Unaudited Pro Forma Condensed Combined

Balance Sheet As of March 31, 2021

(In thousands)

See the accompanying notes to the unaudited pro forma condensed combined financial statements

See the accompanying notes to the unaudited pro forma condensed combined financial statements

See the accompanying notes to the unaudited pro forma condensed combined financial statements

1. Description of the Transaction

As part of the MDC Reorganization, (i) OpCo will convert into a limited liability company that will hold MDC’s operating assets. Following the MDC Reorganization, (i) and to which Stagwell will contribute to OpCo the equity interests of the Stagwell Subject Entities in exchange for 180,000,000 common membership interests of OpCo, and (ii) Stagwell will contribute to New MDC an aggregate amount of cash equal to $100 in exchange for Combined Company Class C Common Shares. Stagwell was deemed to be the accounting acquirer under ASC 805 and thus MDC’s net assets are measured at their fair value.

The purchase price allocation has been derived from estimates of the fair value of the tangible and intangible assets and liabilities of MDC, using established valuation techniques. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially affect New MDC’s results of operations. The total purchase price has been allocated on a preliminary basis to identifiable assets acquired and liabilities assumed, based upon valuation procedures performed to date. As of the date of this Supplement, the valuation studies performed to determine the fair value of the assets acquired and liabilities assumed and the related allocations of purchase price are preliminary. The final determination of the fair values of the identifiable tangible and intangible assets acquired and liabilities assumed may differ from the amounts reflected in the pro forma purchase price allocation, and any differences may be material. The purchase price allocation will be finalized as soon as practicable within the measurement period, but in no event later than one year following the acquisition date.

2. Basis of Pro Forma Presentation

Basis of Preparation of the Pro Forma Information

The unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses. In accordance with Release No. 33-10786, the unaudited condensed combined pro forma balance sheet and statements of operations reflect transaction accounting adjustments, as well as other adjustments deemed to be directly related to the Proposed Transactions, irrespective of whether or not such adjustment is deemed to be recurring.

The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the Proposed Transactions. The unaudited Pro Forma Condensed Combined Balance Sheet is presented as if the Proposed Transactions had occurred on March 31, 2021. The unaudited Pro Forma Condensed Combined Statement of Operations for the quarter ended March 31, 2021 and year ended December 31, 2020 are presented as if the Proposed Transactions had occurred on January 1, 2020. This pro forma information is provided for informational purposes only and is based on available information and reasonable assumptions. The pro forma information does not purport to represent what the actual consolidated results of operations or the consolidated financial position of New MDC would have been if the Proposed Transactions had occurred on the dates indicated, nor is it necessarily indicative of the future consolidated results of operations or consolidated financial position of New MDC. The actual financial position and results of operations of New MDC will likely differ, perhaps significantly, from the pro forma amounts reflected herein due to a variety of factors, including access to additional information, changes in value not currently identified, and changes in operating results following the dates of the Proposed Transactions and the pro forma financial information.

Accounting for the Transaction

The accompanying unaudited pro forma condensed combined financial statements give effect to the Proposed Transactions. The unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of Stagwell and MDC, as well as the assumptions and adjustments set forth in these notes. Adjustments reflected in the unaudited pro forma condensed combined financial statements include the balance sheet and statement operations impacts of the application of acquisition method of accounting in accordance with ASC 805. Adjustments also reflect the impact that discrete transactions directly related to the Proposed Transactions have had or will have on the results of operations and financial condition of New MDC.

ASC 805 requires the allocation of purchase consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree of estimation.

The determination of the fair value of the identifiable assets acquired and liabilities assumed upon consummation of the Proposed Transactions, as well as the allocation of the estimated consideration to these identifiable assets and liabilities, is preliminary as of the date that the unaudited pro forma condensed combined financial information has been prepared. Accordingly, the fair values of the identifiable assets acquired and liabilities assumed may be revised as additional information becomes available and is evaluated. Since the unaudited pro forma condensed combined financial information has been prepared based upon preliminary estimates of consideration and the fair values of the identifiable assets acquired and liabilities assumed from MDC, the actual amounts eventually recorded in connection with acquisition accounting, including the identifiable intangibles and goodwill, could differ materially from the information presented. However, Stagwell’s management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Proposed Transactions, including the application of the acquisition method of accounting, based on information available at the time. Management further believes that the pro forma adjustments give appropriate effect to the assumptions that have been made and those assumptions have been properly applied.

3. Calculation of purchase Price and Preliminary Allocation of Estimated Fair Value of Assets Acquired and Liabilities Assumed

The total preliminary acquisition purchase price has been calculated as follows:

The equity portion of the purchase price is based on an MDC share price of $5.00. The value of the purchase price consideration will change based on fluctuations in the market price of the MDC Canada Common Shares. The equity portion of the purchase price will vary based on the market price of the MDC Canada Common Shares upon consummation of the acquisition. MDC believes that a 10% fluctuation in the market price of the MDC Canada Common Shares is reasonably possible based on historical volatility, and the potential estimated effect on purchase price would be:

The purchase price is allocated to the underlying assets acquired and liabilities assumed based on their respective fair values, with any excess purchase price allocated to goodwill. The purchase price was allocated as follows:

4. Condensing of Stagwell’s Historical Balance Sheet information impacting the pro forma Balance sheet of the Combined Company

Stagwell Balance Sheet Reclassification Adjustments:

Certain balances within Stagwell’s historical balance sheet were combined to align with presentation of MDC. The following is a summary of the condensing adjustments included in the unaudited pro forma condensed combined balance sheet (in thousands):

5. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet

The following summarizes and provides explanations for the pro forma adjustments included in the unaudited pro forma condensed combined balance sheet presented as of March 31, 2021:

The following table summarizes the estimated fair values of the identifiable intangible assets acquired upon consummation of the Proposed Transactions, the estimated useful lives of the identifiable intangible assets, and the amount by which MDC’s historical intangible asset balance was adjusted on a pro forma basis to reflect the identifiable intangible assets at their fair value:

Customer relationship useful lives vary based on specific customer data at the reporting unit level. MDC has assigned useful lives to the individual intangible assets based on the underlying cash flows expected from each reporting unit’s customer base.

The preliminary estimates of fair value and estimated useful lives could differ from the amounts ultimately determined upon completion of the valuation analysis, and the difference could have a material effect on the accompanying unaudited pro forma condensed combined financial statements. A change in the valuation of the acquired identifiable intangible assets would result in an offsetting change of the same amount to the amount of goodwill recorded in connection with the Proposed Transactions.

5(k) i

5(k) ii

5(k) iii

5(k) iv

5(k) v

5(k) vi

The net tax attributes of $50,035 retained by the Combined Company consist of deferred tax assets relating to U.S. corporate tax losses and tax credits retained by New MDC of $40,780 and deferred tax liabilities attributable to New MDC’s investment in OpCo of $90,815. The liquidation preference of the MDC Canada Series 4 Shares and MDC Canada Series 6 Shares accrete at 8.0% per annum, compounded quarterly.

6. Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations

The following analysis summarizes and provides explanations for the pro forma adjustments included in the unaudited pro forma condensed combined statements of operations presented for the three months ended March 31, 2021 and twelve months ended December 31, 2020.

The awards previously issued were a combination of equity awards subject to ASC 718 and profit sharing/ performance bonus awards subject to ASC 710. In both cases the awards were not considered probable of vesting and no prior compensation expense was recognized.

A total of approximately 12 million FAF units will be issued, which will be exchangeable for Class A shares of New MDC. Approximately 7 million units will vest immediately upon the closing of the Proposed Transactions and approximately 5 million will vest over a six-month service period.

The compensation expense is calculated as the number of units multiplied by New MDC’s Class A Common share price of $5.00, which is considered the grant date fair value of all the awards and in accordance with the accounting treatment for modified and/or new awards under ASC 718 and ASC 710.

Pro forma amortization expense has been recorded based upon the following preliminary fair values and estimated useful lives assigned to the tradenames and acquired customer relationship intangible assets:

6(f) i

6(f) ii

6(f) iii

6(f) iv

Shares exchanged for Stagwell net assets upon completion of the Proposed Transactions do not participate in the earnings of the Combined Company. As such, basic EPS is not affected for the Stagwell Class C Shares issued in connection with the Stagwell New MDC Contribution. This assumption is consistent with the assumption that the Proposed Transactions was consummated as of January 1, 2020 for purposes of preparing the unaudited pro forma combined statements of operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE STAGWELL SUBJECT ENTITIES

The section of the Proxy Statement/Prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Stagwell Subject Entities” is hereby superseded and replaced as follows:

The following discussion and analysis are based on and should be read in conjunction with the Stagwell Consolidated Financial Statements and the notes related thereto included elsewhere in this document, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and derived from the financial statements of Stagwell Marketing Group LLC. This Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Stagwell Subject Entities (MD&A) contains forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the caption “Cautionary Statement Concerning Forward-Looking Statements” in this document. Amounts reported in this section are in U.S. dollars unless otherwise indicated.

In this section, the Stagwell Subject Entities are referred to as “Stagwell”, “the Company,” “we,” “our,” or “us”.

Executive Summary

On December 21, 2020, MDC and Stagwell Media entered into the Transaction Agreement, as amended on June 4, 2021 and July 8, 2021, providing for the combination of MDC with the Stagwell Subject Entities.

The Stagwell Subject Entities comprise Stagwell Marketing and its direct and indirect subsidiaries. Stagwell Marketing is a Delaware limited liability company that was formed on March 9, 2017 and is governed by the terms and conditions of a limited liability agreement effective as of the same date. Stagwell Media owns all of the equity interests of Stagwell Marketing through Stagwell Marketing Group Holdings LLC. Stagwell Media is managed by The Stagwell Group LLC, a registered investment adviser. Stagwell Marketing was formed to hold the previously existing interests of Stagwell Media in its portfolio of marketing services companies and the contribution by Stagwell Media to Stagwell Marketing of all of those interests on March 9, 2017 was accounted for by Stagwell Media at historical cost as a transaction under common control.

Stagwell is an independent, full service, technology-driven marketing consultancy working at the crossroads of the art and science of creativity. We excel at offering clients simplicity and speed of execution. The Stagwell Subject Entities have over 3,700 employees operating in more than 20 countries around the world. For more information about the Stagwell business, see the section of this Proxy Statement/Prospectus entitled “The Parties to the Business Combination: Stagwell”.

Stagwell conducts its business through its operating companies (referred to as “Brands”), each of which is included in one of six reportable segments, which include the following: (i) Digital Transformation and Performance Marketing (“Digital — Marketing”), (ii) Digital Content (“Digital — Content”), (iii) Research for Technology and Entertainment (“Research — Technology”), (iv) Research for Corporate (“Research — Corporate”), (v) Communications, Public Affairs and Advocacy (“Communications, Public Affairs and Advocacy”), and (vi) All Other Brands (“All Other”). The All Other reportable segment reports the operating results of Brands not included in our other segments and that generally have dissimilar economic characteristics. As a result, the All Other reportable segment may report different margin profiles than other segments, due to the following: (i) this segment includes Stagwell’s emerging SAAS products that are receiving significant paid marketing support out of the operating expense of the business for customer acquisition and (ii) this segment includes Stagwell’s pharmaceutical marketing line of business which can be more short-term-project-based in nature due to the irregular nature of when pharma product launches occur and when approval is given for them by governmental authorities. In addition, Stagwell reports its corporate office expenses incurred in connection with the strategic resources provided to the operating companies, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate. Corporate provides client and business development support to the operating segments as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions. See Note 18 of the Notes to the Stagwell Consolidated Financial Statements for the years ended December 31, 2020, 2019 and 2018 included herein for a description of each of our reportable segments.

Recent Developments

Beginning in December 2019, an outbreak of coronavirus (“COVID-19”) emerged in China and has spread to other parts of the world, including locations where the Company conducts business. On March 11, 2020, the World Health Organization announced COVID-19 had been declared a pandemic, and on March 13, 2020 the U.S. President announced a National Emergency relating to the disease. The spread of COVID-19 has caused significant volatility in the United States and international markets and, in many industries, including some in which our clients operate, business activity has virtually shut down entirely. The COVID-19 pandemic has negatively impacted the Company’s results of operations, statement of financial position and cash flows due to its impact on certain of our Brands, particularly those that serve the travel and entertainment industries. In particular, the travel vertical in our Digital Content segment, which primarily delivers content in airports, on airplanes and in hotels, was severely impacted, as marketers who regularly advertise in such spaces canceled orders or deferred placements. In addition, multiple airline partners ceased their airline publications, and airport concessionaires closed due to lack of passenger traffic. These developments resulted in a negative Adjusted EBITDA impact on the Digital Content segment in 2020 of $24 million relative to budget. Additionally, our Research segment’s Entertainment and Technology sector, which specializes in entertainment testing and forecasting, was negatively impacted by theatrical movie delays and theater closings. Adjustments and suspensions by clients to their subscriptions to the Research segment’s syndicated box office forecasting offering resulted in a $9 million decline in revenue (which was partially offset by a $6 million increase in custom work related to streaming offers) and a $3 million decline in Adjusted EBITDA for 2020. We have taken actions in response to the pandemic’s impact to our businesses, including working closely with our clients to address their evolving service requirements and transitioning to a remote work environment, rationalizing our compensation and general and administrative expenses, and monitoring liquidity. The impact of the pandemic and the corresponding actions we have taken are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. The full extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. Our business and financial results could be materially and adversely impacted.

Financing

On March 18, 2020, we increased the commitments under our existing credit agreement with a syndicate of banks led by JPMorgan Chase Bank, N.A (the “New JPM Syndicated Facility”) by $60 million from $265 million to $325 million. On November 13, 2020, we amended certain terms of our New JPM Syndicated Facility in contemplation of the Proposed Transactions and entered into a term loan agreement (“JPM Credit Agreement”) that provided us with a Delayed Draw Term Loan A in an aggregate principal amount of $90.0 million. For additional information about the terms of our debt obligations see “Liquidity and Capital Resources — Total Debt.”

Significant Factors Affecting our Business and Results of Operations

The most significant factors affecting our business and results of operations include national, regional, and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products and services that our Brands offer. A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.

Seasonality

Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year with a significant increase during the even years. The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season. The even years benefit from the U.S. election cycles.

Non-GAAP Measures:

Stagwell reports its financial results in accordance with GAAP. Additionally, we have included certain non-GAAP financial measures that we use to operate the business. We believe these measures provide useful supplemental information to both management and readers of this report when evaluating our financial performance and financial condition. 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 key metrics that we use to evaluate our financial performance are (1) organic and inorganic revenue (as defined below), and (2) Adjusted EBITDA.

We use two non-GAAP measures — organic revenue and inorganic revenue (as defined below) when evaluating growth or decline in our revenues. These measures permit us to isolate the changes in revenue of our existing businesses from period to period, which are defined as the businesses that were owned for the entirety of both periods being compared.

“Inorganic revenue” consists of (i) for acquisitions during the current year, the revenue effect from such acquisitions 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 revenue for the applicable periods.

“Organic revenue” is calculated by subtracting both the foreign exchange and acquisition (disposition) components from total revenue. “Organic revenue growth” and “organic revenue decline” refers to the positive or negative changes in revenue that were not attributable to the effects of foreign exchange or acquired run rate revenue from acquisitions. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the Company’s Brands that have been held throughout each of the comparable periods presented, and (b) inorganic revenue.

We use the term “existing brands” or “existing businesses” to mean businesses that were owned for the entirety of both years being compared. We use the term “acquired brands” or “acquired businesses” to refer to businesses that were acquired during the periods being compared.

We exclude the effect of acquisitions and dispositions when evaluating period-to-period organic revenue because the nature, size, timing and number of acquisitions and divestitures can vary dramatically from period-to-period, obscuring underlying business trends and making comparisons of long-term performance difficult. We exclude the effect of currency translation from organic revenue because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends.

We believe comparing organic revenue from period to period illustrates the underlying financial performance of our businesses including the impact of management’s oversight and decisions, the impact of our investments and resource allocation decisions on our business, and is indicative of the market conditions our businesses operate in.

We completed acquisitions during the periods reported for certain segments, for which we describe inorganic revenue below, as well as the corresponding organic revenue growth (decline). In 2020, these segments were Digital – Marketing, Digital – Content, and Communications, Public Affairs and Advocacy. In 2019, these segments were Digital – Marketing, Digital – Content, Communications, Public Affairs and Advocacy, and All Other.

“Adjusted EBITDA” is defined as net income adjusted for (a) interest expense, (b) provision for income taxes, (c) depreciation and amortization expense, (d) other income (expenses), (e) equity in earnings (losses) of unconsolidated affiliates, (f) deferred acquisition consideration adjustments, and (g) other items, net. Other items, net includes items such as acquisition-related expenses, other non-recurring items and other restructuring costs.

We believe Adjusted EBITDA is a useful measure for investors to evaluate the performance of our business. Adjusted EBITDA should be viewed as supplemental to, and not as an alternative for net income calculated in accordance with GAAP or operating income calculated in accordance with GAAP.

This section includes a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures, as presented in the tables below.

Consolidated Results of Operations

Revenue

Revenue for the three months ended March 31, 2021 was $181.2 million compared to $184.5 million for the three months ended March 31, 2020. The decrease of $3.3 million, or 1.8%, included organic revenue decline of $12.8 million, or 6.9%, which was offset by inorganic revenue of $9.7 million, and a decrease of $0.1 million due to the impact of changes in foreign exchange rates. The organic revenue decline was primarily attributable to a $23.6 million decrease in organic revenue from the Communications, Public Affairs and Advocacy segment, which usually declines in non-election years, and the Digital – Content segment’s travel marketing business that remained impacted by travel restrictions put in place in response to Covid-19. This was offset by increases in our Digital – Marketing and Research - Corporate segments of $12.9 million, which reported increased customer marketing spend as the pandemic began easing. All remaining segments reported organic revenue declines of $2.0 million. Inorganic revenue included $7.5 million from an acquisition that expanded our digital transformation and platform management systems offerings, and $2.2 million from an acquisition that expanded our strategic corporate communications offering.

Our revenue includes third-party direct costs, which are expenses incurred with third-party vendors when we act as the principal when performing services for our clients. Third-party direct costs for the three months ended March 31, 2021 were $23.2 million compared to $33.7 million for the three months ended March 31, 2020. The decrease of $10.6 million, or 31.3%, was principally due to reduced spend on certain media and production purchases, and fees paid to third-party vendors for services rendered in the comparative prior period.

The components of the changes in revenue by reportable segment for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

Operating Expenses

Operating expenses for the three months ended March 31, 2021 were $175.2 million compared to $173.8 million for the three months ended March 31, 2020. The increase of $1.4 million, or 0.8%, was related to additional operating expenses incurred from our acquired businesses of $13.0 million, partially offset by $11.6 million of cost reduction initiatives at our existing businesses related to the revenue declines described above.

Our existing brands reported a decrease in operating expenses of $11.6 million, or 6.8%, which were mainly driven by several cost reduction initiatives totaling $18.5 million as a result of revenue declines at our Communications, Public Affairs and Advocacy and Digital – Content segments. These decreases were partially offset by increases in operating expenses at our Digital – Marketing and Research – Corporate segments of $6.2 million to support revenue growth. All remaining segments and Corporate reported a decrease in operating expenses of $0.6 million.

Operating Income

Operating income for the three months ended March 31, 2021 was $6.0 million compared to $10.8 million for the three months ended March 31, 2020. The decrease of $4.8 million, or 44.1%, was primarily due to operating income decreases from our existing brands of $4.9 million as a result of the declines in revenue described above.

Interest Expense, Net

Interest expense, net, for the three months ended March 31, 2021 was $1.4 million compared to $0.9 million for the three months ended March 31, 2020. The increase of $0.5 million, or 48.3%, was primarily due to a 0.2% increase in the weighted average interest rate on our New JPM Syndicated Facility.

Other (Expense) Income, net

Other (expense) income, net, for the three months ended March 31, 2021 was net income of $0.6 million compared to net other income of $3.0 million for the three months ended March 31, 2020. The decrease of $2.4 million, or 79.9%, was primarily due to a period to period decrease of $3.9 million associated with foreign denominated debt that was partially offset by a $1.2 million gain on redemption of preferred stock executed in the current period.

Provision for Income Taxes

Income tax expense for the three months ended March 31, 2021 was $0.7 million, which resulted in an effective tax rate of 12.8% on income before taxes and equity in earnings of unconsolidated affiliates of $5.3 million. Comparatively, income tax expense for the three months ended March 31, 2020 was $0.5 million, which resulted in an effective tax rate of 3.6% on income before taxes and equity in earnings (losses) of unconsolidated affiliates of $12.9 million. The increase in the provision for income taxes is primarily due to an increase in taxable income at certain Brands that are classified as regarded entities, which includes controlled foreign corporations as well as domestic corporations.

Equity in Earnings of Unconsolidated Affiliates

Equity in earnings of unconsolidated affiliates was immaterial for the three months ended March 31, 2021 and 2020.

Net Income Attributable to Noncontrolling Interest

Net Income Attributable to Noncontrolling Interest for the three months ended March 31, 2021 was $1.2 million compared to $1.1 million for the three months ended March 31, 2020. See Note 11 of the Notes to the Stagwell Condensed Consolidated Financial Statements for the three months ended March 31, 2021 included herein for details of our noncontrolling interest.

Net Loss Attributable to Redeemable Noncontrolling Interest

Net Loss Attributable to Redeemable Noncontrolling Interest for the three months ended March 31, 2021 was $0.9 million compared to $0.7 million for the three months ended March 31, 2020. The decrease of $0.2 million, or 32.2%, was principally due to a decrease in the operating results of certain Brands that were directly impacted by COVID-19.

Net Income Attributable to Stagwell Media

Net Income Attributable to Stagwell Media for the three months ended March 31, 2021 was $4.4 million, compared to $12.0 million for the three months ended March 31, 2020. The decrease of $7.7 million, or 63.8%, was principally due to the decreases in our revenue, which is discussed above, that resulted in an operating income decrease of $4.8 million as well as Other (expense) income, net decreases of $2.4 million, and increases in interest expense, net of $0.5 million and provision for income taxes of $0.2 million, which are all described above.

REPORTABLE SEGMENTS RESULTS OF OPERATIONS

The following discussion provides additional detailed disclosures for each of our reportable segments.

Digital — Marketing: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The Digital-Marketing reportable segment includes Brands that support the delivery of content, commerce, service, and sales using digital channels. These Brands create websites, back-end systems and other digital environments allowing consumers to engage with Brands using search engine optimization, bots, search engine marketing, influencer & affiliate marketing, email marketing, customer relationship management and programmatic advertising. Brands include Code and Theory, Forward PMX Group, MMI Agency and Stagwell Technologies.

Digital-Marketing’s operating results, including revenue, operating income, net income, and Adjusted EBITDA for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

Digital-Marketing’s revenue for the three months ended March 31, 2021 was $66.6 million compared to $50.5 million for the three months ended March 31, 2020. The increase of $16.1 million, or 31.8%, was primarily due to organic revenue increases totaling $8.6 million as digital marketing budgets increased with the pandemic easing. This was realized across nearly all areas reported in this segment. Additionally, this segment reported inorganic revenue of $7.5 million as we continue to expand our content and platform management systems offering as well as an increase of $0.1 million from the impact of changes in foreign exchange rates.

Digital-Marketing’s operating income for the three months ended March 31, 2021 was $3.7 million compared to $2.4 million for the three months ended March 31, 2020. The increase of $1.3 million, or 54.9%, was primarily due to the revenue increases of $16.1 million noted above, that were partially offset by an increase in operating expenses totaling $14.8 million. This included additional operating expenses related to acquired businesses totaling $11.3 million, which included fair value adjustments to deferred acquisition consideration, compensation, real estate and other general and administrative costs, and additional operating expenses related to existing businesses of $3.4 million in response to the revenue increases noted above.

Digital-Marketing’s Adjusted EBITDA for the three months ended March 31, 2021 was $11.4 million compared to $6.0 million for the three months ended March 31, 2020. The increase of $5.4 million, or 90.7%, is primarily due to the increase to operating income of $1.3 million noted above as well as the changes to deferred acquisition consideration expenses of $3.6 million and depreciation and amortization expense of $0.5 million.

Digital — Content: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The Digital-Content reportable segment includes Brands that create online and offline content supported by ad sales to help clients target niche B2B audiences and general consumers. Brands include MultiView, Ink and Observatory.

Digital-Content’s operating results, including revenue, operating (loss), net (loss), and Adjusted EBITDA for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

Digital-Content’s revenue for the three months ended March 31, 2021 was $28.0 million compared to $40.7 million for the three months ended March 31, 2020. The decrease of $12.7 million, or 31.2%, was primarily due to revenue declines from our existing travel marketing business totaling $11.4 million, which was directly impacted by global travel restrictions put in place after the comparative period reporting date in response to COVID-19, and $2.0 million from our creative production business. This decline was offset by an increase in revenue from our B2B marketing offering totaling $0.8 million. Additionally, this segment reported a decrease of $0.2 million from the impact of changes in foreign exchange rates.

Digital-Content’s operating loss for the three months ended March 31, 2021 was $5.2 million compared to an operating loss of $2.9 million for the three months ended March 31, 2020. The additional operating loss of $2.3 million, or 81.6%, was primarily due to the revenue declines of $12.7 million noted above, partially offset by a decrease in operating expenses totaling $10.4 million. The decrease in operating expenses was primarily related to cost reduction initiatives at our travel marketing business as we aimed at lowering compensation expenses and revenue share payments with our travel partners in response to revenue declines of $11.4 million noted above.

Digital-Content’s Adjusted EBITDA for the three months ended March 31, 2021 was a loss of $1.8 million compared to an income of $1.0 million for the three months ended March 31, 2020. The decrease of $2.8 million, or 281.8%, is primarily due to additional operating loss of $2.3 million noted above, plus the net impact of changes to acquisition-related expenses and other restructuring costs totaling $0.8 million.

Research — Technology: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The Research — Technology reportable segment consists of a single Brand, National Research Group, which conducts qualitative and quantitative research among consumers on behalf of theatrical, television, streaming content creators, gaming companies and technology companies to attract and engage consumers.

Research — Technology’s operating results, including revenue, operating income, net income, and Adjusted EBITDA for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

Research — Technology’s revenue for the three months ended March 31, 2021 was $15.3 million compared to $16.3 million for the three months ended March 31, 2020. The decrease of $1.0 million, or 6.0%, was primarily due to certain clients directly impacted by COVID-19. Due to travel restrictions, movie theatre closings around the world and forced production pauses, clients elected to pause or cancel new and ongoing syndicated and custom research studies for television and theatrical content release totaling $4.5 million. However, most of the decline was recovered by growth in the streaming, gaming and technology verticals totaling $3.5 million.

Research — Technology’s operating income for the three months ended March 31, 2021 was $3.0 million compared to $3.3 million for the three months ended March 31, 2020. The decrease of $0.3 million, or 7.9%, was primarily due to the revenue declines of $1.0 million noted above, partially offset by cost reduction initiatives of $0.7 million.

Research — Technology’s Adjusted EBITDA for the three months ended March 31, 2021 was $3.7 million compared to $3.8 million for the three months ended March 31, 2020. The decrease of $0.1 million, or 3.0%, was principally due to the operating income declines of $0.3 million noted above.

Research — Corporate: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The Research — Corporate reportable segment includes Brands that conduct qualitative and quantitative research among consumers and B2B audiences to help companies understand their purchase intent habits and trends to aid in marketing decisions and product development, views of brand and corporate reputation and the use of research for public release. Brands include Harris Insights and Analytics and HarrisX.

Research — Corporate’s operating results, including revenue, operating income, net income, and Adjusted EBITDA for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

Research — Corporate’s revenue for the three months ended March 31, 2021 was $16.6 million compared to $12.3 million for the three months ended March 31, 2020. The increase of $4.3 million, or 34.6%, was primarily due to growth in the enterprise technology research offering.

Research — Corporate’s operating income for the three months ended March 31, 2021 was $2.0 million compared to $0.6 million for the three months ended March 31, 2020. The increase of $1.4 million was primarily due to the revenue increase of $4.3 million noted above, partially offset by an increase in operating expenses totaling $2.8 million related to our enterprise technology research offering and increased data acquisition costs.

Research — Corporate’s Adjusted EBITDA for the three months ended March 31, 2021 was $2.6 million compared to $1.2 million for the three months ended March 31, 2020. The increase of $1.4 million, or 119.4%, was principally due to the operating income increase of $1.4 million noted above.

Communications, Public Affairs and Advocacy: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The Communications, Public Affairs and Advocacy reportable segment includes Brands that provide strategic communications through media relations, social media and in-person engagements, as well as utilizing digital channels to mobilize and raise funds from supporters and constituents to support political candidates and issue organizations in the public arena. Brands include SKDK, Targeted Victory and Wye Communications.

Communications, Public Affairs and Advocacy’s operating results, including revenue, operating income, net income, and Adjusted EBITDA for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

Communications, Public Affairs and Advocacy’s revenue for the three months ended March 31, 2021 was $43.3 million compared to $52.2 million for the three months ended March 31, 2020. The decrease of $8.9 million, or 17.1%, which included a decrease of $11.3 million of third-party direct costs, was primarily due to our existing businesses reporting more revenue during the U.S. 2020 election cycle as they worked on a number of issue advocacy programs, fundraising activities and campaign strategy. The decrease in revenue from our existing businesses was partially offset by $2.8 million of revenue from our acquired businesses, which included organic revenue growth of $0.6 million, where we expanded our strategic corporate communications.

Communications, Public Affairs and Advocacy’s operating income for the three months ended March 31, 2021 was $6.4 million compared to $8.9 million for the three months ended March 31, 2020. The decrease of $2.5 million, or 27.9%, was primarily due to the revenue declines of $8.9 million noted above, partially offset by a decrease in operating expenses of $6.5 million. The decrease in operating expenses is primarily from our existing brands decreasing $8.1 million, which included a decrease of $11.3 million in third-party direct costs, partially offset by $3.2 million of additional general and administrative expense.

Communications, Public Affairs and Advocacy’s Adjusted EBITDA for the three months ended March 31, 2021 was $8.0 million compared to $10.1 million for the three months ended March 31, 2020. The decrease of $2.1 million, or 20.7%, is primarily due to the operating income decrease of $2.5 million noted above, partially offset by an increase in depreciation and amortization of $0.4 million attributable to both our existing businesses and acquisitions during the period.

All Other: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

The All Other reportable segment includes Brands that create, produce, and promote advertising through traditional and digital channels, and provide public relations, healthcare, online reputation and digital privacy solutions for individuals and businesses. Brands include Scout, Reputation Defender and Collect, Understand and Engage (“CUE”).

All Other’s operating results, including revenue, operating (loss), net (loss), and Adjusted EBITDA (loss) for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 were as follows:

All Other’s revenue for the three months ended March 31, 2021 was $11.4 million compared to $12.4 million for the three months ended March 31, 2020. The decrease of $1.0 million, or 8.4%, was primarily due to our healthcare offering completing fewer marking programs for drug candidates entering the market resulting in a decrease in revenue of $1.5 million, partially offset by an increase in our online reputation management offering increasing by $0.4 million.

All Other’s operating loss for the three months ended March 31, 2021 was $0.5 million compared to $0.9 million for the three months ended March 31, 2020. The increase of $0.4 million was primarily due to a decline in operating expenses of $1.5 million from our healthcare offering, partially offset by the revenue decline of $1.0 million from the same offering noted above.

All Other’s Adjusted EBITDA for the three months ended March 31, 2021 was $0.6 million compared to a loss of $0.2 million for the three months ended March 31, 2020. The increase of $0.8 million is primarily due to the operating income increase noted above, and an increase to deferred acquisition consideration expenses of $0.3 million.

Corporate: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Corporate includes expenses incurred by our corporate function. These costs primarily consist of office and general expenses, salaries and employee-related expenses that are not fully allocated to the operating segments. These costs include salaries, long-term incentives, bonuses and other miscellaneous benefits for corporate office employees, corporate office expenses, professional fees related to financial statement audits and legal, information technology and other consulting services that are engaged through our corporate office, and depreciation incurred on our corporate office. The Corporate operating loss was $3.4 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.