Segment Information | 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) attributable to MDC Partners Inc. common shareholders plus or minus adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items, net. 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). Other items, net includes items such as severance expense and other restructuring expenses , including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio. Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”). Mr. Penn, appointed key agency executives, that report directly into him, to lead each Network. In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments. See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding a change in reportable segments between the first and second quarter of 2020. The three reportable segments that result from applying the aggregation criteria are as follows: “Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data 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 2019 Form 10-K. • The Integrated Networks - Group A reportable segment is comprised of the Anomaly Alliance (Anomaly, Concentric Partners, Hunter, Mono, Y Media Labs) and Colle McVoy operating segments. • The Integrated Networks - Group B reportable segment is comprised of the Constellation (72andSunny, CPB, Instrument and Redscout) and Doner Partner Network (6degrees, Doner, KWT, Union, Veritas and Yamamoto) operating segments. The operating segments aggregated within the Integrated Networks - Group A and B reportable segments provide a range of services for its 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 compete with each other for new business and from time to time have business move between them. While the operating segments are similar in nature, the distinction between the Integrated Networks - Group A and B is the aggregation of operating segments that have the most similar historical and expected average long-term profitability. • The Media & Data Network reportable segment is comprised of a single operating segment that combines media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast) with technology and data capabilities. The Media & Data Network includes Gale Partners, Kenna, MDC Media and Northstar. • All Other consists of the Company’s remaining operating segments that provide a range of services including advertising, public relations and marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregated in the reportable segments. The All Other category includes Allison & Partners, Bruce Mau, Forsman & Bodenfors, Hello, Team and Vitro. • 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, 2020 2019 2020 2019 Revenue: Integrated Networks - Group A $ 82,735 $ 103,248 $ 173,356 $ 176,987 Integrated Networks - Group B 93,398 133,394 211,105 266,565 Media & Data Network 28,551 39,456 69,609 82,688 All Other 54,994 86,032 133,350 164,681 Total $ 259,678 $ 362,130 $ 587,420 $ 690,921 Adjusted EBITDA: Integrated Networks - Group A $ 17,205 $ 18,241 $ 33,507 $ 19,156 Integrated Networks - Group B 16,387 24,848 33,523 43,128 Media & Data Network 892 1,004 2,679 1,036 All Other 6,885 10,937 16,790 17,737 Corporate (5,208 ) (8,593 ) (10,770 ) (13,146 ) Total Adjusted EBITDA $ 36,161 $ 46,437 $ 75,729 $ 67,911 Depreciation and amortization $ (8,899 ) $ (10,663 ) $ (18,105 ) $ (19,501 ) Impairment and other losses (18,839 ) — (19,000 ) — Stock-based compensation (1,039 ) (3,634 ) (4,109 ) (6,606 ) Deferred acquisition consideration adjustments (2,312 ) (2,073 ) 2,288 5,570 Distributions from non-consolidated affiliates (1,079 ) (31 ) (1,065 ) (31 ) Other items, net (3,895 ) (6,594 ) (6,311 ) (8,220 ) Total Operating Income $ 98 $ 23,442 $ 29,427 $ 39,123 Other Income (Expenses): Interest expense and finance charges, net $ (15,941 ) $ (16,413 ) $ (31,553 ) $ (33,174 ) Foreign exchange gain (loss) 5,342 2,932 (9,415 ) 8,374 Other, net 5,884 (746 ) 22,218 (4,128 ) Income (loss) before income taxes and equity in earnings of non-consolidated affiliates (4,617 ) 9,215 10,677 10,195 Income tax expense (benefit) (7,923 ) 2,088 5,577 2,835 Income before equity in earnings of non-consolidated affiliates 3,306 7,127 5,100 7,360 Equity in earnings (losses) of non-consolidated affiliates (798 ) 206 (798 ) 289 Net income 2,508 7,333 4,302 7,649 Net income attributable to the noncontrolling interest (3,101 ) (3,043 ) (3,892 ) (3,472 ) Net income (loss) attributable to MDC Partners Inc. (593 ) 4,290 410 4,177 Accretion on and net income allocated to convertible preference shares (3,509 ) (3,515 ) (6,949 ) (5,625 ) Net income (loss) attributable to MDC Partners Inc. common shareholders $ (4,102 ) $ 775 $ (6,539 ) $ (1,448 ) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Depreciation and amortization: (Dollars in Thousands) Integrated Networks - Group A $ 1,566 $ 2,348 $ 3,307 $ 4,289 Integrated Networks - Group B 4,387 4,318 8,913 8,092 Media & Data Network 807 1,335 1,615 2,328 All Other 1,903 2,441 3,802 4,354 Corporate 236 221 468 438 Total $ 8,899 $ 10,663 $ 18,105 $ 19,501 Stock-based compensation: Integrated Networks - Group A $ (105 ) $ 639 $ 1,856 $ 4,234 Integrated Networks - Group B 746 1,627 1,646 2,491 Media & Data Network 4 6 (9 ) 6 All Other 118 170 198 256 Corporate 276 1,192 418 (381 ) Total $ 1,039 $ 3,634 $ 4,109 $ 6,606 Capital expenditures: Integrated Networks - Group A $ 208 $ 2,157 $ 566 $ 4,038 Integrated Networks - Group B (272 ) 1,013 205 2,181 Media & Data Network 111 206 197 344 All Other 134 923 457 1,341 Corporate 1,963 18 2,265 19 Total $ 2,144 $ 4,317 $ 3,690 $ 7,923 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 3 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, 2020 and 2019 . |