MDC Partners Inc. Reports Results For The Three And Six Months Ended June 30, 2020

Company Responds Swiftly to Pandemic Conditions, Dramatically Reduces Costs and Delivers Solid First Half Results

NEW YORK, Aug. 6, 2020 /PRNewswire/ --

SECOND QUARTER  & YTD HIGHLIGHTS:

  • Revenue of $259.7 million in the second quarter versus $362.1 million in the prior period, a decline of 28.3%; and $587.4 million YTD versus $690.9 million in the prior year period, a decline of 15.0%.
  • Organic revenue declined 26.4% in the second quarter and 12.9% YTD.
  • Net loss attributable to MDC Partners common shareholders was $4.1 million in the second quarter of 2020 versus $0.8 million in income a year ago, driven by non-cash impairment charges taken in the quarter.
  • Net loss attributable to MDC Partners common shareholders was $6.5 million in the six months ended June 30, 2020 versus $1.4 million a year ago, driven by non-cash impairment charges taken in the period.
  • Adjusted EBITDA for the three months ended June 30, 2020 was $36.2 million versus $46.4 million a year ago, a decline of 22.1%. Adjusted EBITDA Margin of 13.9%, compared to 12.8% in the prior year quarter.
  • Adjusted EBITDA for the six months ended June 30, 2020 was $75.7 million versus $67.9 million a year ago, an increase of 11.5%. Adjusted EBITDA Margin of 12.9%, compared to 9.8% a year ago.
  • Excluding Kingsdale and Sloane, Adjusted EBITDA decreased 20.9% in the second quarter and increased 17.2% in the first half of 2020 compared with the prior year period.
  • Covenant EBITDA (LTM) of $193.3 million versus $200.7 million at March 31, 2020, a decline of 3.7%.
  • Net New Business wins totaled $20.5 million in the second quarter, and $28.9 million in the six months ended June 30, 2020.

(NASDAQ: MDCA) – MDC Partners Inc. ("MDC Partners" or the "Company") today announced financial results for the three and six months ended June 30, 2020.

"Coming off of pace-setting growth in the first quarter, we weathered the current effects of COVID-19 on GDP, our clients and revenue with a diligent focus on cost reductions and restructuring actions that helped preserve the underlying economics of the business. This resulted in expanded margins and positions MDC to rebound even more strongly once we return to growth," said Mark Penn, Chairman and Chief Executive Officer of MDC Partners.

"The expected declines in net revenue were met with better than expected controls on costs and strong liquidity. On a half-year basis, Adjusted EBITDA excluding divestitures increased 17 percent against prior year despite the revenue decline," Mr. Penn added.

Frank Lanuto, Chief Financial Officer, added, "We continued to operate with significant financial flexibility throughout the quarter. We extended our credit facility and retired $87 million in obligations in the second quarter, including semi-annual interest on our Notes, scheduled M&A obligations and partial bond repurchase.  We maintained a positive net cash position of $23 million at quarter end and reduced our leverage from 4.9x year ago to 4.6x."

Lead Independent Director and Special Committee Chairman Irwin Simon commented, "The special committee is proceeding with its review of Stagwell's recent merger proposal, assisted by independent advisors Moelis & Company and DLA Piper.  The committee will continue to act in the best interests of the Company and our shareholders as we evaluate the previously announced transaction proposed by Stagwell as well as all alternatives available to the Company."

Second Quarter and Year-to-Date 2020 Financial Results

Revenue for the second quarter of 2020 was $259.7 million versus $362.1 million for the second quarter of 2019, a decline of 28.3%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 0.8%, the impact of non-GAAP acquisitions (dispositions), net was negative 1.1%, and organic revenue decline was 26.4%, inclusive of $29.1 million or 457 basis points from lower billable costs. Organic revenue declined primarily due to reduced spending by clients in connection with COVID-19. Net New Business wins in the second quarter of 2020 totaled $20.5 million.

Net loss attributable to MDC Partners common shareholders for the second quarter of 2020 was $4.1 million versus net income of $0.8 million for the second quarter of 2019. The decline was primarily due to lower revenues, partially offset by a reduction in expenses, which included a goodwill and lease impairment charge of $18.8 million, a gain of $7.4 million in connection with the repurchase of a portion of our senior notes and a tax benefit during the second quarter as compared to the same period in the prior year. Diluted loss per share attributable to MDC Partners common shareholders for the second quarter of 2020 was $0.06 versus diluted income per share of $0.01 for the second quarter of 2019.

Adjusted EBITDA for the second quarter of 2020 was $36.2 million versus $46.4 million for the second quarter of 2019, a decline of 22.1%, primarily due to lower revenues, partially offset by a reduction of expenses. This led to a 110 basis point increase in Adjusted EBITDA margin in the second quarter of 2020 to 13.9% from 12.8% in the second quarter of 2019.

Covenant EBITDA for the last twelve months (LTM) was $193.3 million as of June 30, 2020 versus $200.7 million at March 31, 2020, a decline of 3.7%. The change was primarily driven by the decline in Adjusted EBITDA.

Revenue for the first six months of 2020 was $587.4 million versus $690.9 million for the first six months of 2019, a decline of 15.0%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 0.7%, the impact of non-GAAP acquisitions (dispositions), net was negative 1.4%, and organic revenue decline was 12.9%, inclusive of $28.1 million or 239 basis points from lower billable costs. Organic revenue declined primarily due to reduced spending by clients in connection with COVID-19. Net New Business wins for the first six months of 2020 totaled $28.9 million.

Net loss attributable to MDC Partners common shareholders for the first six months of 2020 was $6.5 million versus  $1.4 million for the first six months of 2019. This change was primarily due to the decline in revenue, partially offset by a reduction in expenses. Diluted loss per share attributable to MDC Partners common shareholders for the six months of 2020 was $0.09 versus diluted loss per share of $0.02 for the first six months of 2019.

Adjusted EBITDA for the first six months of 2020 was $75.7 million versus $67.9 million for the first six months of 2019, an increase of 11.5%. The improvement was primarily due to a reduction in expenses to combat the impact of COVID-19 on the business, partially offset by lower revenues. This led to a 310 basis point improvement in Adjusted EBITDA margin in the first six months of 2020 to 12.9% from 9.8% in the first six months of 2019.

Financial Outlook

Given the uncertainties in the global business environment arising from the COVID-19 pandemic, the Company is not providing a 2020 outlook for Revenue and Covenant EBITDA at this time.

Conference Call

Management will host a conference call on Thursday, August 6, 2020, at 8:30 a.m. (ET) to discuss its results.  The conference call will be accessible by dialing 1-862-298-0702 or toll free 1-888-390-3967.  An investor presentation has been posted on our website at www.mdc-partners.com and may be referred to during the conference call.

A recording of the conference call will be accessible within one business day after the conference call until 12:00 a.m. (ET), August 13, 2020, by dialing 1-754-333-7735 or toll free 1-888-539-4649 (passcode 153080), or by visiting our website at www.mdc-partners.com.

About MDC Partners Inc.

MDC Partners is one of the most influential marketing and communications networks in the world. As "The Place Where Great Talent Lives," MDC Partners is celebrated for its innovative advertising, public relations, branding, digital, social and event marketing agency partners, which are responsible for some of the most memorable and effective campaigns for the world's most respected brands. By leveraging technology, data analytics, insights and strategic consulting solutions, MDC Partners drives creative excellence, business growth and measurable return on marketing investment for over 1,700 clients worldwide. For more information about MDC Partners and its partner firms, visit our website at www.mdc-partners.com and follow us on Twitter at http://www.twitter.com/mdcpartners.

Non-GAAP Financial Measures

In addition to its reported results, MDC Partners has included in this earnings release certain financial results that the Securities and Exchange Commission (SEC) defines as "non-GAAP Financial Measures."  Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results. Such non-GAAP financial measures include the following:

(1) Organic Revenue: "Organic revenue growth" and "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 prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms that the Company has held throughout each of the comparable periods presented, and (b) "non-GAAP acquisitions (dispositions), net". Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.

(2) Net New Business: Estimate of annualized revenue for new wins less annualized revenue for losses incurred in the period.

(3) Adjusted EBITDA: Adjusted EBITDA is a non-GAAP financial measure that represents Net income (loss) attributable to MDC Partners Inc. common shareholders plus or minus adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items, net which includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.

(4) Covenant EBITDA: Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, permitted dispositions and other items, as defined in the Company's Credit Agreement. We believe that the presentation of Covenant EBITDA is useful to investors as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company's underlying operating performance. In addition, the presentation of Covenant EBITDA provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Company's Credit Agreement.

Included in this earnings release are tables reconciling MDC Partners' reported results to arrive at certain of these non-GAAP financial measures.

This press release contains forward-looking statements. Statements in this press release that are not historical facts, including without limitation the information under the heading "Financial Outlook" and statements about the Company's beliefs and expectations, earnings (loss) guidance, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as "estimates", "expects", "contemplates", "will", "anticipates", "projects", "plans", "intends", "believes", "forecasts", "may", "should", and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section.  Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.

Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:

  • risks associated with international, national and regional unfavorable economic conditions that could affect the Company or its clients, including as a result of the novel coronavirus pandemic ("COVID-19");
  • the effects of the outbreak of COVID-19, including the measures to reduce its spread, and the impact on the economy and demand for our services, which may precipitate or exacerbate other risks and uncertainties;
  • developments involving the proposal by Stagwell Media LP to enter into a business combination with the Company;
  • the Company's ability to attract new clients and retain existing clients;
  • reduction in client spending and changes in client advertising, marketing and corporate communications requirements;
  • financial failure of the Company's clients;
  • the Company's ability to retain and attract key employees;
  • the Company's ability to achieve the full amount of its stated cost saving initiatives;
  • the Company's implementation of strategic initiatives;
  • the Company's ability to remain in compliance with its debt agreements and the Company's ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration;
  • the successful completion and integration of acquisitions which complement and expand the Company's business capabilities; and
  • foreign currency fluctuations.

Investors should carefully consider these risk factors, other risk factors described herein, and the additional risk factors outlined in more detail in the Company's 2019 Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on March 5, 2020 and accessible on the SEC's website at www.sec.gov, under the caption "Risk Factors," and in the Company's other SEC filings.

 

CONTACT:

Erica Bartsch


Sloane & Company


212-446-1875


IR@mdc-partners.com

 

SCHEDULE 1
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(US$ in 000s, Except per Share Amounts)



Three Months Ended June 30,


Six Months Ended June 30,


2020


2019


2020


2019

Revenue:








Services

$

259,678



$

362,130



$

587,420



$

690,921


Operating Expenses:








Cost of services sold

165,632



240,749



388,325



477,903


Office and general expenses

66,210



87,276



132,563



154,394


Depreciation and amortization

8,899



10,663



18,105



19,501


Impairment and other losses

18,839





19,000





259,580



338,688



557,993



651,798


Operating income

98



23,442



29,427



39,123


Other Income (Expenses):








Interest expense and finance charges, net

(15,941)



(16,413)



(31,553)



(33,172)


Foreign exchange gain (loss)

5,342



2,932



(9,415)



8,374


Other, net

5,884



(746)



22,218



(4,128)



(4,715)



(14,227)



(18,750)



(28,926)


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

(4,617)



9,215



10,677



10,197


Income tax expense (benefit)

(7,923)



2,088



5,577



2,837


Income before equity in earnings of non-consolidated affiliates

3,306



7,127



5,100



7,360


Equity in earnings (losses) of non-consolidated affiliates

(798)



206



(798)



289


Net income

2,508



7,333



4,302



7,649


Net income attributable to the noncontrolling interest

(3,101)



(3,043)



(3,892)



(3,472)


Net income (loss) attributable to MDC Partners Inc.

(593)



4,290



410



4,177


Accretion on and net income allocated to convertible preference shares

(3,509)



(3,515)



(6,949)



(5,625)


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

$

(4,102)



$

775



$

(6,539)



$

(1,448)


Income (loss) Per Common Share:








Basic








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

$

(0.06)



$

0.01



$

(0.09)



$

(0.02)


Diluted








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

$

(0.06)



$

0.01



$

(0.09)



$

(0.02)


Weighted Average Number of Common Shares Outstanding:








Basic

72,528,455



71,915,832



72,463,058



66,118,749


Diluted

72,528,455



72,024,689



72,463,058



66,118,749



 

SCHEDULE 2
MDC PARTNERS INC.
UNAUDITED REVENUE RECONCILIATION
(US$ in 000s, except percentages)



Three Months Ended


Six Months Ended


Revenue $


% Change


Revenue $


% Change

June 30, 2019

$

362,130





$

690,921




Organic revenue (1)

(95,437)



(26.4)

%


(89,003)



(12.9)

%

Non-GAAP acquisitions (dispositions), net

(4,106)



(1.1)

%


(9,789)



(1.4)

%

Foreign exchange impact

(2,909)



(0.8)

%


(4,709)



(0.7)

%

Total change

(102,452)



(28.3)

%


(103,501)



(15.0)

%

June 30, 2020

$

259,678





$

587,420






(1) 

Organic revenue refers to the positive results of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) "non-GAAP acquisitions (dispositions), net". Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year. See "Non-GAAP Financial Measures" herein.



Note:

Actuals may not foot due to rounding

 

SCHEDULE 3
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)


For the Three Months Ended June 30, 2020


Integrated Networks
- Group A


Integrated Networks
- Group B


Media &
Data
Network


All Other


Corporate


Total

Revenue

$

82,735



$

93,398



$

28,551



$

54,994



$



$

259,678














Net loss attributable to MDC Partners Inc. common shareholders











$

(4,102)


Adjustments to reconcile to operating income (loss):












Accretion on convertible preference shares











3,509


Net income attributable to the noncontrolling interests











3,101


Equity in losses of non-consolidated affiliates











798


Income tax benefit











(7,923)


Interest expense and finance charges, net











15,941


Foreign exchange gain











(5,342)


Other, net











(5,884)


Operating income (loss)

$

14,605



$

(7,717)



$

46



$

4,987



$

(11,823)



$

98


margin

17.7

%


(8.3)

%


0.2

%


9.1

%




%













Adjustments:












Depreciation and amortization

$

1,566



$

4,387



$

807



$

1,903



$

236



$

8,899


Impairment and other losses



17,468



35



207



1,129



18,839


Stock-based compensation

(105)



746



4



118



276



1,039


Deferred acquisition consideration adjustments

1,139



1,503





(330)





2,312


Distributions from non-consolidated affiliates (2)









1,079



1,079


Other items, net (3)









3,895



3,895


Adjusted EBITDA (1)

$

17,205



$

16,387



$

892



$

6,885



$

(5,208)



$

36,161


Adjusted EBITDA margin

20.8

%


17.5

%


3.1

%


12.5

%




13.9

%



(1)

Adjusted EBITDA is a non-GAAP financial measure, and as shown above it represents operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, impairment and other items. See "Non-GAAP Financial Measures" herein.



(2)

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).



(3) 

Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.



Note:

 Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups ("Networks"). In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments.



Note:

 Actuals may not foot due to rounding.

 

SCHEDULE 4
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)


For the Six Months Ended June 30, 2020


Integrated
Networks
- Group A


Integrated
Networks
- Group B


Media &
Data
Network


All Other


Corporate


Total

Revenue

$

173,356



$

211,105



$

69,609



$

133,350



$



$

587,420














Net loss attributable to MDC Partners Inc. common shareholders











$

(6,539)


Adjustments to reconcile to operating income (loss):












Accretion on convertible preference shares











6,949


Net income attributable to the noncontrolling interests











3,892


Equity in losses of non-consolidated affiliates











798


Income tax expense











5,577


Interest expense and finance charges, net











31,553


Foreign exchange loss











9,415


Other, net











(22,218)


Operating income (loss)

$

26,637



$

9,444



$

663



$

12,844



$

(20,161)



$

29,427


margin

15.4

%


4.5

%


1.0

%


9.6

%




5.0

%













Adjustments:












Depreciation and amortization

$

3,307



$

8,913



$

1,615



$

3,802



$

468



$

18,105


Impairment and other losses



17,629



35



207



1,129



19,000


Stock-based compensation

1,856



1,646



(9)



198



418



4,109


Deferred acquisition consideration adjustments

1,707



(4,109)



375



(261)





(2,288)


Distributions from non-consolidated affiliates (2)









1,065



1,065


Other items, net (3)









6,311



6,311


Adjusted EBITDA (1)

$

33,507



$

33,523



$

2,679



$

16,790



$

(10,770)



$

75,729


Adjusted EBITDA margin

19.3

%


15.9

%


3.8

%


12.6

%




12.9

%



(1)

Adjusted EBITDA is a non-GAAP financial measure, and as shown above it represents operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, impairment and other items. See "Non-GAAP Financial Measures" herein.



(2)

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).



(3) 

Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.



Note:

 Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups ("Networks"). In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments.



Note:

 Actuals may not foot due to rounding.

 

SCHEDULE 5
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)


For the Three Months Ended June 30, 2019


Integrated Networks
- Group A


Integrated Networks
- Group B


Media &
Data
Network


All Other


Corporate


Total

Revenue

$

103,248



$

133,394



$

39,456



$

86,032



$



$

362,130














Net income attributable to MDC Partners Inc. common shareholders











$

775


Adjustments to reconcile to operating income (loss):












Accretion on convertible preference shares











3,515


Net income attributable to the noncontrolling interests











3,043


Equity in earnings of non-consolidated affiliates











(206)


Income tax expense











2,088


Interest expense and finance charges, net











16,413


Foreign exchange gain











(2,932)


Other, net











746


Operating income (loss)

$

14,963



$

17,338



$

278



$

7,494



$

(16,631)



$

23,442


margin

14.5

%


13.0

%


0.7

%


8.7

%




6.5

%













Adjustments:












Depreciation and amortization

$

2,348



$

4,318



$

1,335



$

2,441



$

221



$

10,663


Stock-based compensation

639



1,627



6



170



1,192



3,634


Deferred acquisition consideration adjustments

291



1,565



(615)



832





2,073


Distributions from non-consolidated affiliates (2)









31



31


Other items, net (3)









6,594



6,594


Adjusted EBITDA (1)

$

18,241



$

24,848



$

1,004



$

10,937



$

(8,593)



$

46,437


Adjusted EBITDA margin

17.7

%


18.6

%


2.5

%


12.7

%




12.8

%



(1)

Adjusted EBITDA is a non-GAAP financial measure, and as shown above it represents operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, impairment and other items. See "Non-GAAP Financial Measures" herein.



(2) 

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).



(3) 

Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.



Note:

Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups ("Networks"). In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments.



Note:  

Actuals may not foot due to rounding.

 

SCHEDULE 6
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)


For the Six Months Ended June 30, 2019


Integrated
Networks
- Group A


Integrated
Networks
- Group B


Media &
Data
Network


All Other


Corporate


Total

Revenue

$

176,987



$

266,564



$

82,688



$

164,682



$



$

690,921














Net loss attributable to MDC Partners Inc. common shareholders











$

(1,448)


Adjustments to reconcile to operating income (loss):












Accretion on convertible preference shares











5,625


Net income attributable to the noncontrolling interests











3,472


Equity in earning of non-consolidated affiliates











(289)


Income tax expense











2,837


Interest expense and finance charges, net











33,172


Foreign exchange gain











(8,374)


Other, net











4,128


Operating income (loss)

$

11,112



$

36,700



$

(1,371)



$

14,135



$

(21,453)



$

39,123


margin

6.3

%


13.8

%


(1.7)

%


8.6

%




5.7

%













Adjustments:












Depreciation and amortization

$

4,289



$

8,092



$

2,328



$

4,354



$

438



$

19,501


Stock-based compensation

4,234



2,491



6



256



(381)



6,606


Deferred acquisition consideration adjustments

(478)



(4,156)



73



(1,009)





(5,570)


Distributions from non-consolidated affiliates (2)









31



31


Other items, net (3)









8,220



8,220


Adjusted EBITDA (1)

$

19,157



$

43,127



$

1,036



$

17,737



$

(13,145)



$

67,911


Adjusted EBITDA margin

10.8

%


16.2

%


1.3

%


10.8

%




9.8

%



(1) 

Adjusted EBITDA is a non-GAAP financial measure, and as shown above it represents operating income (loss) plus depreciation and amortization, other asset impairment, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, impairment and other items. See "Non-GAAP Financial Measures" herein.



(2)

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).



(3) 

Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.



Note:

 Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups ("Networks"). In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments.



Note:

 Actuals may not foot due to rounding.

 

SCHEDULE 7
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO COVENANT EBITDA
(US$ in 000s)



2019


2020


 Covenant EBITDA
(LTM) (1)


Q2


Q3


Q4


Q1


Q2


Q1-2020-
LTM


Q2-2020 -
LTM

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

$

776



$

(5,058)



$

(10,488)



$

(2,437)



$

(4,102)



$

(17,207)



$

(22,085)


Adjustments to reconcile to operating income:














Accretion on and net income allocated to convertible preference shares

3,515



3,306



3,373



3,440



3,509



13,634



13,628


Net income attributable to the noncontrolling interests

3,043



7,265



5,419



791



3,101



16,518



16,576


Equity in losses (earnings) of non-consolidated affiliates

(206)



(63)







798



(269)



735


Income tax expense (benefit)

2,088



3,457



4,241



13,500



(7,923)



23,286



13,275


Interest expense and finance charges, net

16,413



16,110



15,658



15,612



15,941



63,793



63,321


Foreign exchange loss (gain)

(2,932)



3,973



(4,349)



14,757



(5,342)



11,449



9,039


Other, net

745



431



(2,158)



(16,334)



(5,884)



(17,316)



(23,945)


Operating income

$

23,442



$

29,421



$

11,696



$

29,329



$

98



$

93,888



$

70,544
















Adjustments to reconcile to Adjusted EBITDA:














Depreciation and amortization

$

10,663



$

9,368



$

9,460



$

9,206



$

8,899



$

38,697



$

36,933


Impairment and other losses



1,944



5,875



161



18,839



7,980



26,819


Stock-based compensation

3,634



6,026



18,408



3,070



1,039



31,138



28,543


Deferred acquisition consideration adjustments

2,073



1,943



9,030



(4,600)



2,312



8,446



8,685


Distributions from non-consolidated affiliates

31



(202)



2,219



(14)



1,079



2,034



3,082


Other items, net (2)

6,594



705



349



2,416



3,895



10,064



7,365


Adjusted EBITDA

$

46,437



$

49,205



$

57,037



$

39,568



$

36,161



$

192,247



$

181,971
















Adjustments to reconcile to Covenant EBITDA:














Proforma dispositions (3)

$

(729)



$

(996)



$

(1,294)



$

(124)



$



$

(3,143)



$

(2,414)


Severance due to eliminated positions

2,346



1,956



3,221



2,133



5,233



9,656



12,543


Other adjustments, net (4)

989



228



368



357



207



1,942



1,160


Covenant adjusted EBITDA

$

49,043



$

50,393



$

59,332



$

41,934



$

41,601



$

200,702



$

193,260





(1) 

Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, permitted dispositions and other adjustments, as defined in the Company's Credit Agreement. Covenant EBITDA is calculated as the aggregate of operating results for the rolling last twelve months (LTM). Each quarter is presented to provide the information utilized to calculate Covenant EBITDA. Historical Covenant EBITDA may be re-casted in the current period for any proforma adjustments related to acquisitions and/or dispositions in the current period. See "Non-GAAP Financial Measures" herein.





(2) 

Other items, net includes items such as severance expense and other restructuring expenses. See Schedule 10 for a reconciliation of amounts.





(3)

Represents Kingsdale and Sloane EBITDA for the respective period.





(4) 

Other adjustments, net primarily includes one-time professional fees and costs associated with real estate consolidation.





Note:

Actuals may not foot due to rounding.


 

SCHEDULE 8
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(US$ in 000s)



June 30,
 2020


December 31,
 2019





ASSETS




Current Assets:




Cash and cash equivalents

$

85,483



$

106,933


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

359,306



449,288


Expenditures billable to clients

19,426



30,133


Other current assets

66,318



35,613


Total Current Assets

530,533



621,967


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

70,787



81,054


Right of use assets - operating leases

238,230



223,622


Goodwill

706,946



731,691


Other intangible assets, net

48,904



54,893


Deferred tax assets

82,695



88,486


Other assets

27,356



30,179


Total Assets

$

1,705,451



$

1,831,892


LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS' DEFICIT




Current Liabilities:




Accounts payable

$

148,349



$

200,148


Accruals and other liabilities

264,572



357,162


Advance billings

136,196



171,742


Current portion of lease liabilities - operating leases

38,377



48,659


Current portion of deferred acquisition consideration

36,655



45,521


Total Current Liabilities

624,149



823,232


Long-term debt

922,537



887,630


Long-term portion of deferred acquisition consideration

2,597



29,699


Long-term lease liabilities - operating leases

267,559



219,163


Other liabilities

36,503



25,771


Total Liabilities

1,853,345



1,985,495


Redeemable Noncontrolling Interests

36,710



36,973


Commitments, Contingencies, and Guarantees




Shareholders' Deficit:




Convertible preference shares, 145,000 authorized, issued and outstanding at June 30, 2020 and December 31, 2019

152,746



152,746


Common stock and other paid-in capital

98,234



101,469


Accumulated deficit

(480,369)



(480,780)


Accumulated other comprehensive loss (income)

4,627



(4,269)


MDC Partners Inc. Shareholders' Deficit

(224,762)



(230,834)


Noncontrolling interests

40,158



40,258


Total Shareholders' Deficit

(184,604)



(190,576)


Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit

$

1,705,451



$

1,831,892



 

SCHEDULE 9
MDC PARTNERS INC.
UNAUDITED SUMMARY CASH FLOW DATA
(US$ in 000s)



Six Months Ended June 30,


2020


2019

Net cash used in operating activities

$

(33,678)



$

(40,237)


Net cash provided by investing activities

14,643



9,818


Net cash provided by (used in) financing activities

(1,434)



25,712


Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts

(981)



4


Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale

$

(21,450)



$

(4,703)


Change in cash and cash equivalents held in trusts classified within held for sale



(3,307)


Change in cash and cash equivalents classified within assets held for sale



4,441


Net decrease in cash and cash equivalents

(21,450)



(3,569)


Cash and cash equivalents at beginning of period

106,933



30,873


Cash and cash equivalents at end of period

$

85,483



$

27,304


Supplemental disclosures:




Cash income taxes paid

$

2,566



$

3,494


Cash interest paid

$

28,736



$

31,643




Note:

Actuals may not foot due to rounding.

 

SCHEDULE 10
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF COMPONENTS OF NON-GAAP MEASURES
(US$ in 000s)



2019


2020


Q1

Q2

Q3

Q4

YTD


Q1

Q2

YTD

NON-GAAP ACQUISITIONS (DISPOSITIONS), NET










GAAP revenue from current year acquisitions

$


$

698


$

1,347


$

1,396


$

3,441



$


$


$


GAAP revenue from prior year acquisitions (1)

15,685


1,519


1,109


291


18,604






Foreign exchange impact



470


(246)


224



(248)



(248)


Contribution to organic revenue (growth) decline (2)

(4,008)


(440)


(2,185)


(1,694)


(8,327)



(411)



(411)


Prior year revenue from dispositions (3)

(1,825)


(5,995)


(3,178)


(4,505)


(15,503)



(5,024)


(4,106)


(9,130)


Non-GAAP acquisitions (dispositions), net

$

9,852


$

(4,218)


$

(2,437)


$

(4,758)


$

(1,561)



$

(5,683)


$

(4,106)


$

(9,789)













2019


2020


Q1

Q2

Q3

Q4

YTD


Q1

Q2

YTD

OTHER ITEMS, NET










Severance and other restructuring expenses

$


$

6,703


$

705


$


$

7,408



$

1,334


$

2,969


$

4,303


Strategic review process costs

1,626


(109)



349


1,866



1,082


926


2,008


Total other items, net

$

1,626


$

6,594


$

705


$

349


$

9,274



$

2,416


$

3,895


$

6,311













2019


2020


Q1

Q2

Q3

Q4

YTD


Q1

Q2

YTD

CASH INTEREST, NET & OTHER










Cash interest paid

$

(1,629)


$

(30,014)


$

(882)


$

(29,698)


$

(62,223)



$

(145)


$

(28,591)


$

(28,736)


Bond interest accrual adjustment

(14,625)


14,625


(14,625)


14,625




(14,625)


13,894


(731)


Adjusted cash interest paid

(16,254)


(15,389)


(15,507)


(15,073)


(62,223)



(14,770)


(14,697)


(29,467)


Interest income

149


138


165


162


614



114


190


304


Total cash interest, net & other

$

(16,105)


$

(15,251)


$

(15,342)


$

(14,911)


$

(61,609)



$

(14,656)


$

(14,507)


$

(29,163)













2019


2020


Q1

Q2

Q3

Q4

YTD


Q1

Q2

YTD

CAPITAL EXPENDITURES, NET










Capital expenditures

$

(3,606)


$

(4,317)


$

(5,863)


$

(4,810)


$

(18,596)



$

(1,546)


$

(2,144)


$

(3,690)













2019


2020


Q1

Q2

Q3

Q4

YTD


Q1

Q2

YTD

MISCELLANEOUS OTHER DISCLOSURES










Net income attributable to the noncontrolling interests

$

429


$

3,043


$

7,265


$

5,419


$

16,156



$

791


$

3,101


$

3,892


Cash taxes

$

1,677


$

1,817


$

137


$

(1,335)


$

2,296



$

849


$

1,717


$

2,566




(1)  

GAAP revenue from prior year acquisitions for 2020 and 2019 relates to acquisitions which occurred in 2019 and 2018, respectively.



(2) 

Contribution to organic revenue represents the change in revenue, measured on a constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that are included in the Company's organic revenue growth (decline) calculation.



(3) 

Prior year revenue from dispositions reflects the incremental impact on revenue for the comparable period after the Company's disposition of such disposed business, plus revenue from each business disposed of by the Company in the previous year through the twelve month anniversary of the disposition.



Note:

 Actuals may not foot due to rounding.

 

MDC Partners Logo. (PRNewsfoto/MDC Partners Inc.)

 

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SOURCE MDC Partners Inc.

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