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MDC Partners Inc. Reports Results for the Three and Six Months Ended June 30, 2018

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MDC Partners Inc. Reports Results for the Three and Six Months Ended June 30, 2018

PR Newswire

NEW YORK, Aug. 2, 2018 /PRNewswire/ --

SECOND QUARTER FINANCIAL PERFORMANCE:

  • Revenue of $379.7 million versus $390.5 million a year ago, a decline of -2.8%; excluding the impact of ASC 606 (see details below), revenue was $389.5 million, effectively flat versus a year ago.
  • Organic revenue decline of -1.7%
  • Net income attributable to MDC Partners common shareholders of $1.1 million versus $8.0 million a year ago; excluding the impact of ASC 606, Net loss attributable to MDC Partners common shareholders was ($4.5) million
  • Adjusted EBITDA of $43.0 million versus $47.0 million a year ago; excluding the impact of ASC 606, Adjusted EBITDA was $33.9 million
  • Net New Business wins totaled $17.1 million

(NASDAQ:MDCA) – MDC Partners Inc. ("MDC Partners" or the "Company") today announced financial results for the three and six months ended June 30, 2018.

Scott Kauffman, Chairman and Chief Executive Officer of MDC Partners, said, "2018 continues to be challenging, so we've been taking the necessary steps to improve our financial performance. We're taking targeted actions to protect our profitability and cash flow, reviewing our portfolio of agencies while also continuing to selectively invest behind our world class talent and strategic offering in higher growth areas. We believe these actions will position MDC Partners for a return of market share gains and we continue to expect an improved second half across our performance metrics, in terms of revenue, profits and cashflow. As a result, we are maintaining our full year guidance for 2018."

David Doft, Chief Financial Officer of MDC Partners, said, "As we move to the second half of the year, the burden of the cost of implementing the new accounting rules as well as the restructuring-related severance and real-estate consolidation expense, which totaled $12 million, will begin to lift. When combined with the actions that we've been taking to align our cost base, while dilutive to 2018 profits, these actions position us well for improved profitability going forward and provide a pathway to at least the low end of full year guidance."

Adoption of ASC 606

Effective January 1, 2018, we adopted ASC Topic 606, "Revenue from Contracts with Customers" (ASC 606). In accordance with the new revenue accounting standard, we were required to change certain aspects of our accounting policy as it relates to performance incentives, non-refundable retainer fees, and certain third-party pass-through and out-of-pocket costs. ASC 606 was applied using the modified retrospective method, with the cumulative effect of the initial adoption being recognized as an adjustment to opening retained earnings at January 1, 2018 for contracts that were not completed as of that date, and then we report all future periods under the new policy. Comparative prior periods have not been restated and continue to be reported under the historical accounting standards and policies in effect for those periods.

As a result of the adoption of ASC 606, our second quarter and year-to-date 2018 financial performance is not directly comparable with last year. We have therefore provided additional disclosure to assist investors in reconciling the two accounting standards, including updating the definition of the Non-GAAP metric Organic Revenue to exclude the impact of the change in accounting standard and the provision of additional schedules which shows the impact of the adoption of ASC 606 on our GAAP and Non-GAAP performance metrics. See schedules 2 and 3.

Second Quarter and Year-to-Date 2018 Financial Results

Revenue for the second quarter of 2018 was $379.7 million versus $390.5 million for the second quarter of 2017, a decline of -2.8%. The decline in revenue was primarily due the adoption of ASC 606, which reduced revenue by $9.7 million, or -2.5%. The effect of foreign exchange was positive 0.8%, the impact of non-GAAP acquisitions (dispositions), net was positive 0.6%, and organic revenue decline was -1.7%. There was a negligible impact on organic revenue growth from billable pass-through costs incurred on clients' behalf from certain of our partner firms acting as principal.

Net income attributable to MDC Partners common shareholders for the second quarter of 2018 was $1.1 million versus $8.0 million for the second quarter of 2017. Diluted income per share attributable to MDC Partners common shareholders for the second quarter of 2018 was $0.02 versus $0.14 per share for the second quarter of 2017. The impact of the adoption of ASC 606 was an increase in net income attributable to MDC Partners common shareholders of $5.6 million, or $0.10 per share.

Adjusted EBITDA for the second quarter of 2018 was $43.0 million versus $47.0 million for the second quarter of 2017. The impact of the adoption of ASC 606 was an increase of $9.0 million. Excluding the impact of the adoption of ASC 606, Adjusted EBITDA was $33.9 million with margins of 8.7%.

Revenue for the first six months of 2018 was $706.7 million versus $735.2 million for the first six months of 2017, a decline of -3.9%.  The decline in revenue was primarily due the adoption of ASC 606, which reduced revenue by $31.0 million, or -4.2%. The effect of foreign exchange was positive 1.2%, the impact of non-GAAP acquisitions (dispositions), net was -0.4%, and organic revenue decline was -0.5%. Organic revenue growth was favorably impacted by 160 basis points from increased billable pass-through costs incurred on clients' behalf from certain of our partner firms acting as principal.

Net loss attributable to MDC Partners common shareholders for the first six months of 2018 was $30.1 million versus a loss of $1.7 million for the first six months of 2017.  Diluted loss per share attributable to MDC Partners common shareholders for the first six months of 2018 was ($0.53) versus a loss of ($0.03) per share for the first six months of 2017. The impact of the adoption of ASC 606 was a decrease in net loss attributable to MDC Partners common shareholders of $1.4 million, or $0.02 per share.

Adjusted EBITDA for the first six months of 2018 was $50.8 million versus $82.8 million for the first six months of 2017. The impact of the adoption of ASC 606 was an increase of $3.0 million. Excluding the impact of the adoption of ASC 606, Adjusted EBITDA was $47.8 million with margins of 6.5%.

Financial Outlook

We maintain 2018 financial guidance as follows. The only change to guidance relates to the foreign exchange impact due to the stronger US dollar. The guidance below excludes additional restructuring-related severance and real estate consolidation expenses of approximately $2.5 million related to the changes made in the Corporate Group in the third quarter of 2018.



2018 Outlook Commentary *






Organic Revenue Growth

We expect 1-3% growth in organic revenue, whose definition excludes the impact of the adoption of ASC 606 in the reconciliation of reported revenue.






Pass-through and Out-of-Pocket Costs

The adoption of ASC 606 resulted in certain client contracts previously being accounted for as principal, now being accounted for as agent. This results in a reduction in
full year gross revenue of approximately $65 million with a corresponding reduction in direct costs, with no impact on profit.






Foreign Exchange Impact, net

Assuming currency rates remain where they are, and based on our most recent projections, the net impact of foreign exchange is expected to be neutral to full year revenue versus a positive 50 basis point impact previously.






Impact of Non-GAAP Acquisitions (Dispositions), net

Our current expectations are that the impact of acquisitions, net of disposition activity, will increase revenue by approximately 80 basis points.






Adjusted EBITDA Margin

We expect margins to be flat to 40 basis points of expansion. Our outlook incorporates an approximately 60 basis point benefit from the shift from gross to net revenue accounting related to certain client contracts. Our outlook therefore implies an approximately 60 to 20 basis point reduction of margins on a full year basis, excluding the accounting change impact and the cost of the Corporate restructuring.





* The Company has excluded a quantitative reconciliation with respect to the Company's 2018 guidance under the "unreasonable efforts" exception item 10€(1)(i)(B) of Regulation S-K. A reconciliation of Adjusted EBITDA Margin and Organic Revenue Growth to the closest GAAP financial measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, impact of acquisitions and dispositions, foreign exchange impact and other items excluded from Adjusted EBITDA and Organic Revenue Growth. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could have a potentially unpredictable, and potentially significant, impact on future GAAP financial results.

Conference Call

Management will host a conference call on Thursday, August 2, 2018, at 4:30 p.m. (ET) to discuss results.  The conference call will be accessible by dialing 1-412-902-4266 or toll free 1-888-346-6216.  An investor presentation has been posted on our website at www.mdc-partners.com and may be referred to during the conference call.

A recording of the conference call will be available one hour after the call until 12:00 a.m. (ET), August 9, 2018, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10122743), or by visiting our website at www.mdc-partners.com.

About MDC Partners Inc.

MDC Partners is one of the most influential marketing and communications networks in the world. As "The Place Where Great Talent Lives," MDC Partners is celebrated for its innovative advertising, public relations, branding, digital, social and event marketing agency partners, which are responsible for some of the most memorable and effective campaigns for the world's most respected brands. By leveraging technology, data analytics, insights and strategic consulting solutions, MDC Partners drives creative excellence, business growth and measurable return on marketing investment for over 1,700 clients worldwide. 

For more information about MDC Partners and its partner firms, visit our website at www.mdc-partners.com and follow us on Twitter at http://www.twitter.com/mdcpartners.

Non-GAAP Financial Measures

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

(1) Organic Revenue: "Organic revenue growth" and "organic revenue decline" refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth, excluding the impact of adopting ASC 606. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) "non-GAAP acquisitions (dispositions), net". Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.

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

(3) Adjusted EBITDA: Adjusted EBITDA is a non-GAAP measure that represents operating profit plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.

Included in this earnings release are tables reconciling MDC Partners' reported results to arrive at certain of these non-GAAP financial measures. We are unable to reconcile our projected 2018 organic revenue growth to the corresponding GAAP measure because we are unable to predict the 2018 impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates and because we are unable to predict the occurrence or impact of any acquisitions, dispositions, or other potential changes.  We are unable to reconcile our projected 2018 increase in Adjusted EBITDA margin to the corresponding GAAP measure because the amount and timing of many future charges that impact these measures (such as amortization of future acquired intangible assets, foreign exchange transaction gains or losses, impairment charges, provision or benefit for income taxes, and certain assumptions used in the calculation of deferred acquisition consideration) are variable, uncertain, or out of our control and therefore cannot be reasonably predicted without unreasonable effort, if at all. As a result, we are unable to provide reconciliations of these measures.  In addition, we believe such reconciliations could imply a degree of precision that might be confusing or misleading to investors. 

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

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

  • risks associated with 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 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 the potential impact of one or more asset sales;
  • foreign currency fluctuations; and
  • risks associated with the ongoing DOJ investigation of the historical production bidding practices at one of the Company's subsidiaries.

The Company's business strategy includes ongoing efforts to engage in acquisitions of ownership interests in entities in the marketing communications services industry.  The Company intends to finance these acquisitions by using available cash from operations, from borrowings under its credit facility and through incurrence of bridge or other debt financing, any of which may increase the Company's leverage ratios, or by issuing equity, which may have a dilutive impact on existing shareholders proportionate ownership.  At any given time, the Company may be engaged in a number of discussions that may result in one or more acquisitions.  These opportunities require confidentiality and may involve negotiations that require quick responses by the Company.  Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of the Company's securities. 

Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in the Company's 2017 Annual Report on Form 10-K under the caption "Risk Factors" and in the Company's other SEC filings.

 

SCHEDULE 1








MDC PARTNERS INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(US$ in 000s, except share and per share amounts)










Three Months Ended June 30,


Six Months Ended June 30,



2018 (1)

2017


2018 (1)

2017















Revenue


$                    379,743

$                    390,532


$                    706,711

$                    735,232








Operating expenses:







Cost of services sold


253,390

267,822


496,420

505,385

Office and general expenses


83,878

85,563


167,757

173,403

Depreciation and amortization


11,703

10,766


24,078

21,664

Other asset impairment


-

-


2,317

-



348,971

364,151


690,572

700,452

Operating profit


30,772

26,381


16,139

34,780








Other income (expense):







Other, net


(5,957)

6,596


(12,176)

9,163

Interest expense and finance charges


(17,018)

(15,688)


(33,249)

(32,456)

Interest income


159

178


307

405



(22,816)

(8,914)


(45,118)

(22,888)

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


7,956

17,467


(28,979)

11,892

Income tax expense (benefit)


1,977

4,641


(6,353)

8,610

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


5,979

12,826


(22,626)

3,282

Equity in earning's (losses) of non-consolidated affiliates


(28)

641


58

502

Net income (loss)


5,951

13,467


(22,568)

3,784

Net income attributable to the noncontrolling interests


(2,545)

(2,214)


(3,442)

(3,097)

Net income (loss) attributable to MDC Partners Inc.


3,406

11,253


(26,010)

687

Accretion on and net income allocated to convertible preference shares


(2,273)

(3,293)


(4,095)

(2,417)

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


$                       1,133

$                       7,960


$                    (30,105)

$                      (1,730)








Income (loss) per common share:







Basic:







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


$                         0.02

$                         0.14


$                       (0.53)

$                       (0.03)








Diluted:







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


$                         0.02

$                         0.14


$                       (0.53)

$                       (0.03)








Weighted average number of common shares outstanding:







Basic


57,439,823

55,332,497


56,924,208

53,480,144

Diluted


57,802,872

55,622,194


56,924,208

53,480,144















(1) Effective January 1, 2018, we adopted ASC Topic 606, "Revenue from Contracts with Customers" (ASC 606). ASC 606 was applied using the modified retrospective method, with the cumulative effect of the initial adoption being recognized as an adjustment to opening retained earnings at January 1, 2018. As a result, comparative prior periods have not been adjusted and continue to be reported under ASC 605 "Revenue  Recognition" (ASC 605). For the three months ended June 30, 2018, the adoption of ASC 606 decreased revenue by $9.7 million, increased operating profit by $9.0 million, and increased Net income attributable to MDC Partners common shareholders by $5.6 million, or $0.10 per share. For the six months ended June 30, 2018, the adoption of ASC 606 decreased revenue by $31.0 million, increased operating profit by $3.0 million, and decreased Net loss attributable to MDC Partners common shareholders by $1.4 million, or $0.02 per share. As required, we have provided a reconciliation of the current presentation under ASC 606 to the prior presentation under ASC 605 in this release in Schedule 2.

 

SCHEDULE 2









MDC PARTNERS INC.

UNAUDITED RECONCILIATION OF COMPONENTS OF NON-GAAP MEASURES

(US$ in 000s, except percentages)


















Three Months Ended June 30, 2018


For the Six Months Ended June 30, 2018


As Reported

Adjustments

Adjusted to Exclude
the Impact of
Adoption of ASC 606


As Reported

Adjustments

Adjusted to Exclude
the Impact of
Adoption of ASC 606









Revenue

$             379,743

$                9,728

$                    389,471


$             706,711

$              31,004

$                    737,715

Cost of services sold

253,390

18,764

272,154


496,420

33,961

530,381

Operating profit (loss)

30,772

(9,036)

21,736


16,139

(2,957)

13,182

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

1,133

(5,616)

(4,483)


(30,105)

(1,385)

(31,490)

Income (loss) per common share - basic and diluted

0.02

(0.10)

(0.08)


(0.53)

(0.02)

(0.55)









Organic revenue decline

-1.7%

-

-1.7%


-0.5%

-

-0.5%

Adjusted EBITDA

$              42,954

$               (9,036)

$                     33,918


$              50,778

$               (2,957)

$                     47,821

margin

11.3%


8.7%


7.2%


6.5%









*    The table above summarizes the impact of the adoption of ASC 606 on our US GAAP and non-GAAP performance metrics.














Note: Actuals may not foot due to rounding.








 

SCHEDULE 3


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



Three Months Ended



Six Months Ended


Revenue $

% Change



Revenue $

% Change

June 30, 2017 as reported under ASC 605

$                    390,532




$                    735,232









Organic revenue decline (1)

(6,682)

(1.7%)



(3,385)

(0.5%)

Non-GAAP acquisitions (dispositions), net

2,507

0.6%



(2,754)

(0.4%)

Foreign exchange impact

3,114

0.8%



8,622

1.2%

Impact of adoption of ASC 606 (2)

(9,728)

(2.5%)



(31,004)

(4.2%)

Total change

(10,789)

(2.8%)



(28,521)

(3.9%)








June 30, 2018 as reported under ASC 606

$                    379,743




$                    706,711



(1) "Organic revenue growth" and "organic revenue decline" refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth, excluding the impact of adopting ASC 606. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) "non-GAAP acquisitions (dispositions), net". Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.
(2) In accordance with the adoption of ASC 606, we were required to change certain aspects of our revenue recognition accounting policy as it relates to performance incentives, retainer fees, and certain third-party pass-through and out-of-pocket costs. Under the prior guidelines, performance incentives were recognized in revenue when specific quantitative goals were achieved, or when the Company's performance against qualitative goals was determined by the client. Under ASC 606, the Company now estimates the amount of the incentive that will be earned at the inception of the contract and recognizes such incentive over the term of the contract. Additionally, previously, fees for non-refundable retainers were generally recognized on a straight-line basis over the term of the specific customer arrangement. Under ASC 606, an input method is typically used to measure progress and recognize revenue for these types of arrangements. Finally, the adoption of ASC 606 resulted in certain client arrangements previously being accounted for as principal, now being accounted for as agent. In these instances, certain third-party pass-through and out-of-pocket costs which were billed to clients in connection with services being provided, are no longer included in revenue and therefore the revenue recorded is equal to the net amount retained.

 

Note: Actuals may not foot due to rounding.

 

SCHEDULE 4


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


For the Three Months Ended June 30, 2018, as reported under ASC 606






Global 


Domestic 













Advertising and


Integrated


Creative


Specialized


Media









Communications


Agencies


 Agencies


 Communications


 Services


All Other


Corporate


Total


















Revenue


$           379,743


$     182,607


$       26,388


$       43,938


$       33,293


$       93,517


$                    -


$              379,743


















Net income attributable to MDC Partners Inc. 

















common shareholders
















$                  1,133

Adjustments to reconcile to operating profit (loss):

















   Accretion on and net income allocated to convertible 

















preference shares
















2,273

   Net income attributable to the noncontrolling interests
















2,545

   Equity in losses of non-consolidated affiliates
















28

   Income tax expense
















1,977

   Interest expense and finance charges, net
















16,859

   Other, net
















5,957

Operating profit (loss)


$             43,912


$       19,227


$         4,993


$         5,767


$        (1,183)


$       15,108


$           (13,140)


$                30,772

margin


11.6%


10.5%


18.9%


13.1%


-3.6%


16.2%




8.1%


















Additional adjustments to reconcile to Adjusted EBITDA:

















Depreciation and amortization


11,543


5,329


396


1,027


767


4,024


160


11,703

Stock-based compensation


4,382


2,585


610


163


85


939


1,221


5,603

Deferred acquisition consideration adjustments


(5,067)


(2,609)


-


278


128


(2,864)


-


(5,067)

Distributions from non-consolidated affiliates **


-


-


-


-


-


-


11


11

Other items, net ***


-


-


-


-


-


-


(68)


(68)


















Adjusted EBITDA *


$             54,770


$       24,532


$         5,999


$         7,235


$           (203)


$       17,207


$           (11,816)


$                42,954

margin


14.4%


13.4%


22.7%


16.5%


-0.6%


18.4%




11.3%


* Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
** 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 legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims.  See Schedule 10 for reconciliation of amounts.

 

SCHEDULE 5


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


For the Six Months Ended June 30, 2018, as reported under ASC 606






Global 


Domestic 













Advertising and


Integrated


Creative


Specialized


Media









Communications


Agencies


 Agencies


 Communications


 Services


All Other


Corporate


Total


















Revenue


$              706,711


$    332,962


$      50,705


$      87,088


$      69,438


$    166,518


$             -


$    706,711


















Net loss attributable to MDC Partners Inc. 

















common shareholders
















$    (30,105)

Adjustments to reconcile to operating profit (loss):

















   Accretion on and net income allocated to convertible 

















preference shares
















4,095

   Net income attributable to the noncontrolling interests
















3,442

   Equity in earnings of non-consolidated affiliates
















(58)

   Income tax benefit
















(6,353)

   Interest expense and finance charges, net
















32,942

   Other, net
















12,176

Operating profit (loss)


$                43,351


$        3,466


$        8,919


$        9,794


$         (980)


$      22,152


$    (27,212)


$      16,139

margin


6.1%


1.0%


17.6%


11.2%


-1.4%


13.3%




2.3%


















Additional adjustments to reconcile to Adjusted EBITDA:

















Depreciation and amortization


23,694


13,345


789


2,029


1,534


5,997


384


24,078

Other asset impairment


-


-


-


-


-


-


2,317


2,317

Stock-based compensation


8,171


5,132


770


499


170


1,600


2,469


10,640

Deferred acquisition consideration adjustments


(2,481)


(1,175)


-


806


210


(2,322)


-


(2,481)

Distributions from non-consolidated affiliates **


-


-


-


-


-


-


31


31

Other items, net ***


-


-


-


-


-


-


54


54


















Adjusted EBITDA *


$                72,735


$      20,768


$      10,478


$      13,128


$           934


$      27,427


$    (21,957)


$      50,778

margin


10.3%


6.2%


20.7%


15.1%


1.3%


16.5%




7.2%


* Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
** 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 legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims.  See Schedule 10 for reconciliation of amounts.


Note: Due to changes in the Company's internal management and reporting structure during 2018, reportable segment results for periods presented prior to the second quarter of 2018 have been recasted to reflect the reclassification of certain businesses between segments.  The changes were as follows: 1) Source Marketing, previously within the All Other category, was included within the Doner operating segment, which is aggregated into the Global Integrated Agencies reportable segment, 2) Yamamoto, previously within the All Other category, was included within the Domestic Creative Agencies reportable segment, and 3) Bruce Mau Design, Hello Design and Northstar Research Partners, previously within the All Other category, and Varick Media Management, previously within the Media Services reportable segment, were included into a  newly formed operating segment, Yes & Company, which is aggregated within the Media Services reportable segment.

 

SCHEDULE 6


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


For the Three Months Ended June 30, 2017, as reported under ASC 605





Global 


Domestic 













Advertising and


Integrated


Creative


Specialized


Media









Communications


Agencies


 Agencies


 Communications


 Services


All Other


Corporate


Total


















Revenue


$              390,532


$     209,090


$       25,486


$       44,116


$       42,648


$       69,192


$                    -


$              390,532


















Net income attributable to MDC Partners Inc. 

















common shareholders
















$                  7,960

Adjustments to reconcile to operating profit (loss):

















   Accretion on and net income allocated to convertible 

















preference shares
















3,293

   Net income attributable to the noncontrolling interests
















2,214

   Equity in earnings of non-consolidated affiliates
















(641)

   Income tax expense
















4,641

   Interest expense and finance charges, net
















15,510

   Other, net
















(6,596)

Operating profit (loss)


$                36,069


$       13,811


$         4,959


$         4,300


$         3,955


$         9,044


$             (9,688)


$                26,381

margin


9.2%


6.6%


19.5%


9.7%


9.3%


13.1%




6.8%


















Additional adjustments to reconcile to Adjusted EBITDA:

















Depreciation and amortization


10,467


5,587


403


1,221


1,112


2,144


299


10,766

Stock-based compensation


5,022


3,080


181


1,087


165


509


518


5,540

Deferred acquisition consideration adjustments


4,306


1,958


9


126


145


2,068


-


4,306

Distributions from non-consolidated affiliates **


105


-


-


105


-


-


-


105

Other items, net ***


-


-


-


-


-


-


(100)


(100)


















Adjusted EBITDA *


$                55,969


$       24,436


$         5,552


$         6,839


$         5,377


$       13,765


$             (8,971)


$                46,998

margin


14.3%


11.7%


21.8%


15.5%


12.6%


19.9%




12.0%


* Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
** 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 legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims.  See Schedule 10 for reconciliation of amounts.


Note: Due to changes in the Company's internal management and reporting structure during 2018, reportable segment results for periods presented prior to the second quarter of 2018 have been recasted to reflect the reclassification of certain businesses between segments.  The changes were as follows: 1) Source Marketing, previously within the All Other category, was included within the Doner operating segment, which is aggregated into the Global Integrated Agencies reportable segment, 2) Yamamoto, previously within the All Other category, was included within the Domestic Creative Agencies reportable segment, and 3) Bruce Mau Design, Hello Design and Northstar Research Partners, previously within the All Other category, and Varick Media Management, previously within the Media Services reportable segment, were included into a  newly formed operating segment, Yes & Company, which is aggregated within the Media Services reportable segment.

 

SCHEDULE 7


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


For the Six Months Ended June 30, 2017, as reported under ASC 605






Global 


Domestic 













Advertising and


Integrated


Creative


Specialized


Media









Communications


Agencies


 Agencies


 Communications


 Services


All Other


Corporate


Total


















Revenue


$              735,232


$    388,316


$      49,229


$      84,800


$      83,893


$    128,994


$             -


$    735,232


















Net loss attributable to MDC Partners Inc. 

















common shareholders
















$      (1,730)

Adjustments to reconcile to operating profit (loss):

















   Accretion on and net income allocated to convertible 

















preference shares
















2,417

   Net income attributable to the noncontrolling interests
















3,097

   Equity in earnings of non-consolidated affiliates
















(502)

   Income tax expense
















8,610

   Interest expense and finance charges, net
















32,051

   Other, net
















(9,163)

Operating profit (loss)


$                53,037


$      13,172


$        8,784


$        8,648


$        6,614


$      15,819


$    (18,257)


$      34,780

margin


7.2%


3.4%


17.8%


10.2%


7.9%


12.3%




4.7%


















Additional adjustments to reconcile to Adjusted EBITDA:

















Depreciation and amortization


21,056


11,548


797


2,437


2,221


4,053


608


21,664

Stock-based compensation


9,368


6,070


346


1,605


335


1,012


1,122


10,490

Deferred acquisition consideration adjustments


15,737


10,466


359


470


314


4,128


-


15,737

Distributions from non-consolidated affiliates **


105


-


-


105


-


-


-


105

Other items, net ***


-


-


-


-


-


-


35


35


















Adjusted EBITDA *


$                99,303


$      41,256


$      10,286


$      13,265


$        9,484


$      25,012


$    (16,492)


$      82,811

margin


13.5%


10.6%


20.9%


15.6%


11.3%


19.4%




11.3%


* Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
** 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 legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims.  See Schedule 10 for reconciliation of amounts.


Note: Due to changes in the Company's internal management and reporting structure during 2018, reportable segment results for periods presented prior to the second quarter of 2018 have been recasted to reflect the reclassification of certain businesses between segments.  The changes were as follows: 1) Source Marketing, previously within the All Other category, was included within the Doner operating segment, which is aggregated into the Global Integrated Agencies reportable segment, 2) Yamamoto, previously within the All Other category, was included within the Domestic Creative Agencies reportable segment, and 3) Bruce Mau Design, Hello Design and Northstar Research Partners, previously within the All Other category, and Varick Media Management, previously within the Media Services reportable segment, were included into a  newly formed operating segment, Yes & Company, which is aggregated within the Media Services reportable segment.

 

SCHEDULE 8






MDC PARTNERS INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(US$ in 000s)













June 30,


December 31,



2018


2017








(Unaudited)



Assets





Current assets:





Cash and cash equivalents


$           24,999


$           46,179

Cash held in trusts


47,916


4,632

Accounts receivable, net


424,202


434,072

Expenditures billable to clients


59,081


31,146

Other current assets


39,323


26,742

Total current assets


595,521


542,771

Fixed assets, net


91,015


90,306

Investments in non-consolidated affiliates


6,514


6,307

Goodwill


857,140


835,935

Other intangible assets, net


82,465


70,605

Deferred tax assets


125,307


115,325

Other assets


30,635


37,643

Total assets


$       1,788,597


$       1,698,892






Liabilities, redeemable noncontrolling interests, and shareholders' deficit





Current liabilities:





Accounts payable


$         207,983


$         244,527

Trust liability


47,916


4,632

Accruals and other liabilities


299,660


327,812

Advance billings


184,269


148,133

Current portion of long-term debt


355


313

Current portion of deferred acquisition consideration


32,297


50,213

Total current liabilities


772,480


775,630

Long-term debt, less current portion


999,936


882,806

Long-term portion of deferred acquisition consideration


51,410


72,213

Other liabilities


55,478


54,110

Deferred tax liabilities


6,899


6,760

Total liabilities


1,886,203


1,791,519






Redeemable noncontrolling interests


55,730


62,886






Shareholders' deficit





Convertible preference shares (liquidation preference $105,447)


90,123


90,220

Common shares


360,323


352,432

Charges in excess of capital


(314,499)


(314,241)

Accumulated deficit


(367,180)


(340,000)

Accumulated other comprehensive gain (loss)


481


(1,954)

MDC Partners Inc. shareholders' deficit


(230,752)


(213,543)

Noncontrolling interests


77,416


58,030

Total shareholders' deficit


(153,336)


(155,513)

Total liabilities, redeemable noncontrolling interests, and shareholders' deficit


$       1,788,597


$       1,698,892


 

SCHEDULE 9





MDC PARTNERS INC.

UNAUDITED SUMMARY CASH FLOW DATA

(US$ in 000s)











Six Months Ended June 30,



2018

2017





Net cash used in operating activities


$                  (61,713)

$                       (726)





Net cash used in investing activities


(36,121)

(22,882)





Net cash provided by financing activities


76,343

17,128





Effect of exchange rate changes on cash and cash equivalents


311

(1,094)





Net decrease in cash and cash equivalents


$                  (21,180)

$                    (7,574)


Note:  Effective January 1, 2018, we adopted ASU 2016-15, "Statement of Cash Flows",
which clarifies how cash receipts and cash payments in certain transactions are presented and
classified on the statement of cash flows. We applied ASU 2016-15 on a retrospective basis, and
accordingly the prior period has been reclassified to conform to the new standard.

 

SCHEDULE 10












MDC PARTNERS INC.

UNAUDITED RECONCILIATION OF COMPONENTS OF NON-GAAP MEASURES

(US$ in 000s)

























2017


2018



Q1

Q2

Q3

Q4

FY


Q1

Q2

YTD

NON-GAAP ACQUISITIONS (DISPOSITIONS), NET











GAAP revenue from current year acquisitions


$           -

$           -

$           -

$           -

$           -


$           -

$   11,066

$   11,066

GAAP revenue from prior year acquisitions *


18,552

24,983

-

-

43,535


-

-

-

Impact of adoption of ASC 606 exclusion


-

-

-

-

-


-

450

450

Foreign exchange impact


1,046

1,341

-

-

2,387


-

-

-

Contribution to organic revenue (growth) decline **


1,470

(6,399)

-

-

(4,929)


-

(3,417)

(3,417)

Prior year revenue from dispositions ***


(691)

(660)

(3,153)

(6,103)

(10,607)


(5,261)

(5,592)

(10,853)

Non-GAAP acquisitions (dispositions), net


$   20,377

$   19,265

$    (3,153)

$    (6,103)

$   30,386


$    (5,261)

$     2,507

$    (2,754)

























2017


2018



Q1

Q2

Q3

Q4

FY


Q1

Q2

YTD

OTHER ITEMS, NET











SEC investigation and class action litigation expenses


$        339

$        382

$        330

$        287

$     1,338


$        122

$        235

$        357

D&O insurance proceeds


(204)

(482)

-

(399)

(1,085)


-

(303)

(303)

Total other items, net


$        135

$       (100)

$        330

$       (112)

$        253


$        122

$         (68)

$          54

























2017


2018



Q1

Q2

Q3

Q4

FY


Q1

Q2

YTD

CASH INTEREST, NET & OTHER











Cash interest paid


$       (999)

$  (30,567)

$       (758)

$  (30,571)

$  (62,895)


$       (649)

$  (30,765)

$  (31,414)

Bond interest accrual adjustment


(14,625)

14,625

(14,625)

14,625

-


(14,625)

14,625

-

Adjusted cash interest paid


(15,624)

(15,942)

(15,383)

(15,946)

(62,895)


(15,274)

(16,140)

(31,414)

Interest income


227

178

145

209

759


148

159

307

Total cash interest, net & other


$  (15,397)

$  (15,764)

$  (15,238)

$  (15,737)

$  (62,136)


$  (15,126)

$  (15,981)

$  (31,107)

























2017


2018



Q1

Q2

Q3

Q4

FY


Q1

Q2

YTD

CAPITAL EXPENDITURES, NET











Capital expenditures


$    (9,413)

$  (11,743)

$    (7,149)

$    (4,653)

$  (32,958)


$    (3,799)

$    (5,890)

$    (9,689)

Landlord reimbursements


75

3,146

1,357

1,858

6,436


219

851

1,070

Total capital expenditures, net


$    (9,338)

$    (8,597)

$    (5,792)

$    (2,795)

$  (26,522)


$    (3,580)

$    (5,039)

$    (8,619)

























2017


2018



Q1

Q2

Q3

Q4

FY


Q1

Q2

YTD

MISCELLANEOUS OTHER DISCLOSURES











Net income attributable to the noncontrolling interests


$        883

$     2,214

$     3,491

$     8,787

$   15,375


$        897

$     2,545

$     3,442

Cash taxes


$     1,293

$     2,130

$     3,486

$     1,191

$     8,100


$     1,333

$     1,293

$     2,626

Acquisition deal costs


$        234

$        242

$        216

$        185

$        877


$        376

$        335

$        711


* GAAP revenue from prior year acquisitions for 2018 and 2017 relates to acquisitions which occurred in 2017 and 2016, respectively.
** Contributions to organic revenue growth (decline) represents the change in revenue, measured on a constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is included in the Company's organic revenue growth (decline) calculation.
*** Prior year revenue from dispositions reflects the incremental impact on revenue for the comparable period after the Company's disposition of such disposed business, plus revenue from each business disposed of by the Company in the previous year through the twelve month anniversary of the disposition. Note: Actuals may not foot due to rounding.


Note: Actuals may not foot due to rounding.

 

 

FOR: 

MDC Partners Inc.           

CONTACT:   

   Erica Bartsch


745 Fifth Avenue, 19th Floor         


Sloane & Company


 New York, NY 10151                     


212-446-1875




IR@mdc-partners.com

 

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

 

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SOURCE MDC Partners Inc.

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