MDC Partners Inc. Reports Results For The Three And Six Months Ended June 30, 2020
Company Responds Swiftly to Pandemic Conditions, Dramatically Reduces Costs and Delivers Solid First Half Results
NEW YORK, Aug. 6, 2020 /PRNewswire/ --
SECOND QUARTER & YTD HIGHLIGHTS:
-- Revenue of $259.7 million in the second quarter versus $362.1 million in
the prior period, a decline of 28.3%; and $587.4 million YTD versus
$690.9 million in the prior year period, a decline of 15.0%.
-- Organic revenue declined 26.4% in the second quarter and 12.9% YTD.
-- Net loss attributable to MDC Partners common shareholders was $4.1
million in the second quarter of 2020 versus $0.8 million in income a
year ago, driven by non-cash impairment charges taken in the quarter.
-- Net loss attributable to MDC Partners common shareholders was $6.5
million in the six months ended June 30, 2020 versus $1.4 million a year
ago, driven by non-cash impairment charges taken in the period.
-- Adjusted EBITDA for the three months ended June 30, 2020 was $36.2
million versus $46.4 million a year ago, a decline of 22.1%. Adjusted
EBITDA Margin of 13.9%, compared to 12.8% in the prior year quarter.
-- Adjusted EBITDA for the six months ended June 30, 2020 was $75.7 million
versus $67.9 million a year ago, an increase of 11.5%. Adjusted EBITDA
Margin of 12.9%, compared to 9.8% a year ago.
-- Excluding Kingsdale and Sloane, Adjusted EBITDA decreased 20.9% in the
second quarter and increased 17.2% in the first half of 2020 compared
with the prior year period.
-- Covenant EBITDA (LTM) of $193.3 million versus $200.7 million at March
31, 2020, a decline of 3.7%.
-- Net New Business wins totaled $20.5 million in the second quarter, and
$28.9 million in the six months ended June 30, 2020.
(NASDAQ: MDCA) - MDC Partners Inc. ("MDC Partners" or the "Company") today announced financial results for the three and six months ended June 30, 2020.
"Coming off of pace-setting growth in the first quarter, we weathered the current effects of COVID-19 on GDP, our clients and revenue with a diligent focus on cost reductions and restructuring actions that helped preserve the underlying economics of the business. This resulted in expanded margins and positions MDC to rebound even more strongly once we return to growth," said Mark Penn, Chairman and Chief Executive Officer of MDC Partners.
"The expected declines in net revenue were met with better than expected controls on costs and strong liquidity. On a half-year basis, Adjusted EBITDA excluding divestitures increased 17 percent against prior year despite the revenue decline," Mr. Penn added.
Frank Lanuto, Chief Financial Officer, added, "We continued to operate with significant financial flexibility throughout the quarter. We extended our credit facility and retired $87 million in obligations in the second quarter, including semi-annual interest on our Notes, scheduled M&A obligations and partial bond repurchase. We maintained a positive net cash position of $23 million at quarter end and reduced our leverage from 4.9x year ago to 4.6x."
Lead Independent Director and Special Committee Chairman Irwin Simon commented, "The special committee is proceeding with its review of Stagwell's recent merger proposal, assisted by independent advisors Moelis & Company and DLA Piper. The committee will continue to act in the best interests of the Company and our shareholders as we evaluate the previously announced transaction proposed by Stagwell as well as all alternatives available to the Company."
Second Quarter and Year-to-Date 2020 Financial Results
Revenue for the second quarter of 2020 was $259.7 million versus $362.1 million for the second quarter of 2019, a decline of 28.3%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 0.8%, the impact of non-GAAP acquisitions (dispositions), net was negative 1.1%, and organic revenue decline was 26.4%, inclusive of $29.1 million or 457 basis points from lower billable costs. Organic revenue declined primarily due to reduced spending by clients in connection with COVID-19. Net New Business wins in the second quarter of 2020 totaled $20.5 million.
Net loss attributable to MDC Partners common shareholders for the second quarter of 2020 was $4.1 million versus net income of $0.8 million for the second quarter of 2019. The decline was primarily due to lower revenues, partially offset by a reduction in expenses, which included a goodwill and lease impairment charge of $18.8 million, a gain of $7.4 million in connection with the repurchase of a portion of our senior notes and a tax benefit during the second quarter as compared to the same period in the prior year. Diluted loss per share attributable to MDC Partners common shareholders for the second quarter of 2020 was $0.06 versus diluted income per share of $0.01 for the second quarter of 2019.
Adjusted EBITDA for the second quarter of 2020 was $36.2 million versus $46.4 million for the second quarter of 2019, a decline of 22.1%, primarily due to lower revenues, partially offset by a reduction of expenses. This led to a 110 basis point increase in Adjusted EBITDA margin in the second quarter of 2020 to 13.9% from 12.8% in the second quarter of 2019.
Covenant EBITDA for the last twelve months (LTM) was $193.3 million as of June 30, 2020 versus $200.7 million at March 31, 2020, a decline of 3.7%. The change was primarily driven by the decline in Adjusted EBITDA.
Revenue for the first six months of 2020 was $587.4 million versus $690.9 million for the first six months of 2019, a decline of 15.0%. The effect on revenue of foreign exchange due to the strong US Dollar was negative 0.7%, the impact of non-GAAP acquisitions (dispositions), net was negative 1.4%, and organic revenue decline was 12.9%, inclusive of $28.1 million or 239 basis points from lower billable costs. Organic revenue declined primarily due to reduced spending by clients in connection with COVID-19. Net New Business wins for the first six months of 2020 totaled $28.9 million.
Net loss attributable to MDC Partners common shareholders for the first six months of 2020 was $6.5 million versus $1.4 million for the first six months of 2019. This change was primarily due to the decline in revenue, partially offset by a reduction in expenses. Diluted loss per share attributable to MDC Partners common shareholders for the six months of 2020 was $0.09 versus diluted loss per share of $0.02 for the first six months of 2019.
Adjusted EBITDA for the first six months of 2020 was $75.7 million versus $67.9 million for the first six months of 2019, an increase of 11.5%. The improvement was primarily due to a reduction in expenses to combat the impact of COVID-19 on the business, partially offset by lower revenues. This led to a 310 basis point improvement in Adjusted EBITDA margin in the first six months of 2020 to 12.9% from 9.8% in the first six months of 2019.
Financial Outlook
Given the uncertainties in the global business environment arising from the COVID-19 pandemic, the Company is not providing a 2020 outlook for Revenue and Covenant EBITDA at this time.
Conference Call
Management will host a conference call on Thursday, August 6, 2020, at 8:30 a.m. (ET) to discuss its results. The conference call will be accessible by dialing 1-862-298-0702 or toll free 1-888-390-3967. An investor presentation has been posted on our website at www.mdc-partners.com and may be referred to during the conference call.
A recording of the conference call will be accessible within one business day after the conference call until 12:00 a.m. (ET), August 13, 2020, by dialing 1-754-333-7735 or toll free 1-888-539-4649 (passcode 153080), or by visiting our website at www.mdc-partners.com.
About MDC Partners Inc.
MDC Partners is one of the most influential marketing and communications networks in the world. As "The Place Where Great Talent Lives," MDC Partners is celebrated for its innovative advertising, public relations, branding, digital, social and event marketing agency partners, which are responsible for some of the most memorable and effective campaigns for the world's most respected brands. By leveraging technology, data analytics, insights and strategic consulting solutions, MDC Partners drives creative excellence, business growth and measurable return on marketing investment for over 1,700 clients worldwide. For more information about MDC Partners and its partner firms, visit our website at www.mdc-partners.com and follow us on Twitter at http://www.twitter.com/mdcpartners.
Non-GAAP Financial Measures
In addition to its reported results, MDC Partners has included in this earnings release certain financial results that the Securities and Exchange Commission (SEC) defines as "non-GAAP Financial Measures." Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results. Such non-GAAP financial measures include the following:
(1) Organic Revenue: "Organic revenue growth" and "organic revenue decline" refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms that the Company has held throughout each of the comparable periods presented, and (b) "non-GAAP acquisitions (dispositions), net". Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.
(2) Net New Business: Estimate of annualized revenue for new wins less annualized revenue for losses incurred in the period.
(3) Adjusted EBITDA: Adjusted EBITDA is a non-GAAP financial measure that represents Net income (loss) attributable to MDC Partners Inc. common shareholders plus or minus adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items, net which includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.
(4) Covenant EBITDA: Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, permitted dispositions and other items, as defined in the Company's Credit Agreement. We believe that the presentation of Covenant EBITDA is useful to investors as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company's underlying operating performance. In addition, the presentation of Covenant EBITDA provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Company's Credit Agreement.
Included in this earnings release are tables reconciling MDC Partners' reported results to arrive at certain of these non-GAAP financial measures.
This press release contains forward-looking statements. Statements in this press release that are not historical facts, including without limitation the information under the heading "Financial Outlook" and statements about the Company's beliefs and expectations, earnings (loss) guidance, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as "estimates", "expects", "contemplates", "will", "anticipates", "projects", "plans", "intends", "believes", "forecasts", "may", "should", and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
-- risks associated with international, national and regional unfavorable
economic conditions that could affect the Company or its clients,
including as a result of the novel coronavirus pandemic ("COVID-19");
-- the effects of the outbreak of COVID-19, including the measures to
reduce its spread, and the impact on the economy and demand for our
services, which may precipitate or exacerbate other risks and
uncertainties;
-- developments involving the proposal by Stagwell Media LP to enter into a
business combination with the Company;
-- the Company's ability to attract new clients and retain existing
clients;
-- reduction in client spending and changes in client advertising,
marketing and corporate communications requirements;
-- financial failure of the Company's clients;
-- the Company's ability to retain and attract key employees;
-- the Company's ability to achieve the full amount of its stated cost
saving initiatives;
-- the Company's implementation of strategic initiatives;
-- the Company's ability to remain in compliance with its debt agreements
and the Company's ability to finance its contingent payment obligations
when due and payable, including but not limited to those relating to
redeemable noncontrolling interests and deferred acquisition
consideration;
-- the successful completion and integration of acquisitions which
complement and expand the Company's business capabilities; and
-- foreign currency fluctuations.
Investors should carefully consider these risk factors, other risk factors described herein, and the additional risk factors outlined in more detail in the Company's 2019 Form 10-K, filed with the Securities and Exchange Commission (the "SEC") on March 5, 2020 and accessible on the SEC's website at www.sec.gov, under the caption "Risk Factors," and in the Company's other SEC filings.
CONTACT:
Erica Bartsch
Sloane & Company
212-446-1875
IR@mdc-partners.com
SCHEDULE 1
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(US$ in 000s, Except per Share Amounts)
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
---
Revenue:
Services $
259,678 $
362,130 $
587,420 $
690,921
Operating Expenses:
Cost of services
sold 165,632 240,749 388,325 477,903
Office and general
expenses 66,210 87,276 132,563 154,394
Depreciation and
amortization 8,899 10,663 18,105 19,501
Impairment and other
losses 18,839 19,000
259,580 338,688 557,993 651,798
Operating income 98 23,442 29,427 39,123
Other Income (Expenses):
Interest expense and
finance charges,
net (15,941) (16,413) (31,553) (33,172)
Foreign exchange
gain (loss) 5,342 2,932 (9,415) 8,374
Other, net 5,884 (746) 22,218 (4,128)
(4,715) (14,227) (18,750) (28,926)
Income (loss) before
income taxes and
equity in earnings
of non-
consolidated
affiliates (4,617) 9,215 10,677 10,197
Income tax expense
(benefit) (7,923) 2,088 5,577 2,837
Income before equity
in earnings of non-
consolidated
affiliates 3,306 7,127 5,100 7,360
Equity in earnings
(losses) of non-
consolidated
affiliates (798) 206 (798) 289
Net income 2,508 7,333 4,302 7,649
Net income
attributable to the
noncontrolling
interest (3,101) (3,043) (3,892) (3,472)
Net income (loss)
attributable to MDC
Partners Inc. (593) 4,290 410 4,177
Accretion on and net
income allocated to
convertible
preference shares (3,509) (3,515) (6,949) (5,625)
Net income (loss)
attributable to MDC
Partners Inc.
common shareholders $
(4,102) $
775 $
(6,539) $
(1,448)
Income (loss) Per Common Share:
Basic
Net income (loss)
attributable to MDC
Partners Inc.
common shareholders $
(0.06) $
0.01 $
(0.09) $
(0.02)
Diluted
Net income (loss)
attributable to MDC
Partners Inc.
common shareholders $
(0.06) $
0.01 $
(0.09) $
(0.02)
Weighted Average Number of Common
Shares Outstanding:
Basic 72,528,455 71,915,832 72,463,058 66,118,749
Diluted 72,528,455 72,024,689 72,463,058 66,118,749
SCHEDULE 2
MDC PARTNERS INC.
UNAUDITED REVENUE RECONCILIATION
(US$ in 000s, except percentages)
Three Months Ended Six Months Ended
Revenue $ % Change Revenue $ % Change
---
June 30, 2019 $
362,130 $
690,921
Organic revenue (1) (95,437) (26.4) (89,003) (12.9)
% %
Non-GAAP (4,106) (1.1) (9,789) (1.4)
acquisitions
(dispositions), net % %
Foreign exchange (2,909) (0.8) (4,709) (0.7)
impact
% %
---
Total change (102,452) (28.3) (103,501) (15.0)
% %
---
June 30, 2020 $
259,678 $
587,420
(1) Organic revenue refers to the
positive results of subtracting
both the foreign exchange and
acquisition (disposition)
components from total revenue
growth. The acquisition
(disposition) component is
calculated by aggregating prior
period revenue for any acquired
businesses, less the prior period
revenue of any businesses that
were disposed of during the
current period. The organic
revenue component reflects the
constant currency impact of (a)
the change in revenue of the
partner firms which the Company
has held throughout each of the
comparable periods presented, and
(b) "non-GAAP acquisitions
(dispositions), net". Non-GAAP
acquisitions (dispositions), net
consists of (i) for acquisitions
during the current year, the
revenue effect from such
acquisition as if the acquisition
had been owned during the
equivalent period in the prior
year and (ii) for acquisitions
during the previous year, the
revenue effect from such
acquisitions as if they had been
owned during that entire year (or
same period as the current
reportable period), taking into
account their respective pre-
acquisition revenues for the
applicable periods, and (iii) for
dispositions, the revenue effect
from such disposition as if they
had been disposed of during the
equivalent period in the prior
year. See "Non-GAAP Financial
Measures" herein.
Note: Actuals may not foot due to
rounding
SCHEDULE 3
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Three Months Ended June 30, 2020
---
Integrated Integrated
Networks Networks Media & All Other Corporate Total
- Group A - Group B Data
Network
---
Revenue $
82,735 $
93,398 $
28,551 $
54,994
$ $
259,678
Net loss attributable to MDC Partners
Inc. common shareholders $
(4,102)
Adjustments to reconcile to operating
income (loss):
Accretion on convertible preference
shares 3,509
Net income attributable to the
noncontrolling interests 3,101
Equity in losses of non-consolidated
affiliates 798
Income tax benefit (7,923)
Interest expense and finance charges,
net 15,941
Foreign exchange gain (5,342)
Other, net (5,884)
Operating income
(loss) $
14,605 $
(7,717) $
46 $
4,987 $
(11,823) $
98
margin 17.7 (8.3)
%
%
% % 0.2 9.1 %
Adjustments:
Depreciation and
amortization $
1,566 $
4,387 $
807 $
1,903 $
236 $
8,899
Impairment and other
losses - 17,468 35 207 1,129 18,839
Stock-based
compensation (105) 746 4 118 276 1,039
Deferred acquisition
consideration
adjustments 1,139 1,503 (330) 2,312
Distributions from
non-consolidated
affiliates (2) - 1,079 1,079
Other items, net (3) - 3,895 3,895
Adjusted EBITDA (1) $
17,205 $
16,387 $
892 $
6,885 $
(5,208) $
36,161
Adjusted EBITDA margin 20.8 17.5
%
%
% % 3.1 12.5 13.9
%
(1) Adjusted EBITDA is a non-GAAP
financial measure, and as shown
above it represents operating income
(loss) plus depreciation and
amortization, stock-based
compensation, deferred acquisition
consideration adjustments,
distributions from non-consolidated
affiliates, impairment and other
items. See "Non-GAAP Financial
Measures" herein.
(2) Distributions from non-consolidated
affiliates includes (i) cash
received for profit distributions
from non-consolidated affiliates,
and (ii) consideration from the sale
of ownership interests in non-
consolidated affiliates less
contributions to date plus
undistributed earnings (losses).
(3) Other items, net includes items such
as severance expense and other
restructuring expenses. See Schedule
10 for a reconciliation of amounts.
Note: Effective in the first quarter of
2020, the Company reorganized its
management structure resulting in
the aggregation of certain Partner
Firms into integrated groups
("Networks"). In connection with the
reorganization, we reassessed our
reportable segments to align our
external reporting with how we
operate the Networks under our new
organizational structure. Prior
periods presented have been recast
to reflect the change in reportable
segments.
Note: Actuals may not foot due to rounding.
SCHEDULE 4
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Six Months Ended June 30, 2020
---
Integrated Integrated Media & All Other Corporate Total
Networks Networks Data
- Group A - Group B Network
---
Revenue $
173,356 $
211,105 $
69,609 $
133,350
$ $
587,420
Net loss attributable to MDC Partners
Inc. common shareholders $
(6,539)
Adjustments to reconcile to operating
income (loss):
Accretion on convertible preference
shares 6,949
Net income attributable to the
noncontrolling interests 3,892
Equity in losses of non-consolidated
affiliates 798
Income tax expense 5,577
Interest expense and finance charges,
net 31,553
Foreign exchange loss 9,415
Other, net (22,218)
Operating income
(loss) $
26,637 $
9,444 $
663 $
12,844 $
(20,161) $
29,427
margin 15.4 4.5 1.0 9.6 5.0
%
%
%
%
%
Adjustments:
Depreciation and
amortization $
3,307 $
8,913 $
1,615 $
3,802 $
468 $
18,105
Impairment and other
losses - 17,629 35 207 1,129 19,000
Stock-based
compensation 1,856 1,646 (9) 198 418 4,109
Deferred acquisition
consideration
adjustments 1,707 (4,109) 375 (261) (2,288)
Distributions from
non-consolidated
affiliates (2) - 1,065 1,065
Other items, net (3) - 6,311 6,311
Adjusted EBITDA (1) $
33,507 $
33,523 $
2,679 $
16,790 $
(10,770) $
75,729
Adjusted EBITDA margin 19.3 15.9 3.8 12.6 12.9
%
%
%
%
%
(1) Adjusted EBITDA is a non-GAAP
financial measure, and as shown
above it represents operating income
(loss) plus depreciation and
amortization, stock-based
compensation, deferred acquisition
consideration adjustments,
distributions from non-consolidated
affiliates, impairment and other
items. See "Non-GAAP Financial
Measures" herein.
(2) Distributions from non-consolidated
affiliates includes (i) cash
received for profit distributions
from non-consolidated affiliates,
and (ii) consideration from the sale
of ownership interests in non-
consolidated affiliates less
contributions to date plus
undistributed earnings (losses).
(3) Other items, net includes items such
as severance expense and other
restructuring expenses. See Schedule
10 for a reconciliation of amounts.
Note: Effective in the first quarter of
2020, the Company reorganized its
management structure resulting in
the aggregation of certain Partner
Firms into integrated groups
("Networks"). In connection with the
reorganization, we reassessed our
reportable segments to align our
external reporting with how we
operate the Networks under our new
organizational structure. Prior
periods presented have been recast
to reflect the change in reportable
segments.
Note: Actuals may not foot due to rounding.
SCHEDULE 5
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Three Months Ended June 30, 2019
---
Integrated Integrated
Networks Networks Media & All Other Corporate Total
- Group A - Group B Data
Network
---
Revenue $
103,248 $
133,394 $
39,456 $
86,032
$ $
362,130
Net income attributable to MDC Partners
Inc. common shareholders $
775
Adjustments to reconcile to operating
income (loss):
Accretion on convertible preference
shares 3,515
Net income attributable to the
noncontrolling interests 3,043
Equity in earnings of non-consolidated
affiliates (206)
Income tax expense 2,088
Interest expense and finance charges,
net 16,413
Foreign exchange gain (2,932)
Other, net 746
Operating income
(loss) $
14,963 $
17,338 $
278 $
7,494 $
(16,631) $
23,442
margin 14.5 13.0 0.7 8.7 6.5
%
%
%
%
%
Adjustments:
Depreciation and
amortization $
2,348 $
4,318 $
1,335 $
2,441 $
221 $
10,663
Stock-based
compensation 639 1,627 6 170 1,192 3,634
Deferred acquisition
consideration
adjustments 291 1,565 (615) 832 2,073
Distributions from
non-consolidated
affiliates (2) - 31 31
Other items, net (3) - 6,594 6,594
Adjusted EBITDA (1) $
18,241 $
24,848 $
1,004 $
10,937 $
(8,593) $
46,437
Adjusted EBITDA margin 17.7 18.6 2.5 12.7 12.8
%
%
%
%
%
(1) Adjusted EBITDA is a non-GAAP
financial measure, and as shown
above it represents operating income
(loss) plus depreciation and
amortization, stock-based
compensation, deferred acquisition
consideration adjustments,
distributions from non-consolidated
affiliates, impairment and other
items. See "Non-GAAP Financial
Measures" herein.
(2) Distributions from non-consolidated
affiliates includes (i) cash
received for profit distributions
from non-consolidated affiliates,
and (ii) consideration from the sale
of ownership interests in non-
consolidated affiliates less
contributions to date plus
undistributed earnings (losses).
(3) Other items, net includes items such
as severance expense and other
restructuring expenses. See Schedule
10 for a reconciliation of amounts.
Note: Effective in the first quarter of
2020, the Company reorganized its
management structure resulting in
the aggregation of certain Partner
Firms into integrated groups
("Networks"). In connection with the
reorganization, we reassessed our
reportable segments to align our
external reporting with how we
operate the Networks under our new
organizational structure. Prior
periods presented have been recast
to reflect the change in reportable
segments.
Note: Actuals may not foot due to rounding.
SCHEDULE 6
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Six Months Ended June 30, 2019
---
Integrated Integrated Media & All Other Corporate Total
Networks Networks Data
- Group A - Group B Network
---
Revenue $
176,987 $
266,564 $
82,688 $
164,682
$ $
690,921
Net loss attributable to MDC Partners
Inc. common shareholders $
(1,448)
Adjustments to reconcile to operating
income (loss):
Accretion on convertible preference
shares 5,625
Net income attributable to the
noncontrolling interests 3,472
Equity in earning of non-consolidated
affiliates (289)
Income tax expense 2,837
Interest expense and finance charges,
net 33,172
Foreign exchange gain (8,374)
Other, net 4,128
Operating income
(loss) $
11,112 $
36,700 $
(1,371) $
14,135 $
(21,453) $
39,123
margin 6.3 13.8 (1.7) 8.6 5.7
%
%
%
%
%
Adjustments:
Depreciation and
amortization $
4,289 $
8,092 $
2,328 $
4,354 $
438 $
19,501
Stock-based
compensation 4,234 2,491 6 256 (381) 6,606
Deferred acquisition
consideration
adjustments (478) (4,156) 73 (1,009) (5,570)
Distributions from
non-consolidated
affiliates (2) - 31 31
Other items, net (3) - 8,220 8,220
Adjusted EBITDA (1) $
19,157 $
43,127 $
1,036 $
17,737 $
(13,145) $
67,911
Adjusted EBITDA margin 10.8 16.2 1.3 10.8 9.8
%
%
%
%
%
(1) Adjusted EBITDA is a non-GAAP
financial measure, and as shown
above it represents operating income
(loss) plus depreciation and
amortization, other asset
impairment, stock-based
compensation, deferred acquisition
consideration adjustments,
distributions from non-consolidated
affiliates, impairment and other
items. See "Non-GAAP Financial
Measures" herein.
(2) Distributions from non-consolidated
affiliates includes (i) cash
received for profit distributions
from non-consolidated affiliates,
and (ii) consideration from the sale
of ownership interests in non-
consolidated affiliates less
contributions to date plus
undistributed earnings (losses).
(3) Other items, net includes items such
as severance expense and other
restructuring expenses. See Schedule
10 for a reconciliation of amounts.
Note: Effective in the first quarter of
2020, the Company reorganized its
management structure resulting in
the aggregation of certain Partner
Firms into integrated groups
("Networks"). In connection with the
reorganization, we reassessed our
reportable segments to align our
external reporting with how we
operate the Networks under our new
organizational structure. Prior
periods presented have been recast
to reflect the change in reportable
segments.
Note: Actuals may not foot due to rounding.
SCHEDULE 7
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO COVENANT EBITDA
(US$ in 000s)
2019 2020 Covenant EBITDA
(LTM) (1)
Q2 Q3 Q4 Q1 Q2 Q1-2020- Q2-2020 -
LTM LTM
---
Net income (loss)
attributable to MDC
Partners Inc.
common shareholders $
776 $
(5,058) $
(10,488) $
(2,437) $
(4,102) $
(17,207) $
(22,085)
Adjustments to reconcile to
operating income:
Accretion on and net
income allocated to
convertible
preference shares 3,515 3,306 3,373 3,440 3,509 13,634 13,628
Net income
attributable to the
noncontrolling
interests 3,043 7,265 5,419 791 3,101 16,518 16,576
Equity in losses
(earnings) of non-
consolidated
affiliates (206) (63) 798 (269) 735
Income tax expense
(benefit) 2,088 3,457 4,241 13,500 (7,923) 23,286 13,275
Interest expense and
finance charges,
net 16,413 16,110 15,658 15,612 15,941 63,793 63,321
Foreign exchange
loss (gain) (2,932) 3,973 (4,349) 14,757 (5,342) 11,449 9,039
Other, net 745 431 (2,158) (16,334) (5,884) (17,316) (23,945)
Operating income $
23,442 $
29,421 $
11,696 $
29,329 $
98 $
93,888 $
70,544
Adjustments to reconcile to Adjusted
EBITDA:
Depreciation and
amortization $
10,663 $
9,368 $
9,460 $
9,206 $
8,899 $
38,697 $
36,933
Impairment and other
losses - 1,944 5,875 161 18,839 7,980 26,819
Stock-based
compensation 3,634 6,026 18,408 3,070 1,039 31,138 28,543
Deferred acquisition
consideration
adjustments 2,073 1,943 9,030 (4,600) 2,312 8,446 8,685
Distributions from
non-consolidated
affiliates 31 (202) 2,219 (14) 1,079 2,034 3,082
Other items, net (2) 6,594 705 349 2,416 3,895 10,064 7,365
Adjusted EBITDA $
46,437 $
49,205 $
57,037 $
39,568 $
36,161 $
192,247 $
181,971
Adjustments to reconcile to Covenant
EBITDA:
Proforma
dispositions (3) $
(729) $
(996) $
(1,294) $
(124)
$ $
(3,143) $
(2,414)
Severance due to
eliminated
positions 2,346 1,956 3,221 2,133 5,233 9,656 12,543
Other adjustments,
net (4) 989 228 368 357 207 1,942 1,160
Covenant adjusted
EBITDA $
49,043 $
50,393 $
59,332 $
41,934 $
41,601 $
200,702 $
193,260
(1) Covenant EBITDA is a measure that
includes pro forma adjustments for
acquisitions, one-time charges,
permitted dispositions and other
adjustments, as defined in the
Company's Credit Agreement.
Covenant EBITDA is calculated as
the aggregate of operating results
for the rolling last twelve months
(LTM). Each quarter is presented
to provide the information
utilized to calculate Covenant
EBITDA. Historical Covenant EBITDA
may be re-casted in the current
period for any proforma
adjustments related to
acquisitions and/or dispositions
in the current period. See "Non-
GAAP Financial Measures" herein.
(2) Other items, net includes items
such as severance expense and
other restructuring expenses. See
Schedule 10 for a reconciliation
of amounts.
(3) Represents Kingsdale and Sloane
EBITDA for the respective period.
(4) Other adjustments, net primarily
includes one-time professional
fees and costs associated with
real estate consolidation.
Note: Actuals may not foot due to
rounding.
SCHEDULE 8
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(US$ in 000s)
June 30, December 31,
2020 2019
---
ASSETS
Current Assets:
Cash and cash equivalents $
85,483 $
106,933
Accounts receivable, less allowance
for doubtful accounts of $1,875
and $3,304 359,306 449,288
Expenditures billable to clients 19,426 30,133
Other current assets 66,318 35,613
Total Current Assets 530,533 621,967
Fixed assets, at cost, less
accumulated depreciation of
$134,529 and $129,579 70,787 81,054
Right of use assets -operating
leases 238,230 223,622
Goodwill 706,946 731,691
Other intangible assets, net 48,904 54,893
Deferred tax assets 82,695 88,486
Other assets 27,356 30,179
Total Assets $
1,705,451 $
1,831,892
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND
SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $
148,349 $
200,148
Accruals and other liabilities 264,572 357,162
Advance billings 136,196 171,742
Current portion of lease
liabilities -operating leases 38,377 48,659
Current portion of deferred
acquisition consideration 36,655 45,521
Total Current Liabilities 624,149 823,232
Long-term debt 922,537 887,630
Long-term portion of deferred
acquisition consideration 2,597 29,699
Long-term lease liabilities -
operating leases 267,559 219,163
Other liabilities 36,503 25,771
Total Liabilities 1,853,345 1,985,495
Redeemable Noncontrolling Interests 36,710 36,973
Commitments, Contingencies, and Guarantees
Shareholders' Deficit:
Convertible preference shares,
145,000 authorized, issued and
outstanding at June 30, 2020 and
December 31, 2019 152,746 152,746
Common stock and other paid-in
capital 98,234 101,469
Accumulated deficit (480,369) (480,780)
Accumulated other comprehensive
loss (income) 4,627 (4,269)
MDC Partners Inc. Shareholders'
Deficit (224,762) (230,834)
Noncontrolling interests 40,158 40,258
Total Shareholders' Deficit (184,604) (190,576)
Total Liabilities, Redeemable
Noncontrolling Interests and
Shareholders' Deficit $
1,705,451 $
1,831,892
SCHEDULE 9
MDC PARTNERS INC.
UNAUDITED SUMMARY CASH FLOW DATA
(US$ in 000s)
Six Months Ended June 30,
2020 2019
---
Net cash used in
operating
activities $
(33,678) $
(40,237)
Net cash provided
by investing
activities 14,643 9,818
Net cash provided
by (used in)
financing
activities (1,434) 25,712
Effect of exchange
rate changes on
cash, cash
equivalents, and
cash held in
trusts (981) 4
Net decrease in
cash, cash
equivalents, and
cash held in
trusts including
cash classified
within assets held
for sale $
(21,450) $
(4,703)
Change in cash and
cash equivalents
held in trusts
classified within
held for sale - (3,307)
Change in cash and
cash equivalents
classified within
assets held for
sale - 4,441
Net decrease in
cash and cash
equivalents (21,450) (3,569)
Cash and cash
equivalents at
beginning of
period 106,933 30,873
Cash and cash
equivalents at end
of period $
85,483 $
27,304
Supplemental disclosures:
Cash income taxes
paid $
2,566 $
3,494
Cash interest paid $
28,736 $
31,643
Note: Actuals may not foot due
to rounding.
SCHEDULE 10
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF COMPONENTS OF NON-GAAP MEASURES
(US$ in 000s)
2019 2020
Q1 Q2 Q3 Q4 YTD Q1 Q2 YTD
---
NON-GAAP ACQUISITIONS (DISPOSITIONS), NET
GAAP revenue from current year
acquisitions
$ $
698 $
1,347 $
1,396 $
3,441
$
$
$
GAAP revenue from prior year
acquisitions (1) 15,685 1,519 1,109 291 18,604
Foreign exchange impact - 470 (246) 224 (248) (248)
Contribution to organic revenue
(growth) decline (2) (4,008) (440) (2,185) (1,694) (8,327) (411) (411)
Prior year revenue from
dispositions (3) (1,825) (5,995) (3,178) (4,505) (15,503) (5,024) (4,106) (9,130)
Non-GAAP acquisitions
(dispositions), net $
9,852 $
(4,218) $
(2,437) $
(4,758) $
(1,561) $
(5,683) $
(4,106) $
(9,789)
2019 2020
Q1 Q2 Q3 Q4 YTD Q1 Q2 YTD
---
OTHER ITEMS, NET
Severance and other
restructuring expenses
$ $
6,703 $
705
$ $
7,408 $
1,334 $
2,969 $
4,303
Strategic review process costs 1,626 (109) 349 1,866 1,082 926 2,008
Total other items, net $
1,626 $
6,594 $
705 $
349 $
9,274 $
2,416 $
3,895 $
6,311
2019 2020
Q1 Q2 Q3 Q4 YTD Q1 Q2 YTD
---
CASH INTEREST, NET & OTHER
Cash interest paid $
(1,629) $
(30,014) $
(882) $
(29,698) $
(62,223) $
(145) $
(28,591) $
(28,736)
Bond interest accrual
adjustment (14,625) 14,625 (14,625) 14,625 (14,625) 13,894 (731)
Adjusted cash interest paid (16,254) (15,389) (15,507) (15,073) (62,223) (14,770) (14,697) (29,467)
Interest income 149 138 165 162 614 114 190 304
Total cash interest, net &
other $
(16,105) $
(15,251) $
(15,342) $
(14,911) $
(61,609) $
(14,656) $
(14,507) $
(29,163)
2019 2020
Q1 Q2 Q3 Q4 YTD Q1 Q2 YTD
---
CAPITAL EXPENDITURES, NET
Capital expenditures $
(3,606) $
(4,317) $
(5,863) $
(4,810) $
(18,596) $
(1,546) $
(2,144) $
(3,690)
2019 2020
Q1 Q2 Q3 Q4 YTD Q1 Q2 YTD
---
MISCELLANEOUS OTHER DISCLOSURES
Net income attributable to the
noncontrolling interests $
429 $
3,043 $
7,265 $
5,419 $
16,156 $
791 $
3,101 $
3,892
Cash taxes $
1,677 $
1,817 $
137 $
(1,335) $
2,296 $
849 $
1,717 $
2,566
GAAP revenue from prior year
acquisitions for 2020 and 2019
relates to acquisitions which
occurred in 2019 and 2018,
(1) respectively.
Contribution to organic revenue
represents the change in
revenue, measured on a constant
currency basis, relative to the
comparable pre-acquisition
period for acquired businesses
that are included in the
Company's organic revenue
(2) 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
(3) disposition.
Note: Actuals may not foot due to
rounding.
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SOURCE MDC Partners Inc.
