UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20212022
or
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| ☐ | 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
Stagwell Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 86-1390679 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
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One World Trade Center, Floor 65
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New York, | New York | | 10007 |
(Address of principal executive offices) | | (Zip Code) |
(646) 429-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Subordinate Voting Shares, noCommon Stock, par value $0.001 per share | STGW | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated Filer | ☐ | Accelerated Filer | ☒ |
Non-accelerated Filer | ☐ | Smaller reporting company | ☒☐ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares outstanding as of July 23, 2021August 4, 2022 was 77,563,885132,132,146 shares of Class A subordinate votingCommon Stock, 3,946 shares and 3,743of Class B multiple voting shares.Common Stock, and 164,426,878 shares of Class C Common Stock.
STAGWELL INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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| PART II. OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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EXPLANATORY NOTE
On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had entered into an agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell Media (the “Stagwell Subject Entities”) (the “Transaction Agreement”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC (“Stagwell Marketing” or “SMG”) and its direct and indirect subsidiaries.
On August 2, 2021 (the “Closing Date”), Stagwell Inc., a Delaware corporation f/k/a MDC Partners Inc. (“MDC,” the “Company,” “we,” “us” and “our”), consummated the previously announced merger (the “Closing”) pursuant to the Transaction Agreement (defined below), dated December 21, 2020 (as amended on June 4, 2021 and as of July 8, 2021). The MDC stockholders approved the Transactions (as defined below) at a special meeting of stockholders held on July 26, 2021. On the Closing Date, Stagwell Inc. became the successor SEC registrant to MDC Partners Inc.
On December 21, 2020, MDC and Stagwell Media LP, a Delaware limited partnership (“Stagwell”), entered into a definitive transaction agreement (the “Transaction Agreement”) providing forwe completed the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”). Under the terms of the Transaction Agreement, the combination between MDC and the Stagwell Subject Entities was effected using an “Up-C” partnership structure. Throughand a series of steps and related transactions (collectively,(such combination and transactions, the “Transactions”), including. In connection with the domesticationTransactions, among other things, (i) MDC completed a series of MDCtransactions pursuant to which it emerged as a Delaware corporation and the merger of MDC Delaware with one of its indirect wholly owned subsidiaries (the “MDC Merger”subsidiary of Stagwell Inc. (“the Company” or “Stagwell”), MDC Delaware became a direct subsidiary (from and after the merger, “OpCo”) of a newly-formed, Delaware-organized, NASDAQ-listed corporation (“New MDC”). Following the MDC Merger, (i) OpCo converted into a Delaware limited liability company that holds MDC’s operating assets and changed its name to whichMidas OpCo Holdings LLC and subsequently to Stagwell Global LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Entities (the “Stagwell Contribution”)Inc.
The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer and Stagwell Marketing treated as the accounting acquirer. As a result of the Transactions and the change in exchange for 179,970,051 common membership interestsour business and operations, under applicable accounting principles, the historical financial results of OpCo (the “Stagwell OpCo Units”),Stagwell Marketing prior to August 2, 2021 are considered our historical financial results. Accordingly, historical information presented in this Quarterly
and (ii) Stagwell contributed to New MDC an aggregate amount of cash equal to $1,800 in exchange for shares of a new Class C series of voting-only common stock (the “New MDC Class C Stock”) equal in number to the Stagwell OpCo Units. Without giving effect to any outstanding preference shares of MDC, the existing holders of MDC’s Class A and Class B shares received interests equal to approximately 30% of the combined company and Stagwell was issued New MDC Class C Stock equivalent to approximately 70% of the voting rights of the combined company and exchangeable, together with Stagwell OpCo Units, into Class A shares of New MDC on a one-for-one basis at Stagwell’s election.
References in this Quarterly Report on Form 10-Q to “MDC Partners,” “MDC,”(this “Form 10-Q”) for events occurring or periods ending before August 2, 2021 does not reflect the “Company,” “we,” “us” and “our” refer to MDC Partners Inc. prior to its merger into a subsidiary of Stagwell Inc. as partimpact of the Transactions (as defined below), asor the financial results of MDC and unless the context otherwise requiresmay not be comparable with historical information for events occurring or otherwise is expressly stated, its subsidiaries. periods ending on or after August 2, 2021.
References in this Quarterly Report on Form 10-Q to “Partner Firms” generally“Stagwell,” “we,” “us,” “our” and the “Company” refer (i) with respect to the Company’s subsidiary agencies.events occurring or periods ending before August 2, 2021, to Stagwell Marketing and its direct and indirect subsidiaries and (ii) with respect to events occurring or periods ending on or after August 2, 2021, to Stagwell Inc. is the successor SEC registrant to MDC Partners Inc.
and its direct and indirect subsidiaries.
All dollar amounts are stated in U.S. dollars unless otherwise stated.
Note About Forward-Looking Statements
This document contains forward-looking statements. within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s representatives may also make forward-looking statements orally or in writing from time to time. Statements in this document that are not historical facts, including, statements about the Company’s beliefs and expectations, recentfuture financial performance and future prospects, business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Forward-looking statements, which are generally denoted by words such as “anticipate,” “assume,” “believe,” “continue,” “could,” “create,” “estimate,” “expect,” “focus,” “forecast,” “foresee,” “future,” “guidance,” “intend,” “look,” “may,” “opportunity,” “outlook,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or the negative of such terms or other variations thereof and terms of similar substance used in connection with any discussion of current plans, estimates and projections are subject to change based on a number of factors, including those outlined in this section.
Forward-looking statements in this document are based on certain key expectations and assumptions made by the Company. Although the management of the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. The material assumptions upon which such forward-looking statements are based include, among others, assumptions with respect to general business, economic and market conditions, the competitive environment, anticipated and unanticipated tax consequences and anticipated and unanticipated costs. These forward-looking statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
•risks associated with international, national and regional unfavorable economic conditions that could affect the Company or its clients, including as a result of the novel coronavirus pandemic (“COVID-19”);clients;
•the effectscontinued impact of the outbreakcoronavirus pandemic (“COVID-19”), and evolving strains of COVID-19 including the measures to reduce its spread, and the impact on the economy and demand for ourthe Company’s services, which may precipitate or exacerbate other risks and uncertainties;
•an inability to realize expected benefits of the redomiciliation of the Company from the federal jurisdiction of Canada to the State of Delaware (the “Redomiciliation”) and the subsequent combination of the Company’s business with the business of the subsidiaries of Stagwell Media LP (“Stagwell”) that own and operate a portfolio of marketing services companies (the “Business Combination” and, together with the Redomiciliation, the “Transactions”) or the occurrence of difficulties in connection with the Transactions;MDC;
•adverse tax consequences in connection with the Transactions for the Company, its operations and its shareholders, that may differ from the expectations of the Company, including that future changes in tax law, potential increases to corporate tax rates in the United States and disagreements with the tax authorities on the Company’s determination of value and computations of its attributes may result in increased tax costs;
•the occurrence of material Canadian federal income tax (including material “emigration tax”) as a result of the Transactions;
•the impact of uncertainty associated with the Transactions on the Company’s businesses;
•direct or indirect costs associated with the Transactions, which could be greater than expected;
•risks associated with severe effects of international, national and regional economic conditions;
•the risk of parties challenging the Transactions or the impact of the Transactions on the Company’s debt arrangements;
•the Company’s ability to attract new clients and retain existing clients;
•the impact of a reduction in client spending and changes in client advertising, marketing and corporate communications requirements;
•financial failure of the Company’s clients;
•the Company’s ability to retain and attract key employees;
•the Company’s ability to compete in the markets in which it operates;
•the Company’s ability to achieve the full amount of its stated cost saving initiatives;
•the Company’s implementation of strategic initiatives;
•the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration;
•the Company’s ability to manage its growth effectively, including the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities;
•the Company’s material weaknesses in internal control over financial reporting and its ability to establish and maintain an effective system of internal control over financial reporting;
•the Company’s ability to protect client data from security incidents or cyberattacks;
•economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine), terrorist activities and natural disasters;
•stock price volatility; and
•foreign currency fluctuations.
Investors should carefully consider these risk factors, other risk factors described herein, and the additional risk factors outlined in more detail in the Company’s 2020our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 16, 202117, 2022, and accessible on the SEC’s website at www.sec.gov.,www.sec.gov, under the caption “Risk Factors,” and in the Company’s other SEC filings.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of United States dollars, except per share amounts)amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue: | | | | | | | |
Services | $ | 345,605 | | | $ | 259,677 | | | $ | 653,190 | | | $ | 587,419 | |
Operating Expenses | | | | | | | |
Cost of services sold | 224,411 | | | 165,631 | | | 411,332 | | | 388,325 | |
Office and general expenses | 80,546 | | | 66,210 | | | 164,492 | | | 132,564 | |
Depreciation and amortization | 8,005 | | | 8,898 | | | 16,181 | | | 18,104 | |
Impairment and other losses | 0 | | | 18,840 | | | 875 | | | 19,001 | |
| 312,962 | | | 259,579 | | | 592,880 | | | 557,994 | |
Operating income | 32,643 | | | 98 | | | 60,310 | | | 29,425 | |
Other Income (expenses): | | | | | | | |
Interest expense and finance charges, net | (19,512) | | | (15,942) | | | (38,577) | | | (31,553) | |
Foreign exchange gain (loss) | 1,902 | | | 5,342 | | | 3,982 | | | (9,415) | |
Other, net | 842 | | | 5,883 | | | 1,456 | | | 22,217 | |
| (16,768) | | | (4,717) | | | (33,139) | | | (18,751) | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | 15,875 | | | (4,619) | | | 27,171 | | | 10,674 | |
Income tax expense (benefit) | 1,387 | | | (7,923) | | | 2,689 | | | 5,577 | |
Income before equity in earnings of non-consolidated affiliates | 14,488 | | | 3,304 | | | 24,482 | | | 5,097 | |
Equity in losses of non-consolidated affiliates | (151) | | | (798) | | | (644) | | | (798) | |
Net income | 14,337 | | | 2,506 | | | 23,838 | | | 4,299 | |
Net income attributable to the noncontrolling interest | (8,231) | | | (3,101) | | | (12,722) | | | (3,892) | |
Net income (loss) attributable to MDC Partners Inc. | 6,106 | | | (595) | | | 11,116 | | | 407 | |
Accretion on and net income allocated to convertible preference shares | (4,451) | | | (3,509) | | | (8,540) | | | (6,949) | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 1,655 | | | $ | (4,104) | | | $ | 2,576 | | | $ | (6,542) | |
Income (loss) Per Common Share: | | | | | | | |
Basic | | | | | | | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 0.02 | | | $ | (0.06) | | | $ | 0.03 | | | $ | (0.09) | |
Diluted | | | | | | | |
Net income (loss) attributable to MDC Partners Inc common shareholders | $ | 0.02 | | | $ | (0.06) | | | $ | 0.03 | | | $ | (0.09) | |
Weighted Average Number of Common Shares Outstanding: | | | | | | | |
Basic | 75,078,755 | | | 72,528,455 | | | 74,240,447 | | | 72,463,058 | |
Diluted | 78,459,483 | | | 72,528,455 | | | 77,001,526 | | | 72,463,058 | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
Operating Expenses | | | | | | | |
Cost of services | 424,661 | | | 122,074 | | | 836,631 | | | 234,073 | |
Office and general expenses | 165,423 | | | 52,674 | | | 309,935 | | | 104,952 | |
Depreciation and amortization | 32,231 | | | 10,381 | | | 63,435 | | | 21,331 | |
Impairment and other losses | 2,266 | | | — | | | 2,823 | | | — | |
| 624,581 | | | 185,129 | | | 1,212,824 | | | 360,356 | |
Operating Income | 48,332 | | | 24,431 | | | 102,992 | | | 30,446 | |
Other income (expenses): | | | | | | | |
Interest expense, net | (18,151) | | | (1,935) | | | (36,880) | | | (3,286) | |
Foreign exchange, net | 70 | | | (385) | | | (236) | | | (1,062) | |
Other, net | (121) | | | (101) | | | 35 | | | 1,184 | |
| (18,202) | | | (2,421) | | | (37,081) | | | (3,164) | |
Income before income taxes and equity in earnings of non-consolidated affiliates | 30,130 | | | 22,010 | | | 65,911 | | | 27,282 | |
Income tax expense | 5,421 | | | 3,348 | | | 8,610 | | | 4,021 | |
Income before equity in earnings of non-consolidated affiliates | 24,709 | | | 18,662 | | | 57,301 | | | 23,261 | |
Equity in income (loss) of non-consolidated affiliates | (190) | | | (3) | | | 840 | | | 1 | |
Net income | 24,519 | | | 18,659 | | | 58,141 | | | 23,262 | |
Net income attributable to noncontrolling and redeemable noncontrolling interests | (14,056) | | | (1,314) | | | (35,003) | | | (1,552) | |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
Income Per Common Share: | | | | | | | |
Basic | | | | | | | |
Net income attributable to Stagwell Inc. common shareholders | $ | 0.08 | | | N/A | | $ | 0.19 | | | N/A |
Diluted | | | | | | | |
Net income attributable to Stagwell Inc. common shareholders | $ | 0.08 | | | N/A | | $ | 0.18 | | | N/A |
Weighted Average Number of Common Shares Outstanding: | | | | | | | |
Basic | 126,425 | | | N/A | | 124,367 | | | N/A |
Diluted | 296,414 | | | N/A | | 298,843 | | | N/A |
See notes to the Unaudited Condensed Consolidated Financial Statements.
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(thousands of United States dollars)amounts in thousands)
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Comprehensive Income | | | | | | | |
Net income | $ | 14,337 | | | $ | 2,506 | | | $ | 23,838 | | | $ | 4,299 | |
Other comprehensive income (loss), net of applicable tax: | | | | | | | |
Foreign currency translation adjustment | 195 | | | 1,367 | | | (3,312) | | | 8,796 | |
Other comprehensive income (loss) | 195 | | | 1,367 | | | (3,312) | | | 8,796 | |
Comprehensive income for the period | 14,532 | | | 3,873 | | | 20,526 | | | 13,095 | |
Comprehensive income attributable to the noncontrolling interests | (8,570) | | | (3,511) | | | (12,109) | | | (3,793) | |
Comprehensive income attributable to MDC Partners Inc. | $ | 5,962 | | | $ | 362 | | | $ | 8,417 | | | $ | 9,302 | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
COMPREHENSIVE INCOME (LOSS) | | | | | | | |
Net income | $ | 24,519 | | | $ | 18,659 | | | $ | 58,141 | | | $ | 23,262 | |
Other comprehensive loss | | | | | | | |
Foreign currency translation adjustment | (23,826) | | | (487) | | | (29,173) | | | (350) | |
Other comprehensive loss | (23,826) | | | (487) | | | (29,173) | | | (350) | |
Comprehensive income for the period | 693 | | | 18,172 | | | 28,968 | | | 22,912 | |
Comprehensive income attributable to the noncontrolling and redeemable noncontrolling interests | (14,056) | | | (1,314) | | | (35,003) | | | (1,552) | |
Comprehensive income (loss) attributable to Stagwell Inc. common shareholders | $ | (13,363) | | | $ | 16,858 | | | $ | (6,035) | | | $ | 21,360 | |
See notes to the Unaudited Condensed Consolidated Financial Statements.
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of United States dollars)amounts in thousands)
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | | | | | (Unaudited) | | |
ASSETS | ASSETS | | | | ASSETS | | | |
Current Assets: | | | | |
Current Assets | | Current Assets | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 108,280 | | | $ | 60,757 | | Cash and cash equivalents | $ | 93,402 | | | $ | 184,009 | |
Accounts receivable, less allowance for doubtful accounts of $3,656 and $5,473 | 426,841 | | | 374,892 | | |
Accounts receivable, net | | Accounts receivable, net | 782,927 | | | 696,937 | |
Expenditures billable to clients | Expenditures billable to clients | 16,793 | | | 10,552 | | Expenditures billable to clients | 43,583 | | | 63,065 | |
Other current assets | Other current assets | 31,312 | | | 40,938 | | Other current assets | 73,251 | | | 61,830 | |
Total Current Assets | Total Current Assets | 583,226 | | | 487,139 | | Total Current Assets | 993,163 | | | 1,005,841 | |
Fixed assets, at cost, less accumulated depreciation of $134,019 and $136,166 | 81,191 | | | 90,413 | | |
Fixed assets, net | | Fixed assets, net | 123,662 | | | 118,603 | |
Right-of-use lease assets - operating leases | Right-of-use lease assets - operating leases | 198,556 | | | 214,188 | | Right-of-use lease assets - operating leases | 299,553 | | | 311,654 | |
Goodwill | Goodwill | 671,542 | | | 668,211 | | Goodwill | 1,668,892 | | | 1,652,723 | |
Other intangible assets, net | Other intangible assets, net | 29,405 | | | 33,844 | | Other intangible assets, net | 904,812 | | | 937,695 | |
| Other assets | Other assets | 23,258 | | | 17,517 | | Other assets | 34,936 | | | 29,064 | |
Total Assets | Total Assets | $ | 1,587,178 | | | $ | 1,511,312 | | Total Assets | $ | 4,025,018 | | | $ | 4,055,580 | |
LIABILITIES, RNCI, AND SHAREHOLDERS’ DEFICIT | | | | |
LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY | | LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | Current Liabilities | | Current Liabilities | |
Accounts payable | Accounts payable | $ | 158,136 | | | $ | 168,396 | | Accounts payable | $ | 254,650 | | | $ | 271,769 | |
Accrued media | | Accrued media | 195,939 | | | 237,794 | |
Accruals and other liabilities | Accruals and other liabilities | 250,070 | | | 274,968 | | Accruals and other liabilities | 222,699 | | | 272,533 | |
Advance billings | Advance billings | 211,248 | | | 152,956 | | Advance billings | 316,654 | | | 361,885 | |
Current portion of lease liabilities - operating leases | Current portion of lease liabilities - operating leases | 41,400 | | | 41,208 | | Current portion of lease liabilities - operating leases | 68,785 | | | 72,255 | |
Current portion of deferred acquisition consideration | Current portion of deferred acquisition consideration | 59,612 | | | 53,730 | | Current portion of deferred acquisition consideration | 76,661 | | | 77,946 | |
Total Current Liabilities | Total Current Liabilities | 720,466 | | | 691,258 | | Total Current Liabilities | 1,135,388 | | | 1,294,182 | |
Long-term debt | Long-term debt | 935,072 | | | 843,184 | | Long-term debt | 1,381,560 | | | 1,191,601 | |
Long-term portion of deferred acquisition consideration | Long-term portion of deferred acquisition consideration | 8,056 | | | 29,335 | | Long-term portion of deferred acquisition consideration | 119,853 | | | 144,423 | |
Long-term lease liabilities - operating leases | Long-term lease liabilities - operating leases | 231,811 | | | 247,243 | | Long-term lease liabilities - operating leases | 327,677 | | | 342,730 | |
Deferred tax liabilities, net | | Deferred tax liabilities, net | 80,311 | | | 103,093 | |
Other liabilities | Other liabilities | 74,826 | | | 82,065 | | Other liabilities | 73,148 | | | 57,147 | |
Total Liabilities | Total Liabilities | 1,970,231 | | | 1,893,085 | | Total Liabilities | 3,117,937 | | | 3,133,176 | |
Redeemable Noncontrolling Interests | Redeemable Noncontrolling Interests | 24,639 | | | 27,137 | | Redeemable Noncontrolling Interests | 49,697 | | | 43,364 | |
Commitments, Contingencies and Guarantees (Note 9) | 0 | | 0 | |
Shareholder's Deficit: | | |
Convertible preference shares, 145,000 authorized, issued and outstanding at June 30, 2021 and December 31, 2020 | 152,746 | | | 152,746 | | |
Common stock and other paid-in capital | 97,783 | | | 104,367 | | |
Accumulated deficit | (698,635) | | | (709,751) | | |
Accumulated other comprehensive income | 39 | | | 2,739 | | |
MDC Partners Inc. Shareholders' Deficit | (448,067) | | | (449,899) | | |
Commitments, Contingencies and Guarantees (Note 10) | | Commitments, Contingencies and Guarantees (Note 10) | 0 | | 0 |
Shareholders' Equity: | | Shareholders' Equity: | |
| Common shares - Class A & B | | Common shares - Class A & B | 135 | | | 118 | |
Common shares - Class C | | Common shares - Class C | 2 | | | 2 | |
Paid-in capital | | Paid-in capital | 368,345 | | | 382,893 | |
Retained earnings (loss) | | Retained earnings (loss) | 10,268 | | | (6,982) | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (34,451) | | | (5,278) | |
Stagwell Inc. Shareholders' Equity | | Stagwell Inc. Shareholders' Equity | 344,299 | | | 370,753 | |
Noncontrolling interests | Noncontrolling interests | 40,375 | | | 40,989 | | Noncontrolling interests | 513,085 | | | 508,287 | |
Total Shareholders' Deficit | (407,692) | | | (408,910) | | |
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit | $ | 1,587,178 | | | $ | 1,511,312 | | |
Total Shareholders' Equity | | Total Shareholders' Equity | 857,384 | | | 879,040 | |
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity | | Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity | $ | 4,025,018 | | | $ | 4,055,580 | |
See notes to the Unaudited Condensed Consolidated Financial Statements.
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of United States dollars)amounts in thousands)
| | | Six Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | Cash flows from operating activities: | | | |
Net income | Net income | $ | 23,838 | | | $ | 4,299 | | Net income | $ | 58,141 | | | $ | 23,261 | |
Adjustments to reconcile net income to cash provided by (used in) operating activities: | | |
Adjustments to reconcile net income to cash (used in) provided by operating activities: | | Adjustments to reconcile net income to cash (used in) provided by operating activities: | |
Stock-based compensation | Stock-based compensation | 4,975 | | | 4,109 | | Stock-based compensation | 21,152 | | | — | |
Depreciation and amortization | Depreciation and amortization | 16,181 | | | 18,104 | | Depreciation and amortization | 63,435 | | | 21,331 | |
Impairment and other losses | Impairment and other losses | 875 | | | 19,001 | | Impairment and other losses | 2,823 | | | — | |
Provision for bad debt expense | | Provision for bad debt expense | 1,641 | | | 381 | |
Deferred income taxes | | Deferred income taxes | (1,325) | | | 138 | |
Adjustment to deferred acquisition consideration | Adjustment to deferred acquisition consideration | 17,297 | | | (2,288) | | Adjustment to deferred acquisition consideration | 15,390 | | | 2,359 | |
Deferred income taxes | 39 | | | 2,114 | | |
Foreign exchange and other | (8,219) | | | (4,578) | | |
Transaction costs contributed by Stagwell Media LP | | Transaction costs contributed by Stagwell Media LP | — | | | 5,042 | |
Other | | Other | (6,059) | | | 952 | |
Changes in working capital: | Changes in working capital: | | Changes in working capital: | |
Accounts receivable | Accounts receivable | (51,950) | | | 88,039 | | Accounts receivable | (78,342) | | | 28,960 | |
Expenditures billable to clients | Expenditures billable to clients | (6,241) | | | 10,707 | | Expenditures billable to clients | 20,386 | | | (4,752) | |
Prepaid expenses and other current assets | (7,622) | | | (4,363) | | |
Accounts payable, accruals and other liabilities | (13,615) | | | (127,188) | | |
Acquisition related payments | (23,440) | | | (6,215) | | |
Other assets | | Other assets | (8,555) | | | (676) | |
Accounts payable | | Accounts payable | (33,228) | | | (40,344) | |
Accrued expenses and other liabilities | | Accrued expenses and other liabilities | (109,232) | | | (1,037) | |
Advance billings | Advance billings | 58,291 | | | (35,422) | | Advance billings | (46,391) | | | 3,603 | |
Net cash provided by (used in) operating activities | 10,409 | | | (33,681) | | |
Deferred acquisition related payments | | Deferred acquisition related payments | (7,107) | | | — | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | (107,271) | | | 39,218 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | Cash flows from investing activities: | | | |
Capital expenditures | Capital expenditures | (15,381) | | | (3,690) | | Capital expenditures | (14,467) | | | (7,288) | |
Proceeds from sale of assets | 7,080 | | | 19,616 | | |
Acquisitions, net of cash acquired | 0 | | | (729) | | |
Current period acquisitions, net of cash acquired | | Current period acquisitions, net of cash acquired | (38,326) | | | — | |
Other | Other | (1,273) | | | (554) | | Other | (2,144) | | | — | |
Net cash provided by (used in) investing activities | (9,574) | | | 14,643 | | |
Net cash used in investing activities | | Net cash used in investing activities | (54,937) | | | (7,288) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Repayment of borrowing under revolving credit facility | (291,913) | | | (251,328) | | |
Proceeds from revolving credit facility | 380,515 | | | 313,828 | | |
Acquisition related payments | (21,435) | | | (30,885) | | |
Repayment of borrowings under revolving credit facility | | Repayment of borrowings under revolving credit facility | (473,000) | | | (25,496) | |
Proceeds from borrowings under revolving credit facility | | Proceeds from borrowings under revolving credit facility | 660,500 | | | 10,000 | |
Shares acquired and cancelled | | Shares acquired and cancelled | (14,926) | | | — | |
Distributions to noncontrolling interests and other | Distributions to noncontrolling interests and other | (20,269) | | | (11,050) | | Distributions to noncontrolling interests and other | (36,498) | | | — | |
Repurchase of Bonds | 0 | | | (21,999) | | |
Payment of deferred consideration | | Payment of deferred consideration | (52,431) | | | — | |
| Purchase of noncontrolling interest | | Purchase of noncontrolling interest | (3,600) | | | — | |
Distributions | | Distributions | — | | | (37,214) | |
Repurchase of Common Stock | | Repurchase of Common Stock | (14,839) | | | — | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 46,898 | | | (1,434) | | Net cash provided by (used in) financing activities | 65,206 | | | (52,710) | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (210) | | | (981) | | Effect of exchange rate changes on cash and cash equivalents | 6,395 | | | 1,773 | |
Net increase in cash and cash equivalents | 47,523 | | | (21,453) | | |
Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | (90,607) | | | (19,007) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 60,757 | | | 106,933 | | Cash and cash equivalents at beginning of period | 184,009 | | | 92,457 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 108,280 | | | $ | 85,480 | | Cash and cash equivalents at end of period | $ | 93,402 | | | $ | 73,450 | |
Supplemental disclosures: | | | | |
Cash income taxes paid | $ | 7,901 | | | $ | 2,566 | | |
Cash interest paid | $ | 32,806 | | | $ | 28,736 | | |
|
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(amounts in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Supplemental disclosures: | | | |
Cash income taxes paid | $ | 15,871 | | | $ | 4,649 | |
Cash interest paid | 30,798 | | | 3,047 | |
| | | |
Non-cash investing and financing activities: | | | |
| | | |
| | | |
Reduction of deferred tax liability related to the exchange of Paired Units | 25,159 | | | — | |
Establishment of Tax Receivables Agreement liability | 21,385 | | | — | |
Non-cash contributions | — | | | 12,122 | |
Non-cash distributions to Stagwell Media LP | — | | | 13,000 | |
Non-cash payment of deferred acquisition consideration | — | | | 7,080 | |
| | | |
See notes to the Unaudited Condensed Consolidated Financial Statements.
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICITEQUITY
(thousands of United States dollars, except share amounts)amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2021 |
| 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 Shareholders' Deficit |
| | | | | | | |
| | | | | | | |
| Shares | | Amount | | Shares | | | | | | | | | | | | |
Balance at March 31, 2021 | 145,000 | | | $ | 152,746 | | | 74,791,060 | | | $ | 106,193 | | | $ | (704,741) | | | $ | 183 | | | $ | (445,619) | | | $ | 40,036 | | | $ | (405,583) | |
Net income attributable to MDC Partners Inc. | — | | | — | | | — | | | — | | | 6,106 | | | — | | | 6,106 | | | — | | | 6,106 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (144) | | | (144) | | | 339 | | | 195 | |
Vesting of restricted awards | — | | | — | | | 380,361 | | | — | | | — | | | — | | | — | | | — | | | 0 | |
Shares acquired and cancelled | — | | | — | | | (44,874) | | | (234) | | | — | | | — | | | (234) | | | — | | | (234) | |
Stock-based compensation | — | | | — | | | — | | | 1,494 | | | — | | | — | | | 1,494 | | | — | | | 1,494 | |
Changes in redemption value of redeemable noncontrolling interests | — | | | — | | | — | | | 319 | | | — | | | — | | | 319 | | | — | | | 319 | |
Business acquisitions and step-up transactions, net of tax | — | | | — | | | 2,131,574 | | | (10,339) | | | — | | | — | | | (10,339) | | | — | | | (10,339) | |
Other | — | | | — | | | — | | | 350 | | | — | | | — | | | 350 | | | — | | | 350 | |
Balance at June 30, 2021 | 145,000 | | | $ | 152,746 | | | 77,258,121 | | | $ | 97,783 | | | $ | (698,635) | | | $ | 39 | | | $ | (448,067) | | | $ | 40,375 | | | $ | (407,692) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended |
| | | | | | | June 30, 2022 |
| | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
Balance at March 31, 2022 | | | | | | | 133,196 | | | $ | 135 | | | 164,815 | | | $ | 2 | | | $ | 373,300 | | | $ | 6,668 | | | $ | (10,625) | | | $ | 369,480 | | | $ | 528,365 | | | $ | 897,845 | |
Net income | | | | | | | — | | | — | | | — | | | — | | | — | | | 10,463 | | | — | | | 10,463 | | | 15,000 | | | 25,463 | |
Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (23,826) | | | (23,826) | | | — | | | (23,826) | |
Distributions to noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (29,252) | | | (29,252) | |
Purchases of noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | (1,000) | | | — | | | — | | | (1,000) | | | (3,600) | | | (4,600) | |
Acquisition of noncontrolling interest | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,667 | | | 2,667 | |
Changes in redemption value of RNCI | | | | | | | — | | | — | | | — | | | — | | | — | | | (6,863) | | | — | | | (6,863) | | | — | | | (6,863) | |
Granting of restricted awards | | | | | | | 202 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Shares forfeited | | | | | | | (108) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Shares repurchased and cancelled (Approved plan) | | | | | | | (1,981) | | | (2) | | | — | | | — | | | (14,839) | | | — | | | — | | | (14,841) | | | — | | | (14,841) | |
Stock-based compensation | | | | | | | — | | | — | | | — | | | — | | | 9,178 | | | — | | | — | | | 9,178 | | | — | | | 9,178 | |
Conversion of shares | | | | | | | 388 | | | — | | | (388) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other | | | | | | | 141 | | | 2 | | | — | | | — | | | 1,706 | | | — | | | — | | | 1,708 | | | (95) | | | 1,613 | |
Balance at June 30, 2022 | | | | | | | 131,838 | | | $ | 135 | | | 164,427 | | | $ | 2 | | | $ | 368,345 | | | $ | 10,268 | | | $ | (34,451) | | | $ | 344,299 | | | $ | 513,085 | | | $ | 857,384 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 |
| 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 Shareholders' Deficit |
| | | | | | | |
| | | | | | | |
| Shares | | Amount | | Shares | | | | | | | | | | | | |
Balance at December 31, 2020 | 145,000 | | | $ | 152,746 | | | 73,532,848 | | | $ | 104,367 | | | $ | (709,751) | | | $ | 2,739 | | | $ | (449,899) | | | $ | 40,989 | | | $ | (408,910) | |
Net income attributable to MDC Partners Inc. | — | | | — | | | — | | | — | | | 11,116 | | | — | | | 11,116 | | | — | | | 11,116 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | (2,699) | | | (2,699) | | | (613) | | | (3,312) | |
Vesting of restricted awards | — | | | — | | | 1,703,093 | | | — | | | — | | | — | | | — | | | — | | | 0 | |
Shares acquired and cancelled | — | | | — | | | (109,394) | | | (436) | | | — | | | — | | | (436) | | | — | | | (436) | |
Stock-based compensation | — | | | — | | | — | | | 2,529 | | | — | | | — | | | 2,529 | | | — | | | 2,529 | |
Changes in redemption value of redeemable noncontrolling interests | — | | | — | | | — | | | 2,000 | | | — | | | — | | | 2,000 | | | — | | | 2,000 | |
Business acquisitions and step-up transactions, net of tax | — | | | — | | | 2,131,574 | | | (10,669) | | | — | | | — | | | (10,669) | | | — | | | (10,669) | |
Other | — | | | — | | | — | | | (8) | | | — | | | (1) | | | (9) | | | (1) | | | (10) | |
Balance at June 30, 2021 | 145,000 | | | $ | 152,746 | | | 77,258,121 | | | $ | 97,783 | | | $ | (698,635) | | | $ | 39 | | | $ | (448,067) | | | $ | 40,375 | | | $ | (407,692) | |
STAGWELL INC. AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued)
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Six Months Ended |
| | | | | | | | June 30, 2022 |
| | | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at December 31, 2021 | | | | | | | 118,252 | | | $ | 118 | | | 179,970 | | | $ | 2 | | | $ | 382,893 | | | $ | (6,982) | | | $ | (5,278) | | | $ | 370,753 | | | $ | 508,287 | | | $ | 879,040 | |
| Net income | | | | | | | — | | | — | | | — | | | — | | | — | | | 23,138 | | | — | | | 23,138 | | | 33,537 | | | 56,675 | |
| Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (29,173) | | | (29,173) | | | — | | | (29,173) | |
| Distributions to noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (29,957) | | | (29,957) | |
| Purchases of noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | (1,000) | | | — | | | — | | | (1,000) | | | (3,600) | | | (4,600) | |
| Acquisition of noncontrolling interest | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,667 | | | 2,667 | |
| Changes in redemption value of RNCI | | | | | | | — | | | — | | | — | | | — | | | | | (5,888) | | | — | | | (5,888) | | | — | | | (5,888) | |
| Granting of restricted awards | | | | | | | 1,989 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | | | — | |
| Shares repurchased and cancelled (withheld for payroll taxes) | | | | | | | (1,998) | | | — | | | — | | | — | | | (14,926) | | | — | | | — | | | (14,926) | | | — | | | (14,926) | |
| Shares forfeited | | | | | | | (108) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Shares repurchased and cancelled (Approved plan) | | | | | | | (1,981) | | | (2) | | | — | | | — | | | (14,839) | | | — | | | — | | | (14,841) | | | — | | | (14,841) | |
| Stock-based compensation | | | | | | | — | | | — | | | — | | | — | | | 15,892 | | | — | | | — | | | 15,892 | | | — | | | 15,892 | |
| Conversion of shares | | | | | | | 15,543 | | | 15 | | | (15,543) | | | — | | | (15) | | | — | | | — | | | — | | | — | | | — | |
| Other | | | | | | | 141 | | | 2 | | | — | | | — | | | 342 | | | | | — | | | 344 | | | 2,151 | | | 2,495 | |
| Balance at June 30, 2022 | | | | | | | 131,838 | | | $ | 135 | | | 164,427 | | | $ | 2 | | | $ | 368,345 | | | $ | 10,268 | | | $ | (34,451) | | | $ | 344,299 | | | $ | 513,085 | | | $ | 857,384 | |
See notes to the Unaudited Condensed Consolidated Financial Statements.
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICITEQUITY - (continued)
(thousands of United States dollars, except share amounts)amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended |
| June 30, 2020 |
| 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 Shareholders' Deficit |
| | | | | | | |
| | | | | | | |
| Shares | | Amount | | Shares | | | | | | | | | | | | |
Balance at March 31, 2020 | 145,000 | | | $ | 152,746 | | | 72,483,166 | | | $ | 99,587 | | | $ | (479,695) | | | $ | 3,669 | | | $ | (223,693) | | | $ | 39,749 | | | $ | (183,944) | |
Net loss attributable to MDC Partners Inc. | — | | | — | | | — | | | — | | | (595) | | | — | | | (595) | | | — | | | (595) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 957 | | | 957 | | | 410 | | | 1,367 | |
Vesting of restricted awards | — | | | — | | | 173,334 | | | — | | | — | | | — | | | — | | | — | | | 0 | |
Shares acquired and cancelled | — | | | — | | | (69,110) | | | (95) | | | — | | | — | | | (95) | | | — | | | (95) | |
Stock-based compensation | — | | | — | | | — | | | 557 | | | — | | | — | | | 557 | | | — | | | 557 | |
Changes in redemption value of redeemable noncontrolling interests | — | | | — | | | — | | | (1,412) | | | — | | | — | | | (1,412) | | | — | | | (1,412) | |
| | | | | | | | | | | | | | | | | |
Other | — | | | — | | | — | | | (403) | | | (81) | | | 1 | | | (483) | | | (1) | | | (484) | |
Balance at June 30, 2020 | 145,000 | | | $ | 152,746 | | | 72,587,390 | | | $ | 98,234 | | | $ | (480,371) | | | $ | 4,627 | | | $ | (224,764) | | | $ | 40,158 | | | $ | (184,606) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended |
| June 30, 2020 |
| 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 Shareholders' Deficit |
| | | | | | | |
| | | | | | | |
| Shares | | Amount | | Shares | | | | | | | | | | | | |
Balance at December 31, 2019 | 145,000 | | | $ | 152,746 | | | 72,154,603 | | | $ | 101,469 | | | $ | (480,779) | | | $ | (4,269) | | | $ | (230,833) | | | $ | 40,258 | | | $ | (190,575) | |
Net income attributable to MDC Partners Inc. | — | | | — | | | — | | | — | | | 407 | | | — | | | 407 | | | — | | | 407 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 8,895 | | | 8,895 | | | (99) | | | 8,796 | |
Vesting of restricted awards | — | | | — | | | 760,561 | | | — | | | — | | | — | | | — | | | — | | | 0 | |
Shares acquired and cancelled | — | | | — | | | (327,774) | | | (732) | | | — | | | — | | | (732) | | | — | | | (732) | |
Stock-based compensation | — | | | — | | | — | | | 1,033 | | | — | | | — | | | 1,033 | | | — | | | 1,033 | |
Changes in redemption value of redeemable noncontrolling interests | — | | | — | | | — | | | (2,630) | | | — | | | — | | | (2,630) | | | — | | | (2,630) | |
Business acquisitions and step-up transactions, net of tax | — | | | — | | | — | | | (503) | | | — | | | — | | | (503) | | | — | | | (503) | |
Other | — | | | — | | | — | | | (403) | | | 1 | | | 1 | | | (401) | | | (1) | | | (402) | |
Balance at June 30, 2020 | 145,000 | | | $ | 152,746 | | | 72,587,390 | | | $ | 98,234 | | | $ | (480,371) | | | $ | 4,627 | | | $ | (224,764) | | | $ | 40,158 | | | $ | (184,606) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended |
| | | | | | | | June 30, 2021 |
| | Members' capital | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at March 31, 2021 | $ | 345,122 | | | | | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 345,122 | | | $ | 30,050 | | | $ | 375,172 | |
| Net income | 17,345 | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 17,345 | | | 1,470 | | | 18,815 | |
| Other comprehensive loss | (487) | | | | | | | — | | | — | | | ��� | | | — | | | — | | | — | | | — | | | (487) | | | — | | | (487) | |
| Contributions | 1,854 | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,854 | | | — | | | 1,854 | |
| Distributions | (11,208) | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (11,208) | | | (112) | | | (11,320) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in redemption value of RNCI | (2,231) | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,231) | | | (461) | | | (2,692) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2021 | $ | 350,395 | | | | | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 350,395 | | | $ | 30,947 | | | $ | 381,342 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Six Months Ended |
| | | | | | | | June 30, 2021 |
| | Members' capital | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at December 31, 2020 | $ | 358,756 | | | | | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 358,756 | | | $ | 39,787 | | | $ | 398,543 | |
| Net income | 21,710 | | | | | | | — | | | — | | | — | | | — | | | — | | | | | — | | | 21,710 | | | 2,623 | | | 24,333 | |
| Other comprehensive loss | (350) | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (350) | | | — | | | (350) | |
| Contributions | 12,122 | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 12,122 | | | — | | | 12,122 | |
| Distributions | (39,212) | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (39,212) | | | (11,002) | | | (50,214) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in redemption value of RNCI | (2,631) | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,631) | | | (461) | | | (3,092) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2021 | $ | 350,395 | | | | | | | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 350,395 | | | $ | 30,947 | | | $ | 381,342 | |
See notes to the Unaudited Condensed Consolidated Financial Statements.
MDC PARTNERSSTAGWELL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, of United States dollars, except per share amounts, unless otherwise stated)
1. Business and Basis of Presentation and Recent Developments
As of June 30, 2021, MDC PartnersStagwell Inc. (the “Company” or “MDC”“Stagwell”), incorporated under the laws of Canada, is a leading provider of global marketing, advertising, activation, communicationsDelaware, conducts its business through its networks and strategic consulting solutions. Through its Networks (and underlying agencies generally referred to as “Partner Firms”their Brands (“Brands”), MDC delivers a wide range of customized services in order to drive growthwhich provide marketing and business performance for its clients.
solutions that realize the potential of combining data and creativity.
Stagwell’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment.
The accompanying condensed consolidated financial statements include the accounts of MDC,Stagwell and its subsidiaries and variable interest entities for which the Company is the primary beneficiary. MDCsubsidiaries. Stagwell 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 about current and future results of operations and cash flows 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, 20202021 (“20202021 Form 10-K”).
On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell Media (the “Stagwell Subject Entities”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC (“Stagwell Marketing” or “SMG”) and its direct and indirect subsidiaries.
On August 2, 2021, we completed the previously announced combination of MDC and the operating businesses and subsidiaries of Stagwell Media and a series related transactions (such combination and transactions, the “Transactions”). The Company’s business improved inTransactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the second quarterlegal acquirer and Stagwell Marketing treated as the accounting acquirer. The results of 2021 compared toMDC are included within the second quarterUnaudited Condensed Consolidated Statements of 2020, primarily due to recovery fromOperations for the COVID-19 pandemic. Although the pandemic did not begin to impact the Company’s operations in the first quarter of 2020, it did have a significant impactperiod beginning on the Company’s operations indate of the second quarteracquisition through the end of 2020. Therefore, the quarterly period-over-period comparisons reflect the recovery in the second quarter of 2021respective period presented and the negative impactresults of SMG are included for the entire period presented. See Note 3 of the Notes included herein for information in connection with the second quarteracquisition of 2020.MDC.
While a recovery from the pandemic is underway, economic conditions will be volatile as long as COVID-19 remains a public health threat. The Company continues to monitor developments. We will continue to monitor the impact on our operations from worldwide public health threat, government actions to combatevents such as the COVID-19 pandemic and the impact such developments may have on the overall economy, our clients and operations. If the impact of the pandemic continues to go beyond expectations, the Company believes it is well positioned through the actions implemented at the onset of the pandemic to successfully work through the effectsevolving strains of COVID-19, as well as the military conflict between Russia and Ukraine, which we do not expect to have a material adverse effect on our business. The impact of the pandemic and the corresponding actions are reflected in ouroperations. Our judgments, assumptions and estimates inabout the preparationpotential effects of such events are reflected in the financial statements. The judgments,use of different judgements, assumptions andor estimates will be updated and could result in different results in the future dependinghave a material impact on the continued impact of the COVID-19 pandemic.
our condensed consolidated financial statements.
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.
We have revised the presentation of Current Liabilities to separately present Accrued media, which was previously included in Accruals and other liabilities, of $237,794 as of December 31, 2021. As a result, the accompanying Condensed Consolidated Balance Sheet has been revised to correct this immaterial classification error by decreasing the previously reported amount for Accruals and other liabilities as of December 31, 2021 by the $237,794 of Accrued media. This revision had no effect on our previously reported Total Current Liabilities, or on any other previously reported amounts in our consolidated financial statements for the year ended December 31, 2021.
Recent Developments
On July 12, 2022, the Company acquired PEP Group Holdings B.V. (“PEP Group”), an omnichannel content creation and adaption production company for approximately $766, subject to post-closing adjustments, as well as contingent consideration up to a maximum value of $2,679. The contingent consideration is based on meeting certain future earnings targets through 2025. Stagwell expects the acquisition of PEP Group will bolster its media and content production capabilities across its global network.
On July 15, 2022, the Company acquired Apollo Program II Inc. (“Apollo”), a real-time artificial intelligence-powered software-as-a-service platform, for approximately $2,300, subject to post-closing adjustments, as well as fixed deferred
payments of $1,000 and $1,500 on or prior to July 1, 2023 and July 1, 2024, respectively. Stagwell expects Apollo will be integrated with Stagwell’s data and insights unification tool, Consumer Understand and Engagement.
2. New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, and in January 2021 subsequently issued ASU 2021-01, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective upon issuance, through December 31, 2022. The Combined Credit Agreement (as defined in Note 8 of the Notes included herein) is the Company’s only contractual arrangement that referenced LIBOR and is impacted by ASU 2020-04. On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to the Secured Overnight Financing Rate (“SOFR”). Based on the Company’s assessment, the Company has elected to apply the optional expedient and treat the contract modifications as a continuation of an existing contract. This election does not have a material effect on our results of operations or financial position. See Note 8 of the Notes included herein for information.
3. Acquisitions
2022 Acquisitions
Acquisition of Brand New Galaxy
On April 19, 2022, the Company acquired Brand New Galaxy (“BNG”), for approximately $20,695 of cash consideration, as well as contingent consideration up to a maximum value of $50,000. The contingent consideration is due upon meeting certain future earnings targets through 2024, with approximately 67% payable in cash and 33% payable in Class A Common Stock.
The consideration has been allocated to the assets acquired and assumed liabilities of BNG based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
Cash and cash equivalents | | $ | 2,771 | |
Accounts receivable | | 7,638 | |
Other current assets | | 1,634 | |
Fixed assets | | 2,338 | |
Intangible assets | | 12,410 | |
Other assets | | 1,416 | |
Accounts payable | | (6,855) | |
Accruals and other liabilities | | (4,896) | |
Advance billings | | (1,095) | |
Other liabilities | | (3,448) | |
Net assets assumed | | 11,913 | |
Goodwill | | 25,552 | |
Purchase price consideration | | $ | 37,465 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of BNG. Goodwill of $25,552 was assigned to the Media Network reportable segment. The majority of the goodwill is non-deductible for income tax purposes.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is ten years. The following table presents the details of identifiable intangible assets acquired.
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Useful Life in Years |
Trade Names | | $ | 5,930 | | | 10 |
Customer Relationships | | 5,390 | | | 11 |
Other | | 1,090 | | | 7 |
Total Acquired Intangible Assets | | $ | 12,410 | | | |
Pro Forma Financial Information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Revenue | | $ | 675,414 | | | $ | 217,590 | | | $ | 1,326,042 | | | $ | 405,071 | |
Net Income | | 24,520 | | | 19,202 | | | 57,396 | | | 23,464 | |
Acquisition of TMA Direct, Inc.
On May 31, 2022, the Company acquired approximately 87% of TMA Direct, Inc. (“TMA Direct”) for approximately $19,431 of cash consideration and approximately $482 of deferred acquisition payments. The Company was also granted an option to purchase the remaining 13% minority interest in TMA for up to approximately $13,330. The consideration has been allocated to the assets acquired and assumed liabilities of TMA Direct based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The estimated fair values assigned to identifiable assets acquired and liabilities assumed are based on the information that was available as of the acquisition date. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. Therefore, the estimates of fair value are subject to change and could be significant. The Company expects to complete the allocation of purchase price as soon as practicable, but no later than one year after the acquisition date. The preliminary purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
Accounts receivable | | $ | 582 | |
Other current assets | | 54 | |
Intangible assets | | 9,290 | |
Other assets | | 2,800 | |
Accounts payable | | (379) | |
Other liabilities | | (270) | |
Noncontrolling interests | | (2,667) | |
Net assets assumed | | 9,410 | |
Goodwill | | 10,503 | |
Purchase price consideration | | $ | 19,913 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of TMA Direct. Goodwill of $10,503 was assigned to the Communications Network reportable segment. The majority of the goodwill is deductible for income tax purposes.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is ten years. The following table presents the details of identifiable intangible assets acquired.
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Useful Life in Years |
Trade Names | | $ | 6,283 | | | 10 |
Customer Relationships | | 3,007 | | | 10 |
Total Acquired Intangible Assets | | $ | 9,290 | | | |
Pro Forma Financial Information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Revenue | | $ | 674,737 | | | $ | 212,378 | | | $ | 1,319,646 | | | $ | 398,671 | |
Net Income | | 25,153 | | | 19,391 | | | 59,494 | | | 26,029 | |
2021 Acquisitions
Acquisition of MDC
On December 21, 2020, MDC and Stagwell Media announced that they had entered into a definitive transaction agreement (as amended on June 4, 2021 and as of July 8, 2021, the “Transaction Agreement”)Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of the Stagwell that ownSubject Entities. The Stagwell Subject Entities comprised Stagwell Marketing and operate a portfolio of marketing services companies (the “Stagwell Entities”). The combinationits direct and related transactions, including the domestication of MDC to a Delaware corporation, are referred to as the “Transactions.” See “Item 1. Business – Recent Developments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 16, 2021, for a description of the Transactions.
indirect subsidiaries.
On July 26, 2021, the Company’s shareholders approved the Transactions, and on August 2, 2021 (the effective date)“Closing Date”), we completed the combinedcombination of MDC and the Stagwell Subject Entities and a series of steps and related transactions (such combination and transactions, the “Transactions”). In connection with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned subsidiary of the Company, converted into a Delaware limited liability company beganand changed its name to conductMidas OpCo Holdings LLC, and subsequently to Stagwell Global LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc.
In respect of the Transactions, the acquired assets and assumed liabilities, together with acquired processes and employees, represent a business as Stagwell Inc. On August 3, 2021, Stagwell Inc. began to trade ondefined in the NASDAQ Stock Exchange under the ticker symbol STGW.
On July 26, 2021, the Company sent a notice of redemption to the holders of its 7.50% senior notes due 2024 (the “Senior Notes”FASB’s Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The redemption date is scheduledTransactions were accounted for August 20, 2021 atas a redemption price equalreverse acquisition using the acquisition method of accounting, pursuant to 101.625%ASC Topic 805-10, Business Combinations, with MDC treated as the legal acquirer and SMG treated as the accounting acquirer. In identifying SMG as the acquiring entity for accounting purposes, MDC and SMG took into account a number of factors, including the relative voting rights and the corporate governance structure of the outstanding principal amountCompany. SMG is considered the accounting acquirer since Stagwell Media controls the board of directors of the Senior Notes being redeemedCompany following the Transactions and received an indirect ownership interest in the Company’s only operating subsidiary, OpCo, of 69.55% ownership of OpCo’s common units. However, no single factor was the sole determinant in the overall conclusion that Stagwell is the acquirer for accounting purposes; rather all factors were considered in arriving at such conclusion. Under the acquisition method of accounting, the assets and liabilities of MDC, as the accounting acquiree, were recorded at their respective fair value as of the date the Transactions were completed.
On August 2, 2021, an aggregate of 179,970 shares of the Company’s Class C Common Stock were issued to Stagwell Media in exchange for $1.80 (the “Redemption Price”“Stagwell New MDC Contribution”), plus, accrued. The Class C Common Stock does not participate in the earnings of the Company. Additionally, an aggregate of 179,970 OpCo common units were issued to Stagwell Media in exchange for the equity interests of the Stagwell Subject Entities (the “Stagwell OpCo Contribution”).
The fair value of the purchase consideration is $429,062, consisting of approximately 80,000 shares of the Company’s Class A and unpaid interestB Common Stock and Common Stock equivalents based on a per share price of approximately $5.42, the closing stock price on the principal amountdate of such Senior Notes (the “Redemption Payment”the combination.
ASC 805 requires the allocation of the purchase price consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). The Redemption Payment is approximately $904 million,Fair
consistingvalue is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree of estimation.
The total purchase price to acquire MDC has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The fair value of the Redemption Priceacquired assets and assumed liabilities as of approximately $884 million (principalthe date of $870 millionacquisition are based on preliminary estimates assisted, in part, by a third-party valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences would alter the understanding of the impact of this transaction on the consolidated financial position and results of operations of the Company.
The preliminary purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
Cash and cash equivalents | | $ | 130,153 | |
Accounts receivable | | 413,839 | |
Other current assets | | 44,198 | |
Fixed assets | | 80,047 | |
Right-of-use lease assets - operating leases | | 252,739 | |
Intangible assets | | 810,900 | |
Other assets | | 18,418 | |
Accounts payable | | (171,019) | |
Accruals and other liabilities | | (307,281) | |
Advance billings | | (211,403) | |
Current portion of lease liabilities | | (48,517) | |
Current portion of deferred acquisition consideration | | (53,054) | |
Long-term debt | | (901,736) | |
Revolving credit facility | | (109,954) | |
Long-term portion of deferred acquisition consideration | | (8,056) | |
Long-term portion of lease liabilities | | (289,128) | |
Other liabilities | | (132,394) | |
Redeemable noncontrolling interests | | (25,990) | |
Preferred shares | | (209,980) | |
Noncontrolling interests | | (151,090) | |
Net liabilities assumed | | (869,308) | |
Goodwill | | 1,298,370 | |
Purchase price consideration | | $ | 429,062 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of MDC. Goodwill of $1,058,365, $173,633 and $66,372 was assigned to the Integrated Agencies Network, the Media Network and the Communications Network reportable segments, respectively. The majority of the goodwill is non-deductible for income tax purposes. Goodwill has been reduced from the previously reported amount of $1,300,360 to reflect a premiumchange in certain assets and liabilities. There has been no change that impacts the Consolidated Statement of $14 million)Operations.
Intangible assets consist of trade names and accruedcustomer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is thirteen years. The following table presents the details of identifiable intangible assets acquired.
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Useful Life in Years |
Trade Names | | $ | 98,000 | | | 10 |
Customer Relationships | | 712,900 | | | 6-15 |
Total Acquired Intangible Assets | | $ | 810,900 | | | |
Pro Forma Financial Information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and unpaid interestis not necessarily indicative of approximately $20 million.the results of operations that actually would have been achieved had the acquisitions been consummated as of that time.
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
Revenue | | $ | 555,165 | | | $ | 1,043,992 | |
Net Income | | 32,996 | | | 47,100 | |
Acquisition of GoodStuff Holdings Limited
On August 2,December 31, 2021, the Company repaidacquired GoodStuff Holdings Limited (“Goodstuff”) for approximately £21,000 (approximately $28,053) of cash consideration as well as contingent consideration up to a maximum of £22,000. The cash consideration included an initial payment of £8,000, an excess working capital payment of approximately £9,000 and approximately £4,000 of deferred payments. The contingent consideration is tied to employees’ service and will be recognized as deferred acquisition consideration expense through 2026. Therefore, only the cash consideration has been allocated to the assets acquired and assumed liabilities of Goodstuff based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
Cash and cash equivalents | | $ | 30,985 | |
Accounts receivable | | 28,685 | |
Other current assets | | 3,207 | |
Fixed assets | | 237 | |
Right-of-use lease assets - operating leases | | 2,060 | |
Intangible assets | | 14,974 | |
Other assets | | 55 | |
Accounts payable | | (6,344) | |
Accruals and other liabilities | | (27,353) | |
Advance billings | | (15,956) | |
Current portion of lease liabilities | | (857) | |
Income taxes payable | | (967) | |
Long-term portion of lease liabilities | | (3,744) | |
Other liabilities | | (1,204) | |
Net assets assumed | | 23,778 | |
Goodwill | | 4,275 | |
Purchase price consideration | | $ | 28,053 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Goodstuff. Goodwill of $4,275 was assigned to the Media Network reportable segment. The majority of the goodwill is non-deductible for income tax purposes.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total amount outstanding and terminated its revolving credit facility due February 3, 2022.acquired identifiable intangible assets is ten years. The following table presents the details of identifiable intangible assets acquired.
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Useful Life in Years |
Trade Names | | $ | 1,349 | | | 15 |
Customer Relationships | | 13,625 | | | 10 |
Total Acquired Intangible Assets | | $ | 14,974 | | | |
Pro Forma Financial Information (unaudited)
The planunaudited pro forma information for the periods set forth below gives effect to redeem the Senior Notesacquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and the terminationis not necessarily indicative of the revolving credit facility were initiated in connection withresults of operations that actually would have been achieved had the closingacquisitions been consummated as of the Transactions and the plan to refinance the liquidity position of the combined company.that time.
On July 8, 2021, the Company entered into agreements with Stagwell and affiliates | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
Revenue | | $ | 215,358 | | | $ | 400,786 | |
Net Income | | 20,426 | | | 25,537 | |
2022 Purchases of The Goldman Sachs Group amending certain terms of their preference shares (see Note 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements), which, among other things, reduced the accretion rate on the base liquidation preference of the combined company to zero percent per annum from and after the date that is two business days following the closing of the combination until the one year anniversary thereof.
As the information provided throughout this report is historical, it primarily reflects information about the Company as of June 30, 2021, without giving effect to the Transactions or the Stagwell Entities.
2. Acquisitions and Dispositions
2021 AcquisitionNoncontrolling Interests
On April 26, 2021,1, 2022, the Company acquired the remaining 40% ownership interest of Galein Hello Design, LLC (“Hello Design”) that it did not already own for an aggregate purchase price of approximately $20,000,$4,600, comprised of $7,695, whicha closing cash payment of $3,600 and a contingent deferred acquisition payment of $1,000. The contingent deferred payment will be based on the financial results of the underlying business through 2022 with the payment due in 2023.
2021 Purchases of Noncontrolling Interests
On October 1, 2021, the Company entered into an agreement to purchase the approximate 27% remaining interest of Targeted Victory it did not already own, stipulating the purchase of 13.3% on October 1, 2021 and the remaining 13.3% on July 31, 2023, with the option for the seller to delay the second purchase until July 31, 2025. The purchase price of $73,898 was settledcomprised of a contingent deferred acquisition payment and redeemable noncontrolling interest with Company stock and deferred payments with an estimated present valuevalues at the acquisition date of $11,406,$46,618 and $27,280, respectively. The contingent deferred payment and redeemable noncontrolling interest were based on the financial results of the underlying business through 2025. In addition, at the option of the Company, up to 50% of the total purchase price can be paid in 2022shares of Class A Common Stock and 2023. The difference betweenin no event may the purchase price and the noncontrolling interest of $10,339 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
2020 Acquisitionexceed $135,000.
On JulyDecember 1, 2020,2021, the Company acquired the approximate 27% remaining 10% ownership interest of VeritasConcentric it did not already own for an aggregate purchase price of $2,187, of which $1,087 was a deferred cash payment. As a result of the transaction, the Company reduced noncontrolling and redeemable noncontrolling interests by $2,651. The difference between the purchase price and the noncontrolling interest of $464 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
On March 19, 2020, the Company acquired the remaining 22.5% ownership interest of KWT Global it did not already own for an aggregate purchase price of $2,118,$8,058, comprised of a closing cash payment of $729$1,581 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $1,389.$6,477. The contingent deferred payments were based on the financial results of the underlying business from 2019 to 2020through 2022 with final payment madedue in 2021. As a result of the transaction,2023.
On December 31, 2021, the Company reduced redeemable noncontrolling interests by $1,615. The difference betweenacquired the purchase price and the redeemable noncontrollingapproximate 49% remaining interest of $503 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
2020 Disposition
On February 14, 2020, the Company sold substantially all the assets and certain liabilities of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company, to an affiliate of The Stagwell Group LLC (“Stagwell”),Instrument it did not already own for an aggregate salepurchase price of $26,696, consisting$157,072, comprised of a closing payment of $37,500 in cash receivedand $37,500 in shares of Class A Common Stock and deferred acquisition payments with an estimated present value at closing plus contingentthe acquisition date of $82,072. The deferred payments expected toare not contingent and will be paid over the next two years. The sale resulted in a gain of $16,827, which is included in Other, net within the Unaudited Condensed Consolidated Statements of Operations. Sloane was included within Allison & Partners which is included within the All Other category.
2023 and 2024.
3.4. Revenue
The Company’s revenue recognition policies are established in accordance with 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 MDCStagwell 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, (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 or interdependent, 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.
Certain of the Company’s contracts consist of a single performance obligation. In these instances, the Company does not consider the underlying activities as separate or distinct performance obligations because its services are highly interrelated, and the integration of the various components is essential to the overall promise to the Company’s customer. In certain of the Company’s client contracts, the performance obligation is a stand-ready obligation because the Company provides a constant level of similar services over the term of the contract.
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. To a lesser extent, revenue is recognized using output measures, such as impressions or ongoing reporting. For client contracts when the Company has a stand-ready obligation to perform services on an ongoing basis over the life of the contract, where the scope of these arrangements includes an undefined number of broad activities and there are no significant gaps in performing the services, the Company recognizes revenue ratably using a time-based measure. In addition, for client contracts where the Company is providing online subscription-based hosted services, it recognizes revenue ratably over the contract term. 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’sStagwell’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’sStagwell’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. WeTypically, 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 globally. 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.Brands. Representation of a client rarely means that MDCStagwell handles marketing communications for all brandsBrands or product lines of the client in every geographical location. The Company’s Partner FirmsBrands often cooperate with one another through referrals and the sharing of both services and expertise, which enables MDCStagwell 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 MDCStagwell network.
The following table presents revenue disaggregated by client industry verticalour principal capabilities for the three and six months ended June 30, 20212022 and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Industry | Reportable Segment | | 2021 | | 2020 | | 2021 | | 2020 |
Food & Beverage | All | | $ | 62,462 | | | $ | 46,811 | | | $ | 117,640 | | | $ | 104,396 | |
Retail | All | | 33,901 | | | 32,728 | | | 64,678 | | | 69,537 | |
Consumer Products | All | | 48,784 | | | 34,855 | | | 94,189 | | | 74,189 | |
Communications | All | | 19,215 | | | 16,172 | | | 36,205 | | | 38,014 | |
Automotive | All | | 13,945 | | | 13,020 | | | 29,574 | | | 38,212 | |
Technology | All | | 54,810 | | | 38,846 | | | 101,200 | | | 88,341 | |
Healthcare | All | | 37,074 | | | 23,112 | | | 68,568 | | | 46,843 | |
Financials | All | | 24,138 | | | 19,748 | | | 48,580 | | | 43,753 | |
Transportation and Travel/Lodging | All | | 11,917 | | | 9,053 | | | 21,865 | | | 25,552 | |
Other | All | | 39,359 | | | 25,332 | | | 70,691 | | | 58,582 | |
| | | $ | 345,605 | | | $ | 259,677 | | | $ | 653,190 | | | $ | 587,419 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Principal Capabilities | Reportable Segment | | 2022 | | 2021 | | 2022 | | 2021 |
Digital Transformation | All Segments | | $ | 197,915 | | | $ | 70,261 | | | $ | 408,724 | | | $ | 132,698 | |
Creativity and Communications | Integrated Agencies Network, Media Network, Communications Network | | 307,402 | | | 27,986 | | | 586,644 | | | 52,656 | |
Performance Media and Data | Media Network | | 114,260 | | | 71,439 | | | 214,036 | | | 134,047 | |
Consumer Insights and Strategy | Integrated Agencies Network | | 53,336 | | | 39,874 | | | 106,412 | | | 71,401 | |
| | | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
MDCStagwell has historically largely focused where the Company was founded in North America, the largest market for its services in the world. The Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets. MDC’s Partner FirmsStagwell’s Brands are located in the United States Canada, and an additional 11United Kingdom, and more than 30 other 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 months ended June 30, 20212022 and 2020:2021:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
Geographical Location | Geographical Location | Reportable Segment | | 2021 | | 2020 | | 2021 | | 2020 | Geographical Location | Reportable Segment | | 2022 | | 2021 | | 2022 | | 2021 |
United States | United States | All | | $ | 277,542 | | | $ | 210,342 | | | $ | 520,122 | | | $ | 474,903 | | United States | All | | $ | 559,635 | | | $ | 183,358 | | | $ | 1,096,866 | | | $ | 350,105 | |
Canada | All | | 22,992 | | | 16,609 | | | 45,642 | | | 34,865 | | |
United Kingdom | | United Kingdom | All | | 43,363 | | | 12,070 | | | 83,176 | | | 16,775 | |
Other | Other | All | | 45,071 | | | 32,726 | | | 87,426 | | | 77,651 | | Other | All | | 69,915 | | | 14,132 | | | 135,774 | | | 23,922 | |
| | $ | 345,605 | | | $ | 259,677 | | | $ | 653,190 | | | $ | 587,419 | | | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
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 $73,446$166,879 and $49,110$116,558 at June 30, 20212022 and December 31, 2020,2021, 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 $16,793$43,583 and $10,552$63,065 at June 30, 20212022 and December 31, 2020,2021, 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 received from or billed to clients in excess of fees recognized as revenue andrecognized. Such fees are classified as Advance billings and also are included within Accruals and other liabilitiespresented on the Company’s Unaudited Condensed Consolidated Balance Sheets. In arrangements in which we are acting as an agent, the revenue recognition related to the contract liability is presented on a net basis within the Unaudited Condensed Consolidated Statements of Operations. Advance billings at June 30, 20212022 and December 31, 20202021 were $211,248$316,654 and $152,956,$361,885, respectively. The increasedecrease in the Advance billings balance of $58,292$45,231 for the six months ended June 30, 20212022 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $118,934$312,171 of revenues recognized that were included in the Advance billings
balances as of December 31, 2020 and reductions due to the incurrence of third-party costs. Contract liabilities classified within Accruals and other liabilities at June 30, 2021 and December 31, 2020 were $118,589 and $112,755, respectively. The increase in the balance of $5,834 for the six months ended June 30, 2021 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $78,780 of revenues recognized that were included in the balance as of December 31, 2020 and reductions due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the six months ended June 30, 20212022 were not materially impacted by write offs, impairment losses or any other factors.
Unsatisfied Performance Obligations
The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we had approximately $8,033$41,103 of unsatisfied performance obligations as of June 30, 2021,2022 of which we expect to recognize approximately 58%48% in 2021the remaining quarters of 2022, 40% in 2023 and 42%12% in 2022.2024.
4. Income (Loss)Net income
5. Earnings Per Common Share
The following table sets forth the computationcomputations of basic and diluted income (loss) per common share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Numerator: | | | | | | | |
Net income (loss) attributable to MDC Partners Inc. | $ | 6,106 | | | $ | (595) | | | $ | 11,116 | | | $ | 407 | |
Accretion on convertible preference shares | (3,798) | | | (3,509) | | | (7,522) | | | (6,949) | |
Net income allocated to convertible preference shares | (653) | | | 0 | | | (1,018) | | | 0 | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 1,655 | | | $ | (4,104) | | | $ | 2,576 | | | $ | (6,542) | |
| | | | | | | |
Adjustment to net income allocated to convertible preference shares | 20 | | | 0 | | | 26 | | 0 | |
Net income (loss) attributable to MDC Partners Inc. common shareholders - Diluted | $ | 1,675 | | | $ | (4,104) | | | $ | 2,602 | | | $ | (6,542) | |
Denominator: | | | | | | | |
Basic weighted average number of common shares outstanding | 75,078,755 | | | 72,528,455 | | | 74,240,447 | | | 72,463,058 | |
Diluted weighted average number of common shares outstanding | 78,459,483 | | | 72,528,455 | | | 77,001,526 | | | 72,463,058 | |
Basic | $ | 0.02 | | | $ | (0.06) | | | $ | 0.03 | | | $ | (0.09) | |
Diluted | $ | 0.02 | | | $ | (0.06) | | | $ | 0.03 | | | $ | (0.09) | |
| | | | | | | |
Anti-dilutive stock awards | 308,800 | | 2,912,436 | | | 1,653,634 | | | 2,912,436 | |
| | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
Earnings Per Share - Basic | | | |
Numerator: | | | |
Net income | $ | 24,519 | | | $ | 58,141 | |
Net income attributable to Class C shareholders | (14,020) | | | (31,741) | |
Net loss attributable to other equity interest holders | (36) | | | (3,262) | |
Net income attributable to noncontrolling and redeemable noncontrolling interests | (14,056) | | | (35,003) | |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 23,138 | |
| | | |
Denominator: | | | |
Basic - Weighted Average number of common shares outstanding | 126,425 | | | 124,367 | |
| | | |
Earnings Per Share - Basic | $ | 0.08 | | | $ | 0.19 | |
| | | |
Earnings Per Share - Diluted | | | |
Numerator: | | | |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 23,138 | |
Net income attributable to Class C shareholders | 14,020 | | | 31,741 | |
| $ | 24,483 | | | $ | 54,879 | |
| | | |
Denominator: | | | |
Basic - Weighted Average number of common shares outstanding | 126,425 | | | 124,367 | |
Dilutive shares: | | | |
Stock appreciation rights | 1,966 | | | 1,941 | |
Restricted share and restricted unit awards | 3,212 | | | 4,959 | |
Class C shares | 164,811 | | | 167,576 | |
Diluted - Weighted average number of common shares outstanding | 296,414 | | | 298,843 | |
Earnings Per Share - Diluted | $ | 0.08 | | | $ | 0.18 | |
| | | |
| | | |
| | | |
The combination of MDC and SMG, completed on August 2, 2021, was treated as a reverse acquisition for financial reporting purposes. SMG was treated as the accounting acquirer and MDC as the accounting acquiree. Therefore, under applicable accounting principles, the historical financial results of SMG prior to August 2, 2021 are considered our historical financial results. Accordingly, historical information presented in this Form 10-Q for events occurring or periods ending before August 2, 2021 does not reflect the impact of the Transactions or the financial results of MDC and may not be comparable with historical information for events occurring or periods ending on or after August 2, 2021.
SMG’s equity structure, prior to the combination with MDC, was a non-unitized single member limited liability company, resulting in all components of equity attributable to the member being reported within Members’ Capital. Given that SMG was a non-unitized single member limited liability company, net income (loss) prior to the combination is not applicable for purposes of calculating earnings per share. Therefore, the earnings per share calculation in the table above includes only the three and six months ended June 30, 2022 and does not include the corresponding prior year period.
Restricted stock and restricted stock unit awards of 0 and 2,203,7171,005 as of June 30, 2021 and 2020, respectively,2022 are excluded from the computation of diluted income (loss) per common share because the performance contingency necessary for vesting hashad not been met as of the reporting date. In addition, there were 145,000 Preference Shares outstanding which were convertible into 30,019,307 and 27,733,199 Class A common shares at June 30, 2021 and 2020, 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.
5.6. 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 certain 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 30, 20212022 and December 31, 2020.2021:
| | | | | | | | | | | |
| June 30, | | December 31, |
| 2021 | | 2020 |
Beginning Balance of Contingent Payments | $ | 82,802 | | | $ | 74,671 | |
Payments | (44,324) | | | (46,792) | |
Redemption value adjustments (1) | 18,552 | | | 44,993 | |
Additions - Acquisitions and step-up transactions | 11,406 | | | 7,703 | |
Other | (768) | | | 2,227 | |
Ending balance of contingent payments | $ | 67,668 | | | $ | 82,802 | |
Fixed Payments | 0 | | | 263 | |
| $ | 67,668 | | | $ | 83,065 | |
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Beginning balance of contingent payments | $ | 222,369 | | | $ | 17,847 | |
Payments | (59,538) | | | (12,431) | |
Adjustment to deferred acquisition consideration (1) | 16,014 | | | 18,721 | |
Additions (2) | 19,348 | | | 198,937 | |
CTA | (696) | | | — | |
Other | (983) | | | (705) | |
Ending balance of contingent payments | $ | 196,514 | | | $ | 222,369 | |
| | | |
| | | |
(1) Redemption value adjustments areAdjustment to deferred acquisition consideration contains fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relatingpayments. Adjustment to deferred acquisition payments that are tied to continued employment. Redemption value adjustments areconsideration is recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
The following table presents
(2) In 2021, approximately $61,000 of additions represent deferred acquisition consideration acquired in connection with the impactacquisition of MDC. Approximately $136,000 of additions represent deferred acquisition consideration acquired in connection with the purchases of noncontrolling interests. See Note 3 of the Notes included herein for additional information related to the Company’s Statementspurchases of operations dueConcentric, Targeted Victory, and Instrument. As of June 30, 2022, approximately $17,000 of additions represent deferred acquisition consideration acquired in connection with the acquisition of BNG. See Note 3 of the Notes included herein for additional information related to the redemption value adjustments for the contingent deferred acquisition consideration:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Loss (income) attributable to fair value adjustments | $ | 5,612 | | | $ | 2,312 | | | $ | 17,297 | | | $ | (2,288) | |
Stock-based compensation | 548 | | | (496) | | | 1,255 | | | 1,529 | |
Redemption value adjustments | $ | 6,160 | | | $ | 1,816 | | | $ | 18,552 | | | $ | (759) | |
purchase of BNG.6.7. Leases
The Company leases office space in North America, Europe, Asia, South America, Africa 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 20212022 through 2034. The Company’s finance leases are 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 noncancelablenon-cancellable 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 Unaudited Condensed Consolidated Statements 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 which the variable lease payments are based upon occur.
Some of the Company’s leases include options to extend or renew the leases through 2044. 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.third parties. These leases are classified as operating leases and expire between years 20212022 through 2027.2032. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Asia, Europe and Australia.
As of June 30, 2021,2022, the Company has entered into 61 operating leaseslease for which the commencement date has not yet occurred asprimarily because the premises are in the process of being prepared for occupancy by the landlord or the term of the move-out space has not yet expired.landlord. Accordingly, these 6 leases representthis 1 lease represents an obligation of the Company that is not reflected within the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2021.2022. The aggregate future liability related to these leases is approximately $38,238.$367.
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.
The following table presents lease costs and other quantitative information for the three and six months ended June 30, 20212022 and 2020:2021:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Lease Cost: | Lease Cost: | | | | | | | | Lease Cost: | | | | | | | |
Operating lease cost | Operating lease cost | $ | 16,898 | | | $ | 18,511 | | | $ | 34,025 | | | $ | 34,902 | | Operating lease cost | $ | 20,947 | | $ | 6,238 | | $ | 34,963 | | $ | 11,743 |
Variable lease cost | Variable lease cost | 2,328 | | | 3,573 | | | 4,921 | | | 8,228 | | Variable lease cost | 4,044 | | 884 | | 9,204 | | 1,937 |
Sublease rental income | Sublease rental income | (2,311) | | | (2,892) | | | (4,875) | | | (5,697) | | Sublease rental income | (4,216) | | (972) | | (7,492) | | (1,931) |
Total lease cost | Total lease cost | $ | 16,915 | | | $ | 19,192 | | | $ | 34,071 | | | $ | 37,433 | | Total lease cost | $ | 20,775 | | $ | 6,150 | | $ | 36,675 | | $ | 11,749 |
Additional information: | Additional information: | | | | | | | | Additional information: | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | Cash paid for amounts included in the measurement of lease liabilities for operating leases | | Cash paid for amounts included in the measurement of lease liabilities for operating leases | |
Operating cash flows | Operating cash flows | $ | 17,463 | | | $ | 17,592 | | | $ | 34,259 | | | $ | 35,227 | | Operating cash flows | $ | 24,352 | | $ | 7,763 | | $ | 47,133 | | $ | 13,364 |
| Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments | Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments | $ | 620 | | | $ | 30,815 | | | $ | 4,436 | | | $ | 37,934 | | Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments | $ | 8,527 | | $ | — | | $ | 22,689 | | $ | — |
Weighted average remaining lease term (in years) - Operating leases | 7.1 | | 7.4 | | 7.1 | | 7.4 | |
Weighted average discount rate - Operating leases | 10.7 | | | 10.5 | | | 10.7 | | | 10.5 | | |
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In the six months endedAs of June 30, 2021,2022, the Company recorded a charge of $875 to reduce the carrying value of two of its right-of-useweighted average remaining lease assetsterm (in years) and accelerate the operating expenses of one of its right-of-use lease assets. These right-of-use lease assets related to three agencies within its Integrated Networks - Group B reportable segment. The Company evaluated the factsweighted average discount rate were 6.6 and circumstances related to the use of the assets which indicated that they may not be recoverable. Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the assets were less than their carrying value. This impairment charge is included in Impairment and other losses within the Unaudited Condensed Consolidated Statements of Operations.
In the six months ended June 30, 2020, the Company recorded an impairment charge of $5,619 to reduce the carrying value of its right-of-use lease assets and related leasehold improvements of two of its agencies within its Integrated Networks - Group B reportable segment and leased space of Corporate, in addition to accelerating the operating expenses of four leases.4.3%, respectively.
Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated Statements of Operations. The Company’s lease expense for leases with a term of 12 months or less is immaterial.
The following table presents minimum future rental payments under the Company’s leases at June 30, 20212022 and their reconciliation to the corresponding lease liabilities:
| | | Maturity Analysis | | Maturity Analysis |
Remaining 2021 | $35,383 | |
2022 | 61,205 | | |
Remaining 2022 | | Remaining 2022 | $ | 40,873 | |
2023 | 2023 | 56,935 | | 2023 | 88,144 | |
2024 | 2024 | 50,683 | | 2024 | 75,167 | |
2025 | 2025 | 39,640 | | 2025 | 58,646 | |
2026 and thereafter | 152,753 | | |
2026 | | 2026 | 43,455 | |
2027 and thereafter | | 2027 and thereafter | 157,574 | |
Total | Total | 396,599 | | Total | 463,859 | |
Less: Present value discount | Less: Present value discount | (123,388) | | Less: Present value discount | (67,397) | |
Lease liability | Lease liability | $ | 273,211 | | Lease liability | $ | 396,462 | |
7.8. Debt
As of June 30, 20212022 and December 31, 2020,2021, the Company’s indebtedness was comprised as follows:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Revolving Credit Agreement | $ | 88,602 | | | $ | 0 | |
Senior Notes | 870,256 | | | 870,256 | |
Debt Issuance Cost | (23,786) | | | (27,072) | |
| $ | 935,072 | | | $ | 843,184 | |
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| June 30, 2022 | | December 31, 2021 |
Revolving credit facility | $ | 298,000 | | | $ | 110,165 | |
5.625% Notes | 1,100,000 | | | 1,100,000 | |
Debt issuance costs | (16,440) | | | (18,564) | |
Total long-term debt | $ | 1,381,560 | | | $ | 1,191,601 | |
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See Note 1 of the NotesInterest expense related to long-term debt included in Interest expense, net on the Unaudited Condensed Consolidated Financial Statements of Operations for information regardingthe three and six months ended June 30, 2022 was $17,659 and $35,945, respectively, and for the three and six months ended June 30, 2021 was $1,467 and $3,091, respectively.
The amortization of debt issuance costs included in Interest expense, net on the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 was $605 and $1,211, respectively, and for the three and six months ended June 30, 2021 was $330 and $469, respectively.
Revolving Credit Agreement
On November 18, 2019, the Company entered into a debt agreement (“JPM Syndicated Facility”) with a syndicate of banks led by JPMorgan Chase Bank, N.A (“JPM”). The JPM Syndicated Facility consisted of a five-year revolving credit facility of $265,000 (“JPM Revolver”) with the right to be increased by an additional $150,000. On March 18, 2020, the Company increased the commitments on the JPM Revolver by $60,000 to $325,000.
On August 2, 2021, in connection with the closing of the acquisition of MDC, the Company entered into an amended and restated credit agreement (the “Combined Credit Agreement”) with a syndicate of banks led by JPM to increase commitments on the existing JPM Revolver. The Combined Credit Agreement consists of a $500,000 senior secured revolving credit facility with a five-year maturity.
The Combined Credit Agreement contains sub-limits for revolving loans and letters of credit of $50,000 for loans denominated in pounds sterling or euros. It also includes an accordion feature under which the Company may request, subject to lender approval and certain conditions, to increase the amount of the commitments to an aggregate amount not to exceed $650,000.
On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to SOFR. Borrowings pursuant to the Combined Credit Agreement, as amended, bear interest at a rate equal to, at the Company’s planoption, (i) the greatest of (a) the prime rate of interest in effect on such day, (b) the federal funds effective rate plus 0.50% and (c) SOFR plus 1% in each case, plus the applicable margin (calculated based on the Company’s Total Leverage Ratio, as defined in the Combined Credit Agreement) at that time. Additionally, the Combined Credit Agreement was amended to redeemremove certain pre-commencement notice provisions for certain acquisitions under $50,000 in the Senioraggregate, increased the amount permitted for certain investments allowed under the Combined Credit Agreement, and, subject to certain conditions, to allow for the repurchase of Stagwell Inc. stock in an amount not to exceed $100,000 in any fiscal year. All other substantive terms of the Credit Agreement remain unchanged.
Prior to April 28, 2022, borrowings under the Combined Credit Agreement bore interest at a rate equal to, at the Company’s option, (i) the greatest of (a) the prime rate of interest announced from time to time by JPM, (b) the federal funds effective rate from time to time plus 0.50% and (c) the LIBOR rate plus 1%, in each case, plus the applicable margin (calculated based on the Company’s total leverage ratio) at that time or (ii) the LIBOR rate plus the applicable margin (calculated based on the Company’s total leverage ratio) at that time.
Advances under the Combined Credit Agreement may be prepaid in whole or in part from time to time without penalty or premium. The Combined Credit Agreement commitment may be reduced by the Company from time to time. Principal amounts outstanding under the Combined Credit Agreement are due and payable in full at maturity within five years of the date of the Combined Credit Agreement.
If an event of default occurs under the Combined Credit Agreement or any future secured indebtedness, the holders of such secured indebtedness will have a prior right to our assets securing such indebtedness, to the exclusion of the holders of the 5.625% Notes (as defined below), even if we are in default with respect to the 5.625% Notes. In that event, our assets securing such indebtedness would first be used to repay in full all indebtedness and other obligations secured by them (including all amounts outstanding under the Combined Credit Agreement), resulting in all or a portion of our assets being unavailable to satisfy the claims of the holders of the 5.625% Notes and the termination of its Revolvingother unsecured indebtedness.
The Combined Credit Agreement subsequentcontains a number of financial and nonfinancial covenants and is guaranteed by substantially all of our present and future subsidiaries, subject to customary exceptions.
The Company was in compliance with all covenants at June 30, 2021.2022.
A portion of the Combined Credit Agreement in an amount not to exceed $50,000 is available for the issuance of standby letters of credit. At June 30, 2022 and December 31, 2021, the Company had issued undrawn outstanding letters of credit of $24,404 and $24,332, respectively.
Senior Notes
TheIn August 2021, the Company issued $1,100,000 aggregate principal amount of 5.625% senior notes (“5.625% Notes”). A portion of the proceeds from the issuance of the 5.625% Notes was used to redeem $870,300 aggregate principal amount of the senior notes totaling $870.3 million matureoutstanding 7.50% Senior Notes due 2024 (the “Existing Notes”) for a price of $904,200. This price is equal to 101.625% of the outstanding principal amount of the Existing Notes being redeemed, plus, accrued, and unpaid interest on May 1, 2024the principal amount of such Existing Notes. The Company did not recognize a gain or loss on redemption.
The 5.625% Notes are due August 15, 2029 and bear interest payable semiannuallyof 5.625% to be paid on February 15 and August 15 of each year, commencing on February 15, 2022.
The 5.625% Notes are guaranteed on a senior unsecured basis by substantially all of the Company’s subsidiaries. The 5.625% Notes rank (i) equally in arrears on May 1right of payment with all of the Company’s or any guarantor’s existing and November 1, at a ratefuture unsubordinated indebtedness, (ii) senior in right of 7.50% per annum (the “Senior Notes”). MDCpayment to the Company’s or any guarantor’s existing and future subordinated indebtedness, (iii) effectively subordinated to any of the Company’s or any guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness, including the Combined Credit Agreement, and (iv) structurally subordinated to all existing and future liabilities of the Company’s subsidiaries that are not guarantors.
Our obligations under the 5.625% Notes are unsecured and are effectively junior to our secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. Borrowings under the Combined Credit Agreement are secured by substantially all of the assets of the Company, and any existing and future subsidiary guarantors, including all of the capital stock of each restricted subsidiary.
The Company may, at its option, redeem the Senior5.625% Notes in whole at any time or in part from time to time, on and after August 15, 2024 at varying prices baseda redemption price of 102.813% of the principal amount thereof if redeemed during the twelve-month period beginning on August 15, 2024, at a redemption price of 101.406% of the principal amount thereof if redeemed during the twelve-month period beginning on August 15, 2025 and at a redemption price of 100% of the principal amount thereof if redeemed on August 15, 2026 and thereafter. Prior to August 15, 2024, the Company may, at its option, redeem some or all of the 5.625% Notes at a price equal to 100% of the principal amount of the 5.625% Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to August 15, 2024, up to 40% of the 5.625% Notes with the net proceeds from one or more equity offerings at a redemption price of 105.625% of the principal amount thereof.
If the Company experiences certain kinds of changes of control (as defined in the indenture), holders of the 5.625% Notes may require the Company to repurchase any 5.625% Notes held by them at a price equal to 101% of the principal amount of the 5.625% Notes plus accrued and unpaid interest. In addition, if the Company sells assets under certain circumstances, it must offer to repurchase the 5.625% Notes at a price equal to 100% of the principal amount of the 5.625% Notes plus accrued and unpaid interest.
The indenture includes covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries (as defined in the indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of the Company; make certain types of investments; create restrictions on the timingpayment of dividends or other amounts from the Company’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the redemption.Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 5.625% Notes are also subject to customary events of default, including cross-payment default and cross-acceleration provisions. The Company was in compliance with all covenants at June 30, 2021.2022.
Revolving Credit AgreementInterest Rate Swap
The Company is party to a $211,500 secured revolving credit facility due February 3,had an interest rate swap that matured in April 2022. The Company had $88,602 outstanding underfair value of the revolving credit facilityswap was $77 as of June 30,December 31, 2021.
Advances under the Credit Agreement bear interest as follows: (i) Non-Prime Rate Loans bear interest at the Non-Prime Rate plus the Non-Prime Rate Margin and (ii) all other Obligations bear interest at the Prime Rate, plus the Prime Rate Margin. The Non-Prime Rate Margin and Prime Rate Margin will range from 2.50% to 3.00% for Non-Prime Rate Loans and from 1.75% to 2.25% for Prime 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 Company was in compliance with all of the terms and conditions of its Credit Agreement as of June 30, 2021.
At June 30, 2021 and December 31, 2020, the Company had issued undrawn outstanding letters of credit of $19,533 and $18,651, respectively.
8.9. Noncontrolling and Redeemable Noncontrolling Interests
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 capitalRetained earnings (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, 2020 and six months ended June 30, 2021 were as follows:
| | | | | |
| Noncontrolling Interests |
Balance at December 31, 2019 | $ | 14,028 | |
Income attributable to noncontrolling interests | 21,774 | |
Distributions made | (15,192) | |
Other | 94 | |
Balance at December 31, 2020 | $ | 20,704 | |
Income attributable to noncontrolling interests | 12,722 | |
Distributions made | (20,855) | |
Other | 165 | |
Balance at June 30, 2021 | $ | 12,736 | |
Changes in the Company’s ownership interests in ourits less than 100% owned subsidiaries during the three and six months ended June 30, 20212022 and 20202021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) attributable to MDC Partners Inc. | $ | 6,106 | | | $ | (595) | | | $ | 11,116 | | | $ | 407 | |
Transfers from the noncontrolling interest: | | | | | | | |
Decrease in MDC Partners Inc. paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests | (10,339) | | | 0 | | | (10,669) | | | (503) | |
Net transfers from noncontrolling interests | $ | (10,339) | | | $ | 0 | | | $ | (10,669) | | | $ | (503) | |
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests | $ | (4,233) | | | $ | (595) | | | $ | 447 | | | $ | (96) | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
Transfers from the noncontrolling interest: | | | | | | | |
Change in Stagwell Inc. Paid-in capital for purchase of noncontrolling interests | (1,000) | | | — | | | (1,000) | | | — | |
Net transfers from noncontrolling interests | (1,000) | | | — | | | (1,000) | | | — | |
Change from net income attributable to Stagwell Inc. and transfers to noncontrolling interests | $ | 9,463 | | | $ | 17,345 | | | $ | 22,138 | | | $ | 21,710 | |
The following table presents net income attributable to noncontrolling interests between holders of Class C shares and other equity interest holders for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | Six Months Ended June 30, |
| 2022 | | 2021 | 2022 | | 2021 |
Net income attributable to Class C shareholders | $ | 14,020 | | | $ | — | | $ | 31,741 | | | $ | — | |
Net income attributable to other equity interest holders | 980 | | | 1,470 | | 1,796 | | | 2,623 | |
Net income attributable to noncontrolling interests | $ | 15,000 | | | $ | 1,470 | | $ | 33,537 | | | $ | 2,623 | |
The following table presents noncontrolling interests between holders of Class C shares and other equity interest holders as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Noncontrolling interest of Class C shareholders | $ | 483,626 | | | $ | 475,373 | |
Noncontrolling interest of other equity interest holders | 29,459 | | | 32,914 | |
NCI attributable to noncontrolling interests | $ | 513,085 | | | $ | 508,287 | |
Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
| | | Six Months Ended June 30, 2021 | | Year Ended December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Beginning Balance | Beginning Balance | $ | 27,137 | | | $ | 36,973 | | Beginning Balance | $ | 43,364 | | | $ | 604 | |
Redemptions | Redemptions | 0 | | | (12,289) | | Redemptions | (1,523) | | | (15,231) | |
Granted | 0 | | | 0 | | |
Acquisitions (1) | | Acquisitions (1) | — | | | 53,270 | |
Changes in redemption value | Changes in redemption value | (2,000) | | | 2,800 | | Changes in redemption value | 5,888 | | | 3,834 | |
Currency translation adjustments | 86 | | | (347) | | |
| Net income (loss) attributable to redeemable noncontrolling interests | | Net income (loss) attributable to redeemable noncontrolling interests | 1,466 | | | (412) | |
Other | Other | (584) | | | 0 | | Other | 502 | | | 1,299 | |
Ending Balance | Ending Balance | $ | 24,639 | | | $ | 27,137 | | Ending Balance | $ | 49,697 | | | $ | 43,364 | |
(1) As of December 31, 2021, approximately $26,000 represents redeemable noncontrolling interests acquired in connection with the acquisition of MDC. Approximately $27,000 represents redeemable noncontrolling interests acquired in connection with the purchase of the noncontrolling interest of Targeted Victory. See Note 3 of the Notes included herein for additional information related to the purchase of Targeted Victory.
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 20212022 to 2025. 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 $24,639$49,697 as of June 30, 2021,2022, consists of $16,040,$46,041, assuming that the subsidiaries perform over the relevant periods at their current profit levels, $8,599and $3,656 upon termination of such owner’s employment with the
applicable subsidiary or death and $0 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.death.
These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. There is no related impact on the Company’s income per share calculations.
9.10. 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 56 and 89 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding potential payments associated with deferred acquisition consideration and the acquisition of noncontrolling shareholders’ ownership interest in subsidiaries.
Natural Disasters. Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the three and six months ended June 30, 2021 and 2020, 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 30, 2021,2022, the Company had $19,533$24,404 of undrawn letters of credit.
The Company entered into 1 operating leases for which the commencement date has not yet occurred as of June 30, 2021.2022. See Note 67 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information.
In the ordinary course of business, the Company may enter into long-term, non-cancellable contracts with partner associations that include revenue or profit-sharing commitments related to the provision of its services. These contracts may also include provisions that require the partner associations to meet certain performance targets prior to any obligation to the Company. As of June 30, 2022, the Company estimates its future minimum commitments under these non-cancellable agreements to be: $5,725, $7,198, $2,140, $1,341, $1,134, and $88 for the remainder of 2022, 2023, 2024, 2025, 2026, and 2027, respectively.
11. Share Capital
On March 23, 2022, the board of directors authorized a stock repurchase program (the “Repurchase Program”) under which we may repurchase up to $125,000 of shares of our outstanding Class A common stock. The Repurchase Program will expire on March 23, 2025.
Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices (including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Exchange Act), in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice. Our board of directors will review the Repurchase Program periodically and may authorize adjustments of its terms.
When repurchasing shares, we reduce the value of our Class A Common Stock for the par value of the shares repurchased and account for the difference between the price paid for the Class A Common Stock, excluding fees, and the par value of such stock recorded to Paid-in capital.
As of June 30, 2022, there were 1,981 shares of Class A Common Stock repurchased under the Repurchase Program at an aggregate value, excluding fees, of $14,841. These were purchased at an average share price of $7.49 per share. The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $110,119 as of June 30, 2022.
The authorized and outstanding share capital of the Company as of June 30, 2021 is below. See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Transactions.
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, 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 $50,000. 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. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of 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 of each Series 6 Preference Share is $1,000. The initial Conversion Price is $5.00 per Series 6 Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities.
The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date. During the six months ended June 30, 2021, the Series 6 Preference Shares accreted at a monthly rate of $7.84, for total accretion of $2,329, bringing the aggregate liquidation preference to $59,980 as of June 30, 2021. The accretion is considered in the calculation of Net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 4 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.
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. 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 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 months ended June 30, 2021, the Series 4 Preference Shares accreted at a monthly rate of approximately $9.20 per Series 4 Preference Share, for total accretion of $5,193, bringing the aggregate liquidation preference to $133,732 as of June 30, 2021. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 4 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.
Class A Common SharesStock (“Class A Shares”)
TheseThere are an unlimited number1,000,000 shares of subordinate voting shares, carryingClass A Shares authorized. There were 131,834 Class A Shares issued and outstanding as of June 30, 2022. The Class A Shares carry 1 vote each, with a par value of $0,$0.001, entitled to dividends equal to or greater than Class B Shares, and 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.
Class B Common Stock (“Class B Shares”)
There are 5 shares of Class B Shares authorized. There were 77,254,378 and 73,529,1054 of Class AB Shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.
2022. The Class B Common Shares (“Class B Shares”)
These are an unlimited number of voting shares, carryingcarry 20 votes each, with a par value of $0,$0.001, convertible at any time at the option of the holder into one Class A shareShare for each Class B share.Share.
Class C Common Stock (“Class C Shares”)
There are 250,000 shares of Class C Shares authorized. There were 3,743 and 3,743164,427 Class BC Shares issued and outstanding as of June 30, 2022. The Class C Shares do not participate in the earnings of the Company and have a par value of $.00001. In 2021, an aggregate of 179,970 OpCo common units were issued to Stagwell Media in exchange for the equity interests of the Stagwell Subject Entities. Each Class C Share, together with the related OpCo common unit, is convertible at any time, at the option of the holder, into one Class A Share. In the six months ended June 30, 2022, holders of Class C Shares and December 31, 2020, respectively.OpCo Units (the “Paired Units”) exchanged 15,543 Paired Units for the same number of Class A Shares. Approximately 5,000 Paired Units exchanged into an equal number of Class A Shares triggered an employee tax withholding obligation of $14,900. The Company repurchased approximately 2,000 of the 5,000 Class A Shares issued to the employees to satisfy their employee tax withholding obligation.
11.12. 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 LiabilitiesInstruments 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 30, 20212022 and December 31, 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | June 30, 2021 | | December 31, 2020 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Liabilities: | | | | | | | | |
Senior Notes | | $ | 870,256 | | | $ | 882,222 | | | $ | 870,256 | | | $ | 883,580 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| June 30, 2022 | | December 31, 2021 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | | | | |
5.625% Notes | 1,100,000 | | | 880,000 | | | 1,100,000 | | | 1,120,900 | |
| | | | | | | |
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 LiabilitiesInstruments Measured at Fair Value on a Recurring Basis
Contingent deferred acquisition consideration (Level 3 fair value measurement) 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 formulasmodels of each business' future performance, including revenue growth and isfree cash flows. These models are dependent upon significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate. These growth rates are consistent with the Company’s long-term forecasts. As of June 30, 2021,2022, the discount rate used to measure these liabilities was 5.1%ranged from 3.0% to 6.4%.
As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation, the fair value measurements presented on the Unaudited Condensed Consolidated Balance Sheets are subject to material uncertainty.
See Note 56 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.
At June 30, 20212022 and December 31, 2020,2021, 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, intangible assets (Level 3 fair value measurement) and right-of-use lease assets (Level 2 fair value measurement). 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 forin the three and six months ended June 30, 2022 and 2021.
13. Supplemental Information
Subsidiary Awards
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the respective subsidiary (the “profits interests awards”). The company recognized an impairment of goodwill of $13,382 forawards generally provide the threeemployee the right, but not the obligation, to sell its profits interest in the subsidiary to the Company based on a performance-based formula and, six months endedin certain cases, receive a profit share distribution. The profits interests awards are settled in cash and the corresponding liability at fair value was $30,379 at June 30, 2020.
The Company recognized2022 (Level 3 fair value model), and included as a chargecomponent of $875 to reduce the carrying value of its right-of-use lease assets in the six months ended June 30, 2021. The company recognized an impairment charge of $5,619 to reduce the carrying value of one of its right-of-use lease assets in the six months ended June 30, 2020. See Note 6 of the Notes toAccruals and other liabilities and Other liabilities on the Unaudited Condensed Consolidated Financial Statements included herein for further information.Balance Sheets.
Stock-based Compensation
12. Supplemental Information
Impairment and Other Losses
The CompanyTotal stock-based compensation recognized a charge of $875 for the six months ended June 30, 20212022 was $21,152, primarily attributable to reduce$16,572 recognized for stock-based compensation associated with grants of Class A Common Stock and $4,009 recognized for profits interest awards. In the carrying value of two of its right-of-use lease assets and accelerate the operating expenses of one of its right-of-use lease assets. These right-of-use lease assets related to three agencies within its Integrated Networks - Group B reportable segment.
The company recognized an impairment of goodwill of $13,382 for the three and six months ended June 30, 2020.2022, the Company granted approximately 4,488 share based awards.
See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the impairment of right-of-use lease assets and losses.
14. 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.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes provisions relating to delaying certain payroll tax payments, refundable payroll tax credits, net operating loss carryback periods, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision.
The Company had an income tax expense for the three months ended June 30, 20212022 of $1,387$5,421 (on a pre-tax income of $15,875$30,130 resulting in an effective tax rate of 8.7%18.0%) compared to an income tax benefitexpense of $7,923$3,348 (on pre-tax lossincome of $4,619$22,010 resulting in an effective tax rate of 171.5%15.2%) for the three months ended June 30, 2020.2021.
The difference in the effective tax rate of 8.7% for18.0% in the three months ended June 30, 2022 as compared to 15.2% in the three months ended June 30, 2021 was primarily dueattributable to minimalthe larger portion of income subject to entity level tax expense recognized on U.S. earningsin 2022 as a result of being subject to a valuation allowance.
The effectivethe merger, offset by the impact of increased tax rate of 171.5% for the three months endedrates recorded in June 30, 2020 was primarily driven by the benefit2021.
The Company had an income tax expense for the six months ended June 30, 20212022 of $2,689$8,610 (on a pre-tax income of $27,171$65,911 resulting in an effective tax rate of 9.9%13.1%) compared to income tax expense of $5,577$4,021 (on pre-tax income of $10,674$27,282 resulting in an effective tax rate of 52.2%14.7%) for the six months ended June 30, 2020.2021.
The difference in the effective tax rate of 9.9% for13.1% in the six months ended June 30, 2022 as compared to 14.7% in the six months ended June 30, 2021 was primarily duerelated to minimaldeductions for share based compensation vesting in 2022.
Tax Receivables Agreement
In connection with the closing of the Transactions, we entered into the Tax Receivables Agreement (“TRA”) with OpCo and Stagwell Media, pursuant to which we are required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state and local income tax expense recognized on U.S. earningsor franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of being subject(i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (defined in Note 11) for shares of our Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the TRA.
The Company accounts for amounts payable under the TRA in accordance with ASC 450—Contingencies. We will evaluate the likelihood that we will realize the benefit represented by the deferred tax asset and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we will reduce the carrying amount of the deferred tax asset with a valuation allowance.allowance and a corresponding reduction to the TRA liability. The amounts to be recorded for both the deferred tax assets and the liability under the TRA will be estimated at the time of any purchase or exchange as a reduction to shareholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income or loss. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income or loss.
The effective tax rateIn the first quarter of 52.2%2022, the Company had its first exchange of Paired Units for the six months endedshares of our Class A Common Stock and recorded its initial TRA liability. As of June 30, 2020 was primarily driven by2022, the base erosionCompany had a TRA liability of $21,385 and anti-abusehas recognized deferred tax (“BEAT”),benefits of $25,159 as a reduction to the related valuation allowancesnet deferred tax liability on certain foreign jurisdictions,its unaudited condensed consolidated balance sheets in connection with the exchanges of the Paired Units and the jurisdictional mix of earnings.
Noncash Investing and Financing Activity
The Company's acquisition ofprojected obligations under the remaining 40% ownership interest of Gale (see Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements) comprised of the issuance of Company stock with a fair value of $7,695 (noncash investing activity) and deferred payments of $11,406 (noncash financing activity).TRA.
13.15. Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, including Stagwell and its affiliates. The transactions may range in the nature and value of services underlying the arrangements. Below are theThe following table presents significant related party transactions that are significant in nature:where a third party receives services from the Company:
In October 2019, a Partner Firm | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Transaction Value | | Revenues | | Due From Related Party |
| | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | June 30, 2022 | | December 31, 2021 |
Services | | | | | 2022 | | 2021 | | 2022 | | 2021 | | |
Technological (1) | | | | Ongoing arrangement (6) | | $ | 10 | | | $ | 15 | | | $ | 19 | | | $ | 30 | | | $ | 26 | | | $ | 137 | |
Marketing Services (2) | | | | Ongoing arrangement (6) | | $ | 297 | | | $ | 66 | | | $ | 483 | | | $ | 92 | | | $ | 488 | | | $ | 88 | |
Polling Services (3) | | | | $825 | | $ | 508 | | | $ | 104 | | | $ | 578 | | | $ | 119 | | | $ | 140 | | | $ | — | |
Marketing and Website Development Services (4) | | | | $4,984 | | $ | 1,673 | | | $ | — | | | $ | 2,923 | | | $ | — | | | $ | 1,923 | | | $ | 502 | |
Marketing and Advertising Services (5) | | | | Ongoing arrangement (6) | | $ | 2,809 | | | $ | 1,644 | | | $ | 5,367 | | | $ | 1,663 | | | $ | 6,216 | | | 4,577 | |
Polling Services (7) | | | | $3,200 | | $ | 711 | | | $ | — | | | $ | 953 | | | $ | — | | | $ | — | | | $ | — | |
(1) Client was founded by the Company’s Chief Executive Officer
(2) Family member of one of the Brands’ partners holds an executive leadership position in the client
(3) Family members of the Brands’ executives hold key leadership positions in the client
(4) Client has significant interest in the Company
(5) Brands’ partners and executives either hold a key leadership position in or are on the Board of Directors of the client
(6) This arrangement was entered into for an arrangement with a Stagwell affiliate, in which the Stagwell affiliateindefinite term and the Partner Firm collaborated to provide variousis invoiced as services to a clientare provided
(7) Founder of the Partner Firm. The Partner Firm andclient has significant interest in the Stagwell affiliate pitched and won this business together, with the client ultimately determining the general scope of work for each agency. Under the arrangement, which was structured as a sub-contract due to client preference, the Partner Firm is expected to pay the Stagwell affiliate, for services provided by the Stagwell affiliate in connection with serving the client, approximately $2,000 which has been fully recognized in March 2021. As of June 30, 2021, $22 was owed to the affiliate.
In May 2020, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform programmatic media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $2,397, which has been fully recognized in May 2021. As of June 30, 2021, $582 was due from the affiliate.
In November 2020, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform Event Management Services. Under the arrangement, the Partner Firm expected to receive from the Stagwell affiliate approximately $456, which was fully recognized in March of 2021. As of June 30, 2021, $0 was due from the affiliate.
In 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media buying services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $1,060 which is expected to be fully recognized as of December 2021. As of June 30, 2021, $0 was due from the affiliate.
In January 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm expected to receive from the Stagwell affiliate approximately $6,429, which was fully recognized in June 2021. As of June 30, 2021, $0 was due from the affiliate.
The following table presents significant related party transactions in which the Company receives services from a third party:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Transaction Value | | Expenses | | Due to Related Party |
| | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | June 30, 2022 | | December 31, 2021 |
Services | | | | | 2022 | | 2021 | | 2022 | | 2021 | | |
Data Management Services (1) | | | | Ongoing arrangement (4) | | $ | 445 | | | $ | 387 | | | $ | 814 | | | $ | 756 | | | $ | 1,062 | | | $ | 623 | |
Sales and Management Services (2) | | | | Ongoing arrangement (4) | | $ | 566 | | | $ | 90 | | | $ | 739 | | | $ | 177 | | | $ | 1,170 | | | $ | 442 | |
Marketing Services (3) | | | | $120 | | $ | 40 | | | $ | — | | | $ | 40 | | | $ | — | | | $ | 40 | | | $ | — | |
(1) Family member of one of the Brand’s partners holds an executive leadership position in the third party
(2) Chief Executive Officer of the Brand is a shareholder of the affiliate providing the services
(3 ) Family member of the Company’s President holds a key leadership position in the client
(4) This arrangement was entered into for an indefinite term and is invoiced as services are provided
In February 2021,2019, a Partner FirmBrand of the Company, entered into an arrangementa loan agreement with a certain Stagwell affiliate to perform requirements gatheringthird party who holds a minority interest in the Brand. The loan receivable of $3,801 and concept features for a future-leaning ad platform for the augmented reality space. Under the arrangement, the Stagwell affiliate is expected to receive$3,784 due from the Partner Firm approximately $140, which has been fully recognizedthird party is included within Other current assets in April 2021. Asthe Company’s Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, $140 was due torespectively. The Company recognized $77 and $154 for the affiliate.three and six months ended June 30, 2022, respectively, and $76 and $151 for the three and six months ended June 30, 2021, respectively, of interest income within interest expense, net on its Unaudited Condensed Consolidated Statements of Operations.
During the three and six months ended June 30, 2021, Stagwell Media made additional non-cash investments in the Company of $1,900 and $12,100, respectively. In March 2021, a Partner Firm of the Company entered into an arrangement withmade a certainnon-cash distribution to Stagwell affiliateMedia of $13,000. Additionally, the Company made cash distributions to perform media relations supportStagwell Media of $11,200 and outreach services. Under$26,200 for the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $190, which is expected to be fully recognized as of September 2022. As ofthree and six months ended June 30, 2021, $180 was due from the affiliate.
In April 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $3,291, which is expected to be fully recognized as of March 2023. As of June 30, 2021, $434 was due from the affiliate.
In April 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform specialized digital strategy, user experience design, analytics and reporting. Under the arrangement, the Partner Firm is expected to pay the Stagwell affiliate approximately $1,123, which is expected to be fully recognized as of the first quarter of 2022. As of June 30, 2021, $659 was due to the affiliate.
In May 2021, a Partner Firm of the Company entered into an arrangement with a certain Stagwell affiliate to perform website design and development services. Under the arrangement, the Partner Firm is expected to pay the Stagwell affiliate approximately $708, which is expected to be fully recognized as of December 2021. As of June 30, 2021, $0 was due to the affiliate.
The Company entered into an agreement commencing on January 1, 2020 to sublease office space through July 2021 to a company whose chairman is a member of the Company’s Board of Directors. As of June 30, 2021, the total future rental income related to the sublease is approximately $8.
In June 2021, a Partner Firm of the Company entered into an arrangement to perform media planning, buying and reporting services to an organization whose Chief Executive Officer is the wife of the Chief Executive Officer and Chairman of the Company. Under the arrangement, the Partner Firm is expected to receive from the organization approximately $884, which is expected to be fully recognized as of July 2021. As of June 30, 2021, $0 was due from the affiliate.
respectively.
14.16. 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”), who is Mark Penn, Chief Executive Officer and Chairman, 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.
The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income (loss) attributableexcluding non-operating income or expense to MDC Partners Inc. common shareholders’ plus or minus non-operating items toachieve operating income, (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates, less contributions to date, plus undistributed earnings (losses).items. Other items net includes items such as merger relatedinclude restructuring costs, severanceacquisition-related expenses, and other restructuring expenses, including costsnon-recurring items.
Due to changes in the Company’s internal management and reporting structure in the second quarter of 2022, reportable segment results for leasesperiods presented prior to the second quarter of 2022 have been recast to reflect the reclassification of certain reporting units (brands) between operating segments. The changes in reportable segments were that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.Forsman & Bodenfors, Observatory, Crispin Porter Bogusky, Bruce Mau and Vitro brands, previously within the Integrated Agencies Network, are now within the Stagwell Media Network.
The Company has 3 reportable segments that result from applying the aggregation criteria are as follows: “Integrated Networks - Group A,Agencies Network,” “Integrated Networks - Group B”“Media Network” and the “Media & Data“Communications Network.” In addition, the Company combines and discloses 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 hereinherein.
•The Integrated Agencies Network includes five operating segments: the Anomaly Alliance, Constellation, the Doner Partner Network, Code and Note 2Theory, and National Research Group. The operating segments offer an array of the Company’s 2020 Form 10-K.
•complementary services spanning our core capabilities of Digital Transformation, Performance Media & Data, Consumer Insights & Strategy, and Creativity & Communications. The brands included in the operating segments that comprise the Integrated Networks - Group AAgencies Network reportable segment is comprised of theare as follows: Anomaly Alliance (Anomaly, Concentric, Partners, Hunter, Mono, Y Media Labs)YML and Scout (brands), Constellation (72andSunny, Colle McVoy, operating segments.
•The Integrated Networks - Group B reportable segment is comprised ofInstrument, Redscout, Hello Design, Team Enterprises, and Harris Insights), the Constellation (72andSunny, CPB, Instrument and Redscout) and Doner Partner Network (6degrees,(Doner, KWT Global, Harris X, Veritas, Doner KWT, Union, VeritasNorth, Northstar, which is currently sunsetting, and Yamamoto) operating segments.Yamamoto (brands)), Code and Theory and National Research Group.
The operating segments aggregated within the Integrated Networks - Group A and B reportable segments provide a range of services for their clients, primarily including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast) as well as public relations and communications services, experiential, social media and influencer marketing. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of 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 may occasionally compete with each other for new business and from time to timeor have business move between them. While the
•The Stagwell Media Network (“SMN”) reportable segment is comprised of a single operating segments are similarsegment. SMN includes a unified media and data management structure with omnichannel media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Brands in nature, the distinction between the Integrated Networks - Group Athis segment aim to provide scaled creative performance through developing and B is the aggregationexecuting sophisticated omnichannel campaign strategies leveraging significant amounts of operating segments that have the most similar historicalconsumer data. SMN’s Brands combine media buying and expected average long-term profitability.planning across a range of digital and traditional platforms (out-of-home, paid search, social media, lead generation, programmatic, television, broadcast, among others) and includes multichannel brands Assembly, Brand New Galaxy, Crispin Porter Bogusky, Forsman & Bodenfors, Bruce Mau Design, Goodstuff, MMI Agency, digital creative & transformation consultancy Gale, B2B specialist Multiview, Observatory, Vitro, CX specialists Kenna, and travel media experts Ink.
•The Media & DataCommunications Network reportable segment is comprised of a single operating segment, our specialist network that combines media buyingprovides advocacy, strategic corporate communications, investor relations, public relations, online fundraising and planning across a rangeother services to both corporations and political and advocacy organizations and consists of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast) with technologyour Allison & Partners SKDK (including Sloane & Company), and data capabilities. The Media & Data Network includes Gale Partners, Kenna, MDC Media and Northstar.Targeted Victory brands.
•All Other consists of the Company’s remaining operating segments that provide a range of services including advertising, public relationsdigital innovation group, Stagwell Marketing Cloud products such as PRophet and marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregatedReputation Defender (which was sold in the reportable segments. The All Other category includes Allison & Partners, Bruce Mau, Forsman & Bodenfors, Hello, Team and Vitro.September 2021).
•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, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue: | (Dollars in Thousands) |
Integrated Networks - Group A | $ | 117,984 | | | $ | 82,735 | | | $ | 220,370 | | | $ | 173,356 | |
Integrated Networks - Group B | 123,486 | | | 93,398 | | | 234,637 | | | 211,105 | |
Media & Data Network | 37,517 | | | 28,551 | | | 74,300 | | | 69,609 | |
All Other | 66,618 | | | 54,993 | | | 123,883 | | | 133,349 | |
Total | $ | 345,605 | | | $ | 259,677 | | | $ | 653,190 | | | $ | 587,419 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Adjusted EBITDA: | | | | | | | |
Integrated Networks - Group A | $ | 27,250 | | | $ | 17,206 | | | $ | 49,712 | | | $ | 33,507 | |
Integrated Networks - Group B | 26,544 | | | 16,387 | | | 52,413 | | | 33,523 | |
Media & Data Network | 6,895 | | | 892 | | | 11,976 | | | 2,679 | |
All Other | 8,231 | | | 6,884 | | | 14,273 | | | 16,788 | |
Corporate | (8,640) | | | (5,208) | | | (16,160) | | | (10,770) | |
Total Adjusted EBITDA | $ | 60,280 | | | $ | 36,161 | | | $ | 112,214 | | | $ | 75,727 | |
| | | | | | | |
Depreciation and amortization | $ | (8,005) | | | $ | (8,898) | | | $ | (16,181) | | | $ | (18,104) | |
Impairment and other losses | 0 | | | (18,840) | | | (875) | | | (19,001) | |
Stock-based compensation | (6,938) | | | (1,039) | | | (4,975) | | | (4,109) | |
Deferred acquisition consideration | (5,612) | | | (2,312) | | | (17,297) | | | 2,288 | |
Distributions from non-consolidated affiliates | (463) | | | (1,079) | | | (472) | | | (1,065) | |
Other items, net | (6,619) | | | (3,895) | | | (12,104) | | | (6,311) | |
Total Operating Income | $ | 32,643 | | | $ | 98 | | | $ | 60,310 | | | $ | 29,425 | |
| | | | | | | |
Other Income (expenses): | | | | | | | |
Interest expense and finance charges, net | $ | (19,512) | | | $ | (15,942) | | | $ | (38,577) | | | $ | (31,553) | |
Foreign exchange gain (loss) | 1,902 | | | 5,342 | | | 3,982 | | | (9,415) | |
Other, net | 842 | | | 5,883 | | | 1,456 | | | 22,217 | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | 15,875 | | | (4,619) | | | 27,171 | | | 10,674 | |
Income tax expense (benefit) | 1,387 | | | (7,923) | | | 2,689 | | | 5,577 | |
Income before equity in earnings of non-consolidated affiliates | 14,488 | | | 3,304 | | | 24,482 | | | 5,097 | |
Equity in losses of non-consolidated affiliates | (151) | | | (798) | | | (644) | | | (798) | |
Net income | 14,337 | | | 2,506 | | | 23,838 | | | 4,299 | |
Net income attributable to the noncontrolling interest | (8,231) | | | (3,101) | | | (12,722) | | | (3,892) | |
Net income (loss) attributable to MDC Partners Inc. | 6,106 | | | (595) | | | 11,116 | | | 407 | |
Accretion on and net income allocated to convertible preference shares | (4,451) | | | (3,509) | | | (8,540) | | | (6,949) | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 1,655 | | | $ | (4,104) | | | $ | 2,576 | | | $ | (6,542) | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue: | (Dollars in Thousands) |
Integrated Agencies Network | $ | 378,168 | | | $ | 81,639 | | | $ | 728,639 | | | $ | 150,587 | |
Media Network | 194,296 | | | 70,560 | | | 392,083 | | | 134,283 | |
Communications Network | 97,770 | | | 47,738 | | | 189,305 | | | 90,446 | |
All Other | 2,679 | | | 9,623 | | | 5,789 | | | 15,486 | |
Total Revenue | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
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Adjusted EBITDA: | | | | | | | |
Integrated Agencies Network | $ | 70,307 | | | $ | 19,755 | | | $ | 139,696 | | | $ | 34,251 | |
Media Network | 33,699 | | | 9,129 | | | 64,947 | | | 12,821 | |
Communications Network | 17,231 | | | 9,962 | | | 33,168 | | | 17,936 | |
All Other | (485) | | | 298 | | | (609) | | | (1,313) | |
Corporate | (9,433) | | | (426) | | | (24,471) | | | (1,135) | |
Total Adjusted EBITDA | $ | 111,319 | | | $ | 38,718 | | | $ | 212,731 | | | $ | 62,560 | |
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Depreciation and amortization | $ | (32,231) | | | $ | (10,381) | | | $ | (63,435) | | | $ | (21,331) | |
Impairment and other losses | (2,266) | | | — | | | (2,823) | | | — | |
Stock-based compensation | (13,131) | | | — | | | (21,152) | | | — | |
Deferred acquisition consideration | (13,472) | | | (2,098) | | | (15,369) | | | (6,034) | |
Other items, net | (1,887) | | | (1,808) | | | (6,960) | | | (4,749) | |
Total Operating Income | $ | 48,332 | | | $ | 24,431 | | | $ | 102,992 | | | $ | 30,446 | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Depreciation and amortization: | (Dollars in Thousands) |
Integrated Networks - Group A | $ | 1,322 | | | $ | 1,566 | | | $ | 2,616 | | | $ | 3,307 | |
Integrated Networks - Group B | 3,589 | | | 4,387 | | | 7,246 | | | 8,913 | |
Media & Data Network | 457 | | | 807 | | | 929 | | | 1,615 | |
All Other | 1,452 | | | 1,902 | | | 2,989 | | | 3,801 | |
Corporate | 1,185 | | | 236 | | | 2,401 | | | 468 | |
Total | $ | 8,005 | | | $ | 8,898 | | | $ | 16,181 | | | $ | 18,104 | |
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Stock-based compensation: | | | | | | | |
Integrated Networks - Group A | $ | 4,756 | | | $ | (105) | | | $ | 1,128 | | | $ | 1,856 | |
Integrated Networks - Group B | 1,384 | | | 746 | | | 2,337 | | | 1,646 | |
Media & Data Network | 63 | | | 4 | | | 84 | | | (9) | |
All Other | 181 | | | 118 | | | 242 | | | 198 | |
Corporate | 554 | | | 276 | | | 1,184 | | | 418 | |
Total | $ | 6,938 | | | $ | 1,039 | | | $ | 4,975 | | | $ | 4,109 | |
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Capital expenditures: | | | | | | | |
Integrated Networks - Group A | $ | 655 | | | $ | 208 | | | $ | 930 | | | $ | 566 | |
Integrated Networks - Group B | 271 | | | (272) | | | 484 | | | 205 | |
Media & Data Network | 431 | | | 112 | | | 495 | | | 197 | |
All Other | 188 | | | 132 | | | 322 | | | 456 | |
Corporate | 22 | | | 1,963 | | | (148) | | | 2,265 | |
Total | $ | 1,567 | | | $ | 2,143 | | | $ | 2,083 | | | $ | 3,689 | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in Thousands) |
Other Income (expenses): | | | | | | | |
Interest expense, net | $ | (18,151) | | | $ | (1,935) | | | $ | (36,880) | | | $ | (3,286) | |
Foreign exchange, net | 70 | | | (385) | | | (236) | | | (1,062) | |
Other, net | (121) | | | (101) | | | 35 | | | 1,184 | |
Income before income taxes and equity in earnings of non-consolidated affiliates | 30,130 | | | 22,010 | | | 65,911 | | | 27,282 | |
Income tax expense | 5,421 | | | 3,348 | | | 8,610 | | | 4,021 | |
Income before equity in earnings of non-consolidated affiliates | 24,709 | | | 18,662 | | | 57,301 | | | 23,261 | |
Equity in income (loss) of non-consolidated affiliates | (190) | | | (3) | | | 840 | | | 1 | |
Net income | 24,519 | | | 18,659 | | | 58,141 | | | 23,262 | |
Net income attributable to noncontrolling and redeemable noncontrolling interests | (14,056) | | | (1,314) | | | (35,003) | | | (1,552) | |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
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Depreciation and amortization: | | | | | | | |
Integrated Agencies Network | $ | 18,010 | | | $ | 2,691 | | | $ | 36,890 | | | $ | 5,293 | |
Media Network | 8,643 | | | 5,313 | | | 16,839 | | | 10,572 | |
Communications Network | 2,524 | | | 1,395 | | | 5,064 | | | 2,977 | |
All Other | 750 | | | 496 | | | 1,251 | | | 1,518 | |
Corporate | 2,304 | | | 486 | | | 3,391 | | | 971 | |
Total | $ | 32,231 | | | $ | 10,381 | | | $ | 63,435 | | | $ | 21,331 | |
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Stock-based compensation | | | | | | | |
Integrated Agencies Network | $ | 4,663 | | | $ | — | | | $ | 9,736 | | | $ | — | |
Media Network | 4,969 | | | ��� | | | 6,229 | | | — | |
Communications Network | 649 | | | — | | | 406 | | | — | |
All Other | — | | | — | | | 8 | | | — | |
Corporate | 2,850 | | | — | | | 4,773 | | | — | |
Total | $ | 13,131 | | | $ | — | | | $ | 21,152 | | | $ | — | |
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 34 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for the three and six months ended June 30, 20212022 and 2020.2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, referencesThe following discussion and analysis are based on and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes related thereto included in Part 1, Item 1 of this Form 10-Q. The following discussion and analysis contains forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the captions “Note about Forward-Looking Statements” and “Risk Factors” in this Form 10-Q and “Forward-Looking Statements” and “Risk Factors” in our 2021 Form 10-K. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. A description of the non-GAAP financial measures discussed in this section and reconciliations to the comparable GAAP financial measures are below.
In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer (i) with respect to events occurring or “MDC” mean MDC Partnersperiods ending before August 2, 2021, to Stagwell Marketing Group LLC and its direct and indirect subsidiaries and (ii) with
respect to events occurring or periods ending on or after August 2, 2021, to Stagwell Inc. and its subsidiaries,direct and referencesindirect subsidiaries. References to a “fiscal year” mean the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 20212022 means the period beginning January 1, 2021,2022, and ending December 31, 2021)2022). Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. As the information provided throughout this report is historical, it primarily reflects information about the Company as of June 30, 2021, without giving effect to the Transactions or the Stagwell Entities.
Executive Summary
Overview
Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. Stagwell’s differentiation lies in its creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. Stagwell leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and media-agnostic. The Company’s work is designed to challenge the industry status quo, realize outsized returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
Stagwell manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenue, operating expenses, capital expenditures and the non-GAAP measures described below. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth from existing clients and the addition of new clients, (iii) growth by principal capability, (iv) growth from currency changes, and (v) 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 networks. These indicators may include a network’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 network’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.
We continue to monitor the impact on our operations from worldwide events such as the COVID-19 pandemic and evolving strains of COVID-19, as well as the military conflict between Russia and Ukraine, which we do not expect to have a material adverse effect on our operations. If the impacts of either of the aforementioned events are beyond our expectations, we believe we are well positioned to successfully work through such impacts for the foreseeable future.
Business Combination
On December 21, 2020, MDC and Stagwell Media LP announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the “Stagwell Subject Entities.” The Stagwell Subject Entities comprised Stagwell Marketing and its direct and indirect subsidiaries.
On August 2, 2021 (the “Closing Date”), we completed the Transactions. In connection with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned subsidiary of the Company, converted into OpCo; (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc.
The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer and Stagwell Marketing treated as the accounting acquirer. As a result of the Transactions and the change in our business and operations, under applicable accounting principles, the historical financial results of Stagwell Marketing prior to August 2, 2021 are considered our historical financial results. Accordingly, historical information presented in this Form 10-Q for events occurring or periods ending before August 2, 2021 does not reflect the impact of the Transactions and may not be comparable with historical information for events occurring or periods ending on or after August 2, 2021, which do not include the financial results of MDC. See Note 3 of the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the Transactions.
Recent Developments
On July 12, 2022, the Company acquired PEP Group Holdings B.V. (“PEP Group”), an omnichannel content creation and adaption production company for approximately $766, subject to post-closing adjustments, as well as contingent consideration up to a maximum value of $2,679. The contingent consideration is based on meeting certain future earnings targets through 2025. Stagwell expects the acquisition of PEP Group will bolster its media and content production capabilities across its global network.
On July 15, 2022, the Company acquired Apollo Program II Inc. (“Apollo”), a real-time artificial intelligence-powered software-as-a-service platform, for approximately $2,300, subject to post-closing adjustments, as well as fixed deferred
payments of $1,000 and $1,500 on or prior to July 1, 2023 and July 1, 2024, respectively. Stagwell expects Apollo will be integrated with Stagwell’s data and insights unification tool, Consumer Understand and Engagement.
Significant Factors Affecting our Business and Results of Operations
The most significant factors affecting our business and results of operations include national, regional, and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products that our brands offer. A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.
Seasonality
Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year. In addition, client concentration increases during election years due to the cyclical nature of our advocacy Brands. The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season.
Non-GAAP Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In addition, the Company has included non-GAAP financial measures and ratios, which management uses to operate the business, which it believes provide useful supplemental information to both management and readers of this report in making period-to-period comparisons in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures determined in accordance with GAAP. The non-GAAP measures included are “organic revenue growth”growth or “organic revenue decline” and “Adjusted EBITDA.”
“Organic revenue growth or organicgrowth” and “organic revenue declinedecline” 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 induring the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) of the change in revenue of the Partner Firms whichbrands that the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP“Net acquisitions (dispositions), net.(divestitures).” Non-GAAPNet acquisitions (dispositions), net
(divestitures) 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(or the same prior year period as the current reportable period,period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such dispositionsdisposition 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.”
Adjusted EBITDA is defined as Net income (loss) attributable to MDC PartnersStagwell Inc. common shareholders plusexcluding non-operating income or minus non-operating itemsexpense to achieve operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses).items. Other items includes items such as merger relatedinclude restructuring costs, severanceacquisition-related expenses, and restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.non-recurring items.
The following discussion focuses on the operating performance of the Company for the three and six months ended June 30, 2021 and 2020 and the financial condition of the Company as of June 30, 2021. 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 2020Company’s Annual Report on Form 10-K.
Direct costs represent billable or non-billable internal and third-party expenses that are directly tied to providing services to our clients where we are principal in10-K for the arrangement. Direct costs exclude staff costs, which are presented separately.year ended December 31, 2021 (the “2021 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.”
Recent Developments
On December 21, 2020, MDC and Stagwell entered into a definitive transaction agreement (as amended on June 4, 2021 and as of July 8, 2021, the “Transaction Agreement”) providing for the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”). The combination and related transactions, including the domestication of MDC to a Delaware corporation, are referred to as the “Transactions.” See “Item 1. Business – Recent Developments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed on March 16, 2021, for a description of the Transactions.
On July 26, 2021, the Company’s shareholders approved the combination and on August 2, 2021 (the effective date), the combined company began to conduct business as Stagwell Inc. On August 3, 2021, Stagwell Inc. began to trade on the NASDAQ Stock Exchange under the ticker symbol STGW.
On July 26, 2021, the Company sent a notice of redemption to the bondholders of its Senior Notes. The redemption date is scheduled for August 20, 2021 at a redemption price equal to 101.625% of the outstanding principal amount of the Senior Notes being redeemed (the “Redemption Price”), plus, accrued and unpaid interest on the principal amount of such Senior Notes (the
“Redemption Payment”). The Redemption Payment is approximately $904 million, consisting of the Redemption Price of approximately $884 million (principal of $870 million and a premium of $14 million) and accrued and unpaid interest of approximately $20 million.
On August 2, 2021, the Company repaid the total amount outstanding and terminated its revolving credit facility due February 3, 2022.
The redemption of the Senior Notes and the termination of the revolving credit facility were initiated in connection with the closing of the combination and the plan to refinance the liquidity position of the combined company.
On July 8, 2021, the Company entered into agreements with Stagwell and affiliates of The Goldman Sachs Group amending certain terms of their preference shares (see Note 10 of the Notes to the Unaudited Condensed Consolidated Financial Statements), which, among other things, reduced the accretion rate on the base liquidation preference of the combined company to zero percent per annum from and after the date that is two business days following the closing of the combination until the one year anniversary thereof.
Executive Summary
The Company’s business improved in the second quarter of 2021 compared to the second quarter of 2020, primarily from the recovery from the COVID-19 pandemic. Although the pandemic did not begin to impact the Company’s operations in the first quarter of 2020, it did havea significant impacton the Company’s operations in the second quarter of 2020. Therefore, the quarterly period-over-period comparisons reflects the recovery in the second quarter of 2021 and the negative impact in the second quarter of 2020.
While a recovery from the pandemic is underway, economic conditions will be volatile as long as COVID-19 remains a public health threat. The Company continues to monitor developments, We will continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on the overall economy, our clients and operations. If the impact of the pandemic continues to go beyond expectations, the Company believes it is well positioned through the actions implemented at the onset of the pandemic to successfully work through the effects of COVID-19 on our business. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the continued impact of the COVID-19 pandemic.
MDC conducts its business through its network of Partner Firms, which provide marketing and business solutions that realize the potential of combining data and creativity. MDC’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. MDC’s differentiation lies in its best-in-class creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. MDC leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and media-agnostic. The Company’s work is designed to challenge the industry status quo, realize outsized returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
MDC manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenues, operating expenses, capital expenditures and non-GAAP measures described above. 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.
Segments
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”), who is Mark Penn, Chief Executive Officer and Chairman, 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.
The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income (loss) attributable
Due to MDC Partners Inc. common shareholders’ plus or minus non-operating itemschanges in the Company’s internal management and reporting structure in the second quarter of 2022, reportable segment results for periods presented prior to the second quarter of 2022 have been recast to reflect the reclassification of certain reporting units (brands) between operating income (loss), plus depreciationsegments. The changes in reportable segments were that the Forsman & Bodenfors, Observatory, Crispin Porter Bogusky, Bruce Mau and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration fromVitro brands, previously within the sale of ownership interests in non-consolidated affiliates, less contributions to date, plus undistributed earnings (losses). Other items, net includes items such as merger related costs, severance and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection withIntegrated Agencies Network, are now within the centralization of our New York real estate portfolio.Stagwell Media Network.
The Company has three reportable segments that result from applying the aggregation criteria are as follows: “Integrated Networks - Group A,Agencies Network,” “Integrated Networks - Group B”“Media Network” and the “Media & Data“Communications Network.” In addition, the Company combines and discloses 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 2020audited consolidated financial statements included in the 2021 Form 10-K.
In addition, MDCStagwell reports its corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms,networks, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate, including interest expense and public company overhead costs.Corporate. Corporate provides client and business development support to the Partner Firmsnetworks as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions.
Results of Operations:
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue: | (Dollars in Thousands) |
Integrated Networks - Group A | $ | 117,984 | | | $ | 82,735 | | | $ | 220,370 | | | $ | 173,356 | |
Integrated Networks - Group B | 123,486 | | | 93,398 | | | 234,637 | | | 211,105 | |
Media & Data Network | 37,517 | | | 28,551 | | | 74,300 | | | 69,609 | |
All Other | 66,618 | | | 54,993 | | | 123,883 | | | 133,349 | |
Total Revenue | $ | 345,605 | | | $ | 259,677 | | | $ | 653,190 | | | $ | 587,419 | |
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Operating Income (Loss): | | | | | | | |
Integrated Networks - Group A | $ | 14,273 | | | $ | 14,607 | | | $ | 25,723 | | | $ | 26,637 | |
Integrated Networks - Group B | 21,326 | | | (7,717) | | | 41,236 | | | 9,444 | |
Media & Data Network | 5,052 | | | 46 | | | 8,444 | | | 663 | |
All Other | 6,036 | | | 4,985 | | | 10,693 | | | 12,842 | |
Corporate | (14,044) | | | (11,823) | | | (25,786) | | | (20,161) | |
Total Operating Income | $ | 32,643 | | | $ | 98 | | | $ | 60,310 | | | $ | 29,425 | |
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Other Income (Expenses): | | | | | | | |
Interest expense and finance charges, net | $ | (19,512) | | | $ | (15,942) | | | $ | (38,577) | | | $ | (31,553) | |
Foreign exchange gain (loss) | 1,902 | | | 5,342 | | | 3,982 | | | (9,415) | |
Other, net | 842 | | | 5,883 | | | 1,456 | | | 22,217 | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | 15,875 | | | (4,619) | | | 27,171 | | | 10,674 | |
Income tax expense (benefit) | 1,387 | | | (7,923) | | | 2,689 | | | 5,577 | |
Income before equity in earnings of non-consolidated affiliates | 14,488 | | | 3,304 | | | 24,482 | | | 5,097 | |
Equity in losses of non-consolidated affiliates | (151) | | | (798) | | | (644) | | | (798) | |
Net income | 14,337 | | | 2,506 | | | 23,838 | | | 4,299 | |
Net income attributable to the noncontrolling interest | (8,231) | | | (3,101) | | | (12,722) | | | (3,892) | |
Net income (loss) attributable to MDC Partners Inc. | 6,106 | | | (595) | | | 11,116 | | | 407 | |
Accretion on and net income allocated to convertible preference shares | (4,451) | | | (3,509) | | | (8,540) | | | (6,949) | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 1,655 | | | $ | (4,104) | | | $ | 2,576 | | | $ | (6,542) | |
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Adjusted EBITDA: | | | | | | | |
Integrated Networks - Group A | $ | 27,250 | | | $ | 17,206 | | | $ | 49,712 | | | $ | 33,507 | |
Integrated Networks - Group B | 26,544 | | | 16,387 | | | 52,413 | | | 33,523 | |
Media & Data Network | 6,895 | | | 892 | | | 11,976 | | | 2,679 | |
All Other | 8,231 | | | 6,884 | | | 14,273 | | | 16,788 | |
Corporate | (8,640) | | | (5,208) | | | (16,160) | | | (10,770) | |
Total Adjusted EBITDA | $ | 60,280 | | | $ | 36,161 | | | $ | 112,214 | | | $ | 75,727 | |
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
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Capital expenditures: | (Dollars in Thousands) |
Integrated Networks - Group A | $ | 655 | | | $ | 208 | | | $ | 930 | | | $ | 566 | |
Integrated Networks - Group B | 271 | | | (272) | | | 484 | | | 205 | |
Media & Data Network | 431 | | | 112 | | | 495 | | | 197 | |
All Other | 188 | | | 132 | | | 322 | | | 456 | |
Corporate | 22 | | | 1,963 | | | (148) | | | 2,265 | |
Total | $ | 1,567 | | | $ | 2,143 | | | $ | 2,083 | | | $ | 3,689 | |
The following tables reconcile Net income (loss) attributable to MDC Partners Inc. common shareholders (GAAP) to Adjusted EBITDA (non-GAAP)discussion focuses on the operating performance of the Company for the three and six months ended June 30, 2022 and 2021 and 2020. The adjustments from Net income (loss) attributable to MDC Partners Inc. common shareholders to Operating income (loss) are detailed in the table above.
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| Three Months Ended June 30, 2021 |
| Integrated Networks - Group A | | Integrated Networks - Group B | | Media & Data Network | | All Other | | Corporate | | Total |
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| (Dollars in Thousands) |
Net income attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | 1,655 | |
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Non-operating items | | | | | | | | | | | 30,988 | |
Operating income (loss) | $ | 14,273 | | | $ | 21,326 | | | $ | 5,052 | | | $ | 6,036 | | | $ | (14,044) | | | $ | 32,643 | |
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Adjustments: | | | | | | | | | | | |
Depreciation and amortization | 1,322 | | | 3,589 | | | 457 | | | 1,452 | | | 1,185 | | | 8,005 | |
Impairment and other losses | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | 4,756 | | | 1,384 | | | 63 | | | 181 | | | 554 | | | 6,938 | |
Deferred acquisition consideration | 5,382 | | | 49 | | | 102 | | | 79 | | | — | | | 5,612 | |
Distributions from non-consolidated affiliates | — | | | — | | | — | | | — | | | 463 | | | 463 | |
Other items, net | 1,517 | | | 196 | | | 1,221 | | | 483 | | | 3,202 | | | 6,619 | |
Adjusted EBITDA | $ | 27,250 | | | $ | 26,544 | | | $ | 6,895 | | | $ | 8,231 | | | $ | (8,640) | | | $ | 60,280 | |
financial condition of the Company as of June 30, 2022.
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| Three Months Ended June 30, 2020 |
| Integrated Networks - Group A | | Integrated Networks - Group B | | Media & Data Network | | All Other | | Corporate | | Total |
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| (Dollars in Thousands) |
Net loss attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | $ | (4,104) | |
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Non-operating items | | | | | | | | | | | 4,202 | |
Operating income (loss) | $ | 14,607 | | | $ | (7,717) | | | $ | 46 | | | $ | 4,985 | | | $ | (11,823) | | | $ | 98 | |
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Adjustments: | | | | | | | | | | | |
Depreciation and amortization | 1,566 | | | 4,387 | | | 807 | | | 1,902 | | | 236 | | | 8,898 | |
Impairment and other losses | — | | | 17,468 | | | 35 | | | 208 | | | 1,129 | | | 18,840 | |
Stock-based compensation | (105) | | | 746 | | | 4 | | | 118 | | | 276 | | | 1,039 | |
Deferred acquisition consideration | 1,138 | | | 1,503 | | | — | | | (329) | | | — | | | 2,312 | |
Distributions from non-consolidated affiliates | — | | | — | | | — | | | — | | | 1,079 | | | 1,079 | |
Other items, net | — | | | — | | | — | | | — | | | 3,895 | | | 3,895 | |
Adjusted EBITDA | $ | 17,206 | | | $ | 16,387 | | | $ | 892 | | | $ | 6,884 | | | $ | (5,208) | | | $ | 36,161 | |
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| Six Months Ended June 30, 2021 |
| Integrated Networks - Group A | | Integrated Networks - Group B | | Media & Data Network | | All Other | | Corporate | | Total |
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| (Dollars in Thousands) |
Net income attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | $ | 2,576 | |
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Non-operating items | | | | | | | | | | | 57,734 | |
Operating income (loss) | $ | 25,723 | | | $ | 41,236 | | | $ | 8,444 | | | $ | 10,693 | | | $ | (25,786) | | | $ | 60,310 | |
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Adjustments: | | | | | | | | | | | |
Depreciation and amortization | 2,616 | | | 7,246 | | | 929 | | | 2,989 | | | 2,401 | | | 16,181 | |
Impairment and other losses | — | | | 875 | | | — | | | — | | | — | | | 875 | |
Stock-based compensation | 1,128 | | | 2,337 | | | 84 | | | 242 | | | 1,184 | | | 4,975 | |
Deferred acquisition consideration adjustments | 17,206 | | | 177 | | | 102 | | | (188) | | | — | | | 17,297 | |
Distributions from non-consolidated affiliates | — | | | — | | | — | | | — | | | 472 | | | 472 | |
Other items, net | 3,039 | | | 542 | | | 2,417 | | | 537 | | | 5,569 | | | 12,104 | |
Adjusted EBITDA | $ | 49,712 | | | $ | 52,413 | | | $ | 11,976 | | | $ | 14,273 | | | $ | (16,160) | | | $ | 112,214 | |
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| Six Months Ended June 30, 2020 |
| Integrated Networks - Group A | | Integrated Networks - Group B | | Media & Data Network | | All Other | | Corporate | | Total |
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| (Dollars in Thousands) |
Net loss attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | $ | (6,542) | |
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Non-operating items | | | | | | | | | | | 35,967 | |
Operating income (loss) | $ | 26,637 | | | $ | 9,444 | | | $ | 663 | | | $ | 12,842 | | | $ | (20,161) | | | $ | 29,425 | |
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Adjustments: | | | | | | | | | | | |
Depreciation and amortization | 3,307 | | | 8,913 | | | 1,615 | | | 3,801 | | | 468 | | | 18,104 | |
Impairment and other losses | — | | | 17,629 | | | 35 | | | 208 | | | 1,129 | | | 19,001 | |
Stock-based compensation | 1,856 | | | 1,646 | | | (9) | | | 198 | | | 418 | | | 4,109 | |
Deferred acquisition consideration adjustments | 1,707 | | | (4,109) | | | 375 | | | (261) | | | — | | | (2,288) | |
Distributions from non- consolidated affiliates | — | | | — | | | — | | | — | | | 1,065 | | | 1,065 | |
Other items, net | — | | | — | | | — | | | — | | | 6,311 | | | 6,311 | |
Adjusted EBITDA | $ | 33,507 | | | $ | 33,523 | | | $ | 2,679 | | | $ | 16,788 | | | $ | (10,770) | | | $ | 75,727 | |
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Certain Factors Affecting Our Business
See the Executive Summary section of Item 7 of the Company’s 2020 Form 10-K for information regarding certain factors affecting our business.
Results of Operations:
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| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in Thousands) |
Revenue | | | | | | | |
Integrated Agencies Network | $ | 378,168 | | | $ | 81,639 | | | $ | 728,639 | | | $ | 150,587 | |
Media Network | 194,296 | | | 70,560 | | | 392,083 | | | 134,283 | |
Communications Network | 97,770 | | | 47,738 | | | 189,305 | | | 90,446 | |
All Other | 2,679 | | | 9,623 | | | 5,789 | | | 15,486 | |
Total Revenue | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
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Operating Income | $ | 48,332 | | | $ | 24,431 | | | $ | 102,992 | | | $ | 30,446 | |
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Other Income (Expenses) | | | | | | | |
Interest expense, net | $ | (18,151) | | | $ | (1,935) | | | $ | (36,880) | | | $ | (3,286) | |
Foreign exchange, net | 70 | | | (385) | | | (236) | | | (1,062) | |
Other, net | (121) | | | (101) | | | 35 | | | 1,184 | |
Income before income taxes and equity in earnings of non-consolidated affiliates | 30,130 | | | 22,010 | | | 65,911 | | | 27,282 | |
Income tax expense | 5,421 | | | 3,348 | | | 8,610 | | | 4,021 | |
Income before equity in earnings of non-consolidated affiliates | 24,709 | | | 18,662 | | | 57,301 | | | 23,261 | |
Equity in income (loss) of non-consolidated affiliates | (190) | | | (3) | | | 840 | | | 1 | |
Net income | 24,519 | | | 18,659 | | | 58,141 | | | 23,262 | |
Net income attributable to noncontrolling and redeemable noncontrolling interests | (14,056) | | | (1,314) | | | (35,003) | | | (1,552) | |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
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Reconciliation to Adjusted EBITDA | | | | | | | |
Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
Non-operating items (1) | 37,869 | | | 7,086 | | | 79,854 | | | 8,736 | |
Operating income | 48,332 | | | 24,431 | | | 102,992 | | | 30,446 | |
Depreciation and amortization | 32,231 | | | 10,381 | | | 63,435 | | | 21,331 | |
Impairment and other losses | 2,266 | | | — | | | 2,823 | | | — | |
Stock-based compensation | 13,131 | | | — | | | 21,152 | | | — | |
Deferred acquisition consideration | 13,472 | | | 2,098 | | | 15,369 | | | 6,034 | |
Other items, net | 1,887 | | | 1,808 | | | 6,960 | | | 4,749 | |
Adjusted EBITDA | $ | 111,319 | | | $ | 38,718 | | | $ | 212,731 | | | $ | 62,560 | |
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(1) Non-operating items includes items within the Statements of Operations, below Operating Income, and above Net income attributable to Stagwell Inc. common shareholders. |
THREE MONTHS ENDED JUNE 30, 20212022 COMPARED TO THREE MONTHS ENDED JUNE 30, 20202021
Consolidated Results of Operations
RevenuesThe components of operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
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| | Three Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 672,913 | | | $ | 209,560 | | | $ | 463,353 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 424,661 | | | 122,074 | | | 302,587 | | | NM |
Office and general expenses | | 165,423 | | | 52,674 | | | 112,749 | | | NM |
Depreciation and amortization | | 32,231 | | | 10,381 | | | 21,850 | | | NM |
Impairment and other losses | | 2,266 | | | — | | | 2,266 | | | 100.0 | % |
| | $ | 624,581 | | | $ | 185,129 | | | $ | 439,452 | | | NM |
Operating income | | $ | 48,332 | | | $ | 24,431 | | | $ | 23,901 | | | 97.8 | % |
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| Three Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
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Net Revenue | $ | 556,316 | | | $ | 181,844 | | | $ | 374,472 | | | NM |
Billable costs | 116,597 | | | 27,716 | | | 88,881 | | | NM |
Revenue | 672,913 | | 209,560 | | $ | 463,353 | | | NM |
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Billable costs | 116,597 | | | 27,716 | | | 88,881 | | | NM |
Staff costs | 349,468 | | | 111,781 | | | 237,687 | | | NM |
Administrative costs | 66,349 | | | 19,262 | | | 47,087 | | | NM |
Unbillable and other costs, net | 29,180 | | | 12,083 | | | 17,097 | | | NM |
Adjusted EBITDA | 111,319 | | | 38,718 | | | 72,601 | | | NM |
Stock-based compensation | 13,131 | | | — | | | 13,131 | | | 100.0 | % |
Depreciation and amortization | 32,231 | | | 10,381 | | | 21,850 | | | NM |
Deferred acquisition consideration | 13,472 | | | 2,098 | | | 11,374 | | | NM |
Impairment and other losses | 2,266 | | | — | | | 2,266 | | | 100.0 | % |
Other items, net | 1,887 | | | 1,808 | | | 79 | | | 4.4 | % |
Operating Income (1) | $ | 48,332 | | | $ | 24,431 | | | $ | 23,901 | | | 97.8 | % |
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(1) See the Results of Operations section above for a reconciliation of Operating Income to Net Income attributable to Stagwell Inc. common shareholders. |
Revenue
Revenue for the three months ended June 30, 2022 was $345.6$672.9 million compared to $209.6 million for the three months ended June 30, 2021, compared toan increase of $463.4 million.
Net Revenue
The components of the fluctuations in net revenue of $259.7 million for the three months ended June 30, 2020.2022 compared to the three months ended June 30, 2021 were as follows:
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| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Integrated Agencies Network | $ | 79,400 | | | $ | 2,316 | | | $ | 211,034 | | | $ | 22,092 | | | $ | 235,442 | | | $ | 314,842 | | | 27.8 | % | | NM |
Media Network | 62,658 | | | 263 | | | 76,546 | | | 32,408 | | | 109,217 | | | 171,875 | | | 51.7 | % | | NM |
Communications Network | 30,170 | | | 260 | | | 22,460 | | | 14,030 | | | 36,750 | | | 66,920 | | | 46.5 | % | | NM |
All Other | 9,616 | | | (97) | | | (5,694) | | | (1,146) | | | (6,937) | | | 2,679 | | | (11.9) | % | | (72.1) | % |
| $ | 181,844 | | | $ | 2,742 | | | $ | 304,346 | | | $ | 67,384 | | | $ | 374,472 | | | $ | 556,316 | | | 37.1 | % | | NM |
Component % change | | | 1.5% | | NM | | | | | | | | | | |
For the three months ended June 30, 2022, organic net revenue increased $67.4 million, or 37.1%. Organic revenue grew primarily across all segments. Such growth was primarily attributable to increased spending by existing clients and business with new clients. The increase in net acquisition (divestitures) was primarily driven by the acquisition of MDC. In addition, the increase in net acquisition (divestitures) was attributable to the acquisitions of Brand New Galaxy (“BNG”) and GoodStuff Holdings Limited (“Goodstuff”).
The components of the fluctuationsgeographic mix in net revenues for the three months ended June 30, 2022 and 2021 compared to the three months ended June 30, 2020 wereis as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | United States | | Canada | | Other |
| $ | | % | | $ | | % | | $ | | % | | $ | | % |
| (Dollars in Thousands) |
June 30, 2020 | $ | 259,677 | | | | | $ | 210,342 | | | | | $ | 16,609 | | | | | $ | 32,726 | | | |
Components of revenue change: | | | | | | | | | | | | | | | |
Foreign exchange impact | 4,593 | | | 1.8 | % | | — | | | — | % | | 1,677 | | | 10.1 | % | | 2,916 | | | 8.9 | % |
| | | | | | | | | | | | | | | |
Organic revenue | 81,335 | | | 31.3 | % | | 67,200 | | | 31.9 | % | | 4,706 | | | 28.3 | % | | 9,429 | | | 28.8 | % |
Total Change | $ | 85,928 | | | 33.1 | % | | $ | 67,200 | | | 31.9 | % | | $ | 6,383 | | | 38.4 | % | | $ | 12,345 | | | 37.7 | % |
June 30, 2021 | $ | 345,605 | | | | | $ | 277,542 | | | | | $ | 22,992 | | | | | $ | 45,071 | | | |
The positive foreign exchange impact of $4.6 million, or 1.8%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.
For the three months ended June 30, 2021, organic revenue increased $81.3 million, or 31.3%, primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic.
The geographic mix in revenues for the three months ended June 30, 2021 and 2020 was as follows:
| | | | Three Months Ended June 30, |
| | | | | | | | | | | | 2022 | | 2021 |
| | 2021 | | 2020 | | (Dollars in Thousands) |
United States | United States | 80.3 | % | | 81.0 | % | United States | $ | 450,879 | | | $ | 156,983 | |
Canada | 6.7 | % | | 6.4 | % | |
United Kingdom | | United Kingdom | 42,070 | | | 17,651 | |
Other | Other | 13.0 | % | | 12.6 | % | Other | 63,367 | | | 7,210 | |
Total | | Total | $ | 556,316 | | | $ | 181,844 | |
Operating Income
Operating income for the three months ended June 30, 20212022 was $32.6$48.3 million compared to operating income$24.4 million for the three months ended June 30, 2021, representing an increase of $23.9 million.
The three months ended June 30, 2022 was impacted primarily by an increase in revenue and expenses due to the acquisition of MDC, and costs associated with an increase in services provided. Stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022. Depreciation and amortization was higher due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.
Other, net
Other, net, for the three months ended June 30, 2022 was expense of $0.1 million, compared to expense of $0.1 million for the three months ended June 30, 2020, representing an increase of $32.5 million, primarily driven by the increase in revenue, partially offset by the increase in operating expense. 2021.
Foreign Exchange Transaction Gain (Loss)
The operating incomeforeign exchange gain for the three months ended June 30, 20202022 was also impacted$0.1 million compared to a loss of $0.4 million for the three months ended June 30, 2021.
Interest Expense, Net
Interest expense, net, for the three months ended June 30, 2022 was $18.2 million compared to $1.9 million for the three months ended June 30, 2021, representing an increase of $16.2 million, primarily driven by a higher level of debt, principally due to amounts outstanding under the impairment and other lossesRevolving Credit Agreement.
Income Tax Expense
The Company had an income tax expense for the three months ended June 30, 2022 of $5.4 million (on a pre-tax income of $30.1 million resulting in connection with a write-downan effective tax rate of 18.0%) compared to income tax expense of $3.3 million (on pre-tax income of $22.0 million resulting in an effective tax rate of 15.2%) for the carrying valuethree months ended June 30, 2021.
The difference in the effective tax rate of goodwill and right-of-use lease assets and related leasehold improvements18.0% in the three months ended June 30, 2022 as compared to no impairment15.2% in the three months ended June 30, 2021 was primarily related to additional deductions for share based compensation vesting in 2022.
Noncontrolling and Redeemable Noncontrolling Interests
The effect of noncontrolling and redeemable noncontrolling interests for the same period inthree months ended June 30, 2022 was $14.1 million compared to $1.3 million for the three months ended June 30, 2021.
Net Income (Loss) Attributable to Stagwell Inc. Common Shareholders
As a result of the foregoing, net income attributable to Stagwell Inc. common shareholders for the three months ended June 30, 2022 was $10.5 million compared to net income attributable to Stagwell Inc. common shareholders of $17.3 million for the three months ended June 30, 2021.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 30, 20212022 was $60.3$111.3 million, compared to $36.2$38.7 million for the three months ended June 30, 2020,2021, representing an increase of $24.1$72.6 million, principally resulting from andriven by the increase in revenue, partially offset by higher operating expenses.expenses primarily due to the impact of the acquisition of MDC.
Other, Net
Other, net,Integrated Agencies Network
The components of operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 378,168 | | | $ | 81,639 | | | $ | 296,529 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 246,895 | | | 46,261 | | | 200,634 | | | NM |
Office and general expenses | | 72,561 | | | 17,930 | | | 54,631 | | | NM |
Depreciation and amortization | | 18,010 | | | 2,691 | | | 15,319 | | | NM |
Impairment and other losses | | 784 | | | — | | | 784 | | | 100.0 | % |
| | $ | 338,250 | | | $ | 66,882 | | | $ | 271,368 | | | NM |
Operating income | | $ | 39,918 | | | $ | 14,757 | | | $ | 25,161 | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 314,842 | | | $ | 79,400 | | | $ | 235,442 | | | NM |
Billable costs | 63,326 | | | 2,239 | | | 61,087 | | | NM |
Revenue | 378,168 | | | 81,639 | | | 296,529 | | | NM |
| | | | | | | |
Billable costs | 63,326 | | | 2,239 | | | 61,087 | | | NM |
Staff costs | 195,942 | | | 44,807 | | | 151,135 | | | NM |
Administrative costs | 31,465 | | | 6,036 | | | 25,429 | | | NM |
Unbillable and other costs, net | 17,128 | | | 8,802 | | | 8,326 | | | 94.6 | % |
Adjusted EBITDA | 70,307 | | | 19,755 | | | 50,552 | | | NM |
Stock-based compensation | 4,663 | | | — | | | 4,663 | | | 100.0 | % |
Depreciation and amortization | 18,010 | | | 2,691 | | | 15,319 | | | NM |
Deferred acquisition consideration | 6,181 | | | 2,098 | | | 4,083 | | | NM |
Impairment and other losses | 784 | | | — | | | 784 | | | 100.0 | % |
Other items, net | 751 | | | 209 | | | 542 | | | NM |
Operating Income | $ | 39,918 | | | $ | 14,757 | | | $ | 25,161 | | | NM |
Revenue
Revenue for the three months ended June 30, 2022 was $378.2 million compared to $81.6 million for the three months ended June 30, 2021, an increase of $296.5 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Integrated Agencies Network | $ | 79,400 | | | $ | 2,316 | | | $ | 211,034 | | | $ | 22,092 | | | $ | 235,442 | | | $ | 314,842 | | | 27.8 | % | | NM |
Component % change | | | 2.9% | | NM | | | | | | | | | | |
The increase in organic net revenue was attributable to increased spending by existing and new clients, primarily driven by creative, digital transformation and consumer insights services. The increase in net acquisition (divestitures) was primarily driven by the acquisition of MDC.
The increase in expenses was driven by the impact of the acquisition of MDC and costs associated with an increase in services provided. Stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022. Depreciation and amortization grew due to the recognition of amortizable intangible assets following the acquisition of MDC. Deferred acquisition consideration expense increased due to the recognition of additional liabilities following the acquisition of MDC.
Operating income and Adjusted EBITDA were higher, driven by an increase in revenues, partially offset by higher expenses as detailed above.
Media Network
The components of operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 194,296 | | | $ | 70,560 | | | $ | 123,736 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 113,098 | | | 38,949 | | | 74,149 | | | NM |
Office and general expenses | | 57,690 | | | 22,772 | | | 34,918 | | | NM |
Depreciation and amortization | | 8,643 | | | 5,313 | | | 3,330 | | | 62.7 | % |
| | | | | | | | |
| | $ | 179,431 | | | $ | 67,034 | | | $ | 112,397 | | | NM |
Operating income | | $ | 14,865 | | | $ | 3,526 | | | $ | 11,339 | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 171,875 | | | $ | 62,658 | | | $ | 109,217 | | | NM |
Billable costs | 22,421 | | | 7,902 | | | 14,519 | | | NM |
Revenue | 194,296 | | | 70,560 | | | 123,736 | | | NM |
| | | | | | | |
Billable costs | 22,421 | | | 7,902 | | | 14,519 | | | NM |
Staff costs | 102,285 | | | 41,477 | | | 60,808 | | | NM |
Administrative costs | 24,001 | | | 9,782 | | | 14,219 | | | NM |
Unbillable and other costs, net | 11,890 | | | 2,270 | | | 9,620 | | | NM |
Adjusted EBITDA | 33,699 | | | 9,129 | | | 24,570 | | | NM |
Stock-based compensation | 4,969 | | | — | | | 4,969 | | | 100.0 | % |
Depreciation and amortization | 8,643 | | | 5,313 | | | 3,330 | | | 62.7 | % |
Deferred acquisition consideration | 3,773 | | | — | | | 3,773 | | | 100.0 | % |
| | | | | | | |
Other items, net | 1,449 | | | 290 | | | 1,159 | | | NM |
Operating Income | $ | 14,865 | | | $ | 3,526 | | | $ | 11,339 | | | NM |
Revenue
Revenue for the three months ended June 30, 2022 was $194.3 million compared to income of $5.9$70.6 million for the three months ended June 30, 2020, when we recognized a gain2021, an increase of approximately $7.4 million related$123.7 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended June 30, 2022 compared to the repurchasethree months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Media Network | 62,658 | | | 263 | | | 76,546 | | | 32,408 | | | 109,217 | | | 171,875 | | | 51.7 | % | | NM |
Component % change | | | 0.4% | | NM | | | | | | | | | | |
The increase in organic net revenue was primarily attributable to new clients and increased spending by existing clients, primarily driven by the seasonal business of $29.7 milliona new client and the recovery of the Company’s Senior Notes due 2024.
Foreign Exchange Gain (Loss)travel industry. The increase in net acquisition (divestitures) was driven by the acquisitions of MDC, GoodStuff, and BNG.
The foreign exchange gainincrease in expenses was primarily driven by the impact of the acquisitions of MDC, BNG and Goodstuff and costs associated with an increase in services provided. Stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022. Deferred acquisition consideration expense increased due to the assumption of additional liabilities primarily in connection with the acquisitions of MDC and Goodstuff. Depreciation and amortization expense increased primarily due to the recognition of amortizable intangible assets in connection with the acquisitions of MDC and Goodstuff.
Operating income and Adjusted EBITDA were driven by an increase in revenues, partially offset by higher expenses as detailed above.
Communications Network
The components of operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 97,770 | | | $ | 47,738 | | | $ | 50,032 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 63,239 | | | 31,153 | | | 32,086 | | | NM |
Office and general expenses | | 21,511 | | | 6,825 | | | 14,686 | | | NM |
Depreciation and amortization | | 2,524 | | | 1,395 | | | 1,129 | | | 80.9 | % |
| | | | | | | | |
| | $ | 87,274 | | | $ | 39,373 | | | $ | 47,901 | | | NM |
Operating income | | $ | 10,496 | | | $ | 8,365 | | | $ | 2,131 | | | 25.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 66,920 | | | $ | 30,170 | | | $ | 36,750 | | | NM |
Billable costs | 30,850 | | | 17,568 | | | 13,282 | | | 75.6 | % |
Revenue | 97,770 | | | 47,738 | | | 50,032 | | | NM |
| | | | | | | |
Billable costs | 30,850 | | | 17,568 | | | 13,282 | | | 75.6 | % |
Staff costs | 42,014 | | | 18,683 | | | 23,331 | | | NM |
Administrative costs | 7,520 | | | 2,086 | | | 5,434 | | | NM |
Unbillable and other costs, net | 155 | | | (561) | | | 716 | | | NM |
Adjusted EBITDA | 17,231 | | | 9,962 | | | 7,269 | | | 73.0 | % |
Stock-based compensation | 649 | | | — | | | 649 | | | 100.0 | % |
Depreciation and amortization | 2,524 | | | 1,395 | | | 1,129 | | | 80.9 | % |
Deferred acquisition consideration | 3,518 | | | — | | | 3,518 | | | 100.0 | % |
| | | | | | | |
Other items, net | 44 | | | 202 | | | (158) | | | (78.2) | % |
Operating Income | $ | 10,496 | | | $ | 8,365 | | | $ | 2,131 | | | 25.5 | % |
Revenue
Revenue for the three months ended June 30, 2022 was $97.8 million compared to $47.7 million for the three months ended June 30, 2021, an increase of $50.0 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Communications Network | 30,170 | | | 260 | | | 22,460 | | | 14,030 | | | 36,750 | | | 66,920 | | | 46.5 | % | | NM |
Component % change | | | 0.9% | | 74.4% | | | | | | | | | | |
The increase in organic net revenue was $1.9attributable to increased spending by existing and new clients, primarily driven by higher public relations as well as advocacy services, as these are typically higher during election years. The increase in net acquisition (divestitures) was primarily driven by the acquisition of MDC.
The increase in expenses was driven by the impact from the acquisition of MDC and costs associated with an increase in services provided. Deferred acquisition consideration expense increased due to the assumption of additional liabilities in connection with the acquisition of MDC. Depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.
Operating income and Adjusted EBITDA were driven by an increase in revenues, partially offset by higher expenses as detailed above.
All Other
The components of operating results for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 2,679 | | | $ | 9,623 | | | $ | (6,944) | | | (72.2) | % |
Operating Expenses | | | | | | | | |
Cost of services | | 1,429 | | | 5,711 | | | (4,282) | | | (75.0) | % |
Office and general expenses | | 1,757 | | | 3,614 | | | (1,857) | | | (51.4) | % |
Depreciation and amortization | | 750 | | | 496 | | | 254 | | | 51.2 | % |
Impairment and other losses | | 1,482 | | | — | | | 1,482 | | | 100.0 | % |
| | $ | 5,418 | | | $ | 9,821 | | | $ | (4,403) | | | (44.8) | % |
Operating loss | | $ | (2,739) | | | $ | (198) | | | $ | (2,541) | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 2,679 | | | $ | 9,616 | | | $ | (6,937) | | | (72.1) | % |
Billable costs | — | | | 7 | | | (7) | | | (100.0) | % |
Revenue | 2,679 | | | 9,623 | | | (6,944) | | | (72.2) | % |
| | | | | | | |
Billable costs | — | | | 7 | | | (7) | | | (100.0) | % |
Staff costs | 2,664 | | | 4,838 | | | (2,174) | | | (44.9) | % |
Administrative costs | 493 | | | 2,773 | | | (2,280) | | | (82.2) | % |
Unbillable and other costs, net | 7 | | | 1,707 | | | (1,700) | | | (99.6) | % |
Adjusted EBITDA | (485) | | | 298 | | | (783) | | | NM |
| | | | | | | |
Depreciation and amortization | 750 | | | 496 | | | 254 | | | 51.2 | % |
| | | | | | | |
Impairment and other losses | 1,482 | | | — | | | 1,482 | | | 100.0 | % |
Other items, net | 22 | | | — | | | 22 | | | 100.0 | % |
Operating Loss | $ | (2,739) | | | $ | (198) | | | $ | (2,541) | | | NM |
Revenue
Revenue for the three months ended June 30, 2022 was $2.7 million compared to a gain of $5.3$9.6 million for the three months ended June 30, 2020. The change in foreign exchange was primarily attributable to the weakening2021, a decrease of the Canadian dollar against the U.S. dollar in 2021 compared to the prior year period, in connection with a U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.$6.9 million.
Interest Expense And Finance Charges, Net Revenue
Interest expense and finance charges,The components of the fluctuations in net revenue for the three months ended June 30, 2021 was $19.5 million2022 compared to $15.9 millionthe three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
All Other | $ | 9,616 | | | $ | (97) | | | $ | (5,694) | | | $ | (1,146) | | | $ | (6,937) | | | $ | 2,679 | | | (11.9) | % | | (72.1) | % |
Component % change | | | (1.0)% | | (59.2)% | | | | | | | | | | |
The decrease in organic net revenue was attributable to a reduction in services at the central innovations group.
The decrease related to net acquisitions (divestitures) was attributable to the sale of Reputation Defender in the third quarter of 2021.
Increases in operating loss and decreases in Adjusted EBITDA were driven by decrease in revenues, partially offset by lower expenses driven by the sale of Reputation Defender.
Corporate
The components of operating results for the three months ended June 30, 2020, representing an increase of $3.6 million, primarily driven by the impact of a 1% increase in the interest rate of the Company’s Senior Notes and the amortization of consent fees paid2022 compared to holders of the Senior Notes, both in connection with obtaining consent in December 2020 for the consummation of the Transactions.
Income Tax Expense (Benefit)
Income tax expense for the three months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Staff costs | $ | 6,563 | | | $ | 1,976 | | | $ | 4,587 | | | NM |
Administrative costs | 2,870 | | | (1,415) | | | 4,285 | | | NM |
Unbillable and other costs, net | — | | | (135) | | | 135 | | | 100.0 | % |
Adjusted EBITDA | (9,433) | | | (426) | | | (9,007) | | | NM |
Stock-based compensation | 2,850 | | | — | | | 2,850 | | | 100.0 | % |
Depreciation and amortization | 2,304 | | | 486 | | | 1,818 | | | NM |
| | | | | | | |
Other items, net | (379) | | | 1,107 | | | (1,486) | | | NM |
Operating Loss | $ | (14,208) | | | $ | (2,019) | | | $ | (12,189) | | | NM |
Operating expenses increased primarily in connection with the acquisition of MDC, including professional fees associated with the transaction and stock-based compensation awards issued in the first quarter of 2022.
SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021
Consolidated Results of Operations
The components of operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | 2021 | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 1,315,816 | | | $ | 390,802 | | | $ | 925,014 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 836,631 | | | 234,073 | | | 602,558 | | | NM |
Office and general expenses | | 309,935 | | | 104,952 | | | 204,983 | | | NM |
Depreciation and amortization | | 63,435 | | | 21,331 | | | 42,104 | | | NM |
Impairment and other losses | | $ | 2,823 | | | $ | — | | | $ | 2,823 | | | 100.0 | % |
| | $ | 1,212,824 | | | $ | 360,356 | | | $ | 852,468 | | | NM |
Operating income | | $ | 102,992 | | | $ | 30,446 | | | $ | 72,546 | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 1,082,953 | | | $ | 339,918 | | | $ | 743,035 | | | NM |
Billable costs | 232,863 | | | 50,884 | | | 181,979 | | | NM |
Revenue | 1,315,816 | | 390,802 | | $ | 925,014 | | | NM |
| | | | | | | |
Billable costs | 232,863 | | | 50,884 | | | 181,979 | | | NM |
Staff costs | 690,106 | | | 209,691 | | | 480,415 | | | NM |
Administrative costs | 122,643 | | | 39,316 | | | 83,327 | | | NM |
Unbillable and other costs, net | 57,473 | | | 28,351 | | | 29,122 | | | NM |
Adjusted EBITDA | 212,731 | | | 62,560 | | | 150,171 | | | NM |
Stock-based compensation | 21,152 | | | — | | | 21,152 | | | 100.0 | % |
Depreciation and amortization | 63,435 | | | 21,331 | | | 42,104 | | | NM |
Deferred acquisition consideration | 15,369 | | | 6,034 | | | 9,335 | | | NM |
Impairment and other losses | 2,823 | | | — | | | 2,823 | | | 100.0 | % |
Other items, net | 6,960 | | | 4,749 | | | 2,211 | | | 46.6 | % |
Operating Income (1) | $ | 102,992 | | | $ | 30,446 | | | $ | 72,546 | | | NM |
| | | | | | | |
(1) See the Results of Operations section above for a reconciliation of Operating Income to Net Income attributable to Stagwell Inc. common shareholders. |
Revenue
Revenue for the six months ended June 30, 2022 was $1.4$1,315.8 million compared to $390.8 million for the six months ended June 30, 2021, an increase of $925.0 million.
Net Revenue
The components of the fluctuations in net revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change | | |
| Six Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Six Months Ended June 30, 2022 | | Organic | | Total | | | | |
| (Dollars in Thousands) | | | | | | | | |
Integrated Agencies Network | $ | 146,513 | | | $ | 5,851 | | | $ | 398,227 | | | $ | 69,845 | | | $ | 473,923 | | | $ | 620,436 | | | 47.7 | % | | NM | | | | |
Media Network | 119,269 | | | 4,822 | | | 145,225 | | | 58,040 | | | 208,087 | | | 327,356 | | | 48.7 | % | | NM | | | | |
Communications Network | 58,657 | | | 1,247 | | | 41,504 | | | 27,964 | | | 70,715 | | | 129,372 | | | 47.7 | % | | NM | | | | |
All Other | 15,479 | | | 253 | | | (10,950) | | | 1,007 | | | (9,690) | | | 5,789 | | | 6.5 | % | | (62.6) | % | | | | |
| $ | 339,918 | | | $ | 12,173 | | | $ | 574,006 | | | $ | 156,856 | | | $ | 743,035 | | | $ | 1,082,953 | | | 46.1 | % | | NM | | | | |
Component % change | | | 3.6% | | NM | | | | | | | | | | | | | | |
For the six months ended June 30, 2022, organic net revenue increased $156.9 million, or 46.1%. There was organic revenue growth across all segments, primarily attributable to increased spending by existing clients and business with new clients. The increase in net acquisition (divestitures) was primarily driven by the acquisition of MDC. In addition, the increase in net acquisition (divestitures) is attributable to the acquisitions of BNG and Goodstuff.
The geographic mix in net revenues for the six months ended June 30, 2022 and 2021 is as follows:
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| (Dollars in Thousands) |
United States | $ | 880,411 | | | $ | 294,493 | |
United Kingdom | 80,355 | | | 30,198 | |
Other | 122,187 | | | 15,227 | |
Total | $ | 1,082,953 | | | $ | 339,918 | |
Operating Income
Operating income for the six months ended June 30, 2022 was $103.0 million compared to $30.4 million for the six months ended June 30, 2021, representing an increase of $72.5 million.
Operating income for the six months ended June 30, 2022 was impacted primarily by an increase in revenue and expenses due to the acquisitions of MDC, BNG and Goodstuff and costs associated with an increase in services provided. Stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022 as well as awards issued in connection with the merger with MDC. Depreciation and amortization was higher primarily due to the recognition of amortizable intangible assets in connection with the acquisitions of MDC, BNG and Goodstuff.
Other, net
Other, net, for the six months ended June 30, 2022 was income of $0.04 million, compared to income of $1.2 million for the six months ended June 30, 2021.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange loss for the six months ended June 30, 2022 was $0.2 million compared to a loss of $1.1 million for the six months ended June 30, 2021.
Interest Expense, Net
Interest expense, net, for the six months ended June 30, 2022 was $36.9 million compared to $3.3 million for the six months ended June 30, 2021, representing an increase of $33.6 million, primarily driven by a higher level of debt in connection with the acquisition of MDC.
Income Tax Expense
The Company had an income tax expense for the six months ended June 30, 2022 of $8.6 million (on a pre-tax income of $15.9$65.9 million resulting in an effective tax rate of 8.7%13.1%) compared to an income tax benefitexpense of $7.9$4.0 million (on pre-tax lossincome of $4.6$27.3 million resulting in an effective tax rate of 171.5%14.7%) for the threesix months ended June 30, 2020.2021.
The difference in the effective tax rate of 8.7% for13.1% in the threesix months ended June 30, 2022 as compared to 14.7% in the six months ended June 30, 2021 was primarily duerelated to minimal tax expense recognized on U.S. earnings as a result of being subject to a valuation allowance.additional deductions for share based compensation vesting in 2022.
The effective tax rate of 171.5% for the three months ended June 30, 2020 was primarily driven by the benefit of losses particularly in the U.S.Noncontrolling and the profits in foreign jurisdictions subject to valuation allowances.
Redeemable Noncontrolling Interests
The effect of noncontrolling and redeemable noncontrolling interests for the threesix months ended June 30, 20212022 was $8.2$35.0 million compared to $3.1$1.6 million for the threesix months ended June 30, 2020.2021.
Net Income (Loss) Attributable to MDC PartnersStagwell Inc. Common Shareholders
As a result of the foregoing, net income attributable to MDC PartnersStagwell Inc. common shareholders for the threesix months ended June 30, 20212022 was $1.7$23.1 million with $0.02 diluted income per share, compared to net lossincome attributable to MDC PartnersStagwell Inc. common shareholders of $4.1 million, or $0.06 diluted loss per share, for the three months ended June 30, 2020.
Integrated Networks - Group A
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group A reportable segment for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group A | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue: | | $ | 117,984 | | | | | $ | 82,735 | | | | | $ | 35,249 | | | 42.6 | % |
Operating Expenses: | | | | | | | | | | | | |
Cost of services sold | | 83,811 | | | 71.0 | % | | 53,193 | | | 64.3 | % | | 30,618 | | | 57.6 | % |
Office and general expenses | | 18,578 | | | 15.7 | % | | 13,369 | | | 16.2 | % | | 5,209 | | | 39.0 | % |
Depreciation and amortization | | 1,322 | | | 1.1 | % | | 1,566 | | | 1.9 | % | | (244) | | | (15.6) | % |
| | $ | 103,711 | | | 87.9 | % | | $ | 68,128 | | | 82.3 | % | | $ | 35,583 | | | 52.2 | % |
Operating income | | $ | 14,273 | | | 12.1 | % | | $ | 14,607 | | | 17.7 | % | | $ | (334) | | | (2.3) | % |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 27,250 | | | 23.1 | % | | $ | 17,206 | | | 20.8 | % | | $ | 10,044 | | | 58.4 | % |
The increase in revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic in the second quarter of 2021.
The operating income remained flat as the increase in revenue was offset by the increase in operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group A reportable segment for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group A | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 17,466 | | | 14.8 | % | | $ | 7,629 | | | 9.2 | % | | $ | 9,837 | | | NM |
Staff costs | | 63,979 | | | 54.2 | % | | 49,045 | | | 59.3 | % | | 14,934 | | | 30.4 | % |
Administrative costs | | 10,806 | | | 9.2 | % | | 8,855 | | | 10.7 | % | | 1,951 | | | 22.0 | % |
Deferred acquisition consideration | | 5,382 | | | 4.6 | % | | 1,138 | | | 1.4 | % | | 4,244 | | | NM |
Stock-based compensation | | 4,756 | | | 4.0 | % | | (105) | | | (0.1) | % | | 4,861 | | | NM |
Depreciation and amortization | | 1,322 | | | 1.1 | % | | 1,566 | | | 1.9 | % | | (244) | | | (15.6) | % |
Total operating expenses | | $ | 103,711 | | | 87.9 | % | | $ | 68,128 | | | 82.3 | % | | $ | 35,583 | | | 52.2 | % |
The increase in direct costs was in connection with higher revenues in public relations and digital services in the second quarter of 2021.
The increase in staff and administrative costs was primarily attributable to support the growth in public relations and digital marketing services in the second quarter of 2021.
The increase in deferred acquisition consideration was primarily attributable to the favorable performance of a Partner Firm achieving incremental contractual targets.
Stock-based compensation expense increased in the second quarter of 2021, driven by an increase in previously projected results in connection with awards tied to performance.
The increase in Adjusted EBITDA was driven by higher revenue, partially offset by higher expenses.
Integrated Networks - Group B
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group B | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue: | | $ | 123,486 | | | | | $ | 93,398 | | | | | $ | 30,088 | | | 32.2 | % |
Operating Expenses: | | | | | | | | | | | | |
Cost of services sold | | 73,520 | | | 59.5 | % | | 55,282 | | | 59.2 | % | | 18,238 | | | 33.0 | % |
Office and general expenses | | 25,051 | | | 20.3 | % | | 23,978 | | | 25.7 | % | | 1,073 | | | 4.5 | % |
Depreciation and amortization | | 3,589 | | | 2.9 | % | | 4,387 | | | 4.7 | % | | (798) | | | (18.2) | % |
Impairment and other losses | | — | | | — | % | | 17,468 | | | 18.7 | % | | (17,468) | | | (100.0) | % |
| | $ | 102,160 | | | 82.7 | % | | $ | 101,115 | | | 108.3 | % | | $ | 1,045 | | | 1.0 | % |
Operating income (loss) | | $ | 21,326 | | | 17.3 | % | | $ | (7,717) | | | (8.3) | % | | $ | 29,043 | | | NM |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 26,544 | | | 21.5 | % | | $ | 16,387 | | | 17.5 | % | | $ | 10,157 | | | 62.0 | % |
The increase in revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic in the second quarter of 2021.
The increase in operating income was attributable to higher revenue, partially offset by the increase in operating expense.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group B | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 13,870 | | | 11.2 | % | | $ | 7,661 | | | 8.2 | % | | $ | 6,209 | | | 81.0 | % |
Staff costs | | 71,028 | | | 57.5 | % | | 58,614 | | | 62.8 | % | | 12,414 | | | 21.2 | % |
Administrative costs | | 12,240 | | | 9.9 | % | | 10,736 | | | 11.5 | % | | 1,504 | | | 14.0 | % |
Deferred acquisition consideration | | 49 | | | — | % | | 1,503 | | | 1.6 | % | | (1,454) | | | (96.7) | % |
Stock-based compensation | | 1,384 | | | 1.1 | % | | 746 | | | 0.8 | % | | 638 | | | 85.5 | % |
Depreciation and amortization | | 3,589 | | | 2.9 | % | | 4,387 | | | 4.7 | % | | (798) | | | (18.2) | % |
Impairment and other losses | | — | | | — | % | | 17,468 | | | 18.7 | % | | (17,468) | | | (100.0) | % |
Total operating expenses | | $ | 102,160 | | | 82.7 | % | | $ | 101,115 | | | 108.3 | % | | $ | 1,045 | | | 1.0 | % |
Direct costs increased in connection with the increase in revenue as discussed above.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The decrease in deferred acquisition consideration was primarily attributable to the payment of deferred acquisition liability in 2021.
The impairment and other losses for the three months ended June 30, 2021 was attributable to impairment and other losses of $18.8 million in connection with a write-down of the carrying value of goodwill and right-of-use lease assets and related leasehold improvements.
The increase in Adjusted EBITDA was for the same reasons as the change in operating income.
Media & Data Network
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Media & Data Network | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue: | | $ | 37,517 | | | | | $ | 28,551 | | | | | $ | 8,966 | | | 31.4 | % |
Operating Expenses: | | | | | | | | | | | | |
Cost of services sold | | 23,290 | | | 62.1 | % | | 20,882 | | | 73.1 | % | | 2,408 | | | 11.5 | % |
Office and general expenses | | 8,718 | | | 23.2 | % | | 6,781 | | | 23.8 | % | | 1,937 | | | 28.6 | % |
Depreciation and amortization | | 457 | | | 1.2 | % | | 807 | | | 2.8 | % | | (350) | | | (43.4) | % |
Impairment and other losses | | — | | | — | % | | $ | 35 | | | 0.1 | % | | $ | (35) | | | (100.0) | % |
| | $ | 32,465 | | | 86.5 | % | | $ | 28,505 | | | 99.8 | % | | $ | 3,960 | | | 13.9 | % |
Operating income | | 5,052 | | | 13.5 | % | | 46 | | | 0.2 | % | | 5,006 | | | NM |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 6,895 | | | 18.4 | % | | $ | 892 | | | 3.1 | % | | $ | 6,003 | | | NM |
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was attributable to higher revenue, partially offset by the increase in operating expense.
The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Media & Data Network | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 3,761 | | | 10.0 | % | | $ | 6,556 | | | 23.0 | % | | $ | (2,795) | | | (42.6) | % |
Staff costs | | 22,273 | | | 59.4 | % | | 16,713 | | | 58.5 | % | | 5,560 | | | 33.3 | % |
Administrative costs | | 5,809 | | | 15.5 | % | | 4,390 | | | 15.4 | % | | 1,419 | | | 32.3 | % |
Deferred acquisition consideration | | 102 | | | 0.3 | % | | — | | | — | % | | 102 | | | — | % |
Stock-based compensation | | 63 | | | 0.2 | % | | 4 | | | — | % | | 59 | | | NM |
Depreciation and amortization | | 457 | | | 1.2 | % | | 807 | | | 2.8 | % | | (350) | | | (43.4) | % |
Impairment and other losses | | — | | | — | % | | 35 | | | 0.1 | % | | (35) | | | (100.0) | % |
Total operating expenses | | $ | 32,465 | | | 86.5 | % | | $ | 28,505 | | | 99.8 | % | | $ | 3,960 | | | 13.9 | % |
Direct costs declined, while total revenue increased, in connection with the mix of revenue where the agency is principal versus agent in the arrangement.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The increase in Adjusted EBITDA was principally for the same reasons as the change in operating income.
All Other
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the All Other category for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
All Other | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue: | | $ | 66,618 | | | | | $ | 54,993 | | | | | $ | 11,625 | | | 21.1 | % |
Operating Expenses: | | | | | | | | | | | | |
Cost of services sold | | 43,790 | | | 65.7 | % | | 36,274 | | | 66.0 | % | | 7,516 | | | 20.7 | % |
Office and general expenses | | 15,340 | | | 23.0 | % | | 11,624 | | | 21.1 | % | | 3,716 | | | 32.0 | % |
Depreciation and amortization | | 1,452 | | | 2.2 | % | | 1,902 | | | 3.5 | % | | (450) | | | (23.7) | % |
Impairment and other losses | | $ | — | | | — | % | | $ | 208 | | | 0.4 | % | | $ | (208) | | | (100.0) | % |
| | $ | 60,582 | | | 90.9 | % | | $ | 50,008 | | | 90.9 | % | | $ | 10,574 | | | 21.1 | % |
Operating income | | $ | 6,036 | | | 9.1 | % | | $ | 4,985 | | | 9.1 | % | | $ | 1,051 | | | 21.1 | % |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 8,231 | | | 12.4 | % | | $ | 6,884 | | | 12.5 | % | | $ | 1,347 | | | 19.6 | % |
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was attributable 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 All Other category for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
All Other | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 11,849 | | | 17.8 | % | | $ | 7,696 | | | 14.0 | % | | $ | 4,153 | | | 54.0 | % |
Staff costs | | 38,640 | | | 58.0 | % | | 34,332 | | | 62.4 | % | | 4,308 | | | 12.5 | % |
Administrative costs | | 8,381 | | | 12.6 | % | | 6,081 | | | 11.1 | % | | 2,300 | | | 37.8 | % |
Deferred acquisition consideration | | 79 | | | 0.1 | % | | (329) | | | (0.6) | % | | 408 | | | NM |
Stock-based compensation | | 181 | | | 0.3 | % | | 118 | | | 0.2 | % | | 63 | | | 53.4 | % |
Depreciation and amortization | | 1,452 | | | 2.2 | % | | 1,902 | | | 3.5 | % | | (450) | | | (23.7) | % |
Impairment and other losses | | — | | | — | % | | 208 | | | 0.4 | % | | (208) | | | (100.0) | % |
Total operating expenses | | $ | 60,582 | | | 90.9 | % | | $ | 50,008 | | | 90.9 | % | | $ | 10,574 | | | 21.1 | % |
Direct costs increased in line with the increase in revenues as discussed above.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The increase in Adjusted EBITDA was principally for the same reasons as the change in operating income.
Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the three months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Corporate | | $ | | $ | | $ | | % |
| | (Dollars in Thousands) |
Staff costs | | $ | 8,448 | | | $ | 3,773 | | | $ | 4,675 | | | NM |
Administrative costs | | 3,857 | | | 6,409 | | | (2,552) | | | (39.8) | % |
Stock-based compensation | | 554 | | | 276 | | | 278 | | | NM |
Depreciation and amortization | | $ | 1,185 | | | $ | 236 | | | $ | 949 | | | NM |
Impairment and other losses | | $ | — | | | $ | 1,129 | | | $ | (1,129) | | | (100.0) | % |
Total operating expenses | | $ | 14,044 | | | $ | 11,823 | | | $ | 2,221 | | | 18.8 | % |
| | | | | | | | |
Adjusted EBITDA | | $ | (8,640) | | | $ | (5,208) | | | $ | (3,432) | | | 65.9 | % |
Operating expenses increased primarily due to higher costs for employee health benefits, partially offset by lower administrative costs primarily driven by a decline in occupancy costs, driving the change in Adjusted EBITDA,
Adjusted EBITDA was impacted principally for the same reasons as the change in operating expenses.
SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
Consolidated Results of Operations
Revenues
Revenue was $653.2$21.7 million for the six months ended June 30, 2021 compared to revenue of $587.4 million for the six months ended June 30, 2020. The components of the fluctuations in revenues for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | United States | | Canada | | Other |
| $ | | % | | $ | | % | | $ | | % | | $ | | % |
| (Dollars in Thousands) |
June 30, 2020 | $ | 587,419 | | | | | $ | 474,903 | | | | | $ | 34,865 | | | | | $ | 77,651 | | | |
Components of revenue change: | | | | | | | | | | | | | | | |
Foreign exchange impact | 9,152 | | | 1.6 | % | | — | | | — | % | | 2,869 | | | 8.2 | % | | 6,283 | | | 8.1 | % |
Non-GAAP acquisitions (dispositions), net | (2,101) | | | (0.4) | % | | (2,101) | | | (0.4) | % | | — | | | — | % | | — | | | — | % |
Organic revenue | 58,720 | | | 10.0 | % | | 47,320 | | | 10.0 | % | | 7,908 | | | 22.7 | % | | 3,492 | | | 4.5 | % |
Total Change | $ | 65,771 | | | 11.2 | % | | $ | 45,219 | | | 9.5 | % | | $ | 10,777 | | | 30.9 | % | | $ | 9,775 | | | 12.6 | % |
June 30, 2021 | $ | 653,190 | | | | | $ | 520,122 | | | | | $ | 45,642 | | | | | $ | 87,426 | | | |
The positive foreign exchange impact of $9.2 million, or 1.6%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.
For the six months ended June 30, 2021, organic revenue increased $58.7 million, or 10.0%, primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The table below provides a reconciliation between the revenue from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | All Other | | Total |
| | | | | | (Dollars in Thousands) |
GAAP revenue from 2020 and 2021 acquisitions | | | | | | | $ | — | | | $ | — | |
Foreign exchange impact | | | | | | | — | | | — | |
Contribution to non-GAAP organic revenue growth | | | | | | | — | | | — | |
Prior year revenue from dispositions | | | | | | | (2,101) | | | (2,101) | |
Non-GAAP dispositions, net | | | | | | | $ | (2,101) | | | $ | (2,101) | |
The geographic mix in revenues for the six months ended June 30, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
United States | 79.6 | % | | 80.8 | % |
Canada | 7.0 | % | | 5.9 | % |
Other | 13.4 | % | | 13.3 | % |
Impairment and Other Losses
The Company recognized a charge of $0.9 million for the six months ended June 30, 2021 to reduce the carrying value of two of its right-of-use lease assets and accelerate the operating expenses of one of its right-of-use lease assets. These right-of-use lease assets related to three agencies within its Integrated Networks - Group B reportable segment.
The Company recognized a charge of $19.0 million for the six months ended June 30, 2020 consisting of a goodwill impairment of $13.4 million and an impairment of right-of-use lease assets and losses of $5.6 million.
Operating Income
Operating income for the six months ended June 30, 2021 was $60.3 million compared to $29.4 million for the six months ended June 30, 2020, representing an increase of $30.9 million, driven by the increase in revenue, partially offset by an increase in operating expenses.2021.
Adjusted EBITDA
Adjusted EBITDA for the six months ended June 30, 20212022 was $112.2$212.7 million, compared to $75.7$62.6 million for the six months ended June 30, 2020,2021, representing an increase of $36.5$150.2 million, principally resulting from the same reasons asdriven by the increase in revenue, partially offset by higher operating income.expenses and the impact of the acquisitions of MDC, GoodStuff and BNG.
Integrated Agencies Network
The components of operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 728,639 | | | $ | 150,587 | | | $ | 578,052 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 473,811 | | | 87,159 | | | 386,652 | | | NM |
Office and general expenses | | 131,239 | | | 35,687 | | | 95,552 | | | NM |
Depreciation and amortization | | 36,890 | | | 5,293 | | | 31,597 | | | NM |
Impairment and other losses | | 784 | | | — | | | 784 | | | 100.0 | % |
| | $ | 642,724 | | | $ | 128,139 | | | $ | 514,585 | | | NM |
Operating income | | $ | 85,915 | | | $ | 22,448 | | | $ | 63,467 | | | NM |
Other, Net | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 620,436 | | | $ | 146,513 | | | $ | 473,923 | | | NM |
Billable costs | 108,203 | | | 4,074 | | | 104,129 | | | NM |
Revenue | 728,639 | | | 150,587 | | | 578,052 | | | NM |
| | | | | | | |
Billable costs | 108,203 | | | 4,074 | | | 104,129 | | | NM |
Staff costs | 389,242 | | | 79,189 | | | 310,053 | | | NM |
Administrative costs | 57,297 | | | 11,789 | | | 45,508 | | | NM |
Unbillable and other costs, net | 34,201 | | | 21,284 | | | 12,917 | | | 60.7 | % |
Adjusted EBITDA | 139,696 | | | 34,251 | | | 105,445 | | | NM |
Stock-based compensation | 9,736 | | | — | | | 9,736 | | | 100.0 | % |
Depreciation and amortization | 36,890 | | | 5,293 | | | 31,597 | | | NM |
Deferred acquisition consideration | 4,856 | | | 6,034 | | | (1,178) | | | (19.5) | % |
Impairment and other losses | 784 | | | — | | | 784 | | | 100.0 | % |
Other items, net | 1,515 | | | 476 | | | 1,039 | | | NM |
Operating Income | $ | 85,915 | | | $ | 22,448 | | | $ | 63,467 | | | NM |
Other, net,Revenue
Revenue for the six months ended June 30, 2022 was $728.6 million compared to $150.6 million for the six months ended June 30, 2021, an increase of $578.1 million.
Net Revenue
The components of the fluctuations in net revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Six Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Six Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Integrated Agencies Network | $ | 146,513 | | | $ | 5,851 | | | $ | 398,227 | | | $ | 69,845 | | | $ | 473,923 | | | $ | 620,436 | | | 47.7 | % | | NM |
Component % change | | | 4.0% | | NM | | | | | | | | | | |
The growth in organic net revenue was attributable to increased spending by existing and new clients, primarily driven by creative, digital transformation and consumer insights services. The increase in net acquisition (divestitures) was driven by the acquisition of MDC.
The increase in expenses was driven by the impact of the acquisition of MDC and costs associated with an increase in services provided. Stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022 as well as awards issued in connection with the merger with MDC. Depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.
Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses as detailed above.
Media Network
The components of operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 392,083 | | | $ | 134,283 | | | $ | 257,800 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 236,498 | | | 79,176 | | | 157,322 | | | NM |
Office and general expenses | | 105,282 | | | 42,812 | | | 62,470 | | | NM |
Depreciation and amortization | | 16,839 | | | 10,572 | | | 6,267 | | | 59.3 | % |
Impairment and other losses | | 557 | | | — | | | 557 | | | 100.0 | % |
| | $ | 359,176 | | | $ | 132,560 | | | $ | 226,616 | | | NM |
Operating income | | $ | 32,907 | | | $ | 1,723 | | | $ | 31,184 | | | NM |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 327,356 | | | $ | 119,269 | | | $ | 208,087 | | | NM |
Billable costs | 64,727 | | | 15,014 | | | 49,713 | | | NM |
Revenue | 392,083 | | | 134,283 | | | 257,800 | | | NM |
| | | | | | | |
Billable costs | 64,727 | | | 15,014 | | | 49,713 | | | NM |
Staff costs | 198,308 | | | 80,369 | | | 117,939 | | | NM |
Administrative costs | 41,042 | | | 18,755 | | | 22,287 | | | NM |
Unbillable and other costs, net | 23,059 | | | 7,324 | | | 15,735 | | | NM |
Adjusted EBITDA | 64,947 | | | 12,821 | | | 52,126 | | | NM |
Stock-based compensation | 6,229 | | | — | | | 6,229 | | | 100.0 | % |
Depreciation and amortization | 16,839 | | | 10,572 | | | 6,267 | | | 59.3 | % |
Deferred acquisition consideration | 5,905 | | | — | | | 5,905 | | | 100.0 | % |
Impairment and other losses | 557 | | | — | | | 557 | | | 100.0 | % |
Other items, net | 2,510 | | | 526 | | | 1,984 | | | NM |
Operating Income | $ | 32,907 | | | $ | 1,723 | | | $ | 31,184 | | | NM |
Revenue
Revenue for the six months ended June 30, 2022 was $392.1 million compared to income of $22.2$134.3 million for the six months ended June 30, 2020,2021, an increase of $257.8 million.
Net Revenue
The components of the fluctuations in net revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Six Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Six Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Media Network | 119,269 | | | 4,822 | | | 145,225 | | | 58,040 | | | 208,087 | | | 327,356 | | | 48.7 | % | | NM |
Component % change | | | 4.0% | | NM | | | | | | | | | | |
The increase in organic net revenue was primarily attributable to new clients and increased spending by existing clients, primarily driven by a gain on the sale of Sloane and on the repurchaseseasonal business of a portionnew client and the recovery of the Company’s Senior Notes.
Foreign Exchange Transaction Gain (Loss)travel industry. The increase in net acquisition (divestitures) was driven by the acquisitions of MDC, Goodstuff and BNG.
The foreign exchange gainincrease in expenses was driven by the impact of the acquisitions of MDC, BNG and Goodstuff and costs associated with an increase in services provided. Deferred acquisition consideration expense increased primarily due to the assumption of additional liabilities in connection with the acquisitions of MDC, Goodstuff and BNG. Stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022 as well as awards issued in connection with the merger with MDC. Depreciation and amortization expense increased due to the recognition of amortizable intangible assets in connection with the acquisition of MDC, Goodstuff and BNG in results subsequent to the acquisition.
Operating income and Adjusted EBITDA were driven by an increase in revenues, partially offset by higher expenses as detailed above.
Communications Network
The components of operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 189,305 | | | $ | 90,446 | | | $ | 98,859 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 123,270 | | | 59,597 | | | 63,673 | | | NM |
Office and general expenses | | 37,997 | | | 13,115 | | | 24,882 | | | NM |
Depreciation and amortization | | 5,064 | | | 2,977 | | | 2,087 | | | 70.1 | % |
| | | | | | | | |
| | $ | 166,331 | | | $ | 75,689 | | | $ | 90,642 | | | NM |
Operating income | | $ | 22,974 | | | $ | 14,757 | | | $ | 8,217 | | | 55.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 129,372 | | | $ | 58,657 | | | $ | 70,715 | | | NM |
Billable costs | 59,933 | | | 31,789 | | | 28,144 | | | 88.5 | % |
Revenue | 189,305 | | | 90,446 | | | 98,859 | | | NM |
| | | | | | | |
Billable costs | 59,933 | | | 31,789 | | | 28,144 | | | 88.5 | % |
Staff costs | 81,637 | | | 37,125 | | | 44,512 | | | NM |
Administrative costs | 14,364 | | | 4,247 | | | 10,117 | | | NM |
Unbillable and other costs, net | 203 | | | (651) | | | 854 | | | NM |
Adjusted EBITDA | 33,168 | | | 17,936 | | | 15,232 | | | 84.9 | % |
Stock-based compensation | 406 | | | — | | | 406 | | | 100.0 | % |
Depreciation and amortization | 5,064 | | | 2,977 | | | 2,087 | | | 70.1 | % |
Deferred acquisition consideration | 4,608 | | | — | | | 4,608 | | | 100.0 | % |
| | | | | | | |
Other items, net | 116 | | | 202 | | | (86) | | | (42.6) | % |
Operating Income | $ | 22,974 | | | $ | 14,757 | | | $ | 8,217 | | | 55.7 | % |
Revenue
Revenue for the six months ended June 30, 2022 was $189.3 million compared to $90.4 million for the six months ended June 30, 2021, an increase of $98.9 million.
Net Revenue
The components of the fluctuations in net revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Six Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Six Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
Communications Network | 58,657 | | | 1,247 | | | 41,504 | | | 27,964 | | | 70,715 | | | 129,372 | | | 47.7 | % | | NM |
Component % change | | | 2.1% | | 70.8% | | | | | | | | | | |
The increase in organic net revenue was $4.0attributable to increased spending by existing and new clients, primarily driven by higher public relations as well as advocacy services, as these are typically higher during election years. The increase in net acquisition (divestitures) was primarily driven by the acquisition of MDC in results subsequent to the acquisition.
The increase in expenses was driven by the impact from the acquisition of MDC and costs associated with an increase in services provided. Deferred acquisition consideration expense increased due to the assumption of additional liabilities in connection with the acquisition of MDC. Depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.
Operating income and Adjusted EBITDA were driven by an increase in revenues, partially offset by higher expenses as detailed above.
All Other
The components of operating results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 | | Change |
| | (Dollars in Thousands) |
| | | | | | $ | | % |
Revenue | | $ | 5,789 | | | $ | 15,486 | | | $ | (9,697) | | | (62.6) | % |
Operating Expenses | | | | | | | | |
Cost of services | | 3,052 | | | 8,141 | | | (5,089) | | | (62.5) | % |
Office and general expenses | | 3,376 | | | 8,658 | | | (5,282) | | | (61.0) | % |
Depreciation and amortization | | 1,251 | | | 1,518 | | | (267) | | | (17.6) | % |
Impairment and other losses | | 1,482 | | | — | | | 1,482 | | | 100.0 | % |
| | $ | 9,161 | | | $ | 18,317 | | | $ | (9,156) | | | (50.0) | % |
Operating loss | | $ | (3,372) | | | $ | (2,831) | | | $ | (541) | | | 19.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | Change |
| (Dollars in Thousands) |
| | | | | $ | | % |
Net Revenue | $ | 5,789 | | | $ | 15,479 | | | $ | (9,690) | | | (62.6) | % |
Billable costs | — | | | 7 | | | (7) | | | (100.0) | % |
Revenue | 5,789 | | | 15,486 | | | (9,697) | | | (62.6) | % |
| | | | | | | |
Billable costs | — | | | 7 | | | (7) | | | (100.0) | % |
Staff costs | 5,200 | | | 9,861 | | | (4,661) | | | (47.3) | % |
Administrative costs | 1,188 | | | 6,546 | | | (5,358) | | | (81.9) | % |
Unbillable and other costs, net | 10 | | | 385 | | | (375) | | | (97.4) | % |
Adjusted EBITDA | (609) | | | (1,313) | | | 704 | | | (53.6) | % |
Stock-based compensation | 8 | | | — | | | 8 | | | 100.0 | % |
Depreciation and amortization | 1,251 | | | 1,518 | | | (267) | | | (17.6) | % |
| | | | | | | |
Impairment and other losses | 1,482 | | | — | | | 1,482 | | | 100.0 | % |
Other items, net | 22 | | | — | | | 22 | | | 100.0 | % |
Operating Loss | $ | (3,372) | | | $ | (2,831) | | | $ | (541) | | | 19.1 | % |
Revenue
Revenue for the six months ended June 30, 2022 was $5.8 million compared to a loss of $9.4$15.5 million for the six months ended June 30, 2020. 2021, a decrease of $9.7 million.
Net Revenue
The change in foreign exchange was primarily attributable to the strengtheningcomponents 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,fluctuations in net revenue for the six months ended June 30, 2021 was $38.6 million2022 compared to $31.6 millionthe six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Six Months Ended June 30, 2021 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Six Months Ended June 30, 2022 | | Organic | | Total |
| (Dollars in Thousands) | | | | |
All Other | $ | 15,479 | | | $ | 253 | | | $ | (10,950) | | | $ | 1,007 | | | $ | (9,690) | | | $ | 5,789 | | | 6.5 | % | | (62.6) | % |
Component % change | | | 1.6% | | (70.7)% | | | | | | | | | | |
The increase in organic net revenue was attributable to services at the central innovations group.
The decrease related to net acquisitions (divestitures) was attributable to the sale of Reputation Defender in the third quarter of 2021.
Increases in operating loss and Adjusted EBITDA were driven by decrease in revenues, partially offset by lower expenses driven by the sale of Reputation Defender.
Corporate
The components of operating results for the six months ended June 30, 2020, representing an increase of $7.0 million, primarily driven by the impact of a 1% increase in the interest rate of the Company’s Senior Notes and the amortization of consent fees paid2022 compared to holders of the Senior Notes, both in connection with obtaining consent in December 2020 for the consummation of the Transactions.
Income Tax Expense (Benefit)
Income tax expense for the six months ended June 30, 2021 was $2.7 million (on pre-tax income of $27.2 million resulting in an effective tax rate of 9.9%) compared to an expense of $5.6 million (on pre-tax income of $10.7 million resulting in an effective tax rate of 52.2%) for the six months ended June 30, 2020.
The effective tax rate of 9.9% for the six months ended June 30, 2021 was primarily due to minimal tax expense recognized on U.S. earnings as a result of being subject to a valuation allowance.
The effective tax rate of 52.2% for the six months ended June 30, 2020 was primarily driven by the base erosion and anti-abuse tax (“BEAT”), the related valuation allowances on certain foreign jurisdictions, and the jurisdictional mix of earnings.
Noncontrolling Interests
The effect of noncontrolling interests for the six months ended June 30, 2021 was $12.7 million compared to $3.9 million for the six months ended June 30, 2020.
Net Income (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 income attributable to MDC Partners Inc. common shareholders for the six months ended June 30, 2021 was $2.6 million, or $0.03 diluted income per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $6.5 million, or $0.09 diluted loss per share, for the six months ended June 30, 2020.
Integrated Networks - Group A
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group A reportable segment for the six months ended June 30, 2021 and 2020 waswere as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group A | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue | | $ | 220,370 | | | | | $ | 173,356 | | | | | $ | 47,014 | | | 27.1 | % |
Operating expenses | | | | | | | | | | | | |
Cost of services sold | | 146,057 | | | 66.3 | % | | 115,717 | | | 66.8 | % | | 30,340 | | | 26.2 | % |
Office and general expenses | | 45,974 | | | 20.9 | % | | 27,695 | | | 16.0 | % | | 18,279 | | | 66.0 | % |
Depreciation and amortization | | 2,616 | | | 1.2 | % | | 3,307 | | | 1.9 | % | | (691) | | | (20.9) | % |
| | | | | | | | | | | | |
| | $ | 194,647 | | | 88.3 | % | | $ | 146,719 | | | 84.6 | % | | $ | 47,928 | | | 32.7 | % |
Operating income | | $ | 25,723 | | | 11.7 | % | | $ | 26,637 | | | 15.4 | % | | $ | (914) | | | (3.4) | % |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 49,712 | | | 22.6 | % | | $ | 33,507 | | | 19.3 | % | | $ | 16,205 | | | 48.4 | % |
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The decrease in operating income was attributable to an increase in operating expenses, as outlined below, partially offset by higher revenue.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group A reportable segment for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group A | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 31,442 | | | 14.3 | % | | $ | 18,403 | | | 10.6 | % | | $ | 13,039 | | | 70.9 | % |
Staff costs | | 121,189 | | | 55.0 | % | | 102,555 | | | 59.2 | % | | 18,634 | | | 18.2 | % |
Administrative | | 21,066 | | | 9.6 | % | | 18,891 | | | 10.9 | % | | 2,175 | | | 11.5 | % |
Deferred acquisition consideration | | 17,206 | | | 7.8 | % | | 1,707 | | | 1.0 | % | | 15,499 | | | NM |
Stock-based compensation | | 1,128 | | | 0.5 | % | | 1,856 | | | 1.1 | % | | (728) | | | (39.2) | % |
Depreciation and amortization | | 2,616 | | | 1.2 | % | | 3,307 | | | 1.9 | % | | (691) | | | (20.9) | % |
| | | | | | | | | | | | |
Total operating expenses | | $ | 194,647 | | | 88.3 | % | | $ | 146,719 | | | 84.6 | % | | $ | 47,928 | | | 32.7 | % |
Direct costs increased in connection with the increase in revenues as discussed above.
The increase in staff and administrative costs was primarily attributable to support the growth in revenues in the second quarter of 2021.
The change in deferred acquisition consideration for the six months ended June 30, 2021 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA was principally for the same reasons as the change in operating income for the six months ended June 30, 2021.
Integrated Networks - Group B
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group B | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue | | $ | 234,637 | | | | | $ | 211,105 | | | | | $ | 23,532 | | | 11.1 | % |
Operating expenses | | | | | | | | | | | | |
Cost of services sold | | 135,101 | | | 57.6 | % | | 129,303 | | | 61.3 | % | | 5,798 | | | 4.5 | % |
Office and general expenses | | 50,179 | | | 21.4 | % | | 45,816 | | | 21.7 | % | | 4,363 | | | 9.5 | % |
Depreciation and amortization | | 7,246 | | | 3.1 | % | | 8,913 | | | 4.2 | % | | (1,667) | | | (18.7) | % |
Impairment and other losses | | 875 | | | 0.4 | % | | 17,629 | | | 8.4 | % | | (16,754) | | | (95.0) | % |
| | $ | 193,401 | | | 82.4 | % | | $ | 201,661 | | | 95.5 | % | | $ | (8,260) | | | (4.1) | % |
Operating income | | $ | 41,236 | | | 17.6 | % | | $ | 9,444 | | | 4.5 | % | | $ | 31,792 | | | NM |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 52,413 | | | 22.3 | % | | $ | 33,523 | | | 15.9 | % | | $ | 18,890 | | | 56.3 | % |
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was primarily attributable to the increase in revenue and lower operating expense.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Integrated Networks - Group B | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 21,631 | | | 9.2 | % | | $ | 22,100 | | | 10.5 | % | | $ | (469) | | | (2.1) | % |
Staff costs | | 137,425 | | | 58.6 | % | | 129,190 | | | 61.2 | % | | 8,235 | | | 6.4 | % |
Administrative | | 23,710 | | | 10.1 | % | | 26,292 | | | 12.5 | % | | (2,582) | | | (9.8) | % |
Deferred acquisition consideration | | 177 | | | 0.1 | % | | (4,109) | | | (1.9) | % | | 4,286 | | | NM |
Stock-based compensation | | 2,337 | | | 1.0 | % | | 1,646 | | | 0.8 | % | | 691 | | | 42.0 | % |
Depreciation and amortization | | 7,246 | | | 3.1 | % | | 8,913 | | | 4.2 | % | | (1,667) | | | (18.7) | % |
Impairment and other losses | | 875 | | | 0.4 | % | | 17,629 | | | 8.4 | % | | (16,754) | | | (95.0) | % |
Total operating expenses | | $ | 193,401 | | | 82.4 | % | | $ | 201,661 | | | 95.5 | % | | $ | (8,260) | | | (4.1) | % |
The increase in staff costs was attributable to support the growth in revenues in the second quarter of 2021.
The change in deferred acquisition consideration for the six months ended June 30, 2021 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA was principally for the same reasons as the increase in operating income for the six months ended June 30, 2021.
Media & Data Network
The change in expenses, operating income (loss) and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change | |
Media & Data Network | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % | |
| | (Dollars in Thousands) | |
Revenue | | $ | 74,300 | | | | | $ | 69,609 | | | | | $ | 4,691 | | | 6.7 | % | |
Operating expenses | | | | | | | | | | | | | |
Cost of services sold | | 48,864 | | | 65.8 | % | | 50,788 | | | 73.0 | % | | (1,924) | | | (3.8) | % | |
Office and general expenses | | 16,063 | | | 21.6 | % | | 16,508 | | | 23.7 | % | | (445) | | | (2.7) | % | |
Depreciation and amortization | | 929 | | | 1.3 | % | | 1,615 | | | 2.3 | % | | (686) | | | (42.5) | % | |
Impairment and other losses | | — | | | — | % | | 35 | | | 0.1 | % | | (35) | | | (100.0) | % | |
| | $ | 65,856 | | | 88.6 | % | | $ | 68,946 | | | 99.0 | % | | $ | (3,090) | | | (4.5) | % | |
Operating income | | $ | 8,444 | | | 11.4 | % | | $ | 663 | | | 1.0 | % | | $ | 7,781 | | | NM | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 11,976 | | | 16.1 | % | | $ | 2,679 | | | 3.8 | % | | $ | 9,297 | | | NM | |
The increase in revenue was primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The increase in operating income was primarily attributable to the increase in revenue and lower operating expense.
The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
Media & Data Network | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 11,792 | | | 15.9 | % | | $ | 18,684 | | | 26.8 | % | | $ | (6,892) | | | (36.9) | % |
Staff costs | | 42,063 | | | 56.6 | % | | 37,313 | | | 53.6 | % | | 4,750 | | | 12.7 | % |
Administrative | | 10,886 | | | 14.7 | % | | 10,933 | | | 15.7 | % | | (47) | | | (0.4) | % |
Deferred acquisition consideration | | 102 | | | 0.1 | % | | 375 | | | 0.5 | % | | (273) | | | (72.8) | % |
Stock-based compensation | | 84 | | | 0.1 | % | | (9) | | | — | % | | 93 | | | NM |
Depreciation and amortization | | 929 | | | 1.3 | % | | 1,615 | | | 2.3 | % | | (686) | | | (42.5) | % |
Impairment and other losses | | — | | | — | % | | 35 | | | 0.1 | % | | (35) | | | (100.0) | % |
Total operating expenses | | $ | 65,856 | | | 88.6 | % | | $ | 68,946 | | | 99.0 | % | | $ | (3,090) | | | (4.5) | % |
Direct costs declined, while total revenue increased, in connection with the mix of revenue period-over-period where the agency is principal versus agent in the arrangement.
The increase in staff costs was attributable to support the growth in revenues in the second quarter of 2021.
The increase in Adjusted EBITDA was principally for the same reasons as the increase in operating income.
All Other
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the All Other category for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
All Other | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Revenue | | $ | 123,883 | | | | | $ | 133,349 | | | | | $ | (9,466) | | | (7.1) | % |
Operating expenses | | | | | | | | | | | | |
Cost of services sold | | 81,310 | | | 65.6 | % | | 92,517 | | | 69.4 | % | | (11,207) | | | (12.1) | % |
Office and general expenses | | 28,891 | | | 23.3 | % | | 23,981 | | | 18.0 | % | | 4,910 | | | 20.5 | % |
Depreciation and amortization | | 2,989 | | | 2.4 | % | | 3,801 | | | 2.9 | % | | (812) | | | (21.4) | % |
Impairment and other losses | | — | | | — | % | | 208 | | | 0.2 | % | | (208) | | | (100.0) | % |
| | $ | 113,190 | | | 91.4 | % | | $ | 120,507 | | | 90.4 | % | | $ | (7,317) | | | (6.1) | % |
Operating income | | $ | 10,693 | | | 8.6 | % | | $ | 12,842 | | | 9.6 | % | | $ | (2,149) | | | (16.7) | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Adjusted EBITDA | | $ | 14,273 | | | 11.5 | % | | $ | 16,788 | | | 12.6 | % | | $ | (2,515) | | | (15.0) | % |
The decline in revenue was primarily attributable to the experiential marketing business which was significantly impacted by the COVID-19 pandemic. While the experiential marketing business began to recover in the second quarter and reflected revenue growth, the decline in the first quarter more than offset such growth.
The decrease in operating income was 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 All Other category for the six months ended June 30, 2021 and 2020 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2021 | | 2020 | | Change |
All Other | | $ | | % of Revenue | | $ | | % of Revenue | | $ | | % |
| | (Dollars in Thousands) |
Direct costs | | $ | 19,686 | | | 15.9 | % | | $ | 26,920 | | | 20.2 | % | | $ | (7,234) | | | (26.9) | % |
Staff costs | | 74,353 | | | 60.0 | % | | 76,415 | | | 57.3 | % | | (2,062) | | | (2.7) | % |
Administrative | | 16,108 | | | 13.0 | % | | 13,226 | | | 9.9 | % | | 2,882 | | | 21.8 | % |
Deferred acquisition consideration | | (188) | | | (0.2) | % | | (261) | | | (0.2) | % | | 73 | | | (28.0) | % |
Stock-based compensation | | 242 | | | 0.2 | % | | 198 | | | 0.1 | % | | 44 | | | 22.2 | % |
Depreciation and amortization | | 2,989 | | | 2.4 | % | | 3,801 | | | 2.9 | % | | (812) | | | (21.4) | % |
Impairment and other losses | | — | | | — | % | | 208 | | | 0.2 | % | | (208) | | | (100.0) | % |
Total operating expenses | | $ | 113,190 | | | 91.4 | % | | $ | 120,507 | | | 90.4 | % | | $ | (7,317) | | | (6.1) | % |
Direct costs declined in connection with the reduction in revenues as discussed above.
The decline in Adjusted EBITDA was principally for the same reasons as the reduction in operating income.
Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the six months ended June 30, 2021 and 2020 was as follows:
| | | | Six Months Ended June 30, |
| | 2021 | | 2020 | | Change |
| 2022 | | 2021 | | Change |
Corporate | | $ | | $ | | $ | | % | |
| | | (Dollars in Thousands) |
| | | (Dollars in Thousands) | | $ | | % |
Staff costs | Staff costs | | $ | 15,574 | | | $ | 8,690 | | | $ | 6,884 | | | 79.2 | % | Staff costs | $ | 15,719 | | | $ | 3,147 | | | $ | 12,572 | | | NM |
Administrative | | 6,627 | | | 9,456 | | | (2,829) | | | (29.9) | % | |
Administrative costs | | Administrative costs | 8,752 | | | (2,021) | | | 10,773 | | | NM |
Unbillable and other costs, net | | Unbillable and other costs, net | — | | | 9 | | | (9) | | | (100.0) | % |
Adjusted EBITDA | | Adjusted EBITDA | (24,471) | | | (1,135) | | | (23,336) | | | NM |
Stock-based compensation | Stock-based compensation | | 1,184 | | | 418 | | | 766 | | | NM | Stock-based compensation | 4,773 | | | — | | | 4,773 | | | 100.0 | % |
Depreciation and amortization | Depreciation and amortization | | 2,401 | | | 468 | | | 1,933 | | | NM | Depreciation and amortization | 3,391 | | | 971 | | | 2,420 | | | NM |
Impairment and other losses | | — | | | 1,129 | | | (1,129) | | | (100.0) | % | |
Total operating expenses | | $ | 25,786 | | | $ | 20,161 | | | $ | 5,625 | | | 27.9 | % | |
| Adjusted EBITDA | | $ | (16,160) | | | $ | (10,770) | | | $ | (5,390) | | | 50.0 | % | |
Other items, net | | Other items, net | 2,797 | | | 3,545 | | | (748) | | | (21.1) | % |
Operating Loss | | Operating Loss | $ | (35,432) | | | $ | (5,651) | | | $ | (29,781) | | | NM |
Operating expenses increased primarily due to higher costs for employee health benefits and depreciation expense in connection with the Company’s new headquarters, partially offset by lower administrative costsacquisition of MDC, including professional fees associated with the transaction. In addition, stock-based compensation expense increased, primarily driven by lower occupancy costs.
Adjusted EBITDA was impacted principally forawards issued to employees in the same reasonsfirst quarter of 2022 as well as awards issued in connection with the change in operating expenses.
merger with MDC.
Liquidity and Capital Resources:
Liquidity
The following table provides summary information about the Company’s liquidity position:
| | | | | | | | | | | | | | |
| June 30, 2021 | | June 30, 2020 | |
| (Dollars in Thousands) | |
Net cash provided by (used in) operating activities | $ | 10,409 | | | $ | (33,681) | | |
Net cash provided by (used in) investing activities | $ | (9,574) | | | $ | 14,643 | | |
Net cash provided by (used in) financing activities | $ | 46,898 | | | $ | (1,434) | | |
| | | | | | | | | | | |
| June 30, 2022 | | June 30, 2021 |
| (Dollars in Thousands) |
Net cash (used in) provided by operating activities | $ | (107,271) | | | $ | 39,218 | |
Net cash used in investing activities | $ | (54,937) | | | $ | (7,288) | |
Net cash provided by (used in) financing activities | $ | 65,206 | | | $ | (52,710) | |
We continue to monitor the impact on our liquidity from worldwide public health threat, government actionsevents such as the COVID-19 pandemic and evolving strains of COVID-19, as well as the military conflict between Russia and Ukraine, which we do not expect to combat COVID-19 and the impact such developments may have a material adverse effect on our liquidity. If the impactimpacts of either of the pandemic isaforementioned events are beyond our expectation, the Company believes it isexpectations, we believe we are well positioned through the actions implemented at the beginning of the pandemic to successfully work through the effects of COVID-19such impacts for the foreseeable future.
The Company had cash and cash equivalents of $108.3$93.4 million and $60.8$184.0 million as of June 30, 20212022 and December 31, 2020,2021, respectively. The Company intendsexpects 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,revolving credit agreement, and other initiatives, such as obtaining additional debt and equity financing. At June 30, 2021,2022, the Company had $88.6$298.0 million of borrowings outstanding, $24.4 million of outstanding and $103.4undrawn letters of credit resulting in $177.6 million available under the Credit Agreement.
See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s plan to redeem its Senior Notes and termination of its$500.0 million revolving credit agreement in connection with the closing of the Transactions and the plan to refinance the liquidity position of the combined company.agreement.
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, purchases of noncontrolling interests, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s Senior Notes.5.625% Notes and Combined Credit Agreement. The Company expects to make estimated cash payments in the future to satisfy obligations under the Tax Receivables Agreement (see Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional details). The amount and timing of payments are contingent on the Company achieving certain tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (defined in Note 11 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein) for shares of the Company’s Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to the Company making payments under the TRA. 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,revolving credit agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months. The Company’s ability to make scheduled deferred acquisition payments, principal and interest payments, to refinance indebtedness or to fund planned capital expenditures or other obligations 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 2020this Form 10-K10-Q and in the Company’s other SEC filings.
On March 23, 2022, the board of directors authorized a stock repurchase program (the “Repurchase Program”) under which we may repurchase up to $125,000 of shares of our outstanding Class A common stock. The Repurchase Program will expire on March 23, 2025.
Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices (including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Exchange Act), in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice. Our board of directors will review the Repurchase Program periodically and may authorize adjustments of its terms.
As of June 30, 2022, there were 1,981 shares of Class A Common Stock repurchased under the Repurchase Program at an aggregate value, excluding fees, of $14,841. These were purchased at an average share price of $7.49 per share. The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $110,119 as of June 30, 2022.
Cash Flows
Operating Activities
Cash flows used in operating activities for the six months ended June 30, 2022 were $107.3 million, primarily driven by earnings, more than offset by unfavorable working capital requirements, including the timing of media supplier payments.
Cash flows provided by operating activities for the six months ended June 30, 2021 were $10.4$39.2 million, primarily reflectingdriven by earnings, and favorablepartially offset by unfavorable working capital requirements.
Investing Activities
Cash flows used in operatinginvesting activities were $54.9 million for the six months ended June 30, 20202022, primarily driven by $38.3 million in acquisitions and $14.5 million in capital expenditures.
Cash flows used in investing activities were $33.7$7.3 million for the six months ended June 30, 2021, driven by capital expenditures.
Financing Activities
During the six months ended June 30, 2022, cash flows provided by financing activities were $65.2 million, primarily reflecting unfavorable working capital requirements, driven by media$187.5 million in net borrowings under the Combined Credit Agreement (as defined below), partially offset primarily by $52.4 million of deferred acquisition consideration payments, $36.5 million of distributions to noncontrolling interests, $14.8 million in stock repurchases under the Repurchase Program, and other supplier payments.
Investing Activities$14.9 million related to shares acquired and cancelled in connection with the vesting of stock awards.
During the six months ended June 30, 2021, cash flows used in investing activities were $9.6 million, which was primarily due to capital expenditures of $15.4 million, primarily related to the Company’s new headquarters at One World Trade Center, partially offset by receipt of $7.1 million of deferred proceeds from the sale of the Company’s equity interest in a Partner Firm in the first quarter of 2020.
During the six months ended June 30, 2020, cash flows provided by investing activities were $14.6 million, which primarily consisted of proceeds of $19.6 million from the sale of the Company’s equity interest in a Partner Firm, partially offset by $3.7 million of capital expenditures and $0.7 million paid for acquisitions.
Financing Activities
During the six months ended June 30, 2021, cash flows provided by financing activities were $46.9was $52.7 million, which primarily consisted of $88.6driven by $15.5 million in net borrowingspayments under the Credit Agreement, offset by $20.3revolving credit agreement and distributions of $37.2 million in distributions to minority interest holders and $21.4 million in deferred acquisition consideration payments.
During the six months ended June 30, 2020, cash flows used in financing activities was $1.4 million, driven by $62.5 million in net borrowings under the Credit Agreement, offset by $30.9 million in deferred acquisition consideration payments, $22.0 million for a portion of the Senior Notes repurchased and $11.1 million in distributions for minority interests.Stagwell Media.
Total Debt
Debt, net of debt issuance costs, as of June 30, 20212022 was $935.1$1,381.6 million as compared to $843.2$1,191.6 million outstanding at December 31, 2020. The increase of $91.9 million in debt was primarily a result of the Company’s borrowings under the Credit Agreement.2021. See Note 7 of the Notes8 to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding the Company’s Senior5.625% Notes (as defined therein) and $211.5restated credit agreement (the “Combined Credit Agreement”), which provides for a $500.0 million senior secured revolving credit agreement due February 3, 2022 (the “Credit Agreement”).facility with a five-year maturity.
The Company is currently in compliance with all of the terms and conditions of the Combined 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,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.
On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to SOFR. Borrowings pursuant to the Combined Credit Agreement, as amended, bear interest at a rate equal to, at the Company’s option, (i) the greatest of (a) the prime rate of interest in effect on such day, (b) the federal funds effective rate plus 0.50% and (c) SOFR plus 1% in each case, plus the applicable margin (calculated based on the Company’s Total Leverage Ratio, as defined in the Combined Credit Agreement) at that time. Additionally, the Combined Credit Agreement was amended to remove certain pre-commencement notice provisions for certain acquisitions under $50,000 in the aggregate, increased the amount permitted for certain investments allowed under the Combined Credit Agreement, and, subject to certain conditions, to allow for the repurchase of Stagwell Inc. stock in an amount not to exceed $100,000 in any fiscal year. All other substantive terms of the Credit Agreement remain unchanged.
Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) total 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 specificallymaintain a Total Leverage Ratio (as defined in the Combined Credit Agreement) below a threshold established in the Combined Credit Agreement. For the period ended June 30, 2021,2022, the Company’s calculation of each of these covenants,this ratio, and the specific requirementsmaximum permitted under the Combined Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:
| | | | | |
| June 30, 20212022 |
Total Senior Leverage Ratio | 0.183.27 | |
Maximum per covenant | 2.00 | |
| |
Total Leverage Ratio | 4.14 | |
Maximum per covenant | 5.50 | |
| |
Fixed Charges Ratio | 2.44 | |
Minimum per covenant | 1.00 | |
| |
Earnings before interest, taxes, depreciation and amortization (in millions) | $ | 220.1 | |
Minimum per covenant (in millions) | $ | 120.04.50 | |
These ratios and measures are not based on GAAP 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 Combined Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Combined Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.
Contractual Obligations and Other Commercial CommitmentsMaterial Cash Requirements
The Company’s agenciesAgencies enter into contractual commitments with media providers and agreements with production companies on behalf of 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 and Accruals and other liabilities when the media services are delivered by the media providers. MDCStagwell takes precautions against default on payment for these services and has historically had a very low incidence of default. MDCStagwell 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.
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.payments. See Note 56 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 89 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding noncontrolling interests and redeemable noncontrolling interests.
The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the revolving Combined Credit Agreement (and(or any refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity. The ultimate amount payable 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.
Critical Accounting Policies
See the Company’s 20202021 Form 10-K for information regarding the Company’s critical accounting policies.
Website Access to Company Reports and Information
Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. Stagwell Inc.’s Internet website address is www.stagwellglobal.com. The Company’s Annual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q and current reportsCurrent 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 Company announces material information foundto the public through a variety of means, including filings with the SEC, press releases, public conference calls, and its website. The Company uses these channels, as well as social media, including its Twitter account (@stagwell) and its LinkedIn page (https://www.linkedin.com/company/stagwell/), to communicate with investors and the public about the Company, its products and services, and other matters. Therefore, investors, the media, and others interested in the Company are encouraged to review the information the Company makes public in these locations, as such information could be deemed to be material information. Information on or otherwise accessiblethat can be accessed through the Company’s websitewebsites or these social media channels is not incorporated into, and does not form a part of this quarterly report on Form 10-Q. From time to time,10-Q, and the Company may use itsinclusion of the Company’s website as a channel of distribution of material company information.addresses and social media channels are inactive textual references only.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
TheIn the normal course of business, the Company is exposed to market risk related to interest rates, foreign currencies and impairment risk.
Debt Instruments: At June 30, 2021,2022, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the Senior5.625% Notes. The Senior5.625% Notes bear a fixed 7.50%5.625% interest rate. The Credit Agreementrevolving credit agreement bears interest at variable rates based upon the Euro rate, U.S. bank prime rateSecured Overnight Financing Rate (“SOFR”), EURIBOR, and U.S. base rate, atSONIA depending on the Company’s option.duration of the borrowing product. 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 $88.6 million in borrowings under
On April 28, 2022, the Company amended its Credit Agreement, as of June 30, 2021,Agreement. This amendment replaced references to LIBOR with references to SOFR. With regard to our variable rate debt, a 1.0%10% increase or decrease in the weighted average interest rate, which was 4.28% at June 30, 2021,rates would have annot be material to our interest impact of approximately $0.9 million.expense or cash flows.
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 2020audited consolidated financial statements included in the 2021 Form 10-K. For the most part, revenues and expenses incurred related to the non-U.S. operations are denominated in their functional currency. This minimizesreduces 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 earningsincome (loss). 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 $2.1 million.
Impairment Risk: At June 30, 2021,2022, the Company had goodwilldid not have any impairment of $671.5 million.goodwill. The Company reviews goodwill 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 “Management's Discussion and Analysis of Financial Condition and Results of
Operations” of the Company’s 20202021 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 RuleRules 13a-15(e) and 15(d)-15(e)15d-15(e) of the Exchange Act. Based on that evaluation, and in light of the material weaknesses identified in our internal control over financial reporting as disclosed in our Form 10-K for the fiscal year ended December 31, 2021, our CEO and CFO concluded that, as of June 30, 2022, our disclosure controls and procedures arewere not effective as of June 30, 2021.
at a reasonable assurance level. Changes in Internal Control Over Financial Reporting
The Company identified material weaknesses in its internal controls over financial reporting as of December 31, 2021 as described in its 2021 Form 10-K. We have given considerationare continuing to the impact of COVID-19formulate our remediation plan to enhance and have concluded that there have been no changes inimprove our internal controls over financial reporting, that have materially affected, orwhich includes the hiring of third-party consultants and additional staff to assist in the design and implementation of new control activities, enhancing existing control activities and assessing the size and structure of our staff. Given we are reasonably likelyperforming a finance transformation, which involves a phased deployment of new ERP and HRIS systems and a shared service platform while we are performing the measures noted above, the remediation plan is expected to materially affect, ourcontinue through the end of the first quarter of 2023 with the goal of having the system of internal control over financial reporting.controls designed and in operation as of March 31, 2023. However, the material weaknesses will not be considered remediated as of March 31, 2023 as the system of internal controls will need to operate for a sufficient period of time and be subject to testing by management in 2023 in order to conclude the system of internal controls is operating effectively. The Company will provide an update on the progress of its remediation plan throughout the fiscal year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not currently expect that these proceedings will have a material adverse effect on our results of operations, cash flows or financial position.
Item 1A. Risk Factors
There have been no material changes to the risk factors in Part I, Item 1A “Risk Factors” of our Annual Report on2021 Form 10-K for the year ended December 31, 2020.10-K. These risks could materially and adversely affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject include the factors listed under “Note About Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the three months ended June 30, 2021,2022, the Company issued 2,193,986210,653 shares of Class A sharesCommon Stock in transactions exempt from registration under Section 4(a)(2) of the Securities ActAct. Of these, 31,257 shares of 1933,Class A Common Stock were granted to employees as amended. Theseinducement for employment, and 179,396 shares of Class A Common Stock were issued as payment to members of management of two subsidiaries for acquisitions by the Company of additional interests in the majority-owned subsidiaries. The Company received no cash proceeds and no commissions were paid to any person in connection with the issuance of the shares.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
ForOn March 23, 2022, the three months ended June 30, 2021,board of directors authorized a stock repurchase program (the “Repurchase Program”) under which we may repurchase up to $125,000,000 of shares of our outstanding Class A common stock. The Repurchase Program will expire on March 23, 2025. Under the CompanyRepurchase Program, share repurchases may be made noat our discretion from time to time in open market purchasestransactions at prevailing market prices (including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Exchange Act), in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice. Our board of directors will review the Repurchase Program periodically and may authorize adjustments of its Class A shares or its Class B shares.terms. Pursuant to its Combined Credit Agreement and the indenture governing the Senior5.625% Notes, the Company is currently limited as to the dollar amountvalue of shares it may repurchase in the open market.
For the three months ended June 30, 2021, the Company’s employees surrendered Class A shares in connection with the required tax withholding resulting from the vesting of restricted stock. The Company paid these withholding taxes on behalf of the related employees. These Class A shares were subsequently retired and no longer remain outstanding as of June 30, 2021. The following table details thoseour monthly shares withheldrepurchased during the second quarter of 2021:2022:
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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 |
4/1/2021 - 4/30/2021 | | 6,416 | | | $ | 7.55 | | | — | | | — | |
5/1/2021 - 5/31/2021 | | — | | | — | | | — | | | — | |
6/1/2021 - 6/30/2021 | | 38,458 | | | 3.97 | | | — | | | — | |
Total | | 44,874 | | | $ | 5.76 | | | — | | | — | |
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Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program |
4/1/2022 - 4/30/2022 | | — | | | $ | — | | | — | | | $ | 125,000,000 | |
5/1/2022 - 5/31/2022 | | 963,568 | | | 7.40 | | | 963,568 | | | 117,847,505 | |
6/1/2022 - 6/30/2022 | | 1,017,820 | | | 7.66 | | | 1,017,820 | | | 110,119,330 | |
Total | | 1,981,388 | | | $ | 7.53 | | | 1,981,388 | | | $ | 110,119,330 | |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
Item 6. Exhibits
The exhibits required by this item are listed on the Exhibit Index.
EXHIBIT INDEX
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Exhibit No. | | Description |
| | Registrant’sSecond Amended and Restated Certificate of Incorporation (incorporatedof Stagwell Inc., as amended(incorporated by reference to Exhibit 3.1 to the Registrant’sCompany’s Form 8-K10-K filed on August 2, 2021)March 17, 2022). |
| | Registrant’sAmended and Restated Bylaws of Stagwell Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed on August 2, 2021). |
| | Stagwell Inc. Second Supplemental Indenture, dated as of January 13, 2021, among the Company, the Note Guarantors party theretoAmended and the Bank of New York Mellon, as trusteeRestated 2016 Stock Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on January 13, 2021. |
| | Third Supplemental Indenture, dated as of February 8, 2021, among the Company, the Note Guarantors party thereto and the Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.14.3 to the Company’s Form 8-KS-8 filed on February 9, 2021)June 14, 2022). |
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| | Goldman LetterAmended and Restated Credit Agreement, dated as of April 21,August 2, 2021, byas amended, among Stagwell Marketing Group LLC, Stagwell Global LLC , Maxxcom LLC, the other Borrowers and among MDC Partners Inc.other Loan Parties party thereto, the Lenders and other parties party thereto, and JPMorgan Chase Bank, N.A., Broad Street Principal Investments, L.L.C., Stonebridge 2017, L.P. and Stonebridge 2017 Offshore, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Amendment No. 2 to Registration Statement on Form S-4 filed on April 21, 2021).as Administrative Agent. |
| | 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.* |
| | 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.* |
| | Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
| | Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
101 | | Interactive Data File, for the period ended March 31, 2021.June 30, 2022. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.* |
104 | | Cover Page Interactive Data File. The cover page XBRL tags are embedded within the inline XBRL document and are included in Exhibit 101.* |
* Filed electronically herewith.
** Furnished herewith
† Indicates management contract or compensatory plan.
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.
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STAGWELL INC. |
|
/s/ Mark Penn |
Mark Penn |
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
August 5, 20212022 |
| |
/s/ Frank Lanuto |
Frank Lanuto |
Chief Financial Officer (Principal Financial Officer) |
August 5, 20212022 |
| |