MDC Partners Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

mdca-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 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.)

One World Trade Center, Floor 65
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 ☒ 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 ☒ 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	☒
Non-accelerated Filer	☐	Smaller reporting company	☒
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 ☒

The number of common shares outstanding as of October 23, 2020 was 73,528,105 Class A subordinate voting shares and 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	4
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	7
	Unaudited Condensed Consolidated Statements of Shareholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 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	49
Item 4.	Controls and Procedures	50

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	53
Item 6.	Exhibits	54
Signatures		54

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,
	2020		2019		2020		2019
Revenue:
Services	$	283,423	$	342,907	$	870,843	$	1,033,828
Operating Expenses:
Cost of services sold	172,531		222,448		560,856		700,351
Office and general expenses	72,512		79,726		205,075		234,120
Depreciation and amortization	9,332		9,368		27,437		28,869
Impairment and other losses	159		1,944		19,159		1,944
	254,534		313,486		812,527		965,284
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)
	(12,602)		(20,514)		(31,352)		(49,442)
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)
Income (loss) Per Common Share:
Basic


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


Net income (loss) attributable to MDC Partners Inc. common shareholders	$	—	$	(0.07)	$	(0.08)	$	(0.10)
Weighted Average Number of Common Shares Outstanding:
Basic	73,207,619		72,044,480		72,713,257		68,154,306
Diluted	73,476,779		72,044,480		72,713,257		68,154,306

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,
	2020		2019		2020		2019
Comprehensive Income (Loss)
Net income	$	14,804	$	5,513	$	19,106	$	13,162

Other comprehensive income (loss), net of applicable tax:
Foreign currency translation adjustment	2,375		(1,461)		11,171		(7,505)

Other comprehensive income (loss)	2,375		(1,461)		11,171		(7,505)
Comprehensive income for the period	17,179		4,052		30,277		5,657
Comprehensive income attributable to the noncontrolling interests	(10,962)		(6,969)		(14,755)		(10,830)
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.

Table of Contents

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)


	September 30, 2020		December 31, 2019

ASSETS
Current Assets:
Cash and cash equivalents	$	37,075	$	106,933
Accounts receivable, less allowance for doubtful accounts of $3,703 and $3,304	403,636		449,288

Expenditures billable to clients	21,884		30,133

Other current assets	67,585		35,613
Total Current Assets	530,180		621,967
Fixed assets, at cost, less accumulated depreciation of $138,859 and $129,579	87,908		81,054
Right of use assets - operating leases	227,362		223,622

Goodwill	710,013		731,691
Other intangible assets, net	46,600		54,893
Deferred tax assets	82,576		84,900
Other assets	21,493		30,179
Total Assets	$	1,706,132	$	1,828,306
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	128,643	$	200,148
Accruals and other liabilities	323,414		353,575

Advance billings	157,101		171,742
Current portion of lease liabilities - operating leases	40,038		48,659
Current portion of deferred acquisition consideration	39,321		45,521
Total Current Liabilities	688,517		819,645
Long-term debt	860,422		887,630
Long-term portion of deferred acquisition consideration	6,824		29,699
Long-term lease liabilities - operating leases	257,107		219,163
Other liabilities	38,439		25,771

Total Liabilities	1,851,309		1,981,908
Redeemable Noncontrolling Interests	25,172		36,973
Commitments, Contingencies, and Guarantees (Note 9)
Shareholders’ Deficit:
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	106,037		101,469
Accumulated deficit	(476,293)		(480,779)
Accumulated other comprehensive loss (income)	6,768		(4,269)
MDC Partners Inc. Shareholders' Deficit	(210,742)		(230,833)
Noncontrolling interests	40,393		40,258
Total Shareholders' Deficit	(170,349)		(190,575)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit	$	1,706,132	$	1,828,306

See notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of United States dollars)


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


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

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



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

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

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

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

Cash flows from financing activities:
Repayments of borrowings under revolving credit facility	(456,428)		(1,172,909)
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	—		98,620

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



Distributions to noncontrolling interests and other	(14,639)		(10,615)
Repurchase of Senior Notes	(21,999)		—
Net cash used in financing activities	(71,969)		(2,202)
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	(69,858)		(4,727)
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	(69,858)		(3,593)
Cash and cash equivalents at beginning of period	106,933		30,873

Cash and cash equivalents at end of period	$	37,075	$	27,280
Supplemental disclosures:
Cash income taxes paid	$	2,700	$	3,631
Cash interest paid	$	29,311	$	32,525

See notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

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, 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	—		—		—		—		—		—
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	—		—		—		—		—		—
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)		—		1		(383)		—		(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)

See notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

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	—		—		—		—		—		—
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	$	(473,106)	$	(2,878)	$	(224,874)	$

Price	2.96	EPS	-1
Shares	72	P/E	-3
MCap	213	P/FCF	-37
Net Debt	868	EBIT	-29
TEV	1,081	TEV/EBIT	-38
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-10-29
10-Q	2020-06-30	Filed 2020-08-10
10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-03-05
10-Q	2019-09-30	Filed 2019-11-06
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-09
10-K	2018-12-31	Filed 2019-03-18
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-07
10-Q	2018-03-31	Filed 2018-05-10
10-K	2017-12-31	Filed 2018-03-01
10-Q	2017-09-30	Filed 2017-11-01
10-Q	2017-06-30	Filed 2017-08-14
10-K	2016-12-31	Filed 2017-03-01
10-Q	2016-09-30	Filed 2016-11-08
10-Q	2016-06-30	Filed 2016-08-03
10-Q	2016-03-31	Filed 2016-05-04
10-K	2015-12-31	Filed 2016-02-26
10-Q	2015-09-30	Filed 2015-11-03
10-Q	2015-06-30	Filed 2015-08-07
10-Q	2015-03-31	Filed 2015-04-30
10-K	2014-12-31	Filed 2015-03-02
10-Q	2014-09-30	Filed 2014-11-06
10-Q	2014-06-30	Filed 2014-08-11
10-Q	2014-03-31	Filed 2014-04-29
10-K	2013-12-31	Filed 2014-03-10
10-Q	2013-09-30	Filed 2013-11-05
10-Q	2013-06-30	Filed 2013-08-02
10-Q	2013-03-31	Filed 2013-05-08
10-K	2012-12-31	Filed 2013-03-07
10-Q	2012-09-30	Filed 2012-11-09
10-Q	2012-06-30	Filed 2012-08-02
10-Q	2012-03-31	Filed 2012-05-10
10-K	2011-12-31	Filed 2012-03-15
10-Q	2011-09-30	Filed 2011-11-03
10-Q	2011-06-30	Filed 2011-08-04
10-Q	2011-03-31	Filed 2011-05-02
10-K	2010-12-31	Filed 2011-03-14
10-Q	2010-09-30	Filed 2010-10-29
10-Q	2010-06-30	Filed 2010-07-30
10-Q	2010-03-31	Filed 2010-05-07
10-K	2009-12-31	Filed 2010-03-10

8-K	2020-10-29
8-K	2020-10-19
8-K	2020-10-06
8-K	2020-09-17
8-K	2020-08-31
8-K	2020-08-31
8-K	2020-08-06
8-K	2020-07-15
8-K	2020-06-26
8-K	2020-06-25
8-K	2020-05-29
8-K	2020-05-11
8-K	2020-04-29
8-K	2020-02-27
8-K	2020-01-20
8-K	2019-11-05
8-K	2019-09-25
8-K	2019-09-19
8-K	2019-09-09
8-K	2019-08-07
8-K	2019-06-03
8-K	2019-05-22
8-K	2019-05-07
8-K	2019-05-06
8-K	2019-04-30
8-K	2019-04-18
8-K	2019-04-08
8-K	2019-03-14
8-K	2019-01-18
8-K	2018-12-21
8-K	2018-12-11
8-K	2018-11-28
8-K	2018-11-12
8-K	2018-10-29
8-K	2018-09-20
8-K	2018-09-09
8-K	2018-08-02
8-K	2018-07-24
8-K	2018-06-18
8-K	2018-06-06
8-K	2018-05-09
8-K	2018-04-26
8-K	2018-04-02
8-K	2018-02-22

EX-4.1	mdca-20200930xexhibit41.htm
EX-31.1	mdca-20200930xexhibit3.htm
EX-31.2	mdca-20200930xex312xflanuto.htm
EX-32.1	mdca-20200930xex321xmpenn.htm
EX-32.2	mdca-20200930xex322xflanuto.htm
EX-99.1	mdca-20200930xexhibit9.htm

MDCA 10Q Quarterly Report

MDC Partners Earnings 2020-09-30