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 ~~June~~September 30, 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

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



Large accelerated Filer ¨	Accelerated filer x
Non-accelerated Filer ¨	Smaller reporting company x
Emerging growth company ¨

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

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

The number of common shares outstanding as of ~~July 19,~~October 18, 2019 was ~~71,943,994~~72,142,668 Class A subordinate voting shares and 3,749 Class B multiple voting 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 ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	4
	Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2019 (unaudited) and December 31, 2018	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	6
	Condensed Consolidated Statements of Shareholders’ Deficit (unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	52

	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	55
Item 6.	Exhibits	56
Signatures		56

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 June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Revenue:
Services	$	362,130		$	379,743		$	690,921		$	706,711		$	342,907		$	375,830		$	1,033,828		$	1,082,541
Operating Expenses:
Cost of services sold	240,749			253,390			477,903			496,420			222,448			238,690			700,351			735,110
Office and general expenses	87,276			83,878			154,394			167,757			79,726			102,380			234,120			270,137
Depreciation and amortization	10,663			11,703			19,501			24,078			9,368			11,134			28,869			35,212
Other asset impairment	—			—			—			2,317
Goodwill and other asset impairment													1,944			21,008			1,944			23,325
	338,688			348,971			651,798			690,572			313,486			373,212			965,284			1,063,784
Operating income	23,442			30,772			39,123			16,139			29,421			2,618			68,544			18,757
Other Income (Expenses):
Interest expense and finance charges, net	(16,413		)	(16,859		)	(33,174		)	(32,942		)	(16,110		)	(17,063		)	(49,284		)	(50,005		)
Foreign exchange gain (loss)	2,932			(6,549		)	8,374			(13,209		)	(3,973		)	3,275			4,401			(9,934		)
Other, net	(746		)	592			(4,128		)	1,033			(431		)	189			(4,559		)	1,222
	(14,227		)	(22,816		)	(28,928		)	(45,118		)	(20,514		)	(13,599		)	(49,442		)	(58,717		)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates	9,215			7,956			10,195			(28,979		)	8,907			(10,981		)	19,102			(39,960		)
Income tax expense (benefit)	2,088			1,977			2,835			(6,353		)	3,457			2,986			6,292			(3,367		)
Income (loss) before equity in earnings of non-consolidated affiliates	7,127			5,979			7,360			(22,626		)	5,450			(13,967		)	12,810			(36,593		)
Equity in earnings (losses) of non-consolidated affiliates	206			(28		)	289			58
Equity in earnings of non-consolidated affiliates													63			300			352			358
Net income (loss)	7,333			5,951			7,649			(22,568		)	5,513			(13,667		)	13,162			(36,235		)
Net income attributable to the noncontrolling interest	(3,043		)	(2,545		)	(3,472		)	(3,442		)	(7,265		)	(2,458		)	(10,737		)	(5,900		)
Net income (loss) attributable to MDC Partners Inc.	4,290			3,406			4,177			(26,010		)	(1,752		)	(16,125		)	2,425			(42,135		)
Accretion on and net income allocated to convertible preference shares	(3,515		)	(2,273		)	(5,625		)	(4,095		)	(3,306		)	(2,109		)	(8,931		)	(6,204		)
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	775		$	1,133		$	(1,448	)	$	(30,105	)
Income (loss) Per Common Share:
Net loss attributable to MDC Partners Inc. common shareholders													$	(5,058	)	$	(18,234	)	$	(6,506	)	$	(48,339	)
Loss Per Common Share:
Basic
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	0.01		$	0.02		$	(0.02	)	$	(0.53	)
Net loss attributable to MDC Partners Inc. common shareholders													$	(0.07	)	$	(0.32	)	$	(0.10	)	$	(0.85	)
Diluted
Net income (loss) attributable to MDC Partners Inc. common shareholders	$	0.01		$	0.02		$	(0.02	)	$	(0.53	)
Net loss attributable to MDC Partners Inc. common shareholders													$	(0.07	)	$	(0.32	)	$	(0.10	)	$	(0.85	)
Weighted Average Number of Common Shares Outstanding:
Basic	71,915,832			57,439,823			66,118,749			56,924,208			72,044,480			57,498,661			68,154,306			57,117,797
Diluted	72,024,689			57,802,872			66,118,749			56,924,208			72,044,480			57,498,661			68,154,306			57,117,797
Stock-based compensation expense is included in the following line items above:
Cost of services sold	$	2,442		$	4,047		$	6,987		$	7,394		$	5,193		$	4,390		$	12,180		$	11,784
Office and general expenses	1,192			1,556			(381		)	3,246			833			1,852			452			5,098
Total	$	3,634		$	5,603		$	6,606		$	10,640		$	6,026		$	6,242		$	12,632		$	16,882

See notes to the 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 June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Comprehensive Income (Loss)
Net income (loss)	$	7,333		$	5,951		$	7,649		$	(22,568	)	$	5,513		$	(13,667	)	$	13,162		$	(36,235	)

Other comprehensive income (loss), net of applicable tax:
Foreign currency translation adjustment	(1,385		)	(1,848		)	(6,044		)	429			(1,461		)	(1,327		)	(7,505		)	(898		)
Other comprehensive income (loss)	(1,385		)	(1,848		)	(6,044		)	429
Other comprehensive loss													(1,461		)	(1,327		)	(7,505		)	(898		)
Comprehensive income (loss) for the period	5,948			4,103			1,605			(22,139		)	4,052			(14,994		)	5,657			(37,133		)
Comprehensive income attributable to the noncontrolling interests	(3,081		)	(1,641		)	(3,861		)	(1,436		)	(6,969		)	(2,931		)	(10,830		)	(4,367		)
Comprehensive income (loss) attributable to MDC Partners Inc.	$	2,867		$	2,462		$	(2,256	)	$	(23,575	)
Comprehensive loss attributable to MDC Partners Inc.													$	(2,917	)	$	(17,925	)	$	(5,173	)	$	(41,500	)

See notes to the Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(thousands of United States dollars)


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	27,304		$	30,873		$	27,280		$	30,873
Accounts receivable, less allowance for doubtful accounts of $2,792 and $1,879	434,512			395,200
Accounts receivable, less allowance for doubtful accounts of $2,728 and $1,879							411,805			395,200
Expenditures billable to clients	40,605			42,369			38,652			42,369
Assets held for sale	—			78,913			—			78,913
Other current assets	44,815			42,499			35,939			42,499
Total Current Assets	547,236			589,854			513,676			589,854
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			—
Fixed assets, at cost, less accumulated depreciation of $147,342 and $128,546							82,946			88,189
Right-of-use assets - operating leases							234,137			—
Investments in non-consolidated affiliates	6,761			6,556			6,824			6,556
Goodwill	743,582			740,955			740,955			740,955
Other intangible assets, net, less accumulated amortization of $168,748 and $161,868	60,848			67,765
Other intangible assets, net of accumulated amortization of $171,941 and $161,868							56,734			67,765
Deferred tax assets	92,439			92,741			92,439			92,741
Other assets	26,415			25,513			24,018			25,513
Total Assets	$	1,798,649		$	1,611,573		$	1,751,729		$	1,611,573
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable	$	228,069		$	221,995		$	178,946		$	221,995
Accruals and other liabilities	253,868			313,141			280,783			313,141
Liabilities held for sale	—			35,967			—			35,967
Advance billings	168,142			138,505			169,857			138,505
Current portion of lease liabilities - operating leases	46,338			—			47,722			—
Current portion of deferred acquisition consideration	35,439			32,928			31,579			32,928
Total Current Liabilities	731,856			742,536			708,887			742,536
Long-term debt	914,092			954,107			895,379			954,107
Long-term portion of deferred acquisition consideration	22,804			50,767			24,611			50,767
Long-term lease liabilities - operating leases	233,165			—			230,209			—
Other liabilities	19,503			54,255			17,933			54,255
Deferred tax liabilities	6,571			5,329			7,486			5,329
Total Liabilities	1,927,991			1,806,994			1,884,505			1,806,994
Redeemable Noncontrolling Interests	42,635			51,546			41,519			51,546
Commitments, Contingencies, and Guarantees (Note 13)
Shareholders’ Deficit:
Convertible preference shares, 145,000 authorized, issued and outstanding at June 30, 2019 and 95,000 at December 31, 2018	152,746			90,123
Convertible preference shares, 145,000 authorized, issued and outstanding at September 30, 2019 and 95,000 at December 31, 2018							152,746			90,123
Common stock and other paid-in capital	97,455			58,579			98,364			58,579
Accumulated deficit	(460,726		)	(464,903		)	(462,483		)	(464,903		)
Accumulated other comprehensive loss (income)	(1,713		)	4,720
Accumulated other comprehensive (loss) income							(2,878		)	4,720
MDC Partners Inc. Shareholders' Deficit	(212,238		)	(311,481		)	(214,251		)	(311,481		)
Noncontrolling interests	40,261			64,514			39,956			64,514
Total Shareholders' Deficit	(171,977		)	(246,967		)	(174,295		)	(246,967		)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit	$	1,798,649		$	1,611,573		$	1,751,729		$	1,611,573

See notes to the Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(thousands of United States dollars)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Cash flows from operating activities:
Net income (loss)	$	7,649		$	(22,568	)	$	13,162		$	(36,235	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Stock-based compensation	6,606			10,640			12,632			16,882
Depreciation	12,621			14,642			18,796			20,944
Amortization of intangibles	6,880			9,436			10,073			14,268
Amortization of deferred finance charges and debt discount	1,663			1,605			2,504			2,402
Other asset impairment	—			2,317
Goodwill and other asset impairment							1,944			23,325
Adjustment to deferred acquisition consideration	(5,570		)	(2,479		)	(3,627		)	8,522
Deferred income taxes	2,835			(9,494		)	6,292			(6,690		)
Loss on sale of assets	3,407			(955		)	3,361			(1,408		)
Earnings of non-consolidated affiliates	(289		)	(58		)	(352		)	(358		)
Other and non-current assets and liabilities	(4,139		)	(1,114		)
Other non-current assets and liabilities							(3,017		)	(956		)
Foreign exchange	(7,363		)	12,128			(5,145		)	9,125
Changes in working capital:
Accounts receivable	(21,570		)	19,181			835			8,574
Expenditures billable to clients	1,763			(27,935		)	3,716			(28,171		)
Prepaid expenses and other current assets	(3,345		)	(12,732		)	3,280			(11,516		)
Accounts payable, accruals and other current liabilities	(66,343		)	(60,015		)	(96,527		)	(49,587		)
Acquisition related payments	(4,376		)	(23,894		)	(4,816		)	(28,263		)
Advance billings	29,334			29,582			31,049			27,413
Net cash used in operating activities	(40,237		)	(61,713		)	(5,840		)	(31,729		)
Cash flows from investing activities:
Capital expenditures	(7,923		)	(9,689		)	(13,786		)	(15,232		)
Proceeds from sale of assets	23,050			—			23,050			—
Acquisitions, net of cash acquired	(5,130		)	(27,299		)	(5,778		)	(34,303		)
Other investments	(179		)	867			(179		)	1,180
Net cash provided by (used in) investing activities	9,818			(36,121		)	3,307			(48,355		)
Cash flows from financing activities:
Repayment of revolving credit facility	(834,538		)	(782,600		)	(1,172,909		)	(1,121,300		)
Proceeds from revolving credit facility	793,940			897,844			1,112,857			1,224,290
Proceeds from issuance of common and convertible preference shares, net of issuance costs	98,620			—			98,620			—
Acquisition related payments	(24,219		)	(29,172		)	(30,155		)	(32,240		)
Distributions to noncontrolling interests	(7,957		)	(8,927		)	(9,982		)	(10,410		)
Payment of dividends	(56		)	(168		)	(56		)	(182		)
Purchase of shares	(78		)	(493		)	(577		)	(776		)
Other	—			(141		)	—			(260		)
Net cash provided by financing activities	25,712			76,343
Net cash provided by (used in) financing activities							(2,202		)	59,122
Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts	4			311			8			(161		)
Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale	(4,703		)	(21,180		)	(4,727		)	(21,123		)
Change in cash and cash equivalents held in trusts classified within held for sale	(3,307		)	—			(3,307		)	—
Change in cash and cash equivalents classified within assets held for sale	4,441			—			4,441			—
Net decrease in cash and cash equivalents	(3,569		)	(21,180		)	(3,593		)	(21,123		)
Cash and cash equivalents at beginning of period	30,873			46,179			30,873			46,179


	Six Months Ended June 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cash and cash equivalents at end of period	$	27,304	$	24,999	$	27,280	$	25,056
Supplemental disclosures:
Cash income taxes paid	$	3,494	$	2,626	$	3,631	$	4,822
Cash interest paid	$	31,643	$	31,414	$	32,525	$	33,011

See notes to the Unaudited Condensed Consolidated Financial Statements.

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(thousands of United States dollars, except share amounts)


	Three Months Ended																												Three Months Ended
	June 30, 2019																												September 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		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	Convertible Preference Shares			Common Shares																									Convertible Preference Shares					Common Shares
(in thousands, except share amounts)	Shares	Amount		Shares									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
Balance at June 30, 2019																													145,000		$	152,746		71,947,743		$	97,455		$	(460,726	)	$	(1,713	)	$	(212,238	)	$	40,261		$	(171,977	)
Net loss attributable to MDC Partners Inc.																													—		—			—		—			(1,752		)	—			(1,752		)	—			(1,752		)
Other comprehensive loss	—	—		—		—				—				(1,423		)		(1,423		)		38				(1,385		)	—		—			—		—			—			(1,165		)	(1,165		)	(296		)	(1,461		)
Issuance of common and convertible preference shares	—	629		—		362				—				—				991				—				991
Issuance of restricted stock	—	—		76,979		—				—				—				—				—				—			—		—			372,953		—			—			—			—			—			—
Shares acquired and cancelled	—	—		(19,257	)	(22		)		—				—				(22		)		—				(22		)	—		—			(174,279	)	(499		)	—			—			(499		)	—			(499		)
Stock-based compensation	—	—		—		1,800				—				—				1,800				—				1,800			—		—			—		1,409			—			—			1,409			—			1,409
Changes in redemption value of redeemable noncontrolling interests	—	—		—		(3,190		)		—				—				(3,190		)						(3,190		)	—		—			—		767			—			—			767			—			767
Business acquisitions and step-up transactions, net of tax	—	—		—		(97		)		—				—				(97		)		—				(97		)	—		—			—		(648		)	—			—			(648		)	—			(648		)
Changes in ownership interest	—	—		—		(91		)		—				—				(91		)		—				(91		)	—		—			—		(109		)	—			—			(109		)	—			(109		)
Balance at June 30, 2019	145,000	$	152,746	71,947,743		$	97,455			$	(460,726	)		$	(1,713	)		$	(212,238	)		$	40,261			$	(171,977	)
Other																													—		—			—		(11		)	(5		)	—			(16		)	(9		)	(25		)
Balance at September 30, 2019																													145,000		$	152,746		72,146,417		$	98,364		$	(462,483	)	$	(2,878	)	$	(214,251	)	$	39,956		$	(174,295	)


	Six Months Ended																													Nine Months Ended
	June 30, 2019																													September 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			Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)				MDC Partners Inc. Shareholders' Deficit				Noncontrolling Interests				Total Shareholder's Deficit
	Convertible Preference Shares																													Convertible Preference Shares						Common Shares
(in thousands, except share amounts)	Shares	Amount		Common Shares		Shares												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	)	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			—		—				—		—			2,425				—				2,425				—				2,425
Other comprehensive loss	—	—		—			—				—				(6,433		)		(6,433		)		389				(6,044		)
Other comprehensive income (loss)																														—			—			—			—			—			(7,598		)		(7,598		)		93				(7,505		)
Issuance of common and convertible preference shares	50,000	62,623		14,285,714			35,997				—				—				98,620				—				98,620			50,000			62,623			14,285,714			35,997			—			—				98,620				—				98,620
Issuance of restricted stock	—	—		193,979			—				—				—				—				—				—			—			—			566,932			—			—			—				—				—				—
Shares acquired and cancelled	—	—		(53,273	)		(78		)		—				—				(78		)		—				(78		)	—			—			(227,552	)		(577		)	—			—				(577		)		—				(577		)
Stock-based compensation	—	—		—			509				—				—				509				—				509			—			—			—			1,918			—			—				1,918				—				1,918
Changes in redemption value of redeemable noncontrolling interests	—	—		—			2,729				—				—				2,729				—				2,729			—			—			—			3,496			—			—				3,496				—				3,496
Business acquisitions and step-up transactions, net of tax	—	—		—			(97		)		—				—				(97		)		—				(97		)	—			—			—			(745		)	—			—				(745		)		—				(745		)
Changes in ownership interest	—	—		—			(184		)		—				—				(184		)		(24,642		)		(24,826		)	—			—			—			(293		)	—			—				(293		)		(24,642		)		(24,935		)
Balance at June 30, 2019	145,000	$	152,746	71,947,743			$	97,455			$	(460,726	)		$	(1,713	)		$	(212,238	)		$	40,261			$	(171,977	)
Other																														—			—			—			(11		)	(5		)	—				(16		)		(9		)		(25		)
Balance at September 30, 2019																														145,000			$	152,746		72,146,417			$	98,364		$	(462,483	)	$	(2,878	)		$	(214,251	)		$	39,956			$	(174,295	)

Three Months Ended
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

(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 )

MDC PARTNERS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(thousands of United States dollars, except share amounts)


	Six Months Ended																												Three Months Ended
	June 30, 2018																												September 30, 2018
	Convertible Preference Shares				Common Shares		Common Stock and Other Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Income			MDC Partners Inc. Shareholders' Deficit				Noncontrolling Interests				Total Shareholder's Deficit			Convertible Preference Shares						Common Shares			Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	Convertible Preference Shares																												Convertible Preference Shares						Common Shares
(in thousands, except share amounts)	Shares	Amount			Common Shares					Shares											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	)
Balance at June 30, 2018																													95,000			$	90,123		57,454,028			$	45,824		$	(367,180	)	$	481		$	(230,752	)	$	77,416		$	(153,336	)
Net loss attributable to MDC Partners Inc.	—	—			—		—					(26,010		)			—			(26,010		)		—				(26,010		)	—			—			—			—			(16,125	)		—			(16,125	)		—			(16,125	)
Other comprehensive income (loss)	—	—			—		—				—				2,435			2,435				(2,006		)		429			—			—			—			—			—			(1,800		)	(1,800		)	473			(1,327		)
Expenses for convertible preference shares	—	(97		)	—		—				—				—			(97		)		—				(97		)
Issuance of restricted stock	—	—			122,029		—				—				—			—				—				—			—			—			115,500			—			—			—			—			—			—
Shares acquired and cancelled	—	—			(54,693	)	(493		)		—				—			(493		)		—				(493		)	—			—			(54,089	)		(283		)	—			—			(283		)	—			(283		)
Shares issued, acquisitions	—	—			1,011,561		7,030				—				—			7,030				—				7,030
Stock-based compensation	—	—			—		4,324				—				—			4,324				—				4,324			—			—			—			2,450			—			—			2,450			—			2,450
Changes in redemption value of redeemable noncontrolling interests	—	—			—		(2,062		)		—				—			(2,062		)		—				(2,062		)	—			—			—			(2,347		)	—			—			(2,347		)	—			(2,347		)
Business acquisitions and step-up transactions, net of tax	—	—			—		(1,166		)		—				—			(1,166		)		27,357				26,191			—			—			—			4,975			—			—			4,975			(11,947		)	(6,972		)
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	)
Balance at September 30, 2018																													95,000			$	90,123		57,515,439			$	50,619		$	(383,305	)	$	(1,319	)	$	(243,882	)	$	65,942		$	(177,940	)



	Nine Months Ended
	September 30, 2018
	Convertible Preference Shares				Common Shares		Common Stock and Other Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			MDC Partners Inc. Shareholders' Deficit			Noncontrolling Interests			Total Shareholder's Deficit
	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.	—	—			—		—			(42,135		)	—			(42,135		)	—			(42,135		)
Other comprehensive income (loss)	—	—			—		—			—			635			635			(1,533		)	(898		)
Expenses for convertible preference shares	—	(97		)	—		—			—			—			(97		)	—			(97		)
Issuance of restricted stock	—	—			237,529		—			—			—			—			—			—
Shares acquired and cancelled	—	—			(108,782	)	(776		)	—			—			(776		)	—			(776		)
Shares issued, acquisitions	—	—			1,011,561		7,030			—			—			7,030			—			7,030
Stock-based compensation	—	—			—		6,774			—			—			6,774			—			6,774
Changes in redemption value of redeemable noncontrolling interests	—	—			—		(4,409		)	—			—			(4,409		)	—			(4,409		)
Business acquisitions and step-up transactions, net of tax	—	—			—		3,809			—			—			3,809			15,410			19,219
Changes in ownership interest	—	—			—		—			—			—			—			(5,965		)	(5,965		)
Cumulative effect of adoption of ASC 606	—	—			—		—			(1,170		)	—			(1,170		)	—			(1,170		)
Balance at September 30, 2018	95,000	$	90,123		57,515,439		$	50,619		$	(383,305	)	$	(1,319	)	$	(243,882	)	$	65,942		$	(177,940	)

See notes to the Unaudited Condensed Consolidated Financial Statements.

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, 2018 (“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.

Due to changes in the composition of certain ~~business~~businesses 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 certain businesses between segments. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for 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~~or interdependent, ~~nor~~and that do not significantly modify or customize each other, are considered separate performance obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing services to be separate performance obligations if included in the same contract as each of these services can be provided on a stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website design and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output.

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

Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date.

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

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

Disaggregated Revenue Data

The Company provides a broad range of services to a large base of clients across the full spectrum of industry verticals on a global basis. 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
Industry	Reportable Segment	2019		2018		2019		2018		Reportable Segment	2019		2018		2019		2018
Food & Beverage	All	$	73,305	$	84,464	$	139,969	$	147,932	All	$	64,774	$	80,919	$	204,743	$	234,203
Retail	All	39,894		38,396		72,350		76,411		All	39,420		40,421		111,899		116,832
Consumer Products	All	45,296		41,367		78,232		77,973		All	38,510		40,124		119,866		118,097
Communications	All	47,793		43,097		87,490		81,454		All	48,147		46,779		136,819		128,232
Automotive	All	18,541		25,294		36,732		45,788		All	19,125		21,282		55,857		67,070
Technology	All	28,876		23,540		54,279		45,080		All	28,148		26,005		84,294		71,085
Healthcare	All	25,954		35,426		49,161		68,002		All	25,152		33,751		74,403		101,753
Financials	All	27,868		30,207		52,795		52,702		All	28,054		30,378		81,049		83,079
Transportation and Travel/Lodging	All	27,050		18,776		44,085		33,664		All	20,541		19,357		65,111		53,021
Other	All	27,553		39,176		75,828		77,705		All	31,036		36,814		99,787		109,169
		$	362,130	$	379,743	$	690,921	$	706,711		$	342,907	$	375,830	$	1,033,828	$	1,082,541

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 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 for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018:

Three Months Ended June 30, Six Months Ended June 30,
Geographic Location Reportable Segment 2019 2018 2019 2018
United States All $ 284,659
$ 295,268
$ 547,676
$ 551,792
Canada All, excluding Media Services 24,564
33,086
46,942
59,465
Other All, excluding Media Services and Domestic Creative Agencies 52,907
51,389
96,303
95,454
$ 362,130
$ 379,743
$ 690,921
$ 706,711



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

Contract assets 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 ~~$92,317~~$81,703 and $64,362 at ~~June~~September 30, 2019 and December 31, 2018, respectively, and are included as a component of accounts receivable on the Unaudited Condensed Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were ~~$40,605~~$38,652 and $42,369 at ~~June~~September 30, 2019 and December 31, 2018, respectively, and are included on the Unaudited Condensed Consolidated Balance Sheets as expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services.

Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are classified as advance billings on the Company’s Unaudited Condensed Consolidated Balance Sheets. Advance billings at ~~June~~September 30, 2019 and December 31, 2018 were ~~$168,142~~$169,857 and $138,505, respectively. The increase in the advance billings balance of ~~$29,637~~$31,352 for the ~~six~~nine months ended ~~June~~September 30, 2019 iswas primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by ~~$101,431~~$114,927 of revenues recognized that were included in the advance billings balances as of December 31, 2018 and reductions due to the incurrence of third-party costs.

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

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 June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Numerator:
Net income (loss) attributable to MDC Partners Inc.	$	4,290		$	3,406		$	4,177		$	(26,010	)	$	(1,752	)	$	(16,125	)	$	2,425		$	(42,135	)
Accretion on convertible preference shares	(3,242		)	(2,068		)	(5,625		)	(4,095		)	(3,306		)	(2,109		)	(8,931		)	(6,204		)
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	)
Net loss attributable to MDC Partners Inc. common shareholders													$	(5,058	)	$	(18,234	)	$	(6,506	)	$	(48,339	)

Adjustment to net income allocated to convertible preference shares	—			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	)
Numerator for dilutive loss per common share:
Net loss attributable to MDC Partners Inc. common shareholders													$	(5,058	)	$	(18,234	)	$	(6,506	)	$	(48,339	)
Denominator:
Basic weighted average number of common shares outstanding	71,915,832			57,439,823			66,118,749			56,924,208			72,044,480			57,498,661			68,154,306			57,117,797
Effect of dilutive securities:
Impact of stock options and non-vested stock under employee stock incentive plans	108,857			363,049			—			—			—			—			—			—
Diluted weighted average number of common shares outstanding	72,024,689			57,802,872			66,118,749			56,924,208			72,044,480			57,498,661			68,154,306			57,117,797
Basic	$	0.01		$	0.02		$	(0.02	)	$	(0.53	)	$	(0.07	)	$	(0.32	)	$	(0.10	)	$	(0.85	)
Diluted	$	0.01		$	0.02		$	(0.02	)	$	(0.53	)	$	(0.07	)	$	(0.32	)	$	(0.10	)	$	(0.85	)

Anti-dilutive stock awards ~~2,662,666 327,500 4,406,206 1,594,761~~3,714,595 1,524,218 3,714,595 1,524,218

Restricted stock and restricted stock unit awards of ~~242,338~~135,386 and ~~1,308,781 for the three and six months ended June~~1,015,637 as of September 30, 2019 and 2018 respectively, which are contingent upon the Company meeting a cumulative three year earnings target and contingent upon continued employment, are excluded from the computation of diluted income per common share as the contingencies were not satisfied at ~~June~~September 30, 2019 and 2018, respectively. In addition, there were 145,000 and 95,000 Preference Shares outstanding which were convertible into ~~25,621,189~~26,133,613 and ~~10,544,708~~10,755,602 Class A common shares at ~~June~~September 30, 2019 and 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,~~$10,234, comprised of a closing cash payment of $3,890 and additional deferred acquisition payments with an estimated present value at the acquisition date of ~~$5,695.~~$6,344. The deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,178. The fair value was measured using a discounted cash flow model.

As a result of the transaction, the Company reduced redeemable noncontrolling interests by ~~$9,488.~~$9,486. The difference between the purchase price and the noncontrolling interest of ~~$97~~$745 was recorded in common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheet.

2019 Disposition

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

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

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

2018 Acquisitions

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

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

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

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

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

5. Deferred Acquisition Consideration

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

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


	June 30,			December 31,			September 30,			December 31,
	2019			2018			2019			2018
Beginning Balance of contingent payments	$	82,598		$	119,086		$	82,598		$	119,086
Payments	(24,492		)	(54,947		)	(30,719		)	(54,947		)
Redemption value adjustments ⁽¹⁾	(6,100		)	3,512			(2,617		)	3,512
Additions - acquisitions and step up transactions	5,695			14,943
Additions - acquisitions and step-up transactions							6,344			14,943
Other	—			4			35			4
Ending Balance of contingent payments	$	57,701		$	82,598		$	55,641		$	82,598
Fixed payments	542			1,097			549			1,097
	$	58,243		$	83,695		$	56,190		$	83,695

⁽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 June 30,						Six Months Ended June 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2019			2018			2019			2018			2019		2018		2019			2018
Income (loss) attributable to fair value adjustments	$	2,073		$	(5,065	)	$	(5,570	)	$	(2,479	)
(Income) loss attributable to fair value adjustments													$	1,943	$	11,003	$	(3,627	)	$	8,522
Stock-based compensation	(1,339		)	2,321			(530		)	4,682			1,540		3,076		1,010			7,758
Redemption value adjustments	$	734		$	(2,744	)	$	(6,100	)	$	2,203		$	3,483	$	14,079	$	(2,617	)	$	16,280

6. Leases

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

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

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

Lease costs are recognized in the 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.~~2032. 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.~~Australia.

As of ~~June~~September 30, 2019, the Company has entered into antwo operating ~~lease~~leases 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~~these leases represent an obligation of the Company that is not on the Consolidated Balance Sheet as of ~~June~~September 30, 2019. The aggregate future liability related to ~~the lease~~these leases is approximately $6$12 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~~nine months ended ~~June~~September 30, 2019:


	Three Months Ended June 30,			Six Months Ended June 30,			Three Months Ended September 30,			Nine Months Ended September 30,
	2019			2019			2019			2019
Lease Cost:
Operating lease cost	$	17,473		$	33,914		$	16,605		$	50,519
Variable lease cost	4,361			9,325			4,960			14,285
Sublease rental income	(2,590		)	(4,189		)	(2,376		)	(6,565		)
Total lease cost	$	19,244		$	39,050		$	19,189		$	58,239
Additional information:
Cash paid for amounts included in the measurement of lease liabilities for operating leases
Operating cash flows	$	19,523		$	35,175		$	16,988		$	52,163

Right-of-use assets obtained in exchange for operating lease liabilities	$	2,195		$	259,013		$	8,783		$	267,796
Weighted average remaining lease term (in years) - Operating leases	7.0			7.0			7.0			7.0
Weighted average discount rate - Operating leases	8.6			8.6			8.7			8.7

In the three months ended September 30, 2019, the Company recorded an impairment charge of $1.9 million to reduce the carrying value of a right-of-use lease asset and related leasehold improvements of one of its agencies within its Global Integrated Agencies segment. The Company evaluated the facts and circumstances related to the use of the asset which indicated that it may not be recoverable. Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the asset was less than its carrying value. This impairment charge is included in Other Asset Impairment within the Unaudited Condensed Consolidated Statement of Operations.

Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated Statement of Operations. ~~Lease~~The Company’s lease expense for leases with a term of 12 months or less is ~~immaterial to the Company.~~immaterial. Rental expense for the three and ~~six~~nine months ended ~~June~~September 30, 2018 was ~~$15,981~~$15,768 and ~~$33,541,~~$49,309, respectively, offset by ~~$926~~$1,233 and ~~$1,640,~~$2,873, respectively in sublease rental income.

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


	Maturity Analysis			Maturity Analysis
Remaining 2019	$	33,776		$	17,454
2020	66,425			68,981
2021	56,428			58,759
2022	45,942			48,272
2023	42,113			43,732
Thereafter	133,823			139,476
Total	378,507			376,674
Less: Present value discount	(99,004		)	(98,743		)
Lease liability	$	279,503		$	277,931

7. Debt

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


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Revolving credit agreement	$	27,545		$	68,143		$	8,091		$	68,143
6.50% Notes due 2024	900,000			900,000			900,000			900,000
Debt issuance costs	(13,453		)	(14,036		)	(12,712		)	(14,036		)
	$	914,092		$	954,107		$	895,379		$	954,107

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.

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 ~~June~~September 30, 2019.

Credit Agreement

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~~September 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 the Company) (“Maxxcom”) and each of their subsidiaries party thereto entered into an Amendment to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement.

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

In connection with the Amendment, the Company reduced the aggregate maximum amount of revolving commitments provided by the lenders under the Credit 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 0.75% in the case of Base Rate Loans and 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 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.

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

8. Share Capital

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

Series 6 Convertible Preference Shares

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

The holders of the Series 6 Preference Shares have the right to convert their Series 6 Preference Shares in whole at any time and from time to time, and in part at any time and from time to time, into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation preference per share ~~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~~nine months ended ~~June~~September 30, 2019, the Series 6 Preference Shares accreted at a monthly rate of ~~$6.69,~~$6.83, for total accretion of ~~$1,193,~~$2,216, bringing the aggregate liquidation preference to ~~$51,193~~$52,217 as of ~~June~~September 30, 2019. The accretion is considered in the calculation of net ~~income (loss)~~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 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 preference 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 Holdings, the Conversion Price per Series 4 Preference Share was reduced to $7.42 from the initial Conversion Price of $10.00.

The Series 4 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 4 Issue Date. During the ~~six~~nine months ended ~~June~~September 30, 2019, the Series 4 Preference Shares accreted at a monthly rate of approximately ~~$7.85~~$8.01 per Series 4 Preference Share, for total accretion of ~~$4,432,~~$6,715, bringing the aggregate liquidation preference to ~~$114,139~~$116,422 as of ~~June~~September 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”)

AnThese are 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 ~~71,943,994~~72,142,668 (including the Class A Shares issued to Stagwell) and 57,517,568 Class A Shares issued and outstanding as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

Class B Common Shares (“Class B Shares”)

AnThese are an unlimited number of voting shares, carrying twenty 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 ~~June~~September 30, 2019 and December 31, 2018, respectively.

9. Noncontrolling and Redeemable Noncontrolling Interests

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

Noncontrolling Interests

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


	Noncontrolling Interests			Noncontrolling Interests
Balance, December 31, 2017	$	11,030		$	11,030
Income attributable to noncontrolling interests	11,785			11,785
Distributions made	(13,419		)	(13,419		)
Other ⁽¹⁾	(118		)	(118		)
Balance, December 31, 2018	$	9,278		$	9,278
Income attributable to noncontrolling interests	3,472			10,737
Distributions made	(7,957		)	(9,982		)
Other ⁽¹⁾	25			(36		)
Balance, June 30, 2019	$	4,818
Balance, September 30, 2019				$	9,997


⁽¹⁾	Other consists of cumulative translation adjustments.

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


	Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018		2019			2018			2019			2018			2019			2018
Net income (loss) attributable to MDC Partners Inc.	$	4,290		$	3,406	$	4,177		$	(26,010	)	$	(1,752	)	$	(16,125	)	$	2,425		$	(42,135	)
Transfers from the noncontrolling interest:
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		)
Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of redeemable noncontrolling interests and noncontrolling interests												(648		)	4,975			(745		)	3,809
Net transfers from noncontrolling interests	$	(97	)	$	—	$	(97	)	$	(1,166	)	$	(648	)	$	4,975		$	(745	)	$	3,809
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interests	$	4,193		$	3,406	$	4,080		$	(27,176	)
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests												$	(2,400	)	$	(11,150	)	$	1,680		$	(38,326	)

Redeemable Noncontrolling Interests

The following table presents changes in redeemable noncontrolling interests:


	Six Months Ended June 30, 2019			Year Ended December 31, 2018			Nine Months Ended September 30, 2019			Year Ended December 31, 2018
Beginning Balance	$	51,546		$	62,886		$	51,546		$	62,886
Redemptions	(9,486		)	(11,943		)	(9,486		)	(11,943		)
Granted	—			—			—			—
Changes in redemption value	421			1,067			(3,306		)	1,067
Currency translation adjustments	154			(464		)	(190		)	(464		)
Other ⁽¹⁾							2,955			—
Ending Balance	$	42,635		$	51,546		$	41,519		$	51,546

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

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

The redeemable noncontrolling interest of ~~$42,635~~$41,519 as of ~~June~~September 30, 2019, consists of ~~$19,158~~$19,193 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, ~~$19,926~~ $19,106upon termination of such owner’s employment with the applicable subsidiary or death and ~~$3,551~~$3,220 representing the initial redemption

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

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

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


	June 30, 2019				December 31, 2018				September 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	$	823,500	$	900,000	$	834,750	$	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 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~~is recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent upon 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 ~~June~~September 30, 2019 and December 31, 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.

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

Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill and intangible assets (a Level 3 fair value assessment) and right-of-use lease assets (Level 2 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. The Company did not recognize an impairment of goodwill or intangible assets in the three and ~~six~~nine months ended ~~June~~September 30, 2019 ~~or June~~as compared to an impairment of goodwill, intangible assets, and other assets of $21.0 million and $23.3 million in the three and nine months ended September 30, 2018 respectively. See Note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to the measurement of the fair value of goodwill and the impairment. In addition, the Company recognized an impairment charge of $1.9 million to reduce the carrying value of a right-of-use lease asset and related leasehold i

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

11. Supplemental Information

Accounts Payable, Accruals and Other Liabilities

At ~~June~~September 30, 2019 and December 31, 2018, accruals and other liabilities included accrued media of ~~$151,143~~$163,777 and $180,586, respectively; and also included amounts due to noncontrolling interest holders for their share of profits. See Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding noncontrolling interest holders share of profits.

Goodwill and Indefinite Lived Intangibles

Goodwill and indefinite life intangible assets (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 level. Goodwill balances as of ~~June~~each of September 30, 2019 and December 31, 2018, were ~~$743,582 and $740,955, respectively.~~$740,955.

Income Taxes

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

Income tax expense for the three months ended ~~June~~September 30, 2019 was ~~$2,088~~$3,457 (on income of ~~$9,215~~$8,907 resulting in an effective tax rate of ~~22.7%~~38.8%) compared to an expense of ~~$1,977~~$2,986 (on ~~income~~loss of ~~$7,956~~$10,981 resulting in an effective tax rate of ~~24.8%~~27.2%) for the three months ended ~~June~~September 30, 2018. ~~The change in the effective tax rate was primarily driven by the jurisdictional mix of earnings.~~

Income tax expense for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$2,835~~$6,292 (on income of ~~$10,195~~$19,102 resulting in an effective tax rate of ~~27.8%~~32.9%) compared to a benefit of ~~$6,353~~$3,367 (on a loss of ~~$28,979~~$39,960 resulting in an effective tax rate of ~~21.9%~~8.4%) for the ~~six~~nine months ended ~~June~~September 30, 2018.

The ~~change in~~income tax expense and benefit for the ~~effective~~three and nine months of 2018, respectively, were impacted by impairments and non-deductible stock compensation for which a tax ~~rate~~benefit was ~~primarily driven by the jurisdictional mix of earnings.~~

not recognized.

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.

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

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

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

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

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, 2018.

The Global Integrated Agencies reportable segment is comprised of the Company’s four global, integrated operating segments (72andSunny, Anomaly, Crispin Porter + Bogusky, 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 seven operating segments that are primarily national advertising agencies (Colle + McVoy, Doner, Laird + Partners, Mono Advertising, Union, Yamamoto, and 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~~long-term profitability is similar among the operating segments aggregated in the Domestic Creative Agencies reportable segment.

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

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

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

The Media Services reportable segment is comprised of a single operating segment known as MDC Media Partners. MDC Media Partners, which operates primarily in North America, performs media buying and planning as ~~their~~its 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, 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 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 June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Revenue:
Global Integrated Agencies	$	154,368		$	158,163		$	284,087		$	287,686		$	145,890		$	157,308		$	429,977		$	444,995
Domestic Creative Agencies	65,193			72,971			132,201			139,625			57,593			59,151			176,711			183,504
Specialist Communication	47,170			40,304			86,123			79,128
Specialist Communications													42,101			38,838			128,224			117,966
Media Services	21,331			21,398			41,510			46,082			21,222			29,593			75,815			90,948
All Other	74,068			86,907			147,000			154,190			76,101			90,940			223,101			245,128
Total	$	362,130		$	379,743		$	690,921		$	706,711		$	342,907		$	375,830		$	1,033,828		$	1,082,541

Segment operating income (loss):
Global Integrated Agencies	$	20,720		$	18,352		$	24,491		$	4,760		$	21,036		$	23,486		$	45,527		$	28,247
Domestic Creative Agencies	8,730			5,077			14,207			7,955			7,216			(14,031		)	22,533			(6,887		)
Specialist Communication	6,683			6,216			13,760			9,944
Specialist Communications													5,129			3,703			18,889			13,646
Media Services	991			(1,719		)	(843		)	(1,738		)	(1,677		)	850			(3,630		)	(78		)
All Other	2,949			15,986			8,962			22,430			6,828			6,634			15,790			29,065
Corporate	(16,631		)	(13,140		)	(21,454		)	(27,212		)	(9,111		)	(18,024		)	(30,565		)	(45,236		)
Total	$	23,442		$	30,772		$	39,123		$	16,139		$	29,421		$	2,618		$	68,544		$	18,757

Other Income (Expenses):
Interest expense and finance charges, net	$	(16,413	)	$	(16,859	)	$	(33,174	)	$	(32,942	)	$	(16,110	)	$	(17,063	)	$	(49,284	)	$	(50,005	)
Foreign exchange gain (loss)	2,932			(6,549		)	8,374			(13,209		)	(3,973		)	3,275			4,401			(9,934		)
Other, net	(746		)	592			(4,128		)	1,033			(431		)	189			(4,559		)	1,222
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates	9,215			7,956			10,195			(28,979		)	8,907			(10,981		)	19,102			(39,960		)
Income tax expense (benefit)	2,088			1,977			2,835			(6,353		)	3,457			2,986			6,292			(3,367		)
Income (loss) before equity in earnings of non-consolidated affiliates	7,127			5,979			7,360			(22,626		)	5,450			(13,967		)	12,810			(36,593		)
Equity in earnings (losses) of non-consolidated affiliates	206			(28		)	289			58
Equity in earnings of non-consolidated affiliates													63			300			352			358
Net income (loss)	7,333			5,951			7,649			(22,568		)	5,513			(13,667		)	13,162			(36,235		)
Net income attributable to the noncontrolling interest	(3,043		)	(2,545		)	(3,472		)	(3,442		)	(7,265		)	(2,458		)	(10,737		)	(5,900		)
Net income (loss) attributable to MDC Partners Inc.	$	4,290		$	3,406		$	4,177		$	(26,010	)	$	(1,752	)	$	(16,125	)	$	2,425		$	(42,135	)


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018		2019			2018		2019			2018
Depreciation and amortization:
Global Integrated Agencies	$	4,437		$	4,743	$	8,502		$	12,152	$	4,009		$	4,553	$	12,511		$	16,705
Domestic Creative Agencies	1,547			1,281		2,786			2,574		1,213			1,266		3,708			3,793
Specialist Communication	698			992		1,265			1,959
Specialist Communications											644			1,100		1,909			3,059
Media Services	794			635		1,485			1,273		755			675		2,531			1,995
All Other	2,966			3,892		5,025			5,736		2,555			3,341		7,580			9,077
Corporate	221			160		438			384		192			199		630			583
Total	$	10,663		$	11,703	$	19,501		$	24,078	$	9,368		$	11,134	$	28,869		$	35,212

Stock-based compensation:
Global Integrated Agencies	$	1,232		$	2,475	$	4,999		$	4,935	$	4,673		$	3,241	$	9,672		$	8,176
Domestic Creative Agencies	522			1,097		986			1,507		352			550		1,338			2,056
Specialist Communication	52			52		78			239
Specialist Communications											45			52		123			291
Media Services	(16		)	74		(16		)	149		5			102		(11		)	251
All Other	652			684		940			1,341		118			677		1,058			2,019
Corporate	1,192			1,221		(381		)	2,469		833			1,620		452			4,089
Total	$	3,634		$	5,603	$	6,606		$	10,640	$	6,026		$	6,242	$	12,632		$	16,882

Capital expenditures:
Global Integrated Agencies	$	1,816		$	2,411	$	3,234		$	4,654	$	3,470		$	1,927	$	6,704		$	6,581
Domestic Creative Agencies	369			569		1,063			1,473		694			967		1,757			2,440
Specialist Communication	231			2,208		482			2,443
Specialist Communications											198			732		680			3,176
Media Services	126			131		167			315		(2		)	385		165			699
All Other	1,757			547		2,958			772		1,492			1,500		4,450			2,271
Corporate	18			24		19			32		11			32		30			65
Total	$	4,317		$	5,890	$	7,923		$	9,689	$	5,863		$	5,543	$	13,786		$	15,232

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 ~~June~~September 30, 2019 and 2018.

13. Commitments, Contingencies, and Guarantees

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

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

Natural Disasters. Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 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 ~~June~~September 30, 2019, the Company had $4,744 of undrawn letters of credit.

14. New Accounting Pronouncements

Adopted In The Current Reporting Period

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

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

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

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

The Company reports its financial results in accordance with generally accepted accounting principles 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. 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 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 and the financial condition of the Company as of ~~June~~September 30, 2019. This analysis should be read in conjunction with the interim Unaudited Condensed Consolidated Financial Statements presented in this interim report and the annual audited consolidated financial statements and Management’s Discussion and Analysis presented in the Annual Report on Form 10-K for the year ended December 31, 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.

The percentage changes included in the tables herein Item 2 that are not considered meaningful are presented as “NM”.

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~~businesses 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 certain businesses between segments. 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.

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, 2018 for information regarding certain factors affecting our business.

Results of Operations:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018			2019			2018
Revenue:	(Dollars in Thousands)												(Dollars in Thousands)
Global Integrated Agencies	$	154,368		$	158,163		$	284,087		$	287,686		$	145,890		$	157,308		$	429,977		$	444,995
Domestic Creative Agencies	65,193			72,971			132,201			139,625			57,593			59,151			176,711			183,504
Specialist Communication	47,170			40,304			86,123			79,128
Specialist Communications													42,101			38,838			128,224			117,966
Media Services	21,331			21,398			41,510			46,082			21,222			29,593			75,815			90,948
All Other	74,068			86,907			147,000			154,190			76,101			90,940			223,101			245,128
Total	$	362,130		$	379,743		$	690,921		$	706,711		$	342,907		$	375,830		$	1,033,828		$	1,082,541

Segment operating income (loss):
Global Integrated Agencies	$	20,720		$	18,352		$	24,491		$	4,760		$	21,036		$	23,486		$	45,527		$	28,247
Domestic Creative Agencies	8,730			5,077			14,207			7,955			7,216			(14,031		)	22,533			(6,887		)
Specialist Communication	6,683			6,216			13,760			9,944
Specialist Communications													5,129			3,703			18,889			13,646
Media Services	991			(1,719		)	(843		)	(1,738		)	(1,677		)	850			(3,630		)	(78		)
All Other	2,949			15,986			8,962			22,430			6,828			6,634			15,790			29,065
Corporate	(16,631		)	(13,140		)	(21,454		)	(27,212		)	(9,111		)	(18,024		)	(30,565		)	(45,236		)
Total	$	23,442		$	30,772		$	39,123		$	16,139		$	29,421		$	2,618		$	68,544		$	18,757

Other Income (Expenses):
Interest expense and finance charges, net	$	(16,413	)	$	(16,859	)	$	(33,174	)	$	(32,942	)	$	(16,110	)	$	(17,063	)	$	(49,284	)	$	(50,005	)
Foreign exchange gain (loss)	2,932			(6,549		)	8,374			(13,209		)	(3,973		)	3,275			4,401			(9,934		)
Other, net	(746		)	592			(4,128		)	1,033			(431		)	189			(4,559		)	1,222
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates	9,215			7,956			10,195			(28,979		)	8,907			(10,981		)	19,102			(39,960		)
Income tax expense (benefit)	2,088			1,977			2,835			(6,353		)	3,457			2,986			6,292			(3,367		)
Income (loss) before equity in earnings of non-consolidated affiliates	7,127			5,979			7,360			(22,626		)	5,450			(13,967		)	12,810			(36,593		)
Equity in earnings (losses) of non-consolidated affiliates	206			(28		)	289			58
Equity in earnings of non-consolidated affiliates													63			300			352			358
Net income (loss)	7,333			5,951			7,649			(22,568		)	5,513			(13,667		)	13,162			(36,235		)
Net income attributable to the noncontrolling interest	(3,043		)	(2,545		)	(3,472		)	(3,442		)	(7,265		)	(2,458		)	(10,737		)	(5,900		)
Net income (loss) attributable to MDC Partners Inc.	$	4,290		$	3,406		$	4,177		$	(26,010	)	$	(1,752	)	$	(16,125	)	$	2,425		$	(42,135	)


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018		2019			2018		2019			2018
Depreciation and amortization:	(Dollars in Thousands)										(Dollars in Thousands)
Global Integrated Agencies	$	4,437		$	4,743	$	8,502		$	12,152	$	4,009		$	4,553	$	12,511		$	16,705
Domestic Creative Agencies	1,547			1,281		2,786			2,574		1,213			1,266		3,708			3,793
Specialist Communication	698			992		1,265			1,959
Specialist Communications											644			1,100		1,909			3,059
Media Services	794			635		1,485			1,273		755			675		2,531			1,995
All Other	2,966			3,892		5,025			5,736		2,555			3,341		7,580			9,077
Corporate	221			160		438			384		192			199		630			583
Total	$	10,663		$	11,703	$	19,501		$	24,078	$	9,368		$	11,134	$	28,869		$	35,212

Stock-based compensation:
Global Integrated Agencies	$	1,232		$	2,475	$	4,999		$	4,935	$	4,673		$	3,241	$	9,672		$	8,176
Domestic Creative Agencies	522			1,097		986			1,507		352			550		1,338			2,056
Specialist Communication	52			52		78			239
Specialist Communications											45			52		123			291
Media Services	(16		)	74		(16		)	149		5			102		(11		)	251
All Other	652			684		940			1,341		118			677		1,058			2,019
Corporate	1,192			1,221		(381		)	2,469		833			1,620		452			4,089
Total	$	3,634		$	5,603	$	6,606		$	10,640	$	6,026		$	6,242	$	12,632		$	16,882

Capital expenditures:
Global Integrated Agencies	$	1,816		$	2,411	$	3,234		$	4,654	$	3,470		$	1,927	$	6,704		$	6,581
Domestic Creative Agencies	369			569		1,063			1,473		694			967		1,757			2,440
Specialist Communication	231			2,208		482			2,443
Specialist Communications											198			732		680			3,176
Media Services	126			131		167			315		(2		)	385		165			699
All Other	1,757			547		2,958			772		1,492			1,500		4,450			2,271
Corporate	18			24		19			32		11			32		30			65
Total	$	4,317		$	5,890	$	7,923		$	9,689	$	5,863		$	5,543	$	13,786		$	15,232

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

Consolidated Results of Operations

Revenues

Revenue was ~~$362.1~~$342.9 million for the three months ended ~~June~~September 30, 2019 compared to revenue of ~~$379.7~~$375.8 million for the three months ended ~~June~~September 30, 2018. See the Advertising and Communications Group section below for a discussion regarding consolidated revenues for the three months ended ~~June~~September 30, 2019 compared to the three months ended ~~June~~September 30, 2018.

Operating Income

Operating income for the three months ended ~~June~~September 30, 2019 was ~~$23.4~~$29.4 million, compared to ~~$30.8~~$2.6 million for the three months ended ~~June~~September 30, 2018, representing an increase of $26.8 million. The increase was primarily driven by an impairment charge and severance expense recognized in the prior year quarter. For the three months ended September 30, 2018, the Advertising and Communications Group recognized a $21.0 million impairment pertaining to goodwill within the Domestic Creative Agencies reportable segment and a trademark within the Global Integrated Agencies reportable segment, as well as severance expense and other restructuring costs of $7.7 million at Corporate.

Other, Net

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

Foreign Exchange Gain (Loss)

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

Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the three months ended September 30, 2019 was $16.1 million compared to $17.1 million for the three months ended September 30, 2018, representing a decrease of ~~$7.4~~$1.0 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility.

Income Tax Expense (Benefit)

Income tax expense for the three months ended September 30, 2019 was $3.5 million (on income of $8.9 million resulting in an effective tax rate of 38.8%) compared to an expense of $3.0 million (on loss of $11.0 million resulting in an effective tax rate of 27.1%) for the three months ended September 30, 2018. Income tax expense for the three months ended September 30, 2018, was impacted by impairments and non-deductible stock compensation for which a tax benefit was not recognized.

Equity in Earnings (Losses) of Non-Consolidated Affiliates

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

Noncontrolling Interests

The effect of noncontrolling interests for the three months ended September 30, 2019 was $7.3 million compared to $2.5 million for the three months ended September 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 three months ended September 30, 2019 was $5.1 million, or $0.07 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $18.2 million, or $0.32 diluted loss per share, for the three months ended September 30, 2018.

Advertising and Communications Group

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

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



	Total					United States					Canada					Other
	$			%		$			%		$			%		$			%
	(Dollars in Thousands)
September 30, 2018	$	375,830				$	296,544				$	32,132				$	47,154
Components of revenue change:
Foreign exchange impact	(2,358		)	(0.6	)%	—			—	%	(345		)	(1.1	)%	(2,014		)	(4.3	)%
Non-GAAP acquisitions (dispositions), net	(2,438		)	(0.6	)%	290			0.1	%	(3,628		)	(11.3	)%	900			1.9	%
Organic revenue decline	(28,127		)	(7.5	)%	(25,163		)	(8.5	)%	(2,264		)	(7.0	)%	(699		)	(1.5	)%
Total Change	$	(32,923	)	(8.8	)%	$	(24,873	)	(8.4	)%	$	(6,237	)	(19.4	)%	$	(1,813	)	(3.8	)%
September 30, 2019	$	342,907				$	271,671				$	25,895				$	45,341

Revenue was $342.9 million for the three months ended September 30, 2019 compared to revenue of $375.8 million for the three months ended September 30, 2018, representing a decline of $32.9 million.

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

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

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



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

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



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

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



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

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

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



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

(1)Excludes staff costs.


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

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

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

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

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

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

Global Integrated Agencies

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



	2019				2018				Change
Global Integrated Agencies	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue:	$	145,890			$	157,308			$	(11,418	)	(7.3	)%
Operating expenses
Cost of services sold	89,708		61.5	%	89,408		56.8	%	300			0.3	%
Office and general expenses	29,193		20.0	%	36,681		23.3	%	(7,488		)	(20.4	)%
Depreciation and amortization	4,009		2.7	%	4,553		2.9	%	(544		)	(11.9	)%
Other asset impairment	1,944		1.3	%	3,180		2.0	%	(1,236		)	(38.9	)%
	$	124,854	85.6	%	$	133,822	85.1	%	$	(8,968	)	(6.7	)%
Operating profit	$	21,036	14.4	%	$	23,486	14.9	%	$	(2,450	)	(10.4	)%

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

The decline in operating profit was primarily attributable to lower revenue, partially offset by a decline in 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 September 30, 2019 and 2018 was as follows:



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

(1)Excludes staff costs.


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

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

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

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

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

Domestic Creative Agencies

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



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

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

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

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



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


⁽¹⁾	Excludes staff costs.


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

The decline in direct costs was attributable to lower revenues.

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

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

Specialist Communications

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



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

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

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

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



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


⁽¹⁾	Excludes staff costs.


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

The increase in direct costs was attributable to higher revenues.

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

Media Services

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



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

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

The change in operating loss was attributable to a decline in revenue, partially offset by lower operating expenses, as outlined below.

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



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


⁽¹⁾	Excludes staff costs.


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

The decline in direct costs was attributable to lower revenues.

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

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

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, 2019 and 2018 was as follows:



	2019				2018				Change
All Other	$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Revenue	$	76,101			$	90,940			$	(14,839	)	(16.3	)%
Operating expenses
Cost of services sold	53,678		70.5	%	61,005		67.1	%	(7,327		)	(12.0	)%
Office and general expenses	13,040		17.1	%	19,960		21.9	%	(6,920		)	(34.7	)%
Depreciation and amortization	2,555		3.4	%	3,341		3.7	%	(786		)	(23.5	)%
	$	69,273	91.0	%	$	84,306	92.7	%	$	(15,033	)	(17.8	)%
Operating profit	$	6,828	9.0	%	$	6,634	7.3	%	$	194		2.9	%

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

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

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



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


⁽¹⁾	Excludes staff costs.


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

The decline in direct costs was attributable to lower revenues.

The decrease in staff costs was primarily attributable to staffing reductions at certain Partner Firms in connection with the decline in revenues and cost savings initiatives. In addition, staff costs included a positive benefit from the disposition of a Partner Firm.

Corporate

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



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


⁽¹⁾	Excludes stock-based compensation.

The decline in Corporate operating expenses was primarily attributable to lower staff costs, due to a decline in severance expense of $6.6 million and a reduction in staff and administrative costs, due to lower professional fees and occupancy costs.

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

Consolidated Results of Operations

Revenues

Revenue was $1.03 billion for the nine months ended September 30, 2019 compared to revenue of $1.08 billion for the nine months ended September 30, 2018. See the Advertising and Communications Group section below for a discussion regarding consolidated revenues for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Operating Income

Operating income for the nine months ended September 30, 2019 was $68.5 million compared to $18.8 million for the nine months ended September 30, 2018, representing a change of $49.7 million. The change was primarily driven by an increase in operating income in the Advertising and Communications Group of ~~$3.8 million.~~$35.1 million, as a decline in revenue was more than offset by lower operating expenses, primarily related to a goodwill impairment in 2018. Additionally, Corporate operating expenses ~~were higher~~decreased by ~~$3.5~~$14.7 million ~~driven by severance~~, primarily related to lower compensation expense, stock-based compensation and professional fees as well as an asset impairment in ~~the second quarter of 2019.~~2018.

Other, Net

Other, net, for the ~~three~~nine months ended ~~June~~September 30, 2019 was a loss of ~~$0.7~~$4.6 million compared to income of ~~$0.6~~$1.2 million for the ~~three~~nine months ended ~~June~~September 30, ~~2018.~~2018, primarily driven by a loss on the sale of Kingsdale in 2019.

Foreign Exchange Transaction Gain (Loss)

~~Foreign~~The foreign exchange gain for the ~~three~~nine months ended ~~June~~September 30, 2019 was ~~$2.9~~$4.4 million compared to a loss of ~~$6.5~~$9.9 million for the ~~three~~nine months ended ~~June~~September 30, 2018. The ~~improvement~~change in ~~the~~ foreign exchange ~~impact is~~was 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 ~~three~~nine months ended ~~June~~September 30, 2019 was ~~$16.4~~$49.3 million compared to ~~$16.9~~$50.0 million for the ~~three~~nine months ended ~~June~~September 30, 2018, representing a decrease of ~~$0.5~~$0.7 million.

Income Tax Expense (Benefit)

Income tax expense for the ~~three~~nine months ended ~~June~~September 30, 2019 was ~~$2.1~~$6.3 million (on income of ~~$9.2~~$19.1 million resulting in an effective tax rate of ~~22.7%~~32.9%) compared to ~~an expense~~a benefit of ~~$2.0~~$3.4 million (on ~~income~~a loss of ~~$8.0~~$40.0 million resulting in an effective tax rate of ~~24.8%~~8.4%) for the ~~three~~nine months ended ~~June~~September 30, 2018. The ~~change in the effective~~income tax ~~rate was primarily driven by the jurisdictional mix of earnings.~~

~~Equity in Earnings of Non-Consolidated Affiliates~~

~~Equity in earnings of non-consolidated affiliates represents the income or losses attributable to equity method investments. Income recorded~~benefit for the ~~three~~nine months ended ~~June 30, 2019 was $0.2 million compared to the loss of $0.03 million for the three months ended June 30, 2018.~~

~~Noncontrolling Interests~~

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

~~Net Income 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 income attributable to MDC Partners Inc. common shareholders for the three months ended June 30, 2019 was $0.8 million, or $0.01 diluted income per share, compared to net income attributable to MDC Partners Inc. common shareholders of $1.1 million, or $0.02 diluted income per share, for the three months ended June 30, 2018.

~~Advertising and Communications Group~~

~~The components of the fluctuations in revenues for the three months ended June 30, 2019 compared to the three months ended June~~September 30, 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~~impacted by impairments and non-deductible stock compensation for ~~the three months ended June 30, 2019 compared to revenue of $379.7 million for the three months ended June 30, 2018, representing~~which a ~~decline of $17.6 million.~~

~~The negative foreign exchange impact of $4.2 million, or 1.1%,~~tax benefit 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 three months ended June 30, 2019, organic revenue decreased by $9.2 million, or 2.4%, of which $9.7 million, or 2.5% pertained to Partner Firms the Company has owned throughout each of the comparable periods presented. The remaining revenue growth of $0.4 million, or 0.1%, 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.

Specialist Communications All Other Total
(Dollars in Thousands)
GAAP revenue from 2018 and 2019 acquisitions $ 1,519
$ 698
$ 2,217
Contribution to non-GAAP organic revenue (growth) decline (440 ) —
—
—
(440 )
Prior year revenue from dispositions —
(5,995 ) (5,995 )
Non-GAAP acquisitions (dispositions), net $ 1,079
$ (5,297 ) $ (4,218 )

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

2019 2018
United States 78.6 % 77.8 %
Canada 6.8 % 8.7 %
Other 14.6 % 13.5 %

Revenue growth was mixed through the geographic regions with a decline in the United States of 3.6%, a decline in Canada of 25.8%, partially offset by growth of 3.0% 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 3.8% and 5.6%, respectively. Organic revenue growth outside of North America was 7.3%. Organic revenue performance in the United States and Canada was attributable to client losses and 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 June 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue: $ 362,130
$ 379,743
$ (17,613 ) (4.6 )%
Operating expenses
Cost of services sold 240,482
66.4 % 253,390
66.7 % (12,908 ) (5.1 )%
Office and general expenses 71,132
19.6 % 70,898
18.7 % 234
0.3 %
Depreciation and amortization 10,442
2.9 % 11,543
3.0 % (1,101 ) (9.5 )%
$ 322,056
88.9 % $ 335,831
88.4 % $ (13,775 ) (4.1 )%
Operating profit (loss) $ 40,074
11.1 % $ 43,912
11.6 % $ (3,838 ) (8.7 )%

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

~~The change in the categories of expenses as a percentage of revenue in the Advertising and Communications Group for the three 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⁾
$ 60,040
16.6 % $ 52,590
13.8 % $ 7,450
14.2 %
Staff costs ⁽²⁾
204,442
56.5 % 224,582
59.1 % (20,140 ) (9.0 )%
Administrative 42,617
11.8 % 47,801
12.6 % (5,184 ) (10.8 )%
Deferred acquisition consideration 2,073
0.6 % (5,067 ) (1.3 )% 7,140
NM
Stock-based compensation 2,442
0.7 % 4,382
1.2 % (1,940 ) (44.3 )%
Depreciation and amortization 10,442
2.9 % 11,543
3.0 % (1,101 ) (9.5 )%
Total operating expenses $ 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 decline in direct costs are attributable to the decline in revenues.~~

~~The decrease in staff costs were 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 three months ended June 30, 2019 and 2018 was as follows:~~

2019 2018 Change
Specialist Communications $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 47,170
$ 40,304
$ 6,866
17.0 %
Operating expenses
Cost of services sold 32,112
68.1 % 25,613
63.5 % 6,499
25.4 %
Office and general expenses 7,677
16.3 % 7,483
18.6 % 194
2.6 %
Depreciation and amortization 698
1.5 % 992
2.5 % (294 ) (29.6 )%
$ 40,487
85.8 % $ 34,088
84.6 % $ 6,399
18.8 %
Operating profit $ 6,683
14.2 % $ 6,216
15.4 % $ 467
7.5 %

~~The increase in revenue is primarily due to client wins at certain Partner firms as well as a contribution of $1.5 million from an acquired Partner Firm.~~

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

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

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 %

~~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 are attributable to higher revenues.~~

~~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.~~

~~Media Services~~

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

2019 2018 Change
Media Services $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Revenue $ 21,331
$ 21,398
$ (67 ) (0.3 )%
Operating expenses
Cost of services sold 14,835
69.5 % 15,239
71.2 % (404 ) (2.7 )%
Office and general expenses 4,711
22.1 % 7,243
33.8 % (2,532 ) (35.0 )%
Depreciation and amortization 794
3.7 % 635
3.0 % 159
25.0 %
$ 20,340
95.4 % $ 23,117
108.0 % $ (2,777 ) (12.0 )%
Operating income (loss) $ 991
4.6 % $ (1,719 ) (8.0 )% $ 2,710
NM

~~NM - Not meaningful~~

~~The change in operating profit was primarily attributable 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 three 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⁾
$ 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 )%

~~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.~~not recognized.

~~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.~~equity method investments. The Company recorded ~~$0.3~~$0.4 million of income for both the ~~six~~nine months ended ~~June~~September 30, 2019 ~~compared to income of $0.1 million for~~and the ~~six~~nine months ended ~~June~~September 30, 2018.

Noncontrolling Interests

The effect of noncontrolling interests for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$3.5~~$10.7 million compared to ~~$3.4~~$5.9 million for the ~~six~~nine months ended ~~June~~September 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~~nine months ended ~~June~~September 30, 2019 was ~~$1.4~~$6.5 million, or ~~$0.02~~$0.10 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of ~~$30.1~~$48.3 million, or ~~$0.53~~$0.85 diluted income per share, for the ~~six~~nine months ended ~~June~~September 30, 2018.

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.

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


	Total					United States					Canada					Other					Total					United States					Canada					Other
	$			%		$			%		$			%		$			%		$			%		$			%		$			%		$			%
	(Dollars in Thousands)																				(Dollars in Thousands)
June 30, 2018	$	706,711				$	551,792				$	59,465				$	95,454
September 30, 2018																					$	1,082,541				$	848,336				$	91,597				$	142,608
Components of revenue change:
Foreign exchange impact	(9,316		)	(1.3	)%	—			—	%	(2,375		)	(4.0	)%	(6,941		)	(7.3	)%	(11,673		)	(1.1	)%	—			—	%	(2,719		)	(3.0	)%	(8,954		)	(6.3	)%
Non-GAAP acquisitions (dispositions), net	5,635			0.8	%	11,234			2.0	%	(7,281		)	(12.2	)%	1,682			1.8	%	3,197			0.3	%	11,524			1.4	%	(10,909		)	(11.9	)%	2,582			1.8	%
Organic revenue growth (decline)	(12,109		)	(1.7	)%	(15,350		)	(2.8	)%	(2,867		)	(4.8	)%	6,108			6.4	%	(40,237		)	(3.7	)%	(40,513		)	(4.8	)%	(5,132		)	(5.6	)%	5,408			3.8	%
Total Change	$	(15,790	)	(2.2	)%	$	(4,116	)	(0.7	)%	$	(12,523	)	(21.1	)%	$	849		0.9	%	$	(48,713	)	(4.5	)%	$	(28,989	)	(3.4	)%	$	(18,760	)	(20.5	)%	$	(964	)	(0.7	)%
June 30, 2019	$	690,921				$	547,676				$	46,942				$	96,303
September 30, 2019																					$	1,033,828				$	819,347				$	72,837				$	141,644

Revenue for the Advertising and Communications Group was ~~$690.9 million~~$1.03 billion for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to revenue of ~~$706.7 million~~$1.08 billion for the ~~six~~nine months ended ~~June~~September 30, 2018, representing a decrease of ~~$15.8~~$48.7 million, or ~~2.2%~~4.5%.

The negative foreign exchange impact of ~~$9.3~~$11.7 million, or ~~1.3%~~1.1%, was ~~attributed~~attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.

The Company also utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above. For the ~~six~~nine months ended ~~June~~September 30, 2019, organic revenue decreased by ~~$12.1~~$40.2 million, or ~~1.7%~~3.7%, of which ~~$16.6~~$46.9 million, or ~~2.3%~~4.3% pertained to Partner Firms the Company has owned throughout each of the comparable periods ~~presented. The remaining revenue~~presented, offset by growth of ~~$4.4~~$6.6 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.~~wins and higher spending by other clients. Additionally, the change in revenue was driven by a decline in categories including ~~health care,~~healthcare, food and beverage and automotive, partially offset by growth in transportation and travel/lodging and technology.


	Specialist Communications				All Other				Total			Specialist Communications				All Other				Total
	(Dollars in Thousands)											(Dollars in Thousands)
GAAP revenue from 2018 and 2019 acquisitions	$	2,762			$	15,140			$	17,902		$	3,872			$	16,486			$	20,358
Contribution to non-GAAP organic revenue (growth) decline	(643		)	—	(3,805		)	—	(4,448		)
Foreign exchange impact												9				461				470
Contribution to non-GAAP organic revenue growth												(566		)	—	(6,067		)	—	(6,633		)
Prior year revenue from dispositions	—				(7,819		)		(7,819		)	—				(10,998		)		(10,998		)
Non-GAAP acquisitions (dispositions), net	$	2,119			$	3,516			$	5,635		$	3,315			$	(118	)		$	3,197

The geographic mix in revenues for the ~~six~~nine months ended ~~June~~September 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.



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

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


	2019				2018				Change					2019				2018				Change
Advertising and Communications Group	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)													(Dollars in Thousands)
Revenue	$	690,921			$	706,711			$	(15,790	)	(2.2	)%	$	1,033,828			$	1,082,541			$	(48,713	)	(4.5	)%
Operating expenses
Cost of services sold	477,903		69.2	%	496,420		70.2	%	(18,517		)	(3.7	)%	700,351		67.7	%	735,110		67.9	%	(34,759		)	(4.7	)%
Office and general expenses	133,377		19.3	%	143,246		20.3	%	(9,869		)	(6.9	)%	204,185		19.8	%	227,801		21.0	%	(23,616		)	(10.4	)%
Depreciation and amortization	19,063		2.8	%	23,694		3.4	%	(4,631		)	(19.5	)%	28,239		2.7	%	34,629		3.2	%	(6,390		)	(18.5	)%
Goodwill and other asset impairment charge														1,944		0.2	%	21,008		1.9	%	(19,064		)	(90.7	)%
	$	630,343	91.2	%	$	663,360	93.9	%	$	(33,017	)	(5.0	)%	$	934,719	90.4	%	$	1,018,548	94.1	%	$	(83,829	)	(8.2	)%
Operating profit	$	60,578	8.8	%	$	43,351	6.1	%	$	17,227		39.7	%	$	99,109	9.6	%	$	63,993	5.9	%	$	35,116		54.9	%

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~~nine months ended ~~June~~September 30, 2019 and 2018 was as follows:

2019 2018 Change
Advertising and Communications Group $ % of
Revenue $ % of
Revenue $ %
(Dollars in Thousands)
Direct costs ⁽¹⁾
$ 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~~



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


⁽¹⁾	Excludes staff costs.


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

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

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

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

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

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

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

Global Integrated Agencies

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


	2019				2018				Change					2019				2018				Change
Global Integrated Agencies	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$		% of Revenue		$			%
														(Dollars in Thousands)
Revenue	$	284,087			$	287,686			$	(3,599	)	(1.3	)%	$	429,977			$	444,995			$	(15,018	)	(3.4	)%
Operating expenses
Cost of services sold	194,506		68.5	%	207,996		72.3	%	(13,490		)	(6.5	)%	284,214		66.1	%	297,403		66.8	%	(13,189		)	(4.4	)%
Office and general expenses	56,588		19.9	%	62,778		21.8	%	(6,190		)	(9.9	)%	85,781		20.0	%	99,460		22.4	%	(13,679		)	(13.8	)%
Depreciation and amortization	8,502		3.0	%	12,152		4.2	%	(3,650		)	(30.0	)%	12,511		2.9	%	16,705		3.8	%	(4,194		)	(25.1	)%
Other asset impairment														1,944		0.5	%	3,180		0.7	%	(1,236		)	(38.9	)%
	$	259,596	91.4	%	$	282,926	98.3	%	$	(23,330	)	(8.2	)%	$	384,450	89.4	%	$	416,748	93.7	%	$	(32,298	)	(7.8	)%
Operating profit	$	24,491	8.6	%	$	4,760	1.7	%	$	19,731		414.5	%	$	45,527	10.6	%	$	28,247	6.3	%	$	17,280		61.2	%

Revenue was lower by $8.4 million, or 1.9%, due to a negative foreign exchange impact ~~of $6.5~~and by $6.6 million, or ~~2.3%~~1.5%, driven by client losses and a reduction in spending by certain clients, partially offset by ~~an increase in revenue from existing Partner Firms of $2.9 million, or 1.0%, primarily attributable to~~new client wins ~~at a certain agency.~~and higher spending by other clients.

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

below, partially offset by a decline in revenue.

The change in the categories of expenses as a percentage of revenue in the Global Integrated Agencies reportable segment for the ~~six~~nine months ended ~~June~~September 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~~



	2019					2018				Change
Global Integrated Agencies	$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)
Direct costs ⁽¹⁾	$	43,550		10.1	%	$	23,048	5.2	%	$	20,502		89.0	%
Staff costs ⁽²⁾	262,288			61.0	%	295,491		66.4	%	(33,203		)	(11.2	)%
Administrative	58,112			13.5	%	67,369		15.1	%	(9,257		)	(13.7	)%
Deferred acquisition consideration	(3,627		)	(0.8	)%	2,779		0.6	%	(6,406		)	NM
Stock-based compensation	9,672			2.2	%	8,176		1.8	%	1,496			18.3	%
Depreciation and amortization	12,511			2.9	%	16,705		3.8	%	(4,194		)	(25.1	)%
Other asset impairment	1,944			0.5	%	3,180		0.7	%	(1,236		)	(38.9	)%
Total operating expenses	$	384,450		89.4	%	$	416,748	93.7	%	$	(32,298	)	(7.8	)%


⁽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.

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

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

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

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

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

Domestic Creative Agencies

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


	2019				2018				Change					2019				2018					Change
Domestic Creative Agencies	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)													(Dollars in Thousands)
Revenue	$	132,201			$	139,625			$	(7,424	)	(5.3	)%	$	176,711			$	183,504				$	(6,793	)	(3.7	)%
Operating expenses
Cost of services sold	89,506		67.7	%	98,424		70.5	%	(8,918		)	(9.1	)%	112,453		63.6	%	127,403			69.4	%	(14,950		)	(11.7	)%
Office and general expenses	25,702		19.4	%	30,672		22.0	%	(4,970		)	(16.2	)%	38,017		21.5	%	41,367			22.5	%	(3,350		)	(8.1	)%
Depreciation and amortization	2,786		2.1	%	2,574		1.8	%	212			8.2	%	3,708		2.1	%	3,793			2.1	%	(85		)	(2.2	)%
Goodwill impairment														—		—	%	17,828			9.7	%	(17,828		)	(100.0	)%
	$	117,994	89.3	%	$	131,670	94.3	%	$	(13,676	)	(10.4	)%	$	154,178	87.2	%	$	190,391		103.8	%	$	(36,213	)	(19.0	)%
Operating profit	$	14,207	10.7	%	$	7,955	5.7	%	$	6,252		78.6	%
Operating profit (loss)														$	22,533	12.8	%	$	(6,887	)	(3.8	)%	$	29,420		NM

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.~~wins and higher spending by other clients.

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

The change in the categories of expenses as a percentage of revenue in the Domestic Creative Agencies reportable segment for the ~~six~~nine months ended ~~June~~September 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~~



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


⁽¹⁾	Excludes staff costs.


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

The decrease in direct costs was attributable to lower revenues.

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

~~Deferred acquisition consideration change for~~The decrease in administrative costs was driven by lower spending in connection with savings initiatives.

For the ~~six~~nine months ended ~~June~~September 30, ~~2019~~2018, an impairment charge of $17.8 million was ~~primarily attributed~~recognized to reduce the ~~aggregate performance~~carrying value of ~~certain Partner Firms in 2019 relative to the previously projected expectations.~~goodwill.

Specialist Communications

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


	2019				2018				Change					2019				2018				Change
Specialist Communications	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)													(Dollars in Thousands)
Revenue	$	86,123			$	79,128			$	6,995		8.8	%	$	128,224			$	117,966			$	10,258		8.7	%
Operating expenses
Cost of services sold	57,986		67.3	%	52,355		66.2	%	5,631			10.8	%	85,452		66.6	%	78,111		66.2	%	7,341			9.4	%
Office and general expenses	13,112		15.2	%	14,870		18.8	%	(1,758		)	(11.8	)%	21,974		17.1	%	23,150		19.6	%	(1,176		)	(5.1	)%
Depreciation and amortization	1,265		1.5	%	1,959		2.5	%	(694		)	(35.4	)%	1,909		1.5	%	3,059		2.6	%	(1,150		)	(37.6	)%
	$	72,363	84.0	%	$	69,184	87.4	%	$	3,179		4.6	%	$	109,335	85.3	%	$	104,320	88.4	%	$	5,015		4.8	%
Operating profit	$	13,760	16.0	%	$	9,944	12.6	%	$	3,816		38.4	%	$	18,889	14.7	%	$	13,646	11.6	%	$	5,243		38.4	%

The increase in revenue is primarily due to client wins at certain Partner firms as well as a contribution of ~~$2.8~~$3.3 million from an acquired Partner Firm.

The ~~change~~increase in operating profit was primarily ~~attributed~~attributable to ~~an increase in~~higher 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~~nine months ended ~~June~~September 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~~



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


⁽¹⁾	Excludes staff costs.


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

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

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

Media Services

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


	2019					2018					Change					2019					2018					Change
Media Services	$			% of Revenue		$			% of Revenue		$			%		$			% of Revenue		$			% of Revenue		$			%
	(Dollars in Thousands)															(Dollars in Thousands)
Revenue	$	41,510				$	46,082				$	(4,572	)	(9.9	)%	$	75,815				$	90,948				$	(15,133	)	(16.6	)%
Operating expenses
Cost of services sold	29,629			71.4	%	32,013			69.5	%	(2,384		)	(7.4	)%	58,278			76.9	%	65,557			72.1	%	(7,279		)	(11.1	)%
Office and general expenses	11,239			27.1	%	14,534			31.5	%	(3,295		)	(22.7	)%	18,636			24.6	%	23,474			25.8	%	(4,838		)	(20.6	)%
Depreciation and amortization	1,485			3.6	%	1,273			2.8	%	212			16.7	%	2,531			3.3	%	1,995			2.2	%	536			26.9	%
	$	42,353		102.0	%	$	47,820		103.8	%	$	(5,467	)	(11.4	)%	$	79,445		104.8	%	$	91,026		100.1	%	$	(11,581	)	(12.7	)%
Operating (loss) profit	$	(843	)	(2.0	)%	$	(1,738	)	(3.8	)%	$	895		51.5	%
Operating loss																$	(3,630	)	(4.8	)%	$	(78	)	(0.1	)%	$	(3,552	)	NM

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

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

The change in the categories of expenses as a percentage of revenue in the Media Services reportable segment for the ~~six~~nine months ended ~~June~~September 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~~



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


⁽¹⁾	Excludes staff costs.


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

The decrease in staff costs was ~~attributed~~attributable 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~~nine months ended ~~June~~September 30, 2019 and 2018 was as follows:


	2019				2018				Change					2019				2018				Change
All Other	$		% of Revenue		$		% of Revenue		$			%		$		% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)													(Dollars in Thousands)
Revenue	$	147,000			$	154,190			$	(7,190	)	(4.7	)%	$	223,101			$	245,128			$	(22,027	)	(9.0	)%
Operating expenses
Cost of services sold	106,276		72.3	%	105,632		68.5	%	644			0.6	%	159,954		71.7	%	166,636		68.0	%	(6,682		)	(4.0	)%
Office and general expenses	26,737		18.2	%	20,392		13.2	%	6,345			31.1	%	39,777		17.8	%	40,350		16.5	%	(573		)	(1.4	)%
Depreciation and amortization	5,025		3.4	%	5,736		3.7	%	(711		)	(12.4	)%	7,580		3.4	%	9,077		3.7	%	(1,497		)	(16.5	)%
	$	138,038	93.9	%	$	131,760	85.5	%	$	6,278		4.8	%	$	207,311	92.9	%	$	216,063	88.1	%	$	(8,752	)	(4.1	)%
Operating profit	$	8,962	6.1	%	$	22,430	14.5	%	$	(13,468	)	(60.0	)%	$	15,790	7.1	%	$	29,065	11.9	%	$	(13,275	)	(45.7	)%

The change in revenue was primarily attributable to revenue contributions of ~~$15.1~~$11.3 million, or ~~10.3%~~4.6% from acquired Partner Firms, partially offset by a negative revenue impact of ~~$7.8~~$11.5 million or ~~5.3%~~4.7% from the disposition of a Partner firm, a decline from existing Partner Firms of ~~$13.0~~$20.4 million, or ~~8.9%~~8.3%, and negative foreign exchange impact of ~~$1.4~~$1.5 million, or ~~0.9%~~0.6%.

~~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:~~

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


	2019					2018					Change					2019					2018				Change
All Other	$			% of Revenue		$			% of Revenue		$			%		$			% of Revenue		$		% of Revenue		$			%
	(Dollars in Thousands)															(Dollars in Thousands)
Direct costs ⁽¹⁾	$	33,174		22.6	%	$	36,322		23.6	%	$	(3,148	)	(8.7	)%	$	51,983		23.3	%	$	58,704	23.9	%	$	(6,721	)	(11.4	)%
Staff costs ⁽²⁾	84,188			57.3	%	77,869			50.5	%	6,319			8.1	%	124,118			55.6	%	122,064		49.8	%	2,054			1.7	%
Administrative	15,382			10.5	%	14,199			9.2	%	1,183			8.3	%	22,974			10.3	%	21,355		8.7	%	1,619			7.6	%
Deferred acquisition consideration	(671		)	(0.5	)%	(3,707		)	(2.4	)%	3,036			81.9	%	(402		)	(0.2	)%	2,844		1.2	%	(3,246		)	NM
Stock-based compensation	940			0.6	%	1,341			0.9	%	(401		)	(29.9	)%	1,058			0.5	%	2,019		0.8	%	(961		)	(47.6	)%
Depreciation and amortization	5,025			3.4	%	5,736			3.7	%	(711		)	(12.4	)%	7,580			3.4	%	9,077		3.7	%	(1,497		)	(16.5	)%
Total operating expenses	$	138,038		93.9	%	$	131,760		85.5	%	$	6,278		4.8	%	$	207,311		92.9	%	$	216,063	88.1	%	$	(8,752	)	(4.1	)%


⁽¹⁾	Excludes staff costs.


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

The decrease in direct costs was attributable to lower revenues.

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

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

Corporate

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


	2019			2018		Variance					2019		2018		Variance
Corporate	$			$		$			%		$		$		$			%
	(Dollars in Thousands)										(Dollars in Thousands)
Staff costs ⁽¹⁾	$	13,851		$	11,742	$	2,109		18.0	%	$	19,623	$	24,630	$	(5,007	)	(20.3	)%
Administrative	7,546			10,301		(2,755		)	(26.7	)%	9,860		13,617		(3,757		)	(27.6	)%
Stock-based compensation	(381		)	2,469		(2,850		)	NM		452		4,089		(3,637		)	(88.9	)%
Depreciation and amortization	438			384		54			14.1	%	630		583		47			8.1	%
Other asset impairment	—			2,317		(2,317		)	(100.0	)%	—		2,317		(2,317		)	(100.0	)%
Total operating expenses	$	21,454		$	27,213	$	(5,759	)	(21.2	)%	$	30,565	$	45,236	$	(14,671	)	(32.4	)%

~~NM - Not meaningful~~


⁽¹⁾	Excludes stock-based compensation.

Staff costs ~~increased~~decreased 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.~~staffing.

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.~~and various other costs in connection with cost savings initiatives.

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

Liquidity and Capital Resources:

Liquidity

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


	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			As of and for the nine months ended September 30, 2019			As of and for the nine months ended September 30, 2018			As of and for the year ended December 31, 2018
	(In Thousands, Except for Long-Term Debt to Shareholders’ Equity Ratio)									(In Thousands, Except for Long-Term Debt to Shareholders’ Equity Ratio)
Cash and cash equivalents	$	27,304		$	24,999		$	30,873		$	27,280		$	25,056		$	30,873
Working capital (deficit)	$	(184,620	)	$	(176,959	)	$	(152,682	)
Working capital deficit										$	(195,211	)	$	(181,724	)	$	(152,682	)
Cash provided by (used in) operating activities	$	(40,237	)	$	(61,713	)	$	17,280		$	(5,840	)	$	(31,729	)	$	17,280
Cash provided by (used in) investing activities	$	9,818		$	(36,121	)	$	(50,431	)	$	3,307		$	(48,355	)	$	(50,431	)
Cash provided by (used in) financing activities	$	25,712		$	76,343		$	21,434		$	(2,202	)	$	59,122		$	21,434
Ratio of long-term debt to shareholders' deficit	-5.32			-6.52			-3.87			-5.14			-5.55			-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 ~~June~~September 30, 2019, the Company had ~~$27.5~~$8.1 million of borrowings outstanding and ~~$202.7~~$213.4 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 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 bywith 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 ~~June~~September 30, 2019, the Company had a working capital deficit of ~~$184.6~~$195.2 million compared to a deficit of $152.7 million at December 31, 2018. The Company’s working capital is impacted by seasonality in media buying, amounts spent by clients, and timing of amounts received from clients and subsequently paid to suppliers. Media buying is impacted by the timing of certain events, such as major sporting competitions and national holidays, and there can be a quarter to quarter lag between the time amounts received from clients for the media buying are subsequently paid to suppliers. The Company intends to maintain sufficient cash or availability of funds under the Credit Agreement at any particular time to adequately fund working capital should there be a need to do so from time to time.

Cash Flows

Operating Activities

Cash flows used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$40.2~~$5.8 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.

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

Investing Activities

During the ~~six~~nine months ended ~~June~~September 30, 2019, cash flows provided by investing activities was ~~$9.8~~$3.3 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by ~~$7.9~~$13.8 million of capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements and ~~$5.1~~$5.8 million paid for acquisitions.

During the ~~six~~nine months ended ~~June~~September 30, 2018, cash flows used in investing activities was ~~$36.1~~$48.4 million, primarily consisting of cash paid of ~~$27.3~~$34.3 million for the acquisition of Instrument and capital expenditures related primarily to computer equipment, furniture and fixtures, and leasehold improvements of ~~$9.7~~$15.2 million.

Financing Activities

During the ~~six~~nine months ended ~~June~~September 30, 2019, cash flows ~~provided by~~used in financing activities was ~~$25.7~~$2.2 million, primarily driven by $98.6 million in proceeds, net of fees, from the issuance of common and preferred shares, ~~partially~~more than offset by ~~$40.6~~$60.1 million in net repayments under the Credit Agreement, ~~and $24.2~~$30.2 million in deferred acquisition consideration payments and $10.0 million in distribution payments.

During the ~~six~~nine months ended ~~June~~September 30, 2018, cash flows provided by financing activities was ~~$76.3~~$59.1 million, primarily driven by ~~$115.2~~$103.0 million in net borrowings under the Credit Agreement and ~~$29.2~~$32.2 million of acquisition related payments.

Total Debt

Debt, net of debt issuance costs, as of ~~June~~September 30, 2019 was ~~$914.1~~$895.4 million as compared to $954.1 million outstanding at December 31, 2018. The decrease of ~~$40~~$58.7 million in debt was primarily a result of the Company’s net repayments on the Credit Agreement. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s $900 million aggregate principal amount of its senior unsecured notes due 2024 and $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 ~~June~~September 30, 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:


	June 30, 2019		September 30, 2019
Total Senior Leverage Ratio	0.11		0.003
Maximum per covenant	2.00		2.00

Total Leverage Ratio	4.91		5.04
Maximum per covenant	6.25		6.25

Fixed Charges Ratio	2.45		2.41
Minimum per covenant	1.00		1.00

Earnings before interest, taxes, depreciation and amortization (in millions)	$	187,920	$	178,920
Minimum per covenant (in millions)	$	105,000	$	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~~its clients at levels that exceed the revenue from services. Some of our agencies purchase media for clients and act as an agent for a disclosed principal. These commitments are included in accounts 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 ~~six~~nine months ended ~~June~~September 30, 2019:


	June 30, 2019																		September 30, 2019
	Global Integrated Agencies			Domestic Creative Agencies			Specialist Communication Agencies			Media Services			All Other			Total			Global Integrated Agencies			Domestic Creative Agencies			Specialist Communications Agencies			Media Services			All Other			Total
	(Dollars in Thousands)																		(Dollars in Thousands)
Beginning Balance of contingent payments	$	47,880		$	3,747		$	13,193		$	2,689		$	15,089		$	82,598		$	47,880		$	3,747		$	13,193		$	2,689		$	15,089		$	82,598
Payments	(20,773		)	(526		)	(2,031		)	(250		)	(912		)	(24,492		)	(20,788		)	(801		)	(3,830		)	(2,763		)	(2,537		)	(30,719		)
Additions - acquisitions and step up transactions	—			—			5,695			—			—			5,695
Additions - acquisitions and step-up transactions																			—			—			6,344			—			—			6,344
Redemption value adjustments ⁽¹⁾	(3,154		)	(769		)	(1,049		)	73			(671		)	(5,570		)	(3,627		)	(91		)	418			75			(402		)	(3,627		)
Stock-based compensation	(1,711		)	26			—			—			1,155			(530		)	11			33			—			—			966			1,010
Other	—			—			—			—			—			—			—			—									35			35
Ending Balance of contingent payments	22,242			2,478			15,808			2,512			14,661			57,701			23,476			2,888			16,125			1			13,151			55,641
Fixed payments	263			279			—			—			—			542			263			286			—			—			—			549
	$	22,505		$	2,757		$	15,808		$	2,512		$	14,661		$	58,243		$	23,739		$	3,174		$	16,125		$	1		$	13,151		$	56,190


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

Deferred acquisition consideration excludes future payments with an estimated fair value of ~~$8.6~~$8.2 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 ~~$0.2~~$0.1 million will be paid in the current year and ~~$8.4~~$8.1 million will be paid in one to three ~~years~~years.

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

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


Consideration ⁽⁴⁾	2019		2020		2021		2022		2023 & Thereafter		Total			2019		2020		2021		2022		2023 & Thereafter		Total
	(Dollars in Thousands)													(Dollars in Thousands)
Cash	$	4,671	$	1,673	$	3,798	$	2,720	$	6,149	$	19,011		$	4,665	$	1,670	$	3,852	$	2,792	$	6,070	$	19,049
Shares	16		32		49		33		17		$	147		16		32		48		32		16		$	144
	$	4,687	$	1,705	$	3,847	$	2,753	$	6,166	$	19,158	⁽¹⁾	$	4,681	$	1,702	$	3,900	$	2,824	$	6,086	$	19,193	⁽¹⁾
Operating income before depreciation and amortization to be received ⁽²⁾	$	2,001	$	80	$	1,768	$	—	$	569	$	4,418		$	2,005	$	79	$	1,767	$	—	$	552	$	4.403
Cumulative operating income before depreciation and amortization ⁽³⁾	$	2,001	$	2,081	$	3,849	$	3,849	$	4,418			⁽⁵⁾	$	2,005	$	2,084	$	3,851	$	3,851	$	4,403			⁽⁵⁾

⁽¹⁾

This amount is in addition to (i) the ~~$19.9~~$19.1 million of options to purchase only exercisable upon termination not within the control of the Company, or death, and (ii) the ~~$3.6~~$3.2 million excess of the initial redemption value recorded in redeemable noncontrolling interests over the amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests.


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


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


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


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

Critical Accounting Policies

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

New Accounting Pronouncements

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

Risks and Uncertainties

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

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

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

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

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

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

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

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

foreign currency fluctuations.

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

Website Access to Company Reports and Information

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Debt Instruments: At ~~June~~September 30, 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 ~~$27.5~~$8.1 million in borrowings under the Credit Agreement, as of ~~June~~September 30, 2019, a 1.0% increase or decrease in the weighted average interest rate, which was ~~5.01%~~4.79% at ~~June~~September 30, 2019, would have an interest impact of approximately ~~$0.3~~$0.02 million.

Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 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 ~~$1.0~~$3.5 million.

Impairment Risk: At ~~June~~September 30, 2019, the Company had goodwill of ~~$743.6~~$741.0 million and other intangible assets of ~~$60.8~~$56.7 million. The Company reviews goodwill and other intangible assets with indefinite lives not subject to amortization for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exist. See the Critical Accounting Policies and Estimates section in the Company’s 2018 Form 10-K for information related to impairment testing and the risk of 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 ~~June~~September 30, 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 ~~June~~September 30, 2019 is appropriate.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the three months ended ~~June~~September 30, 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.

I~~tem~~Item 1A. Risk Factors

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, 2018.

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

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

For the three months ended ~~June~~September 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~~September 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~~September 30, 2019. The following table details those shares withheld during the ~~second~~third 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
$ —
$ —



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

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

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

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

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

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

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

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

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

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

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

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

Item 6. Exhibits

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

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		Form of Financial Performance-Based Restricted Stock Agreement dated April 19, 2019, by and between the Company and 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 April 22, 2019)(2019).*
10.2		~~Employment Agreement, dated as~~Form of ~~May 6,~~Long-Term Cash Incentive Compensation Plan 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 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 May 16, 2019, by and between the Company and Seth Gardner (incorporated by reference to 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).~~ Award Agreement.*
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/ Frank Lanuto
Frank Lanuto
Chief Financial Officer and Authorized Signatory

~~August 7,~~November 6, 2019

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