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 Mark Penn, Chief Executive Officer and Chairman of the Company, our Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics. 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. 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 includes items such as severance expense and other restructuring expenses. 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. The three reportable segments that resulted from our reassessment are as follows: “Integrated Networks - Group A”, “Integrated Networks - Group B”; and “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 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 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. • 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 March 31, 2020 2019 Revenue: Integrated Networks - Group A $ 90,621 $ 73,739 Integrated Networks - Group B 117,707 133,171 Media & Data Network 41,058 43,232 All Other 78,356 78,649 Total $ 327,742 $ 328,791 Adjusted EBITDA: Integrated Networks - Group A $ 16,303 $ 915 Integrated Networks - Group B 17,135 18,280 Media & Data Network 1,787 31 All Other 9,905 6,801 Corporate (5,562 ) (4,552 ) Total Adjusted EBITDA $ 39,568 $ 21,475 Depreciation and amortization $ (9,206 ) $ (8,838 ) Impairment and other losses (161 ) — Stock-based compensation (3,070 ) (2,972 ) Deferred acquisition consideration adjustments 4,600 7,643 Distributions from non-consolidated affiliates 14 — Other items, net (2,416 ) (1,626 ) Total Operating Income $ 29,329 $ 15,682 Other Income (Expenses): Interest expense and finance charges, net $ (15,612 ) $ (16,760 ) Foreign exchange gain (loss) (14,757 ) 5,442 Other, net 16,334 (3,383 ) Income before income taxes and equity in earnings of non-consolidated affiliates 15,294 981 Income tax expense 13,500 748 Income before equity in earnings of non-consolidated affiliates 1,794 233 Equity in earnings of non-consolidated affiliates — 83 Net income 1,794 316 Net income attributable to the noncontrolling interest (791 ) (429 ) Net income (loss) attributable to MDC Partners Inc. $ 1,003 $ (113 ) Three Months Ended March 31, 2020 2019 Depreciation and amortization: Integrated Networks - Group A $ 1,741 $ 1,942 Integrated Networks - Group B 4,526 3,773 Media & Data Network 808 993 All Other 1,899 1,913 Corporate 232 217 Total $ 9,206 $ 8,838 Stock-based compensation: Integrated Networks - Group A $ 1,961 $ 3,595 Integrated Networks - Group B 900 864 Media & Data Network (13 ) — All Other 80 86 Corporate 142 (1,573 ) Total $ 3,070 $ 2,972 Capital expenditures: Integrated Networks - Group A $ 358 $ 1,881 Integrated Networks - Group B 477 1,168 Media & Data Network 86 138 All Other 323 418 Corporate 302 1 Total $ 1,546 $ 3,606 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 three months ended March 31, 2020 and 2019 . | 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 Mark Penn, Chief Executive Officer and Chairman of the Company, our Chief Operating Decision Maker (“CODM”), to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics. 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. 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 includes items such as severance expense and other restructuring expenses. 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. The three reportable segments that resulted from our reassessment are as follows: “Integrated Networks - Group A”, “Integrated Networks - Group B”; and “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 in Note 2 to the Consolidated Financial Statements included herein. • 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 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 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. • 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. Years Ended December 31, 2019 2018 2017 Revenue: Integrated Networks - Group A $ 392,101 $ 393,890 $ 337,104 Integrated Networks - Group B 531,717 551,317 591,630 Media & Data Network 161,451 183,287 200,757 All Other 330,534 346,594 384,288 Total $ 1,415,803 $ 1,475,088 $ 1,513,779 Adjusted EBITDA Integrated Networks - Group A $ 74,822 $ 75,609 $ 69,084 Integrated Networks - Group B 84,568 74,091 91,155 Media & Data Network 7,746 12,205 23,707 All Other 37,618 38,307 51,906 Corporate (30,601 ) (38,761 ) (32,360 ) Total Adjusted EBITDA $ 174,153 $ 161,451 $ 203,492 Depreciation and amortization $ (38,329 ) $ (46,196 ) $ (43,474 ) Goodwill and other impairment (8,599 ) (87,204 ) (5,471 ) Stock compensation expense (31,040 ) (18,416 ) (24,350 ) Deferred acquisition consideration expense/(income) (5,403 ) 457 4,898 Gain/(Loss) on investments (2,048 ) (779 ) (3,939 ) Other expense/(income) (9,274 ) (7,879 ) (253 ) Total Operating Income $ 79,460 $ 1,434 $ 130,903 Other Income (expense): Interest expense and finance charges, net $ (64,942 ) $ (67,075 ) $ (64,364 ) Foreign exchange gain (loss) 8,750 (23,258 ) 18,137 Other, net (2,401 ) 230 1,346 Income (loss) before income taxes and equity in earnings of non-consolidated affiliates 20,867 (88,669 ) 86,022 Income tax expense (benefit) 10,316 29,615 (168,358 ) Income (loss) before equity in earnings of non-consolidated affiliates 10,551 (118,284 ) 254,380 Equity in earnings of non-consolidated affiliates 352 62 2,081 Net income (loss) 10,903 (118,222 ) 256,461 Net income attributable to the noncontrolling interest (16,156 ) (11,785 ) (15,375 ) Net income (loss) attributable to MDC Partners Inc. $ (5,253 ) $ (130,007 ) $ 241,086 Years Ended December 31, 2019 2018 2017 Depreciation and amortization: Integrated Networks - Group A $ 8,559 $ 9,602 $ 8,599 Integrated Networks - Group B 15,904 19,032 14,401 Media & Data Network 4,303 3,820 4,605 All Other 8,695 12,980 14,771 Corporate 868 762 1,098 Total $ 38,329 $ 46,196 $ 43,474 Stock-based compensation: Integrated Networks - Group A $ 24,420 $ 5,792 $ 9,257 Integrated Networks - Group B 4,303 6,890 9,058 Media & Data Network 63 320 643 All Other 374 755 3,258 Corporate 1,880 4,659 2,134 Total $ 31,040 $ 18,416 $ 24,350 Capital expenditures: Integrated Networks - Group A $ 5,934 $ 8,228 $ 10,242 Integrated Networks - Group B 9,270 6,352 15,739 Media & Data Network 627 1,632 4,026 All Other 2,729 3,985 2,928 Corporate 36 67 23 Total $ 18,596 $ 20,264 $ 32,958 A summary of the Company’s long-lived assets, comprised of fixed assets, goodwill and intangibles, net, by geographic region at December 31, is set forth in the following table. United States Canada Other Total Long-lived Assets 2019 $ 68,497 $ 4,475 $ 8,082 $ 81,054 2018 $ 76,781 $ 4,779 $ 6,629 $ 88,189 Goodwill and Intangible Assets 2019 $ 659,584 $ 64,842 $ 62,158 $ 786,584 2018 $ 671,141 $ 61,748 $ 67,628 $ 800,517 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. A summary of the Company’s revenue by geographic region at December 31 is set forth in the following table. United States Canada Other Total Revenue: 2019 $ 1,116,047 $ 105,066 $ 194,690 $ 1,415,803 2018 $ 1,152,055 $ 124,023 $ 199,010 $ 1,475,088 2017 $ 1,172,319 $ 123,138 $ 218,322 $ 1,513,779 |