was primarily due to capital expenditures of $15.4 million, primarily related to the Company’s new headquarters at One World Trade Center, partially offset by receipt of $7.1 million of deferred proceeds from the sale of the Company’s equity interest in a Partner Firm in the first quarter of 2020.
During the six months ended June 30, 2020, cash flows provided by investing activities were $14.6 million, which primarily consisted of proceeds of $19.6 million from the sale of the Company’s equity interest in a Partner Firm, partially offset by $3.7 million of capital expenditures and $0.7 million paid for acquisitions.
Financing Activities
During the six months ended June 30, 2021, cash flows provided by financing activities were $46.9 million, which primarily consisted of $88.6 million in net borrowings under the Credit Agreement, offset by $20.3 million in distributions to minority interest holders and $21.4 million in deferred acquisition consideration payments.
During the six months ended June 30, 2020, cash flows used in financing activities was $1.4 million, 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 Senior Notes repurchased and $11.1 million in distributions for minority interests.
Total Debt
Debt, net of debt issuance costs, as of June 30, 2021 was $935.1 million as compared to $843.2 million outstanding at December 31, 2020. The increase of $91.9 million in debt was primarily a result of the Company’s borrowings under the Credit Agreement. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s Senior 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, 2021, 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:
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June 30, 2021
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Total Senior Leverage Ratio
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0.18
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Maximum per covenant
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2.00
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Total Leverage Ratio
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4.14
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Maximum per covenant
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5.50
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Fixed Charges Ratio
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2.44
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Minimum per covenant
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1.00
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Earnings before interest, taxes, depreciation and amortization (in millions)
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$
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220.1
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Minimum per covenant (in millions)
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$
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120.0
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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.
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 2020 Form 10-K for information regarding the Company’s critical accounting policies.
Website Access to Company Reports and Information
Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. Stagwell Inc.’s Internet website address is www.stagwellglobal.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, 2021, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the Senior Notes. The Senior Notes bear a fixed 7.50% 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 $88.6 million in borrowings under the Credit Agreement, as of June 30, 2021, a 1.0% increase or decrease in the weighted average interest rate, which was 4.28% at June 30, 2021, would have an interest impact of approximately $0.9 million.
Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s 2020 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 $2.1 million.
Impairment Risk: At June 30, 2021, the Company had goodwill of $671.5 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 2020 Form 10-K for information related to impairment testing and the risk of potential impairment charges in future periods.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. However, our disclosure controls and procedures are designed to provide reasonable assurances of achieving our control objectives.
We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation our CEO and CFO concluded that our disclosure controls and procedures are effective as of June 30, 2021.
Changes in Internal Control Over Financial Reporting
We have given consideration to the impact of 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.