Segment Information

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Segment Information

11. Segment Information

The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. During June of 2016, the Company entered into a Separation and Release Agreement with its former Chief Operating Officer in connection with a limited restructuring of the Company’s corporate department. This change to the Company’s management structure was designed to provide the CODM greater visibility into the operating performance of individual Partner Firms and resulted in a corresponding change in the level at which the CODM reviews the operating results of such Partner Firms. As a result, in the third quarter of 2016, the Company reassessed its determination of operating segments and concluded that each Partner Firm represents an operating segment. The Company assesses the average long-term gross margins expected for each Partner Firm together with the qualitative characteristics set forth in ASC 280-10-50 and aggregates the Partner Firms that meet the aggregation criteria into one reportable (the “Reportable Segment”), and combines and discloses those Partner Firms that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” Effective January 1, 2017, the Company recast the segment reporting to reflect a non-material change to the Company’s operating segments. The Company elected to separate Kenna, a component business, from the kbs Partner Firm in order to provide additional visibility for the CODM. As a stand-alone Partner Firm, Kenna does not meet the aggregation criteria to be included in the Reportable Segment, thus, Kenna is now reported within All Other.

• The Reportable Segment is comprised of the Company’s integrated advertising, media, and public relations service Partner Firms. These core or principal service offerings are similar and/or complementary in many respects, and the Partner Firms that provide these service offerings both compete and/or collaborate with each other for new business. Each Partner Firm represents an operating segment and the Company aggregates its Partner Firms to report in the Reportable Segment. Partner Firms within this segment include Allison & Partners, Anomaly, Crispin Porter + Bogusky, Doner, Forsman & Bodenfors, Hunter PR, kbs, MDC Media Partners, and 72andSunny, among others. These Partner Firms share similar characteristics related to the nature of their services as well as the type of clients and the methods used to provide their services. In addition, the class of customer is also common among the Partner Firms in the Reportable Segment. This results in the Partner Firms having similar economics of their business, and the Company’s expected average long-term gross margin are similar among the Partner Firms aggregated in the Reportable Segment.

• All Other is comprised of the Company’s Partner Firms that provide the specialist marketing offerings such as direct marketing, sales promotion, market research, strategic communications, database and customer relationship management, data analytics and insights, corporate identity, design and branding, and product and service innovation. Partner Firms within All Other include Gale Partners, Kingsdale, Relevent, Team, Redscout, and Y Media Labs, among others. The nature of the specialized services provided by these Partner Firms vary from those Partner Firms aggregated into the Reportable Segment in that such services are generally complimentary and are provided to round out the portfolio of services offered by the Company. This results in these Partner Firms having different current and long-term performance expectations from those Partner Firms aggregated in the Reportable Segment.

• Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the Partner Firms. These office and general expenses include (i) salaries and related expenses for corporate office employees including employees dedicated to supporting the Partner Firms, (ii) occupancy expense relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the Partner Firms are allocated to the Reportable Segment and All Other.

Prior year results have been recast to reflect the new segment reporting.

Three Months Ended March 31, 2017

(thousands of United States dollars)

	Reportable Segment			All Other			Corporate			Total
Revenue	$	286,805		$	57,895		$	—		$	344,700
Cost of services sold	198,143			39,420			—			237,563
Office and general expenses	68,692			10,888			8,260			87,840
Depreciation and amortization	8,393			2,196			309			10,898
Operating profit (loss)	11,577			5,391			(8,569		)	8,399
Other income (expense):
Other income, net										2,567
Interest expense and finance charges, net										(16,541		)
Loss before income taxes and equity in earnings of non-consolidated affiliates										(5,575		)
Income tax expense										3,969
Loss before equity in earnings of non-consolidated affiliates										(9,544		)
Equity in losses of non-consolidated affiliates										(139		)
Net loss										(9,683		)
Net income attributable to the noncontrolling interests	(741		)	(142		)	—			(883		)
Net loss attributable to MDC Partners Inc.										$	(10,566	)
Stock-based compensation	$	3,913		$	433		$	604		$	4,950
Supplemental Segment Information:
Capital expenditures	$	8,513		$	899		$	1		$	9,413
Goodwill and intangibles	$	719,164		$	207,928		$	—		$	927,092
Total assets	$	1,195,498		$	303,941		$	127,214		$	1,626,653

Three Months Ended March 31, 2016

(thousands of United States dollars)

	Reportable Segment			All Other			Corporate			Total
Revenue	$	254,106		$	54,936		$	—		$	309,042
Cost of services sold	175,339			36,107			—			211,446
Office and general expenses	52,209			12,886			12,733			77,828
Depreciation and amortization	7,060			3,763			397			11,220
Operating profit (loss)	19,498			2,180			(13,130		)	8,548
Other income (expense):
Other income, net										15,512
Interest expense and finance charges, net										(15,397		)
Loss on redemption of notes										(33,298		)
Loss before income taxes and equity in earnings of non-consolidated affiliates										(24,635		)
Income tax benefit										(1,972		)
Loss before equity in earnings of non-consolidated affiliates										(22,663		)
Equity in earnings of non-consolidated affiliates										229
Net loss										(22,434		)
Net income attributable to the noncontrolling interests	(726		)	(133		)	—			(859		)
Net loss attributable to MDC Partners Inc.										$	(23,293	)
Stock-based compensation	$	3,751		$	130		$	804		$	4,685
Supplemental Segment Information:
Capital expenditures	$	4,857		$	654		$	28		$	5,539
Goodwill and intangibles	$	699,993		$	244,667		$	—		$	944,660
Total assets	$	1,088,365		$	324,623		$	158,567		$	1,571,555

A summary of the Company’s revenue by geographic area, based on the location in which the services originated, is set forth in the following table:

	United States		Canada		Other		Total
Revenue
Three Months Ended March 31,
2017	$	274,682	$	26,470	$	43,548	$	344,700
2016	$	252,199	$	28,406	$	28,437	$	309,042