Quarterly Report (10-q)

Date : 08/07/2019 @ 1:51PM
Source : Edgar (US Regulatory)
Stock : MDC Partners Inc (MDCA)
Quote : 2.52  0.16 (6.78%) @ 12:59AM
After Hours
Last Trade
Last $ 2.52 ◊ 0.00 (0.00%)

Quarterly Report (10-q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
FORM 10-Q
(Mark One)  
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-13718  
MDC Partners Inc.
(Exact name of registrant as specified in its charter)
Canada
 
98-0364441
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer Identification No.)
 
 
 
745 Fifth Avenue
New York, New York
 
10151
(Address of principal executive offices)
 
(Zip Code)
(646) 429-1800
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Subordinate Voting Shares, no par value
MDCA
NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ý   No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   ý No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer  ¨
Accelerated filer  x
Non-accelerated Filer  ¨  
Smaller reporting company  x
Emerging growth company ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨ No   ý
The number of common shares outstanding as of July 19, 2019 was 71,943,994 Class A subordinate voting shares and 3,749 Class B multiple voting shares.




MDC PARTNERS INC.
 
QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
Page
 
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2


PART I. FINANCIAL INFORMATION
Item 1.     Financial Statements
MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of United States dollars, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 

 
 

 
 
 
 
Services
$
362,130

 
$
379,743

 
$
690,921

 
$
706,711

Operating Expenses:
 
 
 
 
 
 
 
Cost of services sold
240,749

 
253,390

 
477,903

 
496,420

Office and general expenses
87,276

 
83,878

 
154,394

 
167,757

Depreciation and amortization
10,663

 
11,703

 
19,501

 
24,078

Other asset impairment

 

 

 
2,317

 
338,688

 
348,971

 
651,798

 
690,572

Operating income
23,442

 
30,772

 
39,123

 
16,139

Other Income (Expenses):
 
 
 
 
 
 
 
Interest expense and finance charges, net
(16,413
)
 
(16,859
)
 
(33,174
)
 
(32,942
)
Foreign exchange gain (loss)
2,932

 
(6,549
)
 
8,374

 
(13,209
)
Other, net
(746
)
 
592

 
(4,128
)
 
1,033

 
(14,227
)
 
(22,816
)
 
(28,928
)
 
(45,118
)
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates
9,215

 
7,956

 
10,195

 
(28,979
)
Income tax expense (benefit)
2,088

 
1,977

 
2,835

 
(6,353
)
Income (loss) before equity in earnings of non-consolidated affiliates
7,127

 
5,979

 
7,360

 
(22,626
)
Equity in earnings (losses) of non-consolidated affiliates
206

 
(28
)
 
289

 
58

Net income (loss)
7,333

 
5,951

 
7,649

 
(22,568
)
Net income attributable to the noncontrolling interest
(3,043
)
 
(2,545
)
 
(3,472
)
 
(3,442
)
Net income (loss) attributable to MDC Partners Inc.
4,290

 
3,406

 
4,177

 
(26,010
)
Accretion on and net income allocated to convertible preference shares
(3,515
)
 
(2,273
)
 
(5,625
)
 
(4,095
)
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
775

 
$
1,133

 
$
(1,448
)
 
$
(30,105
)
Income (loss) Per Common Share:
 

 
 

 
 
 
 
Basic
 

 
 

 
 
 
 
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
0.01

 
$
0.02

 
$
(0.02
)
 
$
(0.53
)
Diluted
 
 
 
 
 
 
 
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
0.01

 
$
0.02

 
$
(0.02
)
 
$
(0.53
)
Weighted Average Number of Common Shares Outstanding:
 

 
 

 
 
 
 
  Basic
71,915,832

 
57,439,823

 
66,118,749

 
56,924,208

  Diluted
72,024,689

 
57,802,872

 
66,118,749

 
56,924,208

Stock-based compensation expense is included in the following line items above:
 

 
 

 
 
 
 
Cost of services sold
$
2,442

 
$
4,047

 
$
6,987

 
$
7,394

Office and general expenses
1,192

 
1,556

 
(381
)
 
3,246

Total
$
3,634

 
$
5,603

 
$
6,606

 
$
10,640

See notes to the Unaudited Condensed Consolidated Financial Statements .

3


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(thousands of United States dollars)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Comprehensive Income (Loss)
 
 
 

 
 
 
 
Net income (loss)
$
7,333

 
$
5,951

 
$
7,649

 
$
(22,568
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of applicable tax:
 

 
 

 
 
 
 
Foreign currency translation adjustment
(1,385
)
 
(1,848
)
 
(6,044
)
 
429

Other comprehensive income (loss)
(1,385
)
 
(1,848
)
 
(6,044
)
 
429

Comprehensive income (loss) for the period
5,948

 
4,103

 
1,605

 
(22,139
)
Comprehensive income attributable to the noncontrolling interests
(3,081
)
 
(1,641
)
 
(3,861
)
 
(1,436
)
Comprehensive income (loss) attributable to MDC Partners Inc.
$
2,867

 
$
2,462

 
$
(2,256
)
 
$
(23,575
)
See notes to the Unaudited Condensed Consolidated Financial Statements .

4


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of United States dollars)
 
June 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash equivalents
$
27,304

 
$
30,873

Accounts receivable, less allowance for doubtful accounts of $2,792 and $1,879
434,512

 
395,200

Expenditures billable to clients
40,605

 
42,369

Assets held for sale

 
78,913

Other current assets
44,815

 
42,499

Total Current Assets
547,236

 
589,854

Fixed assets, at cost, less accumulated depreciation of $141,167 and $128,546
83,950

 
88,189

Right of use assets - operating leases
237,418

 

Investments in non-consolidated affiliates
6,761

 
6,556

Goodwill
743,582

 
740,955

Other intangible assets, net, less accumulated amortization of $168,748 and $161,868
60,848

 
67,765

Deferred tax assets
92,439

 
92,741

Other assets
26,415

 
25,513

Total Assets
$
1,798,649

 
$
1,611,573

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT
 

 
 

Current Liabilities:
 

 
 

Accounts payable
$
228,069

 
$
221,995

Accruals and other liabilities
253,868

 
313,141

Liabilities held for sale

 
35,967

Advance billings
168,142

 
138,505

Current portion of lease liabilities - operating leases
46,338

 

Current portion of deferred acquisition consideration
35,439

 
32,928

Total Current Liabilities
731,856

 
742,536

Long-term debt
914,092

 
954,107

Long-term portion of deferred acquisition consideration
22,804

 
50,767

Long-term lease liabilities - operating leases
233,165

 

Other liabilities
19,503

 
54,255

Deferred tax liabilities
6,571

 
5,329

Total Liabilities
1,927,991

 
1,806,994

Redeemable Noncontrolling Interests
42,635

 
51,546

Commitments, Contingencies, and Guarantees (Note 13)
 
 
 
Shareholders’ Deficit:
 
 
 
Convertible preference shares, 145,000 authorized, issued and outstanding at June 30, 2019 and 95,000 at December 31, 2018
152,746

 
90,123

Common stock and other paid-in capital
97,455

 
58,579

Accumulated deficit
(460,726
)
 
(464,903
)
Accumulated other comprehensive loss (income)
(1,713
)
 
4,720

MDC Partners Inc. Shareholders' Deficit
(212,238
)
 
(311,481
)
Noncontrolling interests
40,261

 
64,514

Total Shareholders' Deficit
(171,977
)
 
(246,967
)
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit
$
1,798,649

 
$
1,611,573

See notes to the Unaudited Condensed Consolidated Financial Statements .

5


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of United States dollars)

 
Six Months Ended June 30,

2019
 
2018
Cash flows from operating activities:
 

 
 

Net income (loss)
$
7,649

 
$
(22,568
)
Adjustments to reconcile net income (loss) to cash used in operating activities:
 
 
 
Stock-based compensation
6,606

 
10,640

Depreciation
12,621

 
14,642

Amortization of intangibles
6,880

 
9,436

Amortization of deferred finance charges and debt discount
1,663

 
1,605

Other asset impairment

 
2,317

Adjustment to deferred acquisition consideration
(5,570
)
 
(2,479
)
Deferred income taxes
2,835

 
(9,494
)
Loss on sale of assets
3,407

 
(955
)
Earnings of non-consolidated affiliates
(289
)
 
(58
)
Other and non-current assets and liabilities
(4,139
)
 
(1,114
)
Foreign exchange
(7,363
)
 
12,128

Changes in working capital:
 
 
 
Accounts receivable
(21,570
)
 
19,181

Expenditures billable to clients
1,763

 
(27,935
)
Prepaid expenses and other current assets
(3,345
)
 
(12,732
)
Accounts payable, accruals and other current liabilities
(66,343
)
 
(60,015
)
Acquisition related payments
(4,376
)
 
(23,894
)
Advance billings
29,334

 
29,582

Net cash used in operating activities
(40,237
)

(61,713
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(7,923
)
 
(9,689
)
Proceeds from sale of assets
23,050

 

Acquisitions, net of cash acquired
(5,130
)
 
(27,299
)
Other investments
(179
)
 
867

Net cash provided by (used in) investing activities
9,818


(36,121
)
Cash flows from financing activities:
 

 
 

Repayment of revolving credit facility
(834,538
)
 
(782,600
)
Proceeds from revolving credit facility
793,940

 
897,844

Proceeds from issuance of common and convertible preference shares, net of issuance costs
98,620

 

Acquisition related payments
(24,219
)
 
(29,172
)
Distributions to noncontrolling interests
(7,957
)
 
(8,927
)
Payment of dividends
(56
)
 
(168
)
Purchase of shares
(78
)
 
(493
)
Other

 
(141
)
Net cash provided by financing activities
25,712


76,343

Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts
4

 
311

Net decrease in cash, cash equivalents, and cash held in trusts including cash classified within assets held for sale
(4,703
)
 
(21,180
)
Change in cash and cash equivalents held in trusts classified within held for sale
(3,307
)
 

Change in cash and cash equivalents classified within assets held for sale
4,441

 

Net decrease in cash and cash equivalents
(3,569
)
 
(21,180
)
Cash and cash equivalents at beginning of period
30,873

 
46,179


6


 
Six Months Ended June 30,

2019
 
2018
Cash and cash equivalents at end of period
$
27,304

 
$
24,999

Supplemental disclosures:
 

 
 

Cash income taxes paid
$
3,494

 
$
2,626

Cash interest paid
$
31,643

 
$
31,414

See notes to the Unaudited Condensed Consolidated Financial Statements .

7


MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(thousands of United States dollars, except share amounts)
 
Three Months Ended
 
June 30, 2019
 
Convertible Preference Shares

Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income

MDC Partners Inc. Shareholders' Deficit

Noncontrolling Interests

Total Shareholder's Deficit
 

 
 
 



(in thousands, except share amounts)
Shares
 
Amount

Shares
 
 
 



Balance at March 31, 2019
145,000

 
$
152,117

 
71,890,021

 
$
98,693

 
$
(465,016
)
 
$
(290
)
 
$
(214,496
)
 
$
40,223

 
$
(174,273
)
Net income attributable to MDC Partners Inc.

 

 

 

 
4,290

 

 
4,290

 

 
4,290

Other comprehensive loss

 

 

 

 

 
(1,423
)
 
(1,423
)
 
38

 
(1,385
)
Issuance of common and convertible preference shares

 
629

 

 
362

 

 

 
991

 

 
991

Issuance of restricted stock

 

 
76,979

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(19,257
)
 
(22
)
 

 

 
(22
)
 

 
(22
)
Stock-based compensation

 

 

 
1,800

 

 

 
1,800

 

 
1,800

Changes in redemption value of redeemable noncontrolling interests

 

 

 
(3,190
)
 

 

 
(3,190
)
 
 
 
(3,190
)
Business acquisitions and step-up transactions, net of tax

 

 

 
(97
)
 

 

 
(97
)
 

 
(97
)
Changes in ownership interest

 

 

 
(91
)
 

 

 
(91
)
 

 
(91
)
Balance at June 30, 2019
145,000

 
$
152,746

 
71,947,743

 
$
97,455

 
$
(460,726
)
 
$
(1,713
)
 
$
(212,238
)
 
$
40,261

 
$
(171,977
)

 
Six Months Ended
 
June 30, 2019
 
Convertible Preference Shares
 
Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
MDC Partners Inc. Shareholders' Deficit
 
Noncontrolling Interests
 
Total Shareholder's Deficit
 
 
 
 
 
 
 
 
(in thousands, except share amounts)
Shares
 
Amount
 
Shares
 
 
 
 
 
 
Balance at December 31, 2018
95,000

 
$
90,123

 
57,521,323

 
$
58,579

 
$
(464,903
)
 
$
4,720

 
$
(311,481
)
 
$
64,514

 
$
(246,967
)
Net income attributable to MDC Partners Inc.

 

 

 

 
4,177

 

 
4,177

 

 
4,177

Other comprehensive loss

 

 

 

 

 
(6,433
)
 
(6,433
)
 
389

 
(6,044
)
Issuance of common and convertible preference shares
50,000

 
62,623

 
14,285,714

 
35,997

 

 

 
98,620

 

 
98,620

Issuance of restricted stock

 

 
193,979

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(53,273
)
 
(78
)
 

 

 
(78
)
 

 
(78
)
Stock-based compensation

 

 

 
509

 

 

 
509

 

 
509

Changes in redemption value of redeemable noncontrolling interests

 

 

 
2,729

 

 

 
2,729

 

 
2,729

Business acquisitions and step-up transactions, net of tax

 

 

 
(97
)
 

 

 
(97
)
 

 
(97
)
Changes in ownership interest

 

 

 
(184
)
 

 

 
(184
)
 
(24,642
)
 
(24,826
)
Balance at June 30, 2019
145,000

 
$
152,746

 
71,947,743

 
$
97,455

 
$
(460,726
)
 
$
(1,713
)
 
$
(212,238
)
 
$
40,261

 
$
(171,977
)




8


 
Three Months Ended
 
June 30, 2018
 
Convertible Preference Shares
 
Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
MDC Partners Inc. Shareholders' Deficit
 
Noncontrolling Interests
 
Total Shareholder's Deficit
 
 
 
 
 
 
 
(in thousands, except share amounts)
Shares
 
Amount
 
Shares
 
 
 
 
 
 
Balance at March 31, 2018
95,000

 
$
90,123

 
56,436,067

 
$
38,412

 
$
(370,586
)
 
$
1,425

 
$
(240,626
)
 
$
50,964

 
$
(189,662
)
Net income attributable to MDC Partners Inc.

 

 

 

 
3,406

 

 
3,406

 

 
3,406

Other comprehensive loss

 

 

 
1

 

 
(944
)
 
(943
)
 
(905
)
 
(1,848
)
Issuance of restricted stock

 

 
12,585

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(6,185
)
 
(39
)
 

 

 
(39
)
 

 
(39
)
Shares issued, acquisitions

 

 
1,011,561

 
7,030

 

 

 
7,030

 

 
7,030

Stock-based compensation

 

 

 
2,107

 

 

 
2,107

 

 
2,107

Changes in redemption value of redeemable noncontrolling interests

 

 

 
(1,687
)
 

 

 
(1,687
)
 

 
(1,687
)
Business acquisitions and step-up transactions, net of tax

 

 

 

 

 

 

 
27,357

 
27,357

Balance at June 30, 2018
95,000

 
$
90,123

 
57,454,028

 
$
45,824

 
$
(367,180
)
 
$
481

 
$
(230,752
)
 
$
77,416

 
$
(153,336
)

 
Six Months Ended
 
June 30, 2018
 
Convertible Preference Shares
 
Common Shares
 
Common Stock and Other Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income
 
MDC Partners Inc. Shareholders' Deficit
 
Noncontrolling Interests
 
Total Shareholder's Deficit
 
 
 
 
 
 
 
(in thousands, except share amounts)
Shares
 
Amount
 
Shares
 
 
 
 
 
 
Balance at December 31, 2017
95,000

 
$
90,220

 
56,375,131

 
$
38,191

 
$
(340,000
)
 
$
(1,954
)
 
$
(213,543
)
 
$
58,030

 
$
(155,513
)
Net loss attributable to MDC Partners Inc.

 

 

 

 
(26,010
)
 

 
(26,010
)
 

 
(26,010
)
Other comprehensive income (loss)

 

 

 

 

 
2,435

 
2,435

 
(2,006
)
 
429

Expenses for convertible preference shares

 
(97
)
 

 

 

 

 
(97
)
 

 
(97
)
Issuance of restricted stock

 

 
122,029

 

 

 

 

 

 

Shares acquired and cancelled

 

 
(54,693
)
 
(493
)
 

 

 
(493
)
 

 
(493
)
Shares issued, acquisitions

 

 
1,011,561

 
7,030

 

 

 
7,030

 

 
7,030

Stock-based compensation

 

 

 
4,324

 

 

 
4,324

 

 
4,324

Changes in redemption value of redeemable noncontrolling interests

 

 

 
(2,062
)
 

 

 
(2,062
)
 

 
(2,062
)
Business acquisitions and step-up transactions, net of tax

 

 

 
(1,166
)
 

 

 
(1,166
)
 
27,357

 
26,191

Changes in ownership interest

 

 

 

 

 

 

 
(5,965
)
 
(5,965
)
Cumulative effect of adoption of ASC 606

 

 

 

 
(1,170
)
 

 
(1,170
)
 

 
(1,170
)
Balance at June 30, 2018
95,000

 
$
90,123

 
57,454,028

 
$
45,824

 
$
(367,180
)
 
$
481

 
$
(230,752
)
 
$
77,416

 
$
(153,336
)

See notes to the Unaudited Condensed Consolidated Financial Statements .

9


MDC PARTNERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(thousands of United States dollars, except per share amounts, unless otherwise stated)
1. Basis of Presentation and Recent Developments
The accompanying consolidated financial statements include the accounts of MDC Partners Inc. (the “Company” or “MDC”), its subsidiaries and variable interest entities for which the Company is the primary beneficiary. References herein to “Partner Firms” generally refer to the Company’s subsidiary agencies.
MDC Partners Inc. has prepared the unaudited condensed consolidated interim financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, the financial statements have been condensed and do not include certain information and disclosures pursuant to these rules. The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”).
The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the prior year financial information to conform to the current year presentation.
Due to changes in the composition of certain business and the Company’s internal management and reporting structure during 2019, reportable segment results for the 2018 periods presented have been recast to reflect the reclassification of certain businesses between segments. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
2. Revenue
The Company’s revenue recognition policies are established in accordance with the Revenue Recognition topics of ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The MDC network provides an extensive range of services to our clients offering a variety of marketing and communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast), public relations services including strategy, editorial, crisis support or issues management, media training, influencer engagement and events management. We also provide media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast), experiential marketing and application/website design and development.
The primary source of the Company’s revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost plus margin.
The determination of our performance obligations is specific to the services included within each contract. Based on a client’s requirements within the contract, and how these services are provided, multiple services could represent separate performance obligations or be combined and considered one performance obligation. Contracts that contain services that are not significantly integrated nor interdependent, nor that significantly modify or customize each other, are considered separate performance obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing services to be separate performance obligations if included in the same contract as each of these services can be provided on a stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website design and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output.
We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation.                                            

10


Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date.
Within each contract, we identify whether the Company is principal or agent at the performance obligation level. In arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other arrangements where a third-party supplier, rather than the Company is primarily responsible for the integration of services into the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client, we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of MDC’s agencies under a production services agreement is to facilitate a client’s purchasing of production capabilities from a third-party production company in accordance with the client’s strategy and guidelines. The obligation of MDC’s agencies under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its media plan. We do not obtain control prior to transferring these services to our clients; therefore, we primarily act as agent for production and media buying services.                                    
A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related to performance incentives as we satisfy the performance obligation to which the performance incentives are related.

Disaggregated Revenue Data
The Company provides a broad range of services to a large base of clients across the full spectrum of industry verticals on a global basis. The primary source of revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Partner Firms. Representation of a client rarely means that MDC handles marketing communications for all brands or product lines of the client in every geographical location. The Company’s Partner firms often cooperate with one another through referrals and the sharing of both services and expertise, which enables MDC to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate, independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing clients across the MDC network.
The following table presents revenue disaggregated by client industry vertical for the three and six months ended June 30, 2019 and 2018 :
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Industry
Reportable Segment
 
2019
 
2018
 
2019
 
2018
Food & Beverage
All
 
$
73,305

 
$
84,464

 
$
139,969

 
$
147,932

Retail
All
 
39,894

 
38,396

 
72,350

 
76,411

Consumer Products
All
 
45,296

 
41,367

 
78,232

 
77,973

Communications
All
 
47,793

 
43,097

 
87,490

 
81,454

Automotive
All
 
18,541

 
25,294

 
36,732

 
45,788

Technology
All
 
28,876

 
23,540

 
54,279

 
45,080

Healthcare
All
 
25,954

 
35,426

 
49,161

 
68,002

Financials
All
 
27,868

 
30,207

 
52,795

 
52,702

Transportation and Travel/Lodging
All
 
27,050

 
18,776

 
44,085

 
33,664

Other
All
 
27,553

 
39,176

 
75,828

 
77,705

 
 
 
$
362,130

 
$
379,743

 
$
690,921

 
$
706,711



11


MDC has historically largely focused where the Company was founded in North America, the largest market for its services in the world. In recent years the Company has expanded its global footprint to support clients looking for help to grow their businesses in new markets. Today, MDC’s Partner Firms are located in the United States, Canada, and an additional twelve countries around the world. In the past, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses.

The following table presents revenue disaggregated by geography for the three and six months ended June 30, 2019 and 2018 :

Three Months Ended June 30,
 
Six Months Ended June 30,
Geographic Location
Reportable Segment
 
2019
 
2018
 
2019
 
2018
United States
All
 
$
284,659

 
$
295,268

 
$
547,676

 
$
551,792

Canada
All, excluding Media Services
 
24,564

 
33,086

 
46,942

 
59,465

Other
All, excluding Media Services and Domestic Creative Agencies
 
52,907

 
51,389

 
96,303

 
95,454

 
 
 
$
362,130

 
$
379,743

 
$
690,921

 
$
706,711





Contract assets and liabilities
Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees were $92,317 and $64,362 at June 30, 2019 and December 31, 2018 , respectively, and are included as a component of accounts receivable on the Unaudited Condensed Consolidated Balance Sheets . Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $40,605 and $42,369 at June 30, 2019 and December 31, 2018 , respectively, and are included on the Unaudited Condensed Consolidated Balance Sheets as expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services.
Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are classified as advance billings on the Company’s Unaudited Condensed Consolidated Balance Sheets . Advance billings at June 30, 2019 and December 31, 2018 were $168,142 and $138,505 , respectively. The increase in the advance billings balance of $29,637 for the six months ended June 30, 2019 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $101,431 of revenues recognized that were included in the advance billings balances as of December 31, 2018 and reductions due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the six months ended June 30, 2019 and December 31, 2018 were not materially impacted by write-offs, impairment losses or any other factors.

12


3. Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted income (loss) per common share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019

2018
 
2019
 
2018
Numerator:
 


 

 
 
 
 
Net income (loss) attributable to MDC Partners Inc.
$
4,290

 
$
3,406

 
$
4,177

 
$
(26,010
)
Accretion on convertible preference shares
(3,242
)

(2,068
)
 
(5,625
)
 
(4,095
)
Net income allocated to convertible preference shares
(273
)
 
(205
)
 

 

Net income (loss) attributable to MDC Partners Inc. common shareholders
$
775


$
1,133

 
$
(1,448
)
 
$
(30,105
)
 
 
 
 
 
 
 
 
Adjustment to net income allocated to convertible preference shares

 
1

 

 

Numerator for dilutive income (loss) per common share:
 
 
 
 
 
 
 
Net income (loss) attributable to MDC Partners Inc. common shareholders
$
775


$
1,134

 
$
(1,448
)
 
$
(30,105
)
Denominator:
 
 
 
 
 
 
 
Basic weighted average number of common shares outstanding
71,915,832


57,439,823

 
66,118,749

 
56,924,208

Effect of dilutive securities:
 
 
 
 
 
 
 
Impact of stock options and non-vested stock under employee stock incentive plans
108,857

 
363,049

 

 

Diluted weighted average number of common shares outstanding
72,024,689


57,802,872

 
66,118,749

 
56,924,208

Basic
$
0.01


$
0.02

 
$
(0.02
)
 
$
(0.53
)
Diluted
$
0.01

 
$
0.02

 
$
(0.02
)
 
$
(0.53
)
Anti-dilutive stock awards 2,662,666 327,500 4,406,206 1,594,761

Restricted stock and restricted stock unit awards of 242,338 and 1,308,781 for the three and six months ended June 30, 2019 and 2018 , respectively, which are contingent upon the Company meeting a cumulative three year earnings target and contingent upon continued employment, are excluded from the computation of diluted income per common share as the contingencies were not satisfied at June 30, 2019 and 2018 , respectively. In addition, there were 145,000 and 95,000 Preference Shares outstanding which were convertible into 25,621,189 and 10,544,708 Class A common shares at June 30, 2019 and 2018 , respectively. These Preference Shares were anti-dilutive for each period presented in the table above and are therefore excluded from the diluted income (loss) per common share calculation.

4. Acquisitions and Dispositions
2019 Acquisition
Effective April 1, 2019, the Company acquired the 35% ownership interest of HPR Partners LLC (Hunter) it did not own for an aggregate purchase price of $9,585 , comprised of a closing cash payment of $3,890 and additional deferred acquisition payments with an estimated present value at the acquisition date of $5,695 . The deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,178 . The fair value was measured using a discounted cash flow model.
As a result of the transaction, the Company reduced redeemable noncontrolling interests by $9,488 . The difference between the purchase price and the noncontrolling interest of $97 was recorded in common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheet.
2019 Disposition
On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City that provides shareholder advisory services. As consideration for the sale, the Company was paid cash plus the assumption of certain liabilities totaling approximately $50 million in the aggregate. The sale resulted in a loss of approximately $3 million , which is included in Other, net within the Unaudited Condensed Consolidated Statement of Operations.


13


Assets and Liabilities Held for Sale - Change in Plan to Sell
In the fourth quarter of 2018, the Company initiated a process to sell its ownership interest in a foreign office within the Global Integrated Agencies reportable segment. The assets and liabilities of the entity were classified as Assets and Liabilities held for sale, at their fair value less cost to sell, within the Consolidated Balance Sheet as of December 31, 2018. In the second quarter of 2019, following the appointment of Mark Penn as Chief Executive Officer, management changed its strategy and plan to sell the foreign office. In connection with management’s decision, the amounts classified within assets and liabilities held for sale were reclassified into the respective line items within the Unaudited Condensed Consolidated Balance Sheet as of June 30, 2019.
2018 Acquisitions
On September 7, 2018, a subsidiary of the Company purchased 100% interests of OneChocolate Communications Limited and OneChocolate Communications LLC, PR (“OneChocolate”) a digital marketing consultancy headquartered in London, UK, for an aggregate purchase price of $3,231 , working capital of $966 and additional deferred acquisition payments with an estimated present value of $2,146 . OneChocolate’s results are reflected in the Allison & Partners operating segment which is included in the Specialist Communications reportable segment which had an immaterial impact on our results.
On July 1, 2018, the Company acquired the remaining 14.87% and 3% of membership interests of Doner Partners, LLC and Source Marketing LLC, respectively, for an aggregate purchase price of $7,618 , comprised of a closing cash payment of $3,279 and additional deferred acquisition payments with an estimated present value of $4,305 as of December 31, 2018. As of the acquisition date, the fair value of the additional interests acquired was $16,361 for Doner Partners LLC. The fair values were measured using a discounted cash flow model. As a result of the transaction, the Company reduced noncontrolling interest by $11,946 and redeemable noncontrolling interest by $933 .
On April 2, 2018, the Company purchased 51% of the membership interests of Instrument LLC (“Instrument”), a digital creative agency based in Portland, Oregon, for an aggregate purchase price of $35,591 . The acquisition is expected to facilitate the Company’s growth and help to build its portfolio of modern, innovative and digital-first agencies. The purchase price consisted of a cash payment of $28,561 and the issuance of 1,011,561 shares of the Company’s Class A subordinate voting stock with an acquisition date fair value of $7,030 . The Company issued these shares in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act.
The purchase price allocation for Instrument resulted in tangible assets of $10,304 , identifiable intangibles of $23,130 , consisting primarily of customer lists and a trade name, and goodwill of $32,776 . In addition, the Company has recorded $27,357 as the fair value of noncontrolling interests, which was derived from the Company’s purchase price less a discount related to the noncontrolling parties’ lack of control. The identified assets have a weighted average useful life of approximately six years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. The goodwill is tax deductible. Instruments’ results are included in the All Other category from a segment reporting perspective. The Company has a controlling financial interest in Instrument through its majority voting interest, and as such, has aggregated the acquired Partner Firm’s financial data into the Company’s Unaudited Condensed Consolidated Financial Statements . The operating results of Instrument in the current year is not material.
Effective January 1, 2018, the Company acquired the remaining 24.5% ownership interest of Allison & Partners LLC for an aggregate purchase price of $10,023 , comprised of a closing cash payment of $300 and additional deferred acquisition payments with an estimated present value at the acquisition date of $9,723 . The deferred payments are based on the future financial results of the underlying business from 2017 to 2020 with final payments due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,096 . The fair value was measured using a discounted cash flow model. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $8,857 . The difference between the purchase price and the noncontrolling interest of $1,166 was recorded in additional paid-in capital.

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

14


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, 2019 and December 31, 2018 .
 
June 30,
 
December 31,
 
2019
 
2018
Beginning Balance of contingent payments
$
82,598

 
$
119,086

Payments
(24,492
)
 
(54,947
)
Redemption value adjustments (1)
(6,100
)
 
3,512

Additions - acquisitions and step up transactions
5,695

 
14,943

Other

 
4

Ending Balance of contingent payments
$
57,701

 
$
82,598

Fixed payments
542

 
1,097

 
$
58,243

 
$
83,695

    
(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within cost of services sold and office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
The following table presents the impact to the Company’s statement of operations due to the redemption value adjustments for the contingent deferred acquisition consideration:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Income (loss) attributable to fair value adjustments
$
2,073

 
$
(5,065
)
 
$
(5,570
)
 
$
(2,479
)
Stock-based compensation
(1,339
)
 
2,321

 
(530
)
 
4,682

Redemption value adjustments
$
734

 
$
(2,744
)
 
$
(6,100
)
 
$
2,203


15


6. Leases

Effective January 1, 2019, the Company adopted FASB ASC Topic 842, Leases (“ASC 842”). As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 840, Leases. See Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the Company’s adoption of ASC 842. The policies described herein refer to those in effect as of January 1, 2019.
The Company leases office space in North America, Europe, Asia, South America, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years 2019 through 2032. Finance leases are considered to be immaterial to the Company.
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 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 assets are reviewed for impairment. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease costs are recognized in the Consolidated Statement of Operations over the lease term on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. 
Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate. Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities. Lease liabilities are not remeasured as a result of changes in the index or rate, rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred. In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other variable operating expenses. Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances on which the variable lease payments are based upon occur.
The Company’s leases include options to extend or renew the lease through 2040. The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option.
From time to time, the Company enters into sublease arrangements both with unrelated third-parties and with our partner agencies. These leases are classified as operating leases and expire between years 2019 through 2023. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Europe and Asia.
As of June 30, 2019, the Company has entered into an operating lease for which the commencement date has not yet occurred as this leased space is in the process of being prepared by the landlord for occupancy. Accordingly, this lease represents an obligation of the Company that is not on the Consolidated Balance Sheet as of June 30, 2019. The aggregate future liability related to the lease is approximately $6 million .
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.

16


The following table presents lease costs and other quantitative information for the three and six months ended June 30, 2019 :

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2019
Lease Cost:
 
 
 
Operating lease cost
$
17,473

 
$
33,914

Variable lease cost
4,361

 
9,325

Sublease rental income
(2,590
)
 
(4,189
)
Total lease cost
$
19,244

 
$
39,050

Additional information:
 
 
 
Cash paid for amounts included in the measurement of lease liabilities for operating leases

 

Operating cash flows
$
19,523

 
$
35,175

 
 
 
 
Right-of-use assets obtained in exchange for operating lease liabilities
$
2,195

 
$
259,013

Weighted average remaining lease term (in years) - Operating leases
7.0

 
7.0

Weighted average discount rate - Operating leases
8.6

 
8.6


Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated Statement of Operations. Lease expense for leases with a term of 12 months or less is immaterial to the Company. Rental expense for the three and six months ended June 30, 2018 was $15,981 and $33,541 , respectively, offset by $926 and $1,640 , respectively in sublease rental income.
 
The following table presents minimum future rental payments under the Company’s leases at June 30, 2019 and their reconciliation to the corresponding lease liabilities:

 
Maturity Analysis
Remaining 2019
$
33,776

2020
66,425

2021
56,428

2022
45,942

2023
42,113

Thereafter
133,823

Total
378,507

Less: Present value discount
(99,004
)
Lease liability
$
279,503


17


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

June 30, 2019

December 31, 2018
Revolving credit agreement
$
27,545

 
$
68,143

6.50% Notes due 2024
900,000

 
900,000

Debt issuance costs
(13,453
)
 
(14,036
)
 
$
914,092

 
$
954,107

6.50% Notes
On March 23, 2016 , MDC entered into an indenture (the “Indenture”) among MDC, its existing and future restricted subsidiaries that guarantee, are co-borrowers under, or grant liens to secure, the Credit Agreement, as guarantors (the “Guarantors”) and The Bank of New York Mellon, as trustee, relating to the issuance by MDC of $900,000 aggregate principal amount of the senior unsecured notes due 2024 (the “6.50% Notes”) . The 6.50% Notes were sold in a private placement in reliance on exceptions from registration under the Securities Act of 1933. The 6.50% Notes bear interest, payable semiannually in arrears on May 1 and November 1, at a rate of 6.50% per annum. The 6.50% Notes mature on May 1, 2024 , unless earlier redeemed or repurchased.
MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, on and after May 1, 2019 , at varying prices based on the timing of the redemption.
The Indenture includes covenants that are subject to a number of important limitations and exceptions. The 6.50% Notes are also subject to customary events of default, including a cross-payment default and cross-acceleration provision. The Company was in compliance with all covenants at June 30, 2019 .
Credit Agreement
The Company is party to a $250,000 secured revolving credit facility due May 3, 2021. The amounts outstanding under the revolving credit facility as of June 30, 2019 and December 31, 2018 are presented in the table above and additional details are provided below.
On March 12, 2019 (the “Amendment Effective Date”), the Company, Maxxcom Inc. (a subsidiary of the Company) (“Maxxcom”) and each of their subsidiaries party thereto entered into an Amendment to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”) and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement.
The Amendment provides financial covenant relief by increasing the total leverage ratio applicable on each testing date after the Amendment Effective Date through the period ending December 31, 2020 from 5.5 :1.0 to 6.25 :1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will revert to 5.5 :1.0.
In connection with the Amendment, the Company reduced the aggregate maximum amount of revolving commitments provided by the lenders under the Credit Agreement to $250 million from $325 million .
Advances under the Credit Agreement bear interest as follows: (a)(i) LIBOR Rate Loans bear interest at the LIBOR Rate and (ii) Base Rate Loans bear interest at the Base Rate, plus (b) an applicable margin. The initial applicable margin for borrowing is 0.75% in the case of Base Rate Loans and 1.50% in the case of LIBOR Rate Loans. In addition to paying interest on outstanding principal under the Credit Agreement, MDC is required to pay an unused revolver fee to lenders under the Credit Agreement in respect of unused commitments thereunder.
The Credit Agreement, which includes financial and non-financial covenants, is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary exceptions and collateralized by a portion of MDC’s outstanding receivable balance. The Company is currently in compliance with all of the terms and conditions of its Credit Agreement.
At June 30, 2019 and December 31, 2018 , the Company had issued undrawn outstanding letters of credit of $4,744 and $4,701 , respectively.


18


8. Share Capital
The authorized and outstanding share capital of the Company is as follows:
Series 6 Convertible Preference Shares
On March 14, 2019 (the “Series 6 Issue Date”), the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell Group LLC (“Stagwell”), pursuant to which Stagwell Holdings agreed to purchase, (i) 14,285,714 newly authorized Class A shares (the “Stagwell Class A Shares”) for an aggregate contractual purchase price of $50,000 and (ii) 50,000 newly authorized Series 6 convertible preference shares (“Series 6 Preference Shares”) for an aggregate contractual purchase price of $50 million . The Company received proceeds of approximately $98,620 , net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. The proceeds allocated to the Stagwell Class A Shares were $35,997 and to Series 6 Preference Shares were $62,623 based on their relative fair value calculated by utilizing a Monte Carlo Simulation model. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.
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 per share preference of each Series 6 Preference Share is $1,000 . The initial Conversion Price is $5.00 per Series 6 Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities.
The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five -year anniversary of the Series 6 Issue Date. During the six months ended June 30, 2019 , the Series 6 Preference Shares accreted at a monthly rate of $6.69, for total accretion of $1,193 , bringing the aggregate liquidation preference to $51,193 as of June 30, 2019 . The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 6 Preference Shares.
Holders of the Series 6 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 6 Preference Shares. The Series 6 Preference Shares are convertible at the Company’s option (i) on and after the two -year anniversary of the Series 6 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.
Following certain change in control transactions of the Company in which holders of Series 6 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7% ), and (ii) the Company will have a right to redeem the Series 6 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.

Effective March 18, 2019, the Company’s Board of Directors (the “Board”) appointed Mark Penn as the Chief Executive Officer and as a director of the Board. Mr. Penn is manager of Stagwell. Effective April 18, 2019, Mr. Penn was also appointed as Chairman of the Board.

Series 4 Convertible Preference Shares
On March 7, 2017 (the “Series 4 Issue Date”), the Company issued 95,000 newly created Preference Shares (“Series 4 Preference Shares”) to affiliates of The Goldman Sachs Group, Inc. (collectively, the “Purchaser”) pursuant to a $95,000 private placement. The Company received proceeds of approximately $90,123 , net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 4 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.
Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion

19


price at such time (the “Conversion Price”). The initial liquidation per share preference of each Series 4 Preference Share is $1,000 . The Conversion Price of a Series 4 Preference Share is subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities. In connection with the anti-dilution protection provision triggered by the issuance of equity securities to Stagwell, 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, 2019 , the Series 4 Preference Shares accreted at a monthly rate of approximately $7.85 per Series 4 Preference Share, for total accretion of $4,432 , bringing the aggregate liquidation preference to $114,139 as of June 30, 2019 . The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 4 Preference Shares.
Holders of the Series 4 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 4 Preference Shares. The Series 4 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Series 4 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.
Following certain change in control transactions of the Company in which holders of Series 4 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7% ), and (ii) the Company will have a right to redeem the Series 4 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.
Class A Common Shares (“Class A Shares”)
An unlimited number of subordinate voting shares, carrying one vote each, entitled to dividends equal to or greater than Class B Shares, convertible at the option of the holder into one Class B Share for each Class A Share after the occurrence of certain events related to an offer to purchase all Class B shares. There were 71,943,994 (including the Class A Shares issued to Stagwell) and 57,517,568 Class A Shares issued and outstanding as of June 30, 2019 and December 31, 2018 , respectively.
Class B Common Shares (“Class B Shares”)
An unlimited number of voting shares, carrying twenty votes each, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,749 and 3,755 Class B Shares issued and outstanding as of June 30, 2019 and December 31, 2018 , respectively.

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

20


Noncontrolling Interests
Changes in amounts due to noncontrolling interest holders included in accruals and other liabilities on the Unaudited Condensed Consolidated Balance Sheets for the year ended December 31, 2018 and six months ended June 30, 2019 were as follows:
 
Noncontrolling
Interests
Balance, December 31, 2017
$
11,030

Income attributable to noncontrolling interests
11,785

Distributions made
(13,419
)
Other (1)
(118
)
Balance, December 31, 2018
$
9,278

Income attributable to noncontrolling interests
3,472

Distributions made
(7,957
)
Other (1)
25

Balance, June 30, 2019
$
4,818

(1)
Other consists of cumulative translation adjustments.
Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and six months ended June 30, 2019 and 2018 were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss) attributable to MDC Partners Inc.
$
4,290

 
$
3,406

 
$
4,177

 
$
(26,010
)
Transfers from the noncontrolling interest:
 
 
 
 
 
 
 
Decrease in MDC Partners Inc. paid-in capital for purchase of equity interests in excess of redeemable noncontrolling interests and noncontrolling interests
(97
)
 

 
(97
)
 
(1,166
)
Net transfers from noncontrolling interests
$
(97
)
 
$

 
$
(97
)
 
$
(1,166
)
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interests
$
4,193

 
$
3,406

 
$
4,080

 
$
(27,176
)
Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
 
Six Months Ended June 30, 2019
 
Year Ended December 31, 2018
Beginning Balance
$
51,546

 
$
62,886

Redemptions
(9,486
)
 
(11,943
)
Granted

 

Changes in redemption value
421

 
1,067

Currency translation adjustments
154

 
(464
)
Ending Balance
$
42,635

 
$
51,546

The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 2019 to 2024. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.
The redeemable noncontrolling interest of $42,635 as of June 30, 2019 , consists of $19,158 assuming that the subsidiaries perform over the relevant future periods at their discounted cash flows earnings level and such rights are exercised, $19,926 upon termination of such owner’s employment with the applicable subsidiary or death and $3,551 representing the initial redemption

21


value (required floor) recorded for certain acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership interests for such subsidiaries.
These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the three months ended June 30, 2019 and 2018 , there was no related impact on the Company’s loss per share calculation.  

10. Fair Value Measurements
A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below: 
Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Financial Liabilities that are not Measured at Fair Value on a Recurring Basis
The following table presents certain information for our financial liability that is not measured at fair value on a recurring basis at June 30, 2019 and December 31, 2018 :
 
June 30, 2019

December 31, 2018
 
Carrying
Amount

Fair Value

Carrying
Amount

Fair Value
Liabilities:
 


 


 


 

6.50% Senior Notes due 2024
$
900,000

 
$