UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



			ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2019~~2020



			¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-13718

MDC Partners Inc.

(Exact name of registrant as specified in its charter)



Canada		98-0364441
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

~~745 Fifth Avenue~~ ~~New York, New York~~ One World Trade Center, Floor 65		~~10151~~
New York,	New York	10007
(Address of principal executive offices)		(Zip Code)

(646) 429-1800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Subordinate Voting Shares, no par value	MDCA	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated Filer ¨	☐	Accelerated ~~filer~~ xFiler	☒
Non-accelerated Filer ¨	☐	Smaller reporting company x	☒
Emerging growth company¨	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

The number of common shares outstanding as of October ~~18, 2019~~23, 2020 was ~~72,142,668~~73,528,105 Class A subordinate voting shares and ~~3,749~~3,743 Class B multiple voting shares.

Table of Contents

MDC PARTNERS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	34
	Unaudited Condensed Consolidated Statements of Operations ~~(unaudited)~~ for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	34
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) ~~(unaudited)~~ for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	45
	Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2019 (unaudited)~~2020 and December 31, ~~2018~~2019	56
	Unaudited Condensed Consolidated Statements of Cash Flows ~~(unaudited)~~ for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	67
	Unaudited Condensed Consolidated Statements of Shareholders’ Deficit ~~(unaudited)~~ for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5249
Item 4.	Controls and Procedures	5250

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	5451
Item 1A.	Risk Factors	5451
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5451
Item 3.	Defaults Upon Senior Securities	5452
Item 4.	Mine Safety Disclosures	5452
Item 5.	Other Information	5553
Item 6.	Exhibits	5654
Signatures		5654

References in this Quarterly Report on Form 10-Q to “MDC Partners,” “MDC,” the “Company,” “we,” “us” and “our” refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries. References in this Quarterly Report on Form 10-Q to “Partner Firms” generally refer to the Company’s subsidiary agencies.

All dollar amounts are stated in U.S. dollars unless otherwise stated.

Note About Forward-Looking Statements

This document contains forward-looking statements. The Company’s representatives may also make forward-looking statements orally or in writing from time to time. Statements in this document that are not historical facts, including, statements about the Company’s beliefs and expectations, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.

Table of Contents

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 “Potential Transaction”), including the impact of the announcement of the formation of the special committee, the reaching of an agreement in principle on certain aspects of a Potential Transaction, and the continuing discussion and review of a Potential Transaction on the Company’s business, whether any Potential Transaction will occur, and/or the ability to implement any Potential Transaction or other transaction;

•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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(thousands of United States dollars, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018				2020		2019		2020		2019
Revenue:													Revenue:
Services	$	342,907		$	375,830		$	1,033,828		$	1,082,541		Services	$	283,423	$	342,907	$	870,843	$	1,033,828
Operating Expenses:													Operating Expenses:
Cost of services sold	222,448			238,690			700,351			735,110			Cost of services sold	172,531		222,448		560,856		700,351
Office and general expenses	79,726			102,380			234,120			270,137			Office and general expenses	72,512		79,726		205,075		234,120
Depreciation and amortization	9,368			11,134			28,869			35,212			Depreciation and amortization	9,332		9,368		27,437		28,869
Goodwill and other asset impairment	1,944			21,008			1,944			23,325
Impairment and other losses													Impairment and other losses	159		1,944		19,159		1,944
	313,486			373,212			965,284			1,063,784				254,534		313,486		812,527		965,284
Operating income	29,421			2,618			68,544			18,757			Operating income	28,889		29,421		58,316		68,544
Other Income (Expenses):													Other Income (Expenses):
Interest expense and finance charges, net	(16,110		)	(17,063		)	(49,284		)	(50,005		)	Interest expense and finance charges, net	(15,266)		(16,110)		(46,819)		(49,284)
Foreign exchange gain (loss)	(3,973		)	3,275			4,401			(9,934		)	Foreign exchange gain (loss)	2,159		(3,973)		(7,256)		4,401
Other, net	(431		)	189			(4,559		)	1,222			Other, net	505		(431)		22,723		(4,559)
	(20,514		)	(13,599		)	(49,442		)	(58,717		)		(12,602)		(20,514)		(31,352)		(49,442)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates	8,907			(10,981		)	19,102			(39,960		)
Income tax expense (benefit)	3,457			2,986			6,292			(3,367		)
Income (loss) before equity in earnings of non-consolidated affiliates	5,450			(13,967		)	12,810			(36,593		)
Equity in earnings of non-consolidated affiliates	63			300			352			358
Net income (loss)	5,513			(13,667		)	13,162			(36,235		)
Income before income taxes and equity in earnings of non-consolidated affiliates													Income before income taxes and equity in earnings of non-consolidated affiliates	16,287		8,907		26,964		19,102
Income tax expense													Income tax expense	1,452		3,457		7,029		6,292
Income before equity in earnings of non-consolidated affiliates													Income before equity in earnings of non-consolidated affiliates	14,835		5,450		19,935		12,810
Equity in earnings (losses) of non-consolidated affiliates													Equity in earnings (losses) of non-consolidated affiliates	(31)		63		(829)		352

Net income													Net income	14,804		5,513		19,106		13,162
Net income attributable to the noncontrolling interest	(7,265		)	(2,458		)	(10,737		)	(5,900		)	Net income attributable to the noncontrolling interest	(10,728)		(7,265)		(14,620)		(10,737)
Net income (loss) attributable to MDC Partners Inc.	(1,752		)	(16,125		)	2,425			(42,135		)	Net income (loss) attributable to MDC Partners Inc.	4,076		(1,752)		4,486		2,425
Accretion on and net income allocated to convertible preference shares	(3,306		)	(2,109		)	(8,931		)	(6,204		)	Accretion on and net income allocated to convertible preference shares	(3,716)		(3,306)		(10,528)		(8,931)
Net loss attributable to MDC Partners Inc. common shareholders	$	(5,058	)	$	(18,234	)	$	(6,506	)	$	(48,339	)
Loss Per Common Share:
Net income (loss) attributable to MDC Partners Inc. common shareholders													Net income (loss) attributable to MDC Partners Inc. common shareholders	$	360	$	(5,058)	$	(6,042)	$	(6,506)
Income (loss) Per Common Share:													Income (loss) Per Common Share:
Basic													Basic
Net loss attributable to MDC Partners Inc. common shareholders	$	(0.07	)	$	(0.32	)	$	(0.10	)	$	(0.85	)

Net income (loss) attributable to MDC Partners Inc. common shareholders													Net income (loss) attributable to MDC Partners Inc. common shareholders	$	0	$	(0.07)	$	(0.08)	$	(0.10)
Diluted													Diluted
Net loss attributable to MDC Partners Inc. common shareholders	$	(0.07	)	$	(0.32	)	$	(0.10	)	$	(0.85	)

Net income (loss) attributable to MDC Partners Inc. common shareholders													Net income (loss) attributable to MDC Partners Inc. common shareholders	$	0	$	(0.07)	$	(0.08)	$	(0.10)
Weighted Average Number of Common Shares Outstanding:													Weighted Average Number of Common Shares Outstanding:
Basic	72,044,480			57,498,661			68,154,306			57,117,797			Basic	73,207,619		72,044,480		72,713,257		68,154,306
Diluted	72,044,480			57,498,661			68,154,306			57,117,797			Diluted	73,476,779		72,044,480		72,713,257		68,154,306
Stock-based compensation expense is included in the following line items above:
Cost of services sold	$	5,193		$	4,390		$	12,180		$	11,784
Office and general expenses	833			1,852			452			5,098
Total	$	6,026		$	6,242		$	12,632		$	16,882

See notes to the Unaudited Condensed Consolidated Financial Statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(thousands of United States dollars)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018				2020		2019		2020		2019
Comprehensive Income (Loss)													Comprehensive Income (Loss)
Net income (loss)	$	5,513		$	(13,667	)	$	13,162		$	(36,235	)
Net income													Net income	$	14,804	$	5,513	$	19,106	$	13,162

Other comprehensive income (loss), net of applicable tax:													Other comprehensive income (loss), net of applicable tax:
Foreign currency translation adjustment	(1,461		)	(1,327		)	(7,505		)	(898		)	Foreign currency translation adjustment	2,375		(1,461)		11,171		(7,505)
Other comprehensive loss	(1,461		)	(1,327		)	(7,505		)	(898		)
Comprehensive income (loss) for the period	4,052			(14,994		)	5,657			(37,133		)

Other comprehensive income (loss)													Other comprehensive income (loss)	2,375		(1,461)		11,171		(7,505)
Comprehensive income for the period													Comprehensive income for the period	17,179		4,052		30,277		5,657
Comprehensive income attributable to the noncontrolling interests	(6,969		)	(2,931		)	(10,830		)	(4,367		)	Comprehensive income attributable to the noncontrolling interests	(10,962)		(6,969)		(14,755)		(10,830)
Comprehensive loss attributable to MDC Partners Inc.	$	(2,917	)	$	(17,925	)	$	(5,173	)	$	(41,500	)
Comprehensive income (loss) attributable to MDC Partners Inc.													Comprehensive income (loss) attributable to MDC Partners Inc.	$	6,217	$	(2,917)	$	15,522	$	(5,173)

See notes to the Unaudited Condensed Consolidated Financial Statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
	(Unaudited)
ASSETS							ASSETS
Current Assets:							Current Assets:
Cash and cash equivalents	$	27,280		$	30,873		Cash and cash equivalents	$	37,075	$	106,933
Accounts receivable, less allowance for doubtful accounts of $2,728 and $1,879	411,805			395,200
Accounts receivable, less allowance for doubtful accounts of $3,703 and $3,304							Accounts receivable, less allowance for doubtful accounts of $3,703 and $3,304	403,636		449,288

Expenditures billable to clients	38,652			42,369			Expenditures billable to clients	21,884		30,133
Assets held for sale	—			78,913

Other current assets	35,939			42,499			Other current assets	67,585		35,613
Total Current Assets	513,676			589,854			Total Current Assets	530,180		621,967
Fixed assets, at cost, less accumulated depreciation of $147,342 and $128,546	82,946			88,189
Right-of-use assets - operating leases	234,137			—
Investments in non-consolidated affiliates	6,824			6,556
Fixed assets, at cost, less accumulated depreciation of $138,859 and $129,579							Fixed assets, at cost, less accumulated depreciation of $138,859 and $129,579	87,908		81,054
Right of use assets - operating leases							Right of use assets - operating leases	227,362		223,622

Goodwill	740,955			740,955			Goodwill	710,013		731,691
Other intangible assets, net of accumulated amortization of $171,941 and $161,868	56,734			67,765
Other intangible assets, net							Other intangible assets, net	46,600		54,893
Deferred tax assets	92,439			92,741			Deferred tax assets	82,576		84,900
Other assets	24,018			25,513			Other assets	21,493		30,179
Total Assets	$	1,751,729		$	1,611,573		Total Assets	$	1,706,132	$	1,828,306
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT							LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
Current Liabilities:							Current Liabilities:
Accounts payable	$	178,946		$	221,995		Accounts payable	$	128,643	$	200,148
Accruals and other liabilities	280,783			313,141			Accruals and other liabilities	323,414		353,575
Liabilities held for sale	—			35,967

Advance billings	169,857			138,505			Advance billings	157,101		171,742
Current portion of lease liabilities - operating leases	47,722			—			Current portion of lease liabilities - operating leases	40,038		48,659
Current portion of deferred acquisition consideration	31,579			32,928			Current portion of deferred acquisition consideration	39,321		45,521
Total Current Liabilities	708,887			742,536			Total Current Liabilities	688,517		819,645
Long-term debt	895,379			954,107			Long-term debt	860,422		887,630
Long-term portion of deferred acquisition consideration	24,611			50,767			Long-term portion of deferred acquisition consideration	6,824		29,699
Long-term lease liabilities - operating leases	230,209			—			Long-term lease liabilities - operating leases	257,107		219,163
Other liabilities	17,933			54,255			Other liabilities	38,439		25,771
Deferred tax liabilities	7,486			5,329

Total Liabilities	1,884,505			1,806,994			Total Liabilities	1,851,309		1,981,908
Redeemable Noncontrolling Interests	41,519			51,546			Redeemable Noncontrolling Interests	25,172		36,973
Commitments, Contingencies, and Guarantees (Note 13)
Commitments, Contingencies, and Guarantees (Note 9)							Commitments, Contingencies, and Guarantees (Note 9)
Shareholders’ Deficit:							Shareholders’ Deficit:
Convertible preference shares, 145,000 authorized, issued and outstanding at September 30, 2019 and 95,000 at December 31, 2018	152,746			90,123
Convertible preference shares, 145,000 authorized, issued and outstanding at September 30, 2020 and December 31, 2019							Convertible preference shares, 145,000 authorized, issued and outstanding at September 30, 2020 and December 31, 2019	152,746		152,746
Common stock and other paid-in capital	98,364			58,579			Common stock and other paid-in capital	106,037		101,469
Accumulated deficit	(462,483		)	(464,903		)	Accumulated deficit	(476,293)		(480,779)
Accumulated other comprehensive (loss) income	(2,878		)	4,720
Accumulated other comprehensive loss (income)							Accumulated other comprehensive loss (income)	6,768		(4,269)
MDC Partners Inc. Shareholders' Deficit	(214,251		)	(311,481		)	MDC Partners Inc. Shareholders' Deficit	(210,742)		(230,833)
Noncontrolling interests	39,956			64,514			Noncontrolling interests	40,393		40,258
Total Shareholders' Deficit	(174,295		)	(246,967		)	Total Shareholders' Deficit	(170,349)		(190,575)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit	$	1,751,729		$	1,611,573		Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit	$	1,706,132	$	1,828,306

See notes to the Unaudited Condensed Consolidated Financial Statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of United States dollars)

Nine Months Ended September 30,

2019 2018
Cash flows from operating activities:

Net income (loss) $ 13,162
$ (36,235 )
Adjustments to reconcile net income (loss) to cash used in operating activities:
Stock-based compensation 12,632
16,882
Depreciation 18,796
20,944
Amortization of intangibles 10,073
14,268
Amortization of deferred finance charges and debt discount 2,504
2,402
Goodwill and other asset impairment 1,944
23,325
Adjustment to deferred acquisition consideration (3,627 ) 8,522
Deferred income taxes 6,292
(6,690 )
Loss on sale of assets 3,361
(1,408 )
Earnings of non-consolidated affiliates (352 ) (358 )
Other non-current assets and liabilities (3,017 ) (956 )
Foreign exchange (5,145 ) 9,125
Changes in working capital:
Accounts receivable 835
8,574
Expenditures billable to clients 3,716
(28,171 )
Prepaid expenses and other current assets 3,280
(11,516 )
Accounts payable, accruals and other current liabilities (96,527 ) (49,587 )
Acquisition related payments (4,816 ) (28,263 )
Advance billings 31,049
27,413
Net cash used in operating activities (5,840 )
(31,729 )
Cash flows from investing activities:
Capital expenditures (13,786 ) (15,232 )
Proceeds from sale of assets 23,050
—
Acquisitions, net of cash acquired (5,778 ) (34,303 )
Other investments (179 ) 1,180
Net cash provided by (used in) investing activities 3,307

(48,355 )
Cash flows from financing activities:

Repayment of revolving credit facility (1,172,909 ) (1,121,300 )
Proceeds from revolving credit facility 1,112,857
1,224,290
Proceeds from issuance of common and convertible preference shares, net of issuance costs 98,620
—
Acquisition related payments (30,155 ) (32,240 )
Distributions to noncontrolling interests (9,982 ) (10,410 )
Payment of dividends (56 ) (182 )
Purchase of shares (577 ) (776 )
Other —
(260 )
Net cash provided by (used in) financing activities (2,202 )
59,122
Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts 8
(161 )
Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale (4,727 ) (21,123 )
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 (3,593 ) (21,123 )
Cash and cash equivalents at beginning of period 30,873
46,179


						Nine Months Ended September 30,
	Nine Months Ended September 30,					2020		2019
Cash flows from operating activities:					Cash flows from operating activities:
Net income					Net income	$	19,106	$	13,162
Adjustments to reconcile net income to cash used in operating activities:					Adjustments to reconcile net income to cash used in operating activities:
Stock-based compensation					Stock-based compensation	10,568		12,632
Depreciation and amortization					Depreciation and amortization	27,437		28,869

Impairment and other losses					Impairment and other losses	19,159		1,944
Adjustment to deferred acquisition consideration					Adjustment to deferred acquisition consideration	515		(3,627)
Deferred income taxes					Deferred income taxes	2,263		6,292

Gain on sale of assets and other					Gain on sale of assets and other	(4,199)		(2,649)

Changes in working capital:					Changes in working capital:
Accounts receivable					Accounts receivable	43,708		835
Expenditures billable to clients					Expenditures billable to clients	8,248		3,716
Prepaid expenses and other current assets					Prepaid expenses and other current assets	1,991		3,280
Accounts payable, accruals and other current liabilities					Accounts payable, accruals and other current liabilities	(109,256)		(96,527)
Acquisition related payments					Acquisition related payments	(7,514)		(4,816)

Advance billings					Advance billings	(14,517)		31,049
Net cash used in operating activities					Net cash used in operating activities	(2,491)		(5,840)
Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures					Capital expenditures	(11,474)		(13,786)

Proceeds from sale of assets					Proceeds from sale of assets	19,616		23,050
Acquisitions, net of cash acquired					Acquisitions, net of cash acquired	(1,816)		(5,778)

Other					Other	(1,777)		(179)
Net cash provided by investing activities					Net cash provided by investing activities	4,549		3,307

Cash flows from financing activities:					Cash flows from financing activities:
Repayments of borrowings under revolving credit facility					Repayments of borrowings under revolving credit facility	(456,428)		(1,172,909)
Proceeds from borrowings under revolving credit facility					Proceeds from borrowings under revolving credit facility	456,428		1,112,857
Proceeds from issuance of common and convertible preference shares, net of issuance costs					Proceeds from issuance of common and convertible preference shares, net of issuance costs	0		98,620

Acquisition related payments					Acquisition related payments	(35,331)		(30,155)

Distributions to noncontrolling interests and other					Distributions to noncontrolling interests and other	(14,639)		(10,615)
Repurchase of Senior Notes					Repurchase of Senior Notes	(21,999)		0
Net cash used in financing activities					Net cash used in financing activities	(71,969)		(2,202)
Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts					Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts	53		8
Net decrease in cash and cash equivalents, including cash classified within current assets held for sale					Net decrease in cash and cash equivalents, including cash classified within current assets held for sale	(69,858)		(4,727)
Change in cash and cash equivalents held in trusts classified within held for sale					Change in cash and cash equivalents held in trusts classified within held for sale	0		(3,307)
Change in cash and cash equivalents classified within assets held for sale					Change in cash and cash equivalents classified within assets held for sale	0		4,441
Net decrease in cash and cash equivalents					Net decrease in cash and cash equivalents	(69,858)		(3,593)
Cash and cash equivalents at beginning of period					Cash and cash equivalents at beginning of period	106,933		30,873
	2019		2018
Cash and cash equivalents at end of period	$	27,280	$	25,056	Cash and cash equivalents at end of period	$	37,075	$	27,280
Supplemental disclosures:					Supplemental disclosures:
Cash income taxes paid	$	3,631	$	4,822	Cash income taxes paid	$	2,700	$	3,631
Cash interest paid	$	32,525	$	33,011	Cash interest paid	$	29,311	$	32,525

See notes to the Unaudited Condensed Consolidated Financial Statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(thousands of United States dollars, except share amounts)

Three Months Ended
September 30, 2019
Convertible Preference Shares
Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss)
MDC Partners Inc. Shareholders' Deficit
Noncontrolling Interests
Total Shareholder's Deficit

(in thousands, except share amounts) Shares Amount
Shares

Balance at June 30, 2019 145,000
$ 152,746
71,947,743
$ 97,455
$ (460,726 ) $ (1,713 ) $ (212,238 ) $ 40,261
$ (171,977 )
Net loss attributable to MDC Partners Inc. —
—
—
—
(1,752 ) —
(1,752 ) —
(1,752 )
Other comprehensive loss —
—
—
—
—
(1,165 ) (1,165 ) (296 ) (1,461 )
Issuance of restricted stock —
—
372,953
—
—
—
—
—
—
Shares acquired and cancelled —
—
(174,279 ) (499 ) —
—
(499 ) —
(499 )
Stock-based compensation —
—
—
1,409
—
—
1,409
—
1,409
Changes in redemption value of redeemable noncontrolling interests —
—
—
767
—
—
767
—
767
Business acquisitions and step-up transactions, net of tax —
—
—
(648 ) —
—
(648 ) —
(648 )
Changes in ownership interest —
—
—
(109 ) —
—
(109 ) —
(109 )
Other —
—
—
(11 ) (5 ) —
(16 ) (9 ) (25 )
Balance at September 30, 2019 145,000
$ 152,746
72,146,417
$ 98,364
$ (462,483 ) $ (2,878 ) $ (214,251 ) $ 39,956
$ (174,295 )



	Three Months Ended
	September 30, 2020
	Convertible Preference Shares			Common Shares	Common Stock and Other Paid-in		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		MDC Partners Inc. Shareholders' Deficit		Noncontrolling Interests		Total Shareholder's Deficit


	Shares	Amount		Shares	Capital
Balance at June 30, 2020	145,000	$	152,746	72,587,390	$	98,234	$	(480,368)	$	4,627	$	(224,761)	$	40,158	$	(184,603)
Net income attributable to MDC Partners Inc.	—	—		—	—		4,076		—		4,076		—		4,076
Other comprehensive income	—	—		—	—		—		2,141		2,141		234		2,375


Vesting of restricted awards	—	—		1,047,423	0		—		—		0		—		0
Shares acquired and cancelled	—	—		(80,120)	(129)		—		—		(129)		—		(129)


Stock-based compensation	—	—		—	4,210		—		—		4,210		—		4,210
Changes in redemption value of redeemable noncontrolling interests	—	—		—	1,574		—		—		1,574		—		1,574
Business acquisitions and step-up transactions, net of tax	—	—		—	2,129		—		—		2,129		—		2,129


Other	—	—		—	19		(1)		—		18		1		19

Balance at September 30, 2020	145,000	$	152,746	73,554,693	$	106,037	$	(476,293)	$	6,768	$	(210,742)	$	40,393	$	(170,349)



	Nine Months Ended
	September 30, 2020
	Convertible Preference Shares			Common Shares	Common Stock and Other Paid-in		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		MDC Partners Inc. Shareholders' Deficit		Noncontrolling Interests		Total Shareholder's Deficit


	Shares	Amount		Shares	Capital
Balance at December 31, 2019	145,000	$	152,746	72,154,603	$	101,469	$	(480,779)	$	(4,269)	$	(230,833)	$	40,258	$	(190,575)
Net income attributable to MDC Partners Inc.	—	—		—	—		4,486		—		4,486		—		4,486
Other comprehensive income	—	—		—	—		—		11,036		11,036		135		11,171


Vesting of restricted awards	—	—		1,807,984	0		—		—		0		—		0
Shares acquired and cancelled	—	—		(407,894)	(861)		—		—		(861)		—		(861)


Stock-based compensation	—	—		—	5,243		—		—		5,243		—		5,243
Changes in redemption value of redeemable noncontrolling interests	—	—		—	(1,056)		—		—		(1,056)		—		(1,056)
Business acquisitions and step-up transactions, net of tax	—	—		—	1,626		—		—		1,626		—		1,626


Other	—	—		—	(384)		0		1		(383)		0		(383)

Balance at September 30, 2020	145,000	$	152,746	73,554,693	$	106,037	$	(476,293)	$	6,768	$	(210,742)	$	40,393	$	(170,349)

Nine Months Ended
September 30, 2019
Convertible Preference Shares Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) MDC Partners Inc. Shareholders' Deficit Noncontrolling Interests Total Shareholder's Deficit

(in thousands, except share amounts) Shares Amount Shares
Balance at December 31, 2018 95,000
$ 90,123
57,521,323
$ 58,579
$ (464,903 ) $ 4,720
$ (311,481 ) $ 64,514
$ (246,967 )
Net income attributable to MDC Partners Inc. —
—
—
—
2,425
—
2,425
—
2,425
Other comprehensive income (loss) —
—
—
—
—
(7,598 ) (7,598 ) 93
(7,505 )
Issuance of common and convertible preference shares 50,000
62,623
14,285,714
35,997
—
—
98,620
—
98,620
Issuance of restricted stock —
—
566,932
—
—
—
—
—
—
Shares acquired and cancelled —
—
(227,552 ) (577 ) —
—
(577 ) —
(577 )
Stock-based compensation —
—
—
1,918
—
—
1,918
—
1,918
Changes in redemption value of redeemable noncontrolling interests —
—
—
3,496
—
—
3,496
—
3,496
Business acquisitions and step-up transactions, net of tax —
—
—
(745 ) —
—
(745 ) —
(745 )
Changes in ownership interest —
—
—
(293 ) —
—
(293 ) (24,642 ) (24,935 )
Other —
—
—
(11 ) (5 ) —
(16 ) (9 ) (25 )
Balance at September 30, 2019 145,000
$ 152,746
72,146,417
$ 98,364
$ (462,483 ) $ (2,878 ) $ (214,251 ) $ 39,956
$ (174,295 )

~~MDC PARTNERS INC. AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT~~

~~(thousands of United States dollars, except share amounts)~~

Three Months Ended
September 30, 2018
Convertible Preference Shares Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) MDC Partners Inc. Shareholders' Deficit Noncontrolling Interests Total Shareholder's Deficit

(in thousands, except share amounts) Shares Amount Shares
Balance at June 30, 2018 95,000
$ 90,123
57,454,028
$ 45,824
$ (367,180 ) $ 481
$ (230,752 ) $ 77,416
$ (153,336 )
Net loss attributable to MDC Partners Inc. —
—
—
—
(16,125 ) —
(16,125 ) —
(16,125 )
Other comprehensive income (loss) —
—
—
—
—
(1,800 ) (1,800 ) 473
(1,327 )
Issuance of restricted stock —
—
115,500
—
—
—
—
—
—
Shares acquired and cancelled —
—
(54,089 ) (283 ) —
—
(283 ) —
(283 )
Stock-based compensation —
—
—
2,450
—
—
2,450
—
2,450
Changes in redemption value of redeemable noncontrolling interests —
—
—
(2,347 ) —
—
(2,347 ) —
(2,347 )
Business acquisitions and step-up transactions, net of tax —
—
—
4,975
—
—
4,975
(11,947 ) (6,972 )
Balance at September 30, 2018 95,000
$ 90,123
57,515,439
$ 50,619
$ (383,305 ) $ (1,319 ) $ (243,882 ) $ 65,942
$ (177,940 )

Nine Months Ended
September 30, 2018
Convertible Preference Shares Common Shares Common Stock and Other Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income MDC Partners Inc. Shareholders' Deficit Noncontrolling Interests Total Shareholder's Deficit

(in thousands, except share amounts) Shares Amount Shares
Balance at December 31, 2017 95,000
$ 90,220
56,375,131
$ 38,191
$ (340,000 ) $ (1,954 ) $ (213,543 ) $ 58,030
$ (155,513 )
Net loss attributable to MDC Partners Inc. —
—
—
—
(42,135 ) —
(42,135 ) —
(42,135 )
Other comprehensive income (loss) —
—
—
—
—
635
635
(1,533 ) (898 )
Expenses for convertible preference shares —
(97 ) —
—
—
—
(97 ) —
(97 )
Issuance of restricted stock —
—
237,529
—
—
—
—
—
—
Shares acquired and cancelled —
—
(108,782 ) (776 ) —
—
(776 ) —
(776 )
Shares issued, acquisitions —
—
1,011,561
7,030
—
—
7,030
—
7,030
Stock-based compensation —
—
—
6,774
—
—
6,774
—
6,774
Changes in redemption value of redeemable noncontrolling interests —
—
—
(4,409 ) —
—
(4,409 ) —
(4,409 )
Business acquisitions and step-up transactions, net of tax —
—
—
3,809
—
—
3,809
15,410
19,219
Changes in ownership interest —
—
—
—
—
—
—
(5,965 ) (5,965 )
Cumulative effect of adoption of ASC 606 —
—
—
—
(1,170 ) —
(1,170 ) —
(1,170 )
Balance at September 30, 2018 95,000
$ 90,123
57,515,439
$ 50,619
$ (383,305 ) $ (1,319 ) $ (243,882 ) $ 65,942
$ (177,940 )

See notes to the Unaudited Condensed Consolidated Financial Statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT - (continued)

(thousands of United States dollars, except share amounts)



	Three Months Ended
	September 30, 2019
	Convertible Preference Shares			Common Shares	Common Stock and Other Paid-in		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		MDC Partners Inc. Shareholders' Deficit		Noncontrolling Interests		Total Shareholder's Deficit


	Shares	Amount		Shares	Capital
Balance at June 30, 2019	145,000	$	152,746	71,947,743	$	97,455	$	(471,349)	$	(1,713)	$	(222,861)	$	40,261	$	(182,600)
Net loss attributable to MDC Partners Inc.	—	—		—	—		(1,752)		—		(1,752)		—		(1,752)
Other comprehensive loss	—	—		—	—		—		(1,165)		(1,165)		(296)		(1,461)


Vesting of restricted awards	—	—		372,953	—		—		—		—		—		0
Shares acquired and cancelled	—	—		(174,279)	(499)		—		—		(499)		—		(499)


Stock-based compensation	—	—		—	1,409		—		—		1,409		—		1,409
Changes in redemption value of redeemable noncontrolling interests	—	—		—	767		—		—		767		—		767
Business acquisitions and step-up transactions, net of tax	—	—		—	(648)		—		—		(648)		—		(648)
Changes in ownership interest	—	—		—	(109)		—		—		(109)		0		(109)

Other	—	—		—	(11)		(5)		—		(16)		(9)		(25)


Balance at September 30, 2019	145,000	$	152,746	72,146,417	$	98,364	$	(473,106)	$	(2,878)	$	(224,874)	$	39,956	$	(184,918)



	Nine Months Ended
	September 30, 2019
	Convertible Preference Shares			Common Shares	Common Stock and Other Paid-in		Accumulated Deficit		Accumulated Other Comprehensive Income		MDC Partners Inc. Shareholders' Deficit		Noncontrolling Interests		Total Shareholder's Deficit


	Shares	Amount		Shares	Capital
Balance at December 31, 2018	95,000	$	90,123	57,521,323	$	58,579	$	(475,526)	$	4,720	$	(322,104)	$	64,514	$	(257,590)
Net income attributable to MDC Partners Inc.	—	—		—	—		2,425		—		2,425		—		2,425
Other comprehensive loss	—	—		—	—		—		(7,598)		(7,598)		93		(7,505)
Issuance of common and convertible preference shares	50,000	62,623		14,285,714	35,997		—		—		98,620		—		98,620

Vesting of restricted awards	—	—		566,932	—		—		—		—		—		0
Shares acquired and cancelled	—	—		(227,552)	(577)		—		—		(577)		—		(577)


Stock-based compensation	—	—		—	1,918		—		—		1,918		—		1,918
Changes in redemption value of redeemable noncontrolling interests	—	—		—	3,496		—		—		3,496		—		3,496
Business acquisitions and step-up transactions, net of tax	—	—		—	(745)		—		—		(745)		—		(745)
Changes in ownership interest	—	—		—	(293)		—		—		(293)		(24,642)		(24,935)

Other	—	—		—	(11)		(5)		—		(16)		(9)		(25)


Balance at September 30, 2019	145,000	$	152,746	72,146,417	$	98,364	$	(473,106)	$	(2,878)	$	(224,874)	$	39,956	$	(184,918)

See notes to the Unaudited Condensed Consolidated Financial Statements.

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MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(thousands of United States dollars, except per share amounts, unless otherwise stated)

1. Basis of Presentation and Recent Developments

MDC Partners Inc. (the “Company” or “MDC”), incorporated under the laws of Canada, is a leading provider of global marketing, advertising, activation, communications and strategic consulting solutions. Through its Networks (and underlying agencies generally referred to as “Partner Firms”), MDC delivers a wide range of customized services in order to drive growth and business performance for its clients.

The accompanying consolidated financial statements include the accounts of MDC, ~~Partners Inc. (the “Company” or “MDC”),~~ its subsidiaries and variable interest entities for which the Company is the primary beneficiary. ~~References herein to “Partner Firms” generally refer to the Company’s subsidiary agencies.~~

MDC ~~Partners Inc.~~ has prepared the unaudited condensed consolidated interim financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, the financial statements have been condensed and do not include certain information and disclosures pursuant to these rules. The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates 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, ~~2018~~2019, as revised in the Company’s Current Report on Form 8-K filed August 31, 2020 (“~~2018~~2019 Form 10-K”).

The COVID-19 pandemic has negatively impacted the Company’s results of operations, financial position, and cash flows. While it is difficult to predict the full scale of the impact, the Company has taken actions to address the impact of the pandemic, such as working closely with our clients, reducing our expenses and monitoring liquidity. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. However, if the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the judgments, assumptions and estimates will be updated and could result in different results in the future.

The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Intercompany balances and transactions have been eliminated in consolidation.

Certain reclassifications have been made to the prior year financial information to conform to the current year presentation.

~~Due~~The Company reorganized its management structure in 2020 which resulted in a change to ~~changes in the composition of certain businesses and the Company’s internal management and reporting structure during 2019,~~our reportable ~~segment results for the 2018~~segments. Prior periods presented have been recast to reflect the ~~reclassification~~change in reportable segments. The Company began to present the Integrated Agencies Network reportable segment, which aggregated 4 operating segments (Constellation, Anomaly Alliance, Doner Partner Network and Colle McVoy), in the first quarter of ~~certain businesses between segments.~~2020. In connection with our discussions with the SEC, the Company has changed the prior presentation for the Integrated Agencies Network. Beginning in the second quarter of 2020, the Company separated the Integrated Agencies Network into 2 reportable segments: Integrated Networks - Group A (Anomaly Alliance and Colle McVoy) and Integrated Networks - Group B (Constellation and Doner Partner Network). The change was made to aggregate the operating segments that have the most similar historical average long-term profitability. See Note 1214 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.

Recent Developments

In addition, the Company withdrew its registration statement and preliminary proxy statement/prospectus, filed on August 31, 2020 and amended on September 3, 2020, pursuant to which the Company proposed to change its jurisdiction of

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incorporation from the federal jurisdiction of Canada to the State of Delaware (the “U.S. Domestication”). The Company instead expects the U.S. Domestication to be considered in conjunction with the Potential Transaction.

2. Acquisitions and Dispositions

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 are based on the financial results of the underlying business from 2019 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $1,615. The difference between the purchase price and the redeemable noncontrolling interest of $503 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.

2020 Disposition

On February 14, 2020, the Company sold substantially all the assets and certain liabilities of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company, to an affiliate of The Stagwell Group LLC (“Stagwell”), for an aggregate sale price of $26,696, consisting of cash received at closing plus contingent deferred payments expected to be paid over the next two years. The sale resulted in a gain of $16,827, which is included in Other, net within the Unaudited Condensed Consolidated Statements of Operations. Sloane was included within Allison & Partners which is included within the All Other category.

2019 Acquisitions

On November 15, 2019, the Company acquired the remaining 35% ownership interest of Laird + Partners it did not already own for an aggregate purchase price of $2,389, comprised of a closing cash payment of $1,588 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $801. The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $5,045. The difference between the purchase price and the redeemable noncontrolling interest of $2,656 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.

Effective April 1, 2019, the Company acquired the remaining 35% ownership interest of HPR Partners LLC (Hunter) it did not already own for an aggregate purchase price of $10,234, comprised of a closing cash payment of $3,890 and additional contingent deferred acquisition payments with an estimated present value at the acquisition date of $6,344. The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $9,486. The difference between the purchase price and the redeemable noncontrolling interest of $745 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets

2019 Disposition

On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City that provides shareholder advisory services. As consideration for the sale, the Company received cash plus the assumption of certain liabilities totaling approximately $50,000 in the aggregate. The sale resulted in a loss of $3,000, which was included in Other, net within the Unaudited Condensed Consolidated Statements of Operations.

3. Revenue

The Company’s revenue recognition policies are established in accordance with ~~the Revenue Recognition topics of~~ ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The MDC network provides an extensive range of services to our clients, offering a variety of marketing and communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social 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

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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 ~~on a global basis.~~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~~

Table 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.Contents

The following table presents revenue disaggregated by client industry vertical for the three and nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Three Months Ended September 30,				Nine Months Ended September 30,
Industry	Reportable Segment	2020		2019		2020		2019
Food & Beverage	All	$	48,153	$	64,774	$	152,586	$	204,743
Retail	All	39,390		39,420		108,882		111,899
Consumer Products	All	37,175		38,510		111,371		119,866
Communications	All	20,227		48,147		58,234		136,819
Automotive	All	13,399		19,125		51,610		55,857
Technology	All	41,220		28,148		129,569		84,294
Healthcare	All	25,120		25,152		71,970		74,403
Financials	All	22,529		28,054		66,282		81,049
Transportation and Travel/Lodging	All	9,674		20,541		35,226		65,111
Other	All	26,536		31,036		85,113		99,787
		$	283,423	$	342,907	$	870,843	$	1,033,828

Three Months Ended September 30, Nine Months Ended September 30,
Industry Reportable Segment 2019 2018 2019 2018
Food & Beverage All $ 64,774
$ 80,919
$ 204,743
$ 234,203
Retail All 39,420
40,421
111,899
116,832
Consumer Products All 38,510
40,124
119,866
118,097
Communications All 48,147
46,779
136,819
128,232
Automotive All 19,125
21,282
55,857
67,070
Technology All 28,148
26,005
84,294
71,085
Healthcare All 25,152
33,751
74,403
101,753
Financials All 28,054
30,378
81,049
83,079
Transportation and Travel/Lodging All 20,541
19,357
65,111
53,021
Other All 31,036
36,814
99,787
109,169
$ 342,907
$ 375,830
$ 1,033,828
$ 1,082,541

MDC has historically ~~largely~~ focused its operations primarily where the Company was founded in North America, the largest market for its services in the world. ~~In recent years the Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets. Today,~~ MDC’s Partner Firms are located in the United States, Canada, and an additional ~~twelve~~11 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 nine months ended September 30, ~~2019~~2020 and ~~2018:~~2019:


		Three Months Ended September 30,				Nine Months Ended September 30,
Geographic Location	Reportable Segment	2020		2019		2020		2019
United States	All	$	228,255	$	271,671	$	703,158	$	819,347
Canada	All	20,299		25,895		55,164		72,837
Other	All	34,869		45,341		112,521		141,644
		$	283,423	$	342,907	$	870,843	$	1,033,828

Three Months Ended September 30, Nine Months Ended September 30,
Geographic Location Reportable Segment 2019 2018 2019 2018
United States All $ 271,671
$ 296,544
$ 819,347
$ 848,336
Canada All, excluding Media Services 25,895
32,132
72,837
91,597
Other All, excluding Media Services 45,341
47,154
141,644
142,608
$ 342,907
$ 375,830
$ 1,033,828
$ 1,082,541

Contract ~~assets~~Assets and ~~liabilities~~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 ~~$81,703~~$70,999 and ~~$64,362~~$65,004 at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and are included as a component of ~~accounts~~Accounts receivable on the Unaudited Condensed Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were ~~$38,652~~$21,884 and ~~$42,369~~$30,133 at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, and are included on the Unaudited Condensed Consolidated Balance Sheets as ~~expenditures~~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~~Advance billings and 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 Condensed Consolidated Statements of Operations. Advance billings at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$169,857~~$157,101 and ~~$138,505,~~$171,742, respectively. The ~~increase~~decrease in the advance billings balance of ~~$31,352~~$14,641 for the nine months ended September 30, ~~2019~~2020 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by ~~$114,927~~$127,961 of revenues recognized that were included in the advance billings balances as of December 31, ~~2018~~2019 and reductions due to the incurrence of third-party costs. Contract liabilities classified within Accruals and other liabilities at September 30, 2020 and December 31, 2019 were $197,650 and $216,931, respectively. The decrease in the balance of $19,281 for the nine months ended September 30, 2020 was primarily driven by cash payments received or due in advance of

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satisfying our performance obligations, offset by $190,342 of revenues recognized that were included in the balance as of December 31, 2019 and reductions due to the incurrence of third-party costs.

Changes in the contract asset and liability balances during the nine months ended September 30, ~~2019 and December 31, 2018~~2020 were not materially impacted by write offs, impairment losses or any other factors.

The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we had approximately $14,556 of unsatisfied performance obligations as of September 30, 2020, of which we expect to recognize approximately 66% in 2020, 31% in 2021 and 3% in 2022.

4. Income (Loss) Per Common Share

The following table sets forth the computation of basic and diluted income (loss) per common share:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net income (loss) attributable to MDC Partners Inc.	$	4,076	$	(1,752)	$	4,486	$	2,425
Accretion on convertible preference shares	(3,579)		(3,306)		(10,528)		(8,931)
Net income allocated to convertible preference shares	(137)		0		0		0
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	360	$	(5,058)	$	(6,042)	$	(6,506)




Denominator:
Basic weighted average number of common shares outstanding	73,207,619		72,044,480		72,713,257		68,154,306

Dilutive effect of equity awards	269,160		0		0		0
Diluted weighted average number of common shares outstanding	73,476,779		72,044,480		72,713,257		68,154,306
Basic	$	0	$	(0.07)	$	(0.08)	$	(0.10)
Diluted	$	0	$	(0.07)	$	(0.08)	$	(0.10)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Numerator:

Net income (loss) attributable to MDC Partners Inc. $ (1,752 ) $ (16,125 ) $ 2,425
$ (42,135 )
Accretion on convertible preference shares (3,306 )
(2,109 ) (8,931 ) (6,204 )
Net income allocated to convertible preference shares —
—
—
—
Net loss attributable to MDC Partners Inc. common shareholders $ (5,058 )
$ (18,234 ) $ (6,506 ) $ (48,339 )

Adjustment to net income allocated to convertible preference shares —
—
—
—
Numerator for dilutive loss per common share:
Net loss attributable to MDC Partners Inc. common shareholders $ (5,058 )
$ (18,234 ) $ (6,506 ) $ (48,339 )
Denominator:
Basic weighted average number of common shares outstanding 72,044,480

57,498,661
68,154,306
57,117,797
Effect of dilutive securities:
Impact of stock options and non-vested stock under employee stock incentive plans —
—
—
—
Diluted weighted average number of common shares outstanding 72,044,480

57,498,661
68,154,306
57,117,797
Basic $ (0.07 )
$ (0.32 ) $ (0.10 ) $ (0.85 )
Diluted $ (0.07 ) $ (0.32 ) $ (0.10 ) $ (0.85 )

Anti-dilutive stock awards 2,325,800 3,714,595 ~~1,524,218~~3,539,060 3,714,595 ~~1,524,218~~

Restricted stock and restricted stock unit awards of ~~135,386~~3,220,342 and ~~1,015,637~~135,386 as of September 30, 2020 and 2019 ~~and 2018~~ respectively, ~~which are contingent upon the Company meeting a cumulative three year earnings target and contingent upon continued employment,~~ are excluded from the computation of diluted income (loss) per common share because the performance contingency necessary for vesting has not been met as of the ~~contingencies were not satisfied at September 30, 2019 and 2018, respectively.~~reporting date. In addition, there were 145,000 ~~and 95,000~~ Preference Shares outstanding which were convertible into ~~26,133,613~~28,287,863 and ~~10,755,602~~26,133,613 Class A common shares at September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. These Preference Shares were anti-dilutive for each period presented in the table above and are therefore excluded from the diluted income (loss) per common share calculation.

~~4. Acquisitions and Dispositions~~

~~2019 Acquisition~~

Effective April 1, 2019, the Company acquired the 35% ownership interest of HPR Partners LLC (Hunter) it did not own for an aggregate purchase price of $10,234, comprised of a closing cash payment of $3,890 and additional deferred acquisition payments with an estimated present value at the acquisition date of $6,344. The deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,178. The fair value was measured using a discounted cash flow model.

As a result of the transaction, the Company reduced redeemable noncontrolling interests by $9,486. The difference between the purchase price and the noncontrolling interest of $745 was recorded in common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheet.

~~2019 Disposition~~

On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City that provides shareholder advisory services. As consideration for the sale, the Company was paid cash plus the assumption of certain liabilities totaling approximately $50 million in the aggregate. The sale resulted in a loss of approximately $3 million, which is included in Other, net within the Unaudited Condensed Consolidated Statement of Operations.

~~Assets and Liabilities Held for Sale - Change in Plan to Sell~~

In the fourth quarter of 2018, the Company initiated a process to sell its ownership interest in a foreign office within the Global Integrated Agencies reportable segment. The assets and liabilities of the entity were classified as Assets and Liabilities held for sale, at their fair value less cost to sell, within the Consolidated Balance Sheet as of December 31, 2018. In the second quarter of 2019, following the appointment of Mark Penn as Chief Executive Officer, management changed its strategy and plan to sell the foreign office. In the second quarter of 2019, in connection with management’s decision, the amounts classified within assets and liabilities held for sale were reclassified into the respective line items within the Unaudited Condensed Consolidated Balance Sheet.

~~2018 Acquisitions~~

On September 7, 2018, a subsidiary of the Company purchased a 100% interest in OneChocolate Communications Limited and OneChocolate Communications LLC, PR (“OneChocolate”) a digital marketing consultancy headquartered in London, UK, for an aggregate purchase price of $3,231, working capital of $966 and additional deferred acquisition payments with an estimated present value of $2,146. OneChocolate’s results are reflected in the Allison & Partners operating segment which is included in the Specialist Communications reportable segment which had an immaterial impact on our results.

On July 1, 2018, the Company acquired the remaining 14.87% and 3% of membership interests of Doner Partners, LLC and Source Marketing LLC, respectively, for an aggregate purchase price of $7,618, comprised of a closing cash payment of $3,279 and additional deferred acquisition payments with an estimated present value of $4,305 as of December 31, 2018. As of the acquisition date, the fair value of the additional interests acquired was $16,361 for Doner Partners LLC. The fair values were measured using a discounted cash flow model. As a result of the transaction, the Company reduced noncontrolling interest by $11,946 and redeemable noncontrolling interest by $933.

On April 2, 2018, the Company purchased 51% of the membership interests of Instrument LLC (“Instrument”), a digital creative agency based in Portland, Oregon, for an aggregate purchase price of $35,591. The acquisition is expected to facilitate the Company’s growth and help to build its portfolio of modern, innovative and digital-first agencies. The purchase price consisted of a cash payment of $28,561 and the issuance of 1,011,561 shares of the Company’s Class A subordinate voting stock with an acquisition date fair value of $7,030. The Company issued these shares in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act.

The purchase price allocation for Instrument resulted in tangible assets of $10,304, identifiable intangibles of $23,130, consisting primarily of customer lists and a trade name, and goodwill of $32,776. In addition, the Company has recorded $27,357 as the fair value of noncontrolling interests, which was derived from the Company’s purchase price less a discount related to the noncontrolling parties’ lack of control. The identified assets have a weighted average useful life of approximately six years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. The goodwill is tax deductible. Instruments’ results are included in the All Other category from a segment reporting perspective. The Company has a controlling financial interest in Instrument through its majority voting interest, and as such, has aggregated the acquired Partner Firm’s financial data into the Company’s Unaudited Condensed Consolidated Financial Statements. The operating results of Instrument in the current year are not material.

Effective January 1, 2018, the Company acquired the remaining 24.5% ownership interest of Allison & Partners LLC for an aggregate purchase price of $10,023, comprised of a closing cash payment of $300 and additional deferred acquisition payments with an estimated present value at the acquisition date of $9,723. The deferred payments are based on the future financial results of the underlying business from 2017 to 2020 with final payments due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,096. The fair value was measured using a discounted cash flow model. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $8,857. The difference of $1,166 between the purchase price and the noncontrolling interest was recorded in additional paid-in capital.

5. Deferred Acquisition Consideration

Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each reporting period through operating income, for contingent purchase price payments, or net interest expense, for fixed purchase price payments. The Company accounts for retention payments through operating income as stock-based compensation over the required retention period.

The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the balance sheets as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

September 30, December 31,
2019 2018
Beginning Balance of contingent payments $ 82,598
$ 119,086
Payments (30,719 ) (54,947 )
Redemption value adjustments ⁽¹⁾
(2,617 ) 3,512
Additions - acquisitions and step-up transactions 6,344
14,943
Other 35
4
Ending Balance of contingent payments $ 55,641
$ 82,598
Fixed payments 549
1,097
$ 56,190
$ 83,695

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^{September 30, December 31,
2020 2019
Beginning Balance of contingent payments $ 74,671 $ 82,598
Payments (41,326) (30,719)
Redemption value adjustments (1) 2,814 15,451
Additions - acquisitions and step-up transactions 7,703 7,145
Other 2,020 196
Ending Balance of contingent payments $ 45,882 $ 74,671
Fixed payments 263 549
$ 46,145 $ 75,220}

(1)Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within ~~cost of services sold and office~~Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.

The following table presents the impact to the Company’s ~~statement~~Statements of operations due to the redemption value adjustments for the contingent deferred acquisition consideration:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Loss (Income) attributable to fair value adjustments	$	2,803	$	1,943	$	515	$	(3,627)
Stock-based compensation	770		1,540		2,299		1,010
Redemption value adjustments	$	3,573	$	3,483	$	2,814	$	(2,617)

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
(Income) loss attributable to fair value adjustments $ 1,943
$ 11,003
$ (3,627 ) $ 8,522
Stock-based compensation 1,540
3,076
1,010
7,758
Redemption value adjustments $ 3,483
$ 14,079
$ (2,617 ) $ 16,280

6. Leases

Effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases (“ASC 842”). As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 840, Leases. See Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the Company’s adoption of ASC 842. The policies described herein refer to those in effect as of January 1, 2019.

The Company leases office space in North America, Europe, Asia, South America, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years ~~2019~~2020 through 2032. The Company’s finance leases are immaterial.

The Company’s leasing policies are established in accordance with ASC 842, and accordingly, the Company recognizes on the balance sheet at the time of lease commencement a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments. Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All right-of-use lease assets are reviewed for impairment. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Lease costs are recognized in the Unaudited Condensed Consolidated ~~Statement~~Statements of Operations over the lease term on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset.

Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate. Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities. Lease liabilities are not remeasured as a result of changes in the index or rate, rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred. In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other variable operating expenses. Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances on which the variable lease payments are based upon occur.

~~The~~Some of the Company’s leases include options to extend or renew the ~~lease~~leases through 2040. The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option.

From time to time, the Company enters into sublease arrangements both with unrelated third-parties and with our partner agencies. These leases are classified as operating leases and expire between years ~~2019~~2020 through ~~2032.~~2025. Sublease income is

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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 September 30, ~~2019,~~2020, the Company has entered into ~~two~~three operating leases for which the commencement date has not yet occurred as ~~this leased space is~~the premises are in the process of being prepared for occupancy by the ~~landlord for occupancy.~~landlord. Accordingly, these three leases represent an obligation of the Company that is not onreflected within the Unaudited Condensed Consolidated Balance ~~Sheet~~Sheets as of September 30, ~~2019.~~2020. The aggregate future liability related to these leases is approximately ~~$12 million.~~$12,677.

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 nine months ended September 30, 2020 and 2019:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Lease Cost:
Operating lease cost	$	18,495	$	16,605	$	53,397	$	50,519

Variable lease cost	3,580		4,960		11,808		14,285
Sublease rental income	(2,940)		(2,376)		(8,637)		(6,565)
Total lease cost	$	19,135	$	19,189	$	56,568	$	58,239
Additional information:
Cash paid for amounts included in the measurement of lease liabilities for operating leases
Operating cash flows	$	17,703	$	16,988	$	52,930	$	52,163

Right-of-use assets obtained in exchange for operating lease liabilities and other non-cash adjustments	$	(814)	$	8,783	$	37,120	$	267,796
Weighted average remaining lease term (in years) - Operating leases	7.35		7.0		7.35		7.0
Weighted average discount rate - Operating leases	10.6		8.7		10.6		8.7

Three Months Ended September 30, Nine Months Ended September 30,
2019 2019
Lease Cost:
Operating lease cost $ 16,605
$ 50,519
Variable lease cost 4,960
14,285
Sublease rental income (2,376 ) (6,565 )
Total lease cost $ 19,189
$ 58,239
Additional information:
Cash paid for amounts included in the measurement of lease liabilities for operating leases

Operating cash flows $ 16,988
$ 52,163

Right-of-use assets obtained in exchange for operating lease liabilities $ 8,783
$ 267,796
Weighted average remaining lease term (in years) - Operating leases 7.0
7.0
Weighted average discount rate - Operating leases 8.7
8.7

In the ~~three~~nine months ended September 30, ~~2019,~~2020, the Company recorded ~~an impairment~~a charge of ~~$1.9 million~~$5,777 primarily to reduce the carrying value of aits right-of-use lease ~~asset~~assets and related leasehold improvements of ~~one~~three of its agencies within its ~~Global~~ Integrated ~~Agencies segment.~~Networks - Group B reportable segment and leased space of Corporate. The Company evaluated the facts and circumstances related to the use of the ~~asset~~assets which indicated that itthey may not be recoverable. Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the ~~asset was~~assets were less than ~~its~~their carrying value. This impairment charge is included in ~~Other Asset~~ Impairment and other losses within the Unaudited Condensed Consolidated ~~Statement~~Statements of Operations.

In the three and nine months ended September 30, 2019, the Company recorded an impairment charge of $1,933 to reduce the carrying value of its right-of-use lease assets and related leasehold improvements.

Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated ~~Statement~~Statements of Operations. The Company’s lease expense for leases with a term of 12 months or less is immaterial. ~~Rental expense for the three and nine months ended September 30, 2018 was $15,768 and $49,309, respectively, offset by $1,233 and $2,873, respectively in sublease rental income.~~

The following table presents minimum future rental payments under the Company’s leases at September 30, ~~2019~~2020 and their reconciliation to the corresponding lease liabilities:

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					Maturity Analysis
	Maturity Analysis
Remaining 2019	$	17,454
2020	68,981
Remaining 2020				Remaining 2020	$	17,241
2021	58,759			2021	67,718
2022	48,272			2022	61,473
2023	43,732			2023	57,429
2024				2024	50,894
Thereafter	139,476			Thereafter	190,461
Total	376,674			Total	445,216
Less: Present value discount	(98,743		)	Less: Present value discount	(148,071)
Lease liability	$	277,931		Lease liability	$	297,145

7. Debt

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s indebtedness was comprised as follows:


	September 30, 2019			December 31, 2018				September 30, 2020		December 31, 2019
Revolving credit agreement	$	8,091		$	68,143		Revolving credit agreement	$	0	$	0
6.50% Notes due 2024	900,000			900,000			6.50% Notes due 2024	870,256		900,000
Debt issuance costs	(12,712		)	(14,036		)	Debt issuance costs	(9,834)		(12,370)
	$	895,379		$	954,107			$	860,422	$	887,630

6.50% Notes

On March 23, 2016, MDC entered into an indenture (the “Indenture”) among MDC, its existing and future restricted subsidiaries that guarantee, are co-borrowers under, or grant liens to secure, the Credit Agreement (as defined below), as guarantors (the “Guarantors”) and The Bank of New York Mellon, as trustee, relating to the issuance by MDC of $900,000 aggregate principal amount of the senior ~~unsecured~~ notes due 2024 (the “6.50% Notes”). The 6.50% Notes were sold in a private placement in reliance on ~~exceptions~~exemptions from registration under the Securities Act of 1933. The 6.50% Notes bear interest, payable semiannually in arrears on May 1 and November 1, at a rate of 6.50% per annum. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased.

In April 2020, the Company repurchased $29,744 of the 6.50% Notes, at a weighted average price equal to 73.90% of the principal amount totaling $21,999, and accrued interest of $946. As a result of the repurchase, we recognized an extinguishment gain of $7,388.

MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, ~~on and after May 1, 2019,~~ at varying prices based on the timing of the redemption.

If MDC experiences certain kinds of changes of control (as defined in the Indenture), holders of the 6.50% Notes may require MDC to repurchase any 6.50% Notes held by them at a price equal to 101% of the principal amount of the 6.50% Notes plus accrued and unpaid interest. In addition, if MDC sells assets under certain circumstances, it must apply the proceeds from such sale and offer to repurchase the 6.50% Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest.

The Indenture includes covenants that, among other things, restrict MDC’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of default, including a cross-payment default and cross-acceleration provision. The Company was in compliance with all covenants at September 30, ~~2019.~~2020.

Revolving Credit Agreement

The Company is party to a ~~$250,000~~$211,500 secured revolving credit facility due ~~May~~February 3, ~~2021. The amounts outstanding under the revolving credit facility as of September 30, 2019 and December 31, 2018 are presented in the table above and additional details are provided below.~~2022.

On ~~March 12, 2019 (the “Amendment Effective Date”),~~May 29, 2020, the Company, Maxxcom Inc. (a, a subsidiary of the ~~Company)~~Company (“Maxxcom”), and each of their subsidiaries party thereto entered into an ~~Amendment~~amendment (the “Second Amendment”) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries

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party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement.

The Second Amendment provides financial covenant relief by increasing the total leverage ratio applicable on each testing date after the Amendment Effective Date through the period ending December 31, 2020 from 5.5:1.0 to 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will revert to 5.5:1.0.

~~In connection with the Amendment, the Company~~ reduced the aggregate maximum amount of revolving commitments provided by the lenders ~~under~~to $211,500 from $250,000, extended the maturity date of the Credit Agreement from May 3, 2021 to ~~$250 million from $325 million.~~February 3, 2022, and expanded the eligibility criteria for certain of the Company’s receivables to be included in the borrowing base.

Advances under the Credit Agreement, as amended by the Second Amendment, will bear interest as follows: ~~(a)~~(i) ~~LIBOR~~Non-Prime Rate Loans bear interest at the ~~LIBOR~~Non-Prime Rate plus the Non-Prime Rate Margin and (ii) ~~Base Rate Loans~~all other Obligations bear interest at the ~~Base~~Prime Rate, plus ~~(b) an applicable margin.~~the Prime Rate Margin. The ~~initial applicable margin~~Non-Prime Rate Margin and Prime Rate Margin will range from 2.50% to 3.00% for ~~borrowing is 0.75% in the case of Base~~Non-Prime Rate Loans and ~~1.50% in the case of LIBOR~~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 Second Amendment increased the required minimum earnings before interest, taxes and depreciation and amortization from $105 million to $120 million measured on a trailing 12-month basis. The total leverage ratio applicable on each testing date through the period ending December 31, 2020 remained at 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will be 5.5:1.0.

The Credit Agreement, which includes financial and non-financial covenants, is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary exceptions, and collateralized by a portion of MDC’s outstanding receivable balance. The Company ~~is currently~~was in compliance with all of the terms and conditions of its Credit ~~Agreement.~~Agreement as of September 30, 2020.

At September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had issued undrawn outstanding letters of credit of ~~$4,744~~$18,576 and ~~$4,701,~~$4,836, respectively.

8. Noncontrolling and Redeemable Noncontrolling Interests

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

Noncontrolling Interests

Changes in amounts due to noncontrolling interest holders included in Accruals and other liabilities on the Unaudited Condensed Consolidated Balance Sheets for the year ended December 31, 2019 and nine months ended September 30, 2020 were as follows:

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	Noncontrolling Interests
Balance, December 31, 2018	$	9,278
Income attributable to noncontrolling interests	16,156
Distributions made	(11,392)
Other	(14)
Balance, December 31, 2019	$	14,028
Income attributable to noncontrolling interests	14,620
Distributions made	(14,499)
Other	(218)
Balance, September 30, 2020	$	13,931

Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and nine months ended September 30, 2020 and 2019 were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income (loss) attributable to MDC Partners Inc.	$	4,076	$	(1,752)	$	4,486	$	2,425
Transfers from the noncontrolling interest:
Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests	2,129		(648)		1,626		(745)
Net transfers from noncontrolling interests	$	2,129	$	(648)	$	1,626	$	(745)
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests	$	6,205	$	(2,400)	$	6,112	$	1,680

Redeemable Noncontrolling Interests

The following table presents changes in redeemable noncontrolling interests:


	Nine Months Ended September 30, 2020		Year Ended December 31, 2019
Beginning Balance	$	36,973	$	51,546
Redemptions	(12,289)		(14,530)
Granted	—		—
Changes in redemption value	1,056		(3,163)
Currency translation adjustments	(568)		3
Other	0		3,117
Ending Balance	$	25,172	$	36,973

The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 2020 to 2024. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The redeemable noncontrolling interest of $25,172 as of September 30, 2020, consists of $17,640 based on the performance of subsidiaries assuming the reporting date is the redemption date and such rights are exercised, $7,532upon 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. For the nine months ended September 30, 2020 and 2019, there was no related impact on the Company’s loss per share calculation.

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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 nine months ended September 30, 2020 and 2019, these operations did not incur any material costs related to damages resulting from hurricanes.

Guarantees. Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically 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 September 30, 2020, the Company had $18,576 of undrawn letters of credit.

The Company entered into operating leases for which the commencement date has not yet occurred as of September 30, 2020. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information.

10. Share Capital

The authorized and outstanding share capital of the Company is as follows:

Series 6 Convertible Preference Shares

On March 14, 2019 (the “Series 6 Issue Date”), the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell, ~~Group LLC (“Stagwell”),~~ pursuant to which Stagwell Holdings agreed to purchase (i) 14,285,714 newly authorized Class A shares (the “Stagwell Class A Shares”) for an aggregate contractual purchase price of $50,000 and (ii) 50,000 newly authorized Series 6 convertible preference shares (“Series 6 Preference Shares”) for an aggregate contractual purchase price of $50,000. The Company received proceeds of approximately $98,620 net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. The proceeds allocated to the Stagwell Class A Shares were $35,997 and to Series 6 Preference Shares were $62,623 based on their relative fair value calculated by utilizing a Monte Carlo Simulation model. In connection with the closing of the transaction, the Company increased the size of its Board ~~of Directors (the “Board”)~~ and appointed two nominees designated by Stagwell Holdings. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of Stagwell Holdings.

The holders of the Series 6 Preference Shares have the right to convert their Series 6 Preference Shares in whole at any time and from time to time, and in part at any time and from time to time, into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation preference per share of each Series 6 Preference Share is $1,000. The initial Conversion Price is $5.00 per Series 6 Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities.

The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date. During the nine months ended September 30, ~~2019,~~2020, the Series 6 Preference Shares accreted at a monthly rate of ~~$6.83,~~$7.39, for total accretion of ~~$2,216,~~$3,260, bringing the aggregate liquidation preference to ~~$52,217~~$56,521 as of September 30, ~~2019.~~2020. The accretion is considered in the calculation of net loss attributable to MDC Partners Inc. common shareholders. See Note 34 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

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Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.

Following certain change in control transactions of the Company in which holders of Series 6 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the Series 6 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.

Effective March 18, 2019, the Company’s Board appointed Mark Penn as the Chief Executive Officer and as a director of the Board. Mr. Penn is manager of Stagwell. Effective April 18, 2019, Mr. Penn was also appointed as Chairman of the Board.

Series 4 Convertible Preference Shares

On March 7, 2017 (the “Series 4 Issue Date”), the Company issued 95,000 newly created Preference Shares (“Series 4 Preference Shares”) to affiliates of The Goldman Sachs Group, Inc. (collectively, the “Purchaser”) pursuant to a $95,000 private placement. The Company received proceeds of approximately $90,123, net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 4 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.

Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation 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 nine months ended September 30, ~~2019,~~2020, the Series 4 Preference Shares accreted at a monthly rate of approximately ~~$8.01~~$8.67 per Series 4 Preference Share, for total accretion of ~~$6,715,~~$7,268, bringing the aggregate liquidation preference to ~~$116,422~~$126,019 as of September 30, ~~2019.~~2020. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 34 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 4 Preference Shares.

Holders of the Series 4 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 4 Preference Shares. The Series 4 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Series 4 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.

Following certain change in control transactions of the Company in which holders of Series 4 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the Series 4 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.

Class A Common Shares (“Class A Shares”)

These are an unlimited number of subordinate voting shares, carrying ~~one~~1 vote each, with a par value of $0, entitled to dividends equal to or greater than Class B Shares, convertible at the option of the holder into one Class B Share for each Class A Share after the occurrence of certain events related to an offer to purchase all Class B shares. There were ~~72,142,668 (including the Class A Shares issued to Stagwell)~~73,550,950 and ~~57,517,568~~72,150,854 Class A Shares issued and outstanding as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Class B Common Shares (“Class B Shares”)

These are an unlimited number of voting shares, carrying ~~twenty~~20 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 ~~3,749~~3,743 and ~~3,755~~3,749 Class B Shares issued and outstanding as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

~~9. Noncontrolling and Redeemable Noncontrolling Interests~~

~~Noncontrolling Interests~~

Changes in amounts due to noncontrolling interest holders included in accruals and other liabilities on the Unaudited Condensed Consolidated Balance Sheets for the year ended December 31, 2018 and nine months ended September 30, 2019 were as follows:

Noncontrolling
Interests
Balance, December 31, 2017 $ 11,030
Income attributable to noncontrolling interests 11,785
Distributions made (13,419 )
Other ⁽¹⁾
(118 )
Balance, December 31, 2018 $ 9,278
Income attributable to noncontrolling interests 10,737
Distributions made (9,982 )
Other ⁽¹⁾
(36 )
Balance, September 30, 2019 $ 9,997


⁽¹⁾	~~Other consists of cumulative translation adjustments.~~

~~Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and nine months ended September 30, 2019 and 2018 were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Net income (loss) attributable to MDC Partners Inc. $ (1,752 ) $ (16,125 ) $ 2,425
$ (42,135 )
Transfers from the noncontrolling interest:
Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of redeemable noncontrolling interests and noncontrolling interests (648 ) 4,975
(745 ) 3,809
Net transfers from noncontrolling interests $ (648 ) $ 4,975
$ (745 ) $ 3,809
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests $ (2,400 ) $ (11,150 ) $ 1,680
$ (38,326 )

~~Redeemable Noncontrolling Interests~~

~~The following table presents changes in redeemable noncontrolling interests:~~

Nine Months Ended September 30, 2019 Year Ended December 31, 2018
Beginning Balance $ 51,546
$ 62,886
Redemptions (9,486 ) (11,943 )
Granted —
—
Changes in redemption value (3,306 ) 1,067
Currency translation adjustments (190 ) (464 )
Other ⁽¹⁾
2,955
—
Ending Balance $ 41,519
$ 51,546

⁽¹⁾ Other primarily consists of the redeemable noncontrolling interest balance related to a foreign entity that was classified as held for sale as of December 31, 2018 and reclassified in 2019. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.

The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 2019 to 2024. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The redeemable noncontrolling interest of $41,519 as of September 30, 2019, consists of $19,193 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, $19,106upon termination of such owner’s employment with the applicable subsidiary or death and $3,220 representing the initial redemption value (required floor) recorded for certain acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership interests for such subsidiaries.

These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the nine months ended September 30, 2019 and 2018, there was no related impact on the Company’s loss per share calculation.

~~10.~~11. Fair Value Measurements

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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 September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2019				December 31, 2018					September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:									Liabilities:
6.50% Senior Notes due 2024	$	900,000	$	823,500	$	900,000	$	834,750	6.50% Senior Notes due 2024	$	870,256	$	800,000	$	900,000	$	812,250

Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices in markets that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy.

Financial Liabilities Measured at Fair Value on a Recurring Basis

Contingent deferred acquisition consideration (Level 3 fair value measurement) is recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with various contractual valuation formulas ~~that may be~~and is dependent upon ~~future events,~~significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and ~~in some cases,~~ the ~~currency exchange~~discount rate. These growth rates are consistent with the Company’s long-term forecasts. As of September 30, 2020, the discount rate asused to measure these liabilities was 11.41%.

As these estimates require the use of assumptions about future performance, which are uncertain at the ~~date~~time of ~~payment (Level 3).~~ 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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity.

Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis

Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill, ~~and~~ intangible assets ~~(a Level~~(Level 3 fair value ~~assessment)~~measurement) and right-of-use lease assets (Level 2 fair value ~~assessment)~~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 in the three ~~and nine~~ months ended September 30, ~~2019 as compared to~~2020. The company did not recognize an impairment of goodwill or intangible assets ~~and other assets of $21.0 million and $23.3 million~~ in the three and nine months ended September 30, 2018 respectively. See Note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the measurement of the fair value of goodwill and the impairment. In addition, the2019.

The Company recognized ~~an impairment~~a charge of ~~$1.9 million~~$5,777 primarily to reduce the carrying value of aits right-of-use lease ~~asset~~assets and leasehold improvements in the nine months ended September 30, 2020. The company recognized an impairment charge of $1,933 to reduce the carrying value of right-of-use assets and related leasehold i

~~mprovements~~improvements in the three and nine months ended September 30, 2019. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.

~~11.~~12. Supplemental Information

~~Accounts Payable, Accruals~~Impairment and Other ~~Liabilities~~Losses

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The Company recognized a charge of $19,159 for the nine months ended September 30, ~~2019~~2020 consisting of a goodwill impairment of $13,382 and ~~December 31, 2018, accruals~~an impairment of right-of-use lease assets and ~~other liabilities included accrued media~~losses of ~~$163,777~~$5,777.

Given the impact of the COVID-19 pandemic, the Company performed an interim goodwill impairment test in the second quarter of 2020 that resulted in a goodwill impairment, as discussed above, and ~~$180,586, respectively;~~the fair value of one reporting unit, with goodwill of approximately $130,780, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and ~~also included amounts due~~the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future. The Company used an income approach to ~~noncontrolling interest holders~~measure its goodwill for ~~their share~~impairment. This methodology incorporates the use of ~~profits.~~ the discounted cash flow method. The income approach requires the exercise of significant judgment and inputs, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.

See Note 96 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding ~~noncontrolling interest holders share~~the impairment of ~~profits.~~right-of-use lease assets and losses.

~~Goodwill and Indefinite Lived Intangibles~~

~~Goodwill and indefinite~~During the first quarter of 2020, the Company reassessed its estimate of the useful life ~~intangible assets (trademarks)~~of a trademark in the amount of $14,600, acquired as a result of a business ~~combination which are not subject~~combination. The Company revised the useful life to amortization are tested for impairment annually as of October 1st of each year, or more frequently if indicators of potential impairment exist. For goodwill, impairment is assessed at the reporting unit level. Goodwill balances as of each of September 30, 2019 and December 31, 2018, were $740,955.5 years from indefinite lived.

Income Taxes

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.

~~Income~~On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and the new legislation contains several key tax provisions, including the five-year net operating loss carryback, an adjusted business interest limitation, and payroll tax deferral. The Company is required to recognize the effect of tax law changes in the period of enactment, which required the Company to reassess the net realizability of its deferred tax assets and liabilities. The Company has assessed the applicability of the CARES Act and determined there is no impact.

The Company had an income tax expense for the three months ended September 30, ~~2019 was~~2020 of $1,452 (on a pre-tax income of $16,287 resulting in an effective tax rate of 8.9%) compared to income tax expense of $3,457 (on pre-tax income of $8,907 resulting in an effective tax rate of 38.8%) ~~compared to an expense of $2,986 (on loss of $10,981 resulting in an effective tax rate of 27.2%)~~ for the three months ended September 30, ~~2018.~~2019.

~~Income~~ The difference in effective tax rate of 8.9% in the three months ended September 30, 2020 as compared to 38.8% in the same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period. Such decrease was primarily attributable to an increase in forecasted foreign earnings for which there is no tax expense provided due to valuation allowance, partially offset by an increase in base erosion and anti-abuse tax (“BEAT”).

The Company had income tax expense for the nine months ended September 30, ~~2019 was~~2020 of $7,029 (on pre-tax income of $26,964 resulting in an effective tax rate of 26.1%) compared to an expense of $6,292 (on pre-tax income of $19,102 resulting in an effective tax rate of 32.9%) ~~compared to a benefit of $3,367 (on a loss of $39,960 resulting in an effective tax rate of 8.4%)~~ for the nine months ended September 30, ~~2018.~~2019.

The difference in effective tax rate of 26.1% in the nine months ended September 30, 2020 as compared to 32.9% in same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period, such decrease primarily attributable to an increase in forecasted foreign earnings for which there is no tax expense provided due to valuation allowance, partially offset by an increase in base erosion and anti-abuse tax (“BEAT”).

Payroll Taxes

In accordance with the payroll tax deferral provision under the CARES Act, the Company is deferring the employer portion of the social security payroll tax of 6.2%. The Company anticipates the deferral through December 31, 2020 to be approximately $16,000 which is payable in equal installments on December 31, 2021 and 2022.

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 will collaborate to provide various services to a client of the Partner Firm. The Partner Firm and the Stagwell affiliate pitched and won this business together, with the client ultimately determining the general scope of work for each agency. Under the arrangement, which was structured as a sub-contract due to client preference, the Partner Firm is expected to pay the Stagwell affiliate, for services provided by the Stagwell affiliate in connection with serving the client, approximately $816 which is expected to be recognized through the end of 2020. As of September 30, 2020, $225 was owed to the affiliate.

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During 2020, a Partner Firm of the Company entered into an arrangement with certain Stagwell affiliates to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $5,276, which is expected to be recognized through the end of 2020. As of September 30, 2020, $957 was due from the affiliate.

In January 2020, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate to develop advertising technology for the Partner Firm. Under the arrangement the Partner Firm recorded approximately $475, of which $17 was owed to the affiliate as of September 30, 2020. This transaction has been completed.

In August 2020, the Company entered into an arrangement with a Stagwell affiliate to provide audience and brand research, concept testing and landscape related to the ongoing new business pitches for clients of the Company. Under the arrangement the Company is expected to pay the Stagwell affiliate approximately $145, which is expected to be recognized through October 2020. As of September 30, 2020, $82 was owed to the affiliate.

On February 14, 2020, Sloane sold substantially all its assets and certain liabilities to an affiliate of Stagwell. See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to this transaction.

The Company entered into an agreement commencing on January 1, 2020 to sublease office space through July 2021 to a company whose chairman is a member of the Company’s Board of Directors. As of September 30, 2020, the total future rental income ~~tax expense and benefit for~~related to the ~~three and nine months of 2018, respectively, were impacted by impairments and non-deductible stock compensation for which a tax benefit was not recognized.~~sublease is approximately $140.

~~12.~~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.

~~Due~~The CODM uses Adjusted EBITDA (defined below) as a key metric, to ~~changes~~evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income (loss) attributable to MDC Partners Inc. common shareholders' plus or minus adjustments to operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates, less contributions to date, plus undistributed earnings (losses). Other items, net includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.

Effective in the ~~composition~~first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain ~~businesses and~~Partner Firms into integrated groups (“Networks”). Mr. Penn appointed key agency executives that report directly into him to lead each Network. In connection with the ~~Company’s internal management and~~reorganization, we reassessed our reportable segments to align our external reporting ~~structure during 2019, reportable segment results for~~with how we operate the ~~2018~~Networks under our new organizational structure. Prior periods presented have been recast to reflect the ~~reclassification~~change in reportable segments. See Note 1 of ~~certain businesses~~the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding a change in reportable segments between ~~segments. The changes were as follows:~~

~~Doner, previously within~~ the ~~Global Integrated Agencies reportable segment is now included within the Domestic Creative Agencies reportable segment.~~

~~HL Group Partners, previously within the Specialist Communications reportable segment,~~first and Redscout, previously within the All Other category, are now included in the Yes & Company operating segment. The Yes & Company operating segment previously within the Media Services reportable segment is now included within the Domestic Creative Agencies reportable segment.

~~Attention, previously within the Forsman & Bodenfors operating segment, has operationally merged into MDC Media Partners, which is included within the Media Services reportable segment.~~

~~Varick Media, previously within the Yes & Company operating segment, is now included within MDC Media Partners, which is included within the Media Services reportable segment.~~second quarter of 2020.

The ~~four~~3 reportable segments that result from ~~applying the aggregation criteria~~our reassessment are as follows: ~~“Global Integrated Agencies”; “Domestic Creative Agencies”; “Specialist Communications”;~~“Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media ~~Services.~~& Data Network.” In addition, the Company combines and discloses ~~those~~ operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate

expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein and Note 2 of the Company’s 2019 Form ~~10-K for the year ended December 31, 2018.~~10-K.

•The ~~Global~~ Integrated ~~Agencies~~Networks - Group A reportable segment is comprised of the ~~Company’s four global, integrated~~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.

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The operating segments ~~(72andSunny, Anomaly, Crispin Porter + Bogusky,~~aggregated within the Integrated Networks - Group A and ~~Forsman & Bodenfors) serving multinational~~B reportable segments provide a range of services for their clients, ~~around the world.~~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 ~~global~~ clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments compete with each other for new business and from time to time have business move between them. ~~The Company believes~~While the ~~historic~~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 is similar among the operating segments aggregated in the Global Integrated Agencies reportable segment.~~

profitability.

•The ~~operating segments within the Global Integrated Agencies~~reportable segment provides a range of different services for its clients, including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast).

~~The~~ ~~Domestic Creative Agencies~~ ~~reportable segment is comprised of seven operating segments that are primarily national advertising agencies (Colle McVoy, Doner, Laird + Partners, Mono Advertising, Union, Yamamoto, and Yes~~Media & Company) leveraging creative capabilities at their core. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of domestic client accounts and the methods used to provide services; and (iii) the extent to which they may be impacted by domestic economic and policy factors within North America. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Domestic Creative Agencies reportable segment.

~~The operating segments within the Domestic Creative Agencies reportable segment provide similar services as the Global Integrated Agencies.~~

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

The operating segments within the Specialist Communications reportable segment provide public relations and communications services including strategy, editorial, crisis support or issues management, media training, influencer engagement, and events management.

~~The~~ ~~Media Services~~Data Network reportable segment is comprised of a single operating segment ~~known as MDC Media Partners. MDC Media Partners, which operates primarily in North America, performs~~that combines media buying and planning ~~as its core competency~~ 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 ~~diverse~~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 ~~6Degrees Communications, Concentric~~Allison & Partners, ~~Gale Partners, Kenna, Kingsdale (through the date of sale on March 8, 2019), Instrument, Relevent,~~Bruce Mau, Forsman & Bodenfors, Hello, Team ~~Vitro,~~ and Y Media Labs. The nature of the specialist services provided by these operating segments vary among each other and from those operating segments aggregated into the reportable segments. This results in these operating segments having current and long-term performance expectations inconsistent with those operating segments aggregated in the reportable segments. The operating segments within All Other provide a range of diverse marketing communication services, including application and website design and development, data and analytics, experiential marketing, customer research management, creative services, and branding.

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.

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Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Revenue:
Global Integrated Agencies $ 145,890
$ 157,308
$ 429,977
$ 444,995
Domestic Creative Agencies 57,593
59,151
176,711
183,504
Specialist Communications 42,101
38,838
128,224
117,966
Media Services 21,222
29,593
75,815
90,948
All Other 76,101
90,940
223,101
245,128
Total $ 342,907
$ 375,830
$ 1,033,828
$ 1,082,541

Segment operating income (loss):
Global Integrated Agencies $ 21,036
$ 23,486
$ 45,527
$ 28,247
Domestic Creative Agencies 7,216
(14,031 ) 22,533
(6,887 )
Specialist Communications 5,129
3,703
18,889
13,646
Media Services (1,677 ) 850
(3,630 ) (78 )
All Other 6,828
6,634
15,790
29,065
Corporate (9,111 ) (18,024 ) (30,565 ) (45,236 )
Total $ 29,421
$ 2,618
$ 68,544
$ 18,757

Other Income (Expenses):
Interest expense and finance charges, net $ (16,110 ) $ (17,063 ) $ (49,284 ) $ (50,005 )
Foreign exchange gain (loss) (3,973 ) 3,275
4,401
(9,934 )
Other, net (431 ) 189
(4,559 ) 1,222
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates 8,907
(10,981 ) 19,102
(39,960 )
Income tax expense (benefit) 3,457
2,986
6,292
(3,367 )
Income (loss) before equity in earnings of non-consolidated affiliates 5,450
(13,967 ) 12,810
(36,593 )
Equity in earnings of non-consolidated affiliates 63
300
352
358
Net income (loss) 5,513
(13,667 ) 13,162
(36,235 )
Net income attributable to the noncontrolling interest (7,265 ) (2,458 ) (10,737 ) (5,900 )
Net income (loss) attributable to MDC Partners Inc. $ (1,752 ) $ (16,125 ) $ 2,425
$ (42,135 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue:	(Dollars in Thousands)
Integrated Networks - Group A	$	87,064	$	99,299	$	260,420	$	276,286
Integrated Networks - Group B	112,159		129,057		323,264		395,622
Media & Data Network	33,572		36,235		103,181		118,923
All Other	50,628		78,316		183,978		242,997

Total	$	283,423	$	342,907	$	870,843	$	1,033,828








Adjusted EBITDA:
Integrated Networks - Group A	$	21,009	$	23,974	$	54,516	$	43,128
Integrated Networks - Group B	29,598		21,989		63,121		65,117
Media & Data Network	3,031		1,354		5,710		2,388
All Other	7,146		9,221		23,936		26,962
Corporate	(6,726)		(7,333)		(17,496)		(20,478)
Total Adjusted EBITDA	$	54,058	$	49,205	$	129,787	$	117,117

Depreciation and amortization	$	(9,332)	$	(9,368)	$	(27,437)	$	(28,869)
Impairment and other losses	(159)		(1,944)		(19,159)		(1,944)
Stock-based compensation	(6,459)		(6,026)		(10,568)		(12,632)
Deferred acquisition consideration adjustments	(2,803)		(1,943)		(515)		3,627
Distributions from non-consolidated affiliates	(208)		202		(1,273)		171
Other items, net	(6,208)		(705)		(12,519)		(8,926)
Total Operating Income	$	28,889	$	29,421	$	58,316	$	68,544

Other Income (Expenses):
Interest expense and finance charges, net	$	(15,266)	$	(16,110)	$	(46,819)	$	(49,284)
Foreign exchange gain (loss)	2,159		(3,973)		(7,256)		4,401
Other, net	505		(431)		22,723		(4,559)
Income before income taxes and equity in earnings of non-consolidated affiliates	16,287		8,907		26,964		19,102
Income tax expense	1,452		3,457		7,029		6,292
Income before equity in earnings of non-consolidated affiliates	14,835		5,450		19,935		12,810
Equity in earnings (losses) of non-consolidated affiliates	(31)		63		(829)		352
Net income	14,804		5,513		19,106		13,162
Net income attributable to the noncontrolling interest	(10,728)		(7,265)		(14,620)		(10,737)
Net income (loss) attributable to MDC Partners Inc.	4,076		(1,752)		4,486		2,425
Accretion on and net income allocated to convertible preference shares	(3,716)		(3,306)		(10,528)		(8,931)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	360	$	(5,058)	$	(6,042)	$	(6,506)

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	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018		2019			2018			2020		2019		2020		2019
Depreciation and amortization:											Depreciation and amortization:	(Dollars in Thousands)
Global Integrated Agencies	$	4,009		$	4,553	$	12,511		$	16,705
Domestic Creative Agencies	1,213			1,266		3,708			3,793
Specialist Communications	644			1,100		1,909			3,059
Media Services	755			675		2,531			1,995
Integrated Networks - Group A											Integrated Networks - Group A	$	1,601	$	2,132	$	4,908	$	6,420
Integrated Networks - Group B											Integrated Networks - Group B	4,813		3,872		13,726		11,964
Media & Data Network											Media & Data Network	786		1,004		2,401		3,332
All Other	2,555			3,341		7,580			9,077		All Other	1,933		2,168		5,735		6,523
Corporate	192			199		630			583		Corporate	199		192		667		630
Total	$	9,368		$	11,134	$	28,869		$	35,212	Total	$	9,332	$	9,368	$	27,437	$	28,869

Stock-based compensation:											Stock-based compensation:
Global Integrated Agencies	$	4,673		$	3,241	$	9,672		$	8,176
Domestic Creative Agencies	352			550		1,338			2,056
Specialist Communications	45			52		123			291
Media Services	5			102		(11		)	251
Integrated Networks - Group A											Integrated Networks - Group A	$	4,024	$	4,330	$	5,880	$	8,564
Integrated Networks - Group B											Integrated Networks - Group B	742		740		2,388		3,231
Media & Data Network											Media & Data Network	131		16		122		22
All Other	118			677		1,058			2,019		All Other	141		107		339		363
Corporate	833			1,620		452			4,089		Corporate	1,421		833		1,839		452
Total	$	6,026		$	6,242	$	12,632		$	16,882	Total	$	6,459	$	6,026	$	10,568	$	12,632

Capital expenditures:											Capital expenditures:
Global Integrated Agencies	$	3,470		$	1,927	$	6,704		$	6,581
Domestic Creative Agencies	694			967		1,757			2,440
Specialist Communications	198			732		680			3,176
Media Services	(2		)	385		165			699
Integrated Networks - Group A											Integrated Networks - Group A	$	269	$	1,083	$	835	$	5,120
Integrated Networks - Group B											Integrated Networks - Group B	694		4,108		899		6,287
Media & Data Network											Media & Data Network	72		116		269		460
All Other	1,492			1,500		4,450			2,271		All Other	79		545		536		1,889
Corporate	11			32		30			65		Corporate	23,073		11		25,338		30
Total	$	5,863		$	5,543	$	13,786		$	15,232	Total	$	24,187	$	5,863	$	27,877	$	13,786

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.

Corporate’s capital expenditures in 2020 are primarily for leasehold improvements at its new headquarters at One World Trade Center in connection with the centralization of the Company’s New York real estate portfolio. As of September 30, 2020, the Company had $16,403 of capital expenditures that were incurred in the current year, but not yet paid.

See Note 23 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for ~~three and nine months ended September 30, 2019 and 2018.~~

~~13. Commitments, Contingencies, and Guarantees~~

~~Legal Proceedings.~~ The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.

~~Deferred Acquisition Consideration and Options to Purchase.~~ See Notes 5 and 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding potential payments associated with deferred acquisition consideration and the acquisition of noncontrolling shareholders’ ownership interest in subsidiaries.

~~Natural Disasters.~~ ~~Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During~~ the three and nine months ended September 30, ~~2019~~2020 and ~~2018, these operations did not incur any material costs related to damages resulting from hurricanes.~~2019.

~~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 September 30, 2019, the Company had $4,744 of undrawn letters of credit.~~

~~14. New Accounting Pronouncements~~

~~Adopted In The Current Reporting Period~~

Effective January 1, 2019, the Company adopted ASC 842. As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 840, Leases. With the adoption of ASC 842, the Company has elected to apply the package of practical expedients: (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. Additionally, the Company elected the practical expedient to not separate non-lease components from lease components for all operating leases.

The adoption of ASC 842 had a material impact on the Company’s Unaudited Condensed Consolidated Balance Sheets, resulting in the recognition, on January 1, 2019, of a lease liability of $299,243 which represents the present value of the remaining lease payments, and a right-of-use lease asset of $254,245 which represents the lease liability, offset by adjustments as appropriate under ASC 842. The adoption of ASC 842 did not have a material impact on the Company’s other Unaudited Condensed Consolidated Financial Statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to the “Company” or “MDC” mean MDC Partners Inc. and its subsidiaries, and references to a “fiscal year” ~~means~~mean the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal ~~2019~~2020 means the period beginning January 1, ~~2019,~~2020, and ending December 31, ~~2019)~~2020).

The Company reports its financial results in accordance with accounting principles generally accepted ~~accounting principles of~~in the United States of America (“~~U.S.~~ GAAP”). In addition, the Company has included ~~certain non-U.S. GAAP~~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 ~~U.S.~~ GAAP and should not be construed as an alternative to other titled measures determined in accordance with ~~U.S.~~ GAAP.

~~Two such non-U.S. GAAP~~ The non-GAAP measures included are “organic revenue growth” or “organic revenue decline” ~~that~~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

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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~~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 adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses). Other items includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.

The following discussion focuses on the operating performance of the Company for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~September 30, 2019 and the financial condition of the Company as of September 30, ~~2019.~~2020. This analysis should be read in conjunction with the interim Unaudited Condensed Consolidated Financial Statements presented in this interim report and the annual ~~audited consolidated financial statements~~Audited Consolidated Financial Statements and Management’s Discussion and Analysis presented in the ~~Annual Report on~~2019 Form ~~10-K for~~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 ~~year ended December 31, 2018 (the “Annual Report on Form 10-K”).~~ 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”.~~“NM.”

Executive Summary

The novel coronavirus (“COVID-19”) is a pandemic that has altered how society interacts across the world. The outbreak of COVID-19 and the measures put in place to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have adversely impacted the global economy. The Company implemented comprehensive controls and procedures to protect our employees, families, clients, and their communities. This included implementing a world-wide work-from-home policy and stress-testing our infrastructure to ensure that all employees had the tools and resources to work virtually. Our leadership and business continuity teams also proactively took thorough measures to ensure the highest level of continued service and partnership for our clients.

The effects of the COVID-19 pandemic have negatively impacted our results of operations, financial position and cash flows; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19. While it is difficult to predict the full scale of the impact, the Company has taken actions to address the pandemic. Our Partner Firms have altered how they work and respond to client challenges around the world, generating

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impactful creative work, rapid pivots, and inventive business solutions for brands in every sector. We have also moved quickly to align our operating expenses with changes in revenue. We have implemented freezes on hiring, staff reductions, furloughs, salary reductions, benefit reductions and a significant reduction in discretionary spending. In addition to expense reductions, we tightened our capital expenditures where possible to preserve our cash flow. Given these measures, the Company believes it is well positioned to successfully work through the effects of COVID-19.

MDC conducts its business through its network of Partner Firms, ~~the “Advertising and Communications Group,” who~~which provide ~~a comprehensive array of~~ marketing and ~~communications services for clients both domestically~~business solutions that realize the potential of combining data and ~~globally. The Company’s objective~~creativity. MDC’s strategy is to ~~create shareholder value by building, growing~~build, grow and ~~acquiring~~acquire market-leading ~~Partner Firms~~businesses that deliver ~~innovative, value-added~~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 ~~their~~ clients. ~~Management believes~~MDC leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that ~~shareholder value~~are technologically forward and media-agnostic. The Company’s work is ~~maximized with an operating philosophy of “Perpetual Partnership” with proven committed~~designed to challenge the industry ~~leaders in marketing communications.~~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 ~~capital expenditures.~~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.

~~As discussed~~Effective in ~~Note 12~~2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”). Mark Penn, Chief Executive Officer and Chairman of the ~~Notes~~Company, appointed key agency executives, that report directly into him, to lead each Network. In connection with the ~~Unaudited Condensed Consolidated Financial Statements included herein, the Company aggregates operating segments that meet the aggregation criteria detailed in ASC 280 into one of the four~~reorganization, we reassessed our reportable segments ~~and combines and discloses those operating segments that do not meet~~to align our external reporting with how we operate the aggregation criteria in the All Other category. Due to changes in the composition of certain businesses and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018Networks under our new organizational structure. Prior periods presented have been recast to reflect the ~~reclassification of certain businesses between~~change in reportable segments. See ~~Note 12~~Notes 1 and 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a description of each of our reportable segments, ~~and~~the All Other category, ~~and further~~as well as information regarding a change in reportable segments between the ~~reclassification~~first and second quarter of ~~certain businesses between segments.~~2020.

The three reportable segments that result from our assessment are as follows: “Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein and Note 2 of the Company’s 2019 Form 10-K.

In addition, MDC reports its corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as ~~Corporate.~~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. ~~Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the appropriate reportable segment and the All Other category.~~

Certain Factors Affecting Our Business

See the Executive Summary section of Item 7 of the Company’s ~~Annual Report on~~2019 Form 10-K ~~for the year ended December 31, 2018~~ for information regarding certain factors affecting our business.

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Results of Operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue:	(Dollars in Thousands)
Integrated Networks - Group A	$	87,064	$	99,299	$	260,420	$	276,286
Integrated Networks - Group B	112,159		129,057		323,264		395,622
Media & Data Network	33,572		36,235		103,181		118,923
All Other	50,628		78,316		183,978		242,997

Total Revenue	$	283,423	$	342,907	$	870,843	$	1,033,828

Operating Income (Loss):
Integrated Networks - Group A	$	12,700	$	17,441	$	39,337	$	28,553
Integrated Networks - Group B	23,636		15,488		33,080		52,189
Media & Data Network	2,114		331		2,777		(1,041)
All Other	5,201		5,272		18,045		19,408
Corporate	(14,762)		(9,111)		(34,923)		(30,565)
Total Operating Income	$	28,889	$	29,421	$	58,316	$	68,544

Other Income (Expenses):
Interest expense and finance charges, net	$	(15,266)	$	(16,110)	$	(46,819)	$	(49,284)
Foreign exchange gain (loss)	2,159		(3,973)		(7,256)		4,401
Other, net	505		(431)		22,723		(4,559)
Income before income taxes and equity in earnings of non-consolidated affiliates	16,287		8,907		26,964		19,102
Income tax expense	1,452		3,457		7,029		6,292
Income before equity in earnings of non-consolidated affiliates	14,835		5,450		19,935		12,810
Equity in earnings (losses) of non-consolidated affiliates	(31)		63		(829)		352
Net income	14,804		5,513		19,106		13,162
Net income attributable to the noncontrolling interest	(10,728)		(7,265)		(14,620)		(10,737)
Net income (loss) attributable to MDC Partners Inc.	4,076		(1,752)		4,486		2,425
Accretion on and net income allocated to convertible preference shares	(3,716)		(3,306)		(10,528)		(8,931)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	360	$	(5,058)	$	(6,042)	$	(6,506)

Adjusted EBITDA:
Integrated Networks - Group A	$	21,009	$	23,974	$	54,516	$	43,128
Integrated Networks - Group B	29,598		21,989		63,121		65,117
Media & Data Network	3,031		1,354		5,710		2,388
All Other	7,146		9,221		23,936		26,962
Corporate	(6,726)		(7,333)		(17,496)		(20,478)
Total Adjusted EBITDA	$	54,058	$	49,205	$	129,787	$	117,117

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Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Revenue: (Dollars in Thousands)
Global Integrated Agencies $ 145,890
$ 157,308
$ 429,977
$ 444,995
Domestic Creative Agencies 57,593
59,151
176,711
183,504
Specialist Communications 42,101
38,838
128,224
117,966
Media Services 21,222
29,593
75,815
90,948
All Other 76,101
90,940
223,101
245,128
Total $ 342,907
$ 375,830
$ 1,033,828
$ 1,082,541

Segment operating income (loss):
Global Integrated Agencies $ 21,036
$ 23,486
$ 45,527
$ 28,247
Domestic Creative Agencies 7,216
(14,031 ) 22,533
(6,887 )
Specialist Communications 5,129
3,703
18,889
13,646
Media Services (1,677 ) 850
(3,630 ) (78 )
All Other 6,828
6,634
15,790
29,065
Corporate (9,111 ) (18,024 ) (30,565 ) (45,236 )
Total $ 29,421
$ 2,618
$ 68,544
$ 18,757

Other Income (Expenses):
Interest expense and finance charges, net $ (16,110 ) $ (17,063 ) $ (49,284 ) $ (50,005 )
Foreign exchange gain (loss) (3,973 ) 3,275
4,401
(9,934 )
Other, net (431 ) 189
(4,559 ) 1,222
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates 8,907
(10,981 ) 19,102
(39,960 )
Income tax expense (benefit) 3,457
2,986
6,292
(3,367 )
Income (loss) before equity in earnings of non-consolidated affiliates 5,450
(13,967 ) 12,810
(36,593 )
Equity in earnings of non-consolidated affiliates 63
300
352
358
Net income (loss) 5,513
(13,667 ) 13,162
(36,235 )
Net income attributable to the noncontrolling interest (7,265 ) (2,458 ) (10,737 ) (5,900 )
Net income (loss) attributable to MDC Partners Inc. $ (1,752 ) $ (16,125 ) $ 2,425
$ (42,135 )


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019














Capital expenditures:	(Dollars in Thousands)
Integrated Networks - Group A	$	269	$	1,083	$	835	$	5,120
Integrated Networks - Group B	694		4,108		899		6,287
Media & Data Network	72		116		269		460
All Other	79		545		536		1,889
Corporate	23,073		11		25,338		30
Total	$	24,187	$	5,863	$	27,877	$	13,786

The following tables reconcile Net income (loss) attributable to MDC Partners Inc. common shareholders (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2020 and 2019. The adjustments from Net income (loss) attributable to MDC Partners Inc. common shareholders to Operating income (loss) are detailed in the table above.


	Three Months Ended September 30, 2020
	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											$	360








Adjustments											28,529
Operating income (loss)	$	12,700	$	23,636	$	2,114	$	5,201	$	(14,762)	$	28,889

Adjustments:
Depreciation and amortization	1,601		4,813		786		1,933		199		9,332
Impairment and other losses	—		157		—		2		—		159
Stock-based compensation	4,024		742		131		141		1,421		6,459
Deferred acquisition consideration adjustments	2,684		250		—		(131)		—		2,803
Distributions from non-consolidated affiliates	—		—		—		—		208		208
Other items, net	—		—		—		—		6,208		6,208
Adjusted EBITDA	$	21,009	$	29,598	$	3,031	$	7,146	$	(6,726)	$	54,058

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Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Depreciation and amortization: (Dollars in Thousands)
Global Integrated Agencies $ 4,009
$ 4,553
$ 12,511
$ 16,705
Domestic Creative Agencies 1,213
1,266
3,708
3,793
Specialist Communications 644
1,100
1,909
3,059
Media Services 755
675
2,531
1,995
All Other 2,555
3,341
7,580
9,077
Corporate 192
199
630
583
Total $ 9,368
$ 11,134
$ 28,869
$ 35,212

Stock-based compensation:
Global Integrated Agencies $ 4,673
$ 3,241
$ 9,672
$ 8,176
Domestic Creative Agencies 352
550
1,338
2,056
Specialist Communications 45
52
123
291
Media Services 5
102
(11 ) 251
All Other 118
677
1,058
2,019
Corporate 833
1,620
452
4,089
Total $ 6,026
$ 6,242
$ 12,632
$ 16,882

Capital expenditures:
Global Integrated Agencies $ 3,470
$ 1,927
$ 6,704
$ 6,581
Domestic Creative Agencies 694
967
1,757
2,440
Specialist Communications 198
732
680
3,176
Media Services (2 ) 385
165
699
All Other 1,492
1,500
4,450
2,271
Corporate 11
32
30
65
Total $ 5,863
$ 5,543
$ 13,786
$ 15,232


	Three Months Ended September 30, 2019
	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											$	(5,058)








Adjustments											34,479
Operating income (loss)	$	17,441	$	15,488	$	331	$	5,272	$	(9,111)	$	29,421


Adjustments:
Depreciation and amortization	2,132		3,872		1,004		2,168		192		9,368
Impairment and other losses	—		1,933		—		11		—		1,944
Stock-based compensation	4,330		740		16		107		833		6,026
Deferred acquisition consideration adjustments	71		206		3		1,663		—		1,943
Distributions from non-consolidated affiliates	—		(250)		—		—		48		(202)
Other items, net	—		—		—		—		705		705
Adjusted EBITDA	$	23,974	$	21,989	$	1,354	$	9,221	$	(7,333)	$	49,205


	Nine Months Ended September 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											$	(6,042)








Adjustments											64,358
Operating income (loss)	$	39,337	$	33,080	$	2,777	$	18,045	$	(34,923)	$	58,316

Adjustments:
Depreciation and amortization	4,908		13,726		2,401		5,735		667		27,437
Impairment and other losses	—		17,786		35		209		1,129		19,159
Stock-based compensation	5,880		2,388		122		339		1,839		10,568
Deferred acquisition consideration adjustments	4,391		(3,859)		375		(392)		—		515
Distributions from non-consolidated affiliates	—		—		—		—		1,273		1,273
Other items, net	—		—		—		—		12,519		12,519
Adjusted EBITDA	$	54,516	$	63,121	$	5,710	$	23,936	$	(17,496)	$	129,787

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	Nine Months Ended September 30, 2019
	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											$	(6,506)








Adjustments											75,050
Operating income (loss)	$	28,553	$	52,189	$	(1,041)	$	19,408	$	(30,565)	$	68,544


Adjustments:
Depreciation and amortization	6,420		11,964		3,332		6,523		630		28,869
Impairment and other losses	—		1,933		—		11		—		1,944
Stock-based compensation	8,564		3,231		22		363		452		12,632
Deferred acquisition consideration adjustments	(409)		(3,950)		75		657		—		(3,627)
Distributions from non- consolidated affiliates	—		(250)		—		—		79		(171)
Other items, net	—		—		—		—		8,926		8,926
Adjusted EBITDA	$	43,128	$	65,117	$	2,388	$	26,962	$	(20,478)	$	117,117

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THREE MONTHS ENDED SEPTEMBER 30, ~~2019~~2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, ~~2018~~

2019

Consolidated Results of Operations

Revenues

Revenue was $283.4 million for the three months ended September 30, 2020 compared to revenue of $342.9 million for the three months ended September 30, ~~2019 compared to revenue~~2019.

The components of ~~$375.8 million for~~ the ~~three months ended September 30, 2018. See the Advertising and Communications Group section below for a discussion regarding consolidated~~fluctuations in revenues for the three months ended September 30, ~~2019~~2020 compared to the three months ended September 30, ~~2018.~~2019 are as follows:


	Total				United States				Canada				Other
	$		%		$		%		$		%		$		%
	(Dollars in Thousands)
September 30, 2019	$	342,907			$	271,671			$	25,895			$	45,341
Components of revenue change:
Foreign exchange impact	873		0.3	%	—		—	%	(179)		(0.7)	%	1,052		2.3	%
Non-GAAP acquisitions (dispositions), net	(4,076)		(1.2)	%	(4,076)		(1.5)	%	—		—	%	—		—	%
Organic revenue	(56,281)		(16.4)	%	(39,339)		(14.5)	%	(5,417)		(20.9)	%	(11,525)		(25.4)	%
Total Change	$	(59,484)	(17.3)	%	$	(43,415)	(16.0)	%	$	(5,596)	(21.6)	%	$	(10,473)	(23.1)	%
September 30, 2020	$	283,423			$	228,256			$	20,299			$	34,868

The positive foreign exchange impact of $0.9 million, or 0.3%, 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 September 30, 2020, organic revenue declined $56.3 million, or 16.4%, primarily attributable to reduced spending by clients in connection with the COVID-19 pandemic.

The table below provides a reconciliation between revenue from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the three months ended September 30, 2020:


	All Other		Total
	(Dollars in Thousands)
GAAP revenue from 2019 and 2020 acquisitions	$	—	$	—
Foreign exchange impact	—		—
Contribution to non-GAAP organic revenue growth (decline)	—		—
Prior year revenue from dispositions	(4,076)		(4,076)
Non-GAAP acquisitions (dispositions), net	$	(4,076)	$	(4,076)

The geographic mix in revenues for the three months ended September 30, 2020 and 2019 is as follows:


	2020		2019
United States	80.5	%	79.2	%
Canada	7.2	%	7.6	%
Other	12.3	%	13.2	%

Operating Income (Loss)

Operating income for the three months ended September 30, ~~2019~~2020 was ~~$29.4~~$28.9 million, compared to ~~$2.6~~operating income of $29.4 million for the three months ended September 30, ~~2018,~~2019, representing ~~an increase~~a change of ~~$26.8 million. The increase was~~$0.5 million, primarily driven by ~~an impairment charge and severance expense recognized~~the decline in revenue, mostly offset by a reduction in operating expenses to align our costs with revenues impacted by the ~~prior year quarter. For~~COVID-19 pandemic.

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Adjusted EBITDA

Adjusted EBITDA for the three months ended September 30, ~~2018,~~2020 was $54.1 million, compared to $49.2 million for the ~~Advertising and Communications Group recognized~~three months ended September 30, 2019, representing an increase of $4.9 million, principally resulting from a ~~$21.0 million impairment pertaining to goodwill within~~reduction in operating expenses, partially offset by the Domestic Creative Agencies reportable segment and a trademark within the Global Integrated Agencies reportable segment, as well as severance expense and other restructuring costs of $7.7 million at Corporate.decline in revenues.

Other, Net

Other, net, for the three months ended September 30, ~~2019~~2020 was income of $0.5 million compared to a loss of $0.4 ~~million compared to income of $0.2~~ million for the three months ended September 30, ~~2018.~~2019.

Foreign Exchange Transaction Gain (Loss)

The foreign exchange ~~loss~~gain for the three months ended September 30, ~~2019~~2020 was ~~$4.0~~$2.2 million compared to a ~~gain~~loss of ~~$3.3~~$4.0 million for the three months ended September 30, ~~2018.~~2019. The change in the foreign exchange impact was primarily attributable to the ~~weakening~~strengthening of the Canadian dollar against the U.S. ~~dollar.~~dollar in 2020 compared to the prior year period. The change is primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.

Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the three months ended September 30, ~~2019~~2020 was ~~$16.1~~$15.3 million compared to ~~$17.1~~$16.1 million for the three months ended September 30, ~~2018,~~2019, representing a decrease of ~~$1.0~~$0.8 million, primarily driven by a decline in the ~~average amounts outstanding under the~~ Company’s ~~revolving credit facility.~~$900,000 aggregate principal amount of senior notes due 2024 (the “6.50% Notes”).

Income Tax Expense (Benefit)

Income tax expense for the three months ended September 30, ~~2019~~2020 was $1.5 million (on a pre-tax income of $16.3 million resulting in an effective tax rate of 8.9%) compared to an income tax expense of $3.5 million (on pre-tax income of $8.9 million resulting in an effective tax rate of 38.8%) ~~compared to an expense of $3.0 million (on loss of $11.0 million resulting in an effective tax rate of 27.1%)~~ for the three months ended September 30, ~~2018. Income~~2019.

The difference in effective tax ~~expense for~~rate of 8.9% in the three months ended September 30, ~~2018,~~2020 as compared to 38.8% in the same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period. This decrease was ~~impacted by impairments and non-deductible stock compensation~~primarily attributable to an increase in forecasted foreign earnings for which athere is no tax ~~benefit was not recognized.~~

~~Equity~~expense provided due to valuation allowance, partially offset by an increase in ~~Earnings (Losses) of Non-Consolidated Affiliates~~

Equity in earnings (losses) of non-consolidated affiliates represents the income or losses attributable to equity method investments. Income recorded for the three months ended September 30, 2019 was $0.1 million compared to income of $0.3 million for the three months ended September 30, 2018.base erosion and anti-abuse tax (“BEAT”).

Noncontrolling Interests

The effect of noncontrolling interests for the three months ended September 30, ~~2019~~2020 was ~~$7.3~~$10.7 million compared to ~~$2.5~~$7.3 million for the three months ended September 30, ~~2018.~~

2019.

Net ~~Loss~~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 loss~~ attributable to MDC Partners Inc. common shareholders for the three months ended September 30, ~~2019~~2020 was ~~$5.1~~$0.4 million, ~~or $0.07~~with no diluted ~~loss~~income per share, compared to net loss attributable to MDC Partners Inc. common shareholders of ~~$18.2~~$5.1 million, or ~~$0.32~~$0.07 diluted loss per share, for the three months ended September 30, ~~2018.~~

~~Advertising and Communications Group~~

The following discussion provides additional detailed disclosure for each of the Company’s four (4) reportable segments, and the “All Other” category, within the Advertising and Communications Group.

~~The components of the fluctuations in revenues for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 are as follows:~~2019.

Total United States Canada Other
$ % $ % $ % $ %
(Dollars in Thousands)
September 30, 2018 $ 375,830
$ 296,544
$ 32,132
$ 47,154

Components of revenue change:
Foreign exchange impact (2,358 ) (0.6 )% —
— % (345 ) (1.1 )% (2,014 ) (4.3 )%
Non-GAAP acquisitions (dispositions), net (2,438 ) (0.6 )% 290
0.1 % (3,628 ) (11.3 )% 900
1.9 %
Organic revenue decline (28,127 ) (7.5 )% (25,163 ) (8.5 )% (2,264 ) (7.0 )% (699 ) (1.5 )%
Total Change $ (32,923 ) (8.8 )% $ (24,873 ) (8.4 )% $ (6,237 ) (19.4 )% $ (1,813 ) (3.8 )%
September 30, 2019 $ 342,907
$ 271,671
$ 25,895
$ 45,341

~~Revenue was $342.9 million for the three months ended September 30, 2019 compared to revenue~~

Table of ~~$375.8 million for the three months ended September 30, 2018, representing a decline of $32.9 million.~~

~~The negative foreign exchange impact of $2.4 million, or 0.6%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.~~

The Company also utilizes non-GAAP metrics called organic revenue decline and non-GAAP acquisitions (dispositions), net, as defined above. For the three months ended September 30, 2019, organic revenue declined by $28.1 million, or 7.5%, of which primarily all pertained to Partner Firms the Company has owned throughout each of the comparable periods presented. The decline in revenue was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients. Additionally, the change in revenue was primarily driven by a decline in categories including healthcare, food and beverage, other and automotive, partially offset by growth in transportation and travel/lodging and technology.

The table below provides a reconciliation between the revenue in the Advertising and Communications Group from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the three months ended September 30, 2019:

Contents

Specialist Communications All Other Total
(Dollars in Thousands)
GAAP revenue from 2018 and 2019 acquisitions $ 2,456
$ —
$ 2,456
Foreign exchange impact 9
461
470
Contribution to non-GAAP organic revenue decline 78
—
(2,263 ) —
(2,185 )
Prior year revenue from dispositions —
(3,179 ) (3,179 )
Non-GAAP acquisitions (dispositions), net $ 2,543
$ (4,981 ) $ (2,438 )

~~The geographic mix in revenues for the three months ended September 30, 2019 and 2018 is as follows:~~

2019 2018
United States 79.2 % 79.0 %
Canada 7.6 % 8.5 %
Other 13.2 % 12.5 %

Integrated Networks - Group A

The change in expenses, operating income and ~~operating profit~~Adjusted EBITDA as a percentage of revenue in the ~~Advertising and Communications~~Integrated Networks - Group ~~for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue: $ 342,907
$ 375,830
$ (32,923 ) (8.8 )%
Operating expenses
Cost of services sold 222,448
64.9 % 238,690
63.5 % (16,242 ) (6.8 )%
Office and general expenses 70,807
20.6 % 84,555
22.5 % (13,748 ) (16.3 )%
Depreciation and amortization 9,176
2.7 % 10,935
2.9 % (1,759 ) (16.1 )%
Goodwill and other asset impairment charge 1,944
0.6 % 21,008
5.6 % (19,064 ) (90.7 )%
$ 304,375
88.8 % $ 355,188
94.5 % $ (50,813 ) (14.3 )%
Operating profit $ 38,532
11.2 % $ 20,642
5.5 % $ 17,890
86.7 %

~~The increase in operating profit was attributable to lower operating expenses, as outlined below, partially offset by a decline in revenue.~~

~~The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 51,152
14.9 % $ 51,774
13.8 % $ (622 ) (1.2 )%
Staff costs ⁽²⁾
190,810
55.6 % 209,409
55.7 % (18,599 ) (8.9 )%
Administrative 44,157
12.9 % 46,437
12.4 % (2,280 ) (4.9 )%
Deferred acquisition consideration 1,943
0.6 % 11,003
2.9 % (9,060 ) (82.3 )%
Stock-based compensation 5,193
1.5 % 4,622
1.2 % 571
12.4 %
Depreciation and amortization 9,176
2.7 % 10,935
2.9 % (1,759 ) (16.1 )%
Goodwill and other asset impairment charge 1,944
0.6 % 21,008
5.6 % (19,064 ) (90.7 )%
Total operating expenses $ 304,375
88.8 % $ 355,188
94.5 % $ (50,813 ) (14.3 )%

~~(1)Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The decrease in staff costs was primarily attributable to staffing reductions at Partner Firms in connection with the decline in revenue and cost savings initiatives.~~

~~The decrease in administrative costs was attributable to a decline in various costs in connection with cost savings initiatives.~~

Deferred acquisition consideration change for the three months ended September 30, 2019 was primarily attributable to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.

For the three months ended September 30, 2019, an impairment charge of $1.9 million was recognized to reduce the carrying value of a right-of-use lease asset and related leasehold improvements within the Global Integrated Agencies segment.

For the three months ended September 30, 2018, an impairment charge of $21.0 million was recognized pertaining to goodwill within the Domestic Creative Agencies reportable segment and a trademark within the Global Integrated Agencies reportable segment.

~~Global Integrated Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Global Integrated Agencies~~A reportable segment for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


															2020				2019				Change
	2019				2018				Change
Global Integrated Agencies	$		% of Revenue		$		% of Revenue		$			%
Integrated Networks - Group A														Integrated Networks - Group A	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)														(Dollars in Thousands)
Revenue:	$	145,890			$	157,308			$	(11,418	)	(7.3	)%	Revenue:	$	87,064			$	99,299			$	(12,235)	(12.3)	%
Operating expenses														Operating expenses
Cost of services sold	89,708		61.5	%	89,408		56.8	%	300			0.3	%	Cost of services sold	54,784		62.9	%	65,431		65.9	%	(10,647)		(16.3)	%
Office and general expenses	29,193		20.0	%	36,681		23.3	%	(7,488		)	(20.4	)%	Office and general expenses	17,979		20.7	%	14,295		14.4	%	3,684		25.8	%
Depreciation and amortization	4,009		2.7	%	4,553		2.9	%	(544		)	(11.9	)%	Depreciation and amortization	1,601		1.8	%	2,132		2.1	%	(531)		(24.9)	%
Other asset impairment	1,944		1.3	%	3,180		2.0	%	(1,236		)	(38.9	)%
	$	124,854	85.6	%	$	133,822	85.1	%	$	(8,968	)	(6.7	)%
Operating profit	$	21,036	14.4	%	$	23,486	14.9	%	$	(2,450	)	(10.4	)%
															$	74,364	85.4	%	$	81,858	82.4	%	$	(7,494)	(9.2)	%
Operating income														Operating income	$	12,700	14.6	%	$	17,441	17.6	%	$	(4,741)	(27.2)	%

Adjusted EBITDA														Adjusted EBITDA	$	21,009	24.1	%	$	23,974	24.1	%	$	(2,965)	(12.4)	%

The ~~decline~~decrease in revenue ~~was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients.~~

~~The decline in operating profit~~ was primarily attributable to lower ~~revenue, partially offset~~spending by ~~a decline~~clients in ~~operating expenses, as outlined below.~~

~~The change in~~connection with the ~~categories of expenses as a percentage of revenue in the Global Integrated Agencies reportable segment for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Global Integrated Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 13,269
9.1 % $ 5,310
3.4 % $ 7,959
NM
Staff costs ⁽²⁾
81,688
56.0 % 91,026
57.9 % (9,338 ) (10.3 )%
Administrative 19,744
13.5 % 22,559
14.3 % (2,815 ) (12.5 )%
Deferred acquisition consideration (473 ) (0.3 )% 3,953
2.5 % (4,426 ) NM
Stock-based compensation 4,673
3.2 % 3,241
2.1 % 1,432
44.2 %
Depreciation and amortization 4,009
2.7 % 4,553
2.9 % (544 ) (11.9 )%
Other asset impairment 1,944
1.3 % 3,180
2.0 % (1,236 ) (38.9 )%
Total operating expenses $ 124,854
85.6 % $ 133,822
85.1 % $ (8,968 ) (6.7 )%

~~(1)Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~Direct costs were higher, inclusive of higher billable costs for client arrangements accounted for as principal.~~COVID-19 pandemic.

The decrease in ~~staff costs~~operating income was attributable to ~~staffing reductions at certain Partner Firms in connection with~~ the ~~decline in revenue and cost savings initiatives.~~

~~For the three months ended September 30, 2019, an impairment charge of $1.9 million was recognized to reduce the carrying value of a right-of-use lease asset and related leasehold improvements.~~

~~For three months ended September 30, 2018, an impairment charge of $3.2 million was recognized to reduce the carrying value of a trademark.~~

~~Domestic Creative Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Domestic Creative Agencies reportable segment for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 57,593
$ 59,151
$ (1,558 ) (2.6 )%
Operating expenses
Cost of services sold 35,420
61.5 % 42,115
71.2 % (6,695 ) (15.9 )%
Office and general expenses 13,744
23.9 % 11,973
20.2 % 1,771
14.8 %
Depreciation and amortization 1,213
2.1 % 1,266
2.1 % (53 ) (4.2 )%
Goodwill impairment —
— % 17,828
30.1 % (17,828 ) (100.0 )%
$ 50,377
87.5 % $ 73,182
123.7 % $ (22,805 ) (31.2 )%
Operating profit (loss) $ 7,216
12.5 % $ (14,031 ) (23.7 )% $ 21,247
NM

~~The decline in revenue was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients.~~

~~The change in operating profit was primarily attributable to declining operating expenses driven by goodwill impairment in 2018, as outlined below.~~

~~The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies reportable segment for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 5,148
8.9 % $ 8,166
13.8 % $ (3,018 ) (37.0 )%
Staff costs ⁽²⁾
35,448
61.5 % 39,105
66.1 % (3,657 ) (9.4 )%
Administrative 7,538
13.1 % 7,190
12.2 % 348
4.8 %
Deferred acquisition consideration 678
1.2 % (923 ) (1.6 )% 1,601
NM
Stock-based compensation 352
0.6 % 550
0.9 % (198 ) (36.0 )%
Depreciation and amortization 1,213
2.1 % 1,266
2.1 % (53 ) (4.2 )%
Goodwill impairment —
— % 17,828
30.1 % (17,828 ) (100.0 )%
Total operating expenses $ 50,377
87.5 % $ 73,182
123.7 % $ (22,805 ) (31.2 )%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The decline in direct costs was attributable to lower revenues.~~

~~The decrease in staff costs was attributable to staffing reductions at certain Partner Firms in connection with the decline in revenue and cost savings initiatives.~~

~~For the three months ended September 30, 2018, an impairment charge of $17.8 million was recognized to reduce the carrying value of goodwill.~~

~~Specialist Communications~~

~~The change in expenses and operating profit as a percentage of revenue in the Specialist Communications reportable segment for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 42,101
$ 38,838
$ 3,263
8.4 %
Operating expenses
Cost of services sold 27,466
65.2 % 25,756
66.3 % 1,710
6.6 %
Office and general expenses 8,862
21.0 % 8,279
21.3 % 583
7.0 %
Depreciation and amortization 644
1.5 % 1,100
2.8 % (456 ) (41.5 )%
$ 36,972
87.8 % $ 35,135
90.5 % $ 1,837
5.2 %
Operating profit $ 5,129
12.2 % $ 3,703
9.5 % $ 1,426
38.5 %

~~The increase in revenue was primarily due to client wins at certain Partner firms as well as a contribution of $1.2 million from an acquired Partner Firm.~~

~~The increase in operating profit was attributable to higher revenue, partially offset by higher operating expenses, as outlined below.~~

~~The change in the categories of expenses as a percentage of revenue in the Specialist Communications reportable segment for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 9,229
21.9 % $ 8,866
22.8 % $ 363
4.1 %
Staff costs ⁽²⁾
20,396
48.4 % 18,729
48.2 % 1,667
8.9 %
Administrative 5,191
12.3 % 4,936
12.7 % 255
5.2 %
Deferred acquisition consideration 1,467
3.5 % 1,452
3.7 % 15
1.0 %
Stock-based compensation 45
0.1 % 52
0.1 % (7 ) (13.5 )%
Depreciation and amortization 644
1.5 % 1,100
2.8 % (456 ) (41.5 )%
Total operating expenses $ 36,972
87.8 % $ 35,135
90.5 % $ 1,837
5.2 %


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The increase in direct costs was attributable to higher revenues.~~

~~The increase in staff costs was primarily attributable to contributions from an acquired Partner Firm and higher costs to support the growth of certain Partner Firms.~~

~~Media Services~~

~~The change in expenses and operating loss as a percentage of revenue in the Media Services reportable segment for the three months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 21,222
$ 29,593
$ (8,371 ) (28.3 )%
Operating expenses
Cost of services sold 16,176
76.2 % 20,406
69.0 % (4,230 ) (20.7 )%
Office and general expenses 5,968
28.1 % 7,662
25.9 % (1,694 ) (22.1 )%
Depreciation and amortization 755
3.6 % 675
2.3 % 80
11.9 %
$ 22,899
107.9 % $ 28,743
97.1 % $ (5,844 ) (20.3 )%
Operating loss $ (1,677 ) (7.9 )% $ 850
2.9 % $ (2,527 ) NM

~~The decline in revenue was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients.~~

~~The change in operating loss was attributable to a~~ 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 ~~Media Services~~Integrated Networks - Group A reportable segment for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020				2019				Change
Integrated Networks - Group A	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	12,075	13.9	%	$	10,849	10.9	%	$	1,226	11.3	%
Staff costs	44,667		51.3	%	53,707		54.1	%	(9,040)		(16.8)	%
Administrative	9,313		10.7	%	10,769		10.8	%	(1,456)		(13.5)	%
Deferred acquisition consideration	2,684		3.1	%	71		0.1	%	2,613		NM
Stock-based compensation	4,024		4.6	%	4,330		4.4	%	(306)		(7.1)	%
Depreciation and amortization	1,601		1.8	%	2,132		2.1	%	(531)		(24.9)	%

Total operating expenses	$	74,364	85.4	%	$	81,858	82.4	%	$	(7,494)	(9.2)	%

2019 2018 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 4,697
22.1 % $ 7,047
23.8 % $ (2,350 ) (33.3 )%
Staff costs ⁽²⁾
13,348
62.9 % 16,352
55.3 % (3,004 ) (18.4 )%
Administrative 4,092
19.3 % 4,594
15.5 % (502 ) (10.9 )%
Deferred acquisition consideration 2
— % (27 ) (0.1 )% 29
NM
Stock-based compensation 5
— % 102
0.3 % (97 ) (95.1 )%
Depreciation and amortization 755
3.6 % 675
2.3 % 80
11.9 %
Total operating expenses $ 22,899
107.9 % $ 28,743
97.1 % $ (5,844 ) (20.3 )%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

The increase in direct costs was in connection with higher revenue at the Network’s public relations business in the third quarter. This increase more than offset the decline in direct costs ~~was attributable to lower revenues.~~in other areas of the Network.

The ~~decrease~~decline in staff costs was attributable to ~~staffing reductions at~~a reduction in staff to combat the impact of the COVID-19 pandemic on the business.

Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.

The change in deferred acquisition consideration for the three months ended September 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.

The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income for the three months ended September 30, 2020.

Table of Contents

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 September 30, 2020 and 2019 was as follows:


	2020				2019				Change
Integrated Networks - Group B	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Revenue:	$	112,159			$	129,057			$	(16,898)	(13.1)	%
Operating expenses
Cost of services sold	61,398		54.7	%	77,132		59.8	%	(15,734)		(20.4)	%
Office and general expenses	22,155		19.8	%	30,632		23.7	%	(8,477)		(27.7)	%
Depreciation and amortization	4,813		4.3	%	3,872		3.0	%	941		24.3	%
Impairment and other losses	157		0.1	%	1,933		1.5	%	(1,776)		(91.9)	%
	$	88,523	78.9	%	$	113,569	88.0	%	$	(25,046)	(22.1)	%
Operating income	$	23,636	21.1	%	$	15,488	12.0	%	$	8,148	52.6	%


Adjusted EBITDA	$	29,598	26.4	%	$	21,989	17.0	%	$	7,609	34.6	%

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The increase in operating income was attributable to lower operating expenses, as outlined below, partially offset by the decline in ~~revenue and cost savings initiatives.~~revenue.

The ~~decrease~~change in ~~administrative~~the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended September 30, 2020 and 2019 was as follows:


	2020				2019				Change
Integrated Networks - Group B	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	13,575	12.1	%	$	16,730	13.0	%	$	(3,155)	(18.9)	%
Staff costs	56,287		50.2	%	73,081		56.6	%	(16,794)		(23.0)	%
Administrative	12,699		11.3	%	17,007		13.2	%	(4,308)		(25.3)	%
Deferred acquisition consideration	250		0.2	%	206		0.2	%	44		21.4	%
Stock-based compensation	742		0.7	%	740		0.6	%	2		0.3	%
Depreciation and amortization	4,813		4.3	%	3,872		3.0	%	941		24.3	%
Impairment and other losses	157		0.1	%	1,933		1.5	%	(1,776)		(91.9)	%
Total operating expenses	$	88,523	78.9	%	$	113,569	88.0	%	$	(25,046)	(22.1)	%

Direct costs declined in connection with the reduction in revenue as discussed above.

The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.

Administrative costs were lower due to a decline in ~~various costs~~spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.

The increase in Adjusted EBITDA is principally for the same reasons as the growth 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 September 30, 2020 and 2019 was as follows:

Table of Contents


	2020				2019				Change
Media & Data Network	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Revenue	$	33,572			$	36,235			$	(2,663)	(7.3)	%
Operating expenses
Cost of services sold	23,608		70.3	%	26,219		72.4	%	(2,611)		(10.0)	%
Office and general expenses	7,064		21.0	%	8,681		24.0	%	(1,617)		(18.6)	%
Depreciation and amortization	786		2.3	%	1,004		2.8	%	(218)		(21.7)	%
Impairment and other losses	—		—	%	—		—	%	—		—	%
	$	31,458	93.7	%	$	35,904	99.1	%	$	(4,446)	(12.4)	%
Operating income	$	2,114	6.3	%	$	331	0.9	%	$	1,783	NM


Adjusted EBITDA	$	3,031	9.0	%	$	1,354	3.7	%	$	1,677	NM

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The increase in operating income was attributable to lower operating expenses, as outlined below, partially offset by the decline in revenue.

The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the three months ended September 30, 2020 and 2019 was as follows:


	2020				2019				Change
Media & Data Network	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	9,159	27.3	%	$	8,009	22.1	%	$	1,150	14.4	%
Staff costs	16,105		48.0	%	20,940		57.8	%	(4,835)		(23.1)	%
Administrative	5,277		15.7	%	5,932		16.4	%	(655)		(11.0)	%
Deferred acquisition consideration	—		—	%	3		—	%	(3)		(100.0)	%
Stock-based compensation	131		0.4	%	16		—	%	115		NM
Depreciation and amortization	786		2.3	%	1,004		2.8	%	(218)		(21.7)	%
Impairment and other losses	—		—	%	—		—	%	—		—	%
Total operating expenses	$	31,458	93.7	%	$	35,904	99.1	%	$	(4,446)	(12.4)	%

The increase in direct costs was in connection with higher revenue at the Network’s data business in the third quarter. This increase more than offset the decline in direct costs at the Media business.

The decline in staff costs was attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.

Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost ~~savings~~containment initiatives.

The increase in Adjusted EBITDA is principally for the same reasons as the increase in Operating income.

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All Other

The change in expenses, operating income and ~~operating profit~~Adjusted EBITDA as a percentage of revenue in the All Other category for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020				2019				Change
All Other	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Revenue	$	50,628			$	78,316			$	(27,688)	(35.4)	%
Operating expenses
Cost of services sold	32,741		64.7	%	53,666		68.5	%	(20,925)		(39.0)	%
Office and general expenses	10,751		21.2	%	17,199		22.0	%	(6,448)		(37.5)	%
Depreciation and amortization	1,933		3.8	%	2,168		2.8	%	(235)		(10.8)	%
Impairment and other losses	2		—	%	11		—	%	(9)		(81.8)	%
	$	45,427	89.7	%	$	73,044	93.3	%	$	(27,617)	(37.8)	%
Operating income	$	5,201	10.3	%	$	5,272	6.7	%	$	(71)	(1.3)	%


Adjusted EBITDA	$	7,146	14.1	%	$	9,221	11.8	%	$	(2,075)	(22.5)	%

2019 2018 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 76,101
$ 90,940
$ (14,839 ) (16.3 )%
Operating expenses
Cost of services sold 53,678
70.5 % 61,005
67.1 % (7,327 ) (12.0 )%
Office and general expenses 13,040
17.1 % 19,960
21.9 % (6,920 ) (34.7 )%
Depreciation and amortization 2,555
3.4 % 3,341
3.7 % (786 ) (23.5 )%
$ 69,273
91.0 % $ 84,306
92.7 % $ (15,033 ) (17.8 )%
Operating profit $ 6,828
9.0 % $ 6,634
7.3 % $ 194
2.9 %
The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic, including the Company’s experiential business.

The decrease in operating income was attributable to the decline in revenue, ~~was attributable to client losses, a reduction in spending by certain clients and a disposition of a Partner Firm with an impact of~~ ~~$3.6 million~~, partially offset by ~~new client wins and higher spending by other clients.~~

~~The increase in operating profit was attributable to~~ lower operating expenses, as outlined ~~below, partially offset by a decline in revenue.~~below.

The change in the categories of expenses as a percentage of revenue in the All Other category for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020				2019				Change
All Other	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	6,912	13.7	%	$	15,565	19.9	%	$	(8,653)	(55.6)	%
Staff costs	29,984		59.2	%	43,081		55.0	%	(13,097)		(30.4)	%
Administrative	6,586		13.0	%	10,449		13.3	%	(3,863)		(37.0)	%
Deferred acquisition consideration	(131)		(0.3)	%	1,663		2.1	%	(1,794)		NM
Stock-based compensation	141		0.3	%	107		0.1	%	34		31.8	%
Depreciation and amortization	1,933		3.8	%	2,168		2.8	%	(235)		(10.8)	%
Impairment and other losses	2		—	%	11		—	%	(9)		(81.8)	%
Total operating expenses	$	45,427	89.7	%	$	73,044	93.3	%	$	(27,617)	(37.8)	%

2019 2018 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 18,809
24.7 % $ 22,385
24.6 % $ (3,576 ) (16.0 )%
Staff costs ⁽²⁾
39,930
52.5 % 44,197
48.6 % (4,267 ) (9.7 )%
Administrative 7,592
10.0 % 7,158
7.9 % 434
6.1 %
Deferred acquisition consideration 269
0.4 % 6,548
7.2 % (6,279 ) (95.9 )%
Stock-based compensation 118
0.2 % 677
0.7 % (559 ) (82.6 )%
Depreciation and amortization 2,555
3.4 % 3,341
3.7 % (786 ) (23.5 )%
Total operating expenses $ 69,273
91.0 % $ 84,306
92.7 % $ (15,033 ) (17.8 )%
Direct costs declined in line with the reduction in revenues as discussed above.


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

The decline ~~in direct costs was attributable to lower revenues.~~

~~The decrease~~ in staff costs was primarily attributable to ~~staffing reductions at certain Partner Firms~~a reduction in ~~connection with~~staff to combat the impact on the business from the COVID-19 pandemic.

Administrative costs were lower due to a decline in ~~revenues and cost savings initiatives. In addition, staff costs included a positive benefit~~spending resulting from the ~~disposition of a Partner Firm.~~orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.

~~Deferred acquisition consideration change~~The decline in Adjusted EBITDA is principally for the ~~three months ended September 30, 2019 was primarily attributable to~~same reasons as the ~~aggregate performance~~reduction in Operating income, and the exclusion of ~~certain Partner Firms in 2019 relative to~~ the ~~previously projected expectations.~~deferred acquisition consideration.

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Corporate

The change in operating expenses and Adjusted EBITDA for Corporate for the three months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020		2019		Change
Corporate	$		$		$		%
	(Dollars in Thousands)
Staff costs	$	6,013	$	5,772	$	241	4.2	%
Administrative	7,129		2,314		4,815		NM
Stock-based compensation	1,421		833		588		70.6	%
Depreciation and amortization	199		192		7		3.6	%

Total operating expenses	$	14,762	$	9,111	$	5,651	62.0	%



Adjusted EBITDA	$	(6,726)	$	(7,333)	$	607	(8.3)	%

2019 2018 Variance
Corporate $ $ $ %
(Dollars in Thousands)
Staff costs⁽¹⁾
$ 5,772
$ 12,888
$ (7,116 ) (55.2 )%
Administrative 2,314
3,317
(1,003 ) (30.2 )%
Stock-based compensation 833
1,620
(787 ) (48.6 )%
Depreciation and amortization 192
199
(7 ) (3.5 )%
Total operating expenses $ 9,111
$ 18,024
$ (8,913 ) (49.5 )%
Administrative costs were higher due to higher professional fees associated with restructuring activities and an increase in occupancy costs related to the Company’s new space at One World Trade Center as part of the centralization of its New York real estate portfolio.


⁽¹⁾ Stock-based compensation increased primarily as a result of the increased level of awards outstanding and more stock-based compensation being recorded in 2020 due to the expectation that certain performance vesting conditions will be met.	~~Excludes stock-based compensation.~~

The ~~decline~~increase in ~~Corporate~~Adjusted EBITDA is a result of the change in operating expenses, ~~was primarily attributable to lower staff costs, due to a decline in severance expense~~more than offset by the exclusion of ~~$6.6 million and a reduction in staff and administrative costs, due to lower~~ professional fees associated with restructuring activities and the occupancy ~~costs.~~costs associated with the centralization of our New York real estate portfolio.

NINE MONTHS ENDED SEPTEMBER 30, ~~2019~~2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, ~~2018~~

2019

Consolidated Results of Operations

Revenues

Revenue was ~~$1.03 billion~~$870.8 million for the nine months ended September 30, ~~2019~~2020 compared to revenue of ~~$1.08 billion~~$1,033.8 million for the nine months ended September 30, ~~2018. See~~2019. The components of the ~~Advertising and Communications Group section below for a discussion regarding consolidated~~fluctuations in revenues for the nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018.~~2019 are as follows:


	Total				United States				Canada				Other
	$		%		$		%		$		%		$		%
	(Dollars in Thousands)
September 30, 2019	$	1,033,828			$	819,347			$	72,837			$	141,644
Components of revenue change:
Foreign exchange impact	(3,835)		(0.4)	%	—		—	%	(1,054)		(1.4)	%	(2,781)		(2.0)	%
Non-GAAP acquisitions (dispositions), net	(13,865)		(1.3)	%	(10,160)		(1.2)	%	(3,705)		(5.1)	%	—		—	%
Organic revenue	(145,285)		(14.1)	%	(106,029)		(12.9)	%	(12,914)		(17.7)	%	(26,342)		(18.6)	%
Total Change	$	(162,985)	(15.8)	%	$	(116,189)	(14.2)	%	$	(17,673)	(24.3)	%	$	(29,123)	(20.6)	%
September 30, 2020	$	870,843			$	703,158			$	55,164			$	112,521

The negative foreign exchange impact of $3.8 million, or 0.4%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.

For the nine months ended September 30, 2020, organic revenue declined $145.3 million, or 14.1%, primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

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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 nine months ended September 30, 2020:


	All Other		Total
	(Dollars in Thousands)
GAAP revenue from 2019 and 2020 acquisitions	$	—	$	—
Foreign exchange impact	(248)		(248)
Contribution to non-GAAP organic revenue growth	(411)		(411)
Prior year revenue from dispositions	(13,206)		(13,206)
Non-GAAP acquisitions (dispositions), net	$	(13,865)	$	(13,865)

The geographic mix in revenues for the nine months ended September 30, 2020 and 2019 is as follows:


	2020		2019
United States	80.8	%	79.3	%
Canada	6.3	%	7.0	%
Other	12.9	%	13.7	%

Impairment and Other Losses

The Company recognized a charge of $19.2 million for the nine months ended September 30, 2020 consisting of a goodwill impairment of $13.4 million and an impairment of right-of-use lease assets and loss of $5.8 million.

The Company recorded a loss of $5.8 million primarily to reduce the excess carrying value of certain right-of-use lease assets and related leasehold improvements above the fair value.

Operating Income

Operating income for the nine months ended September 30, ~~2019~~2020 was ~~$68.5~~$58.3 million compared to ~~$18.8~~$68.5 million for the nine months ended September 30, ~~2018,~~2019, representing a ~~change~~decline of ~~$49.7 million. The change was primarily~~$10.2 million, driven by ~~an increase in operating income in~~ the ~~Advertising and Communications Group of $35.1 million, as a~~ decline in revenue, ~~was more than~~partially offset by ~~lower~~a reduction in operating expenses to align our costs with revenues impacted by the COVID-19 pandemic.

Adjusted EBITDA

Adjusted EBITDA for the nine months ended September 30, 2020 was $129.8 million, compared to $117.1 million for the nine months ended September 30, 2019, representing an increase of $12.7 million, principally resulting from the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily ~~related to a goodwill~~from the exclusion of the impairment ~~in 2018. Additionally, Corporate operating expenses decreased by $14.7 million~~, ~~primarily related to lower compensation expense, stock-based compensation~~ and ~~professional fees as well as an asset impairment in 2018.~~other losses of $19.2 million.

Other, Net

Other, net, for the nine months ended September 30, ~~2019~~2020 was income of $22.7 million, primarily driven by a gain on the sale of Sloane and on the repurchase of a portion of the Company’s 6.50% Notes, compared to a loss of $4.6 ~~million compared to income of $1.2~~ million for the nine months ended September 30, ~~2018,~~2019, primarily driven by a loss on the sale of ~~Kingsdale in 2019.~~Kingsdale.

Foreign Exchange Transaction Gain (Loss)

The foreign exchange ~~gain~~loss for the nine months ended September 30, ~~2019~~2020 was ~~$4.4~~$7.3 million compared to a ~~loss~~gain of ~~$9.9~~$4.4 million for the nine months ended September 30, ~~2018.~~2019. The change in foreign exchange was primarily attributable to the ~~strengthening~~weakening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.

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Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the nine months ended September 30, ~~2019~~2020 was ~~$49.3~~$46.8 million compared to ~~$50.0~~$49.3 million for the nine months ended September 30, ~~2018,~~2019, representing a decrease of ~~$0.7 million.~~$2.5 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility and a lower amount of the 6.5% Notes outstanding.

Income Tax Expense (Benefit)

Income tax expense for the nine months ended September 30, ~~2019~~2020 was $7.0 million (on pre-tax income of $27.0 million resulting in an effective tax rate of 26.1%) compared to an expense of $6.3 million (on pre-tax income of $19.1 million resulting in an effective tax rate of 32.9%) ~~compared to a benefit of $3.4 million (on a loss of $40.0 million resulting in an effective tax rate of 8.4%)~~ for the nine months ended September 30, ~~2018.~~ 2019.

The ~~income~~difference in effective tax ~~benefit for~~rate of 26.1% in the nine months ended September 30, ~~2018,~~2020 as compared to 32.9% in same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period. This decrease was ~~impacted by impairments and non-deductible stock compensation~~primarily attributable to an increase in forecasted foreign earnings for which athere is no tax ~~benefit was not recognized.~~

~~Equity~~expense provided due to valuation allowance, partially offset by an increase in ~~Earnings (Losses) of Non-Consolidated Affiliates~~

Equity in earnings (losses) of non-consolidated affiliates represents the income or losses attributable to equity method investments. The Company recorded $0.4 million of income for both the nine months ended September 30, 2019base erosion and ~~the nine months ended September 30, 2018.~~anti-abuse tax (“BEAT”).

Noncontrolling Interests

The effect of noncontrolling interests for the nine months ended September 30, ~~2019~~2020 was ~~$10.7~~$14.6 million compared to ~~$5.9~~$10.7 million for the nine months ended September 30, ~~2018.~~

2019.

Net Loss Attributable to MDC Partners Inc. Common Shareholders

As a result of the foregoing and the impact of accretion on and net income allocated to convertible preference shares, net loss attributable to MDC Partners Inc. common shareholders for the nine months ended September 30, ~~2019~~2020 was ~~$6.5~~$6.0 million, or ~~$0.10~~$0.08 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of ~~$48.3~~$6.5 million, or ~~$0.85~~$0.10 diluted ~~income~~loss per share, for the nine months ended September 30, ~~2018.~~2019.

~~Advertising and Communications~~

Integrated Networks - Group A

The ~~following discussion provides additional detailed disclosure for each~~change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the ~~Company’s four (4)~~Integrated Networks - Group A reportable ~~segments, plus the “All Other” category, within the Advertising and Communications Group.~~

~~The components of the fluctuations in revenues~~segment for the nine months ended September 30, ~~2019 compared to the nine months ended September 30, 2018 are as follows:~~

Total United States Canada Other
$ % $ % $ % $ %
(Dollars in Thousands)
September 30, 2018 $ 1,082,541
$ 848,336
$ 91,597
$ 142,608

Components of revenue change:
Foreign exchange impact (11,673 ) (1.1 )% —
— % (2,719 ) (3.0 )% (8,954 ) (6.3 )%
Non-GAAP acquisitions (dispositions), net 3,197
0.3 % 11,524
1.4 % (10,909 ) (11.9 )% 2,582
1.8 %
Organic revenue growth (decline) (40,237 ) (3.7 )% (40,513 ) (4.8 )% (5,132 ) (5.6 )% 5,408
3.8 %
Total Change $ (48,713 ) (4.5 )% $ (28,989 ) (3.4 )% $ (18,760 ) (20.5 )% $ (964 ) (0.7 )%
September 30, 2019 $ 1,033,828
$ 819,347
$ 72,837
$ 141,644

~~Revenue for the Advertising~~2020 and ~~Communications Group was $1.03 billion for the nine months ended September 30,~~ 2019 ~~compared to revenue of $1.08 billion for the nine months ended September 30, 2018, representing a decrease of $48.7 million, or 4.5%.~~

~~The negative foreign exchange impact of $11.7 million, or 1.1%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.~~

The Company also utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above. For the nine months ended September 30, 2019, organic revenue decreased by $40.2 million or 3.7%, of which $46.9 million, or 4.3% pertained to Partner Firms the Company has owned throughout each of the comparable periods presented, offset by growth of $6.6 million, or 0.6%, generated from acquired Partner Firms. The decline in revenue from existing Partner Firms was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients. Additionally, the change in revenue was driven by a decline in categories including healthcare, food and beverage and automotive, partially offset by growth in transportation and travel/lodging and technology.

Specialist Communications All Other Total
(Dollars in Thousands)
GAAP revenue from 2018 and 2019 acquisitions $ 3,872
$ 16,486
$ 20,358
Foreign exchange impact 9
461
470
Contribution to non-GAAP organic revenue growth (566 ) —
(6,067 ) —
(6,633 )
Prior year revenue from dispositions —
(10,998 ) (10,998 )
Non-GAAP acquisitions (dispositions), net $ 3,315
$ (118 ) $ 3,197

~~The geographic mix in revenues for the nine months ended September 30, 2019 and 2018 is as follows:~~

2019 2018
United States 79.3 % 78.4 %
Canada 7.0 % 8.5 %
Other 13.7 % 13.1 %

~~The change in expenses and operating profit as a percentage of revenue in the Advertising and Communications Group for the nine months ended September 30, 2019 and 2018~~ was as follows:


															2020				2019				Change
	2019				2018				Change
Advertising and Communications Group	$		% of Revenue		$		% of Revenue		$			%
Integrated Networks - Group A														Integrated Networks - Group A	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)														(Dollars in Thousands)
Revenue	$	1,033,828			$	1,082,541			$	(48,713	)	(4.5	)%	Revenue	$	260,420			$	276,286			$	(15,866)	(5.7)	%
Operating expenses														Operating expenses
Cost of services sold	700,351		67.7	%	735,110		67.9	%	(34,759		)	(4.7	)%	Cost of services sold	170,501		65.5	%	198,518		71.9	%	(28,017)		(14.1)	%
Office and general expenses	204,185		19.8	%	227,801		21.0	%	(23,616		)	(10.4	)%	Office and general expenses	45,674		17.5	%	42,795		15.5	%	2,879		6.7	%
Depreciation and amortization	28,239		2.7	%	34,629		3.2	%	(6,390		)	(18.5	)%	Depreciation and amortization	4,908		1.9	%	6,420		2.3	%	(1,512)		(23.6)	%
Goodwill and other asset impairment charge	1,944		0.2	%	21,008		1.9	%	(19,064		)	(90.7	)%
	$	934,719	90.4	%	$	1,018,548	94.1	%	$	(83,829	)	(8.2	)%
Operating profit	$	99,109	9.6	%	$	63,993	5.9	%	$	35,116		54.9	%
															$	221,083	84.9	%	$	247,733	89.7	%	$	(26,650)	(10.8)	%
Operating income														Operating income	$	39,337	15.1	%	$	28,553	10.3	%	$	10,784	37.8	%

Adjusted EBITDA														Adjusted EBITDA	$	54,516	20.9	%	$	43,128	15.6	%	$	11,388	26.4	%

The ~~change~~decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The increase in operating ~~profit~~income was attributable to a decline in ~~revenue, more than offset by lower~~ operating expenses, as outlined ~~below.~~below, partially offset by lower revenue.

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The change in the categories of expenses as a percentage of revenue in the ~~Advertising and Communications~~Integrated Networks - Group ~~for the nine months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 167,645
16.2 % $ 152,877
14.1 % $ 14,768
9.7 %
Staff costs ⁽²⁾
596,810
57.7 % 647,063
59.8 % (50,253 ) (7.8 )%
Administrative 131,528
12.7 % 141,656
13.1 % (10,128 ) (7.1 )%
Deferred acquisition consideration (3,627 ) (0.4 )% 8,522
0.8 % (12,149 ) NM
Stock-based compensation 12,180
1.2 % 12,793
1.2 % (613 ) (4.8 )%
Depreciation and amortization 28,239
2.7 % 34,629
3.2 % (6,390 ) (18.5 )%
Goodwill and other asset impairment charge 1,944
0.2 % 21,008
1.9 % (19,064 ) (90.7 )%
Total operating expenses $ 934,719
90.4 % $ 1,018,548
94.1 % $ (83,829 ) (8.2 )%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~Direct costs were higher, inclusive of higher billable costs for client arrangements accounted for as principal.~~

~~The decrease in staff costs was primarily attributable to staffing reductions at Partner Firms in connection with the decline in revenues and cost savings initiatives.~~

~~The decrease in administrative costs was driven by lower spending in connection with savings initiatives.~~

Deferred acquisition consideration change for the nine months ended September 30, 2019 was primarily attributable to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.

For the nine months ended September 30, 2019, an impairment charge of $1.9 million was recognized to reduce the carrying value of a right-of-use lease asset and related leasehold improvements within the Global Integrated Agencies segment.

For the nine months ended September 30, 2018, an impairment charge of $21.0 million was recognized pertaining to goodwill within the Domestic Creative Agencies reportable segment and a trademark within the Global Integrated Agencies reportable segment.

~~Global Integrated Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Global Integrated Agencies~~A reportable segment for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020				2019				Change
Integrated Networks - Group A	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	30,478	11.7	%	$	34,660	12.5	%	$	(4,182)	(12.1)	%
Staff costs	147,222		56.5	%	166,179		60.1	%	(18,957)		(11.4)	%
Administrative	28,204		10.8	%	32,319		11.7	%	(4,115)		(12.7)	%
Deferred acquisition consideration	4,391		1.7	%	(409)		(0.1)	%	4,800		NM
Stock-based compensation	5,880		2.3	%	8,564		3.1	%	(2,684)		(31.3)	%
Depreciation and amortization	4,908		1.9	%	6,420		2.3	%	(1,512)		(23.6)	%

Total operating expenses	$	221,083	84.9	%	$	247,733	89.7	%	$	(26,650)	(10.8)	%

2019 2018 Change
Global Integrated Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 429,977
$ 444,995
$ (15,018 ) (3.4 )%
Operating expenses
Cost of services sold 284,214
66.1 % 297,403
66.8 % (13,189 ) (4.4 )%
Office and general expenses 85,781
20.0 % 99,460
22.4 % (13,679 ) (13.8 )%
Depreciation and amortization 12,511
2.9 % 16,705
3.8 % (4,194 ) (25.1 )%
Other asset impairment 1,944
0.5 % 3,180
0.7 % (1,236 ) (38.9 )%
$ 384,450
89.4 % $ 416,748
93.7 % $ (32,298 ) (7.8 )%
Operating profit $ 45,527
10.6 % $ 28,247
6.3 % $ 17,280
61.2 %
Direct costs declined in connection with the reduction in revenues as discussed above.

~~Revenue~~The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.

Administrative costs were lower ~~by $8.4 million, or 1.9%,~~ due to a ~~negative foreign exchange impact~~decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.

The change in deferred acquisition consideration for the nine months ended September 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.

The increase in Adjusted EBITDA is principally for the same reasons as the increase in Operating income for the nine months ended September 30, 2020.

Integrated Networks - Group B

The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:


	2020				2019				Change
Integrated Networks - Group B	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Revenue	$	323,264			$	395,622			$	(72,358)	(18.3)	%
Operating expenses
Cost of services sold	190,701		59.0	%	242,267		61.2	%	(51,566)		(21.3)	%
Office and general expenses	67,971		21.0	%	87,269		22.1	%	(19,298)		(22.1)	%
Depreciation and amortization	13,726		4.2	%	11,964		3.0	%	1,762		14.7	%
Impairment and other losses	17,786		5.5	%	1,933		0.5	%	15,853		NM
	$	290,184	89.8	%	$	343,433	86.8	%	$	(53,249)	(15.5)	%
Operating income	$	33,080	10.2	%	$	52,189	13.2	%	$	(19,109)	(36.6)	%


Adjusted EBITDA	$	63,121	19.5	%	$	65,117	16.5	%	$	(1,996)	(3.1)	%

The decrease in revenue was primarily attributable to lower spending by ~~$6.6 million, or 1.5%, driven~~clients in connection with the COVID-19 pandemic.

The decrease in operating income was primarily attributable to the decline in revenue, partially offset by ~~client losses~~lower operating expenses, as outlined below.

Table of Contents

The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:


	2020				2019				Change
Integrated Networks - Group B	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	35,675	11.0	%	$	51,456	13.0	%	$	(15,781)	(30.7)	%
Staff costs	185,477		57.4	%	227,832		57.6	%	(42,355)		(18.6)	%
Administrative	38,991		12.1	%	50,967		12.9	%	(11,976)		(23.5)	%
Deferred acquisition consideration	(3,859)		(1.2)	%	(3,950)		(1.0)	%	91		(2.3)	%
Stock-based compensation	2,388		0.7	%	3,231		0.8	%	(843)		(26.1)	%
Depreciation and amortization	13,726		4.2	%	11,964		3.0	%	1,762		14.7	%
Impairment and other losses	17,786		5.5	%	1,933		0.5	%	15,853		NM
Total operating expenses	$	290,184	89.8	%	$	343,433	86.8	%	$	(53,249)	(15.5)	%

Direct costs declined in connection with the reduction in revenues as discussed above.

The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.

Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.

The decrease in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily from the exclusion of the goodwill and right-of-use lease asset impairments.

Media & Data Network

The change in expenses, operating income (loss) and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:


	2020				2019				Change
Media & Data Network	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Revenue	$	103,181			$	118,923			$	(15,742)	(13.2)	%
Operating expenses
Cost of services sold	74,396		72.1	%	89,806		75.5	%	(15,410)		(17.2)	%
Office and general expenses	23,572		22.8	%	26,826		22.6	%	(3,254)		(12.1)	%
Depreciation and amortization	2,401		2.3	%	3,332		2.8	%	(931)		(27.9)	%
Impairment and other losses	35		—	%	—		—	%	35		—	%
	$	100,404	97.3	%	$	119,964	100.9	%	$	(19,560)	(16.3)	%
Operating income (loss)	$	2,777	2.7	%	$	(1,041)	(0.9)	%	$	3,818	NM


Adjusted EBITDA	$	5,710	5.5	%	$	2,388	2.0	%	$	3,322	NM

The decrease in revenue was primarily attributable to lower spending by ~~certain~~ clients ~~partially offset by new client wins and higher spending by other clients.~~

in connection with the COVID-19 pandemic.

The increase in operating ~~profit~~income was ~~primarily~~ attributable to ~~lower~~a decline in operating expenses, as outlined below, partially offset by ~~a decline in~~lower revenue.

The change in the categories of expenses as a percentage of revenue in the ~~Global Integrated Agencies~~Media & Data Network reportable segment for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:

Table of Contents


																2020				2019				Change
Media & Data Network															Media & Data Network	$		% of Revenue		$		% of Revenue		$		%
	2019					2018				Change						(Dollars in Thousands)
Global Integrated Agencies	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	43,550		10.1	%	$	23,048	5.2	%	$	20,502		89.0	%
Staff costs ⁽²⁾	262,288			61.0	%	295,491		66.4	%	(33,203		)	(11.2	)%
Direct costs															Direct costs	$	27,843	27.0	%	$	32,852	27.6	%	$	(5,009)	(15.2)	%
Staff costs															Staff costs	53,418		51.8	%	64,727		54.4	%	(11,309)		(17.5)	%
Administrative	58,112			13.5	%	67,369		15.1	%	(9,257		)	(13.7	)%	Administrative	16,210		15.7	%	18,956		15.9	%	(2,746)		(14.5)	%
Deferred acquisition consideration	(3,627		)	(0.8	)%	2,779		0.6	%	(6,406		)	NM		Deferred acquisition consideration	375		0.4	%	75		0.1	%	300		NM
Stock-based compensation	9,672			2.2	%	8,176		1.8	%	1,496			18.3	%	Stock-based compensation	122		0.1	%	22		—	%	100		NM
Depreciation and amortization	12,511			2.9	%	16,705		3.8	%	(4,194		)	(25.1	)%	Depreciation and amortization	2,401		2.3	%	3,332		2.8	%	(931)		(27.9)	%
Other asset impairment	1,944			0.5	%	3,180		0.7	%	(1,236		)	(38.9	)%
Impairment and other losses															Impairment and other losses	35		—	%	—		—	%	35		—	%
Total operating expenses	$	384,450		89.4	%	$	416,748	93.7	%	$	(32,298	)	(7.8	)%	Total operating expenses	$	100,404	97.3	%	$	119,964	100.9	%	$	(19,560)	(16.3)	%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

Direct costs ~~were higher, inclusive of higher billable costs for client arrangements accounted for~~declined in connection with the reduction in revenues as ~~principal.~~discussed above.

The ~~decrease~~decline in staff costs was attributable to ~~staffing reductions at certain Partner Firms in connection with the decline in revenue and cost savings initiatives.~~

~~The decrease in administrative costs was driven by lower spending in connection with savings initiatives.~~

~~For the nine months ended September 30, 2019, an impairment charge of $1.9 million was recognized to reduce the carrying value of a right-of-use lease asset and related leasehold improvements.~~

~~For the nine months ended September 30, 2018, an impairment charge of $3.2 million was recognized to reduce the carrying value of a trademark.~~

~~Domestic Creative Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Domestic Creative Agencies reportable segment for the nine months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 176,711
$ 183,504
$ (6,793 ) (3.7 )%
Operating expenses
Cost of services sold 112,453
63.6 % 127,403
69.4 % (14,950 ) (11.7 )%
Office and general expenses 38,017
21.5 % 41,367
22.5 % (3,350 ) (8.1 )%
Depreciation and amortization 3,708
2.1 % 3,793
2.1 % (85 ) (2.2 )%
Goodwill impairment —
— % 17,828
9.7 % (17,828 ) (100.0 )%
$ 154,178
87.2 % $ 190,391
103.8 % $ (36,213 ) (19.0 )%
Operating profit (loss) $ 22,533
12.8 % $ (6,887 ) (3.8 )% $ 29,420
NM

~~The decline in revenue was attributable to client losses and~~ a reduction in ~~spending by certain clients, partially offset by new client wins and higher spending by other clients.~~staff to combat the impact on the business from the COVID-19 pandemic.

~~The change in operating profit was primarily attributable~~Administrative costs were lower due to ~~lower operating expenses, as outlined below, partially offset by the~~a decline in ~~revenue.~~

~~The change in~~spending resulting from the ~~categories of expenses as a percentage of revenue in~~orders to work-from-home given the ~~Domestic Creative Agencies reportable segment for the nine months ended September 30, 2019~~COVID-19 pandemic and ~~2018 was as follows:~~

2019 2018 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 20,139
11.4 % $ 21,855
11.9 % $ (1,716 ) (7.9 )%
Staff costs ⁽²⁾
107,214
60.7 % 120,563
65.7 % (13,349 ) (11.1 )%
Administrative 21,870
12.4 % 23,757
12.9 % (1,887 ) (7.9 )%
Deferred acquisition consideration (91 ) (0.1 )% 539
0.3 % (630 ) NM
Stock-based compensation 1,338
0.8 % 2,056
1.1 % (718 ) (34.9 )%
Depreciation and amortization 3,708
2.1 % 3,793
2.1 % (85 ) (2.2 )%
Goodwill impairment —
— % 17,828
9.7 % (17,828 ) (100.0 )%
Total operating expenses $ 154,178
87.2 % $ 190,391
103.8 % $ (36,213 ) (19.0 )%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The decrease in direct costs was attributable to lower revenues.~~

~~The decrease in staff costs was attributable to staffing reductions at certain Partner Firms in connection with the decline in revenue and~~other cost ~~savings~~containment initiatives.

~~The decrease in administrative costs was driven by lower spending in connection with savings initiatives.~~

~~For the nine months ended September 30, 2018, an impairment charge of $17.8 million was recognized to reduce the carrying value of goodwill.~~

~~Specialist Communications~~

~~The change in expenses and operating profit as a percentage of revenue in the Specialist Communications reportable segment for the nine months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 128,224
$ 117,966
$ 10,258
8.7 %
Operating expenses
Cost of services sold 85,452
66.6 % 78,111
66.2 % 7,341
9.4 %
Office and general expenses 21,974
17.1 % 23,150
19.6 % (1,176 ) (5.1 )%
Depreciation and amortization 1,909
1.5 % 3,059
2.6 % (1,150 ) (37.6 )%
$ 109,335
85.3 % $ 104,320
88.4 % $ 5,015
4.8 %
Operating profit $ 18,889
14.7 % $ 13,646
11.6 % $ 5,243
38.4 %

The increase in ~~revenue~~Adjusted EBITDA is ~~primarily due to client wins at certain Partner firms~~principally for the same reasons as ~~well as a contribution of $3.3 million from an acquired Partner Firm.~~

~~The~~the increase in ~~operating profit was primarily attributable to higher revenue, partially offset by an increase in operating expenses, as outlined below.~~Operating income (loss).

~~The change in the categories of expenses as a percentage of revenue in the Specialist Communications reportable segment for the nine months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 30,071
23.5 % $ 27,316
23.2 % $ 2,755
10.1 %
Staff costs ⁽²⁾
61,543
48.0 % 56,461
47.9 % 5,082
9.0 %
Administrative 15,271
11.9 % 14,977
12.7 % 294
2.0 %
Deferred acquisition consideration 418
0.3 % 2,216
1.9 % (1,798 ) (81.1 )%
Stock-based compensation 123
0.1 % 291
0.2 % (168 ) (57.7 )%
Depreciation and amortization 1,909
1.5 % 3,059
2.6 % (1,150 ) (37.6 )%
Total operating expenses $ 109,335
85.3 % $ 104,320
88.4 % $ 5,015
4.8 %


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The increase in direct costs was attributable to the growth in revenue.~~

~~The increase in staff costs was primarily attributable to contributions from an acquired Partner Firm, and higher costs to support the growth of certain Partner Firms.~~

~~Media Services~~

~~The change in expenses and operating loss as a percentage of revenue in the Media Services reportable segment for the nine months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 75,815
$ 90,948
$ (15,133 ) (16.6 )%
Operating expenses
Cost of services sold 58,278
76.9 % 65,557
72.1 % (7,279 ) (11.1 )%
Office and general expenses 18,636
24.6 % 23,474
25.8 % (4,838 ) (20.6 )%
Depreciation and amortization 2,531
3.3 % 1,995
2.2 % 536
26.9 %
$ 79,445
104.8 % $ 91,026
100.1 % $ (11,581 ) (12.7 )%
Operating loss $ (3,630 ) (4.8 )% $ (78 ) (0.1 )% $ (3,552 ) NM

~~The decline in revenue was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients.~~

~~The change in operating loss was primarily attributable to a 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 Media Services reportable segment for the nine months ended September 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 21,902
28.9 % $ 21,954
24.1 % $ (52 ) (0.2 )%
Staff costs ⁽²⁾
41,647
54.9 % 52,484
57.7 % (10,837 ) (20.6 )%
Administrative 13,301
17.5 % 14,198
15.6 % (897 ) (6.3 )%
Deferred acquisition consideration 75
0.1 % 144
0.2 % (69 ) (47.9 )%
Stock-based compensation (11 ) — % 251
0.3 % (262 ) NM
Depreciation and amortization 2,531
3.3 % 1,995
2.2 % 536
26.9 %
Total operating expenses $ 79,445
104.8 % $ 91,026
100.1 % $ (11,581 ) (12.7 )%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The decrease in staff costs was attributable to staffing reductions at certain Partner Firms.~~

All Other

The change in expenses, operating income and ~~operating profit~~Adjusted EBITDA as a percentage of revenue in the All Other category for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2019				2018				Change						2020				2019				Change
All Other	$		% of Revenue		$		% of Revenue		$			%		All Other	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)														(Dollars in Thousands)
Revenue	$	223,101			$	245,128			$	(22,027	)	(9.0	)%	Revenue	$	183,978			$	242,997			$	(59,019)	(24.3)	%
Operating expenses														Operating expenses
Cost of services sold	159,954		71.7	%	166,636		68.0	%	(6,682		)	(4.0	)%	Cost of services sold	125,258		68.1	%	169,760		69.9	%	(44,502)		(26.2)	%
Office and general expenses	39,777		17.8	%	40,350		16.5	%	(573		)	(1.4	)%	Office and general expenses	34,731		18.9	%	47,295		19.5	%	(12,564)		(26.6)	%
Depreciation and amortization	7,580		3.4	%	9,077		3.7	%	(1,497		)	(16.5	)%	Depreciation and amortization	5,735		3.1	%	6,523		2.7	%	(788)		(12.1)	%
Impairment and other losses														Impairment and other losses	209		0.1	%	11		—	%	198		NM
	$	207,311	92.9	%	$	216,063	88.1	%	$	(8,752	)	(4.1	)%		$	165,933	90.2	%	$	223,589	92.0	%	$	(57,656)	(25.8)	%
Operating profit	$	15,790	7.1	%	$	29,065	11.9	%	$	(13,275	)	(45.7	)%
Operating income														Operating income	$	18,045	9.8	%	$	19,408	8.0	%	$	(1,363)	(7.0)	%

Adjusted EBITDA														Adjusted EBITDA	$	23,936	13.0	%	$	26,962	11.1	%	$	(3,026)	(11.2)	%

The ~~change~~decrease in revenue was primarily attributable to ~~revenue contributions~~lower spending by clients due to the COVID-19 pandemic and a reduction in revenues in connection with the sale of ~~$11.3 million, or 4.6% from acquired Partner Firms,~~Sloane in 2020 and Kingsdale in 2019.

The decrease in operating income was attributable to the decline in revenue, partially offset by ~~a negative revenue impact~~lower operating expenses, as outlined below.

Table of ~~$11.5 million or 4.7% from the disposition of a Partner firm, a decline from existing Partner Firms of $20.4 million, or 8.3%, and negative foreign exchange impact of $1.5 million, or 0.6%.~~Contents

The change in the categories of expenses as a percentage of revenue in the All Other category for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020				2019				Change
All Other	$		% of Revenue		$		% of Revenue		$		%
	(Dollars in Thousands)
Direct costs	$	33,831	18.4	%	$	48,680	20.0	%	$	(14,849)	(30.5)	%
Staff costs	106,399		57.8	%	138,070		56.8	%	(31,671)		(22.9)	%
Administrative	19,812		10.8	%	29,285		12.1	%	(9,473)		(32.3)	%
Deferred acquisition consideration	(392)		(0.2)	%	657		0.3	%	(1,049)		NM
Stock-based compensation	339		0.2	%	363		0.1	%	(24)		(6.6)	%
Depreciation and amortization	5,735		3.1	%	6,523		2.7	%	(788)		(12.1)	%
Impairment and other losses	209		0.1	%	11		—	%	198		NM
Total operating expenses	$	165,933	90.2	%	$	223,589	92.0	%	$	(57,656)	(25.8)	%

2019 2018 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 51,983
23.3 % $ 58,704
23.9 % $ (6,721 ) (11.4 )%
Staff costs ⁽²⁾
124,118
55.6 % 122,064
49.8 % 2,054
1.7 %
Administrative 22,974
10.3 % 21,355
8.7 % 1,619
7.6 %
Deferred acquisition consideration (402 ) (0.2 )% 2,844
1.2 % (3,246 ) NM
Stock-based compensation 1,058
0.5 % 2,019
0.8 % (961 ) (47.6 )%
Depreciation and amortization 7,580
3.4 % 9,077
3.7 % (1,497 ) (16.5 )%
Total operating expenses $ 207,311
92.9 % $ 216,063
88.1 % $ (8,752 ) (4.1 )%


⁽¹⁾	~~Excludes staff costs.~~


⁽²⁾	~~Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses.~~

~~The decrease~~Direct costs declined in ~~direct costs was attributable to lower revenues.~~connection with the reduction in revenues as discussed above.

The ~~increase~~decline in staff ~~and administrative~~ costs was primarily attributable to ~~contributions~~a reduction in staff to combat the impact on the business from ~~an acquired Partner Firm.~~the COVID-19 pandemic.

Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.

The ~~increase~~decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, in addition to incremental operating expenses, primarily from the exclusion of deferred acquisition consideration ~~was primarily attributable to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.~~and depreciation and amortization.

Corporate

The change in operating expenses and Adjusted EBITDA for Corporate for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 was as follows:


	2020		2019		Change
Corporate	$		$		$		%
	(Dollars in Thousands)
Staff costs	$	14,703	$	19,623	$	(4,920)	(25.1)	%
Administrative	16,585		9,860		6,725		68.2	%
Stock-based compensation	1,839		452		1,387		NM
Depreciation and amortization	667		630		37		5.9	%
Impairment and other losses	1,129		—		1,129		—	%
Total operating expenses	$	34,923	$	30,565	$	4,358	14.3	%

Adjusted EBITDA	$	(17,496)	$	(20,478)	$	2,982	(14.6)	%

2019 2018 Variance
Corporate $ $ $ %
(Dollars in Thousands)
Staff costs ⁽¹⁾
$ 19,623
$ 24,630
$ (5,007 ) (20.3 )%
Administrative 9,860
13,617
(3,757 ) (27.6 )%
Stock-based compensation 452
4,089
(3,637 ) (88.9 )%
Depreciation and amortization 630
583
47
8.1 %
Other asset impairment —
2,317
(2,317 ) (100.0 )%
Total operating expenses $ 30,565
$ 45,236
$ (14,671 ) (32.4 )%
The reduction in staff costs is primarily driven by a severance charge in 2019 not repeated in 2020.


⁽¹⁾	~~Excludes stock-based compensation.~~

~~Staff~~Administrative costs ~~decreased~~were higher due to ~~a reduction~~higher professional fees associated with restructuring activities and an increase in ~~staffing.~~

~~The decrease in administrative~~occupancy costs ~~was primarily~~ related to ~~lower professional fees and various other costs in~~the Company’s new space at One World Trade Center as part of the centralization of its New York real estate portfolio.

In connection with ~~cost savings initiatives.~~

~~Stock-based~~the forfeiture of performance-based equity awards, stock-based compensation ~~was lower~~expense in the ~~nine months ended September 30, 2019 due to~~prior year included the reversal of expense previously recognized.

The impairment was recognized to write-down the carrying value of a right-of-use lease asset to its fair value.

The increase in ~~connection~~Adjusted EBITDA is a result of the change in operating expenses, and the exclusion of professional fees associated with restructuring activities and the occupancy costs associated with the ~~forfeiture~~centralization of ~~a performance-based equity award.~~our New York real estate portfolio.

Table of Contents

Liquidity and Capital Resources:

Liquidity

The following table provides summary information about the Company’s liquidity position:


	September 30, 2020		September 30, 2019

	(Dollars in Thousands)


Net cash used in operating activities	$	(2,491)	$	(5,840)
Net cash provided by investing activities	$	4,549	$	3,307
Net cash used in financing activities	$	(71,969)	$	(2,202)

As of and for the nine months ended September 30, 2019 As of and for the nine months ended September 30, 2018 As of and for the year ended December 31, 2018

(In Thousands, Except for Long-Term Debt to
Shareholders’ Equity Ratio)

Cash and cash equivalents $ 27,280

$ 25,056

$ 30,873
Working capital deficit $ (195,211 )
$ (181,724 )
$ (152,682 )
Cash provided by (used in) operating activities $ (5,840 ) $ (31,729 )
$ 17,280
Cash provided by (used in) investing activities $ 3,307
$ (48,355 )
$ (50,431 )
Cash provided by (used in) financing activities $ (2,202 ) $ 59,122

$ 21,434
Ratio of long-term debt to shareholders' deficit -5.14

-5.55

-3.87
The effects of the COVID-19 pandemic have negatively impacted the Company’s cash flows; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19. While it is difficult to predict the full scale of the impact, the Company has taken various actions as discussed in the Executive Summary section above.

The Company had cash and cash equivalents of $37.1 million and $106.9 million as of September 30, 2020 and December 31, 2019, respectively. The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months. The Company has historically been able to maintain and expand its business using cash generated from operating activities, funds available under its Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing. At September 30, ~~2019,~~2020, the Company had ~~$8.1 million of~~no borrowings outstanding and ~~$213.4~~$192.9 million available under the Credit Agreement.

The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 6.50% ~~Senior~~ Notes due 2024. Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Company’s Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the ~~foreseeable future.~~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 ~~2018 Annual Report on~~2019 Form 10-K and in the Company’s other SEC filings.

As market conditions warrant, the Company may from time to time seek to purchase its notes, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing its indebtedness, any purchase made by the Company may be funded with the net proceeds from any asset dispositions or the use of cash on its balance sheet. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material.

~~Working Capital~~

At September 30, 2019, the Company had a working capital deficit of $195.2 million compared to a deficit of $152.7 million at December 31, 2018. The Company’s working capital is impacted by seasonality in media buying, amounts spent by clients, and timing of amounts received from clients and subsequently paid to suppliers. Media buying is impacted by the timing of certain events, such as major sporting competitions and national holidays, and there can be a quarter to quarter lag between the time amounts received from clients for the media buying are subsequently paid to suppliers. The Company intends to maintain sufficient cash or availability of funds under the Credit Agreement at any particular time to adequately fund working capital should there be a need to do so from time to time.

Cash Flows

Operating Activities

Cash flows used in operating activities for the nine months ended September 30, 2020 was $2.5 million, primarily reflecting earnings, more than offset by unfavorable working capital requirements, primarily driven by media and other supplier payments.

Cash flows used in operating activities for the nine months ended September 30, 2019 was $5.8 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.

~~Cash flows used in operating activities for~~Investing Activities

During the nine months ended September 30, ~~2018~~2020, cash flows provided by investing activities was ~~$31.7~~$4.5 million, which primarily ~~reflecting unfavorable working~~consisted of proceeds of $19.6 million from the sale of the Company’s equity interest in Sloane, partially offset by $11.5 million of capital ~~requirements, driven by media~~expenditures and ~~other supplier payments, deferred acquisition consideration payments as well as net income (loss) adjusted to reconcile to net cash used in operating activities.~~

~~Investing Activities~~$1.8 million paid for acquisitions.

During the nine months ended September 30, 2019, cash flows provided by investing activities was $3.3 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by $13.8 million of capital expenditures ~~related primarily to computer equipment, furniture and fixtures, and leasehold improvements~~ and $5.8 million paid for acquisitions.

Financing Activities

During the nine months ended September 30, ~~2018,~~2020, cash flows used in ~~investing~~financing activities was ~~$48.4~~$72.0 million, which primarily ~~consisting~~consisted of ~~cash paid of $34.3~~$35.3 million in deferred acquisition consideration payments, $22.0 million for the ~~acquisition~~purchase of ~~Instrument~~a portion of the 6.50% Notes and ~~capital expenditures related primarily~~$14.5 million in distributions to ~~computer equipment, furniture and fixtures, and leasehold improvements of $15.2 million.~~

~~Financing Activities~~minority interest holders.

During the nine months ended September 30, 2019, cash flows used in financing activities was $2.2 million, primarily driven by $98.6 million in proceeds ~~net of fees,~~ from the issuance of common and preferred shares, more than offset by $60.1 million in net repayments under the Credit Agreement, $30.2 million in deferred acquisition consideration payments and $10.0 million in distribution payments.

During the nine months ended September 30, 2018, cash flows provided by financing activities was $59.1 million, primarily driven by $103.0 million in net borrowings under the Credit Agreement and $32.2 million

Table of ~~acquisition related payments.~~Contents

Total Debt

Debt, net of debt issuance costs, as of September 30, ~~2019~~2020 was ~~$895.4~~$860.4 million as compared to ~~$954.1~~$887.6 million outstanding at December 31, ~~2018.~~2019. The ~~decrease~~decline of ~~$58.7~~$27.2 million ~~in debt~~ was primarily a result of the ~~Company’s net repayments on the Credit Agreement.~~repurchase of a portion of its 6.50% Notes. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s ~~$900 million aggregate principal amount of its senior unsecured notes due 2024~~6.50% Notes and ~~$250~~$211.5 million senior secured revolving credit agreement due ~~May~~February 3, ~~2021~~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 September 30, ~~2019,~~2020, the Company’s calculation of each of these covenants, and the specific requirements under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:

September 30, 2019
Total Senior Leverage Ratio 0.003
Maximum per covenant 2.00

Total Leverage Ratio 5.04
Maximum per covenant 6.25

Fixed Charges Ratio 2.41
Minimum per covenant 1.00

Earnings before interest, taxes, depreciation and amortization (in millions) $ 178,920
Minimum per covenant (in millions) $ 105,000


	September 30, 2020
Total Senior Leverage Ratio	0.02
Maximum per covenant	2.00

Total Leverage Ratio	4.38
Maximum per covenant	6.25

Fixed Charges Ratio	3.03
Minimum per covenant	1.00

Earnings before interest, taxes, depreciation and amortization (in millions)	$	199.3
Minimum per covenant (in millions)	$	120.0

These ratios and measures are not based on ~~generally accepted accounting principles~~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.

~~Commitments, Contingencies,~~Contractual Obligations and ~~Guarantees~~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~~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.

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The following table presents the changes in the deferred acquisition consideration by segment for the nine months ended September 30, ~~2019:~~2020:


	September 30, 2020
	Integrated Networks - Group A		Integrated Networks - Group B		Media & Data Network		All Other		Total
	(Dollars in Thousands)
Beginning Balance of contingent payments	$	36,124	$	27,060	$	—	$	11,487	$	74,671
Payments	(23,131)		(15,242)		(375)		(2,578)		(41,326)
Additions - acquisitions and step-up transactions	5,227		2,476		—		—		7,703
Redemption value adjustments (1)	4,391		(3,859)		375		(392)		515
Stock-based compensation	1,195		1,104		—		—		2,299

Other	2,179				—		(159)		2,020
Ending Balance of contingent payments	25,985		11,539		—		8,358		45,882
Fixed payments	—		263		—		—		263
	$	25,985	$	11,802	$	—	$	8,358	$	46,145

September 30, 2019
Global Integrated Agencies Domestic Creative Agencies Specialist Communications Agencies Media Services All Other Total
(Dollars in Thousands)
Beginning Balance of contingent payments $ 47,880
$ 3,747
$ 13,193
$ 2,689
$ 15,089
$ 82,598
Payments (20,788 ) (801 ) (3,830 ) (2,763 ) (2,537 ) (30,719 )
Additions - acquisitions and step-up transactions —
—
6,344
—
—
6,344
Redemption value adjustments ⁽¹⁾
(3,627 ) (91 ) 418
75
(402 ) (3,627 )
Stock-based compensation 11
33
—
—
966
1,010
Other —
—

35
35
Ending Balance of contingent payments 23,476
2,888
16,125
1
13,151
55,641
Fixed payments 263
286
—
—
—
549
$ 23,739
$ 3,174
$ 16,125
$ 1
$ 13,151
$ 56,190


⁽¹⁾	(1)Redemption value adjustments are ~~fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment.~~

~~Deferred acquisition consideration excludes future payments with an estimated~~ fair value changes from the Company’s initial estimates of ~~$8.2 million~~deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are ~~contingent upon employment terms as well as financial performance~~tied to continued employment. Redemption value adjustments are recorded within Office and ~~will be expensed as stock-based compensation over~~general expenses on the ~~required retention period. Of this amount, the Company estimates $0.1 million will be paid in the current year and $8.1 million will be paid in one to three years.~~Unaudited Condensed Consolidated Statements of Operations.

The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the Credit Agreement (and refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity. The ultimate amount payable ~~and the incremental operating income~~ in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.

~~The following table summarizes the potential timing of the consideration and incremental operating income before depreciation and amortization based on assumptions as described above:~~

Consideration ⁽⁴⁾
2019 2020 2021 2022
2023 &
Thereafter
Total
(Dollars in Thousands)
Cash $ 4,665
$ 1,670
$ 3,852
$ 2,792
$ 6,070
$ 19,049

Shares 16
32
48
32
16
$ 144

$ 4,681
$ 1,702
$ 3,900
$ 2,824
$ 6,086
$ 19,193
⁽¹⁾
Operating income before depreciation and amortization to be received ⁽²⁾
$ 2,005
$ 79
$ 1,767
$ —
$ 552
$ 4.403

Cumulative operating income before depreciation and amortization ⁽³⁾
$ 2,005
$ 2,084
$ 3,851
$ 3,851
$ 4,403

⁽⁵⁾

⁽¹⁾

This amount is in addition to (i) the $19.1 million of options to purchase only exercisable upon termination not within the control of the Company, or death, and (ii) the $3.2 million excess of the initial redemption value recorded in redeemable noncontrolling interests over the amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests.


⁽²⁾	This financial measure is presented because it is the basis of the calculation used in the underlying agreements relating to the put rights and is based on actual operating results. This amount represents additional amounts to be attributable to MDC Partners Inc., commencing in the year the put is exercised.


⁽³⁾	~~Cumulative operating income before depreciation and amortization represents the cumulative amounts to be received by the Company.~~


⁽⁴⁾	~~The timing of consideration to be paid varies by contract and does not necessarily correspond to the date of the exercise of the put.~~


⁽⁵⁾	~~Amounts are not presented as they would not be meaningful due to multiple periods included.~~

Critical Accounting Policies

See the Company’s ~~Annual Report on~~2019 Form 10-K ~~for the year ended December 31, 2018~~ for information regarding the Company’s critical accounting policies.

~~New Accounting Pronouncements~~

~~Information regarding new accounting pronouncements can be found in Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein.~~

~~Risks and Uncertainties~~

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

~~risks associated with severe effects of international, national and regional economic conditions;~~

~~the Company’s ability to attract new clients and retain existing clients;~~

~~the spending patterns and financial success of the Company’s clients;~~

~~the Company’s ability to retain and attract key employees;~~

the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to redeemable noncontrolling interests and deferred acquisition consideration;

~~the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; and~~

~~foreign currency fluctuations.~~

Investors should carefully consider these risk factors, and the risk factors outlined in more detail in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2019 and accessible on the SEC’s website at www.sec.gov., under the caption “Risk Factors,” and in the Company’s other SEC filings.

Website Access to Company Reports and Information

MDC Partners Inc.’s Internet website address is www.mdc-partners.com. The Company’s Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act” ), will be made available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the SEC. The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this quarterly report on Form 10-Q. From time to time, the Company may use its website as a channel of distribution of material company information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk related to interest rates, foreign currencies and impairment risk.

Debt Instruments: At September 30, ~~2019,~~2020, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the ~~Senior~~6.5% Notes. The ~~Senior~~6.5% Notes bear a fixed 6.50% interest rate. The Credit Agreement bears interest at variable rates based upon the ~~Eurodollar~~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

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syndication. Given that there were ~~$8.1 million in~~no borrowings under the Credit Agreement, as of September 30, ~~2019,~~2020, a 1.0% increase or decrease in the weighted average interest rate, which was ~~4.79%~~2.89% at September 30, ~~2019,~~2020, would have anno interest ~~impact of approximately $0.02 million.~~impact.

Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s ~~Annual Report on~~2019 Form ~~10-K for the year ended December 31, 2018.~~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.~~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 ~~$3.5~~$3.8 million.

Impairment Risk: At September 30, ~~2019,~~2020, the Company had goodwill of ~~$741.0 million and other intangible assets of $56.7~~$710.0 million. The Company reviews goodwill ~~and other intangible assets with indefinite lives not subject to amortization~~ for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exist. See the Critical Accounting Policies and Estimates section in the Company’s ~~2018~~2019 Form 10-K for information related to impairment testing and the risk of potential impairment charges in future periods. Given the impact of the COVID-19 pandemic, the Company performed interim goodwill impairment tests in 2020. The company did not recognize a goodwill impairment for the three months ended September 30, 2020. Additionally, the interim test resulted in the fair value of one reporting unit, with goodwill of approximately $130.8 million, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. However, our disclosure controls and procedures are designed to provide reasonable assurances of achieving our control objectives.

We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, and in light of the material weakness identified in our internal controls over financial reporting with respect to accounting for income taxes, as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, our CEO and CFO concluded that, as of September 30, ~~2019,~~2020, our disclosure controls and procedures are ~~effective~~ineffective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2019~~2020 is appropriate.

Changes in Internal Control Over Financial Reporting

~~There~~We have given consideration to the impact of the COVID-19 and have concluded that there have been no changes in our internal controls over financial reporting ~~during the three months ended September 30, 2019~~ that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

During the period covered by this Quarterly Report on Form 10-Q, we are actively engaged in remediation efforts to enhance and improve our internal controls over financial reporting with respect to accounting for income taxes, but have not yet remediated the material weakness described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our remediation efforts will continue to be implemented throughout our 2020 fiscal year. We believe the controls that will be

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put in place will eliminate the material weakness with respect to accounting for income taxes and solidify the effectiveness of our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~The Company’s operating entities~~In the ordinary course of business, we are involved in various legal ~~proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe~~proceedings. We do not currently expect that ~~the outcome of such~~these proceedings ~~or claims~~ will have a material adverse effect on ~~its financial condition or~~our results of ~~operations.~~operations, cash flows or financial position.

Item 1A. Risk Factors

~~There are no material changes in~~In addition to the ~~risk factors~~other information set forth in ~~Part I, Item 1A of~~this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, the factors discussed in “Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and the Risk Factors described below, which could materially and adversely affect our business, results of operations or financial condition.

Potential uncertainty resulting from a proposed business combination and related matters may adversely affect our business.

On June 26, 2020, MDC announced that its Board of Directors formed a Special Committee of independent directors to review the preliminary, non-binding proposal made by Stagwell Media LP with respect to a potential merger with the Company (the “Potential Transaction”). Mark Penn, Chairman and Chief Executive Officer of the Company, is also the manager of The Stagwell Group LLC, the general partner of Stagwell Media LP. The Special Committee has retained legal counsel and an independent financial advisor to assist in its evaluation of the Potential Transaction. The Special Committee has not reached a conclusion regarding the Potential Transaction. On October 6, 2020, the Company announced that the Special Committee reached a significant milestone in discussions with Stagwell Media LP with respect to the Potential Transaction and that, having reached an agreement in principle on certain aspects of the Potential Transaction, the Company expected to proceed with confirmatory due diligence and negotiation of definitive documentation. The agreement in principle is non-binding and subject to several conditions, including obtaining relevant third-party consents to the Potential Transaction (in certain cases prior to entering into definitive documentation). No assurances can be given regarding the likelihood of obtaining such consents, of reaching agreement on definitive documentation, of ultimately completing the Potential Transaction, or as to the terms of any such Potential Transaction. The review and consideration of the Potential Transaction, as well as any alternatives that may become available to the Company, may require the expenditure of significant time and resources by us. Such a proposal may create uncertainty for our employees, customers and business partners. The market price of our Class A shares may reflect various assumptions as to whether the proposed transaction with Stagwell Media LP will occur or perceived uncertainties in our future direction and variations in our share price may occur as a result of changing assumptions or perceptions regarding the Potential Transaction. A definitive agreement regarding a transaction, or a failure to reach a definitive agreement regarding a transaction, could result in a significant change in the market price of our Class A shares. These matters, alone or in combination, may harm our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In the three months ended September 30, 2020, the Company issued 600,000 Class A shares to management of a Company subsidiary in transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. These shares were issued as payments in lieu of cash for the Company’s obligation to make deferred payments as part of the purchase price for a prior acquisition and therefore did not result in any proceeds to the Company. No commissions were paid to any person in connection with the issuance or sale of these shares.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

For the three months ended September 30, ~~2019,~~2020, the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement and the indenture governing the 6.50% Notes, the Company is currently limited ~~from repurchasing its~~as to the dollar amount of shares it may repurchase in the open market.

For the three months ended September 30, ~~2019,~~2020, the Company’s employees surrendered Class A shares in connection with the required tax withholding resulting from the vesting of restricted stock. The Company paid these withholding taxes on behalf of the related employees. These Class A shares were subsequently retired and no longer remain outstanding as of September 30, ~~2019.~~2020. The following table details those shares withheld during the ~~third~~second quarter of ~~2019:~~2020:

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Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number of Shares That May Yet Be Purchased Under the Program
7/1/2019 - 7/31/2019 1,718
$ 2.44
—
—
8/1/2019 - 8/31/2019 149,411
2.31 —
—
9/1/2019 - 9/30/2019 23,150
2.71 —
—
Total 174,279
$ 2.41
—
—


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares That May Yet Be Purchased Under the Program
7/1/2020 - 7/31/2020	—	$	—	—	—
8/1/2020 - 8/31/2020	—	—		—	—
9/1/2020 - 9/30/2020	80,120	1.61		—	—
Total	80,120	$	1.61	—	—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

On November 4, 2019, the Human Resources and Compensation Committee of the Board of Directors of the Company approved grants of long-term cash incentive (“Cash LTIP Awards”) and stock incentive awards (“Stock LTIP Awards” and, together with the Cash LTIP Awards, the “LTIP Awards”) to certain key executives of the Company, including Messrs. Mark Penn (Chief Executive Officer), Frank Lanuto (Chief Financial Officer), and David Ross (Executive Vice President) (the “Officers”) pursuant to the Company’s 2011 Stock Incentive Plan, 2016 Stock Incentive Plan, and 2014 Long-Term Cash Incentive Compensation Plan (the “2014 Cash LTIP Plan” and, collectively with the Company’s 2011 Stock Incentive Plan and the 2016 Stock Incentive Plan, the “Plans”), as applicable. None

The purpose of the Plans and LTIP Awards is to provide key executives of the Company with an incentive to achieve and exceed the long term financial objectives established by the Company; facilitate the achievement of forward-looking long term performance goals by key executives; align the motivations and performance goals of the key executives with the Company’s commercial goals and the interests of the Company’s shareholders; and enable the Company to attract and retain executives who will pursue the long term financial goals established by the Company.

The Cash LTIP Awards provide for a cash payment based on the achievement of certain Company financial goals over a three-year period from 2020 through the end of 2022 and the Officers’ continued employment, subject to limited exceptions, throughout the three-year performance period. Based on the level of achievement of the financial goals, payments under the Cash LTIP Awards can range from 0% to 200% of the target payout amount (the “Target Cash Awards”), subject to a minimum threshold level of achievement.

The Stock LTIP Awards provide for the grant of a target number of shares of restricted Class A stock (the “Target Stock Awards”) which vest based on the achievement of certain Company financial goals during fiscal 2020 and the Officers’ continued employment, subject to limited exceptions, through 2022. Based on the level of achievement of the financial goals during 2020, vesting of the restricted stock can range from 0% to 100% of the target number, subject to a minimum threshold level of achievement.

~~The Target Cash Awards and Target Stock Awards for each of the Officers are set forth below.~~

•~~Mr. Penn’s Target Cash Award is $1,155,000 and his Target Stock Award is 577,500 shares of restricted Class A stock.~~

•~~Mr. Lanuto’s Target Cash Award is $198,000 and his Target Stock Award is 99,000 shares of restricted Class A stock.~~

•~~Mr. Ross’s Target Cash Award is $400,000 and his Target Stock Award is 200,000 shares of restricted Class A stock.~~

The form of Cash LTIP award is generally consistent with previously disclosed awards to executive officers pursuant to the 2014 Cash LTIP Plan, except that the performance measures solely relate to achievement of cumulative EBITDA (as defined in the Company’s Credit Agreement) for the period 2020-2022. The form of Stock LTIP award is generally consistent with previously disclosed awards to executive officers, except that the performance measures solely relate to achievement of EBITDA (as defined in the Company’s Credit Agreement) for the fiscal year 2020.

The form of Cash LTIP award is attached as Exhibit 10.2 to this Quarterly Report on Form 10-Q. The form of Stock LTIP award is attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q. This summary of the LTIP Awards is qualified by reference to the full text of the forms of LTIP Award and the Plans, each of which is incorporated by reference herein.

Item 6. Exhibits

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

Table of Contents

EXHIBIT INDEX



Exhibit No.						Description
3.1						Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 10, 2004).
3.1.1						Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed on August 4, 2004).
3.1.2						Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 30, 2010).
3.1.3						Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 2, 2011).
3.1.4						Articles of Amalgamation, dated January 1, 2013 (incorporated by reference to Exhibit 3.1.4 to the Company’s Form 10-K filed on March 10, 2014).
3.1.5						Articles of Amalgamation, dated April 1, 2013 (incorporated by reference to Exhibit 3.1.5 to the Company’s Form 10-K filed on March 10, 2014).
3.1.6						Articles of Amalgamation, dated July 1, 2013 (incorporated by reference to Exhibit 3.1.6 to the Company’s Form 10-K filed on March 10, 2014).
3.1.7						Articles of Amendment, dated March 7, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 7, 2017).
3.1.8						Articles of Amendment, dated March 14, 2019 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on March 15, 2019).
3.2						General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed on March 16, 2007).
~~10.1~~4.1						~~Form~~First Supplemental Indenture, dated as of ~~Financial Performance-Based Restricted Stock Agreement (2019).~~September 16, 2020, among the Additional Note Guarantors and The Bank of New York Mellon, as trustee, to Indenture, dated as of March 23, 2016, among the Company, the Guarantors, and The Bank of New York Mellon, as trustee.*
~~10.2~~10.1						Separation Agreement and General Release between MDC Partners Inc and Jonathan Mirsky, dated as of September 22, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Form of Long-Term Cash Incentive Compensation Plan 2019 Award Agreement.*8-K filed on September 23, 2020).†
31.1						Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2						Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.1						Schedule of Advertising and Communications Companies.*
101						Interactive data file.*

* Filed electronically herewith.

† Indicates management contract or compensatory plan.

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Table of Contents


MDC PARTNERS INC.

/s/ Frank Lanuto
Frank Lanuto
Chief Financial Officer
(Principal Financial Officer)
October 29, 2020

~~MDC PARTNERS INC.~~/s/ Mark Penn
Mark Penn
~~/s/ Frank Lanuto~~Chairman of the Board and Chief Executive Officer
~~Frank Lanuto~~(Authorized Signatory)
~~Chief Financial Officer and Authorized Signatory~~

~~November 6, 2019~~October 29, 2020

5655



	Three Months Ended
	September 30, 2018
	Convertible Preference Shares			Common Shares		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	Convertible Preference Shares			Common Shares
(in thousands, except share amounts)	Shares	Amount		Shares
Balance at June 30, 2018	95,000	$	90,123	57,454,028		$	45,824		$	(367,180	)	$	481		$	(230,752	)	$	77,416		$	(153,336	)
Net loss attributable to MDC Partners Inc.	—	—		—		—			(16,125		)	—			(16,125		)	—			(16,125		)
Other comprehensive income (loss)	—	—		—		—			—			(1,800		)	(1,800		)	473			(1,327		)
Issuance of restricted stock	—	—		115,500		—			—			—			—			—			—
Shares acquired and cancelled	—	—		(54,089	)	(283		)	—			—			(283		)	—			(283		)
Stock-based compensation	—	—		—		2,450			—			—			2,450			—			2,450
Changes in redemption value of redeemable noncontrolling interests	—	—		—		(2,347		)	—			—			(2,347		)	—			(2,347		)
Business acquisitions and step-up transactions, net of tax	—	—		—		4,975			—			—			4,975			(11,947		)	(6,972		)
Balance at September 30, 2018	95,000	$	90,123	57,515,439		$	50,619		$	(383,305	)	$	(1,319	)	$	(243,882	)	$	65,942		$	(177,940	)



	September 30,			December 31,
	2019			2018
Beginning Balance of contingent payments	$	82,598		$	119,086
Payments	(30,719		)	(54,947		)
Redemption value adjustments ⁽¹⁾	(2,617		)	3,512
Additions - acquisitions and step-up transactions	6,344			14,943
Other	35			4
Ending Balance of contingent payments	$	55,641		$	82,598
Fixed payments	549			1,097
	$	56,190		$	83,695



	Noncontrolling Interests
Balance, December 31, 2017	$	11,030
Income attributable to noncontrolling interests	11,785
Distributions made	(13,419		)
Other ⁽¹⁾	(118		)
Balance, December 31, 2018	$	9,278
Income attributable to noncontrolling interests	10,737
Distributions made	(9,982		)
Other ⁽¹⁾	(36		)
Balance, September 30, 2019	$	9,997



	Nine Months Ended September 30, 2019			Year Ended December 31, 2018
Beginning Balance	$	51,546		$	62,886
Redemptions	(9,486		)	(11,943		)
Granted	—			—
Changes in redemption value	(3,306		)	1,067
Currency translation adjustments	(190		)	(464		)
Other ⁽¹⁾	2,955			—
Ending Balance	$	41,519		$	51,546



	2019		2018		Variance
Corporate	$		$		$			%
	(Dollars in Thousands)
Staff costs⁽¹⁾	$	5,772	$	12,888	$	(7,116	)	(55.2	)%
Administrative	2,314		3,317		(1,003		)	(30.2	)%
Stock-based compensation	833		1,620		(787		)	(48.6	)%
Depreciation and amortization	192		199		(7		)	(3.5	)%
Total operating expenses	$	9,111	$	18,024	$	(8,913	)	(49.5	)%



	As of and for the nine months ended September 30, 2019			As of and for the nine months ended September 30, 2018			As of and for the year ended December 31, 2018
	(In Thousands, Except for Long-Term Debt to Shareholders’ Equity Ratio)
Cash and cash equivalents	$	27,280		$	25,056		$	30,873
Working capital deficit	$	(195,211	)	$	(181,724	)	$	(152,682	)
Cash provided by (used in) operating activities	$	(5,840	)	$	(31,729	)	$	17,280
Cash provided by (used in) investing activities	$	3,307		$	(48,355	)	$	(50,431	)
Cash provided by (used in) financing activities	$	(2,202	)	$	59,122		$	21,434
Ratio of long-term debt to shareholders' deficit	-5.14			-5.55			-3.87



	September 30, 2019
Total Senior Leverage Ratio	0.003
Maximum per covenant	2.00

Total Leverage Ratio	5.04
Maximum per covenant	6.25

Fixed Charges Ratio	2.41
Minimum per covenant	1.00

Earnings before interest, taxes, depreciation and amortization (in millions)	$	178,920
Minimum per covenant (in millions)	$	105,000



Consideration ⁽⁴⁾	2019		2020		2021		2022		2023 & Thereafter		Total
	(Dollars in Thousands)
Cash	$	4,665	$	1,670	$	3,852	$	2,792	$	6,070	$	19,049
Shares	16		32		48		32		16		$	144
	$	4,681	$	1,702	$	3,900	$	2,824	$	6,086	$	19,193	⁽¹⁾
Operating income before depreciation and amortization to be received ⁽²⁾	$	2,005	$	79	$	1,767	$	—	$	552	$	4.403
Cumulative operating income before depreciation and amortization ⁽³⁾	$	2,005	$	2,084	$	3,851	$	3,851	$	4,403			⁽⁵⁾