UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September~~June 30, ~~2018~~2019



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

For the transition period from ______________ to ______________

Commission File Number: 001-13718

MDC Partners Inc.

(Exact name of registrant as specified in its charter)



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

745 Fifth Avenue New York, New York		10151
(Address of principal executive offices)		(Zip Code)

(646) 429-1800

(Registrant’s telephone number, including area code)

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



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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ý No ¨

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



Large accelerated Filer x¨	Accelerated filer ¨x
Non-accelerated Filer ¨ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company ¨x
Emerging growth company ¨

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

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

The ~~numbers~~number of common shares outstanding as of ~~October 31, 2018 were 57,511,684~~July 19, 2019 was 71,943,994 Class A subordinate voting shares ~~3,755~~and 3,749 Class B multiple voting ~~shares, and 95,000 Series 4 Convertible Preference Shares~~

shares.

MDC PARTNERS INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4
	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	6
	Condensed Consolidated Statements of Shareholders’ Deficit (unaudited) for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, 2019 and 2018	78
	Notes to Unaudited Condensed Consolidated Financial Statements	810
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2527
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	5352

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 3.	Defaults Upon Senior Securities	54
Item 4.	Mine Safety Disclosures	54
Item 5.	Other Information	5455
Item 6.	Exhibits	5556
Signatures		5556

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue:
Services	$	375,830		$	375,800		$	1,082,541		$	1,111,032		$	362,130		$	379,743		$	690,921		$	706,711
Operating expenses:
Operating Expenses:
Cost of services sold	238,690			249,418			735,110			754,803			240,749			253,390			477,903			496,420
Office and general expenses	102,380			77,910			270,137			251,313			87,276			83,878			154,394			167,757
Depreciation and amortization	11,134			11,252			35,212			32,916			10,663			11,703			19,501			24,078
Goodwill and other asset impairment	21,008			—			23,325			—
Other asset impairment													—			—			—			2,317
	373,212			338,580			1,063,784			1,039,032			338,688			348,971			651,798			690,572
Operating profit	2,618			37,220			18,757			72,000
Other Income (Expense):
Operating income													23,442			30,772			39,123			16,139
Other Income (Expenses):
Interest expense and finance charges, net	(17,063		)	(16,258		)	(50,005		)	(48,309		)	(16,413		)	(16,859		)	(33,174		)	(32,942		)
Foreign exchange transaction gain (loss)	3,275			9,913			(9,934		)	18,798
Foreign exchange gain (loss)													2,932			(6,549		)	8,374			(13,209		)
Other, net	189			(1,264		)	1,222			(986		)	(746		)	592			(4,128		)	1,033
	(13,599		)	(7,609		)	(58,717		)	(30,497		)	(14,227		)	(22,816		)	(28,928		)	(45,118		)
Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates	(10,981		)	29,611			(39,960		)	41,503
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates													9,215			7,956			10,195			(28,979		)
Income tax expense (benefit)	2,986			9,049			(3,367		)	17,659			2,088			1,977			2,835			(6,353		)
Income (loss) before equity in earnings (losses) of non-consolidated affiliates	(13,967		)	20,562			(36,593		)	23,844
Equity in earnings of non-consolidated affiliates	300			1,422			358			1,924
Income (loss) before equity in earnings of non-consolidated affiliates													7,127			5,979			7,360			(22,626		)
Equity in earnings (losses) of non-consolidated affiliates													206			(28		)	289			58
Net income (loss)	(13,667		)	21,984			(36,235		)	25,768			7,333			5,951			7,649			(22,568		)
Net income attributable to noncontrolling interests	(2,458		)	(3,491		)	(5,900		)	(6,588		)
Net income attributable to the noncontrolling interest													(3,043		)	(2,545		)	(3,472		)	(3,442		)
Net income (loss) attributable to MDC Partners Inc.	(16,125		)	18,493			(42,135		)	19,180			4,290			3,406			4,177			(26,010		)
Accretion on and net income allocated to convertible preference shares	(2,109		)	(4,356		)	(6,204		)	(6,147		)	(3,515		)	(2,273		)	(5,625		)	(4,095		)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	(18,234	)	$	14,137		$	(48,339	)	$	13,033		$	775		$	1,133		$	(1,448	)	$	(30,105	)

Income (loss) per common share:
Income (loss) Per Common Share:
Basic
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	(0.32	)	$	0.25		$	(0.85	)	$	0.24		$	0.01		$	0.02		$	(0.02	)	$	(0.53	)

Diluted
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	(0.32	)	$	0.24		$	(0.85	)	$	0.24		$	0.01		$	0.02		$	(0.02	)	$	(0.53	)

Weighted Average Number of Common Shares Outstanding:
Basic	57,498,661			57,566,707			57,117,797			53,915,536			71,915,832			57,439,823			66,118,749			56,924,208
Diluted	57,498,661			57,943,080			57,117,797			54,228,208			72,024,689			57,802,872			66,118,749			56,924,208

Stock-based compensation expense is included in the following line items above:
Cost of services sold	$	4,390		$	5,310		$	11,784		$	12,558		$	2,442		$	4,047		$	6,987		$	7,394
Office and general expenses	1,852			1,070			5,098			4,312			1,192			1,556			(381		)	3,246
Total	$	6,242		$	6,380		$	16,882		$	16,870		$	3,634		$	5,603		$	6,606		$	10,640

See notes to the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(thousands of United States dollars)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Comprehensive Income (Loss)
Net income (loss)	$	(13,667	)	$	21,984		$	(36,235	)	$	25,768		$	7,333		$	5,951		$	7,649		$	(22,568	)

Other comprehensive income (loss), net of applicable tax:
Foreign currency translation adjustment	(1,327		)	(1,912		)	(898		)	(1,294		)	(1,385		)	(1,848		)	(6,044		)	429
Other comprehensive income (loss)	(1,327		)	(1,912		)	(898		)	(1,294		)	(1,385		)	(1,848		)	(6,044		)	429
Comprehensive income (loss) for the period	(14,994		)	20,072			(37,133		)	24,474			5,948			4,103			1,605			(22,139		)
Comprehensive income attributable to the noncontrolling interests	(2,931		)	(4,695		)	(4,367		)	(9,063		)	(3,081		)	(1,641		)	(3,861		)	(1,436		)
Comprehensive income (loss) attributable to MDC Partners Inc.	$	(17,925	)	$	15,377		$	(41,500	)	$	15,411		$	2,867		$	2,462		$	(2,256	)	$	(23,575	)

See notes to the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Current Assets:
Cash and cash equivalents	$	25,056		$	46,179		$	27,304		$	30,873
Cash held in trusts	3,965			4,632
Accounts receivable, less allowance for doubtful accounts of $3,001 and $2,453	437,024			434,072
Accounts receivable, less allowance for doubtful accounts of $2,792 and $1,879							434,512			395,200
Expenditures billable to clients	59,317			31,146			40,605			42,369
Assets held for sale							—			78,913
Other current assets	37,867			26,742			44,815			42,499
Total Current Assets	563,229			542,771			547,236			589,854
Fixed assets, at cost, less accumulated depreciation of $132,193 and $123,599	90,249			90,306
Fixed assets, at cost, less accumulated depreciation of $141,167 and $128,546							83,950			88,189
Right of use assets - operating leases							237,418			—
Investments in non-consolidated affiliates	6,814			6,307			6,761			6,556
Goodwill	843,180			835,935			743,582			740,955
Other intangible assets, net	75,115			70,605
Other intangible assets, net, less accumulated amortization of $168,748 and $161,868							60,848			67,765
Deferred tax assets	122,505			115,325			92,439			92,741
Other assets	28,632			37,643			26,415			25,513
Total Assets	$	1,729,724		$	1,698,892		$	1,798,649		$	1,611,573
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	219,757		$	244,527		$	228,069		$	221,995
Trust liability	3,965			4,632
Accruals and other liabilities	300,664			327,812			253,868			313,141
Liabilities held for sale							—			35,967
Advance billings	182,305			148,133			168,142			138,505
Current portion of long-term debt	360			313
Current portion of lease liabilities - operating leases							46,338			—
Current portion of deferred acquisition consideration	37,902			50,213			35,439			32,928
Total Current Liabilities	744,953			775,630			731,856			742,536
Long-term debt, less current portion	987,880			882,806
Long-term debt							914,092			954,107
Long-term portion of deferred acquisition consideration	56,827			72,213			22,804			50,767
Long-term lease liabilities - operating leases							233,165			—
Other liabilities	53,912			54,110			19,503			54,255
Deferred tax liabilities	6,899			6,760			6,571			5,329
Total Liabilities	1,850,471			1,791,519			1,927,991			1,806,994

Redeemable Noncontrolling Interests	57,193			62,886			42,635			51,546
Commitments, Contingencies, and Guarantees (Note 13)
Shareholders’ Deficit:
Convertible preference shares (liquidation preference $107,556 and $101,352)	90,123			90,220
Common shares	362,195			352,432
Charges in excess of capital	(311,576		)	(314,241		)
Convertible preference shares, 145,000 authorized, issued and outstanding at June 30, 2019 and 95,000 at December 31, 2018							152,746			90,123
Common stock and other paid-in capital							97,455			58,579
Accumulated deficit	(383,305		)	(340,000		)	(460,726		)	(464,903		)
Accumulated other comprehensive loss	(1,319		)	(1,954		)
Accumulated other comprehensive loss (income)							(1,713		)	4,720
MDC Partners Inc. Shareholders' Deficit	(243,882		)	(213,543		)	(212,238		)	(311,481		)
Noncontrolling interests	65,942			58,030			40,261			64,514
Total Shareholders' Deficit	(177,940		)	(155,513		)	(171,977		)	(246,967		)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit	$	1,729,724		$	1,698,892		$	1,798,649		$	1,611,573

See notes to the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of United States dollars)

Nine Months Ended September 30,
2018 2017
Cash flows from operating activities:

Net income (loss) $ (36,235 ) $ 25,768
Adjustments to reconcile net income (loss) to cash used in operating activities:

Stock-based compensation 16,882
16,870
Depreciation 20,944
18,000
Amortization of intangibles 14,268
14,916
Amortization of deferred finance charges 2,402
2,018
Goodwill and other asset impairment 23,325
—
Adjustment to deferred acquisition consideration 8,522
13,354
Acquisition-related contingent consideration payment (28,263 ) (36,570 )
Deferred income taxes (benefits) (6,690 ) 8,125
Gain (loss) on sale of assets (1,408 ) 1,245
(Earnings) losses of non-consolidated affiliates (358 ) (1,924 )
Other non-current assets and liabilities (956 ) (4,388 )
Foreign exchange 9,125
(15,113 )
Changes in working capital:
Accounts receivable 8,574
(54,723 )
Expenditures billable to clients (28,171 ) (9,294 )
Prepaid expenses and other current assets (11,516 ) 6,400
Accounts payable, accruals and other liabilities (49,587 ) (31,149 )
Advance billings 27,413
32,015
Net cash used in operating activities (31,729 )
(14,450 )
Cash flows used in investing activities:

Capital expenditures (15,232 ) (28,305 )
Deposits —
(1,461 )
Acquisitions, net of cash acquired (34,303 ) —
Proceeds from sale of assets —
11,120
Distributions from non-consolidated affiliates —
673
Other investments 1,180
(1,530 )
Net cash used in investing activities (48,355 )
(19,503 )
Cash flows provided by financing activities:

Repayments of revolving credit agreement (1,121,300 ) (1,093,508 )
Proceeds from revolving credit agreement 1,224,290
1,087,688
Proceeds from issuance of convertible preference shares —
95,000
Convertible preference shares issuance costs —
(4,632 )
Acquisition related payments (32,240 ) (52,556 )
Repayment of long-term debt (260 ) (310 )
Purchase of shares (776 ) (1,239 )
Distributions to noncontrolling interests (10,410 ) (5,272 )
Payment of dividends (182 ) (284 )
Net cash provided by financing activities 59,122

24,887
Effect of exchange rate changes on cash and cash equivalents (161 ) 6
Decrease in cash and cash equivalents (21,123 ) (9,060 )
Cash and cash equivalents at beginning of period 46,179
27,921
Cash and cash equivalents at end of period $ 25,056
$ 18,861

Supplemental disclosures:

Cash income taxes paid $ 4,822
$ 6,909
Cash interest paid $ 33,011
$ 32,324
Change in cash held in trusts $ (667 ) $ (159 )

Non-cash transactions:

Capital leases $ 600
$ 621
Dividends payable $ 271
$ 453
Acquisition related consideration settled through issuance of shares $ 7,030
$ 28,727



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	7,649		$	(22,568	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Stock-based compensation	6,606			10,640
Depreciation	12,621			14,642
Amortization of intangibles	6,880			9,436
Amortization of deferred finance charges and debt discount	1,663			1,605
Other asset impairment	—			2,317
Adjustment to deferred acquisition consideration	(5,570		)	(2,479		)
Deferred income taxes	2,835			(9,494		)
Loss on sale of assets	3,407			(955		)
Earnings of non-consolidated affiliates	(289		)	(58		)
Other and non-current assets and liabilities	(4,139		)	(1,114		)
Foreign exchange	(7,363		)	12,128
Changes in working capital:
Accounts receivable	(21,570		)	19,181
Expenditures billable to clients	1,763			(27,935		)
Prepaid expenses and other current assets	(3,345		)	(12,732		)
Accounts payable, accruals and other current liabilities	(66,343		)	(60,015		)
Acquisition related payments	(4,376		)	(23,894		)
Advance billings	29,334			29,582
Net cash used in operating activities	(40,237		)	(61,713		)
Cash flows from investing activities:
Capital expenditures	(7,923		)	(9,689		)
Proceeds from sale of assets	23,050			—
Acquisitions, net of cash acquired	(5,130		)	(27,299		)
Other investments	(179		)	867
Net cash provided by (used in) investing activities	9,818			(36,121		)
Cash flows from financing activities:
Repayment of revolving credit facility	(834,538		)	(782,600		)
Proceeds from revolving credit facility	793,940			897,844
Proceeds from issuance of common and convertible preference shares, net of issuance costs	98,620			—
Acquisition related payments	(24,219		)	(29,172		)
Distributions to noncontrolling interests	(7,957		)	(8,927		)
Payment of dividends	(56		)	(168		)
Purchase of shares	(78		)	(493		)
Other	—			(141		)
Net cash provided by financing activities	25,712			76,343
Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts	4			311
Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale	(4,703		)	(21,180		)
Change in cash and cash equivalents held in trusts classified within held for sale	(3,307		)	—
Change in cash and cash equivalents classified within assets held for sale	4,441			—
Net decrease in cash and cash equivalents	(3,569		)	(21,180		)
Cash and cash equivalents at beginning of period	30,873			46,179



	Six Months Ended June 30,
	2019		2018
Cash and cash equivalents at end of period	$	27,304	$	24,999
Supplemental disclosures:
Cash income taxes paid	$	3,494	$	2,626
Cash interest paid	$	31,643	$	31,414

See notes to the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

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

Convertible Preference Shares Common Shares
Additional
Paid-in Capital

Charges in
Excess of
Capital

Accumulated
Deficit

Accumulated Other
Comprehensive
Loss

MDC Partners Inc.
Shareholders’
Deficit

Noncontrolling
Interests
Total
Shareholders’
Deficit

Shares Amount Shares Amount
Balance at December 31, 2017 95,000
$ 90,220
56,375,131
$ 352,432
$ —
$ (314,241 ) $ (340,000 ) $ (1,954 ) $ (213,543 ) $ 58,030
$ (155,513 )
Net loss attributable to MDC Partners, Inc. —
—
—
—
—
—
(42,135 ) —
(42,135 ) —
(42,135 )
Other comprehensive income (loss) —
—
—
—
—
—
—
635
635
(1,533 ) (898 )
Expenses for convertible preference shares (Note 9) —
(97 ) —
—
—
—
—
—
(97 ) —
(97 )
Issuance of restricted stock —
—
237,529
3,509
(3,509 ) —
—
—
—
—
—
Shares acquired and cancelled —
—
(108,782 ) (776 ) —
—
—
—
(776 ) —
(776 )
Shares issued, acquisitions —
—
1,011,561
7,030
—
—
—
—
7,030
—
7,030
Stock-based compensation —
—
—
—
6,774
—
—
—
6,774
—
6,774
Changes in redemption value of redeemable noncontrolling interests —
—
—
—
(4,409 ) —
—
—
(4,409 ) (4,409 )
Business acquisitions and step-up transactions —
—
—
—
3,809
—
—
—
3,809
15,410
19,219
Changes in ownership interest —
—
—
—
—
—
—
—
—
(5,965 ) (5,965 )
Cumulative effect of adoption of ASC 606 (Note 14) —
—
—
—
—
—
(1,170 ) —
(1,170 ) —
(1,170 )
Transfer to charges in excess of capital —
—
—
—
(2,665 ) 2,665
—
—
—
—
Balance at September 30, 2018 95,000
$ 90,123
57,515,439
$ 362,195
$ —
$ (311,576 ) $ (383,305 ) $ (1,319 ) $ (243,882 ) $ 65,942
$ (177,940 )



	Three Months Ended
	June 30, 2019
	Convertible Preference Shares			Common Shares		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests		Total Shareholder's Deficit
	Convertible Preference Shares			Common Shares
(in thousands, except share amounts)	Shares	Amount		Shares
Balance at March 31, 2019	145,000	$	152,117	71,890,021		$	98,693		$	(465,016	)	$	(290	)	$	(214,496	)	$	40,223	$	(174,273	)
Net income attributable to MDC Partners Inc.	—	—		—		—			4,290			—			4,290			—		4,290
Other comprehensive loss	—	—		—		—			—			(1,423		)	(1,423		)	38		(1,385		)
Issuance of common and convertible preference shares	—	629		—		362			—			—			991			—		991
Issuance of restricted stock	—	—		76,979		—			—			—			—			—		—
Shares acquired and cancelled	—	—		(19,257	)	(22		)	—			—			(22		)	—		(22		)
Stock-based compensation	—	—		—		1,800			—			—			1,800			—		1,800
Changes in redemption value of redeemable noncontrolling interests	—	—		—		(3,190		)	—			—			(3,190		)			(3,190		)
Business acquisitions and step-up transactions, net of tax	—	—		—		(97		)	—			—			(97		)	—		(97		)
Changes in ownership interest	—	—		—		(91		)	—			—			(91		)	—		(91		)
Balance at June 30, 2019	145,000	$	152,746	71,947,743		$	97,455		$	(460,726	)	$	(1,713	)	$	(212,238	)	$	40,261	$	(171,977	)



	Six Months Ended
	June 30, 2019
	Convertible Preference Shares			Common Shares		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	Convertible Preference Shares			Common Shares
(in thousands, except share amounts)	Shares	Amount		Shares
Balance at December 31, 2018	95,000	$	90,123	57,521,323		$	58,579		$	(464,903	)	$	4,720		$	(311,481	)	$	64,514		$	(246,967	)
Net income attributable to MDC Partners Inc.	—	—		—		—			4,177			—			4,177			—			4,177
Other comprehensive loss	—	—		—		—			—			(6,433		)	(6,433		)	389			(6,044		)
Issuance of common and convertible preference shares	50,000	62,623		14,285,714		35,997			—			—			98,620			—			98,620
Issuance of restricted stock	—	—		193,979		—			—			—			—			—			—
Shares acquired and cancelled	—	—		(53,273	)	(78		)	—			—			(78		)	—			(78		)
Stock-based compensation	—	—		—		509			—			—			509			—			509
Changes in redemption value of redeemable noncontrolling interests	—	—		—		2,729			—			—			2,729			—			2,729
Business acquisitions and step-up transactions, net of tax	—	—		—		(97		)	—			—			(97		)	—			(97		)
Changes in ownership interest	—	—		—		(184		)	—			—			(184		)	(24,642		)	(24,826		)
Balance at June 30, 2019	145,000	$	152,746	71,947,743		$	97,455		$	(460,726	)	$	(1,713	)	$	(212,238	)	$	40,261		$	(171,977	)



	Three Months Ended
	June 30, 2018
	Convertible Preference Shares			Common Shares		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	Convertible Preference Shares			Common Shares
(in thousands, except share amounts)	Shares	Amount		Shares
Balance at March 31, 2018	95,000	$	90,123	56,436,067		$	38,412		$	(370,586	)	$	1,425		$	(240,626	)	$	50,964		$	(189,662	)
Net income attributable to MDC Partners Inc.	—	—		—		—			3,406			—			3,406			—			3,406
Other comprehensive loss	—	—		—		1			—			(944		)	(943		)	(905		)	(1,848		)
Issuance of restricted stock	—	—		12,585		—			—			—			—			—			—
Shares acquired and cancelled	—	—		(6,185	)	(39		)	—			—			(39		)	—			(39		)
Shares issued, acquisitions	—	—		1,011,561		7,030			—			—			7,030			—			7,030
Stock-based compensation	—	—		—		2,107			—			—			2,107			—			2,107
Changes in redemption value of redeemable noncontrolling interests	—	—		—		(1,687		)	—			—			(1,687		)	—			(1,687		)
Business acquisitions and step-up transactions, net of tax	—	—		—		—			—			—			—			27,357			27,357
Balance at June 30, 2018	95,000	$	90,123	57,454,028		$	45,824		$	(367,180	)	$	481		$	(230,752	)	$	77,416		$	(153,336	)



	Six Months Ended
	June 30, 2018
	Convertible Preference Shares				Common Shares		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	Convertible Preference Shares				Common Shares
(in thousands, except share amounts)	Shares	Amount			Shares
Balance at December 31, 2017	95,000	$	90,220		56,375,131		$	38,191		$	(340,000	)	$	(1,954	)	$	(213,543	)	$	58,030		$	(155,513	)
Net loss attributable to MDC Partners Inc.	—	—			—		—			(26,010		)	—			(26,010		)	—			(26,010		)
Other comprehensive income (loss)	—	—			—		—			—			2,435			2,435			(2,006		)	429
Expenses for convertible preference shares	—	(97		)	—		—			—			—			(97		)	—			(97		)
Issuance of restricted stock	—	—			122,029		—			—			—			—			—			—
Shares acquired and cancelled	—	—			(54,693	)	(493		)	—			—			(493		)	—			(493		)
Shares issued, acquisitions	—	—			1,011,561		7,030			—			—			7,030			—			7,030
Stock-based compensation	—	—			—		4,324			—			—			4,324			—			4,324
Changes in redemption value of redeemable noncontrolling interests	—	—			—		(2,062		)	—			—			(2,062		)	—			(2,062		)
Business acquisitions and step-up transactions, net of tax	—	—			—		(1,166		)	—			—			(1,166		)	27,357			26,191
Changes in ownership interest	—	—			—		—			—			—			—			(5,965		)	(5,965		)
Cumulative effect of adoption of ASC 606	—	—			—		—			(1,170		)	—			(1,170		)	—			(1,170		)
Balance at June 30, 2018	95,000	$	90,123		57,454,028		$	45,824		$	(367,180	)	$	481		$	(230,752	)	$	77,416		$	(153,336	)

See notes to the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1. Basis of Presentation and Recent Developments

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

MDC Partners Inc. has prepared the unaudited condensed consolidated interim financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, the financial statements have been condensed and do not include certain information and disclosures pursuant to these rules. The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (“~~2017~~2018 Form 10-K”).

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

Certain reclassifications have been made to the prior year financial information to conform to the current year ~~presentation, such as~~presentation.

Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of ~~contingent consideration payments in the statement of cash flows in connection with the adoption of Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flow.~~certain businesses between segments. See Note ~~14 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding the new guidance and reclass within the statement of cash flows.~~

~~On September~~ 12 2018 the Company announced that Scott Kauffman will step down as the Company’s Chairman and Chief Executive Officer. He will remain in his role as Chairman and CEO until a successor is named. Mr. Kauffman is also expected to continue as a member of the MDC Board of Directors for the remainder of his current term.

On September 20, 2018, the Company announced its intention to explore and evaluate potential strategic alternatives, which may result in, among other things, the possible sale of the Company. The Company has not made a decision to pursue any specific strategic alternative, and there is no timetable for completing the strategic review process. This review process is proceeding in parallel with the Company’s search to identify a successor CEO. There can be no assurance that the Company will complete any specific action or transaction.

~~2. Revenue~~

Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (the “FASB”) 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 FASB ASC Topic 605, Revenue Recognition (“ASC 605”). See Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional details surrounding the Company’s adoption of ASC 606. The Company’s policy surrounding revenue under ASC 605 is described in Note 2 of Item 8 of the Company’s 2017 Form 10-K. The policies described herein refer to those in effect as of January 1, 2018.further information.

2. Revenue

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

The MDC network provides an extensive range of services to our clients offering a variety of marketing and communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast), public relations services including strategy, editorial, crisis support or issues management, media training, influencer engagement and events management. We also provide media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast), experiential marketing and application/website design and development.

The primary source of the Company’s revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost plus margin.

The determination of our performance obligations is specific to the services included within each contract. Based on a client’s requirements within the contract, and how these services are provided, multiple services could represent separate performance obligations or be combined and considered one performance obligation. Contracts that contain services that are not significantly integrated nor interdependent, nor that significantly modify or customize each other, are considered separate performance obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing services to be separate performance obligations if included in the same contract as each of these services can be provided on a stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website design and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output.

We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation.

Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are

typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date.

Although certain of our performance obligations are recognized at a point in time, we typically satisfy our performance obligations over time, as services are performed. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation. Fees for services are typically recognized using input methods that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract.

Within each contract, we identify whether the Company is principal or agent at the performance obligation level. In arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other arrangements where a third-party supplier, rather than the Company is primarily responsible for the integration of services into the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client, ~~then~~ we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of MDC’s agencies under a production services agreement is to facilitate a client’s purchasing of production capabilities from a third-party production company in accordance with the client’s strategy and guidelines. The obligation of MDC’s agencies under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its media plan. We ~~have determined that~~do not obtain control prior to transferring these services to our clients; therefore, we primarily act as agent for production and media buying services.

A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related to performance incentives as we satisfy the performance obligation to which the performance incentives are related.

Disaggregated Revenue Data

The Company provides a broad range of services to a large base of clients across the full spectrum of industry verticals on a global basis. The primary source of revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Partner Firms. Representation of a client rarely means that MDC handles marketing communications for all brands or product lines of the client in every geographical location. The Company’s Partner firms often cooperate with one another through referrals and the sharing of both services and expertise, which enables MDC to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate, independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing clients across the MDC network.

The following table presents revenue disaggregated by client industry vertical for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, and the impact of adoption of ASC 606:~~2018:


		Three Months Ended September 30,
		2018							2017			Three Months Ended June 30,				Six Months Ended June 30,
Industry	Reportable Segment	As reported		Adjustment to exclude impact of Adoption of ASC 606			Adjusted				Reportable Segment	2019		2018		2019		2018
Food & Beverage	All	$	80,919	$	(1,212	)	$	79,707	$	80,247	All	$	73,305	$	84,464	$	139,969	$	147,932
Retail	All	40,421		(4,457		)	35,964		43,202		All	39,894		38,396		72,350		76,411
Consumer Products	All	40,124		1,136			41,260		43,825		All	45,296		41,367		78,232		77,973
Communications	All	46,779		8,337			55,116		46,649		All	47,793		43,097		87,490		81,454
Automotive	All	21,282		734			22,016		30,547		All	18,541		25,294		36,732		45,788
Technology	All	26,005		171			26,176		25,748		All	28,876		23,540		54,279		45,080
Healthcare	All	33,751		84			33,835		31,181		All	25,954		35,426		49,161		68,002
Financials	All	30,378		283			30,661		26,631		All	27,868		30,207		52,795		52,702
Transportation and Travel/Lodging	All	19,357		1,333			20,690		14,412		All	27,050		18,776		44,085		33,664
Other	All	36,814		1,763			38,577		33,358		All	27,553		39,176		75,828		77,705
		$	375,830	$	8,172		$	384,002	$	375,800		$	362,130	$	379,743	$	690,921	$	706,711

Nine Months Ended September 30,
2018 2017
Industry Reportable Segment As reported Adjustment to exclude impact of Adoption of ASC 606 Adjusted
Food & Beverage All $ 234,203
$ 4,171
$ 238,374
$ 225,873
Retail All 116,832
(2,685 ) 114,147
134,993
Consumer Products All 118,097
362
118,459
119,554
Communications All 128,232
20,519
148,751
150,703
Automotive All 67,070
6,809
73,879
96,832
Technology All 71,085
(139 ) 70,946
72,620
Healthcare All 101,753
603
102,356
92,380
Financials All 83,079
1,194
84,273
73,777
Transportation and Travel/Lodging All 53,021
2,109
55,130
42,187
Other All 109,169
6,233
115,402
102,113
$ 1,082,541
$ 39,176
$ 1,121,717
$ 1,111,032

MDC has historically largely focused where the Company was founded in North America, the largest market for its services in the world. In recent years the Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets. Today, MDC’s Partner Firms are located in the United States, Canada, and an additional ~~thirteen~~twelve countries around the world. In the past, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses.

The following table presents revenue disaggregated by ~~geography:~~

Three Months Ended September 30,
2018 2017
Geographic Location Reportable Segment As reported Adjustment to exclude impact of Adoption of ASC 606 Adjusted
United States All $ 296,544
$ 1,899
$ 298,443
$ 289,701
Canada All 32,132
286
32,418
31,418
Other All 47,154
5,987
53,141
54,681
$ 375,830
$ 8,172
$ 384,002
$ 375,800

geography for the three and six months ended June 30, 2019 and 2018:


		Nine Months Ended September 30,
		2018							2017			Three Months Ended June 30,				Six Months Ended June 30,
Geographic Location	Reportable Segment	As reported		Adjustment to exclude impact of Adoption of ASC 606			Adjusted				Reportable Segment	2019		2018		2019		2018
United States	All	$	848,336	$	16,940		$	865,276	$	868,847	All	$	284,659	$	295,268	$	547,676	$	551,792
Canada	All	91,597		(2,352		)	89,245		88,471		All, excluding Media Services	24,564		33,086		46,942		59,465
Other	All	142,608		24,588			167,196		153,714		All, excluding Media Services and Domestic Creative Agencies	52,907		51,389		96,303		95,454
		$	1,082,541	$	39,176		$	1,121,717	$	1,111,032		$	362,130	$	379,743	$	690,921	$	706,711

~~See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the nature of the services offered by the Company’s reportable segments.~~

Contract assets and liabilities

Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees were ~~$92,900~~$92,317 and ~~$54,177~~$64,362 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and are included as a component of accounts receivable on the ~~unaudited condensed consolidated balance sheets.~~Unaudited Condensed Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were ~~$59,317~~$40,605 and ~~$31,146~~$42,369 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, and are included on the ~~unaudited condensed consolidated balance sheets~~Unaudited Condensed Consolidated Balance Sheets as expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of ~~the production process.~~providing services.

Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are classified as advance billings on the Company’s ~~unaudited condensed consolidated balance sheets.~~Unaudited Condensed Consolidated Balance Sheets. Advance billings at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were ~~$182,305~~$168,142 and ~~$148,133,~~$138,505, respectively. The increase in the advance billings balance of ~~$34,172~~$29,637 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by ~~$85,665~~$101,431 of revenues recognized that were included in the advance billings balances as of December 31, ~~2017~~2018 and reductions due to the incurrence of third-party costs.

Changes in the contract asset and liability balances during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were not materially impacted by ~~write offs,~~write-offs, impairment losses or any other factors.

~~Practical expedients~~

In adopting ASC 606, the Company applied the practical expedient to not disclose information about remaining performance obligations that have original expected durations of one year or less. Amounts related to those performance obligations with expected durations of more than one year are immaterial.

3. Income (Loss) Per Common Share

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2018
2017 2018 2017
Numerator

Net income (loss) attributable to MDC Partners Inc. $ (16,125 ) $ 18,493
$ (42,135 ) $ 19,180
Accretion on convertible preference shares (2,109 )
(1,948 ) (6,204 ) (4,365 )
Net income allocated to convertible preference shares —
(2,408 ) —
(1,782 )
Numerator for basic income (loss) per common share - Net income (loss) attributable to MDC Partners Inc. common shareholders (18,234 )
14,137
(48,339 ) 13,033
Adjustment to net income allocated to convertible preference shares —
13
—
9
Numerator for diluted income (loss) per common share- Net income (loss) attributable to MDC Partners Inc. common shareholders $ (18,234 )
$ 14,150
$ (48,339 ) $ 13,042
Denominator

Denominator for basic income (loss) per common share - weighted average common shares 57,498,661

57,566,707
57,117,797
53,915,536
Impact of stock options and non-vested stock under employee stock incentive plans —
376,373
—
312,672
Denominator for diluted income (loss) per common share - adjusted weighted shares and assumed conversions 57,498,661

57,943,080
57,117,797
54,228,208
Basic income (loss) per common share $ (0.32 )
$ 0.25
$ (0.85 ) $ 0.24
Diluted income (loss) per common share $ (0.32 ) $ 0.24

$ (0.85 ) $ 0.24



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Numerator:
Net income (loss) attributable to MDC Partners Inc.	$	4,290		$	3,406		$	4,177		$	(26,010	)
Accretion on convertible preference shares	(3,242		)	(2,068		)	(5,625		)	(4,095		)
Net income allocated to convertible preference shares	(273		)	(205		)	—			—
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	775		$	1,133		$	(1,448	)	$	(30,105	)

Adjustment to net income allocated to convertible preference shares	—			1			—			—
Numerator for dilutive income (loss) per common share:
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	775		$	1,134		$	(1,448	)	$	(30,105	)
Denominator:
Basic weighted average number of common shares outstanding	71,915,832			57,439,823			66,118,749			56,924,208
Effect of dilutive securities:
Impact of stock options and non-vested stock under employee stock incentive plans	108,857			363,049			—			—
Diluted weighted average number of common shares outstanding	72,024,689			57,802,872			66,118,749			56,924,208
Basic	$	0.01		$	0.02		$	(0.02	)	$	(0.53	)
Diluted	$	0.01		$	0.02		$	(0.02	)	$	(0.53	)

Anti-dilutive stock awards ~~1,524,218 - 1,524,218 -~~2,662,666 327,500 4,406,206 1,594,761

Restricted stock and restricted stock unit awards of ~~1,015,637~~242,338 and ~~1,443,921~~1,308,781 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, which are contingent upon the Company meeting a cumulative three year earnings target ~~(2018, 2019 and 2020)~~ and contingent upon continued employment, are excluded from the computation of diluted income per common share as the ~~contingency was~~contingencies were not satisfied at ~~September~~June 30, 2019 and 2018, ~~or 2017.~~respectively. In addition, there were 145,000 and 95,000 ~~shares of~~ Preference Shares outstanding which were convertible into ~~10,755,602~~25,621,189 and ~~9,936,514~~10,544,708 Class A common shares at ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. These Preference Shares were anti-dilutive for each period presented in the table above and are therefore excluded from the diluted income (loss) per common share calculation.

4. Acquisitions and Dispositions

2019 Acquisition

Effective April 1, 2019, the Company acquired the 35% ownership interest of HPR Partners LLC (Hunter) it did not own for an aggregate purchase price of $9,585, comprised of a closing cash payment of $3,890 and additional deferred acquisition payments with an estimated present value at the acquisition date of $5,695. The deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,178. The fair value was measured using a discounted cash flow model.

As a result of the transaction, the Company reduced redeemable noncontrolling interests by $9,488. The difference between the purchase price and the noncontrolling interest of $97 was recorded in common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheet.

2019 Disposition

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

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

In the fourth quarter of 2018, the Company initiated a process to sell its ownership interest in a foreign office within the Global Integrated Agencies reportable segment. The assets and liabilities of the entity were classified as Assets and Liabilities held for sale, at their fair value less cost to sell, within the Consolidated Balance Sheet as of December 31, 2018. In the second quarter of 2019, following the appointment of Mark Penn as Chief Executive Officer, management changed its strategy and plan to sell the foreign office. In connection with management’s decision, the amounts classified within assets and liabilities held for sale were reclassified into the respective line items within the Unaudited Condensed Consolidated Balance Sheet as of June 30, 2019.

2018 Acquisitions

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

On July 1, 2018, the Company acquired the remaining 14.87% and 3% of membership interests of Doner Partners, LLC and Source Marketing LLC, respectively, for an aggregate purchase price of $7,618, comprised of a closing cash payment of $3,279 and additional deferred acquisition payments ~~to be made on or before April 2020.~~with an estimated present value of $4,305 as of December 31, 2018. As of the acquisition date, the fair value of the additional interests acquired was $16,361 for Doner Partners LLC. The fair values were measured using a discounted cash flow model. As a result of the transaction, the Company reduced noncontrolling interest by $11,946 and redeemable noncontrolling interest by $933.

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

The ~~preliminary~~ purchase price allocation for Instrument resulted in tangible assets of $10,304, identifiable intangibles of $23,130, consisting primarily of customer lists and a trade name, and goodwill of ~~$29,514.~~$32,776. In addition, the Company has recorded $27,357 as the fair value of noncontrolling interests, which was derived from the Company’s purchase price less a discount related to the noncontrolling parties’ lack of control. The identified assets have a weighted average useful life of approximately six years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. The goodwill is tax deductible. Instruments’ results are included in the All Other category from a segment reporting perspective. The Company has a controlling financial interest in Instrument through its majority voting interest, and as such, has aggregated the acquired Partner Firm’s financial data into the Company’s ~~consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements. The operating results of Instrument in the current ~~and prior~~ year ~~are~~is not material.

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

~~2017 Acquisitions~~

In 2017, the Company entered into various non-material transactions in connection with certain of its majority-owned entities. As a result of the foregoing, the Company made total cash closing payments of $3,352, increased fixed deferred consideration liability by $7,208, reduced redeemable noncontrolling interests by $269, reduced noncontrolling interests by $11,947, and increased additional paid-in capital by $2,652. In addition, a stock-based compensation charge of $997 has been recognized representing the consideration paid in excess of the fair value of the interest acquired.

~~2017 Dispositions~~

In 2017, the Company sold all of its ownership interests in three subsidiaries resulting in recognition of a net loss on sale of business of $1,424. The net assets reflected in the calculation of the net loss on sale was inclusive of goodwill of $17,593. Goodwill was allocated to subsidiaries based on relative fair value of the sold subsidiaries compared to the fair value of the respective reporting units. Additionally, the Company recorded a reduction in noncontrolling interests of $10,657.

The Company expenses acquisition related costs as incurred. For the three and nine months ended September 30, 2018 and 2017, $232 and $943, respectively, and $216 and $693 respectively, of acquisition related costs were charged to operations.

5. Deferred Acquisition Consideration

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

The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the balance sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

September 30, December 31,
2018 2017
Beginning balance of contingent payments $ 119,086
$ 224,754
Payments ⁽¹⁾
(54,947 ) (110,234 )
Additions - acquisitions and step up transactions 12,816
—
Redemption value adjustments ⁽²⁾
16,276
3,273
Foreign translation adjustment (22 ) 1,293
Ending balance of contingent payments $ 93,209
$ 119,086
Fixed payments 1,520
3,340
$ 94,729
$ 122,426



	June 30,			December 31,
	2019			2018
Beginning Balance of contingent payments	$	82,598		$	119,086
Payments	(24,492		)	(54,947		)
Redemption value adjustments ⁽¹⁾	(6,100		)	3,512
Additions - acquisitions and step up transactions	5,695			14,943
Other	—			4
Ending Balance of contingent payments	$	57,701		$	82,598
Fixed payments	542			1,097
	$	58,243		$	83,695


~~(1)~~	For the year ended December 31, 2017, payments include $28,727 of deferred acquisition consideration settled through the issuance of 3,353,939 MDC Class A subordinate voting shares, respectively, in lieu of cash.


~~(2)~~	Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments, including the accretion of present value and stock-based compensation charges relating to acquisition payments that are tied to continued employment.

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

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


	Three months ended September 30,					Nine months ended September 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2018		2017			2018		2017		2019			2018			2019			2018
Expense (Income) attributable to fair value adjustments	$	11,003	$	(2,462	)	$	8,522	$	12,152
Income (loss) attributable to fair value adjustments										$	2,073		$	(5,065	)	$	(5,570	)	$	(2,479	)
Stock-based compensation	3,076		3,160			7,758		7,080		(1,339		)	2,321			(530		)	4,682
Redemption value adjustments										$	734		$	(2,744	)	$	(6,100	)	$	2,203

6. Leases

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

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

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

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

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

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

From time to time, the Company enters into sublease arrangements both with unrelated third-parties and with our partner agencies. These leases are classified as operating leases and expire between years 2019 through 2023. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Europe and Asia.

As of June 30, 2019, the Company has entered into an operating lease for which the commencement date has not yet occurred as this leased space is in the process of being prepared by the landlord for occupancy. Accordingly, this lease represents an obligation of the Company that is not on the Consolidated Balance Sheet as of June 30, 2019. The aggregate future liability related to the lease is approximately $6 million.

The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.

The following table presents lease costs and other quantitative information for the three and six months ended June 30, 2019:



	Three Months Ended June 30,			Six Months Ended June 30,
	2019			2019
Lease Cost:
Operating lease cost	$	17,473		$	33,914
Variable lease cost	4,361			9,325
Sublease rental income	(2,590		)	(4,189		)
Total lease cost	$	19,244		$	39,050
Additional information:
Cash paid for amounts included in the measurement of lease liabilities for operating leases
Operating cash flows	$	19,523		$	35,175

Right-of-use assets obtained in exchange for operating lease liabilities	$	2,195		$	259,013
Weighted average remaining lease term (in years) - Operating leases	7.0			7.0
Weighted average discount rate - Operating leases	8.6			8.6

Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated Statement of Operations. Lease expense for leases with a term of 12 months or less is immaterial to the Company. Rental expense for the three and six months ended June 30, 2018 was $15,981 and $33,541, respectively, offset by $926 and $1,640, respectively in sublease rental income.

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



	Maturity Analysis
Remaining 2019	$	33,776
2020	66,425
2021	56,428
2022	45,942
2023	42,113
Thereafter	133,823
Total	378,507
Less: Present value discount	(99,004		)
Lease liability	$	279,503

7. Debt

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


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Revolving credit agreement	$	102,990		$	—		$	27,545		$	68,143
6.50% Notes due 2024	900,000			900,000			900,000			900,000
Debt issuance costs	(15,350		)	(17,587		)	(13,453		)	(14,036		)
	987,640			882,413			$	914,092		$	954,107
Obligations under capital leases	600			706
	988,240			883,119
Less: Current portion of long-term debt	360			313
	$	987,880		$	882,806

6.50% Notes

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

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

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

The Indenture includes covenants that are subject to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of default, including a cross-payment default and cross-acceleration provision. The Company was in compliance with all covenants at ~~September~~June 30, ~~2018.~~2019.

~~Revolving~~Credit Agreement

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

On March 12, 2019 (the “Amendment Effective Date”), the Company, Maxxcom Inc. (a subsidiary of ~~MDC)~~the Company) (“Maxxcom”) and each of their subsidiaries party thereto entered into an ~~amended and restated, $325,000~~Amendment to the existing senior secured revolving credit ~~agreement due~~facility, dated as of May 3, ~~2021 (the~~2016 (as amended, the “Credit Agreement”) ~~with~~, among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”) and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement. ~~Capitalized terms used in this section and not otherwise defined have~~

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

In connection with the Amendment, the Company reduced the aggregate maximum amount of revolving commitments provided by the lenders under the Credit ~~Agreement.~~Agreement to $250 million from $325 million.

Advances under the Credit Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is ~~1.50%~~0.75% in the case of Base Rate Loans and ~~1.75%~~1.50% in the case of LIBOR Rate Loans. In addition to paying interest on outstanding principal under the Credit Agreement, MDC is required to pay an unused revolver fee to lenders under the Credit Agreement in respect of unused commitments thereunder.

The Credit Agreement, which includes financial and non-financial covenants, is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary ~~exceptions.~~exceptions and collateralized by a portion of MDC’s outstanding receivable balance. The Company is currently in compliance with all of the terms and conditions of its Credit ~~Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with the covenants over the next twelve months.~~Agreement.

At ~~September~~June 30, 2019 and December 31, 2018, the Company had issued ~~$5,248 of~~ undrawn outstanding letters of ~~credit.~~credit of $4,744 and $4,701, respectively.

~~The foregoing descriptions of the Indenture and the Credit Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the agreements.~~

7.8. Share Capital

The ~~Company’s issued~~authorized and outstanding share capital of the Company is as follows:

Series 46 Convertible Preference Shares

On March 14, 2019 (the “Series 6 Issue Date”), the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell Group LLC (“Stagwell”), pursuant to which Stagwell Holdings agreed to purchase, (i) 14,285,714 newly authorized Class A ~~total~~shares (the “Stagwell Class A Shares”) for an aggregate contractual purchase price of ~~95,000, non-voting~~$50,000 and (ii) 50,000 newly authorized Series 6 convertible preference shares ~~all~~(“Series 6 Preference Shares”) for an aggregate contractual purchase price of $50 million. The Company received proceeds of approximately $98,620, net of fees and estimated expenses, which were ~~issued~~primarily used to pay down existing debt under the Company’s credit facility and ~~outstanding~~for general corporate purposes. The proceeds allocated to the Stagwell Class A Shares were $35,997 and to Series 6 Preference Shares were $62,623 based on their relative fair value calculated by utilizing a Monte Carlo Simulation model. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.

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

The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date. During the six months ended June 30, 2019, the Series 6 Preference Shares accreted at a monthly rate of $6.69, for total accretion of $1,193, bringing the aggregate liquidation preference to $51,193 as of ~~September~~June 30, ~~2018 and December 31, 2017.~~2019. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 93 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further ~~information.~~information regarding the Series 6 Preference Shares.

Holders of the Series 6 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 6 Preference Shares. The Series 6 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Series 6 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.

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

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

Series 4 Convertible Preference Shares

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

Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion

price at such time (the “Conversion Price”). The initial liquidation per share preference of each Series 4 Preference Share is $1,000. The Conversion Price of a Series 4 Preference Share is subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities. In connection with the anti-dilution protection provision triggered by the issuance of equity securities to Stagwell, the Conversion Price per Series 4 Preference Share was reduced to $7.42 from the initial Conversion Price of $10.00.

The Series 4 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 4 Issue Date. During the six months ended June 30, 2019, the Series 4 Preference Shares accreted at a monthly rate of approximately $7.85 per Series 4 Preference Share, for total accretion of $4,432, bringing the aggregate liquidation preference to $114,139 as of June 30, 2019. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 4 Preference Shares.

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

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

Class A Common Shares (“Class A Shares”)

An unlimited number of subordinate voting shares, carrying one vote each, entitled to dividends equal to or greater than Class B Shares, convertible at the option of the holder into one Class B Share for each Class A Share after the occurrence of certain events related to an offer to purchase all Class B shares. There were ~~57,511,684~~71,943,994 (including the Class A Shares issued to Stagwell) and ~~56,371,376~~57,517,568 Class A Shares issued and outstanding as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

On June 6, 2018, the Company’s shareholders approved additional authorized Class A Shares of 1,250,000 to be added to the Company’s 2016 Stock Incentive Plan, for a total of 2,750,000 authorized Class A Shares under the 2016 Stock Incentive Plan.

Class B Common Shares (“Class B Shares”)

An unlimited number of voting shares, carrying 20twenty votes each, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,749 and 3,755 Class B Shares issued and outstanding as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively.

8.9. Noncontrolling and Redeemable Noncontrolling Interests

interests in the equity section of the Company’s ~~balance sheet.~~Unaudited Condensed Consolidated Balance Sheets. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their estimated acquisition date redemption value and adjusted at each reporting period for changes to their estimated redemption value through additional paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments. On occasion, the Company may initiate a renegotiation to acquire an incremental ownership interest and the amount of consideration paid may differ materially from the ~~balance sheet amounts.~~amounts recorded in the Company’s Unaudited Condensed Consolidated Balance Sheets.

Noncontrolling Interests

Changes in amounts due to noncontrolling interest holders included in ~~accrued~~accruals and other liabilities on the Unaudited Condensed Consolidated Balance Sheets for the year ended December 31, ~~2017~~2018 and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 were as follows:


	Noncontrolling Interests			Noncontrolling Interests
Balance, December 31, 2016	$	4,154
Income attributable to noncontrolling interests	15,375
Distributions made	(8,865		)
Other ⁽¹⁾	366
Balance, December 31, 2017	$	11,030		$	11,030
Income attributable to noncontrolling interests	5,900			11,785
Distributions made	(10,410		)	(13,419		)
Other⁽¹⁾	196			(118		)
Balance, September 30, 2018	$	6,716
Balance, December 31, 2018				$	9,278
Income attributable to noncontrolling interests				3,472
Distributions made				(7,957		)
Other ⁽¹⁾				25
Balance, June 30, 2019				$	4,818


(1)	Other consists ~~primarily~~ of ~~business acquisitions, sale of a business, step-up transactions, and~~ cumulative translation adjustments.

Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:


	Three Months Ended September 30, 2018						Nine Months Ended September 30, 2018					Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017			2018			2017		2019			2018		2019			2018
Net income (loss) attributable to MDC Partners Inc.	$	(16,125	)	$	18,493		$	(42,135	)	$	19,180	$	4,290		$	3,406	$	4,177		$	(26,010	)
Transfers from the noncontrolling interest:
Increase (Decrease) in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of Redeemable Noncontrolling Interests and Noncontrolling Interests	4,975			(337		)	3,809			2,315
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of redeemable noncontrolling interests and noncontrolling interests												(97		)	—		(97		)	(1,166		)
Net transfers from noncontrolling interests	$	4,975		$	(337	)	$	3,809		$	2,315	$	(97	)	$	—	$	(97	)	$	(1,166	)
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests	$	(11,150	)	$	18,156		$	(38,326	)	$	21,495
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interests												$	4,193		$	3,406	$	4,080		$	(27,176	)

Redeemable Noncontrolling Interests

The following table presents changes in redeemable noncontrolling interests:


	Nine Months Ended September 30, 2018			Year Ended December 31, 2017			Six Months Ended June 30, 2019			Year Ended December 31, 2018
Beginning Balance	$	62,886		$	60,180		$	51,546		$	62,886
Redemptions	(9,791		)	(910		)	(9,486		)	(11,943		)
Granted	—			1,666			—			—
Changes in redemption value	4,409			1,498			421			1,067
Currency translation adjustments	(311		)	452			154			(464		)
Ending Balance	$	57,193		$	62,886		$	42,635		$	51,546

The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date

would result in obligations of the Company to fund the related amounts during ~~2018~~2019 to ~~2023.~~2024. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.

The amount payable by the Company to purchase the noncontrolling shareholders’ incremental ownership interests if exercised is dependent on various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary during that period and, in some cases, the currency exchange rate at the date of payment. The ultimate amount payable relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.

~~The~~ redeemable noncontrolling interest of ~~$57,193~~$42,635 as of ~~September~~June 30, ~~2018,~~2019, consists of ~~$14,320~~$19,158 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, ~~$38,540~~$19,926 upon termination of such owner’s employment with the applicable subsidiary or death and ~~$4,333~~$3,551 representing the initial redemption

value (required floor) recorded for certain acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership interests for such subsidiaries.

These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the ~~nine~~three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, there was no related impact on the Company’s loss per share calculation.

~~9. Convertible Preference Shares~~

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

The holders of the Preference Shares have the right to convert their Preference Shares in whole at any time and from time to time, and in part at any time and from time to time after the ninetieth day following the original issuance date of the Preference Shares, into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation per share preference of each Preference Share is $1,000. The initial Conversion Price will be $10.00 per Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities.

The Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Issue Date. During the nine months ended September 30, 2018, the Preference Shares accreted at a monthly rate of approximately $7.40 per Preference Share, for total accretion of $6,204, bringing the aggregate liquidation preference to $107,556 as of September 30, 2018. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.

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

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

10. Fair Value Measurements

A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below:

Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Financial Liabilities that are not Measured at Fair Value on a Recurring Basis

The following table presents certain information for our financial liability that is not measured at fair value on a recurring basis at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:


	September 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
6.50% Senior Notes due 2024	$	900,000	$	798,750	$	900,000	$	904,500	$	900,000	$	823,500	$	900,000	$	834,750

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

Financial Liabilities Measured at Fair Value on a Recurring Basis

Contingent deferred acquisition consideration are recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent onupon future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and, in some cases, the currency exchange rate as of the date of payment (Level 3). See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity. ~~The Company does not disclose the fair value for equity method investments or investments held at cost as it is not practical to estimate fair value since there is no readily available market data.~~

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

Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill and intangible assets ~~and property and equipment.~~(a Level 3 fair value assessment). Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment. ~~During the third quarter of 2018, the~~The Company ~~performed an interim goodwill impairment evaluation resulting in~~did not recognize an impairment of ~~goodwill. See Note 11 of~~goodwill or intangible assets in the ~~Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the measurement of the fair value of goodwill~~three and ~~the impairment.~~six months ended June 30, 2019 or June 30, 2018

11. Supplemental Information

Accounts Payable, Accruals and Other Liabilities

At ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017, accounts payable included $54,320 and $41,989 of outstanding checks, respectively.~~

~~At September 30,~~ 2018, ~~and December 31, 2017,~~ accruals and other liabilities included accrued media of ~~$173,222~~$151,143 and ~~$207,482,~~$180,586, respectively; and also ~~include~~included amounts due to noncontrolling interest holders for their share of profits. See Note 89 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding noncontrolling interest holders share of profits.

Goodwill and ~~Other Asset Impairment~~Indefinite Lived Intangibles

~~The Company recognized an impairment of goodwill~~Goodwill and ~~other~~indefinite life intangible assets ~~of $21,008 in the three months ended and $23,325 for the nine months ended September 30, 2018. The impairment primarily consists of the write-down of goodwill equal to the excess~~

~~carrying value above the fair value~~(trademarks) acquired as a result of a business combination which are not subject to amortization are tested for impairment annually as of October 1st of each year, or more frequently if indicators of potential impairment exist. For goodwill, impairment is assessed at the reporting unit ~~within the Global Integrated Agencies reportable segment~~level. Goodwill balances as of June 30, 2019 and the full write-down of a trademark for a reporting unit also within the Global Integrated Agencies reportable segment. The trademark is no longer in active use given its merger with another reporting unit in the third quarter of 2018. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the merger.

~~During the third quarter of~~December 31, 2018, the Company performed an interim goodwill impairment test resulting in, along with the impairment mentioned above, the fair value of a reporting unit, with goodwill of approximately $130,000, exceeding its carrying value by a minimal percentage. A reduction in the projected long-term operating performance of this reporting unit, market declines, changes in discount rates or other conditions could result in an impairment in the future. In connection with the interim impairment test, the Company used a combination of the income approach, which incorporates the use of a discounted cash flow method,were $743,582 and the market approach, which incorporates the use of earnings and revenue multiples based on market data. The Company applied an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates. This methodology is a Level 3 fair value assessment.$740,955, respectively.

Income Taxes

Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the quarter. Our 2018 estimated annual effective tax rate of 26.3% differs from the Canadian statutory rate of 26.5% primarily due to exclusion of income attributable to minority interest from the annual forecasted income, partially offset by U.S. federal tax impact of Global Intangible Low Taxed Income (GILTI) inclusion as well as certain non-deductible expenditures.

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law and the new legislation contains several key tax provisions, including a reduction of the U.S. corporate income tax rate to 21% effective January 1, 2018. The Company is required to recognize the effect of tax law changes in the period of enactment, which required the Company to re-measure its U.S. deferred tax assets and liabilities and to reassess the net realizability of its deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allows the Company to record provisional amounts during a measurement period not to extend beyond one year from the enactment date. The Company recorded a provisional tax expense of $26,674 at year-end related to re-measurement of deferred tax assets and liabilities due to change in corporate tax rate from 35% to 21%. The Company recorded no tax expense related to transition tax.

The Act created a new requirement that Global Intangible Low-Taxed Income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return (the “routine return”), which is defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment (QBAI) of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. A deduction is permitted to a domestic corporation in an amount up to 50% of the sum of the GILTI inclusion and the amount treated as a dividend because the corporation has claimed a foreign tax credit (FTC) as a result of the inclusion of the GILTI amount in income.

During the quarter ended September 30, 2018, the Company evaluated additional guidance provided by the tax authorities and has completed its tax accounting for the provisions of the Act in accordance with SAB 118. The Company has not recorded an adjustment to its provisional estimate during the period ended September 30, 2018 and has made a policy election to record tax effects of GILTI as a period expense when incurred.

The Company has unrecognized tax benefits at September 30, 2018 of $1,198, as compared to $1,556 at December 31, 2017. It is reasonably possible that the amount of unrecognized tax benefits could decrease by a range of $400 to $500 within the next twelve months as a result of expiration of certain statute of limitations.interim periods.

Income tax expense for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$2,986~~$2,088 (on ~~a loss~~income of ~~$10,981~~$9,215 resulting in an effective tax rate of ~~27.1%~~22.7%) compared to ~~$9,049~~an expense of $1,977 (on income of ~~$29,611~~$7,956 resulting in an effective tax rate of ~~30.6%~~24.8%) for the three months ended ~~September~~June 30, ~~2017, representing a decrease of $6,063.~~2018. The ~~variance~~change in the effective tax ~~expense year over year~~rate was primarily driven by ~~impairments and non-deductible stock compensation in~~ the ~~current period for which tax benefit was not recognized as well as the impact~~jurisdictional mix of ~~a valuation allowance in the U.S. in the prior period.~~earnings.

~~Our effective tax rate for the nine months ended September 30, 2018 was 8.4% compared to 42.5% for the nine months ended September 30, 2017.~~ Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was $2,835 (on income of $10,195 resulting in an effective tax rate of 27.8%) compared to a benefit of ~~$3,367 compared to~~$6,353 (on a loss of $28,979 resulting in an ~~expense~~effective tax rate of ~~$17,659~~21.9%) for the ~~nine~~six months ended ~~September~~June 30, ~~2017, representing a decrease of $21,026.~~2018. The ~~variance~~change in the effective tax ~~expense year over year~~rate was primarily driven by the jurisdictional mix of earnings, non-deductible impairments and stock compensation in the current period for which tax benefit was not recognized as well as the impact of a valuation allowance in the U.S. in the prior period.earnings.

12. Segment Information

The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.

Due to changes in the composition of certain business and the Company’s internal management and reporting structure during ~~2018,~~2019, reportable segment results for the ~~2017~~2018 periods presented have been recast to reflect the reclassification of certain businesses between segments. The changes were as follows:

~~Source Marketing,~~Doner, previously within ~~the All Other category, was included within the Doner operating segment, which is aggregated into~~ the Global Integrated Agencies reportable segment

~~Yamamoto, previously within the All Other category, was operationally merged with Civilian and~~ is now included within the Domestic Creative Agencies reportable ~~segment~~segment.

~~Bruce Mau Design, Hello Design~~HL Group Partners, previously within the Specialist Communications reportable segment, and ~~Northstar Research Partners,~~Redscout, previously within the All Other category, ~~and Varick Media Management,~~are now included in the Yes & Company operating segment. The Yes & Company operating segment previously within the Media Services reportable segment ~~were~~is now included ~~into a newly-formed~~within the Domestic Creative Agencies reportable segment.

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

~~In the third quarter of 2018, Forsman & Bodenfors and kbs+, both within the Global Integrated Agencies reportable segment, merged under the Forsman & Bodenfors name.~~segment.

The four reportable segments that result from applying the aggregation criteria are as follows: “Global Integrated Agencies”; “Domestic Creative Agencies”; “Specialist Communications”; and “Media Services.” In addition, the Company combines and discloses those operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein and Note 2 of the Company’s Form 10-K for the year ended December 31, ~~2017.~~2018.

The Global Integrated Agencies reportable segment is comprised of the Company’s ~~five~~four global, integrated operating segments (72andSunny, Anomaly, Crispin Porter + Bogusky, ~~Doner~~ and Forsman & Bodenfors) serving multinational clients around the world. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of global clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Global Integrated Agencies reportable segment.

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

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

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

The Specialist Communications reportable segment is comprised of ~~five~~four operating segments that are each communications agencies (Allison & Partners, ~~HL Group Partners,~~ Hunter, ~~PR,~~ KWT Global, ~~(formerly Kwittken),~~ and Veritas) with core service offerings in public relations and related communications services. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of client accounts and the methods used to provide services; (iii) the extent to which they may be impacted by domestic economic and policy factors within North America; and (iv) the regulatory environment regarding public relations and social media. In addition, these operating

segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Specialist Communications reportable segment.

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

The Media Services reportable segment is comprised of ~~two~~a single operating ~~segments (MDC~~segment known as MDC Media Partners. MDC Media Partners, ~~and Yes & Company). These operating segments perform~~which operates primarily in North America, performs media buying and planning as their core competency across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast).

All Other consists of the Company’s remaining operating segments that provide a range of diverse marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregated in the reportable segments. The All Other category includes 6Degrees Communications, Concentric Partners, Gale Partners, Kenna, Kingsdale (through the date of sale on March 8, 2019), Instrument, ~~Redscout,~~ Relevent, Team, Vitro, and Y Media Labs. The nature of the specialist services provided by these operating segments vary among each other and from those operating segments aggregated into the reportable segments. This results in these operating segments having current and long-term performance expectations inconsistent with those operating segments aggregated in the reportable ~~segments.The~~segments. The operating segments within All Other provide a range of diverse marketing communication services, including application and website design and development, data and analytics, experiential marketing, customer research management, creative services, and branding.

Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue:
Global Integrated Agencies	$	177,398		$	196,974		$	510,360		$	585,290		$	154,368		$	158,163		$	284,087		$	287,686
Domestic Creative Agencies	24,798			28,096			75,503			77,325			65,193			72,971			132,201			139,625
Specialist Communications	42,636			40,670			129,724			125,470
Specialist Communication													47,170			40,304			86,123			79,128
Media Services	35,022			38,315			104,460			122,207			21,331			21,398			41,510			46,082
All Other	95,976			71,745			262,494			200,740			74,068			86,907			147,000			154,190
Total	$	375,830		$	375,800		$	1,082,541		$	1,111,032		$	362,130		$	379,743		$	690,921		$	706,711

Operating profit (loss):
Global Integrated Agencies*	$	2,633		$	20,069		$	6,099		$	33,240
Segment operating income (loss):
Global Integrated Agencies													$	20,720		$	18,352		$	24,491		$	4,760
Domestic Creative Agencies	5,532			6,627			14,451			15,411			8,730			5,077			14,207			7,955
Specialist Communications	4,677			4,775			14,471			13,423
Specialist Communication													6,683			6,216			13,760			9,944
Media Services	1,387			2,555			407			9,169			991			(1,719		)	(843		)	(1,738		)
All Other	6,413			13,920			28,565			29,740			2,949			15,986			8,962			22,430
Corporate	(18,024		)	(10,726		)	(45,236		)	(28,983		)	(16,631		)	(13,140		)	(21,454		)	(27,212		)
Total	$	2,618		$	37,220		$	18,757		$	72,000		$	23,442		$	30,772		$	39,123		$	16,139

Other income (expense):
Other Income (Expenses):
Interest expense and finance charges, net	(17,063		)	(16,258		)	(50,005		)	(48,309		)	$	(16,413	)	$	(16,859	)	$	(33,174	)	$	(32,942	)
Foreign exchange transaction gain (loss)	3,275			9,913			(9,934		)	18,798
Foreign exchange gain (loss)													2,932			(6,549		)	8,374			(13,209		)
Other, net	189			(1,264		)	1,222			(986		)	(746		)	592			(4,128		)	1,033
Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates	(10,981		)	29,611			(39,960		)	41,503
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates													9,215			7,956			10,195			(28,979		)
Income tax expense (benefit)	2,986			9,049			(3,367		)	17,659			2,088			1,977			2,835			(6,353		)
Income (loss) before equity in earnings (losses) of non-consolidated affiliates	(13,967		)	20,562			(36,593		)	23,844
Equity in earnings of non-consolidated affiliates	300			1,422			358			1,924
Income (loss) before equity in earnings of non-consolidated affiliates													7,127			5,979			7,360			(22,626		)
Equity in earnings (losses) of non-consolidated affiliates													206			(28		)	289			58
Net income (loss)	(13,667		)	21,984			(36,235		)	25,768			7,333			5,951			7,649			(22,568		)
Net income attributable to the noncontrolling interest	(2,458		)	(3,491		)	(5,900		)	(6,588		)	(3,043		)	(2,545		)	(3,472		)	(3,442		)
Net income (loss) attributable to MDC Partners Inc.	$	(16,125	)	$	18,493		$	(42,135	)	$	19,180		$	4,290		$	3,406		$	4,177		$	(26,010	)

* A goodwill and other asset impairment charge of $21,008 was recognized within the Global Integrated Agencies reportable segment in the three and nine months ended of 2018. See Note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the impairment.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017		2018		2017		2019			2018		2019			2018
Depreciation and amortization:
Global Integrated Agencies	$	5,154	$	6,365	$	18,499	$	17,913	$	4,437		$	4,743	$	8,502		$	12,152
Domestic Creative Agencies	396		375		1,185		1,172		1,547			1,281		2,786			2,574
Specialist Communications	1,134		1,220		3,163		3,657
Specialist Communication									698			992		1,265			1,959
Media Services	781		1,011		2,315		3,232		794			635		1,485			1,273
All Other	3,470		2,026		9,467		6,078		2,966			3,892		5,025			5,736
Corporate	199		255		583		864		221			160		438			384
Total	$	11,134	$	11,252	$	35,212	$	32,916	$	10,663		$	11,703	$	19,501		$	24,078



Stock-based compensation:
Global Integrated Agencies	$	3,360	$	3,840	$	8,492	$	9,912	$	1,232		$	2,475	$	4,999		$	4,935
Domestic Creative Agencies	175		187		945		534		522			1,097		986			1,507
Specialist Communications	43		659		542		2,264
Specialist Communication									52			52		78			239
Media Services	112		161		282		495		(16		)	74		(16		)	149
All Other	932		1,056		2,532		2,066		652			684		940			1,341
Corporate	1,620		477		4,089		1,599		1,192			1,221		(381		)	2,469
Total	$	6,242	$	6,380	$	16,882	$	16,870	$	3,634		$	5,603	$	6,606		$	10,640

Capital expenditures:
Global Integrated Agencies	$	2,418	$	1,950	$	7,875	$	17,645	$	1,816		$	2,411	$	3,234		$	4,654
Domestic Creative Agencies	371		367		860		980		369			569		1,063			1,473
Specialist Communications	743		206		3,207		673
Specialist Communication									231			2,208		482			2,443
Media Services	428		2,308		845		4,107		126			131		167			315
All Other	1,551		2,317		2,380		4,896		1,757			547		2,958			772
Corporate	32		1		65		4		18			24		19			32
Total	$	5,543	$	7,149	$	15,232	$	28,305	$	4,317		$	5,890	$	7,923		$	9,689

The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for three ~~and nine~~ months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

13. Commitments, Contingencies, and Guarantees

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

~~Dismissal of Class Action Litigation in Canada.~~ On August 7, 2015, Roberto Paniccia issued a Statement of Claim in the Ontario Superior Court of Justice in the City of Brantford, Ontario seeking to certify a class action suit naming the following as defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino, CFO David Doft and BDO U.S.A. LLP. The Plaintiff alleged violations of section 138.1 of the Ontario Securities Act (and equivalent legislation in other Canadian provinces and territories) as well as common law misrepresentation based on allegedly materially false and misleading statements in the Company’s public statements, as well as omitting to disclose material facts with respect to the SEC investigation. On June 4, 2018, the Court dismissed (with costs) the putative class members’ motion for leave to proceed with the Plaintiff’s claims for misrepresentations of material facts pursuant to the Ontario Securities Act. Following the Court’s decision, on June 18, 2018, the Plaintiff, MDC and each of the other defendants consented to the dismissal of the action with prejudice (and without costs). In July 2018, the Court entered a final order approving the dismissal of this claim.

~~Antitrust Subpoena.~~ In 2016, one of the Company’s subsidiary agencies received a subpoena from the U.S. Department of Justice Antitrust Division (the “DOJ”) concerning the DOJ’s ongoing investigation of production bidding practices in the advertising industry. The Company and its subsidiary are fully cooperating with this confidential investigation. Specifically, the Company

and its subsidiary are providing information and engaging in discussions with the DOJ, including preliminary discussions regarding the feasibility of a potential settlement with the DOJ. However, there can be no assurance as to the timing of any settlement or that a settlement will be reached on any particular terms or at all. Moreover, the DOJ may determine to expand the scope of its investigation or initiate a proceeding to bring charges against our subsidiary or one or more members of the subsidiary agency’s former management. The DOJ may also seek to impose monetary sanctions.

Deferred Acquisition Consideration and Options to Purchase. See ~~Note~~Notes 5 and 89 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding potential payments associated with deferred acquisition consideration and the acquisition of noncontrolling shareholders’ ownership interest in subsidiaries.

Natural Disasters. Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018 these operations did not incur any material costs related to damages resulting from hurricanes.

Guarantees. Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically

extend for a number of years. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable.

Commitments. At ~~September~~June 30, ~~2018,~~2019, the Company had ~~$5,248~~$4,744 of undrawn letters of credit. ~~In addition, the Company has commitments to fund investments in an aggregate amount of $60.~~

14. New Accounting Pronouncements

Adopted In The Current Reporting Period

Effective January 1, ~~2018,~~2019, the Company adopted ~~FASB~~ 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, 2018.842. As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic ~~605, Revenue Recognition (“ASC 605”).~~

~~The following represents changes to the Company’s policies resulting from~~840, Leases. With the adoption of ASC ~~606:~~

Under the guidance in effect through December 31, 2017, 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. This results in an acceleration of revenue recognition for certain contract incentives compared to ASC 605.

~~ii.~~

Under the guidance in effect through December 31, 2017, non-refundable retainer fees 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. This resulted in both the deferral and acceleration of revenue recognition in certain instances.

~~iii.~~

In certain client arrangements, the Company records revenue as a principal and includes within revenue certain third-party-pass-through and out-of-pocket costs, which are billed to clients in connection with the services provided. In other arrangements, the Company acts as an agent and records revenue equal to the net amount retained. The adoption of ASC 606 resulted in certain arrangements previously being accounted for as principal, now being accounted for as agent.

~~As a result of these changes,~~842, the Company ~~recorded~~has elected to apply the package of practical expedients: (1) whether a ~~cumulative effect adjustment~~contract is or contains a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to ~~increase opening accumulated deficit at January 1, 2018 by $1,170.~~qualify as initial indirect costs. Additionally, the Company elected the practical expedient to not separate non-lease components from lease components for all operating leases.

The ~~following table summarizes the impact of~~ adoption of ASC ~~606 on the unaudited condensed consolidated statement of operations during the three and nine months ended September 30, 2018:~~

Three Months Ended September 30, 2018
As Reported Adjustments Adjusted to Exclude Adoption of ASC 606
Revenue - Services $ 375,830
$ 8,172
$ 384,002
Costs of services sold $ 238,690
$ 14,122
$ 252,812
Operating profit (loss) $ 2,618
$ (5,950 ) $ (3,332 )
Net loss attributable to MDC Partners, Inc. common shareholders $ (18,234 ) $ (4,700 ) $ (22,934 )
Loss per common share - basic and diluted $ (0.32 ) $ (0.08 ) $ (0.40 )

Nine Months Ended September 30, 2018
As Reported Adjustments Adjusted to Exclude Adoption of ASC 606
Revenue - Services $ 1,082,541
$ 39,176
$ 1,121,717
Costs of services sold $ 735,110
$ 48,083
$ 783,193
Operating profit (loss) $ 18,757
$ (8,907 ) $ 9,850
Net loss attributable to MDC Partners, Inc. common shareholders $ (48,339 ) $ (6,085 ) $ (54,424 )
Loss per common share - basic and diluted $ (0.85 ) $ (0.10 ) $ (0.95 )

The impact on the balance sheets and shareholders’ deficit as of and for the nine months ended September 30, 2018 was immaterial. There was no effect on other comprehensive income (loss) and the statement of cash flows for the three and nine months ended September 30, 2018 and 2017.

In May 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance concerning which changes to the terms or conditions of842 had a share-based payment award require an entity to apply modification accounting in ASC 718. This guidance is effective for annual and interim periods beginning after December 15, 2017. Amendments in this ASU are applied prospectively to any award modified on or after the adoption date. The Company adopted this guidance on January 1, 2018. Thematerial impact on the Company’s ~~consolidated statement of financial position and results of operations was not material.~~

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits, which requires the presentation of the service cost component of the net periodic pension and postretirement benefits costsUnaudited Condensed Consolidated Balance Sheets, resulting in the same line item in the statement of operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of the net periodic pension and postretirement benefits costs are required to be presented as non-operating expenses in the statement of operations. This guidance is effective for annual periods beginning after December 15, 2017. The Company adopted this guidancerecognition, on January 1, ~~2018.~~2019, of a lease liability of $299,243 which represents the present value of the remaining lease payments, and a right-of-use asset of $254,245 which represents the lease liability, offset by adjustments as appropriate under ASC 842. The adoption of ASC 842 did not have a material impact on the Company’s ~~consolidated statement of financial position and results of operations was not material.~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is intended to reduce diversity in practice regarding the classification of certain transactions in the statement of cash flows. This guidance is effective January 1, 2018 and requires a retrospective transition method. Prior to the Company’s adoption on January 1, 2018, all cash outflows for contingent consideration were classified as a financing activity. Effective January 1, 2018, the Company is now required to classify any cash payments made soon after the acquisition date of a business to settle a contingent consideration liability as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities up to the amount of the contingent consideration liability recognized at the acquisition date and as cash outflows from operating activities for any excess. As a result, $36,570 of an acquisition-related contingent consideration payment of $89,126, which was in excess of the liability initially recognized at the acquisition date, has been classified as a cash outflow within net cash provided by operating activities in the accompanying consolidated statement of cash flows for the nine months ended September 30, 2017. There was no impact on the Company’s consolidated statement of financial position and results of operations.

~~In January 2016, the FASB issued ASU 2016-01,~~other Unaudited Condensed Consolidated Financial ~~Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities~~, which will require equity investments, except equity method investments, to be measured at fair value and any changes in fair value will be recognized in results of operations. This guidance is effective for annual and interim periods beginning after December 15, 2017. Additionally, this guidance provides for the recognition of the cumulative effect of retrospective application of the new standard in the period of initial application. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. During the quarter ended September 30, 2018 the Company has made a policy election to record tax effects of GILTI as an expense in the period incurred.

~~Standard to be Adopted in Future Reporting Periods~~

In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will require lessees to recognize a right-to-use asset and lease liability for most of its leases with a term of more than twelve months, including those classified as operating leases. The new guidance also requires additional quantitative and qualitative disclosures. This guidance will be effective for annual periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11 to provide an optional transition method allowing entities to apply the new lease standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (modified retrospective approach) as opposed to restating prior period financial statements. The Company plans to adopt the standard on its effective date of January 1, 2019 using the modified adoption method. The Company is in the process of reviewing its lease contracts, updating its accounting policies, and implementing a new system as well as processes and internal controls to support the Company’s financial reporting and disclosure under the new standard. The Company is not yet able to assess the full impact of the application of the new guidance; however, it expects that the recognition of a right-to-use asset and lease liability for operating leases will have a significant impact on its balance sheet.Statements.

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

Unless otherwise indicated, references to the “Company” or “MDC” mean MDC Partners Inc. and its subsidiaries, and references to a “fiscal year” means the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal ~~2018~~2019 means the period beginning January 1, ~~2018,~~2019, and ending December 31, ~~2018)~~2019).

The Company reports its financial results in accordance with generally accepted accounting principles ~~(“GAAP”)~~ of the United States of America (“U.S. GAAP”). In addition, the Company has included certain non-U.S. GAAP financial measures and ratios, which it believes provide useful supplemental information to both management and readers of this report in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by U.S. GAAP and should not be construed as an alternative to other titled measures determined in accordance with U.S. GAAP.

Two such non-U.S. GAAP measures are “organic revenue growth” or “organic revenue decline” that 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 adoption of Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 606 (“ASC 606”).~~growth. The acquisition (disposition) component is calculated by aggregating the prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of in the current period. The organic revenue growth (decline) component reflects the constant currency impact (a) of the change in revenue of the Partner Firms which the Company has held throughout each of the 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. The Company believes that isolating the impact of acquisition activity and foreign currency impacts ~~and changes in accounting standards~~ is an important and informative component to understand the overall change in the Company’s consolidated revenue. The change in the consolidated revenue that remains after these adjustments illustrates the underlying financial performance of the Company’s businesses. Specifically, it represents the impact of the Company’s management oversight, investments and resources dedicated to supporting the businesses’ growth strategy and operations. In addition, it reflects the network benefit of inclusion in the broader portfolio of firms that includes, but is not limited to, cross-selling and sharing of best practices. This approach isolates changes in performance of the business that take place under the Company’s stewardship, whether favorable or unfavorable, and thereby reflects the potential benefits and risks associated with owning and managing a talent-driven services business.

Accordingly, during the first twelve months of ownership by the Company, the organic growth measure may credit the Company with growth from an acquired business that is dependent on work performed prior to the acquisition date, and may include the impact of prior work in progress, existing contracts and backlog of the acquired businesses. It is the presumption of the Company that positive developments that may have taken place at an acquired business during the period preceding the acquisition will continue to result in value creation in the post-acquisition period.

While the Company believes that the methodology used in the calculation of organic revenue change is entirely consistent with our closest U.S. competitors, the calculations may not be comparable to similarly titled measures presented by other publicly traded companies in other industries. Additional information regarding the Company’s acquisition activity as it relates to potential revenue growth is provided in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Certain Factors Affecting our Business.”

The following discussion focuses on the operating performance of the Company for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 and the financial condition of the Company as of ~~September~~June 30, ~~2018.~~2019. This analysis should be read in conjunction with the interim ~~condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements presented in this interim report and the annual audited consolidated financial statements and Management’s Discussion and Analysis presented in the Annual Report for the year ended December 31, ~~2017~~2018 as reported on the Form 10-K (the “Annual Report on Form 10-K”). All amounts are in dollars unless otherwise stated. Amounts reported in millions herein are computed based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.

~~Recent Developments~~

On September 12, 2018 the Company announced that Scott Kauffman will step down as the Company’s Chairman and Chief Executive Officer. He will remain in his role as Chairman and CEO until a successor is named. Mr. Kauffman is also expected to continue as a member of the MDC Board of Directors for the remainder of his current term.

Executive Summary

MDC conducts its business through its network of Partner Firms, the “Advertising and Communications Group,” who provide a comprehensive array of marketing and communications services for clients both domestically and globally. The Company’s objective is to create shareholder value by building, growing and acquiring market-leading Partner Firms that deliver innovative, value-added marketing, activation, communications and strategic consulting to their clients. Management believes that shareholder value is maximized with an operating philosophy of “Perpetual Partnership” with proven committed industry leaders in marketing communications.

MDC manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenues, operating expenses and capital expenditures. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth by client industry vertical, (iii) growth from existing clients and the addition of new clients, (iv) growth by primary discipline (v) growth from currency changes, and (vi) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our Partner Firms. These indicators may include a Partner Firm’s recent new client win/loss record; the depth and scope of a pipeline of potential new client account activity; the overall quality of the services provided to clients; and the relative strength of the Partner Firm’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.

As discussed in Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for the Company aggregates operating segments that meet the aggregation criteria detailed in ASC 280 into one of the four reportable segments and combines and discloses those operating segments that do not meet the aggregation criteria in the All Other category. Due to changes in the composition of certain business and the Company’s internal management and reporting structure during ~~2018,~~2019, reportable segment results for the ~~2017~~2018 periods presented have been recast to reflect the reclassification of certain businesses between segments. ~~Prior period segment information included herein has been adjusted to reflect this change.~~ See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a description of each of our reportable segments and All Other category and further information regarding the reclassification of certain businesses between segments.

The Company recognized an impairment of goodwill and other assets of $21.0 million in the three months ended and $23.3 million for the nine months ended September 30, 2018. The impairment primarily consists of the write-down of goodwill equal to the excess carrying value above the fair value of a reporting unit within the Global Integrated Agencies reportable segment and the full write-down of a trademark for a reporting unit also within the Global Integrated Agencies reportable segment. The trademark is no longer in active use given its merger with another reporting unit in the third quarter of 2018. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the merger.

During the third quarter of 2018, the Company performed an interim goodwill impairment test resulting in, along with the impairment mentioned above, the fair value of a reporting unit, with goodwill of approximately $130.0 million, exceeding its

carrying value by a minimal percentage. A reduction in the projected long-term operating performance of this reporting unit, market declines, changes in discount rates or other conditions could result in an impairment in the future. In connection with the interim impairment test, the Company used a combination of the income approach, which incorporates the use of a discounted cash flow method, and the market approach, which incorporates the use of earnings and revenue multiples based on market data. The Company applied an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.

In addition, MDC reports its corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate. Corporate provides client and business development support to the Partner Firms as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions. Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the appropriate reportable segment and the All Other category.

Certain Factors Affecting Our Business

See the Executive Summary section of Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 for information regarding certain factors affecting our business.

Results of Operations:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue:													(Dollars in Thousands)
Global Integrated Agencies	$	177.4		$	197.0		$	510.4		$	585.3		$	154,368		$	158,163		$	284,087		$	287,686
Domestic Creative Agencies	24.8			28.1			75.5			77.3			65,193			72,971			132,201			139,625
Specialist Communications	42.6			40.7			129.7			125.5
Specialist Communication													47,170			40,304			86,123			79,128
Media Services	35.0			38.3			104.5			122.2			21,331			21,398			41,510			46,082
All Other	96.0			71.7			262.5			200.7			74,068			86,907			147,000			154,190
Total	$	375.8		$	375.8		$	1,082.5		$	1,111.0		$	362,130		$	379,743		$	690,921		$	706,711

Operating profit (loss):
Global Integrated Agencies*	$	2.6		$	20.1		$	6.1		$	33.2
Segment operating income (loss):
Global Integrated Agencies													$	20,720		$	18,352		$	24,491		$	4,760
Domestic Creative Agencies	5.5			6.6			14.5			15.4			8,730			5,077			14,207			7,955
Specialist Communications	4.7			4.8			14.5			13.4
Specialist Communication													6,683			6,216			13,760			9,944
Media Services	1.4			2.6			0.4			9.2			991			(1,719		)	(843		)	(1,738		)
All Other	6.4			13.9			28.6			29.7			2,949			15,986			8,962			22,430
Corporate	(18.0		)	(10.7		)	(45.2		)	(29.0		)	(16,631		)	(13,140		)	(21,454		)	(27,212		)
Total	$	2.6		$	37.2		$	18.8		$	72.0		$	23,442		$	30,772		$	39,123		$	16,139

Other income (expense):
Other Income (Expenses):
Interest expense and finance charges, net	(17.1		)	(16.3		)	(50.0		)	(48.3		)	$	(16,413	)	$	(16,859	)	$	(33,174	)	$	(32,942	)
Foreign exchange transaction gain (loss)	3.3			9.9			(9.9		)	18.8
Foreign exchange gain (loss)													2,932			(6,549		)	8,374			(13,209		)
Other, net	0.2			(1.3		)	1.2			(1.0		)	(746		)	592			(4,128		)	1,033
Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates	(11.0		)	29.6			(40.0		)	41.5
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates													9,215			7,956			10,195			(28,979		)
Income tax expense (benefit)	3.0			9.0			(3.4		)	17.7			2,088			1,977			2,835			(6,353		)
Income (loss) before equity in earnings (losses) of non-consolidated affiliates	(14.0		)	20.6			(36.6		)	23.8
Equity in earnings of non-consolidated affiliates	0.3			1.4			0.4			1.9
Income (loss) before equity in earnings of non-consolidated affiliates													7,127			5,979			7,360			(22,626		)
Equity in earnings (losses) of non-consolidated affiliates													206			(28		)	289			58
Net income (loss)	(13.7		)	22.0			(36.2		)	25.8			7,333			5,951			7,649			(22,568		)
Net income attributable to the noncontrolling interest	(2.5		)	(3.5		)	(5.9		)	(6.6		)	(3,043		)	(2,545		)	(3,472		)	(3,442		)
Net income (loss) attributable to MDC Partners Inc.	$	(16.1	)	18.5			(42.1		)	19.2			$	4,290		$	3,406		$	4,177		$	(26,010	)

* A goodwill and other asset impairment charge of $21.0 million was recognized within the Global Integrated Agencies reportable segment in the three and nine months ended of 2018. See Note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the impairment.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017		2018		2017		2019			2018		2019			2018
Depreciation and amortization:									(Dollars in Thousands)
Global Integrated Agencies	$	5.2	$	6.4	$	18.5	$	17.9	$	4,437		$	4,743	$	8,502		$	12,152
Domestic Creative Agencies	0.4		0.4		1.2		1.2		1,547			1,281		2,786			2,574
Specialist Communications	1.1		1.2		3.2		3.7
Specialist Communication									698			992		1,265			1,959
Media Services	0.8		1.0		2.3		3.2		794			635		1,485			1,273
All Other	3.5		2.0		9.5		6.1		2,966			3,892		5,025			5,736
Corporate	0.2		0.3		0.6		0.9		221			160		438			384
Total	$	11.1	$	11.3	$	35.2	$	32.9	$	10,663		$	11,703	$	19,501		$	24,078



Stock-based compensation:
Global Integrated Agencies	$	3.4	$	3.8	$	8.5	$	9.9	$	1,232		$	2,475	$	4,999		$	4,935
Domestic Creative Agencies	0.2		0.2		0.9		0.5		522			1,097		986			1,507
Specialist Communications	—		0.7		0.5		2.3
Specialist Communication									52			52		78			239
Media Services	0.1		0.2		0.3		0.5		(16		)	74		(16		)	149
All Other	0.9		1.1		2.5		2.1		652			684		940			1,341
Corporate	1.6		0.5		4.1		1.6		1,192			1,221		(381		)	2,469
Total	$	6.2	$	6.4	$	16.9	$	16.9	$	3,634		$	5,603	$	6,606		$	10,640

Capital expenditures:
Global Integrated Agencies	$	2.4	$	2.0	$	7.9	$	17.6	$	1,816		$	2,411	$	3,234		$	4,654
Domestic Creative Agencies	0.4		0.4		0.9		1.0		369			569		1,063			1,473
Specialist Communications	0.7		0.2		3.2		0.7
Specialist Communication									231			2,208		482			2,443
Media Services	0.4		2.3		0.8		4.1		126			131		167			315
All Other	1.6		2.3		2.4		4.9		1,757			547		2,958			772
Corporate	—		—		0.1		—		18			24		19			32
Total	$	5.5	$	7.1	$	15.2	$	28.3	$	4,317		$	5,890	$	7,923		$	9,689

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2019 COMPARED TO THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018

Consolidated Results of Operations

Revenues

Revenue was $362.1 million for the three months ended ~~September~~June 30, ~~2018, and September~~2019 compared to revenue of $379.7 million for the three months ended June 30, ~~2017 remained flat at $375.8 million.~~2018. See the Advertising and Communications Group section below for a discussion regarding consolidated revenues for the three months ended ~~September~~June 30, ~~2018~~2019 compared to the three months ended ~~September~~June 30, ~~2017.~~2018.

Operating ~~Profit~~Income

Operating ~~profit~~income for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$2.6~~$23.4 million, compared to ~~$37.2~~$30.8 million for the three months ended ~~September~~June 30, ~~2017,~~2018, representing a decrease of ~~$34.6~~$7.4 million. The ~~change~~decrease was primarily driven by a decline in operating ~~profit~~income in the Advertising and Communications Group of ~~$27.3 million, inclusive of a $21.0 million impairment pertaining to goodwill and a trademark within the Global Integrated Agencies reportable segment.~~$3.8 million. Additionally, Corporate operating expenses ~~increased~~were higher by ~~$7.3~~$3.5 million, ~~primarily related to~~driven by severance expense ~~and other restructuring costs. The impact~~in the second quarter of the adoption of ASC 606 increased operating profit by $5.9 million. Adjusted to exclude the impact of the adoption of ASC 606, operating loss would have been $3.3 million, representing a decrease of $40.6 million compared to 2017.2019.

Other, Net

Other, net, for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~income~~loss of ~~$0.2~~$0.7 million compared to ~~expense~~income of ~~$1.3~~$0.6 million for the three months ended ~~September~~June 30, ~~2017, representing a change of 1.5 million.~~2018.

Foreign Exchange ~~Transaction~~ Gain (Loss)

Foreign exchange gain for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$3.3~~$2.9 million compared to ~~$9.9~~loss of $6.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~decline~~improvement in the foreign exchange ~~gain~~impact is primarily ~~due~~attributable to the strengthening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.

Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$17.1~~$16.4 million compared to ~~$16.3~~$16.9 million for the three months ended ~~September~~June 30, ~~2017,~~2018, representing ~~an increase~~a decrease of ~~$0.8~~$0.5 million.

Income Tax Expense (Benefit)

Income tax expense for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$3.0~~$2.1 million (on ~~a loss~~income of ~~$11.0~~$9.2 million resulting in an effective tax rate of ~~27.1%~~22.7%) compared to ~~$9.0~~an expense of $2.0 million (on income of ~~$29.6~~$8.0 million resulting in an effective tax rate of ~~30.6%~~24.8%) for the three months ended ~~September~~June 30, ~~2017, representing a decrease of $6.1 million.~~2018. The ~~variance~~change in the effective tax ~~expense year over year~~rate was primarily driven by ~~impairments and non-deductible stock compensation in~~ the ~~current period for which tax benefit was not recognized as well as the impact~~jurisdictional mix of ~~a valuation allowance in the U.S. in the prior period.~~earnings.

Equity in Earnings of Non-Consolidated Affiliates

Equity in earnings of non-consolidated affiliates represents the income or losses attributable to ~~equity-accounted affiliate operations. The Company~~equity method investments. Income recorded ~~income~~for the three months ended June 30, 2019 was $0.2 million compared to the loss of ~~$0.3~~$0.03 million for the three months ended ~~September~~June 30, ~~2018 compared to income of $1.4 million for the three months ended September 30, 2017.~~2018.

Noncontrolling Interests

The effect of noncontrolling interests for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$2.5~~$3.0 million compared to ~~$3.5~~$2.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018.

Net Income ~~(Loss)~~ Attributable to MDC Partners Inc. Common Shareholders

As a result of the foregoing and the impact of accretion on and net ~~loss~~income allocated to convertible preference shares, net income attributable to MDC Partners Inc. common shareholders for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$18.2~~$0.8 million, or ~~$0.32~~$0.01 diluted income per ~~diluted~~ share, compared to net income attributable to MDC Partners Inc. common shareholders of ~~$14.1~~$1.1 million, or ~~$0.24~~$0.02 diluted income per ~~diluted~~ share, for the three months ended ~~September~~June 30, ~~2017.~~2018.

Advertising and Communications Group

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

~~Revenue~~The components of the fluctuations in ~~the Advertising and Communications Group~~revenues for the three months ended ~~September~~June 30, ~~2018~~2019 compared to the three months ended ~~September~~June 30, ~~2017 remained flat at $375.8~~2018 are as follows:



	Total					United States					Canada					Other
	$			%		$			%		$			%		$			%
	(Dollars in Thousands)
June 30, 2018	$	379,743				$	295,268				$	33,086				$	51,389
Components of revenue change:
Foreign exchange impact	(4,176		)	(1.1	)%	—			—	%	(1,122		)	(3.4	)%	(3,054		)	(5.9	)%
Non-GAAP acquisitions (dispositions), net	(4,218		)	(1.1	)%	496			0.2	%	(5,545		)	(16.8	)%	831			1.6	%
Organic revenue growth (decline)	(9,219		)	(2.4	)%	(11,105		)	(3.8	)%	(1,855		)	(5.6	)%	3,741			7.3	%
Total Change	$	(17,613	)	(4.6	)%	$	(10,609	)	(3.6	)%	$	(8,522	)	(25.8	)%	$	1,518		3.0	%
June 30, 2019	$	362,130				$	284,659				$	24,564				$	52,907

Revenue was $362.1 million for the three months ended June 30, 2019 compared to revenue of $379.7 million for the three months ended June 30, 2018, representing a decline of $17.6 million.

The impact of the adoption of ASC 606 reduced revenue by $8.2 million, or 2.2%, primarily due to the shift in treatment of third party costs from principal to agent for various client arrangements of certain Partner Firms and timing of revenue recognition. The other components of the change in revenue included a negative foreign exchange impact of $4.2 million, or 1.1%, and an adverse impact from dispositions of $3.8 million, or 1.0%, offset by revenue from an acquired Partner Firm of $12.7 million, or 3.4%, and an increase in revenue from existing Partner Firms of $4.6 million, or 1.2%. Excluding the impact of the adoption of ASC 606, the growth in revenue was attributable to contribution from new client wins that was partially offset by client losses and reduction in spending by some clients. Additionally, the change in revenue was driven by growth in categories including communications, transportation and lodging, and financials, offset by declines in automotive, and retail.

Revenue growth was mixed through the geographic regions with growth in the United States of 2.4%, and Canada of 2.3%, offset by a decline of 13.8% in the other regions outside of North America partially attributableattributed to the ~~strengthening~~fluctuation of the U.S. ~~Dollar. The impact of~~dollar against the ~~adoption of ASC 606 decreased revenue in other regions outside of North America by 11%, with a minimal impact to the United States~~Canadian dollar, Swedish Króna, Euro and ~~Canada.~~British Pound.

The Company also utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above. For the three months ended ~~September~~June 30, ~~2018,~~2019, organic revenue ~~increased~~decreased by ~~$5.5~~$9.2 million, or ~~1.5%~~2.4%, of which ~~$4.6~~$9.7 million, or ~~1.2%~~2.5% pertained to Partner Firms the Company has owned throughout each of the comparable periods presented. The remaining revenue growth of ~~$0.9~~$0.4 million, or ~~0.3%~~0.1%, was generated from an acquired Partner ~~Firm.~~Firms. The ~~other components of non-GAAP activity include a positive non-GAAP acquisition (disposition), net adjustment of $6.8 million, or 1.8%,~~decline in revenue from existing Partner Firms was attributable to client losses and a ~~negative foreign exchange impact of $4.2 million, or 1.1%.~~

~~The components of~~reduction in spending by certain clients, partially offset by new client wins. Additionally, the ~~fluctuations~~change in ~~revenues for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 are as follows:~~

Total United States Canada Other
$ % $ % $ % $ %
(Dollars in Millions)
September 30, 2017 $ 375.8
$ 289.7
$ 31.4
$ 54.7

Components of revenue change:
Foreign exchange impact (4.2 ) (1.1 )% —
— % (1.3 ) (4.3 )% (2.8 ) (5.2 )%
Non-GAAP acquisitions (dispositions), net 6.8
1.8 % $ 6.6
2.3 % —
— % 0.2
0.3 %
Impact of adoption of ASC 606 (8.2 ) (2.2 )% (1.9 ) (0.7 )% (0.3 ) (0.9 )% (6.0 ) (11.0 )%
Organic revenue growth (decline) 5.5
1.5 % 2.1
0.7 % 2.3
7.5 % 1.1
2.0 %
Total Change $ —
— % $ 6.8
2.4 % $ 0.7
2.3 % $ (7.5 ) (13.8 )%
September 30, 2018 $ 375.8
$ 296.5
$ 32.1
$ 47.2

revenue was driven by a decline in categories including health care, food and beverage and automotive, partially offset by growth in transportation and technology.

The table below provides a reconciliation between the revenue in the Advertising and Communications Group from ~~acquired~~acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the three months ended ~~September~~June 30, ~~2018:~~2019:


	Specialist Communications			Media Services				All Other				Total			Specialist Communications				All Other				Total
	(Dollars in Millions)														(Dollars in Thousands)
GAAP revenue from 2018 acquisitions	$	0.2		$	—			$	12.5			$	12.7
Impact of adoption of ASC 606 from 2018 acquisitions	—			—				(1.1		)		(1.1		)
GAAP revenue from 2018 and 2019 acquisitions															$	1,519			$	698			$	2,217
Contribution to non-GAAP organic revenue (growth) decline	—		—	—			—	(0.9		)	—	(0.9		)	(440		)	—	—			—	(440		)
Prior year revenue from dispositions	—			(3.4		)		(0.4		)		(3.8		)	—				(5,995		)		(5,995		)
Non-GAAP acquisitions (dispositions), net	$	0.2		$	(3.4	)		$	10.0			$	6.8		$	1,079			$	(5,297	)		$	(4,218	)

The geographic mix in revenues for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:


	2018		2017		2019		2018
United States	79.0	%	77.0	%	78.6	%	77.8	%
Canada	8.5	%	8.4	%	6.8	%	8.7	%
Other	12.5	%	14.6	%	14.6	%	13.5	%

~~Organic revenue performance~~Revenue growth was ~~attributable to~~mixed through the geographic regions with a ~~contribution from new client wins that was~~decline in the United States of 3.6%, a decline in Canada of 25.8%, partially offset by ~~client losses and reduction~~growth of 3.0% in ~~spending by some clients.~~ the other regions outside of North America partially attributable to the strengthening of the U.S. dollar.

The United States and Canada had organic revenue ~~growth~~decline of ~~0.7%~~3.8% and ~~7.5%~~5.6%, respectively. Organic revenue growth outside of North America was ~~2.0%~~7.3%.

~~The negative foreign exchange impact of $4.2 million, or 1.1%,~~ Organic revenue performance in the United States and Canada was ~~attributed~~attributable to ~~the strengthening of the U.S. Dollar against the Canadian dollar~~client losses and ~~Swedish Króna.~~a reduction in spending by some clients, partially offset by a contribution from new client wins.

The change in expenses and operating profit as a percentage of revenue in the Advertising and Communications Group for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:


	2018				2017				Change					2019				2018				Change
Advertising and Communications Group	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Millions)													(Dollars in Thousands)
Revenue	$	375.8			$	375.8			$	—		—	%
Revenue:														$	362,130			$	379,743			$	(17,613	)	(4.6	)%
Operating expenses
Cost of services sold	238.7		63.5	%	249.4		66.4	%	(10.7		)	(4.3	)%	240,482		66.4	%	253,390		66.7	%	(12,908		)	(5.1	)%
Office and general expenses	84.6		22.5	%	67.4		17.9	%	17.1			25.4	%	71,132		19.6	%	70,898		18.7	%	234			0.3	%
Depreciation and amortization	10.9		2.9	%	11.0		2.9	%	(0.1		)	(0.6	)%	10,442		2.9	%	11,543		3.0	%	(1,101		)	(9.5	)%
Goodwill and intangible impairment	21.0		5.6	%	—		—	%	21.0			NA
	$	355.2	94.5	%	$	327.9	87.2	%	$	27.3		8.3	%	$	322,056	88.9	%	$	335,831	88.4	%	$	(13,775	)	(4.1	)%
Operating profit	$	20.6	5.5	%	$	47.9	12.8	%	$	(27.3	)	(56.9	)%
Operating profit (loss)														$	40,074	11.1	%	$	43,912	11.6	%	$	(3,838	)	(8.7	)%

The ~~decrease~~change in operating profit was primarily attributable to ~~a goodwill and intangible impairment pertaining to an integrated advertising reporting unit and increased~~the decline in revenue, partially offset by lower operating expenses, as outlined below. The impact of the adoption of ASC 606 increased operating profit by $5.9 million. Excluding the impact of the adoption of ASC 606, operating profit would have been $14.7 million, representing a decrease of $33.3 million as compared to 2017. Operating margin declined by 900 basis points from 12.8% in 2017 to 3.8% in 2018 on an adjusted basis.

The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:


	2018				2017					Change					2019				2018					Change
Advertising and Communications Group	$		% of Revenue		$			% of Revenue		$			%		$		% of Revenue		$			% of Revenue		$			%
	(Dollars in Millions)														(Dollars in Thousands)
Direct costs ⁽¹⁾	$	51.8	13.8	%	$	62.9		16.7	%	$	(11.1	)	(17.7	)%	$	60,040	16.6	%	$	52,590		13.8	%	$	7,450		14.2	%
Staff costs ⁽²⁾	209.4		55.7	%	204.2			54.3	%	5.2			2.5	%	204,442		56.5	%	224,582			59.1	%	(20,140		)	(9.0	)%
Administrative	46.4		12.4	%	46.3			12.3	%	0.1			0.2	%	42,617		11.8	%	47,801			12.6	%	(5,184		)	(10.8	)%
Deferred acquisition consideration	11.0		2.9	%	(2.5		)	(0.7	)%	13.5			(546.9	)%	2,073		0.6	%	(5,067		)	(1.3	)%	7,140			NM
Stock-based compensation	4.6		1.2	%	5.9			1.6	%	(1.3		)	(21.7	)%	2,442		0.7	%	4,382			1.2	%	(1,940		)	(44.3	)%
Depreciation and amortization	10.9		2.9	%	11.0			2.9	%	(0.1		)	(0.6	)%	10,442		2.9	%	11,543			3.0	%	(1,101		)	(9.5	)%
Goodwill and intangible impairment	21.0		5.6	%	—			—	%	21.0			—	%
Total operating expenses	$	355.2	94.5	%	$	327.9		87.2	%	$	27.3		8.3	%	$	322,056	88.9	%	$	335,831		88.4	%	$	(13,775	)	(4.1	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

Direct costs increased primarily attributed to higher billable costs for client arrangements accounted for as principal.

The decrease in staff costs was primarily attributed to staffing reductions at Partner Firms and lower costs to support the operations of Partner Firms.

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

Global Integrated Agencies

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



	2019				2018				Change
Global Integrated Agencies	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue:	$	154,368			$	158,163			$	(3,795	)	(2.4	)%
Operating expenses
Cost of services sold	97,230		63.0	%	104,959		66.4	%	(7,729		)	(7.4	)%
Office and general expenses	31,981		20.7	%	30,109		19.0	%	1,872			6.2	%
Depreciation and amortization	4,437		2.9	%	4,743		3.0	%	(306		)	(6.4	)%
	$	133,648	86.6	%	$	139,811	88.4	%	$	(6,163	)	(4.4	)%
Operating profit	$	20,720	13.4	%	$	18,352	11.6	%	$	2,368		12.9	%

The decline in revenue is primarily due to a negative impact from foreign exchange of $2.9 million, or 1.8%.

The change in operating profit was primarily attributed to a decline in revenue, more than offset by lower operating expenses, as outlined below.

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



	2019				2018					Change
Global Integrated Agencies	$		% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	15,785	10.2	%	$	11,237		7.1	%	$	4,548		40.5	%
Staff costs ⁽²⁾	91,357		59.2	%	102,066			64.5	%	(10,709		)	(10.5	)%
Administrative	19,026		12.3	%	21,899			13.8	%	(2,873		)	(13.1	)%
Deferred acquisition consideration	1,811		1.2	%	(2,609		)	(1.6	)%	4,420			NM
Stock-based compensation	1,232		0.8	%	2,475			1.6	%	(1,243		)	(50.2	)%
Depreciation and amortization	4,437		2.9	%	4,743			3.0	%	(306		)	(6.4	)%
Total operating expenses	$	133,648	86.6	%	$	139,811		88.4	%	$	(6,163	)	(4.4	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

Direct costs increased primarily attributed to higher billable costs for client arrangements accounted for as principal.

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

Domestic Creative Agencies

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



	2019				2018				Change
Domestic Creative Agencies	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	65,193			$	72,971			$	(7,778	)	(10.7	)%
Operating expenses
Cost of services sold	41,782		64.1	%	49,830		68.3	%	(8,048		)	(16.2	)%
Office and general expenses	13,134		20.1	%	16,783		23.0	%	(3,649		)	(21.7	)%
Depreciation and amortization	1,547		2.4	%	1,281		1.8	%	266			20.8	%
	$	56,463	86.6	%	$	67,894	93.0	%	$	(11,431	)	(16.8	)%
Operating profit	$	8,730	13.4	%	$	5,077	7.0	%	$	3,653		72.0	%

The decline in revenue from existing Partner Firms was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins.

The change in operating profit was attributed to the decline in revenue, more than offset by lower operating expenses, as outlined below.

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



	2019					2018				Change
Domestic Creative Agencies	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	9,863		15.1	%	$	12,267	16.8	%	$	(2,404	)	(19.6	)%
Staff costs ⁽²⁾	37,009			56.8	%	42,809		58.7	%	(5,800		)	(13.5	)%
Administrative	7,688			11.8	%	9,207		12.6	%	(1,519		)	(16.5	)%
Deferred acquisition consideration	(166		)	(0.3	)%	1,233		1.7	%	(1,399		)	NM
Stock-based compensation	522			0.8	%	1,097		1.5	%	(575		)	(52.4	)%
Depreciation and amortization	1,547			2.4	%	1,281		1.8	%	266			20.8	%
Total operating expenses	$	56,463		86.6	%	$	67,894	93.0	%	$	(11,431	)	(16.8	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

The ~~decrease~~decline in direct costs ~~was primarily attributed~~are attributable to the adoption of ASC 606 in which various client arrangements of certain Partner Firms previously accounted for as principal are accounted for as agent under ASC 606. The change resulted in a decrease in third party costs included in revenue of $14.1 million.

The increase in staff costs was primarily attributed to contributions from an acquired Partner Firm, and higher costs to support the growth of certain Partner Firms, partially offset by staffing reductions at other Partner Firms.

Deferred acquisition consideration change for the three months ended September 30, 2018 was primarily attributed to the aggregate performance of certain Partner Firms in 2018 relative to the previously projected expectations.

~~Global Integrated Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Global Integrated Agencies reportable segment for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Global Integrated Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 177.4
$ 197.0
$ (19.6 ) (9.9 )%
Operating expenses
Cost of services sold 107.2
60.4 % 131.2
66.6 % (24.0 ) (18.3 )%
Office and general expenses 41.4
23.4 % 39.4
20.0 % 2.1
5.2 %
Depreciation and amortization 5.2
2.9 % 6.4
3.2 % (1.2 ) (19.0 )%
Goodwill and intangible impairment

21.0
11.8 % —
— % 21.0
NA
$ 174.8
98.5 % $ 176.9
89.8 % $ (2.1 ) (1.2 )%
Operating profit $ 2.6
1.5 % $ 20.1
10.2 % $ (17.4 ) (86.9 )%

~~The impact of the adoption of ASC 606 reduced the Global Integrated Agencies reportable segment revenue by $8.6 million, or 4.4%. The other components of change included a~~ decline in revenue from existing Partner Firms of $8.0 million, or 4.0%, due to cutbacks and spending delays from several existing clients and a slower pace of conversion of new business, partially offset by client wins, and a negative impact from foreign exchange of $3.0 million, or 1.5%.

The decrease in operating profit was primarily attributed to a decline in revenue and a goodwill impairment, partially offset by a decrease in operating expenses, as outlined below. The impact of the adoption of ASC 606 increased operating profit by $5.5 million. Excluding the impact of the adoption of ASC 606, operating loss would have been $2.9 million, representing a decrease of $22.9 million compared to 2017.

~~The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies reportable segment for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Global Integrated Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 8.5
4.8 % $ 25.6
13.0 % $ (17.0 ) (66.6 )%
Staff costs ⁽²⁾
107.4
60.6 % 112.8
57.2 % (5.3 ) (4.7 )%
Administrative 25.3
14.3 % 26.5
13.4 % (1.1 ) (4.2 )%
Deferred acquisition consideration 4.0
2.2 % 1.9
1.0 % 2.1
108.1 %
Stock-based compensation 3.4
1.9 % 3.8
2.0 % (0.5 ) (12.6 )%
Depreciation and amortization 5.2
2.9 % 6.4
3.2 % (1.2 ) (19.0 )%
Goodwill and intangible impairment

21.0
11.8 % —
— % 21.0
NA
Total operating expenses $ 174.8
98.5 % $ 176.9
89.8 % $ (2.1 ) (1.2 )%


~~(1)~~	~~Excludes staff costs.~~


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

The decrease in direct costs was primarily attributed to the adoption of ASC 606 in which various client arrangements of certain Partner Firms previously accounted for as principal are accounted for as agent under ASC 606. The change resulted in a decrease in third party costs included in revenue of $14.1 million.revenues.

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

Deferred acquisition consideration change for the three months ended ~~September~~June 30, ~~2018~~2019 was primarily attributed to the aggregate performance of certain Partner Firms in ~~2018~~2019 relative to the previously projected expectations.

~~Domestic Creative Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Domestic Creative Agencies reportable segment for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 24.8
$ 28.1
$ (3.3 ) (11.7 )%
Operating expenses
Cost of services sold 13.9
56.2 % 15.8
56.2 % (1.9 ) (11.7 )%
Office and general expenses 4.9
19.9 % 5.3
18.9 % (0.4 ) (7.0 )%
Depreciation and amortization 0.4
1.6 % 0.4
1.3 % —
5.6 %
$ 19.3
77.7 % $ 21.5
76.4 % $ (2.2 ) (10.3 )%
Operating profit $ 5.5
22.3 % $ 6.6
23.6 % $ (1.1 ) (16.5 )%

The change in revenue in the Domestic Creative Agencies reportable segment included a decline in revenue from existing Partner Firms of $3.2 million, or 11.5%, partially offset by a positive foreign exchange impact of $0.1 million, or 0.3%.

~~The adoption of ASC 606 did not have a significant impact on operating profit.~~

~~The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies reportable segment for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 0.5
1.9 % $ 1.3
4.5 % $ (0.8 ) (62.8 )%
Staff costs ⁽²⁾
15.7
63.3 % 16.6
59.0 % (0.9 ) (5.3 )%
Administrative 2.5
10.2 % 3.1
10.9 % (0.5 ) (17.4 )%
Stock-based compensation 0.2
0.7 % 0.2
0.7 % —
(5.9 )%
Depreciation and amortization 0.4
1.6 % 0.4
1.3 % —
5.6 %
Total operating expenses $ 19.3
77.7 % $ 21.5
76.4 % $ (2.2 ) (10.3 )%


~~(1)~~	~~Excludes staff costs.~~


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

Specialist Communications

The change in expenses and operating profit as a percentage of revenue in the Specialist Communications reportable segment for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:


	2018				2017				Change					2019				2018				Change
Specialist Communications	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Millions)													(Dollars in Thousands)
Revenue	$	42.6			$	40.7			$	2.0		4.8	%	$	47,170			$	40,304			$	6,866		17.0	%
Operating expenses
Cost of services sold	28.4		66.7	%	26.6		65.4	%	1.8			6.9	%	32,112		68.1	%	25,613		63.5	%	6,499			25.4	%
Office and general expenses	8.4		19.7	%	8.1		19.9	%	0.3			3.8	%	7,677		16.3	%	7,483		18.6	%	194			2.6	%
Depreciation and amortization	1.1		2.7	%	1.2		3.0	%	(0.1		)	(7.1	)%	698		1.5	%	992		2.5	%	(294		)	(29.6	)%
	$	38.0	89.0	%	$	35.9	88.3	%	$	2.1		5.7	%	$	40,487	85.8	%	$	34,088	84.6	%	$	6,399		18.8	%
Operating profit	$	4.7	11.0	%	$	4.8	11.7	%	$	(0.1	)	(2.0	)%	$	6,683	14.2	%	$	6,216	15.4	%	$	467		7.5	%

The ~~impact of the adoption of ASC 606 increased revenue in the Specialist Communications reportable segment by $0.5 million, or 1.3%. The other components of the change included a growth~~increase in revenue ~~from~~is primarily due to client wins at certain Partner ~~Firms~~firms as well as a contribution of $1.5 million ~~or 3.6%,~~from an acquired Partner Firm.

The change in operating profit was attributed to the increase in revenue, partially offset by ~~a negative foreign exchange impact of $0.2 million, or 0.6%.~~

~~The adoption of ASC 606 did not have a significant impact on~~higher operating ~~profit.~~

expenses, as outlined below.

The change in the categories of expenses as a percentage of revenue in the Specialist Communications reportable segment for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:

2018 2017 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 9.8
23.1 % $ 8.9
21.9 % $ 0.9
10.3 %
Staff costs ⁽²⁾
20.9
48.9 % 19.7
48.3 % 1.2
6.1 %
Administrative 5.5
13.0 % 5.3
13.0 % 0.2
4.7 %
Deferred acquisition consideration 0.5
1.2 % 0.1
0.3 % 0.4
289.0 %
Stock-based compensation —
0.1 % 0.7
1.6 % (0.6 ) (93.5 )%
Depreciation and amortization 1.1
2.7 % 1.2
3.0 % (0.1 ) (7.1 )%
Total operating expenses $ 38.0
89.0 % $ 35.9
88.3 % $ 2.1
5.7 %


~~(1)~~	~~Excludes staff costs.~~


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

~~Media Services~~



	2019				2018				Change
Specialist Communications	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	13,017	27.6	%	$	8,970	22.3	%	$	4,047		45.1	%
Staff costs ⁽²⁾	20,977		44.5	%	18,769		46.6	%	2,208			11.8	%
Administrative	4,998		10.6	%	5,048		12.5	%	(50		)	(1.0	)%
Deferred acquisition consideration	745		1.6	%	257		0.6	%	488			NM
Stock-based compensation	52		0.1	%	52		0.1	%	—			—
Depreciation and amortization	698		1.5	%	992		2.5	%	(294		)	(29.6	)%
Total operating expenses	$	40,487	85.8	%	$	34,088	84.6	%	$	6,399		18.8	%

~~The change in expenses and operating profit as a percentage of revenue in the Media Services reportable segment for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 35.0
$ 38.3
$ (3.3 ) (8.6 )%
Operating expenses
Cost of services sold 24.2
69.2 % 25.8
67.3 % (1.6 ) (6.1 )%
Office and general expenses 8.6
24.7 % 9.0
23.4 % (0.3 ) (3.5 )%
Depreciation and amortization 0.8
2.2 % 1.0
2.6 % (0.2 ) (22.7 )%
$ 33.6
96.0 % $ 35.8
93.3 % $ (2.1 ) (5.9 )%
Operating (loss) profit $ 1.4
4.0 % $ 2.6
6.7 % $ (1.2 ) (45.7 )%

The change in revenue in the Media Services reportable segment included a negative impact from the LocalBizNow business disposition in the third quarter of 2017 of $3.4 million, or 8.9%, partially offset by an increase of $0.3 million, or 0.7% pertaining to the adoption of ASC 606.

The decrease in operating profit and margin was primarily attributable to the decline in revenue, partially offset by a decline in direct costs pertaining to the disposition. The adoption of ASC 606 did not have a significant impact on operating profit.

~~The change in the categories of expenses as a percentage of revenue in the Media Services reportable segment for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 9.3
26.6 % $ 9.8
25.5 % $ (0.4 ) (4.5 )%
Staff costs ⁽²⁾
18.4
52.4 % 19.8
51.6 % (1.4 ) (7.1 )%
Administrative 5.1
14.5 % 5.0
12.9 % 0.1
2.8 %
Deferred acquisition consideration —
(0.1 )% 0.1
0.3 % (0.1 ) (123.5 )%
Stock-based compensation 0.1
0.3 % 0.2
0.4 % —
(29.8 )%
Depreciation and amortization 0.8
2.2 % 1.0
2.6 % (0.2 ) (22.7 )%
Total operating expenses $ 33.6
96.0 % $ 35.8
93.3 % $ (2.1 ) (5.9 )%


~~(1)~~	~~Excludes staff costs.~~


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

~~All Other~~

~~The change in expenses and operating profit as a percentage of revenue in the All Other category for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 96.0
$ 71.7
$ 24.2
33.8 %
Operating expenses
Cost of services sold 64.9
67.7 % 50.1
69.8 % 14.9
29.7 %
Office and general expenses 21.2
22.0 % 5.7
8.0 % 15.4
270.1 %
Depreciation and amortization 3.5
3.6 % 2.0
2.8 % 1.4
71.2 %
$ 89.6
93.3 % $ 57.8
80.6 % $ 31.7
54.9 %
Operating profit $ 6.4
6.7 % $ 13.9
19.4 % $ (7.5 ) (53.9 )%

The impact of the adoption of ASC 606 decreased revenue in the All Other category by $0.4 million, or 0.5%. The other components of the change included revenue growth from existing Partner Firms of $14.3 million, or 20.0%, primarily in experiential and healthcare, revenue contributions of $12.5 million from an acquired Partner Firm, partially offset by a negative foreign exchange impact of $0.7 million, or 1.0%, and dispositions of $0.4 million, or 0.6%.

The decrease in operating profit was primarily attributed to increased revenue and an adverse change in deferred acquisition consideration, offset by increased direct costs and staff costs, as outlined below. The adoption of ASC 606 did not have a significant impact on operating profit.

~~The change in the categories of expenses as a percentage of revenue in the All Other category for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 23.6
24.6 % $ 17.3
24.2 % $ 6.2
36.0 %
Staff costs ⁽²⁾
47.1
49.0 % 35.4
49.4 % 11.6
32.8 %
Administrative 7.9
8.3 % 6.6
9.2 % 1.4
21.0 %
Deferred acquisition consideration 6.5
6.8 % (4.6 ) (6.4 )% 11.2
(241.9 )%
Stock-based compensation 0.9
1.0 % 1.1
1.5 % (0.1 ) (11.6 )%
Depreciation and amortization 3.5
3.6 % 2.0
2.8 % 1.4
71.2 %
Total operating expenses $ 89.6
93.3 % $ 57.8
80.6 % $ 31.7
54.9 %
NM - Not meaningful


(1)	Excludes staff costs.


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

The increase in direct costs ~~was primarily attributed~~are attributable to higher ~~costs incurred on the client’s behalf from some of our Partner Firms acting as principal and contributions from an acquired Partner Firm.~~revenues.

The increase in staff costs was primarily attributed to contributions from an acquired Partner Firm and ~~increased staffing for certain Partner Firms to support revenue growth.~~

Deferred acquisition consideration increase was primarily attributed to the aggregate performance of certain Partner Firms in 2018 relative to the previously projected expectations and an aggregated under performance in comparison to expectations in the prior period.

~~Corporate~~

~~The change in operating expenses for Corporate for the three months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Variance
Corporate $ $ $ %
(Dollars in Millions)
Staff costs ⁽¹⁾
$ 12.9
$ 5.4
$ 7.5
137.6 %
Administrative 3.3
4.6
(1.3 ) (27.4 )%
Stock-based compensation 1.6
0.5
1.1
239.6 %
Depreciation and amortization 0.2
0.3
(0.1 ) (22.0 )%
Total operating expenses $ 18.0
$ 10.7
$ 7.3
68.0 %


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

The increase in staff costs for Corporate was primarily attributed to severance expense and other restructuring costs related to certain corporate actions taken in 2018 in comparison to the prior year period.

The decrease in administrative costs was primarily related to a decrease in legal fees of $0.7 million and professional fees of $0.5 million, inclusive of fees related to the implementation of new accounting pronouncements.

~~NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2017~~

~~Consolidated Results of Operations~~

~~Revenues~~

Revenue was $1.08 billion for the nine months ended September 30, 2018 compared to revenue of $1.11 billion for the nine months ended September 30, 2017, representing a decrease of $28.5 million, or 2.6%. See the Advertising and Communications Group section below for a discussion regarding consolidated revenues for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.

~~Operating Profit~~

Operating profit for the nine months ended September 30, 2018 was $18.8 million compared to $72.0 million for the nine months ended September 30, 2017, representing a decrease of $53.2 million. The change was primarily driven by a decline in operating profit in the Advertising and Communications Group of $37.0 million, inclusive of a $21.0 million impairment pertaining to goodwill and a trademark within the Global Integrated Agencies reportable segment. Additionally, Corporate operating expenses increased by $16.3 million, primarily related to severance expense and other restructuring costs of $7.3 million, consulting fees of $2.3 million, and an impairment of a long-lived asset of $2.3 million. The impact of the adoption of ASC 606 increased operating profit by $8.9 million. Excluding the impact of the adoption of ASC 606, operating profit would have been $9.9 million, representing a decrease of $62.1 million compared to 2017.

~~Other, Net~~

Other, net, for the nine months ended September 30, 2018 was an income of $1.2 million compared to expense of $1.0 million for the nine months ended September 30, 2017, representing a change of $2.2 million.

~~Foreign Exchange Transaction Gain (Loss)~~

Foreign exchange loss of $9.9 million in the nine months ended September 30, 2018 compared to a foreign exchange gain of $18.8 million in the nine months ended September 30, 2017 is attributed to strengthening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.

~~Interest Expense and Finance Charges, Net~~

Interest expense and finance charges, net, for the nine months ended September 30, 2018 was $50.0 million compared to $48.3 million for the nine months ended September 30, 2017, representing an increase of $1.7 million.

~~Income Tax Expense (Benefit)~~

The Company’s effective tax rate for the nine months ended September 30, 2018 was 8.4% compared to 42.5% for the nine months ended September 30, 2017. Income tax benefit for the nine months ended September 30, 2018 was $3.4 million compared to an expense of $17.7 million for the nine months ended September 30, 2017, representing a decrease of $21.1 million. The variance in the tax expense year over year was primarily driven by jurisdictional mix of earnings, impairments and non-deductible stock compensation in the current period for which tax benefit was not recognized as well as the impact of a valuation allowance in the U.S. in the prior period.

~~Equity in Earnings (Losses) of Non-Consolidated Affiliates~~

Equity in earnings (losses) of non-consolidated affiliates represents the income or losses attributable to equity-accounted affiliate operations. The Company recorded $0.4 million of income for the nine months ended September 30, 2018 compared to income of $1.9 million for the nine months ended September 30, 2017.

~~Noncontrolling Interests~~

~~The effect of noncontrolling interests for the nine months ended September 30, 2018 was $5.9 million compared to $6.6 million for the nine months ended September 30, 2017.~~

~~Net Loss Attributable to MDC Partners Inc. Common Shareholders~~

As a result of the foregoing, net loss attributable to MDC Partners Inc. common shareholders for the nine months ended September 30, 2018 was $48.3 million, or $0.85 diluted loss per share, compared to net income attributable to MDC Partners Inc. common shareholders of $13.0 million, or $0.24 diluted income per share, for the nine months ended September 30, 2017.

~~Advertising and Communications Group~~

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

Revenue for the Advertising and Communications Group was $1.08 billion for the nine months ended September 30, 2018 compared to revenue of $1.11 billion for the nine months ended September 30, 2017, representing a decrease of $28.5 million, or 2.6%. The impact of the adoption of ASC 606 reduced revenue by $39.2 million, or 3.5%, primarily due to the shift in treatment of third party costs from principal to agent for various client arrangements of certain Partner Firms and timing of revenue recognition. The other components of the change in revenue included a negative impact from dispositions of $14.7 million, or 1.3%, and a decline in revenue from existing Partner Firms of $2.2 million, or 0.2%, partially offset by revenue contributions from an acquired Partner Firm of $23.8 million and a positive foreign exchange impact of $4.5 million, or 0.4%. Excluding the impact of the adoption of ASC 606, revenue growth was attributable to new client wins, partially offset by cutbacks and delays from several existing clients. Additionally, the change in revenue was driven by decline in categories including automotive and retail, partially offset by growth in transportation and lodging, financials, and healthcare.

Revenue change was mixed through the geographic regions with declines of 2.4% and 7.2% in the United States and other regions outside of North America, respectively, partially offset by growth in Canada of 3.5%. The adoption of ASC 606 had a mixed impact on all geographic regions. The impact increased revenue in Canada by 2.7%, and decreased revenue in the United States and outside of North America by 1.9% and 16%, respectively.

The Company also utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above. For the nine months ended September 30, 2018, organic revenue increased $2.2 million, or 0.2%, of which $2.2 million, or 0.2% of decline pertained to Partner Firms which the Company has owned throughout each of the comparable periods presented. The remaining organic revenue growth of $4.4 million, or 0.4% was generated from an acquired Partner Firm. The other components of non-GAAP activity included a negative non-GAAP acquisition (disposition), net adjustment of $4.1 million, or 0.4%, and a positive foreign exchange impact of $4.5 million, or 0.4%.

~~The components of the fluctuations in revenues for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 are as follows:~~

Total United States Canada Other
$ % $ % $ % $ %
(Dollars in Millions)
September 30, 2017 $ 1,111.0
$ 868.8
$ 88.5
$ 153.7

Components of revenue change:
Foreign exchange impact 4.5
0.4 % —
— % 1.0
1.2 % 3.4
2.2 %
Non-GAAP acquisitions (dispositions), net 4.1
0.4 % $ 5.8
0.7 % —
— % (1.7 ) (1.1 )%
Impact of adoption of ASC 606 (39.2 ) (3.5 )% (16.9 ) (1.9 )% 2.4
2.7 % (24.6 ) (16.0 )%
Organic revenue growth (decline) 2.2
0.2 % (9.4 ) (1.1 )% (0.3 ) (0.3 )% 11.8
7.7 %
Total Change $ (28.5 ) (2.6 )% $ (20.5 ) (2.4 )% $ 3.1
3.5 % $ (11.1 ) (7.2 )%
September 30, 2018 $ 1,082.5

$ 848.3

$ 91.6

$ 142.6

The table below provides a reconciliation between the revenue in the Advertising and Communications Group from acquired businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the nine months ended September 30, 2018:

Global Integrated Agencies
Specialist Communications
Media Services All Other Total
(Dollars in Millions)
GAAP revenue from 2018 acquisitions $ —
$ 0.2
$ —
$ 23.6
$ 23.8
Impact from adoption of ASC 606 —
—
—
(0.7 ) (0.7 )
Contribution to non-GAAP organic revenue (growth) decline —
—
—
—
—
(4.4 ) —
(4.4 )
Prior year revenue from dispositions (1.9 ) —
(11.6 ) (1.2 ) (14.7 )
Non-GAAP acquisitions (dispositions), net $ (1.9 ) $ 0.2
$ (11.6 ) $ 17.3
$ 4.1

~~The geographic mix in revenues for the nine months ended September 30, 2018 and 2017 is as follows:~~

2018 2017
United States 78.4 % 78.2 %
Canada 8.5 % 8.0 %
Other 13.2 % 13.8 %

Organic revenue performance was attributable to a contribution from new client wins that was partially offset by client losses and reduction in spending by some clients. The United States and Canada had organic revenue decline of 1.1% and 0.3%, respectively. Organic revenue growth outside of North America was 7.7% as we continue to extend capabilities into new markets throughout Europe, South America, Australia, and Asia.

~~The positive foreign exchange impact of $4.5 million, or 0.4%, was attributed to the strengthening of U.S. dollar against the European Euro and the Canadian dollar.~~

~~The change in expenses and operating profit as a percentage of revenue in the Advertising and Communications Group for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 1,082.5
$ 1,111.0
$ (28.5 ) (2.6 )%
Operating expenses
Cost of services sold 735.1
67.9 % 754.8
67.9 % (19.7 ) (2.6 )%
Office and general expenses 227.8
21.0 % 223.2
20.1 % 4.6
2.1 %
Depreciation and amortization 34.6
3.2 % 32.1
2.9 % 2.6
8.0 %
Goodwill and intangible impairment

21.0
1.9 % —
— % 21.0
NA
$ 1,018.5
94.1 % $ 1,010.0
90.9 % $ 8.5
0.8 %
Operating profit $ 64.0
5.9 % $ 101.0
9.1 % $ (37.0 ) (36.6 )%

The decrease in operating profit was primarily attributable to a decline in revenue and a goodwill and intangible impairment, partially offset by a decrease in operating expenses, as outlined below. The impact of the adoption of ASC 606 increased operating profit by $8.9 million. Excluding the impact of the adoption of ASC 606, operating profit would have been $55.1 million, representing a decrease of $45.9 million compared to 2017. Operating margins declined by 430 basis points 9.1% in 2017 to 4.9% in 2018 on an adjusted basis.

~~The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 152.9
14.1 % $ 192.8
17.3 % $ (39.9 ) (20.7 )%
Staff costs ⁽²⁾
647.1
59.8 % 615.8
55.4 % 31.3
5.1 %
Administrative 141.7
13.1 % 140.9
12.7 % 0.8
0.5 %
Deferred acquisition consideration 8.5
0.8 % 13.3
1.2 % (4.8 ) (35.8 )%
Stock-based compensation 12.8
1.2 % 15.3
1.4 % (2.5 ) (16.2 )%
Depreciation and amortization 34.6
3.2 % 32.1
2.9 % 2.6
8.0 %
Goodwill and intangible impairment

21.0
1.9 % —
— % 21.0
NA
Total operating expenses $ 1,018.5
94.1 % $ 1,010.0
90.9 % $ 8.5
0.8 %


~~(1)~~	~~Excludes staff costs.~~


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

~~The increase in staff costs was primarily attributed to contributions from an acquired Partner Firm,~~ higher costs to support the growth of certain Partner ~~Firms, partially offset by staffing reductions at other Partner~~ Firms. ~~As a percentage of revenue, the increase in staff costs was primarily due to the impact of the adoption of ASC 606 on revenue.~~

Deferred acquisition consideration change was primarily attributable to an increase in the acquisition consideration liability pertaining to amendments to purchase agreements of previously acquired incremental ownership interest entered into during 2017.

~~Global Integrated Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Global Integrated Agencies reportable segment for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Global Integrated Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 510.4
$ 585.3
$ (74.9 ) (12.8 )%
Operating expenses
Cost of services sold 350.0
68.6 % 410.7
70.2 % (60.7 ) (14.8 )%
Office and general expenses 114.8
22.5 % 123.4
21.1 % (8.7 ) (7.0 )%
Depreciation and amortization 18.5
3.6 % 17.9
3.1 % 0.6
3.3 %
Goodwill and intangible impairment

21.0
4.1 % —
— % 21.0
NA
$ 504.3
98.8 % $ 552.0
94.3 % $ (47.8 ) (8.7 )%
Operating profit $ 6.1
1.2 % $ 33.2
5.7 % $ (27.1 ) (81.7 )%

The impact of the adoption of ASC 606 reduced revenue in the Global Integrated Agencies reportable segment by $42.4 million, or 7.2%. The other components of change included a decline in revenue from existing Partner Firms of $33.4 million, or 5.7%, due to cutbacks and spending delays from several existing clients and a slower pace of conversion of new business, and a positive foreign exchange impact of $2.8 million, or 0.5%, partially offset by a negative impact from dispositions of $1.9 million, or 0.3%.

The decrease in operating profit was primarily attributed to a decline in revenue and a goodwill and intangible impairment, partially offset by a decreased in operating expenses, as outlined below. The impact of the adoption of ASC 606 increased operating profit by $5.7 million. Excluding the impact of the adoption of ASC 606, operating profit would have been $0.4 million, representing a decrease of $32.8 million compared to 2017. Operating margins declined by 560 basis points from a profit margin of 5.7% for 2017 to a profit margin of 0.1% for 2018 on an adjusted basis.

~~The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies reportable segment for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Global Integrated Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 31.2
6.1 % $ 86.2
14.7 % $ (55.0 ) (63.8 )%
Staff costs ⁽²⁾
345.9
67.8 % 346.9
59.3 % (1.0 ) (0.3 )%
Administrative 76.4
15.0 % 78.8
13.5 % (2.4 ) (3.1 )%
Deferred acquisition consideration 2.8
0.5 % 12.4
2.1 % (9.6 ) (77.5 )%
Stock-based compensation 8.5
1.7 % 9.9
1.7 % (1.4 ) (14.3 )%
Depreciation and amortization 18.5
3.6 % 17.9
3.1 % 0.6
3.3 %
Goodwill and intangible impairment

21.0
4.1 % —
— % 21.0
NA
Total operating expenses $ 504.3
98.8 % $ 552.0
94.3 % $ (47.8 ) (8.7 )%


~~(1)~~	~~Excludes staff costs.~~


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

The decrease in direct costs was primarily due to the adoption of ASC 606 in which various client arrangements of certain Partner Firms previously accounted for as principal are accounted for as agent under ASC 606. The change resulted in a decrease in third party costs included in revenue of $48.1 million.

The increase in staff costs was attributed to higher costs to support the growth of certain Partner Firms, partially offset by staffing reductions at other firms. As a percentage of revenue, staff costs increased due to a decline in revenue from the adoption of ASC 606.

~~Domestic Creative Agencies~~

~~The change in expenses and operating profit as a percentage of revenue in the Domestic Creative Agencies reportable segment for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 75.5
$ 77.3
$ (1.8 ) (2.4 )%
Operating expenses
Cost of services sold 44.1
58.4 % 44.2
57.2 % (0.1 ) (0.3 )%
Office and general expenses 15.8
20.9 % 16.5
21.4 % (0.7 ) (4.4 )%
Depreciation and amortization 1.2
1.6 % 1.2
1.5 % —
1.1 %
$ 61.1
80.9 % $ 61.9
80.1 % $ (0.9 ) (1.4 )%
Operating profit $ 14.5
19.1 % $ 15.4
19.9 % $ (1.0 ) (6.2 )%

The impact of the adoption of ASC 606 increased revenue in the Domestic Creative Agencies reportable segment by $1.5 million, or 1.9%. The other components of the change included a positive foreign exchange impact of $0.1 million, or 0.1%, offset by a decline in revenue growth from existing Partner Firms of $3.4 million, or 4.4%.

~~The adoption of ASC 606 did not have a significant impact on operating profit.~~

~~The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies reportable segment for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Domestic Creative Agencies $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 2.2
2.9 % $ 3.2
4.1 % $ (0.9 ) (29.8 )%
Staff costs ⁽²⁾
47.8
63.3 % 47.5
61.5 % 0.2
0.5 %
Administrative 8.9
11.8 % 9.1
11.8 % (0.2 ) (2.3 )%
Deferred acquisition consideration —
— % 0.4
0.5 % (0.4 ) (100.0 )%
Stock-based compensation 0.9
1.3 % 0.5
0.7 % 0.4
77.0 %
Depreciation and amortization 1.2
1.6 % 1.2
1.5 % —
1.1 %
Total operating expenses $ 61.1
80.9 % $ 61.9
80.1 % $ (0.9 ) (1.4 )%


~~(1)~~	~~Excludes staff costs.~~


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

~~Specialist Communications~~

~~The change in expenses and operating profit as a percentage of revenue in the Specialist Communications reportable segment for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 129.7
$ 125.5
$ 4.3
3.4 %
Operating expenses
Cost of services sold 86.7
66.8 % 85.4
68.0 % 1.3
1.6 %
Office and general expenses 25.4
19.6 % 23.0
18.4 % 2.4
10.2 %
Depreciation and amortization 3.2
2.4 % 3.7
2.9 % (0.5 ) (13.5 )%
$ 115.3
88.8 % $ 112.0
89.3 % $ 3.2
2.9 %
Operating profit $ 14.5
11.2 % $ 13.4
10.7 % $ 1.1
7.8 %

The impact of the adoption of ASC 606 increased revenue in the Specialist Communications reportable segment by $5.1 million, or 4.0%. The other components of the change included revenue decline from Partner Firms of $1.5 million, or 1.2%, and a positive foreign exchange impact of $0.5 million, or 0.4%.

The increase in operating profit was primarily due to an increase in revenue partially offset by an increase in staff costs. The impact of the adoption of ASC 606 increased operating profit by $5.1 million. Excluding the impact of the adoption of ASC 606, operating profit would have been $9.4 million, representing a decrease of $4.0 million compared to 2017.

~~The change in the categories of expenses as a percentage of revenue in the Specialist Communications reportable segment for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 30.2
23.3 % $ 29.7
23.7 % $ 0.5
1.7 %
Staff costs ⁽²⁾
63.2
48.7 % 59.8
47.7 % 3.4
5.7 %
Administrative 16.8
13.0 % 16.0
12.8 % 0.8
5.0 %
Deferred acquisition consideration 1.3
1.0 % 0.6
0.5 % 0.7
120.3 %
Stock-based compensation 0.5
0.4 % 2.3
1.8 % (1.7 ) (76.1 )%
Depreciation and amortization 3.2
2.4 % 3.7
2.9 % (0.5 ) (13.5 )%
Total operating expenses $ 115.3
88.8 % $ 112.0
89.3 % $ 3.2
2.9 %


~~(1)~~	~~Excludes staff costs.~~


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

Media Services

The change in expenses and operating profit as a percentage of revenue in the Media Services reportable segment for the ~~nine~~three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:


	2018				2017				Change					2019				2018					Change
Media Services	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$			% of Revenue		$			%
	(Dollars in Millions)													(Dollars in Thousands)
Revenue	$	104.5			$	122.2			$	(17.7	)	(14.5	)%	$	21,331			$	21,398				$	(67	)	(0.3	)%
Operating expenses
Cost of services sold	76.0		72.7	%	80.6		66.0	%	(4.6		)	(5.7	)%	14,835		69.5	%	15,239			71.2	%	(404		)	(2.7	)%
Office and general expenses	25.8		24.7	%	29.2		23.9	%	(3.5		)	(11.8	)%	4,711		22.1	%	7,243			33.8	%	(2,532		)	(35.0	)%
Depreciation and amortization	2.3		2.2	%	3.2		2.6	%	(0.9		)	(28.4	)%	794		3.7	%	635			3.0	%	159			25.0	%
	$	104.1	99.6	%	$	113.0	92.5	%	$	(9.0	)	(7.9	)%	$	20,340	95.4	%	$	23,117		108.0	%	$	(2,777	)	(12.0	)%
Operating (loss) profit	$	0.4	0.4	%	$	9.2	7.5	%	$	(8.8	)	(95.6	)%
Operating income (loss)														$	991	4.6	%	$	(1,719	)	(8.0	)%	$	2,710		NM

NM - Not meaningful

The ~~impact of the adoption of ASC 606 reduced revenue in the Media Services reportable segment by $0.5 million, or 0.4%. The other components of the~~ change included a negative impact from the LocalBizNow business disposition in the third quarter of 2017 of $11.6 million, or 9.5%, and a decline in revenue from existing Partner Firms of $6.2 million, or 5.1%.

~~The decrease~~ in operating profit was primarily attributable ~~to a decline in revenue, partially offset by a decrease in direct costs and staff costs. The adoption of ASC 606 did not have a significant impact on~~lower operating ~~profit.~~

expenses, as outlined below.

The change in the categories of expenses as a percentage of revenue in the Media Services reportable segment for the ~~nine~~three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:

2018 2017 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 27.8
26.6 % $ 30.8
25.2 % $ (3.1 ) (9.9 )%
Staff costs ⁽²⁾
57.9
55.4 % 61.0
49.9 % (3.2 ) (5.2 )%
Administrative 15.6
15.0 % 17.0
13.9 % (1.4 ) (8.1 )%
Deferred acquisition consideration 0.2
0.2 % 0.4
0.4 % (0.2 ) (57.3 )%
Stock-based compensation 0.3
0.3 % 0.5
0.4 % (0.2 ) (43.0 )%
Depreciation and amortization 2.3
2.2 % 3.2
2.6 % (0.9 ) (28.4 )%
Total operating expenses $ 104.1
99.6 % $ 113.0
92.5 % $ (9.0 ) (7.9 )%


~~(1)~~	~~Excludes staff costs.~~


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

The decline in direct costs was primarily attributed to costs incurred in the prior year for a disposed Partner Firm, partially offset by an increase in costs incurred on the client’s behalf from some of our Partner Firms acting as principal.



	2019					2018				Change
Media Services	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	3,716		17.4	%	$	1,652	7.7	%	$	2,064		125.0	%
Staff costs ⁽²⁾	12,710			59.6	%	16,629		77.7	%	(3,919		)	(23.6	)%
Administrative	3,751			17.6	%	4,037		18.9	%	(286		)	(7.1	)%
Deferred acquisition consideration	(615		)	(2.9	)%	90		0.4	%	(705		)	NM
Stock-based compensation	(16		)	(0.1	)%	74		0.3	%	(90		)	NM
Depreciation and amortization	794			3.7	%	635		3.0	%	159			25.0	%
Total operating expenses	$	20,340		95.4	%	$	23,117	108.0	%	$	(2,777	)	(12.0	)%

~~The decline in staff costs was primarily attributed to staffing reductions at certain Partner Firms due to declines in revenue and costs incurred in the prior year for a disposed Partner Firm.~~

~~All Other~~

~~The change in expenses and operating profit as a percentage of revenue in the All Other category for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Revenue $ 262.5
$ 200.7
$ 61.8
30.8 %
Operating expenses
Cost of services sold 178.4
67.9 % 133.9
66.7 % 44.4
33.2 %
Office and general expenses 46.1
17.6 % 31.0
15.4 % 15.1
48.7 %
Depreciation and amortization 9.5
3.6 % 6.1
3.0 % 3.4
55.7 %
$ 233.9
89.1 % $ 171.0
85.2 % $ 62.9
36.8 %
Operating profit $ 28.6
10.9 % $ 29.7
14.8 % $ (1.2 ) (3.9 )%

The impact of the adoption of ASC 606 reduced revenue in the All Other category by $2.9 million, or 1.4%. The other components of the change included revenue growth from existing Partner Firms of $42.4 million, or 21.1%, primarily in experiential and healthcare, revenue contributions from an acquired Partner Firm of 23.6 million, and a positive impact from foreign exchange of $0.5 million, or 0.3%, partially offset by a negative impact from dispositions of $1.2 million, or 0.6%.

The decrease in operating profit was primarily attributed to increased revenue, offset by increased direct costs and staff costs, as outlined below. The adoption of ASC 606 did not have a significant impact on operating profit.

~~The change in the categories of expenses as a percentage of revenue in the All Other category for the nine months ended September 30, 2018 and 2017 was as follows:~~

2018 2017 Change
All Other $ % of
Revenue $ % of
Revenue $ %
(Dollars in Millions)
Direct costs ⁽¹⁾
$ 61.5
23.4 % $ 42.9
21.4 % $ 18.6
43.4 %
Staff costs ⁽²⁾
132.3
50.4 % 100.5
50.1 % 31.8
31.6 %
Administrative 23.9
9.1 % 19.9
9.9 % 4.0
19.9 %
Deferred acquisition consideration 4.2
1.6 % (0.5 ) (0.2 )% 4.7
(969.5 )%
Stock-based compensation 2.5
1.0 % 2.1
1.0 % 0.5
22.5 %
Depreciation and amortization 9.5
3.6 % 6.1
3.0 % 3.4
55.7 %
Total operating expenses $ 233.9
89.1 % $ 171.0
85.2 % $ 62.9
36.8 %
NM - Not meaningful


(1)	Excludes staff costs.


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

The increase in direct costs is driven by incremental costs to support certain client arrangements.

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

All Other

The change in expenses and operating profit as a percentage of revenue in the All Other category for the three months ended June 30, 2019 and 2018 was as follows:



	2019				2018				Change
All Other	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	74,068			$	86,907			$	(12,839	)	(14.8	)%
Operating expenses
Cost of services sold	54,522		73.6	%	57,749		66.4	%	(3,227		)	(5.6	)%
Office and general expenses	13,631		18.4	%	9,280		10.7	%	4,351			46.9	%
Depreciation and amortization	2,966		4.0	%	3,892		4.5	%	(926		)	(23.8	)%
	$	71,119	96.0	%	$	70,921	81.6	%	$	198		0.3	%
Operating profit	$	2,949	4.0	%	$	15,986	18.4	%	$	(13,037	)	(81.6	)%

The decline in revenue was primarily attributable to a disposition of a Partner Firm with an impact of $6.0 million as well as a decline from existing Partner Firms of $7.0 million, primarily attributable to reduced spending from existing clients.

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



	2019				2018					Change
All Other	$		% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	17,659	23.8	%	$	18,464		21.2	%	$	(805	)	(4.4	)%
Staff costs ⁽²⁾	42,390		57.2	%	44,309			51.0	%	(1,919		)	(4.3	)%
Administrative	7,154		9.7	%	7,610			8.8	%	(456		)	(6.0	)%
Deferred acquisition consideration	298		0.4	%	(4,038		)	(4.6	)%	4,336			NM
Stock-based compensation	652		0.9	%	684			0.8	%	(32		)	(4.7	)%
Depreciation and amortization	2,966		4.0	%	3,892			4.5	%	(926		)	(23.8	)%
Total operating expenses	$	71,119	96.0	%	$	70,921		81.6	%	$	198		0.3	%

NM - Not meaningful


(1)	Excludes staff costs.


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

The decrease in staff costs was primarily attributed to staffing reductions at certain Partner Firms and a positive benefit from the disposition of a Partner Firm.

Corporate

The change in operating expenses for Corporate for the three months ended June 30, 2019 and 2018 was as follows:



	2019		2018		Variance
Corporate	$		$		$			%
	(Dollars in Thousands)
Staff costs ⁽¹⁾	$	11,325	$	6,377	$	4,948		77.6	%
Administrative	3,893		5,382		(1,489		)	(27.7	)%
Stock-based compensation	1,192		1,221		(29		)	(2.4	)%
Depreciation and amortization	221		160		61			38.1	%
Total operating expenses	$	16,631	$	13,140	$	3,491		26.6	%


(1)	Excludes stock-based compensation.

Staff costs increased due to a $6.7 million severance charge, partially offset by lower compensation expense associated with a reduction in staff related to certain actions taken in the prior year.

The decrease in administrative costs was primarily related to lower professional fees as the prior year included fees related to the implementation of a new accounting pronouncement.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO SIX MONTHS ENDED JUNE 30, 2018

Consolidated Results of Operations

Revenues

Revenue was $690.9 million for the six months ended June 30, 2019 compared to revenue of $706.7 million for the six months ended June 30, 2018. See the Advertising and Communications Group section below for a discussion regarding consolidated revenues for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Operating Profit

Operating profit for the six months ended June 30, 2019 was $39.1 million compared to $16.1 million for the six months ended June 30, 2018, representing a change of $23.0 million. The change was primarily driven by an increase in operating income in the Advertising and Communications Group of $17.2 million. Additionally, Corporate operating expenses decreased by $5.8 million, primarily related to lower compensation expense, stock-based compensation and professional fees as well as an impairment charge of $2.3 million recognized in 2018.

Other, Net

Other, net, for the six months ended June 30, 2019 was loss of $4.1 million compared to income of $1.0 million for the six months ended June 30, 2018, primarily driven by a loss on the sale of Kingsdale.

Foreign Exchange Transaction Gain (Loss)

Foreign exchange gain for the six months ended June 30, 2019 was $8.4 million compared to a loss of $13.2 million for the six months ended June 30, 2018. The change in foreign exchange is primarily attributable to the strengthening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.

Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the six months ended June 30, 2019 was $33.2 million compared to $32.9 million for the six months ended June 30, 2018, representing an increase of $0.3 million

Income Tax Expense (Benefit)

Income tax expense for the six months ended June 30, 2019 was $2.8 million (on income of $10.2 million resulting in an effective tax rate of 27.8%) compared to a benefit of $6.4 million (on a loss of $29.0 million resulting in an effective tax rate of 21.9%) for the six months ended June 30, 2018. The change in the effective tax rate was primarily driven by the jurisdictional mix of earnings.

Equity in Earnings (Losses) of Non-Consolidated Affiliates

Equity in earnings (losses) of non-consolidated affiliates represents the income or losses attributable to equity-accounted affiliate operations. The Company recorded $0.3 million of income for the six months ended June 30, 2019 compared to income of $0.1 million for the six months ended June 30, 2018.

Noncontrolling Interests

The effect of noncontrolling interests for the six months ended June 30, 2019 was $3.5 million compared to $3.4 million for the six months ended June 30, 2018.

Net Loss Attributable to MDC Partners Inc. Common Shareholders

As a result of the foregoing and the impact of accretion on and net income allocated to convertible preference shares, net loss attributable to MDC Partners Inc. common shareholders for the six months ended June 30, 2019 was $1.4 million, or $0.02 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $30.1 million, or $0.53 diluted income per share, for the six months ended June 30, 2018.

Advertising and Communications Group

The components of the fluctuations in revenues for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 are as follows:



	Total					United States					Canada					Other
	$			%		$			%		$			%		$			%
	(Dollars in Thousands)
June 30, 2018	$	706,711				$	551,792				$	59,465				$	95,454
Components of revenue change:
Foreign exchange impact	(9,316		)	(1.3	)%	—			—	%	(2,375		)	(4.0	)%	(6,941		)	(7.3	)%
Non-GAAP acquisitions (dispositions), net	5,635			0.8	%	11,234			2.0	%	(7,281		)	(12.2	)%	1,682			1.8	%
Organic revenue growth (decline)	(12,109		)	(1.7	)%	(15,350		)	(2.8	)%	(2,867		)	(4.8	)%	6,108			6.4	%
Total Change	$	(15,790	)	(2.2	)%	$	(4,116	)	(0.7	)%	$	(12,523	)	(21.1	)%	$	849		0.9	%
June 30, 2019	$	690,921				$	547,676				$	46,942				$	96,303

Revenue for the Advertising and Communications Group was $690.9 million for the six months ended June 30, 2019 compared to revenue of $706.7 million for the six months ended June 30, 2018, representing a decrease of $15.8 million, or 2.2%.

The negative foreign exchange impact of $9.3 million, or 1.3%, was attributed to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.

The Company also utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above. For the six months ended June 30, 2019, organic revenue decreased by $12.1 million, or 1.7%, of which $16.6 million, or 2.3% pertained to Partner Firms the Company has owned throughout each of the comparable periods presented. The remaining revenue growth of $4.4 million, or 0.6%, was generated from acquired Partner Firms. The decline in revenue from existing Partner Firms was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins. Additionally, the change in revenue was driven by a decline in categories including health care, food and beverage and automotive, partially offset by growth in transportation and technology.

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



	Specialist Communications				All Other				Total
	(Dollars in Thousands)
GAAP revenue from 2018 and 2019 acquisitions	$	2,762			$	15,140			$	17,902
Contribution to non-GAAP organic revenue (growth) decline	(643		)	—	(3,805		)	—	(4,448		)
Prior year revenue from dispositions	—				(7,819		)		(7,819		)
Non-GAAP acquisitions (dispositions), net	$	2,119			$	3,516			$	5,635

The geographic mix in revenues for the six months ended June 30, 2019 and 2018 is as follows:



	2019		2018
United States	79.3	%	78.1	%
Canada	6.8	%	8.4	%
Other	13.9	%	13.5	%

Revenue growth was mixed through the geographic regions with a decline in the United States of 0.7%, a decline in Canada of 21.1% and growth of 0.9% in the other regions outside of North America partially attributable to the strengthening of the U.S. dollar.

The United States and Canada had organic revenue decline of 2.8% and 4.8%, respectively. Organic revenue growth outside of North America was 6.4% as we continue to extend capabilities into new markets throughout Europe, South America, Australia, and Asia.

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



	2019				2018				Change
Advertising and Communications Group	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	690,921			$	706,711			$	(15,790	)	(2.2	)%
Operating expenses
Cost of services sold	477,903		69.2	%	496,420		70.2	%	(18,517		)	(3.7	)%
Office and general expenses	133,377		19.3	%	143,246		20.3	%	(9,869		)	(6.9	)%
Depreciation and amortization	19,063		2.8	%	23,694		3.4	%	(4,631		)	(19.5	)%
	$	630,343	91.2	%	$	663,360	93.9	%	$	(33,017	)	(5.0	)%
Operating profit	$	60,578	8.8	%	$	43,351	6.1	%	$	17,227		39.7	%

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

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



	2019					2018					Change
Advertising and Communications Group	$			% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	116,492		16.9	%	$	101,102		14.3	%	$	15,390		15.2	%
Staff costs ⁽²⁾	406,000			58.8	%	437,655			61.9	%	(31,655		)	(7.2	)%
Administrative	87,371			12.6	%	95,219			13.5	%	(7,848		)	(8.2	)%
Deferred acquisition consideration	(5,570		)	(0.8	)%	(2,481		)	(0.4	)%	(3,089		)	NM
Stock-based compensation	6,987			1.0	%	8,171			1.2	%	(1,184		)	(14.5	)%
Depreciation and amortization	19,063			2.8	%	23,694			3.4	%	(4,631		)	(19.5	)%
Total operating expenses	$	630,343		91.2	%	$	663,360		93.9	%	$	(33,017	)	(5.0	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

Direct costs increased primarily attributed to higher billable costs for client arrangements accounted for as principal.

The decrease in staff costs was primarily attributed to staffing reductions at Partner Firms and lower costs to support the operations of Partner Firms.

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

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

Global Integrated Agencies

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



	2019				2018				Change
Global Integrated Agencies	$		% of Revenue		$		% of Revenue		$			%

Revenue	$	284,087			$	287,686			$	(3,599	)	(1.3	)%
Operating expenses
Cost of services sold	194,506		68.5	%	207,996		72.3	%	(13,490		)	(6.5	)%
Office and general expenses	56,588		19.9	%	62,778		21.8	%	(6,190		)	(9.9	)%
Depreciation and amortization	8,502		3.0	%	12,152		4.2	%	(3,650		)	(30.0	)%
	$	259,596	91.4	%	$	282,926	98.3	%	$	(23,330	)	(8.2	)%
Operating profit	$	24,491	8.6	%	$	4,760	1.7	%	$	19,731		414.5	%

Revenue was lower due to a negative foreign exchange impact of $6.5 million, or 2.3%, partially offset by an increase in revenue from existing Partner Firms of $2.9 million, or 1.0%, primarily attributable to client wins at a certain agency.

The change in operating profit was primarily attributed to lower operating expenses, as outlined below.

The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies reportable segment for the six months ended June 30, 2019 and 2018 was as follows:



	2019					2018					Change
Global Integrated Agencies	$			% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	30,281		10.7	%	$	17,738		6.2	%	$	12,543		70.7	%
Staff costs ⁽²⁾	180,600			63.6	%	204,465			71.1	%	(23,865		)	(11.7	)%
Administrative	38,368			13.5	%	44,810			15.6	%	(6,442		)	(14.4	)%
Deferred acquisition consideration	(3,154		)	(1.1	)%	(1,174		)	(0.4	)%	(1,980		)	NM
Stock-based compensation	4,999			1.8	%	4,935			1.7	%	64			1.3	%
Depreciation and amortization	8,502			3.0	%	12,152			4.2	%	(3,650		)	(30.0	)%
Total operating expenses	$	259,596		91.4	%	$	282,926		98.3	%	$	(23,330	)	(8.2	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

Direct costs increased primarily attributed to higher billable costs for client arrangements accounted for as principal.

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

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

Domestic Creative Agencies

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



	2019				2018				Change
Domestic Creative Agencies	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	132,201			$	139,625			$	(7,424	)	(5.3	)%
Operating expenses
Cost of services sold	89,506		67.7	%	98,424		70.5	%	(8,918		)	(9.1	)%
Office and general expenses	25,702		19.4	%	30,672		22.0	%	(4,970		)	(16.2	)%
Depreciation and amortization	2,786		2.1	%	2,574		1.8	%	212			8.2	%
	$	117,994	89.3	%	$	131,670	94.3	%	$	(13,676	)	(10.4	)%
Operating profit	$	14,207	10.7	%	$	7,955	5.7	%	$	6,252		78.6	%

The decline in revenue from existing Partner Firms was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins.

The change in operating profit was primarily attributed to the decline in revenue, offset by lower operating expenses, as outlined below.

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



	2019					2018				Change
Domestic Creative Agencies	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	24,550		18.6	%	$	23,139	16.6	%	$	1,411		6.1	%
Staff costs ⁽²⁾	74,879			56.6	%	85,209		61.0	%	(10,330		)	(12.1	)%
Administrative	15,562			11.8	%	17,778		12.7	%	(2,216		)	(12.5	)%
Deferred acquisition consideration	(769		)	(0.6	)%	1,463		1.0	%	(2,232		)	NM
Stock-based compensation	986			0.7	%	1,507		1.1	%	(521		)	(34.6	)%
Depreciation and amortization	2,786			2.1	%	2,574		1.8	%	212			8.2	%
Total operating expenses	$	117,994		89.3	%	$	131,670	94.3	%	$	(13,676	)	(10.4	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

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

Specialist Communications

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



	2019				2018				Change
Specialist Communications	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	86,123			$	79,128			$	6,995		8.8	%
Operating expenses
Cost of services sold	57,986		67.3	%	52,355		66.2	%	5,631			10.8	%
Office and general expenses	13,112		15.2	%	14,870		18.8	%	(1,758		)	(11.8	)%
Depreciation and amortization	1,265		1.5	%	1,959		2.5	%	(694		)	(35.4	)%
	$	72,363	84.0	%	$	69,184	87.4	%	$	3,179		4.6	%
Operating profit	$	13,760	16.0	%	$	9,944	12.6	%	$	3,816		38.4	%

The increase in revenue is primarily due to client wins at certain Partner firms as well as a contribution of $2.8 million from an acquired Partner Firm.

The change in operating profit was primarily attributed to an increase in revenue partially offset by an increase in operating expenses, as outlined below.

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



	2019					2018				Change
Specialist Communications	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	20,842		24.2	%	$	18,448	23.3	%	$	2,394		13.0	%
Staff costs ⁽²⁾	41,147			47.8	%	37,732		47.7	%	3,415			9.1	%
Administrative	10,080			11.7	%	10,041		12.7	%	39			0.4	%
Deferred acquisition consideration	(1,049		)	(1.2	)%	765		1.0	%	(1,814		)	NM
Stock-based compensation	78			0.1	%	239		0.3	%	(161		)	(67.3	)%
Depreciation and amortization	1,265			1.5	%	1,959		2.5	%	(694		)	(35.4	)%
Total operating expenses	$	72,363		84.0	%	$	69,184	87.4	%	$	3,179		4.6	%

NM - Not meaningful


(1)	Excludes staff costs.


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

The increase in direct costs ~~incurred on~~are in line with the ~~client’s behalf from certain Partner Firms acting as principal and contributions from an acquired Partner Firm.~~growth in revenue.

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

Media Services

The change in expenses and operating profit as a percentage of revenue ~~growth.~~in the Media Services reportable segment for the six months ended June 30, 2019 and 2018 was as follows:



	2019					2018					Change
Media Services	$			% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	41,510				$	46,082				$	(4,572	)	(9.9	)%
Operating expenses
Cost of services sold	29,629			71.4	%	32,013			69.5	%	(2,384		)	(7.4	)%
Office and general expenses	11,239			27.1	%	14,534			31.5	%	(3,295		)	(22.7	)%
Depreciation and amortization	1,485			3.6	%	1,273			2.8	%	212			16.7	%
	$	42,353		102.0	%	$	47,820		103.8	%	$	(5,467	)	(11.4	)%
Operating (loss) profit	$	(843	)	(2.0	)%	$	(1,738	)	(3.8	)%	$	895		51.5	%

The decline in revenue is primarily due to client losses and a reduction in spending by certain clients, partially offset by new client wins.

The change in operating profit was primarily attributable to a decline in revenue, more than offset by lower operating expenses, as outlined below.

The change in the categories of expenses as a percentage of revenue in the Media Services reportable segment for the six months ended June 30, 2019 and 2018 was as follows:



	2019					2018				Change
Media Services	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	7,645		18.4	%	$	5,455	11.8	%	$	2,190		40.2	%
Staff costs ⁽²⁾	25,185			60.7	%	32,380		70.3	%	(7,195		)	(22.2	)%
Administrative	7,981			19.2	%	8,391		18.2	%	(410		)	(4.9	)%
Deferred acquisition consideration	73			0.2	%	172		0.4	%	(99		)	(57.6	)%
Stock-based compensation	(16		)	—	%	149		0.3	%	(165		)	NM
Depreciation and amortization	1,485			3.6	%	1,273		2.8	%	212			16.7	%
Total operating expenses	$	42,353		102.0	%	$	47,820	103.8	%	$	(5,467	)	(11.4	)%

NM - Not meaningful


(1)	Excludes staff costs.


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

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

All Other

The change in expenses and operating profit as a percentage of revenue in the All Other category for the six months ended June 30, 2019 and 2018 was as follows:



	2019				2018				Change
All Other	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	147,000			$	154,190			$	(7,190	)	(4.7	)%
Operating expenses
Cost of services sold	106,276		72.3	%	105,632		68.5	%	644			0.6	%
Office and general expenses	26,737		18.2	%	20,392		13.2	%	6,345			31.1	%
Depreciation and amortization	5,025		3.4	%	5,736		3.7	%	(711		)	(12.4	)%
	$	138,038	93.9	%	$	131,760	85.5	%	$	6,278		4.8	%
Operating profit	$	8,962	6.1	%	$	22,430	14.5	%	$	(13,468	)	(60.0	)%

The change in revenue was primarily attributable to revenue contributions of $15.1 million, or 10.3% from acquired Partner Firms, partially offset by negative revenue impact of $7.8 million or 5.3% from the disposition of a Partner firm, a decline from existing Partner Firms of $13.0 million, or 8.9%, and negative foreign exchange impact of $1.4 million, or 0.9%.

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



	2019					2018					Change
All Other	$			% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	33,174		22.6	%	$	36,322		23.6	%	$	(3,148	)	(8.7	)%
Staff costs ⁽²⁾	84,188			57.3	%	77,869			50.5	%	6,319			8.1	%
Administrative	15,382			10.5	%	14,199			9.2	%	1,183			8.3	%
Deferred acquisition consideration	(671		)	(0.5	)%	(3,707		)	(2.4	)%	3,036			81.9	%
Stock-based compensation	940			0.6	%	1,341			0.9	%	(401		)	(29.9	)%
Depreciation and amortization	5,025			3.4	%	5,736			3.7	%	(711		)	(12.4	)%
Total operating expenses	$	138,038		93.9	%	$	131,760		85.5	%	$	6,278		4.8	%


(1)	Excludes staff costs.


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

The increase in staff costs was primarily attributed to contributions from an acquired Partner Firm.

Deferred acquisition consideration increase was primarily attributed to the aggregate performance of certain Partner Firms in ~~2018~~2019 relative to the previously projected expectations.

Corporate

The change in operating expenses for Corporate for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 was as follows:


	2018		2017		Variance					2019			2018		Variance
Corporate	$		$		$			%		$			$		$			%
	(Dollars in Millions)									(Dollars in Thousands)
Staff costs ⁽¹⁾	$	24.6	$	15.0	$	9.7		64.6	%	$	13,851		$	11,742	$	2,109		18.0	%
Administrative	13.6		11.6		2.1			17.8	%	7,546			10,301		(2,755		)	(26.7	)%
Stock-based compensation	4.1		1.6		2.5			155.7	%	(381		)	2,469		(2,850		)	NM
Depreciation and amortization	0.6		0.9		(0.3		)	(32.5	)%	438			384		54			14.1	%
Other asset impairment	2.3		—		2.3			NM		—			2,317		(2,317		)	(100.0	)%
Total operating expenses	$	45.2	$	29.0	$	16.3		56.1	%	$	21,454		$	27,213	$	(5,759	)	(21.2	)%

NM - Not meaningful


(1)	Excludes stock-based compensation.

~~The increase~~Staff costs increased due to a $6.7 million severance charge, partially offset by lower compensation expense associated with a reduction in staff ~~costs for Corporate was primarily attributed to severance expense and other restructuring costs~~ related to certain ~~corporate~~ actions taken in ~~2018 in comparison to~~ the prior ~~year period.~~year.

The ~~increase~~decrease in administrative costs was primarily related to ~~an increase in~~lower professional fees ~~of $2.3 million, inclusive of~~as the prior year included fees related to the implementation of a new accounting ~~pronouncements.~~pronouncement.

Stock-based compensation was a credit in the six months ended June 30, 2019 due to the reversal of expense previously recognized in connection with the forfeiture of a performance based equity award.

Liquidity and Capital Resources:

Liquidity

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

Dollars in millions As of and for the nine months ended September 30, 2018
As of and for the nine months ended September 30, 2017
As of and for the year ended December 31, 2017

Cash and cash equivalents $ 25.1

$ 18.9

$ 46.2
Working capital (deficit) $ (181.7 )
$ (220.3 )
$ (232.9 )
Cash (used in) provided by operating activities $ (31.7 ) $ (14.5 )
$ 115.3
Cash used in investing activities $ (48.4 ) $ (19.5 )
$ (20.9 )
Cash provided by (used in) financing activities $ 59.1
$ 24.9

$ (75.4 )
Ratio of long-term debt to shareholders' deficit (5.55 )
(2.39 )
(5.68 )

As of September 30, 2018, September 30, 2017 and December 31, 2017, 4.0 million, $5.2 million, and $4.6 million, respectively, of the Company’s consolidated cash position was held by subsidiaries in trust, and was available for use against the trust liability, with the remaining available to fund their operating activities. Although this amount is available to the subsidiaries’ use, it does not represent cash that is distributable as earnings to MDC for use to reduce its indebtedness. It is the Company’s intent through its cash management system to reduce any outstanding borrowings under the Credit Agreement by using available cash.



	As of and for the six months ended June 30, 2019			As of and for the six months ended June 30, 2018			As of and for the year ended December 31, 2018
	(In Thousands, Except for Long-Term Debt to Shareholders’ Equity Ratio)
Cash and cash equivalents	$	27,304		$	24,999		$	30,873
Working capital (deficit)	$	(184,620	)	$	(176,959	)	$	(152,682	)
Cash provided by (used in) operating activities	$	(40,237	)	$	(61,713	)	$	17,280
Cash provided by (used in) investing activities	$	9,818		$	(36,121	)	$	(50,431	)
Cash provided by (used in) financing activities	$	25,712		$	76,343		$	21,434
Ratio of long-term debt to shareholders' deficit	-5.32			-6.52			-3.87

The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months. The Company has historically been able to maintain and expand its business using cash generated from operating activities, funds available under its Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing. At ~~September~~June 30, ~~2018,~~2019, the Company had ~~$103.0~~$27.5 million of borrowings outstanding and ~~$127.5~~$202.7 million available under the Credit Agreement.

The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 6.50% Senior Notes due 2024. Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Company’s Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the foreseeable future. The Company’s ability to make scheduled deferred acquisition payments, principal and interest payments, to refinance indebtedness or to fund planned capital expenditures will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in the Company’s ~~2017~~2018 Annual Report on Form 10-K and in the Company’s other SEC filings.

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

Working Capital

At ~~September~~June 30, ~~2018,~~2019, the Company had a working capital deficit of ~~$181.7~~$184.6 million compared to a deficit of ~~$232.9~~$152.7 million at December 31, ~~2017. Working capital deficit decreased by $51.1 millionprimarily due to timing of media payments, partially offset by net borrowings on the Company’s credit agreement.~~2018. The Company’s working capital is impacted by seasonality in media buying, amounts spent by clients, and timing of amounts received from clients and subsequently paid to suppliers. Media buying is impacted by the timing of certain events, such as major sporting competitions and national holidays, and there can be a quarter to quarter lag between the time amounts received from clients for the media buying are subsequently paid to suppliers.

The Company intends to maintain sufficient cash or availability of funds under the Credit Agreement at any particular time to adequately fund working capital should there be a need to do so from time to time.

Cash Flows

Operating Activities

Cash flows used in operating activities for the ~~nine~~six months ended ~~September~~June 30, 2019 was $40.2 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.

Cash flows used in operating activities for the six months ended June 30, 2018 was ~~31.7~~$61.7 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments, deferred acquisition consideration payments as well as ~~acquisition related contingent consideration payments, partially offset by~~ net income (loss) adjusted to reconcile to net cash used in operating activities.

Cash flows used in operating activities for the nine months ended September 30, 2017 was $14.5 million, primarily reflecting unfavorable working capital requirements, driven by timing of accounts receivable, as well as acquisition related contingent consideration payments, partially offset by net income (loss) adjusted to reconcile to net cash used in operating activities.

Investing Activities

During the ~~nine~~six months ended ~~September~~June 30, 2019, cash flows provided by investing activities was $9.8 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by $7.9 million of capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements and $5.1 million paid for acquisitions.

During the six months ended June 30, 2018, cash flows used in investing activities was ~~$48.4~~$36.1 million, ~~which~~ primarily consisting of cash paid of ~~$34.3~~$27.3 million for ~~acquisitions (see Note 4~~the acquisition of ~~the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information)~~Instrument and capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements of ~~$15.2 million, of which $7.9 million was incurred by the Global Integrated Agencies segment.~~

During the nine months ended September 30, 2017, cash flows used in investing activities was $19.5 million, primarily consisting of capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements of $28.3 million, of which $17.6 million was incurred by the Global Integrated Agencies segment. These outflows were partially offset by net proceeds from sale of three subsidiaries of $11.1$9.7 million.

Financing Activities

During the ~~nine~~six months ended ~~September~~June 30, 2019, cash flows provided by financing activities was $25.7 million, primarily driven by $98.6 million in proceeds, net of fees from the issuance of common and preferred shares, partially offset by $40.6 million in net repayments under the Credit Agreement, and $24.2 million in deferred acquisition consideration payments

During the six months ended June 30, 2018, cash flows provided by financing activities was ~~$59.1~~$76.3 million, primarily driven by ~~$103.0~~$115.2 million in net borrowings under the Credit Agreement ~~partially offset by $32.2 million of acquisition related payments~~ and ~~distributions to noncontrolling partners of $10.4 million.~~

During the nine months ended September 30, 2017, cash flows provided by financing activities was $24.9 million, primarily driven by $95.0 million in proceeds from the issuance of convertible preference shares, partially offset by $5.8 million in net repayments under the Credit Agreement and $52.6$29.2 million of acquisition related payments.

Total Debt

Debt, net of debt issuance costs, as of ~~September~~June 30, ~~2018~~2019 was ~~$988.2~~$914.1 million ~~an increase of $105.1 million,~~as compared ~~with $883.1~~to $954.1 million outstanding at December 31, ~~2017. This increase~~2018. The decrease of $40 million in debt was primarily a result of the Company’s net ~~borrowings~~repayments on the Credit Agreement. See Note 67 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s $900 million aggregate principal amount of its senior unsecured notes due 2024 and ~~$325~~$250 million senior secured revolving credit agreement due May 3, 2021 (the “Credit Agreement”).

The Company is currently in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.

If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the Credit Agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.

Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) senior leverage ratio, (ii) total leverage ratio, (iii) fixed charges ratio, and (iv) minimum earnings before interest, taxes and depreciation and amortization, in each case as such term is specifically defined in the Credit Agreement. For the period ended ~~September~~June 30, ~~2018,~~2019, the Company’s calculation of each of these covenants, and the specific requirements under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:


	September 30, 2018		June 30, 2019
Total Senior Leverage Ratio	0.5		0.11
Maximum per covenant	2.0		2.00

Total Leverage Ratio	5.3		4.91
Maximum per covenant	5.5		6.25

Fixed Charges Ratio	2.4		2.45
Minimum per covenant	1.0		1.00

Earnings before interest, taxes, depreciation and amortization	$	187,041
Minimum per covenant	$	105,000
Earnings before interest, taxes, depreciation and amortization (in millions)			$	187,920
Minimum per covenant (in millions)			$	105,000

These ratios and measures are not based on generally accepted accounting principles and are not presented as alternative measures of operating performance or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to

demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.

Commitments, Contingencies, and Guarantees

The Company’s agencies enter into contractual commitments with media providers and agreements with production companies on behalf of our clients at levels that exceed the revenue from services. Some of our agencies purchase media for clients and act as an agent for a disclosed principal. These commitments are included in accounts payable when the media services are delivered by the media providers. MDC takes precautions against default on payment for these services and has historically had a very low incidence of default. MDC is still exposed to the risk of significant uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic downturn.

The following table presents the changes in the deferred acquisition consideration by segment for the ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:

September 30, 2018
(amounts in $ millions) Global Integrated Agencies Domestic Creative Agencies Specialist Communication Agencies Media Services All Other Total
Beginning Balance of contingent payments $ 81.4
$ —
$ 5.5
$ 3.7
$ 28.5
$ 119.1
Payments (32.8 ) —
(5.4 ) (1.3 ) (15.5 ) (54.9 )
Additions ⁽¹⁾
3.1
—
9.7
—
—
12.8
Redemption value adjustments ⁽²⁾
8.8
—
1.4
0.1
5.9
16.3
Ending Balance of contingent payments 60.5
—
11.3
2.6
18.9
93.2
Fixed payments, net 1.1
—
—
—
0.5
1.5
$ 61.6
$ —
$ 11.3
$ 2.6
$ 19.3
$ 94.7



	June 30, 2019
	Global Integrated Agencies			Domestic Creative Agencies			Specialist Communication Agencies			Media Services			All Other			Total
	(Dollars in Thousands)
Beginning Balance of contingent payments	$	47,880		$	3,747		$	13,193		$	2,689		$	15,089		$	82,598
Payments	(20,773		)	(526		)	(2,031		)	(250		)	(912		)	(24,492		)
Additions - acquisitions and step up transactions	—			—			5,695			—			—			5,695
Redemption value adjustments ⁽¹⁾	(3,154		)	(769		)	(1,049		)	73			(671		)	(5,570		)
Stock-based compensation	(1,711		)	26			—			—			1,155			(530		)
Other	—			—			—			—			—			—
Ending Balance of contingent payments	22,242			2,478			15,808			2,512			14,661			57,701
Fixed payments	263			279			—			—			—			542
	$	22,505		$	2,757		$	15,808		$	2,512		$	14,661		$	58,243


(1)	~~Additions are the initial estimated deferred acquisition payments of new acquisitions and step-up transactions completed within that fiscal period.~~


~~(2)~~	Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments ~~including the accretion of present value~~ and stock-based compensation charges relating to acquisition payments that are tied to continued employment.

Deferred acquisition consideration excludes future payments with an estimated fair value of ~~$22.6~~$8.6 million that are contingent upon employment terms as well as financial performance and will be expensed as stock-based compensation over the required retention period. Of this amount, the Company estimates ~~$0.1~~$0.2 million will be paid in the current year ~~$15.4~~and $8.4 million will be paid in one to three years ~~and $7.1 million will be paid in three to five years.~~

When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 89 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding redeemable noncontrolling interest.

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

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


Consideration ⁽⁴⁾	2018		2019		2020		2021		2022 & Thereafter		Total			2019		2020		2021		2022		2023 & Thereafter		Total
	(Dollars in Millions)													(Dollars in Thousands)
Cash	$	3.7	$	2.2	$	3.2	$	2.0	$	3.1	$	14.2		$	4,671	$	1,673	$	3,798	$	2,720	$	6,149	$	19,011
Shares	—		—		0.1		—		—		0.1			16		32		49		33		17		$	147
	$	3.7	$	2.2	$	3.3	$	2.0	$	3.1	$	14.3	⁽¹⁾	$	4,687	$	1,705	$	3,847	$	2,753	$	6,166	$	19,158	⁽¹⁾
Operating income before depreciation and amortization to be received ⁽²⁾	$	2.4	$	—	$	1.6	$	—	$	0.5	$	4.5		$	2,001	$	80	$	1,768	$	—	$	569	$	4,418
Cumulative operating income before depreciation and amortization ⁽³⁾	$	2.4	$	2.4	$	4.0	$	4.0	$	4.5			⁽⁵⁾	$	2,001	$	2,081	$	3,849	$	3,849	$	4,418			⁽⁵⁾

(1)

This amount is in addition to (i) the ~~$38.5~~$19.9 million of options to purchase only exercisable upon termination not within the control of the Company, or death, and (ii) the ~~$4.3~~$3.6 million excess of the initial redemption value recorded in redeemable noncontrolling interests over the amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests.


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


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


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


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

Critical Accounting Policies

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding the Company’s revenue recognition policy. For information regarding all other critical accounting policies, see the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018 for information regarding the Company’s critical accounting policies.

New Accounting Pronouncements

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

Risks and Uncertainties

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

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:

uncertainty as to whether any strategic alternative will be pursued or, if pursued, consummated; uncertainty as to the terms, value and timing of any such strategic alternative; and the impact of any actions related to the strategic review process and/or any strategic alternative on the Company’s securities or its business;

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

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

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

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

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

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

Investors should carefully consider these risk factors, and the risk factors outlined in more detail in Company’s Annual Report on Form 10-K, for the year ended December 31, ~~2017~~2018, filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2019 and accessible on the SEC’s website at www.sec.gov., under the caption “Risk Factors,” and in the Company’s other SEC filings.

Website Access to Company Reports

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Debt Instruments: At ~~September~~June 30, ~~2018,~~2019, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the Senior Notes. The Senior Notes bear a fixed 6.50% interest rate. The Credit Agreement bears interest at variable rates based upon the Eurodollar rate, U.S. bank prime rate and U.S. base rate, at the Company’s option. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of syndication. Given that there were ~~$103.0~~$27.5 million borrowings under the Credit Agreement, as of ~~September~~June 30, ~~2018,~~2019, a 1.0% increase or decrease in the weighted average interest rate, which was ~~4.06%~~5.01% at ~~September~~June 30, ~~2018,~~2019, would have an interest impact of approximately ~~$1.0~~$0.3 million.

Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the ~~European~~ Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. For the most part, revenues and expenses incurred related to the non-U.S. operations are denominated in their functional currency. This minimizes the impact that fluctuations in exchange rates will have on profit margins. Translation of intercompany debt, which is not intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany balances are included in net earnings. The Company generally does not enter into foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.

The Company is exposed to foreign currency fluctuations relating to its intercompany balances between the U.S. and Canada. For every one cent change in the foreign exchange rate between the U.S. and Canada, the impact to the Company’s financial statements would be approximately ~~$3.2~~$1.0 million.

Impairment Risk: At June 30, 2019, the Company had goodwill of $743.6 million and other intangible assets of $60.8 million. The Company ~~has recognized an impairment of~~reviews goodwill and other intangible assets with indefinite lives not subject to amortization for impairment annually as of ~~$23.3 million~~October 1st of each year or more frequently if indicators of potential impairment exist. See the Critical Accounting Policies and Estimates section in the Company’s 2018 Form 10-K for ~~the nine months ended September 30, 2018. The~~information related to impairment ~~primarily consists of the write-down of goodwill equal to the excess carrying value above fair value of a reporting unit within the Global Integrated Agencies reportable segment~~testing and the ~~full write-down~~risk of a trademark for a reporting unit also within the Global Integrated Agencies reportable segment. See Note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.potential impairment charges in future periods.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”),

who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. However, our disclosure controls and procedures are designed to provide reasonable assurances of achieving our control objectives.

We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, our CEO and CFO concluded that, as of ~~September~~June 30, ~~2018,~~2019, our disclosure controls and procedures are effective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018~~2019 is appropriate.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal ~~control~~controls over financial reporting during the three months ended ~~September~~June 30, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

~~Dismissal of Class Action Litigation in Canada~~

On August 7, 2015, Roberto Paniccia issued a Statement of Claim in the Ontario Superior Court of Justice in the City of Brantford, Ontario seeking to certify a class action suit naming the following as defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino, CFO David Doft and BDO U.S.A. LLP. The Plaintiff alleged violations of section 138.1 of the Ontario Securities Act (and equivalent legislation in other Canadian provinces and territories) as well as common law misrepresentation based on allegedly materially false and misleading statements in the Company’s public statements, as well as omitting to disclose material facts with respect to the SEC investigation. On June 4, 2018, the Court dismissed (with costs) the putative class members’ motion for leave to proceed with the Plaintiff’s claims for misrepresentations of material facts pursuant to the Ontario Securities Act. Following the Court’s decision, on June 18, 2018, the Plaintiff, MDC and each of the other defendants consented to the dismissal of the action with prejudice (and without costs). In July 2018, the Court entered a final order approving the dismissal of this claim.

~~Antitrust Subpoena~~

In 2016, one of the Company’s subsidiary agencies received a subpoena from the U.S. Department of Justice Antitrust Division (the “DOJ”) concerning the DOJ’s ongoing investigation of production bidding practices in the advertising industry. The Company and its subsidiary are fully cooperating with this confidential investigation. Specifically, the Company and its subsidiary are providing information and engaging in discussions with the DOJ, including preliminary discussions regarding the feasibility of a potential settlement with the DOJ. However, there can be no assurance as to the timing of any settlement or that a settlement will be reached on any particular terms or at all. Moreover, the DOJ may determine to expand the scope of its investigation or initiate a proceeding to bring charges against our subsidiary or one or more members of the subsidiary agency’s former management. The DOJ may also seek to impose monetary sanctions.

Item 1A. Risk Factors

~~Except for the following new risk factor, there~~There are no material changes in the risk factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

While we are exploring and evaluating strategic alternatives, we may not be successful in identifying or completing any strategic alternative and any such strategic alternative may not yield additional value for shareholders.

On September 20, 2018, we announced that we had commenced a review of strategic alternatives which could result in, among other things, the possible sale of the Company. Our exploration of strategic alternatives may not result in the identification or consummation of any transaction. In addition, we may incur substantial expenses associated with identifying and evaluating potential strategic alternatives. The process of exploring strategic alternatives may be time consuming and disruptive to our business operations, and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. Any potential transaction and the related valuation would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms.

2018.

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

~~None.~~Purchase of Equity Securities by the Issuer and Affiliated Purchasers

For the three months ended June 30, 2019, the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement and the indenture governing the 6.50% Notes, the Company is currently limited from repurchasing its shares in the open market.

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



Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares That May Yet Be Purchased Under the Program
4/1/2019 - 4/30/2019	$	—	$	—	$	—	$	—
5/1/2019 - 5/31/2019	5,602		2.61		—		—
6/1/2019 - 6/30/2019	13,655		2.91		—		—
Total	$	19,257	$	2.70	$	—	$	—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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

EXHIBIT INDEX



Exhibit No.		Description
3.1		Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 10, 2004).
3.1.1		Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed on August 4, 2004).
3.1.2		Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 30, 2010).
3.1.3		Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 2, 2011).
3.1.4		Articles of Amalgamation, dated January 1, 2013 (incorporated by reference to Exhibit 3.1.4 to the Company’s Form 10-K filed on March 10, 2014).
3.1.5		Articles of Amalgamation, dated April 1, 2013 (incorporated by reference to Exhibit 3.1.5 to the Company’s Form 10-K filed on March 10, 2014).
3.1.6		Articles of Amalgamation, dated July 1, 2013 (incorporated by reference to Exhibit 3.1.6 to the Company’s Form 10-K filed on March 10, 2014).
3.1.7		Articles of Amendment, dated March 7, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 7, 2017).
3.1.8		Articles of Amendment, dated March 14, 2019 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on March 15, 2019).
3.2		General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed on March 16, 2007).
10.1		~~Succession~~ Agreement, dated ~~as of September 9, 2018~~April 19, 2019, by and between the Company and ~~Scott L. Kauffman~~FrontFour Capital Group LLC, on behalf of itself and its affiliates (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on ~~September 12, 2018)~~April 22, 2019).
1210.2		~~Statement~~ Employment Agreement, dated as of ~~computation~~May 6, 2019, by and between the Company and Frank Lanuto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 8, 2019).
10.3		Employment Agreement, dated as of ~~ratio~~May 6, 2019, by and between the Company and Jonathan Mirsky (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on May 8, 2019).
10.4		Employment Agreement, dated as of ~~earnings~~May 16, 2019, by and between the Company and Seth Gardner (incorporated by reference to fixed charges.*Exhibit 10.1 to the Company's Form 8-K filed on May 23, 2019).
10.5		Separation and Release Agreement, dated as of May 9, 2019, by and between the Company and David Doft (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on May 9, 2019).
10.6		Separation and Release Agreement, dated as of May 6, 2019, by and between the Company and Mitchell Gendel (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on May 9, 2019).
10.7		Agreement of Settlement and Release, dated as of June 3, 2019, by and between the Company and Stephanie Nerlich (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on June 6, 2019).
10.8		Amendment to Incentive/Retention Agreement, dated June 4, 2019, by and between the Company and David Ross (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on June 6, 2019).
31.1		Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2		Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.1		Schedule of Advertising and Communications Companies.*
101		Interactive data file.*

* Filed electronically herewith.

SIGNATURES

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



MDC PARTNERS INC.

/s/ ~~David Doft~~Frank Lanuto
~~David Doft~~Frank Lanuto
Chief Financial Officer and Authorized Signatory

~~November 1, 2018~~August 7, 2019

5557



	Convertible Preference Shares				Common Shares					Additional Paid-in Capital			Charges in Excess of Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			MDC Partners Inc. Shareholders’ Deficit			Noncontrolling Interests			Total Shareholders’ Deficit
	Convertible Preference Shares				Common Shares
	Shares	Amount			Shares		Amount
Balance at December 31, 2017	95,000	$	90,220		56,375,131		$	352,432		$	—		$	(314,241	)	$	(340,000	)	$	(1,954	)	$	(213,543	)	$	58,030		$	(155,513	)
Net loss attributable to MDC Partners, Inc.	—	—			—		—			—			—			(42,135		)	—			(42,135		)	—			(42,135		)
Other comprehensive income (loss)	—	—			—		—			—			—			—			635			635			(1,533		)	(898		)
Expenses for convertible preference shares (Note 9)	—	(97		)	—		—			—			—			—			—			(97		)	—			(97		)
Issuance of restricted stock	—	—			237,529		3,509			(3,509		)	—			—			—			—			—			—
Shares acquired and cancelled	—	—			(108,782	)	(776		)	—			—			—			—			(776		)	—			(776		)
Shares issued, acquisitions	—	—			1,011,561		7,030			—			—			—			—			7,030			—			7,030
Stock-based compensation	—	—			—		—			6,774			—			—			—			6,774			—			6,774
Changes in redemption value of redeemable noncontrolling interests	—	—			—		—			(4,409		)	—			—			—			(4,409		)				(4,409		)
Business acquisitions and step-up transactions	—	—			—		—			3,809			—			—			—			3,809			15,410			19,219
Changes in ownership interest	—	—			—		—			—			—			—			—			—			(5,965		)	(5,965		)
Cumulative effect of adoption of ASC 606 (Note 14)	—	—			—		—			—			—			(1,170		)	—			(1,170		)	—			(1,170		)
Transfer to charges in excess of capital	—	—			—		—			(2,665		)	2,665			—			—			—						—
Balance at September 30, 2018	95,000	$	90,123		57,515,439		$	362,195		$	—		$	(311,576	)	$	(383,305	)	$	(1,319	)	$	(243,882	)	$	65,942		$	(177,940	)



	September 30,			December 31,
	2018			2017
Beginning balance of contingent payments	$	119,086		$	224,754
Payments ⁽¹⁾	(54,947		)	(110,234		)
Additions - acquisitions and step up transactions	12,816			—
Redemption value adjustments ⁽²⁾	16,276			3,273
Foreign translation adjustment	(22		)	1,293
Ending balance of contingent payments	$	93,209		$	119,086
Fixed payments	1,520			3,340
	$	94,729		$	122,426



	Three Months Ended September 30, 2018
	As Reported			Adjustments			Adjusted to Exclude Adoption of ASC 606
Revenue - Services	$	375,830		$	8,172		$	384,002
Costs of services sold	$	238,690		$	14,122		$	252,812
Operating profit (loss)	$	2,618		$	(5,950	)	$	(3,332	)
Net loss attributable to MDC Partners, Inc. common shareholders	$	(18,234	)	$	(4,700	)	$	(22,934	)
Loss per common share - basic and diluted	$	(0.32	)	$	(0.08	)	$	(0.40	)



Dollars in millions	As of and for the nine months ended September 30, 2018			As of and for the nine months ended September 30, 2017			As of and for the year ended December 31, 2017

Cash and cash equivalents	$	25.1		$	18.9		$	46.2
Working capital (deficit)	$	(181.7	)	$	(220.3	)	$	(232.9	)
Cash (used in) provided by operating activities	$	(31.7	)	$	(14.5	)	$	115.3
Cash used in investing activities	$	(48.4	)	$	(19.5	)	$	(20.9	)
Cash provided by (used in) financing activities	$	59.1		$	24.9		$	(75.4	)
Ratio of long-term debt to shareholders' deficit	(5.55		)	(2.39		)	(5.68		)



	September 30, 2018
(amounts in $ millions)	Global Integrated Agencies			Domestic Creative Agencies		Specialist Communication Agencies			Media Services			All Other			Total
Beginning Balance of contingent payments	$	81.4		$	—	$	5.5		$	3.7		$	28.5		$	119.1
Payments	(32.8		)	—		(5.4		)	(1.3		)	(15.5		)	(54.9		)
Additions ⁽¹⁾	3.1			—		9.7			—			—			12.8
Redemption value adjustments ⁽²⁾	8.8			—		1.4			0.1			5.9			16.3
Ending Balance of contingent payments	60.5			—		11.3			2.6			18.9			93.2
Fixed payments, net	1.1			—		—			—			0.5			1.5
	$	61.6		$	—	$	11.3		$	2.6		$	19.3		$	94.7