Exhibit 99.2
FOR IMMEDIATE ISSUE
FOR: | MDC Partners Inc. | CONTACT: | Erica Bartsch |
| 745 Fifth Avenue, 19th Floor | | Sloane & Company |
| New York, NY 10151 | | 212-446-1875 |
| | | IR@mdc-partners.com |
MDC PARTNERS INC. REPORTS RESULTS FOR THE
THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2018
COMPLETION OF CEO SEARCH AND STRATEGIC REVIEW:
| • | Mark Penn named CEO of MDC Partners |
| • | The Stagwell Group invests $100 million in common and preferred stock |
| • | MDC Partners separately sells its interest in subsidiary firm Kingsdale Advisors |
| • | MDC Partners entered into an amendment to the existing senior secured revolving credit facility with Wells Fargo Bank |
FOURTH QUARTER 2018 HIGHLIGHTS:
| • | Revenue of $393.7 million versus $402.7 million a year ago; excluding the impact of ASC 606 (see details below), revenue was $406.1 million, an increase of 0.8% versus a year ago. |
| • | Organic revenue decrease of 0.3% |
| • | Net loss attributable to MDC Partners common shareholders of $83.7 million versus income of $187.4 million a year ago; excluding the impact of ASC 606, Net loss attributable to MDC Partners common shareholders was $84.5 million |
| • | Adjusted EBITDA of $52.0 million versus $66.8 million a year ago; excluding the impact of ASC 606, Adjusted EBITDA was $50.1 million |
| • | Net New Business wins totaled $26.4 million |
FULL YEAR 2018 HIGHLIGHTS:
| • | Revenue of $1.48 billion versus $1.51 billion a year ago; excluding the impact of ASC 606, revenue was $1.53 billion, an increase of 0.9% versus a year ago |
| • | Organic revenue increase of 0.1% |
| • | Net loss attributable to MDC Partners common shareholders was $132.1 million versus income of $205.6 million for the prior year; excluding the impact of ASC 606, net loss attributable to MDC Partners common shareholders was $139.0 million |
| • | Adjusted EBITDA was $162.6 million versus $203.5 million for the prior year; excluding the impact of the adoption of ASC 606, Adjusted EBITDA was $151.8 million |
| • | Covenant EBITDA was $183.1 million |
| • | Net New Business wins totaled $76.1 million |
New York, NY, March 15, 2019 (NASDAQ: MDCA)- MDC Partners Inc. (“MDC Partners” or the “Company”) today announced financial results for the three and twelve months ended December 31, 2018.
David Doft, Chief Financial Officer of MDC Partners, said, “We are very pleased to welcome Mark Penn as our new CEO and The Stagwell Group as a strategic investor. The capital invested by Stagwell will provide the Company with greater resources to invest behind its growth strategy while at the same time bolstering its balance sheet to the benefit of shareholders. Stagwell’s investment at a premium to our current stock price illustrates the underlying value of our business, their confidence in our agencies and people as well as a clear view of the growth opportunities ahead.”
“We made important strides in strengthening our business in 2018, including the fourth quarter, in which we delivered our highest level of net new business wins in two years. The streamlining of costs and refocusing of go-to-market strategies across several of our agencies also sets the Company up for improved performance in 2019.”
Mark Penn Named CEO; The Stagwell Group Invests $100 million
The Company announced today that it has entered into an agreement with The Stagwell Group (“Stagwell”) pursuant to which Stagwell, a media investment fund, has invested $100 million in MDC Partners through the purchase of $50 million in MDC common shares and $50 million non-voting convertible preference shares. In connection with the closing of the transaction, industry veteran Mark Penn will join MDC Partners as Chief Executive Officer and as a member of its Board of Directors.
“I have admired MDC for a long time and believe wholeheartedly in its mission,” said Mr. Penn. “MDC is home to some of the world’s best creative and strategic talent; strategists with a deep understanding of the way technology and media solutions address the needs of today’s modern marketer. Its agencies share a healthy entrepreneurial culture and the network as a whole is steeped in untapped potential. I am eager to begin applying not only our investment and resources, but also a plan based on my expertise, towards growth and the creation of significant value for our shareholders.”
The Stagwell Group has purchased 14,285,714 Class A shares of the Company (the “Class A Shares”) for $50 million, or $3.50 per share, which represents an 18% premium to the 30-day average closing price of $2.96 per share. In addition, the Stagwell Group has purchased $50 million of convertible preferred shares with a $5.00 conversion price (the “Preference Shares”). Following the transaction, the Stagwell Group owns approximately 19.5% of the outstanding common equity of the Company. Assuming the full conversion of the Preference Shares into the Company’s Class A shares, the Stagwell Group will own approximately 29.2% of the outstanding equity of the Company. Assuming conversion of both the Stagwell Group Preference Shares and the currently outstanding Goldman Sachs preference shares which were issued in 2017, the Stagwell Group will own approximately 24.8% of the outstanding equity of the Company. The Preference Shares have a liquidation preference that accretes at a rate of 8.0% per annum, compounded quarterly until conversion on the five-year anniversary of the issuance date of the Preference Shares.
MDC Partners expects to use the net proceeds from the investment to pay down existing debt under the Company’s credit facility and for general corporate purposes.
Sale of Kingsdale
The Company also announced today that it has sold its interest in shareholder advisory and proxy solicitation firm Kingsdale Advisors to Kingsdale Executive Chairman and Founder, Wes Hall, in exchange for cash plus the assumption of certain liabilities totaling approximately $50 million in aggregate. MDC Partners will continue its engagement of Kingsdale as its proxy solicitation advisor.
Bank Amendment
On March 12, 2019, MDC Partners and Maxxcom Inc. (a subsidiary of the Company) and each of their subsidiary parties entered into an amendment (the “Amendment”) to the existing senior secured revolving credit facility, dated as of May 3, 2016 with Wells Fargo Bank. The Amendment provides financial covenant relief by increasing the total leverage ratio applicable on each testing date after the Amendment Effective Date through the period ending December 31, 2020 from 5.5:1.0 to 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will revert to 5.5:1.0. The Amendment also provides, the modification of certain restrictive covenants in the Credit Agreement to provide the Company with increased flexibility regarding the ability to repurchase outstanding debt and/or notes.
Pursuant to its rights under the credit facility, the Company has elected to reduce the aggregate maximum amount of revolving commitments provided by the lenders under the credit facility to $250 million.
Adoption of ASC 606
Effective January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). In accordance with the new revenue accounting standard, we were required to change certain aspects of our accounting policy as it relates to performance incentives, non-refundable retainer fees, and certain third-party pass-through and out-of-pocket costs. ASC 606 was applied using the modified retrospective method, with the cumulative effect of the initial adoption being recognized as an adjustment to opening retained earnings at January 1, 2018 for contracts that were not completed as of that date, and with all subsequent periods reported under the new policy. Comparative prior periods have not been restated and continue to be reported under the historical accounting standards and policies in effect for those periods.
As a result of the adoption of ASC 606, our fourth quarter and year-to-date 2018 financial performance is not directly comparable with last year. We have therefore provided additional disclosure to assist investors in reconciling the two accounting standards, including updating the definition of the Non-GAAP metric Organic Revenue to exclude the impact of the change in accounting standard and providing additional schedules which show the impact of the adoption of ASC 606 on our GAAP and Non-GAAP performance metrics. See schedules 2 and 3.
Fourth Quarter and Full Year 2018 Financial Results
Revenue for the fourth quarter of 2018 was $393.7 million, a decline of 2.3%, compared to $402.7 million for the fourth quarter of 2017. The decline in revenue was primarily due to the adoption of ASC 606, which reduced revenue by $12.5 million, or 3.1%. Excluding the impact of ASC 606, revenue was $406.1 million, an increase of 0.8% versus a year ago. The effect of foreign exchange was negative 1.2%, the impact of non-GAAP acquisitions (dispositions), net was positive 2.4%, and organic revenue declined 0.3%. There was a positive 305 basis-point impact on organic revenue growth from billable pass-through costs incurred on clients’ behalf from certain of our partner firms acting as principal. Net New Business wins for the fourth quarter of 2018 totaled $26.4 million.
Net loss attributable to MDC Partners common shareholders for the fourth quarter of 2018 was $83.7 million versus net income of $187.4 million for the fourth quarter of 2017. Excluding the impact of ASC 606, net loss attributable to MDC Partners common shareholders was $84.5 million. The net loss is largely attributable to a goodwill and other asset impairment charge of $56.7 million and the recognition of a valuation allowance resulting in income tax expense on the pretax loss. Diluted loss per share attributable to MDC Partners common shareholders for the fourth quarter of 2018 was a loss of $1.46 versus diluted income per share of $3.30 for the fourth quarter of 2017. The impact of the adoption of ASC 606 was a reduction in net loss attributable to MDC Partners common shareholders of $0.8 million, or $0.02 per share.
Adjusted EBITDA for the fourth quarter of 2018 was $52.0 million versus $66.8 million for the fourth quarter of 2017. The impact of the adoption of ASC 606 was $1.8 million. Excluding the impact of the adoption of ASC 606, Adjusted EBITDA was $50.1 million with margins of 12.3%. (see schedules 4 and 10).
Revenue for the twelve months of 2018 was $1.48 billion, a decline of 2.5%, compared to $1.51 billion for the twelve months of 2017. The decline in revenue was primarily due the adoption of ASC 606, which reduced revenue by $51.6 million, or 3.4%. Excluding the impact of ASC 606, revenue was $1.53 billion, an increase of 0.9% versus a year ago. The impact of non-GAAP acquisitions (dispositions), net was positive 0.9%, and organic revenue increase was 0.1%. Organic revenue growth was favorably impacted by 203 basis points from increased billable pass-through costs incurred on clients’ behalf from certain of our partner firms acting as principal. Net New Business wins for the twelve months of 2018 totaled $76.1 million.
Net loss attributable to MDC Partners common shareholders for the twelve months of 2018 was $132.1 million versus income of $205.6 million for the twelve months of 2017. Excluding the impact of ASC 606, net loss attributable to MDC Partners common shareholders was $139.0 million. The net loss is largely attributable to the decline in revenue, a goodwill and other asset impairment charge of $80.1 million, a foreign exchange loss of $23.3 million and from the recognition of a valuation allowance resulting in income tax expense on the pretax loss. Diluted loss per share attributable to MDC Partners common shareholders for the twelve months of 2018 was $2.31 versus diluted income per share of $3.71 for the twelve months of 2017. The impact of the adoption of ASC 606 was a reduction in net loss attributable to MDC Partners common shareholders of $6.9 million, or $0.12 per share.
Adjusted EBITDA for the twelve months of 2018 was $162.6 million versus $203.5 million for the twelve months of 2017. The impact of the adoption of ASC 606 was $10.7 million. Excluding the impact of the adoption of ASC 606, Adjusted EBITDA was $151.8 million with margins of 9.9%.
Conference Call
Management will host a conference call on Friday, March 15, 2019, at 8:30 a.m. (ET) to discuss results. The conference call will be accessible by dialing 1-412-902-4266 or toll free 1-888-346-6216. An investor presentation has been posted on our website at www.mdc-partners.com and may be referred to during the conference call.
A recording of the conference call will be available one hour after the call until 12:00 a.m. (ET), March 22, 2019, by dialing 1-412-317-0088 or toll free 1-877-344-7529 (passcode 10129581), or by visiting our website at www.mdc-partners.com.
About MDC Partners Inc.
MDC Partners is one of the most influential marketing and communications networks in the world. As "The Place Where Great Talent Lives," MDC Partners is celebrated for its innovative advertising, public relations, branding, digital, social and event marketing agency partners, which are responsible for some of the most memorable and effective campaigns for the world's most respected brands. By leveraging technology, data analytics, insights and strategic consulting solutions, MDC Partners drives creative excellence, business growth and measurable return on marketing investment for over 1,700 clients worldwide. For more information about MDC Partners and its partner firms, visit our website atwww.mdc-partners.com and follow us on Twitter athttp://www.twitter.com/mdcpartners.
Non-GAAP Financial Measures
In addition to its reported results, MDC Partners has included in this earnings release certain financial results that the Securities and Exchange Commission defines as "non-GAAP financial measures." Management believes that such non-GAAP financial measures, when read in conjunction with the Company's reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company's results. Such non-GAAP financial measures include the following:
(1) Organic Revenue: “Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth, excluding the impact of adopting ASC 606. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP acquisitions (dispositions), net”. Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.
(2) Net New Business: Estimate of annualized revenue for new wins less annualized revenue for losses incurred in the period.
(3) Adjusted EBITDA: Adjusted EBITDA is a non-GAAP measure that represents operating profit plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items.
(4) Covenant EBITDA: Covenant EBITDA is a measure that includes pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. We believe that the presentation of Covenant EBITDA is appropriate as it eliminates the effect of certain non-cash and other items not necessarily indicative of a company’s underlying operating performance. In addition, the presentation of Covenant EBITDA provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the Credit Agreement.
Included in this earnings release are tables reconciling MDC Partners’ reported results to arrive at certain of these non-GAAP financial measures.
This press release contains forward-looking statements. Statements in this press release that are not historical facts, including without limitation statements about the Company’s beliefs and expectations, earnings guidance, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as “estimates”, “expects”, “contemplates”, “will”, “anticipates”, “projects”, “plans”, “intends”, “believes”, “forecasts”, “may”, “should”, and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
| • | risks associated with severe effects of international, national and regional economic conditions; |
| • | the Company’s ability to attract new clients and retain existing clients; |
| • | the spending patterns and financial success of the Company’s clients; |
| • | the Company’s ability to retain and attract key employees; |
| • | the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration; |
| • | the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; and |
| • | foreign currency fluctuations |
Investors should carefully consider these risk factors and the additional risk factors outlined in more detail in the Company’s Annual Report on Form 10-K under the caption “Risk Factors” and in the Company’s other SEC filings.
SCHEDULE 1
MDC PARTNERS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(US$ in 000s, except per Share Amounts)
| | Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | 2018(1) | | | 2017 | | | 2018(1) | | | 2017 | |
Revenue: | | | | | | | | | | | | |
Services | | $ | 393,662 | | | $ | 402,747 | | | $ | 1,476,203 | | | $ | 1,513,779 | |
Operating expenses: | | | | | | | | | | | | | | | | |
Cost of services sold | | | 256,088 | | | | 268,673 | | | | 991,198 | | | | 1,023,476 | |
Office and general expenses | | | 78,919 | | | | 59,142 | | | | 349,056 | | | | 310,455 | |
Depreciation and amortization | | | 10,984 | | | | 10,558 | | | | 46,196 | | | | 43,474 | |
Goodwill and other asset impairment | | | 56,732 | | | | 4,415 | | | | 80,057 | | | | 4,415 | |
| | | 402,723 | | | | 342,788 | | | | 1,466,507 | | | | 1,381,820 | |
Operating income (loss) | | | (9,061 | ) | | | 59,959 | | | | 9,696 | | | | 131,959 | |
| | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | |
Interest expense and finance charges, net | | | (17,070 | ) | | | (16,055 | ) | | | (67,075 | ) | | | (64,364 | ) |
Foreign exchange gain (loss) | | | (13,324 | ) | | | (660 | ) | | | (23,258 | ) | | | 18,137 | |
Other income, net | | | (992 | ) | | | 2,331 | | | | 230 | | | | 1,346 | |
| | | (31,386 | ) | | | (14,384 | ) | | | (90,103 | ) | | | (44,881 | ) |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | | | (40,447 | ) | | | 45,575 | | | | (80,407 | ) | | | 87,078 | |
Income tax expense (benefit) | | | 34,970 | | | | (185,723 | ) | | | 31,603 | | | | (168,064 | ) |
Income (loss) before equity in earnings of non-consolidated affiliates | | | (75,417 | ) | | | 231,298 | | | | (112,010 | ) | | | 255,142 | |
Equity in earnings (losses) of non-consolidated affiliates | | | (296 | ) | | | 157 | | | | 62 | | | | 2,081 | |
Net income (loss) | | | (75,713 | ) | | | 231,455 | | | | (111,948 | ) | | | 257,223 | |
Net income attributable to the noncontrolling interests | | | (5,885 | ) | | | (8,787 | ) | | | (11,785 | ) | | | (15,375 | ) |
Net income (loss) attributable to MDC Partners Inc. | | | (81,598 | ) | | | 222,668 | | | | (123,733 | ) | | | 241,848 | |
Accretion on and net income allocated to convertible preference shares | | | (2,151 | ) | | | (35,254 | ) | | | (8,355 | ) | | | (6,352 | ) |
Net income (loss) attributable to MDC Partners Inc. common shareholders | | $ | (83,749 | ) | | $ | 187,414 | | | $ | (132,088 | ) | | $ | 235,496 | |
| | | | | | | | | | | | | | | | |
Income (loss) per common share: | | | | | | | | | | | | | | | | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | | $ | (1.46 | ) | | $ | 3.33 | | | $ | (2.31 | ) | | $ | 3.72 | |
| | | | | | | | | | | | | | | | |
Diluted: | | | | | | | | | | | | | | | | |
Net income (loss) attributable to MDC Partners Inc. common shareholders | | $ | (1.46 | ) | | $ | 3.30 | | | $ | (2.31 | ) | | $ | 3.71 | |
| | | | | | | | | | | | | | | | |
Weighted Average Number of Common Shares Outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 57,519,286 | | | | 56,356,265 | | | | 57,218,994 | | | | 55,255,797 | |
Diluted | | | 57,519,286 | | | | 56,793,442 | | | | 57,218,994 | | | | 55,481,786 | |
(1) Effective January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers” (ASC 606). ASC 606 was applied using the modified retrospective method, with the cumulative effect of the initial adoption being recognized as an adjustment to opening retained earnings at January 1, 2018. As a result, comparative prior periods have not been adjusted and continue to be reported under ASC 605 "Revenue Recognition" (ASC 605). See Schedule 2 in this release, for the impact of the adoption of ASC 606, as required, on the consolidated statement of operations for the three and twelve months ended December 31, 2018.
SCHEDULE 2
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF COMPONENTS OF NON-GAAP MEASURES
(US$ in 000s, except percentages)
| | Three Months Ended December 31, 2018 | | | For the Twelve Months Ended December 31, 2018 | |
| | As Reported | | | Adjustments | | | Adjusted to Exclude the Impact of Adoption of ASC 606 | | | As Reported | | | Adjustments | | | Adjusted to Exclude the Impact of Adoption of ASC 606 | |
| | | | | | | | | | | | | | | | | | |
Revenue | | $ | 393,662 | | | $ | 12,459 | | | $ | 406,121 | | | $ | 1,476,203 | | | $ | 51,636 | | | $ | 1,527,839 | |
Cost of services sold | | | 256,088 | | | | 14,275 | | | | 270,363 | | | | 991,198 | | | | 62,358 | | | | 1,053,556 | |
Operating profit (loss) | | | (9,061 | ) | | | (1,815 | ) | | | (10,876 | ) | | | 9,696 | | | | (10,722 | ) | | | (1,026 | ) |
Net loss attributable to MDC Partners Inc. common shareholders | | | (83,749 | ) | | | (798 | ) | | | (84,547 | ) | | | (132,088 | ) | | | (6,883 | ) | | | (138,971 | ) |
Loss per common share - basic and diluted | | | (1.46 | ) | | | (0.02 | ) | | | (1.48 | ) | | | (2.31 | ) | | | 0.12 | | | | (2.43 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Organic revenue growth | | | (0.3 | )% | | | - | | | | (0.3 | )% | | | 0.1 | % | | | - | | | | 0.1 | % |
Adjusted EBITDA | | $ | 51,959 | | | $ | (1,815 | ) | | $ | 50,144 | | | $ | 162,566 | | | $ | (10,722 | ) | | $ | 151,844 | |
margin | | | 13.2 | % | | | | | | | 12.3 | % | | | 11.0 | % | | | | | | | 9.9 | % |
* The table above summarizes the impact of the adoption of ASC 606 on our US GAAP and non-GAAP performance metrics.
Note: Actuals may not foot due to rounding
SCHEDULE 3
MDC PARTNERS INC.
UNAUDITED REVENUE RECONCILIATION
(US$ in 000s, except percentages)
| | Three Months Ended | | | Twelve Months Ended | |
| | Revenue $ | | | % Change | | | Revenue $ | | | % Change | |
December 31, 2017 as reported under ASC 605 | | $ | 402,747 | | | | | | | $ | 1,513,779 | | | | | |
| | | | | | | | | | | | | | | | |
Organic revenue growth (decline)(1) | | | (1,282 | ) | | | (0.3 | )% | | | 879 | | | | 0.1 | % |
Non-GAAP acquisitions (dispositions), net | | | 9,578 | | | | 2.4 | % | | | 13,644 | | | | 0.9 | % |
Foreign exchange impact | | | (4,922 | ) | | | (1.2 | )% | | | (463 | ) | | | — | % |
Impact of adoption of ASC 606(2) | | | (12,459 | ) | | | (3.1 | )% | | | (51,636 | ) | | | (3.4 | )% |
Total change | | | (9,085 | ) | | | (2.3 | )% | | | (37,576 | ) | | | (2.5 | )% |
| | | | | | | | | | | | | | | | |
December 31, 2018 as reported under ASC 606 | | $ | 393,662 | | | | | | | $ | 1,476,203 | | | | | |
| (1) | “Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth, excluding the impact of adopting ASC 606. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms which the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP acquisitions (dispositions), net”. Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year. |
| (2) | In accordance with the adoption of ASC 606, we were required to change certain aspects of our revenue recognition accounting policy as it relates to performance incentives, retainer fees, and certain third-party pass-through and out-of-pocket costs. Under the prior guidelines, performance incentives were recognized in revenue when specific quantitative goals were achieved, or when the Company's performance against qualitative goals was determined by the client. Under ASC 606, the Company now estimates the amount of the incentive that will be earned at the inception of the contract and recognizes such incentive over the term of the contract. Additionally, previously, fees for non-refundable retainers were generally recognized on a straight-line basis over the term of the specific customer arrangement. Under ASC 606, an input method is typically used to measure progress and recognize revenue for these types of arrangements. Finally, the adoption of ASC 606 resulted in certain client arrangements previously being accounted for as principal, now being accounted for as agent. In these instances, certain third-party pass-through and out-of-pocket costs which were billed to clients in connection with services being provided, are no longer included in revenue and therefore the revenue recorded is equal to the net amount retained. |
Note: Actuals may not foot due to rounding
SCHEDULE 4
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Three months ended December 31, 2018, as reported under ASC 606
| | | Global | | Domestic | | | | | | | | | | | |
| Advertising and | | Integrated | | Creative | | Specialized | | Media | | | | | | | |
| Communications | | Agencies | | Agencies | | Communications | | Services | | All Other | | Corporate | | Total | |
Revenue | $ | 393,662 | | $ | 188,512 | | $ | 26,560 | | $ | 49,341 | | $ | 36,293 | | $ | 92,956 | | $ | - | | $ | 393,662 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | | | | | | | | | | | | $ | (83,749 | ) |
Adjustments to reconcile to Operating income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Accretion on and net income allocated to convertible preference shares | | | | | | | | | | | | | | | | | | | | | | | 2,151 | |
Net income attributable to the noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | 5,885 | |
Equity in losses of non-consolidated affiliates | | | | | | | | | | | | | | | | | | | | | | | 296 | |
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | 34,970 | |
Interest expense and finance charges, net | | | | | | | | | | | | | | | | | | | | | | | 17,070 | |
Foreign exchange loss | | | | | | | | | | | | | | | | | | | | | | | 13,324 | |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | 992 | |
Operating income (loss) | $ | 860 | | $ | 38,771 | | $ | 4,101 | | $ | 4,158 | | $ | (51,604 | ) | $ | 5,434 | | $ | (9,921 | ) | $ | (9,061 | ) |
margin | | 0.2 | % | | 20.6 | % | | 15.4 | % | | 8.4 | % | | (142.2 | )% | | 5.8 | % | | | | | (2.3 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | |
Additional adjustments to reconcile to Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 10,805 | | | 5,072 | | | 398 | | | 1,089 | | | 804 | | | 3,442 | | | 179 | | | 10,984 | |
Goodwill and other asset impairment | | 56,732 | | | - | | | - | | | - | | | 52,041 | | | 4,691 | | | - | | | 56,732 | |
Stock-based compensation | | 964 | | | 29 | | | 155 | | | 172 | | | 36 | | | 572 | | | 570 | | | 1,534 | |
Deferred acquisition consideration adjustments | | (8,979 | ) | | (8,123 | ) | | - | | | (228 | ) | | 135 | | | (763 | ) | | - | | | (8,979 | ) |
Distributions from non-consolidated affiliates(2) | | - | | | - | | | - | | | - | | | - | | | - | | | 270 | | | 270 | |
Other items, net(3) | | - | | | - | | | - | | | - | | | - | | | - | | | 479 | | | 479 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(1) | $ | 60,382 | | $ | 35,749 | | $ | 4,654 | | $ | 5,191 | | $ | 1,412 | | $ | 13,376 | | $ | (8,423 | ) | $ | 51,959 | |
margin | | 15.3 | % | | 19.0 | % | | 17.5 | % | | 10.5 | % | | 3.9 | % | | 14.4 | % | | | | | 13.2 | % |
| (1) | Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, goodwill and other asset impairment, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items. |
| (2) | 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). |
| (3) | Other items, net includes severance expense and other restructuring expenses, legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims. See Schedule 10 for a reconciliation of amounts. |
SCHEDULE 5
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND COVENANT EBITDA
(US$ in 000s, except percentages)
For the Twelve months ended December 31, 2018, as reported under ASC 606
| | | Global | | Domestic | | | | | | | | | | | |
| Advertising and | | Integrated | | Creative | | Specialized | | Media | | | | | | | |
| Communications | | Agencies | | Agencies | | Communications | | Services | | All Other | | Corporate | | Total | |
Revenue | $ | 1,476,203 | | $ | 698,872 | | $ | 102,063 | | $ | 179,065 | | $ | 140,753 | | $ | 355,450 | | $ | - | | $ | 1,476,203 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | | | | | | | | | | | | $ | (132,088 | ) |
Adjustments to reconcile to Operating income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Accretion on and net income allocated to convertible preference shares | | | | | | | | | | | | | | | | | | | | | | | 8,355 | |
Net income attributable to the noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | 11,785 | |
Equity in losses of non-consolidated affiliates | | | | | | | | | | | | | | | | | | | | | | | (62 | ) |
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | 31,603 | |
Interest expense and finance charges, net | | | | | | | | | | | | | | | | | | | | | | | 67,075 | |
Foreign exchange loss | | | | | | | | | | | | | | | | | | | | | | | 23,258 | |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | (230 | ) |
Operating income (loss) | $ | 64,853 | | $ | 44,868 | | $ | 18,552 | | $ | 18,629 | | $ | (51,196 | ) | $ | 34,000 | | $ | (55,157 | ) | $ | 9,696 | |
margin | | 4.4 | % | | 6.4 | % | | 18.2 | % | | 10.4 | % | | (36.4 | )% | | 9.6 | % | | | | | 0.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Additional adjustments to reconcile to Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 45,434 | | | 23,571 | | | 1,583 | | | 4,252 | | | 3,119 | | | 12,909 | | | 762 | | | 46,196 | |
Goodwill and other asset impairment | | 77,740 | | | 21,008 | | | - | | | - | | | 52,041 | | | 4,691 | | | 2,317 | | | 80,057 | |
Stock-based compensation | | 13,757 | | | 8,521 | | | 1,100 | | | 714 | | | 318 | | | 3,104 | | | 4,659 | | | 18,416 | |
Deferred acquisition consideration adjustments | | (457 | ) | | (5,345 | ) | | - | | | 1,107 | | | 318 | | | 3,463 | | | - | | | (457 | ) |
Distributions from non-consolidated affiliates(2) | | - | | | - | | | - | | | - | | | - | | | - | | | 779 | | | 779 | |
Other items, net(3) | | - | | | - | | | - | | | - | | | - | | | - | | | 7,879 | | | 7,879 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(1) | $ | 201,327 | | $ | 92,623 | | $ | 21,235 | | $ | 24,702 | | $ | 4,600 | | $ | 58,167 | | $ | (38,761 | ) | $ | 162,566 | |
margin | | 13.6 | % | | 13.3 | % | | 20.8 | % | | 13.8 | % | | 3.3 | % | | 16.4 | % | | | | | 11.0 | % |
Covenant EBITDA(4) | | | | | | | | | | | | | | | | | | | | | | $ | 183,146 | |
| (1) | Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, goodwill and other asset impairment, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items. |
| (2) | 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). |
| (3) | Other items, net includes severance expense and other restructuring expenses, legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims. See Schedule 10 for a reconciliation of amounts. |
| (4) | Covenant EBITDA consist of adjusted EBITDA of $162.6 million, plus i) severance for eliminated agency positions of $11.9 million, ii) professional fees of $4.6 million, primarily related to the adoption of ASC 606, iii) proforma acquisition EBITDA of $2.4 million and iv) real estate consolidation costs of $1.6 million. |
SCHEDULE 6
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Three months ended December 31, 2017, as reported under ASC 605
| | | Global | | Domestic | | | | | | | | | | | |
| Advertising and | | Integrated | | Creative | | Specialized | | Media | | | | | | | |
| Communications | | Agencies | | Agencies | | Communications | | Services | | All Other | | Corporate | | Total | |
Revenue | $ | 402,747 | | $ | 212,057 | | $ | 27,092 | | $ | 47,095 | | $ | 44,010 | | $ | 72,493 | | $ | - | | $ | 402,747 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | | | | | | | | | | | | $ | 187,414 | |
Adjustments to reconcile to Operating income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Accretion on and net income allocated to convertible preference shares | | | | | | | | | | | | | | | | | | | | | | | 35,254 | |
Net income attributable to the noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | 8,787 | |
Equity in losses of non-consolidated affiliates | | | �� | | | | | | | | | | | | | | | | | | | | (157 | ) |
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | (185,723 | ) |
Interest expense and finance charges, net | | | | | | | | | | | | | | | | | | | | | | | 16,055 | |
Foreign exchange loss | | | | | | | | | | | | | | | | | | | | | | | 660 | |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | (2,331 | ) |
Operating income (loss) | $ | 71,833 | | $ | 38,618 | | $ | 3,922 | | $ | 7,304 | | $ | 3,957 | | $ | 18,032 | | $ | (11,874 | ) | $ | 59,959 | |
margin | | 17.8 | % | | 18.2 | % | | 14.5 | % | | 15.5 | % | | 9.0 | % | | 24.9 | % | | | | | 14.9 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Additional adjustments to reconcile to Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 10,324 | | | 5,918 | | | 410 | | | 1,057 | | | 820 | | | 2,119 | | | 234 | | | 10,558 | |
Goodwill and other asset impairment | | 3,238 | | | 2,741 | | | - | | | - | | | 497 | | | - | | | 1,177 | | | 4,415 | |
Stock-based compensation | | 6,945 | | | 5,313 | | | 353 | | | 690 | | | 161 | | | 428 | | | 535 | | | 7,480 | |
Deferred acquisition consideration adjustments | | (18,173 | ) | | (7,763 | ) | | - | | | (1,025 | ) | | (1,248 | ) | | (8,137 | ) | | - | | | (18,173 | ) |
Distributions from non-consolidated affiliates(2) | | - | | | - | | | - | | | - | | | - | | | - | | | 2,716 | | | 2,716 | |
Other items, net(3) | | - | | | - | | | - | | | - | | | - | | | - | | | (112 | ) | | (112 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(1) | $ | 74,167 | | $ | 42,086 | | $ | 4,685 | | $ | 8,026 | | $ | 3,690 | | $ | 15,680 | | $ | (7,324 | ) | $ | 66,843 | |
margin | | 18.4 | % | | 19.8 | % | | 17.3 | % | | 17.0 | % | | 8.4 | % | | 21.6 | % | | | | | 16.6 | % |
| (1) | Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, goodwill and other asset impairment, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items. |
| (2) | 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). |
| (3) | Other items, net includes legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims. See Schedule 10 for a reconciliation of amounts. |
Note: Due to changes in the Company’s internal management and reporting structure during 2018, reportable segment results for the 2017 periods presented have been recasted to reflect the reclassification of certain businesses between segments. The changes were as follows: 1) Source Marketing, previously within the All Other category, was included within the Doner operating segment, which is aggregated into the Global Integrated Agencies reportable segment, 2) Yamamoto, previously within the All Other category, was included within the Domestic Creative Agencies reportable segment, and 3) Bruce Mau Design, Hello Design and Northstar Research Partners, previously within the All Other category, and Varick Media Management, previously within the Media Services reportable segment, were included into a newly formed operating segment, Yes & Company, which is aggregated within the Media Services reportable segment.
SCHEDULE 7
MDC PARTNERS INC.
UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(US$ in 000s, except percentages)
For the Twelve months ended December 31, 2017, as reported under ASC 605
| | | Global | | Domestic | | | | | | | | | | | |
| Advertising and | | Integrated | | Creative | | Specialized | | Media | | | | | | | |
| Communications | | Agencies | | Agencies | | Communications | | Services | | All Other | | Corporate | | Total | |
Revenue | $ | 1,513,779 | | $ | 797,347 | | $ | 104,417 | | $ | 172,565 | | $ | 166,216 | | $ | 273,234 | | $ | - | | $ | 1,513,779 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net loss attributable to MDC Partners Inc. common shareholders | | | | | | | | | | | | | | | | | | | | | | $ | 205,594 | |
Adjustments to reconcile to Operating income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Accretion on and net income allocated to convertible preference shares | | | | | | | | | | | | | | | | | | | | | | | 36,254 | |
Net income attributable to the noncontrolling interests | | | | | | | | | | | | | | | | | | | | | | | 15,375 | |
Equity in losses of non-consolidated affiliates | | | | | | | | | | | | | | | | | | | | | | | (2,081 | ) |
Income tax expense | | | | | | | | | | | | | | | | | | | | | | | (168,064 | ) |
Interest expense and finance charges, net | | | | | | | | | | | | | | | | | | | | | | | 64,364 | |
Foreign exchange loss | | | | | | | | | | | | | | | | | | | | | | | (18,137 | ) |
Other income, net | | | | | | | | | | | | | | | | | | | | | | | (1,346 | ) |
Operating income (loss) | $ | 172,815 | | $ | 71,857 | | $ | 19,333 | | $ | 20,728 | | $ | 13,126 | | $ | 47,771 | | $ | (40,856 | ) | $ | 131,959 | |
margin | | 11.4 | % | | 9.0 | % | | 18.5 | % | | 12.0 | % | | 7.9 | % | | 17.5 | % | | | | | 8.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Additional adjustments to reconcile to Adjusted EBITDA: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 42,376 | | | 23,831 | | | 1,582 | | | 4,714 | | | 4,052 | | | 8,197 | | | 1,098 | | | 43,474 | |
Goodwill and other asset impairment | | 3,238 | | | 2,741 | | | - | | | - | | | 497 | | | - | | | 1,177 | | | 4,415 | |
Stock-based compensation | | 22,216 | | | 15,225 | | | 887 | | | 2,954 | | | 656 | | | 2,494 | | | 2,134 | | | 24,350 | |
Deferred acquisition consideration adjustments | | (4,898 | ) | | 4,604 | | | 359 | | | (419 | ) | | (819 | ) | | (8,623 | ) | | - | | | (4,898 | ) |
Distributions from non-consolidated affiliates(2) | | 105 | | | - | | | - | | | 105 | | | - | | | - | | | 3,834 | | | 3,939 | |
Other items, net(3) | | - | | | - | | | - | | | - | | | - | | | - | | | 253 | | | 253 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA(1) | $ | 235,852 | | $ | 115,517 | | $ | 22,161 | | $ | 28,082 | | $ | 17,015 | | $ | 53,077 | | $ | (32,360 | ) | $ | 203,492 | |
margin | | 15.6 | % | | 14.5 | % | | 21.2 | % | | 16.3 | % | | 10.2 | % | | 19.5 | % | | | | | 13.4 | % |
| (1) | Adjusted EBITDA is a non-GAAP measure, but as shown above it represents operating profit (loss) plus depreciation and amortization, goodwill and other asset impairment, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items. |
| (2) | 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). |
| (3) | Other items, net includes legal fees and related expenses, net of insurance proceeds, relating to the SEC investigation and related class action litigation claims. See Schedule 10 for a reconciliation of amounts. |
Note: Due to changes in the Company’s internal management and reporting structure during 2018, reportable segment results for the 2017 periods presented have been recasted to reflect the reclassification of certain businesses between segments. The changes were as follows: 1) Source Marketing, previously within the All Other category, was included within the Doner operating segment, which is aggregated into the Global Integrated Agencies reportable segment, 2) Yamamoto, previously within the All Other category, was included within the Domestic Creative Agencies reportable segment, and 3) Bruce Mau Design, Hello Design and Northstar Research Partners, previously within the All Other category, and Varick Media Management, previously within the Media Services reportable segment, were included into a newly formed operating segment, Yes & Company, which is aggregated within the Media Services reportable segment.
SCHEDULE 8
MDC PARTNERS INC.
UNAUDITTED CONSOLIDATED BALANCE SHEETS
(US$ in 000s)
| | December 31, | | | December 31, | |
| | 2018 | | | 2017 | |
ASSETS | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 30,873 | | | $ | 46,179 | |
Cash held in trusts | | | - | | | | 4,632 | |
Accounts receivable, less allowance for doubtful accounts of $1,879 and $2,453 | | | 395,200 | | | | 434,072 | |
Expenditures billable to clients | | | 42,369 | | | | 31,146 | |
Assets held for sale | | | 78,913 | | | | - | |
Other current assets | | | 42,499 | | | | 26,742 | |
Total current assets | | | 589,854 | | | | 542,771 | |
Fixed assets, at cost, less accumulated depreciation of $128,546 and $123,599 | | | 88,189 | | | | 90,306 | |
Investments in non-consolidated affiliates | | | 6,556 | | | | 6,307 | |
Goodwill | | | 740,955 | | | | 835,935 | |
Other intangible assets, net, less accumulated amortization of $161,868 and $173,546 | | | 67,765 | | | | 70,605 | |
Deferred tax assets | | | 92,741 | | | | 115,325 | |
Other assets | | | 25,513 | | | | 37,643 | |
Total assets | | $ | 1,611,573 | | | $ | 1,698,892 | |
| | | | | | | | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT | | | | | | | | |
Current Liabilities: | | | | | | | | |
Accounts payable | | $ | 221,995 | | | $ | 244,527 | |
Trust liability | | | - | | | | 4,632 | |
Accruals and other liabilities | | | 312,785 | | | | 327,812 | |
Liabilities held for sale | | | 35,967 | | | | - | |
Advance billings | | | 138,505 | | | | 148,133 | |
Current portion of long-term debt | | | 356 | | | | 313 | |
Current portion of deferred acquisition consideration | | | 32,928 | | | | 50,213 | |
Total Current Liabilities | | | 742,536 | | | | 775,630 | |
Long-term debt, less current portion | | | 954,229 | | | | 882,806 | |
Long-term portion of deferred acquisition consideration | | | 50,767 | | | | 72,213 | |
Other liabilities | | | 54,133 | | | | 54,110 | |
Deferred tax liabilities | | | 5,329 | | | | 6,760 | |
Total Liabilities | | | 1,806,994 | | | | 1,791,519 | |
Redeemable noncontrolling interests | | | 51,546 | | | | 62,886 | |
Commitments, Contingencies and Guarantees | | | | | | | | |
Shareholders' Deficit: | | | | | | | | |
Convertible preference shares, 95,000 authorized, issued and outstanding at December 31, 2018 and 2017 | | | 90,123 | | | | 90,220 | |
Common stock and other paid in capital | | | 58,579 | | | | 38,191 | |
Accumulated deficit | | | (464,903 | ) | | | (340,000 | ) |
Accumulated other comprehensive gain (loss) | | | 4,720 | | | | (1,954 | ) |
MDC Partners Inc. shareholders' deficit | | | (311,481 | ) | | | (213,543 | ) |
Noncontrolling interests | | | 64,514 | | | | 58,030 | |
Total Shareholders' Deficit | | | (246,967 | ) | | | (155,513 | ) |
Total liabilities, redeemable noncontrolling interests, and shareholders' deficit | | $ | 1,611,573 | | | $ | 1,698,892 | |
SCHEDULE 9
MDC PARTNERS INC.
UNAUDITTED SUMMARY CASH FLOW DATA
(US$ in 000s)
| | Twelve Months Ended December 31, | |
| | 2018 | | | 2017 | |
| | | | | | |
Net cash provided by operating activities | | $ | 17,280 | | | $ | 71,786 | |
| | | | | | | | |
Net cash used in investing activities | | | (50,431 | ) | | | (20,884 | ) |
| | | | | | | | |
Net cash provided by (used in) financing activities | | | 21,434 | | | | (32,599 | ) |
| | | | | | | | |
Effect of exchange rate changes on cash, cash equivalents and cash held in trusts | | | 77 | | | | (754 | ) |
| | | | | | | | |
Net increase (decrease) in cash, cash equivalents and cash held in trusts including cash classified within assets held | | $ | (11,640 | ) | | $ | 17,549 | |
| | | | | | | | |
Net decrease in cash, cash equivalents and cash held in trusts classified within assets held for sale | | | (8,298 | ) | | | - | |
| | | | | | | | |
Net increase (decrease) in cash, cash equivalents, and cash held in trusts | | $ | (19,938 | ) | | $ | 17,549 | |
Note: Effective January 1, 2018, we adopted ASU 2016-15, "Statement of Cash Flows", which clarifies how cash receipts and cash payments in certain transactions are presented and classified on the statement of cash flows. We applied ASU 2016-15 on a retrospective basis, and accordingly the prior period has been reclassified to conform to the new standard.
SCHEDULE 10
MDC PARTNERS INC.
UNAUDITTED RECONCILIATION OF COMPONENTS OF NON- GAAP MEASURES
(US$ in 000s)
| 2017 | | 2018 | |
| Q1 | | Q2 | | Q3 | | Q4 | | FY | | Q1 | | Q2 | | Q3 | | Q4 | | FY | |
NON-GAAP ACQUISITIONS (DISPOSITIONS), NET | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GAAP revenue from current year acquisitions | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 11,066 | | $ | 12,734 | | $ | 12,317 | | $ | 36,117 | |
GAAP revenue from prior year acquisitions(1) | | 18,552 | | | 24,983 | | | - | | | - | | | 43,535 | | | - | | | - | | | - | | | - | | | - | |
Impact of adoption of ASC 606 exclusion | | - | | | - | | | - | | | - | | | - | | | - | | | 450 | | | (1,122 | ) | | 504 | | | (168 | ) |
Foreign exchange impact | | 1,046 | | | 1,341 | | | - | | | - | | | 2,387 | | | - | | | - | | | - | | | - | | | - | |
Contribution to organic revenue (growth) decline(2) | | 1,470 | | | (6,399 | ) | | - | | | - | | | (4,929 | ) | | - | | | (3,417 | ) | | (945 | ) | | (3,243 | ) | | (7,605 | ) |
Prior year revenue from dispositions(3) | | (691 | ) | | (660 | ) | | (3,153 | ) | | (6,103 | ) | | (10,607 | ) | | (5,261 | ) | | (5,592 | ) | | (3,847 | ) | | - | | | (14,700 | ) |
Non-GAAP acquisitions (dispositions), net | $ | 20,377 | | $ | 19,265 | | $ | (3,153 | ) | $ | (6,103 | ) | $ | 30,386 | | $ | (5,261 | ) | $ | 2,507 | | $ | 6,820 | | $ | 9,578 | | $ | 13,644 | |
| 2017 | | 2018 | |
| Q1 | | Q2 | | Q3 | | Q4 | | FY | | Q1 | | Q2 | | Q3 | | Q4 | | FY | |
OTHER ITEMS, NET | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SEC investigation and class action litigation expenses | $ | 339 | | $ | 382 | | $ | 330 | | $ | 287 | | $ | 1,338 | | $ | 122 | | $ | 235 | | $ | (88 | ) | $ | 131 | | $ | 400 | |
D&O insurance proceeds | | (204 | ) | | (482 | ) | | - | | | (399 | ) | | (1,085 | ) | | - | | | (303 | ) | | (231 | ) | | (24 | ) | | (558 | ) |
Severance and other restructuring expenses | | - | | | - | | | - | | | - | | | - | | | - | | | - | | | 7,665 | | | 372 | | | 8,037 | |
Total other items, net | $ | 135 | | $ | (100 | ) | $ | 330 | | $ | (112 | ) | $ | 253 | | $ | 122 | | $ | (68 | ) | $ | 7,346 | | $ | 479 | | $ | 7,879 | |
| 2017 | | 2018 | |
| Q1 | | Q2 | | Q3 | | Q4 | | FY | | Q1 | | Q2 | | Q3 | | Q4 | | FY | |
CASH INTEREST, NET & OTHER | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash interest paid | $ | (999 | ) | $ | (30,567 | ) | $ | (758 | ) | $ | (30,571 | ) | $ | (62,895 | ) | $ | (649 | ) | $ | (30,765 | ) | $ | (1,597 | ) | $ | (31,001 | ) | $ | (64,012 | ) |
Bond interest accrual adjustment | | (14,625 | ) | | 14,625 | | | (14,625 | ) | | 14,625 | | | - | | | (14,625 | ) | | 14,625 | | | (14,625 | ) | | 14,625 | | | - | |
Adjusted cash interest paid | | (15,624 | ) | | (15,942 | ) | | (15,383 | ) | | (15,946 | ) | | (62,895 | ) | | (15,274 | ) | | (16,140 | ) | | (16,222 | ) | | (16,376 | ) | | (64,012 | ) |
Interest income | | 227 | | | 178 | | | 145 | | | 209 | | | 759 | | | 148 | | | 159 | | | 91 | | | 227 | | | 625 | |
Total cash interest, net & other | $ | (15,397 | ) | $ | (15,764 | ) | $ | (15,238 | ) | $ | (15,737 | ) | $ | (62,136 | ) | $ | (15,126 | ) | $ | (15,981 | ) | $ | (16,131 | ) | $ | (16,149 | ) | $ | (63,387 | ) |
| 2017 | | 2018 | |
| Q1 | | Q2 | | Q3 | | Q4 | | FY | | Q1 | | Q2 | | Q3 | | Q4 | | FY | |
CAPITAL EXPENDITURES, NET | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | $ | (9,413 | ) | $ | (11,743 | ) | $ | (7,149 | ) | $ | (4,653 | ) | $ | (32,958 | ) | $ | (3,799 | ) | $ | (5,890 | ) | $ | (5,543 | ) | $ | (5,032 | ) | $ | (20,264 | ) |
Landlord reimbursements | | 75 | | | 3,146 | | | 1,357 | | | 1,858 | | | 6,436 | | | 219 | | | 851 | | | 291 | | | 442 | | | 1,803 | |
Total capital expenditures, net | $ | (9,338 | ) | $ | (8,597 | ) | $ | (5,792 | ) | $ | (2,795 | ) | $ | (26,522 | ) | $ | (3,580 | ) | $ | (5,039 | ) | $ | (5,252 | ) | $ | (4,590 | ) | $ | (18,461 | ) |
| 2017 | | 2018 | |
| Q1 | | Q2 | | Q3 | | Q4 | | FY | | Q1 | | Q2 | | Q3 | | Q4 | | FY | |
MISCELLANEOUS OTHER DISCLOSURES | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income attributable to the noncontrolling interests | $ | 883 | | $ | 2,214 | | $ | 3,491 | | $ | 8,787 | | $ | 15,375 | | $ | 897 | | $ | 2,545 | | $ | 2,458 | | $ | 5,885 | | $ | 11,785 | |
Cash taxes | $ | 1,293 | | $ | 2,130 | | $ | 3,486 | | $ | 1,190 | | $ | 8,099 | | $ | 1,333 | | $ | 1,293 | | $ | 2,196 | | $ | (986 | ) | $ | 3,836 | |
| (1) | GAAP revenue from prior year acquisitions for 2018 and 2017 relates to acquisitions which occurred in 2017 and 2016, respectively. |
| (2) | Contributions to organic revenue growth (decline) represents the change in revenue, measured on a constant currency basis, relative to the comparable pre-acquisition period for acquired businesses that is included in the Company's organic revenue growth (decline) calculation. |
| (3) | Prior year revenue from dispositions reflects the incremental impact on revenue for the comparable period after the Company's disposition of such disposed business, plus revenue from each business disposed of by the Company in the previous year through the twelve month anniversary of the disposition. |
Note: Actuals may not foot due to rounding.