ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated Filer x | Accelerated filer ¨ |
Non-accelerated Filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company ¨ |
Emerging growth company ¨ |
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. | ||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Services | $ | 379,743 | $ | 390,532 | $ | 706,711 | $ | 735,232 | |||||||
Operating expenses: | |||||||||||||||
Cost of services sold | 253,390 | 267,822 | 496,420 | 505,385 | |||||||||||
Office and general expenses | 83,878 | 85,563 | 167,757 | 173,403 | |||||||||||
Depreciation and amortization | 11,703 | 10,766 | 24,078 | 21,664 | |||||||||||
Other asset impairment | — | — | 2,317 | — | |||||||||||
348,971 | 364,151 | 690,572 | 700,452 | ||||||||||||
Operating profit | 30,772 | 26,381 | 16,139 | 34,780 | |||||||||||
Other Income (Expense): | |||||||||||||||
Other, net | (5,957 | ) | 6,596 | (12,176 | ) | 9,163 | |||||||||
Interest expense and finance charges | (17,018 | ) | (15,688 | ) | (33,249 | ) | (32,456 | ) | |||||||
Interest income | 159 | 178 | 307 | 405 | |||||||||||
(22,816 | ) | (8,914 | ) | (45,118 | ) | (22,888 | ) | ||||||||
Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates | 7,956 | 17,467 | (28,979 | ) | 11,892 | ||||||||||
Income tax expense (benefit) | 1,977 | 4,641 | (6,353 | ) | 8,610 | ||||||||||
Income (loss) before equity in earnings (losses) of non-consolidated affiliates | 5,979 | 12,826 | (22,626 | ) | 3,282 | ||||||||||
Equity in earnings (losses) of non-consolidated affiliates | (28 | ) | 641 | 58 | 502 | ||||||||||
Net income (loss) | 5,951 | 13,467 | (22,568 | ) | 3,784 | ||||||||||
Net income attributable to noncontrolling interests | (2,545 | ) | (2,214 | ) | (3,442 | ) | (3,097 | ) | |||||||
Net income (loss) attributable to MDC Partners Inc. | 3,406 | 11,253 | (26,010 | ) | 687 | ||||||||||
Accretion on and net income allocated to convertible preference shares | (2,273 | ) | (3,293 | ) | (4,095 | ) | (2,417 | ) | |||||||
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 1,133 | $ | 7,960 | $ | (30,105 | ) | $ | (1,730 | ) | |||||
Income (loss) per common share: | |||||||||||||||
Basic | |||||||||||||||
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 0.02 | $ | 0.14 | $ | (0.53 | ) | $ | (0.03 | ) | |||||
Diluted | |||||||||||||||
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 0.02 | $ | 0.14 | $ | (0.53 | ) | $ | (0.03 | ) | |||||
Weighted Average Number of Common Shares Outstanding: | |||||||||||||||
Basic | 57,439,823 | 55,332,497 | 56,924,208 | 53,480,144 | |||||||||||
Diluted | 57,802,872 | 55,622,194 | 56,924,208 | 53,480,144 | |||||||||||
Stock-based compensation expense is included in the following line items above: | |||||||||||||||
Cost of services sold | $ | 4,047 | $ | 3,737 | $ | 7,394 | $ | 7,248 | |||||||
Office and general expenses | 1,556 | 1,803 | 3,246 | 3,242 | |||||||||||
Total | $ | 5,603 | $ | 5,540 | $ | 10,640 | $ | 10,490 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Comprehensive Income (Loss) | |||||||||||||||
Net income (loss) | $ | 5,951 | $ | 13,467 | $ | (22,568 | ) | $ | 3,784 | ||||||
Other comprehensive income (loss), net of applicable tax: | |||||||||||||||
Foreign currency translation adjustment | (1,848 | ) | 550 | 429 | 618 | ||||||||||
Other comprehensive income (loss) | (1,848 | ) | 550 | 429 | 618 | ||||||||||
Comprehensive income (loss) for the period | 4,103 | 14,017 | (22,139 | ) | 4,402 | ||||||||||
Comprehensive income attributable to the noncontrolling interests | (1,641 | ) | (3,220 | ) | (1,436 | ) | (4,368 | ) | |||||||
Comprehensive income (loss) attributable to MDC Partners Inc. | $ | 2,462 | $ | 10,797 | $ | (23,575 | ) | $ | 34 |
June 30, 2018 | December 31, 2017 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 24,999 | $ | 46,179 | |||
Cash held in trusts | 47,916 | 4,632 | |||||
Accounts receivable, less allowance for doubtful accounts of $2,699 and $2,453 | 424,202 | 434,072 | |||||
Expenditures billable to clients | 59,081 | 31,146 | |||||
Other current assets | 39,323 | 26,742 | |||||
Total Current Assets | 595,521 | 542,771 | |||||
Fixed assets, at cost, less accumulated depreciation of $126,606 and $123,599 | 91,015 | 90,306 | |||||
Investments in non-consolidated affiliates | 6,514 | 6,307 | |||||
Goodwill | 857,140 | 835,935 | |||||
Other intangible assets, net | 82,465 | 70,605 | |||||
Deferred tax assets | 125,307 | 115,325 | |||||
Other assets | 30,635 | 37,643 | |||||
Total Assets | $ | 1,788,597 | $ | 1,698,892 | |||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 207,983 | $ | 244,527 | |||
Trust liability | 47,916 | 4,632 | |||||
Accruals and other liabilities | 299,660 | 327,812 | |||||
Advance billings | 184,269 | 148,133 | |||||
Current portion of long-term debt | 355 | 313 | |||||
Current portion of deferred acquisition consideration | 32,297 | 50,213 | |||||
Total Current Liabilities | 772,480 | 775,630 | |||||
Long-term debt, less current portion | 999,936 | 882,806 | |||||
Long-term portion of deferred acquisition consideration | 51,410 | 72,213 | |||||
Other liabilities | 55,478 | 54,110 | |||||
Deferred tax liabilities | 6,899 | 6,760 | |||||
Total Liabilities | 1,886,203 | 1,791,519 | |||||
Redeemable Noncontrolling Interests (Note 10) | 55,730 | 62,886 | |||||
Commitments, Contingencies, and Guarantees (Note 12) | |||||||
Shareholders’ Deficit: | |||||||
Convertible preference shares (liquidation preference $105,447) | 90,123 | 90,220 | |||||
Common shares | 360,323 | 352,432 | |||||
Charges in excess of capital | (314,499 | ) | (314,241 | ) | |||
Accumulated deficit | (367,180 | ) | (340,000 | ) | |||
Accumulated other comprehensive gain (loss) | 481 | (1,954 | ) | ||||
MDC Partners Inc. Shareholders' Deficit | (230,752 | ) | (213,543 | ) | |||
Noncontrolling interests | 77,416 | 58,030 | |||||
Total Shareholders' Deficit | (153,336 | ) | (155,513 | ) | |||
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit | $ | 1,788,597 | $ | 1,698,892 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (22,568 | ) | $ | 3,784 | ||
Adjustments to reconcile net income (loss) to cash used in operating activities: | |||||||
Stock-based compensation | 10,640 | 10,490 | |||||
Depreciation | 14,642 | 11,558 | |||||
Amortization of intangibles | 9,436 | 10,106 | |||||
Amortization of deferred finance charges | 1,605 | 1,480 | |||||
Other asset impairment | 2,317 | — | |||||
Adjustment to deferred acquisition consideration | (2,479 | ) | 15,792 | ||||
Acquisition-related contingent consideration payment | (23,894 | ) | (24,459 | ) | |||
Deferred income tax | (9,494 | ) | 6,962 | ||||
Gain on sale of assets | (955 | ) | (63 | ) | |||
(Earnings) losses of non-consolidated affiliates | (58 | ) | (502 | ) | |||
Other non-current assets and liabilities | (1,114 | ) | (1,454 | ) | |||
Foreign exchange | 12,128 | (6,865 | ) | ||||
Changes in working capital: | |||||||
Accounts receivable | 19,181 | (67,889 | ) | ||||
Expenditures billable to clients | (27,935 | ) | (9,223 | ) | |||
Prepaid expenses and other current assets | (12,732 | ) | 6,511 | ||||
Accounts payable, accruals and other liabilities | (60,015 | ) | 13,332 | ||||
Advance billings | 29,582 | 29,714 | |||||
Net cash used in operating activities | (61,713 | ) | (726 | ) | |||
Cash flows used in investing activities: | |||||||
Capital expenditures | (9,689 | ) | (21,156 | ) | |||
Deposits | — | (1,261 | ) | ||||
Acquisitions, net of cash acquired | (27,299 | ) | — | ||||
Other investments | 867 | (465 | ) | ||||
Net cash used in investing activities | (36,121 | ) | (22,882 | ) | |||
Cash flows provided by financing activities: | |||||||
Repayments of revolving credit agreement | (782,600 | ) | (791,609 | ) | |||
Proceeds from revolving credit agreement | 897,844 | 763,846 | |||||
Proceeds from issuance of convertible preference shares | — | 95,000 | |||||
Convertible preference shares issuance costs | — | (4,584 | ) | ||||
Acquisition related payments | (29,172 | ) | (40,662 | ) | |||
Repayment of long-term debt | (141 | ) | (224 | ) | |||
Purchase of shares | (493 | ) | (630 | ) | |||
Distributions to noncontrolling interests | (8,927 | ) | (3,840 | ) | |||
Payment of dividends | (168 | ) | (169 | ) | |||
Net cash provided by financing activities | 76,343 | 17,128 | |||||
Effect of exchange rate changes on cash and cash equivalents | 311 | (1,094 | ) | ||||
Decrease in cash and cash equivalents | (21,180 | ) | (7,574 | ) | |||
Cash and cash equivalents at beginning of period | 46,179 | 27,921 | |||||
Cash and cash equivalents at end of period | $ | 24,999 | $ | 20,347 | |||
Supplemental disclosures: | |||||||
Cash income taxes paid | $ | 2,626 | $ | 3,423 | |||
Cash interest paid | $ | 31,414 | $ | 31,566 | |||
Change in cash held in trusts | $ | 43,284 | $ | 185 | |||
Non-cash transactions: | |||||||
Capital leases | $ | 701 | $ | 545 | |||
Dividends payable | $ | 286 | $ | 569 | |||
Acquisition related consideration settled through issuance of shares | $ | 7,030 | $ | 28,727 |
Convertible Preference Shares | Common Shares | Additional Paid-in Capital | Charges in Excess of Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | MDC Partners Inc. Shareholders’ Deficit | Noncontrolling Interests | Total Shareholders’ Deficit | |||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 95,000 | $ | 90,220 | 56,375,131 | $ | 352,432 | $ | — | $ | (314,241 | ) | $ | (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 (Note 8) | — | (97 | ) | — | — | — | — | — | — | (97 | ) | — | (97 | ) | |||||||||||||||||||||||||||
Issuance of restricted stock | — | — | 122,029 | 1,354 | (1,354 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||||||||
Increase (decrease) from business acquisitions and step-up transactions | — | — | — | — | (1,166 | ) | — | — | — | (1,166 | ) | 27,357 | 26,191 | ||||||||||||||||||||||||||||
Changes in noncontrolling interests and redeemable noncontrolling interests from changes in ownership interest | — | — | — | — | — | — | — | — | — | (5,965 | ) | (5,965 | ) | ||||||||||||||||||||||||||||
Cumulative effect of adoption of ASC 606 (Note 13) | — | — | — | — | — | — | (1,170 | ) | — | (1,170 | ) | — | (1,170 | ) | |||||||||||||||||||||||||||
Transfer to charges in excess of capital | — | — | — | — | 258 | (258 | ) | — | — | — | — | ||||||||||||||||||||||||||||||
Balance at June 30, 2018 | 95,000 | $ | 90,123 | 57,454,028 | $ | 360,323 | $ | — | $ | (314,499 | ) | $ | (367,180 | ) | $ | 481 | $ | (230,752 | ) | $ | 77,416 | $ | (153,336 | ) |
Three Months Ended June 30, | |||||||||||||||||
2018 | 2017 | ||||||||||||||||
Industry | Reportable Segment | As reported | Adjustment to exclude impact of Adoption of ASC 606 | Adjusted | |||||||||||||
Food & Beverage | All | $ | 84,464 | $ | (940 | ) | $ | 83,524 | $ | 79,299 | |||||||
Retail | All | 38,396 | 1,343 | 39,739 | 46,357 | ||||||||||||
Consumer Products | All | 41,367 | (1,048 | ) | 40,319 | 40,668 | |||||||||||
Communications | All | 43,097 | 5,699 | 48,796 | 55,740 | ||||||||||||
Automotive | All | 25,294 | 1,856 | 27,150 | 33,806 | ||||||||||||
Technology | All | 23,540 | (141 | ) | 23,399 | 26,324 | |||||||||||
Healthcare | All | 35,426 | (612 | ) | 34,814 | 32,271 | |||||||||||
Financials | All | 30,207 | 710 | 30,917 | 26,808 | ||||||||||||
Transportation and Travel/Lodging | All | 18,776 | 42 | 18,818 | 13,665 | ||||||||||||
Other | All | 39,176 | 2,819 | 41,995 | 35,594 | ||||||||||||
$ | 379,743 | $ | 9,728 | $ | 389,471 | $ | 390,532 |
Six Months Ended June 30, | |||||||||||||||||
2018 | 2017 | ||||||||||||||||
Industry | Reportable Segment | As reported | Adjustment to exclude impact of Adoption of ASC 606 | Adjusted | |||||||||||||
Food & Beverage | All | $ | 147,932 | $ | 5,866 | $ | 153,798 | $ | 140,590 | ||||||||
Retail | All | 76,411 | 1,772 | 78,183 | 91,791 | ||||||||||||
Consumer Products | All | 77,973 | (774 | ) | 77,199 | 75,729 | |||||||||||
Communications | All | 81,454 | 12,182 | 93,636 | 104,055 | ||||||||||||
Automotive | All | 45,788 | 6,074 | 51,862 | 66,285 | ||||||||||||
Technology | All | 45,080 | (310 | ) | 44,770 | 46,872 | |||||||||||
Healthcare | All | 68,002 | 519 | 68,521 | 61,199 | ||||||||||||
Financials | All | 52,702 | 911 | 53,613 | 47,146 | ||||||||||||
Transportation and Travel/Lodging | All | 33,664 | 776 | 34,440 | 27,775 | ||||||||||||
Other | All | 77,705 | 3,988 | 81,693 | 73,790 | ||||||||||||
$ | 706,711 | $ | 31,004 | $ | 737,715 | $ | 735,232 |
Three Months Ended June 30, | |||||||||||||||||
2018 | 2017 | ||||||||||||||||
Geographic Location | Reportable Segment | As reported | Adjustment to exclude impact of Adoption of ASC 606 | Adjusted | |||||||||||||
United States | All | $ | 295,268 | $ | 6,023 | $ | 301,291 | $ | 304,463 | ||||||||
Canada | All | 33,086 | (3,591 | ) | 29,495 | 30,583 | |||||||||||
Other | All | 51,389 | 7,296 | 58,685 | 55,486 | ||||||||||||
$ | 379,743 | $ | 9,728 | $ | 389,471 | $ | 390,532 |
Six Months Ended June 30, | |||||||||||||||||
2018 | 2017 | ||||||||||||||||
Geographic Location | Reportable Segment | As reported | Adjustment to exclude impact of Adoption of ASC 606 | Adjusted | |||||||||||||
United States | All | $ | 551,792 | $ | 15,041 | $ | 566,833 | $ | 579,145 | ||||||||
Canada | All | 59,465 | (2,638 | ) | 56,827 | 57,053 | |||||||||||
Other | All | 95,454 | 18,601 | 114,055 | 99,034 | ||||||||||||
$ | 706,711 | $ | 31,004 | $ | 737,715 | $ | 735,232 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Numerator | |||||||||||||||
Net income (loss) attributable to MDC Partners Inc. | $ | 3,406 | $ | 11,253 | $ | (26,010 | ) | $ | 687 | ||||||
Accretion on convertible preference shares | (2,068 | ) | (1,910 | ) | (4,095 | ) | (2,417 | ) | |||||||
Net income allocated to convertible preference shares | (205 | ) | (1,383 | ) | — | — | |||||||||
Numerator for basic income (loss) per common share - Net income (loss) attributable to MDC Partners Inc. common shareholders | 1,133 | 7,960 | (30,105 | ) | (1,730 | ) | |||||||||
Adjustment to net income allocated to convertible preference shares | 1 | 6 | — | — | |||||||||||
Numerator for diluted income (loss) per common share- Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 1,134 | $ | 7,966 | $ | (30,105 | ) | $ | (1,730 | ) | |||||
Denominator | |||||||||||||||
Denominator for basic income (loss) per common share - weighted average common shares | 57,439,823 | 55,332,497 | 56,924,208 | 53,480,144 | |||||||||||
Impact of stock options and non-vested stock under employee stock incentive plans | 363,049 | 289,697 | — | — | |||||||||||
Denominator for diluted income (loss) per common share - adjusted weighted shares and assumed conversions | 57,802,872 | 55,622,194 | 56,924,208 | 53,480,144 | |||||||||||
Basic income (loss) per common share | $ | 0.02 | $ | 0.14 | $ | (0.53 | ) | $ | (0.03 | ) | |||||
Diluted income (loss) per common share | $ | 0.02 | $ | 0.14 | $ | (0.53 | ) | $ | (0.03 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net loss attributable to MDC Partners Inc. | $ | 3,406 | $ | 11,253 | $ | (26,010 | ) | $ | 687 | ||||||
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 | — | (11,947 | ) | (1,166 | ) | (11,947 | ) | ||||||||
Net transfers from noncontrolling interests | $ | — | $ | (11,947 | ) | $ | (1,166 | ) | $ | (11,947 | ) | ||||
Change from net loss attributable to MDC Partners Inc. and transfers to noncontrolling interests | $ | 3,406 | $ | (694 | ) | $ | (27,176 | ) | $ | (11,260 | ) |
Noncontrolling Interests | |||
Balance, December 31, 2016 | $ | 4,154 | |
Income attributable to noncontrolling interests | 15,375 | ||
Distributions made | (8,865 | ) | |
Other (1) | 366 | ||
Balance, December 31, 2017 | $ | 11,030 | |
Income attributable to noncontrolling interests | 3,442 | ||
Distributions made | (8,927 | ) | |
Other (1) | (716 | ) | |
Balance, June 30, 2018 | $ | 4,829 |
(1) | Other consists primarily of business acquisitions, sale of a business, step-up transactions, and cumulative translation adjustments. |
June 30, 2018 | December 31, 2017 | ||||||
Revolving credit agreement | $ | 115,244 | $ | — | |||
6.50% Notes due 2024 | 900,000 | 900,000 | |||||
Debt issuance costs | (15,654 | ) | (17,587 | ) | |||
999,590 | 882,413 | ||||||
Obligations under capital leases | 701 | 706 | |||||
1,000,291 | 883,119 | ||||||
Less: Current portion of long-term debt | 355 | 313 | |||||
$ | 999,936 | $ | 882,806 |
• | 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. |
June 30, 2018 | December 31, 2017 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Liabilities: | |||||||||||||||
6.50% Senior Notes due 2024 | $ | 900,000 | $ | 787,500 | $ | 900,000 | $ | 904,500 |
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||
June 30, | December 31, | ||||||
2018 | 2017 | ||||||
Beginning balance of contingent payments | $ | 119,086 | $ | 224,754 | |||
Payments (1) | (48,586 | ) | (110,234 | ) | |||
Additions (2) | 9,723 | — | |||||
Redemption value adjustments (3) | 2,203 | 3,273 | |||||
Foreign translation adjustment | (62 | ) | 1,293 | ||||
Ending balance of contingent payments | $ | 82,364 | $ | 119,086 |
(1) | For the year ended December 31, 2017, payments include $28,727 of deferred acquisition consideration settled through the issuance of 3,353,939 MDC Class A subordinate voting shares, respectively, in lieu of cash. |
(2) | Additions are the initial estimated deferred acquisition payments of new acquisitions and step-up transactions completed within that fiscal period. See Note 4. |
(3) | Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments, including the accretion of present value and stock-based compensation charges relating to acquisition payments |
Six Months Ended June 30, 2018 | Year Ended December 31, 2017 | ||||||
Beginning Balance | $ | 62,886 | $ | 60,180 | |||
Redemptions | (8,858 | ) | (910 | ) | |||
Granted | — | 1,666 | |||||
Changes in redemption value | 2,062 | 1,498 | |||||
Currency translation adjustments | (360 | ) | 452 | ||||
Ending Balance | $ | 55,730 | $ | 62,886 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Other income | $ | 592 | $ | 150 | $ | 1,033 | $ | 278 | |||||||
Foreign currency transaction (loss) gain | (6,549 | ) | 6,446 | (13,209 | ) | 8,885 | |||||||||
Other, net | $ | (5,957 | ) | $ | 6,596 | $ | (12,176 | ) | $ | 9,163 |
• | Source Marketing, previously within the All Other category, is included within the Doner operating segment, which is aggregated into the Global Integrated Agencies reportable segment |
• | Yamamoto, previously within the All Other category, was operationally merged with Civilian and is now included within the Domestic Creative Agencies reportable segment |
• | 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 |
• | The Global Integrated Agencies reportable segment is comprised of the Company’s six global, integrated operating segments with broad marketing communication capabilities, including advertising, branding, digital, social media, design and production services, serving multinational clients around the world. The Global Integrated Agencies reportable segment includes 72andSunny, Anomaly, Crispin Porter + Bogusky, Doner, Forsman & Bodenfors, and kbs+. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of global clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Global Integrated Agencies reportable segment. |
• | The Domestic Creative Agencies reportable segment is comprised of five operating segments that are national advertising agencies leveraging creative capabilities at their core. The Domestic Creative Agencies reportable segment includes, Colle + McVoy, Laird + Partners, Mono Advertising, Union and Yamamoto. These operating segments share similar characteristics related to (i) the nature of their creative advertising services; (ii) the type of domestic client accounts and the methods used to provide services; and (iii) the extent to which they may be impacted by domestic economic and policy factors within North America. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long- |
• | The Specialist Communications reportable segment is comprised of seven operating segments that are each communications agencies with core service offerings in public relations and related communications services. The Specialist Communications reportable segment includes Allison & Partners, HL Group Partners, Hunter PR, Kwittken, Luntz Global, Sloane & Company and Veritas. These operating segments share similar characteristics related to (i) the nature of their public relations and communication services, including content creation, social media and influencer marketing; (ii) the type of client accounts and the methods used to provide services; (iii) the extent to which they may be impacted by domestic economic and policy factors within North America; and (iv) the regulatory environment regarding public relations and social media. In addition, these operating segments compete with each other for new business and from time to time have business move between them. The Company believes the historic and expected average long-term profitability is similar among the operating segments aggregated in the Specialist Communications reportable segment. |
• | The Media Services reportable segment is comprised of two operating segments, MDC Media Partners and Yes & Company. These operating segments perform media buying and planning as their core competency and provide other services, including influencer marketing, content, insights & analytics, out-of-home, paid search, social media, lead generation, programmatic, artificial intelligence, and corporate barter. |
• | All Other consists of the Company’s remaining operating segments that provide a range of diverse marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregated in the reportable segments. The All Other category includes 6Degrees Communications, Concentric Partners, Gale Partners, Kenna, Kingsdale, Instrument, Redscout, Relevent, Team, Vitro, and Y Media Labs. The nature of the specialist services provided by these operating segments vary among each other and from those operating segments aggregated into the reportable segments. This results in these operating segments having current and long-term performance expectations inconsistent with those operating segments aggregated in the reportable segments. |
• | Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Global Integrated Agencies | $ | 182,607 | $ | 209,090 | $ | 332,962 | $ | 388,316 | |||||||
Domestic Creative Agencies | 26,388 | 25,486 | 50,705 | 49,229 | |||||||||||
Specialist Communications | 43,938 | 44,116 | 87,088 | 84,800 | |||||||||||
Media Services | 33,293 | 42,648 | 69,438 | 83,893 | |||||||||||
All Other | 93,517 | 69,192 | 166,518 | 128,994 | |||||||||||
Total | $ | 379,743 | $ | 390,532 | $ | 706,711 | $ | 735,232 | |||||||
Operating profit (loss): | |||||||||||||||
Global Integrated Agencies | $ | 19,227 | $ | 13,811 | $ | 3,466 | $ | 13,172 | |||||||
Domestic Creative Agencies | 4,993 | 4,959 | 8,919 | 8,784 | |||||||||||
Specialist Communications | 5,767 | 4,300 | 9,794 | 8,648 | |||||||||||
Media Services | (1,183 | ) | 3,955 | (980 | ) | 6,614 | |||||||||
All Other | 15,108 | 9,044 | 22,152 | 15,819 | |||||||||||
Corporate | (13,140 | ) | (9,688 | ) | (27,212 | ) | (18,257 | ) | |||||||
Total | $ | 30,772 | $ | 26,381 | $ | 16,139 | $ | 34,780 | |||||||
Other income (expense): | |||||||||||||||
Other (expense) income, net | (5,957 | ) | 6,596 | (12,176 | ) | 9,163 | |||||||||
Interest expense and finance charges, net | (16,859 | ) | (15,510 | ) | (32,942 | ) | (32,051 | ) | |||||||
Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates | 7,956 | 17,467 | (28,979 | ) | 11,892 | ||||||||||
Income tax expense (benefit) | 1,977 | 4,641 | (6,353 | ) | 8,610 | ||||||||||
Income (loss) before equity in earnings (losses) of non-consolidated affiliates | 5,979 | 12,826 | (22,626 | ) | 3,282 | ||||||||||
Equity in earnings (losses) of non-consolidated affiliates | (28 | ) | 641 | 58 | 502 | ||||||||||
Net income (loss) | 5,951 | 13,467 | (22,568 | ) | 3,784 | ||||||||||
Net income attributable to the noncontrolling interest | (2,545 | ) | (2,214 | ) | (3,442 | ) | (3,097 | ) | |||||||
Net income (loss) attributable to MDC Partners Inc. | $ | 3,406 | $ | 11,253 | $ | (26,010 | ) | $ | 687 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Depreciation and amortization: | |||||||||||||||
Global Integrated Agencies | $ | 5,329 | $ | 5,587 | $ | 13,345 | $ | 11,548 | |||||||
Domestic Creative Agencies | 396 | 403 | 789 | 797 | |||||||||||
Specialist Communications | 1,027 | 1,221 | 2,029 | 2,437 | |||||||||||
Media Services | 767 | 1,112 | 1,534 | 2,221 | |||||||||||
All Other | 4,024 | 2,144 | 5,997 | 4,053 | |||||||||||
Corporate | 160 | 299 | 384 | 608 | |||||||||||
Total | $ | 11,703 | $ | 10,766 | $ | 24,078 | $ | 21,664 | |||||||
Stock-based compensation: | |||||||||||||||
Global Integrated Agencies | $ | 2,585 | $ | 3,080 | $ | 5,132 | $ | 6,070 | |||||||
Domestic Creative Agencies | 610 | 181 | 770 | 346 | |||||||||||
Specialist Communications | 163 | 1,087 | 499 | 1,605 | |||||||||||
Media Services | 85 | 165 | 170 | 335 | |||||||||||
All Other | 939 | 509 | 1,600 | 1,012 | |||||||||||
Corporate | 1,221 | 518 | 2,469 | 1,122 | |||||||||||
Total | $ | 5,603 | $ | 5,540 | $ | 10,640 | $ | 10,490 | |||||||
Capital expenditures: | |||||||||||||||
Global Integrated Agencies | $ | 2,620 | $ | 8,788 | $ | 5,457 | $ | 15,696 | |||||||
Domestic Creative Agencies | 269 | 300 | 489 | 613 | |||||||||||
Specialist Communications | 2,225 | 175 | 2,465 | 467 | |||||||||||
Media Services | 185 | 298 | 418 | 1,799 | |||||||||||
All Other | 567 | 2,180 | 828 | 2,578 | |||||||||||
Corporate | 24 | 2 | 32 | 3 | |||||||||||
Total | $ | 5,890 | $ | 11,743 | $ | 9,689 | $ | 21,156 |
i. | Under the guidance in effect through December 31, 2017, 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. This results in an acceleration of revenue recognition for certain contract incentives compared to ASC 605. |
ii. | Under the guidance in effect through December 31, 2017, non-refundable retainer fees 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. This resulted in both the deferral and acceleration of revenue recognition in certain instances. |
iii. | In certain client arrangements, the Company records revenue as a principal and includes within revenue certain third-party-pass-through and out-of-pocket costs, which are billed to clients in connection with the services provided. In other arrangements, the Company acts as an agent and records revenue equal to the net amount retained. The adoption of ASC 606 resulted in certain arrangements previously being accounted for as principal, now being accounted for as agent. |
Three Months Ended June 30, 2018 | ||||||||||||
As Reported | Adjustments | Adjusted to Exclude Adoption of ASC 606 | ||||||||||
Revenue - Services | $ | 379,743 | $ | 9,728 | $ | 389,471 | ||||||
Costs of services sold | $ | 253,390 | $ | 18,764 | $ | 272,154 | ||||||
Operating profit (loss) | $ | 30,772 | $ | (9,036 | ) | $ | 21,736 | |||||
Net income (loss) attributable to MDC Partners, Inc. common shareholders | $ | 1,133 | $ | (5,616 | ) | $ | (4,483 | ) | ||||
Income (loss) per common share - basic and diluted | $ | 0.02 | $ | (0.10 | ) | $ | (0.08 | ) |
Six Months Ended June 30, 2018 | ||||||||||||
As Reported | Adjustments | Adjusted to Exclude Adoption of ASC 606 | ||||||||||
Revenue - Services | $ | 706,711 | $ | 31,004 | $ | 737,715 | ||||||
Costs of services sold | $ | 496,420 | $ | 33,961 | $ | 530,381 | ||||||
Operating profit (loss) | $ | 16,139 | $ | (2,957 | ) | $ | 13,182 | |||||
Net loss attributable to MDC Partners, Inc. common shareholders | $ | (30,105 | ) | $ | (1,385 | ) | $ | (31,490 | ) | |||
Loss per common share - basic and diluted | $ | (0.53 | ) | $ | (0.02 | ) | $ | (0.55 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Global Integrated Agencies | $ | 182.6 | $ | 209.1 | $ | 333.0 | $ | 388.3 | |||||||
Domestic Creative Agencies | 26.4 | 25.5 | 50.7 | 49.2 | |||||||||||
Specialist Communications | 43.9 | 44.1 | 87.1 | 84.8 | |||||||||||
Media Services | 33.3 | 42.6 | 69.4 | 83.9 | |||||||||||
All Other | 93.5 | 69.2 | 166.5 | 129.0 | |||||||||||
Total | $ | 379.7 | $ | 390.5 | $ | 706.7 | $ | 735.2 | |||||||
Operating profit (loss): | |||||||||||||||
Global Integrated Agencies | $ | 19.2 | $ | 13.8 | $ | 3.5 | $ | 13.2 | |||||||
Domestic Creative Agencies | 5.0 | 5.0 | 8.9 | 8.8 | |||||||||||
Specialist Communications | 5.8 | 4.3 | 9.8 | 8.6 | |||||||||||
Media Services | (1.2 | ) | 4.0 | (1.0 | ) | 6.6 | |||||||||
All Other | 15.1 | 9.0 | 22.2 | 15.8 | |||||||||||
Corporate | (13.1 | ) | (9.7 | ) | (27.2 | ) | (18.3 | ) | |||||||
Total | $ | 30.8 | $ | 26.4 | $ | 16.1 | $ | 34.8 | |||||||
Other income (expense): | |||||||||||||||
Other (expense) income, net | (6.0 | ) | 6.6 | (12.2 | ) | 9.2 | |||||||||
Interest expense and finance charges, net | (16.9 | ) | (15.5 | ) | (32.9 | ) | (32.1 | ) | |||||||
Income (loss) before income taxes and equity in earnings (losses) of non-consolidated affiliates | 8.0 | 17.5 | (29.0 | ) | 11.9 | ||||||||||
Income tax expense (benefit) | 2.0 | 4.6 | (6.4 | ) | 8.6 | ||||||||||
Income (loss) before equity in earnings (losses) of non-consolidated affiliates | 6.0 | 12.8 | (22.6 | ) | 3.3 | ||||||||||
Equity in earnings (losses) of non-consolidated affiliates | — | 0.6 | 0.1 | 0.5 | |||||||||||
Net income (loss) | 6.0 | 13.5 | (22.6 | ) | 3.8 | ||||||||||
Net income attributable to the noncontrolling interest | (2.5 | ) | (2.2 | ) | (3.4 | ) | (3.1 | ) | |||||||
Net income (loss) attributable to MDC Partners Inc. | $ | 3.4 | 11.3 | (26.0 | ) | 0.7 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Depreciation and amortization: | |||||||||||||||
Global Integrated Agencies | $ | 5.3 | $ | 5.6 | $ | 13.3 | $ | 11.5 | |||||||
Domestic Creative Agencies | 0.4 | 0.4 | 0.8 | 0.8 | |||||||||||
Specialist Communications | 1.0 | 1.2 | 2.0 | 2.4 | |||||||||||
Media Services | 0.8 | 1.1 | 1.5 | 2.2 | |||||||||||
All Other | 4.0 | 2.1 | 6.0 | 4.1 | |||||||||||
Corporate | 0.2 | 0.3 | 0.4 | 0.6 | |||||||||||
Total | $ | 11.7 | $ | 10.8 | $ | 24.1 | $ | 21.7 | |||||||
Stock-based compensation: | |||||||||||||||
Global Integrated Agencies | $ | 2.6 | $ | 3.1 | $ | 5.1 | $ | 6.1 | |||||||
Domestic Creative Agencies | 0.6 | 0.2 | 0.8 | 0.3 | |||||||||||
Specialist Communications | 0.2 | 1.1 | 0.5 | 1.6 | |||||||||||
Media Services | 0.1 | 0.2 | 0.2 | 0.3 | |||||||||||
All Other | 0.9 | 0.5 | 1.6 | 1.0 | |||||||||||
Corporate | 1.2 | 0.5 | 2.5 | 1.1 | |||||||||||
Total | $ | 5.6 | $ | 5.5 | $ | 10.6 | $ | 10.5 | |||||||
Capital expenditures: | |||||||||||||||
Global Integrated Agencies | $ | 2.6 | $ | 8.8 | $ | 5.5 | $ | 15.7 | |||||||
Domestic Creative Agencies | 0.3 | 0.3 | 0.5 | 0.6 | |||||||||||
Specialist Communications | 2.2 | 0.2 | 2.5 | 0.5 | |||||||||||
Media Services | 0.2 | 0.3 | 0.4 | 1.8 | |||||||||||
All Other | 0.6 | 2.2 | 0.8 | 2.6 | |||||||||||
Corporate | — | — | — | — | |||||||||||
Total | $ | 5.9 | $ | 11.7 | $ | 9.7 | $ | 21.2 |
Total | United States | Canada | Other | ||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||||||||
June 30, 2017 | $ | 390.5 | $ | 304.5 | $ | 30.6 | $ | 55.5 | |||||||||||||||||||
Components of revenue change: | |||||||||||||||||||||||||||
Foreign exchange impact | 3.1 | 0.8 | % | — | — | % | 1.2 | 4.0 | % | 1.9 | 3.4 | % | |||||||||||||||
Non-GAAP acquisitions (dispositions), net | 2.5 | 0.6 | % | $ | 3.2 | 1.1 | % | — | — | % | (0.7 | ) | (1.3 | )% | |||||||||||||
Impact of adoption of ASC 606 | (9.7 | ) | (2.5 | )% | (6.0 | ) | (2.0 | )% | 3.6 | 11.7 | % | (7.3 | ) | (13.1 | )% | ||||||||||||
Organic revenue growth (decline) | (6.7 | ) | (1.7 | )% | (6.4 | ) | (2.1 | )% | (2.3 | ) | (7.6 | )% | 2.0 | 3.7 | % | ||||||||||||
Total Change | $ | (10.8 | ) | (2.8 | )% | $ | (9.2 | ) | (3.0 | )% | $ | 2.5 | 8.2 | % | $ | (4.1 | ) | (7.4 | )% | ||||||||
June 30, 2018 | $ | 379.7 | $ | 295.3 | $ | 33.1 | $ | 51.4 |
Global Integrated Agencies | Media Services | All Other | Total | ||||||||||||||
(Dollars in Millions) | |||||||||||||||||
GAAP revenue from 2018 acquisitions | $ | — | $ | — | $ | 11.1 | $ | 11.1 | |||||||||
Impact of adoption of ASC 606 from 2018 acquisitions | — | — | 0.5 | 0.5 | |||||||||||||
Contribution to non-GAAP organic revenue (growth) decline | — | — | — | (3.4 | ) | — | (3.4 | ) | |||||||||
Prior year revenue from dispositions | (0.7 | ) | (4.5 | ) | (0.4 | ) | (5.6 | ) | |||||||||
Non-GAAP acquisitions (dispositions), net | $ | (0.7 | ) | $ | (4.5 | ) | $ | 7.7 | $ | 2.5 |
2018 | 2017 | ||||
United States | 77.8 | % | 78.0 | % | |
Canada | 8.7 | % | 7.8 | % | |
Other | 13.5 | % | 14.2 | % |
2018 | 2017 | Change | |||||||||||||||||||
Advertising and Communications Group | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 379.7 | $ | 390.5 | $ | (10.8 | ) | (2.8 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 253.4 | 66.7 | % | 267.8 | 68.6 | % | (14.4 | ) | (5.4 | )% | |||||||||||
Office and general expenses | 70.9 | 18.7 | % | 76.2 | 19.5 | % | (5.3 | ) | (6.9 | )% | |||||||||||
Depreciation and amortization | 11.5 | 3.0 | % | 10.5 | 2.7 | % | 1.1 | 10.3 | % | ||||||||||||
$ | 335.8 | 88.4 | % | $ | 354.5 | 90.8 | % | $ | (18.6 | ) | (5.3 | )% | |||||||||
Operating profit | $ | 43.9 | 11.6 | % | $ | 36.1 | 9.2 | % | $ | 7.8 | 21.7 | % |
2018 | 2017 | Change | |||||||||||||||||||
Advertising and Communications Group | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 52.6 | 13.8 | % | $ | 75.9 | 19.4 | % | $ | (23.3 | ) | (30.7 | )% | ||||||||
Staff costs (2) | 224.6 | 59.1 | % | 210.0 | 53.8 | % | 14.6 | 6.9 | % | ||||||||||||
Administrative | 47.8 | 12.6 | % | 48.8 | 12.5 | % | (1.0 | ) | (2.0 | )% | |||||||||||
Deferred acquisition consideration | (5.1 | ) | (1.3 | )% | 4.3 | 1.1 | % | (9.4 | ) | (217.6 | )% | ||||||||||
Stock-based compensation | 4.4 | 1.2 | % | 5.0 | 1.3 | % | (0.6 | ) | (12.7 | )% | |||||||||||
Depreciation and amortization | 11.5 | 3.0 | % | 10.5 | 2.7 | % | 1.1 | 10.3 | % | ||||||||||||
Total operating expenses | $ | 335.8 | 88.4 | % | $ | 354.5 | 90.8 | % | $ | (18.6 | ) | (5.3 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Global Integrated Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 182.6 | $ | 209.1 | $ | (26.5 | ) | (12.7 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 122.3 | 67.0 | % | 149.6 | 71.6 | % | (27.3 | ) | (18.2 | )% | |||||||||||
Office and general expenses | 35.7 | 19.6 | % | 40.1 | 19.2 | % | (4.4 | ) | (10.9 | )% | |||||||||||
Depreciation and amortization | 5.3 | 2.9 | % | 5.6 | 2.7 | % | (0.3 | ) | (4.6 | )% | |||||||||||
$ | 163.4 | 89.5 | % | $ | 195.3 | 93.4 | % | $ | (31.9 | ) | (16.3 | )% | |||||||||
Operating profit | $ | 19.2 | 10.5 | % | $ | 13.8 | 6.6 | % | $ | 5.4 | 39.2 | % |
2018 | 2017 | Change | |||||||||||||||||||
Global Integrated Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 14.0 | 7.7 | % | $ | 38.1 | 18.2 | % | $ | (24.2 | ) | (63.3 | )% | ||||||||
Staff costs (2) | 119.2 | 65.3 | % | 119.2 | 57.0 | % | — | — | % | ||||||||||||
Administrative | 24.9 | 13.7 | % | 27.3 | 13.1 | % | (2.4 | ) | (8.8 | )% | |||||||||||
Deferred acquisition consideration | (2.6 | ) | (1.4 | )% | 2.0 | 0.9 | % | (4.6 | ) | (233.2 | )% | ||||||||||
Stock-based compensation | 2.6 | 1.4 | % | 3.1 | 1.5 | % | (0.5 | ) | (16.0 | )% | |||||||||||
Depreciation and amortization | 5.3 | 2.9 | % | 5.6 | 2.7 | % | (0.3 | ) | (4.6 | )% | |||||||||||
Total operating expenses | $ | 163.4 | 89.5 | % | $ | 195.3 | 93.4 | % | $ | (31.9 | ) | (16.3 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Domestic Creative Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 26.4 | $ | 25.5 | $ | 0.9 | 3.5 | % | |||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 15.2 | 57.5 | % | 14.5 | 57.0 | % | 0.6 | 4.4 | % | ||||||||||||
Office and general expenses | 5.8 | 22.1 | % | 5.6 | 21.9 | % | 0.2 | 4.2 | % | ||||||||||||
Depreciation and amortization | 0.4 | 1.5 | % | 0.4 | 1.6 | % | — | (1.7 | )% | ||||||||||||
$ | 21.4 | 81.1 | % | $ | 20.5 | 80.5 | % | $ | 0.9 | 4.2 | % | ||||||||||
Operating profit | $ | 5.0 | 18.9 | % | $ | 5.0 | 19.5 | % | $ | — | 0.7 | % |
2018 | 2017 | Change | |||||||||||||||||||
Domestic Creative Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 1.0 | 3.7 | % | $ | 1.0 | 3.9 | % | $ | — | (1.5 | )% | |||||||||
Staff costs (2) | 15.9 | 60.1 | % | 15.8 | 62.0 | % | 0.1 | 0.4 | % | ||||||||||||
Administrative | 3.6 | 13.5 | % | 3.2 | 12.4 | % | 0.4 | 12.9 | % | ||||||||||||
Deferred acquisition consideration | — | — | % | — | — | % | — | (100.0 | )% | ||||||||||||
Stock-based compensation | 0.6 | 2.3 | % | 0.2 | 0.7 | % | 0.4 | 237.0 | % | ||||||||||||
Depreciation and amortization | 0.4 | 1.4 | % | 0.4 | 1.6 | % | — | (4.3 | )% | ||||||||||||
Total operating expenses | $ | 21.4 | 81.1 | % | $ | 20.5 | 80.5 | % | $ | 0.9 | 4.2 | % |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Specialist Communications | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 43.9 | $ | 44.1 | $ | (0.2 | ) | (0.4 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 28.5 | 65.0 | % | 31.5 | 71.4 | % | (3.0 | ) | (9.4 | )% | |||||||||||
Office and general expenses | 8.6 | 19.6 | % | 7.1 | 16.1 | % | 1.5 | 21.1 | % | ||||||||||||
Depreciation and amortization | 1.0 | 2.3 | % | 1.2 | 2.8 | % | (0.2 | ) | (15.9 | )% | |||||||||||
$ | 38.2 | 86.9 | % | $ | 39.8 | 90.3 | % | $ | (1.6 | ) | (4.1 | )% | |||||||||
Operating profit | $ | 5.8 | 13.1 | % | $ | 4.3 | 9.7 | % | $ | 1.5 | 34.1 | % |
2018 | 2017 | Change | |||||||||||||||||||
Specialist Communications | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 10.0 | 22.7 | % | $ | 12.0 | 27.2 | % | $ | (2.0 | ) | (16.7 | )% | ||||||||
Staff costs (2) | 21.0 | 47.9 | % | 20.1 | 45.5 | % | 0.9 | 4.7 | % | ||||||||||||
Administrative | 5.7 | 13.0 | % | 5.3 | 12.0 | % | 0.4 | 7.3 | % | ||||||||||||
Deferred acquisition consideration | 0.3 | 0.6 | % | 0.1 | 0.3 | % | 0.2 | 120.6 | % | ||||||||||||
Stock-based compensation | 0.2 | 0.4 | % | 1.1 | 2.5 | % | (0.9 | ) | (85.0 | )% | |||||||||||
Depreciation and amortization | 1.0 | 2.3 | % | 1.2 | 2.8 | % | (0.2 | ) | (15.9 | )% | |||||||||||
Total operating expenses | $ | 38.2 | 86.9 | % | $ | 39.8 | 90.3 | % | $ | (1.6 | ) | (4.1 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Media Services | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 33.3 | $ | 42.6 | $ | (9.4 | ) | (21.9 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 25.0 | 74.9 | % | 27.4 | 64.2 | % | (2.4 | ) | (8.9 | )% | |||||||||||
Office and general expenses | 8.8 | 26.3 | % | 10.2 | 23.9 | % | (1.4 | ) | (14.0 | )% | |||||||||||
Depreciation and amortization | 0.8 | 2.3 | % | 1.1 | 2.6 | % | (0.3 | ) | (31.0 | )% | |||||||||||
$ | 34.5 | 103.6 | % | $ | 38.7 | 90.7 | % | $ | (4.2 | ) | (10.9 | )% | |||||||||
Operating (loss) profit | $ | (1.2 | ) | (3.6 | )% | $ | 4.0 | 9.3 | % | $ | (5.1 | ) | (129.9 | )% |
2018 | 2017 | Change | |||||||||||||||||||
Media Services | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 8.1 | 24.4 | % | $ | 10.8 | 25.2 | % | $ | (2.6 | ) | (24.4 | )% | ||||||||
Staff costs (2) | 20.2 | 60.8 | % | 20.7 | 48.4 | % | (0.4 | ) | (2.0 | )% | |||||||||||
Administrative | 5.1 | 15.4 | % | 5.9 | 13.7 | % | (0.7 | ) | (12.8 | )% | |||||||||||
Deferred acquisition consideration | 0.1 | 0.4 | % | 0.1 | 0.3 | % | — | (11.7 | )% | ||||||||||||
Stock-based compensation | 0.1 | 0.3 | % | 0.2 | 0.4 | % | (0.1 | ) | (48.2 | )% | |||||||||||
Depreciation and amortization | 0.8 | 2.3 | % | 1.1 | 2.6 | % | (0.3 | ) | (31.0 | )% | |||||||||||
Total operating expenses | $ | 34.5 | 103.6 | % | $ | 38.7 | 90.7 | % | $ | (4.2 | ) | (10.9 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
All Other | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 93.5 | $ | 69.2 | $ | 24.3 | 35.2 | % | |||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 62.4 | 66.7 | % | 44.8 | 64.7 | % | 17.6 | 39.3 | % | ||||||||||||
Office and general expenses | 12.0 | 12.8 | % | 13.2 | 19.1 | % | (1.2 | ) | (9.2 | )% | |||||||||||
Depreciation and amortization | 4.0 | 4.3 | % | 2.1 | 3.1 | % | 1.9 | 87.7 | % | ||||||||||||
$ | 78.4 | 83.8 | % | $ | 60.1 | 86.9 | % | $ | 18.3 | 30.4 | % | ||||||||||
Operating profit | $ | 15.1 | 16.2 | % | $ | 9.0 | 13.1 | % | $ | 6.1 | 67.1 | % |
2018 | 2017 | Change | |||||||||||||||||||
All Other | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 19.5 | 20.9 | % | $ | 14.0 | 20.3 | % | $ | 5.5 | 39.3 | % | |||||||||
Staff costs (2) | 48.3 | 51.6 | % | 34.3 | 49.6 | % | 14.0 | 40.7 | % | ||||||||||||
Administrative | 8.5 | 9.1 | % | 7.1 | 10.3 | % | 1.4 | 19.6 | % | ||||||||||||
Deferred acquisition consideration | (2.9 | ) | (3.1 | )% | 2.1 | 3.0 | % | (4.9 | ) | (238.5 | )% | ||||||||||
Stock-based compensation | 0.9 | 1.0 | % | 0.5 | 0.7 | % | 0.4 | 84.1 | % | ||||||||||||
Depreciation and amortization | 4.0 | 4.3 | % | 2.1 | 3.1 | % | 1.9 | 87.7 | % | ||||||||||||
Total operating expenses | $ | 78.4 | 83.8 | % | $ | 60.1 | 86.9 | % | $ | 18.3 | 30.4 | % |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Variance | |||||||||||||
Corporate | $ | $ | $ | % | |||||||||||
(Dollars in Millions) | |||||||||||||||
Staff costs (1) | $ | 6.4 | $ | 5.3 | $ | 1.1 | 20.1 | % | |||||||
Administrative | 5.4 | 3.6 | 1.8 | 51.0 | % | ||||||||||
Stock-based compensation | 1.2 | 0.5 | 0.7 | 136.2 | % | ||||||||||
Depreciation and amortization | 0.2 | 0.3 | (0.1 | ) | (46.5 | )% | |||||||||
Total operating expenses | $ | 13.1 | $ | 9.7 | $ | 3.5 | 35.6 | % |
(1) | Excludes stock-based compensation. |
Total | United States | Canada | Other | ||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||||||||
June 30, 2017 | $ | 735.2 | $ | 579.1 | $ | 57.1 | $ | 99.0 | |||||||||||||||||||
Components of revenue change: | |||||||||||||||||||||||||||
Foreign exchange impact | 8.6 | 1.2 | % | — | — | % | 2.4 | 4.2 | % | 6.2 | 6.3 | % | |||||||||||||||
Non-GAAP acquisitions (dispositions), net | (2.8 | ) | (0.4 | )% | $ | (0.8 | ) | (0.1 | )% | — | — | % | (1.9 | ) | (1.9 | )% | |||||||||||
Impact of adoption of ASC 606 | (31.0 | ) | (4.2 | )% | (15.0 | ) | (2.6 | )% | 2.6 | 4.6 | % | (18.6 | ) | (18.8 | )% | ||||||||||||
Organic revenue growth (decline) | (3.4 | ) | (0.5 | )% | (11.5 | ) | (2.0 | )% | (2.6 | ) | (4.6 | )% | 10.7 | 10.8 | % | ||||||||||||
Total Change | $ | (28.5 | ) | (3.9 | )% | $ | (27.4 | ) | (4.7 | )% | $ | 2.4 | 4.2 | % | $ | (3.6 | ) | (3.6 | )% | ||||||||
June 30, 2018 | $ | 706.7 | $ | 551.8 | $ | 59.5 | $ | 95.5 |
Global Integrated Agencies | Media Services | All Other | Total | ||||||||||||||
(Dollars in Millions) | |||||||||||||||||
GAAP revenue from 2018 acquisitions | $ | — | $ | — | $ | 11.1 | $ | 11.1 | |||||||||
Impact from adoption of ASC 606 | — | — | 0.5 | 0.5 | |||||||||||||
Contribution to non-GAAP organic revenue (growth) decline (2) | — | — | — | (3.4 | ) | — | (3.4 | ) | |||||||||
Prior year revenue from dispositions | (1.9 | ) | (8.2 | ) | (0.8 | ) | (10.9 | ) | |||||||||
Non-GAAP acquisitions (dispositions), net | $ | (1.9 | ) | $ | (8.2 | ) | $ | 7.3 | $ | (2.8 | ) |
2018 | 2017 | ||||
United States | 78.1 | % | 78.8 | % | |
Canada | 8.4 | % | 7.8 | % | |
Other | 13.5 | % | 13.4 | % |
2018 | 2017 | Change | |||||||||||||||||||
Advertising and Communications Group | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 706.7 | $ | 735.2 | $ | (28.5 | ) | (3.9 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 496.4 | 70.2 | % | 505.4 | 68.7 | % | (9.0 | ) | (1.8 | )% | |||||||||||
Office and general expenses | 143.2 | 20.3 | % | 155.7 | 21.2 | % | (12.5 | ) | (8.0 | )% | |||||||||||
Depreciation and amortization | 23.7 | 3.4 | % | 21.1 | 2.9 | % | 2.6 | 12.5 | % | ||||||||||||
$ | 663.4 | 93.9 | % | $ | 682.2 | 92.8 | % | $ | (18.8 | ) | (2.8 | )% | |||||||||
Operating profit | $ | 43.4 | 6.1 | % | $ | 53.0 | 7.2 | % | $ | (9.7 | ) | (18.3 | )% |
2018 | 2017 | Change | |||||||||||||||||||
Advertising and Communications Group | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 101.1 | 14.3 | % | $ | 129.9 | 17.7 | % | $ | (28.8 | ) | (22.2 | )% | ||||||||
Staff costs (2) | 437.7 | 61.9 | % | 411.6 | 56.0 | % | 26.1 | 6.3 | % | ||||||||||||
Administrative | 95.2 | 13.5 | % | 94.5 | 12.9 | % | 0.7 | 0.7 | % | ||||||||||||
Deferred acquisition consideration | (2.5 | ) | (0.4 | )% | 15.7 | 2.1 | % | (18.2 | ) | (115.8 | )% | ||||||||||
Stock-based compensation | 8.2 | 1.2 | % | 9.4 | 1.3 | % | (1.2 | ) | (12.8 | )% | |||||||||||
Depreciation and amortization | 23.7 | 3.4 | % | 21.1 | 2.9 | % | 2.6 | 12.5 | % | ||||||||||||
Total operating expenses | $ | 663.4 | 93.9 | % | $ | 682.2 | 92.8 | % | $ | (18.8 | ) | (2.8 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Global Integrated Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 333.0 | $ | 388.3 | $ | (55.4 | ) | (14.3 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 242.8 | 72.9 | % | 279.5 | 72.0 | % | (36.7 | ) | (13.1 | )% | |||||||||||
Office and general expenses | 73.3 | 22.0 | % | 84.1 | 21.6 | % | (10.7 | ) | (12.8 | )% | |||||||||||
Depreciation and amortization | 13.3 | 4.0 | % | 11.5 | 3.0 | % | 1.8 | 15.6 | % | ||||||||||||
$ | 329.5 | 99.0 | % | $ | 375.1 | 96.6 | % | $ | (45.6 | ) | (12.2 | )% | |||||||||
Operating profit | $ | 3.5 | 1.0 | % | $ | 13.2 | 3.4 | % | $ | (9.7 | ) | (73.7 | )% |
2018 | 2017 | Change | |||||||||||||||||||
Global Integrated Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 22.7 | 6.8 | % | $ | 60.6 | 15.6 | % | $ | (37.9 | ) | (62.6 | )% | ||||||||
Staff costs (2) | 238.5 | 71.6 | % | 234.1 | 60.3 | % | 4.4 | 1.9 | % | ||||||||||||
Administrative | 51.0 | 15.3 | % | 52.3 | 13.5 | % | (1.3 | ) | (2.5 | )% | |||||||||||
Deferred acquisition consideration | (1.2 | ) | (0.4 | )% | 10.5 | 2.7 | % | (11.6 | ) | (111.2 | )% | ||||||||||
Stock-based compensation | 5.1 | 1.5 | % | 6.1 | 1.6 | % | (0.9 | ) | (15.4 | )% | |||||||||||
Depreciation and amortization | 13.3 | 4.0 | % | 11.5 | 3.0 | % | 1.8 | 15.6 | % | ||||||||||||
Total operating expenses | $ | 329.5 | 99.0 | % | $ | 375.1 | 96.6 | % | $ | (45.6 | ) | (12.2 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Domestic Creative Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 50.7 | $ | 49.2 | $ | 1.5 | 3.0 | % | |||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 30.2 | 59.5 | % | 28.4 | 57.8 | % | 1.7 | 6.0 | % | ||||||||||||
Office and general expenses | 10.8 | 21.4 | % | 11.2 | 22.8 | % | (0.4 | ) | (3.2 | )% | |||||||||||
Depreciation and amortization | 0.8 | 1.6 | % | 0.8 | 1.6 | % | — | (1.0 | )% | ||||||||||||
$ | 41.8 | 82.4 | % | $ | 40.4 | 82.2 | % | $ | 1.3 | 3.3 | % | ||||||||||
Operating profit | $ | 8.9 | 17.6 | % | $ | 8.8 | 17.8 | % | $ | 0.1 | 1.5 | % |
2018 | 2017 | Change | |||||||||||||||||||
Domestic Creative Agencies | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 1.8 | 3.5 | % | $ | 1.9 | 3.9 | % | $ | (0.2 | ) | (7.9 | )% | ||||||||
Staff costs (2) | 32.1 | 63.3 | % | 31.0 | 62.9 | % | 1.1 | 3.6 | % | ||||||||||||
Administrative | 6.4 | 12.6 | % | 6.1 | 12.3 | % | 0.3 | 5.3 | % | ||||||||||||
Deferred acquisition consideration | — | — | % | 0.4 | 0.7 | % | (0.4 | ) | (100.0 | )% | |||||||||||
Stock-based compensation | 0.8 | 1.5 | % | 0.3 | 0.7 | % | 0.4 | 122.5 | % | ||||||||||||
Depreciation and amortization | 0.8 | 1.6 | % | 0.8 | 1.6 | % | — | (1.0 | )% | ||||||||||||
Total operating expenses | $ | 41.8 | 82.4 | % | $ | 40.4 | 82.2 | % | $ | 1.3 | 3.3 | % |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Specialist Communications | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 87.1 | $ | 84.8 | $ | 2.3 | 2.7 | % | |||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 58.3 | 66.9 | % | 58.8 | 69.3 | % | (0.5 | ) | (0.9 | )% | |||||||||||
Office and general expenses | 17.0 | 19.5 | % | 15.0 | 17.6 | % | 2.1 | 13.7 | % | ||||||||||||
Depreciation and amortization | 2.0 | 2.3 | % | 2.4 | 2.9 | % | (0.4 | ) | (16.7 | )% | |||||||||||
$ | 77.3 | 88.8 | % | $ | 76.2 | 89.8 | % | $ | 1.1 | 1.5 | % | ||||||||||
Operating profit | $ | 9.8 | 11.2 | % | $ | 8.6 | 10.2 | % | $ | 1.1 | 13.3 | % |
2018 | 2017 | Change | |||||||||||||||||||
Specialist Communications | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 20.3 | 23.4 | % | $ | 20.8 | 24.5 | % | $ | (0.4 | ) | (2.1 | )% | ||||||||
Staff costs (2) | 42.3 | 48.6 | % | 40.1 | 47.3 | % | 2.2 | 5.4 | % | ||||||||||||
Administrative | 11.3 | 13.0 | % | 10.7 | 12.7 | % | 0.6 | 5.2 | % | ||||||||||||
Deferred acquisition consideration | 0.8 | 0.9 | % | 0.5 | 0.6 | % | 0.3 | 71.5 | % | ||||||||||||
Stock-based compensation | 0.5 | 0.6 | % | 1.6 | 1.9 | % | (1.1 | ) | (68.9 | )% | |||||||||||
Depreciation and amortization | 2.0 | 2.3 | % | 2.4 | 2.9 | % | (0.4 | ) | (16.7 | )% | |||||||||||
Total operating expenses | $ | 77.3 | 88.8 | % | $ | 76.2 | 89.8 | % | $ | 1.1 | 1.5 | % |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
Media Services | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 69.4 | $ | 83.9 | $ | (14.5 | ) | (17.2 | )% | ||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 51.8 | 74.5 | % | 54.8 | 65.3 | % | (3.0 | ) | (5.5 | )% | |||||||||||
Office and general expenses | 17.1 | 24.7 | % | 20.3 | 24.1 | % | (3.1 | ) | (15.5 | )% | |||||||||||
Depreciation and amortization | 1.5 | 2.2 | % | 2.2 | 2.6 | % | (0.7 | ) | (30.9 | )% | |||||||||||
$ | 70.4 | 101.4 | % | $ | 77.3 | 92.1 | % | $ | (6.9 | ) | (8.9 | )% | |||||||||
Operating (loss) profit | $ | (1.0 | ) | (1.4 | )% | $ | 6.6 | 7.9 | % | $ | (7.6 | ) | (114.8 | )% |
2018 | 2017 | Change | |||||||||||||||||||
Media Services | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 18.5 | 26.6 | % | $ | 21.1 | 25.1 | % | $ | (2.6 | ) | (12.4 | )% | ||||||||
Staff costs (2) | 39.5 | 56.9 | % | 41.3 | 49.2 | % | (1.8 | ) | (4.3 | )% | |||||||||||
Administrative | 10.5 | 15.2 | % | 12.0 | 14.4 | % | (1.5 | ) | (12.6 | )% | |||||||||||
Deferred acquisition consideration | 0.2 | 0.3 | % | 0.3 | 0.4 | % | (0.1 | ) | (33.1 | )% | |||||||||||
Stock-based compensation | 0.2 | 0.2 | % | 0.3 | 0.4 | % | (0.2 | ) | (49.3 | )% | |||||||||||
Depreciation and amortization | 1.5 | 2.2 | % | 2.2 | 2.6 | % | (0.7 | ) | (30.9 | )% | |||||||||||
Total operating expenses | $ | 70.4 | 101.4 | % | $ | 77.3 | 92.1 | % | $ | (6.9 | ) | (8.9 | )% |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Change | |||||||||||||||||||
All Other | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Revenue | $ | 166.5 | $ | 129.0 | $ | 37.5 | 29.1 | % | |||||||||||||
Operating expenses | |||||||||||||||||||||
Cost of services sold | 113.4 | 68.1 | % | 83.8 | 65.0 | % | 29.6 | 35.3 | % | ||||||||||||
Office and general expenses | 25.0 | 15.0 | % | 25.3 | 19.6 | % | (0.3 | ) | (1.3 | )% | |||||||||||
Depreciation and amortization | 6.0 | 3.6 | % | 4.1 | 3.1 | % | 1.9 | 48.0 | % | ||||||||||||
$ | 144.4 | 86.7 | % | $ | 113.2 | 87.7 | % | $ | 31.2 | 27.6 | % | ||||||||||
Operating profit | $ | 22.2 | 13.3 | % | $ | 15.8 | 12.3 | % | $ | 6.3 | 40.0 | % |
2018 | 2017 | Change | |||||||||||||||||||
All Other | $ | % of Revenue | $ | % of Revenue | $ | % | |||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||
Direct costs (1) | $ | 37.9 | 22.7 | % | $ | 25.5 | 19.8 | % | $ | 12.4 | 48.5 | % | |||||||||
Staff costs (2) | 85.3 | 51.2 | % | 65.1 | 50.5 | % | 20.2 | 31.0 | % | ||||||||||||
Administrative | 16.0 | 9.6 | % | 13.4 | 10.4 | % | 2.6 | 19.4 | % | ||||||||||||
Deferred acquisition consideration | (2.3 | ) | (1.4 | )% | 4.1 | 3.2 | % | (6.5 | ) | (156.3 | )% | ||||||||||
Stock-based compensation | 1.6 | 1.0 | % | 1.0 | 0.8 | % | 0.6 | 58.1 | % | ||||||||||||
Depreciation and amortization | 6.0 | 3.6 | % | 4.1 | 3.1 | % | 1.9 | 48.0 | % | ||||||||||||
Total operating expenses | $ | 144.4 | 86.7 | % | $ | 113.2 | 87.7 | % | $ | 31.2 | 27.6 | % |
(1) | Excludes staff costs. |
(2) | Excludes stock-based compensation and is comprised of amounts reported in both cost of services and office and general expenses. |
2018 | 2017 | Variance | |||||||||||||
Corporate | $ | $ | $ | % | |||||||||||
(Dollars in Millions) | |||||||||||||||
Staff costs (1) | $ | 11.7 | $ | 9.5 | $ | 2.2 | 23.1 | % | |||||||
Administrative | 10.3 | 7.0 | 3.3 | 47.4 | % | ||||||||||
Stock-based compensation | 2.5 | 1.1 | 1.3 | 120.2 | % | ||||||||||
Depreciation and amortization | 0.4 | 0.6 | (0.2 | ) | (36.8 | )% | |||||||||
Other asset impairment | 2.3 | — | 2.3 | NM | |||||||||||
Total operating expenses | $ | 27.2 | $ | 18.3 | $ | 9.0 | 49.0 | % |
(1) | Excludes stock-based compensation. |
Dollars in millions | As of and for the six months ended June 30, 2018 | As of and for the six months ended June 30, 2017 | As of and for the year ended December 31, 2017 | ||||||||
Cash and cash equivalents | $ | 25.0 | $ | 20.3 | $ | 46.2 | |||||
Working capital (deficit) | $ | (177.0 | ) | $ | (263.7 | ) | $ | (232.9 | ) | ||
Cash (used in) provided by operating activities | $ | (61.7 | ) | $ | (0.7 | ) | $ | 115.3 | |||
Cash used in investing activities | $ | (36.1 | ) | $ | (22.9 | ) | $ | (20.9 | ) | ||
Cash provided by (used in) financing activities | $ | 76.3 | $ | 17.1 | $ | (75.4 | ) | ||||
Ratio of long-term debt to shareholders' deficit | (6.52 | ) | (2.28 | ) | (5.68 | ) |
June 30, 2018 | |||
Total Senior Leverage Ratio | 0.6 | ||
Maximum per covenant | 2.0 | ||
Total Leverage Ratio | 5.4 | ||
Maximum per covenant | 5.5 | ||
Fixed Charges Ratio | 2.4 | ||
Minimum per covenant | 1.0 | ||
Earnings before interest, taxes, depreciation and amortization | $ | 187,350 | |
Minimum per covenant | $ | 105,000 |
June 30, 2018 | |||||||||||||||||||||||
(amounts in $ millions) | Global Integrated Agencies | Domestic Creative Agencies | Specialist Communication Agencies | Media Services | All Other | Total | |||||||||||||||||
Beginning Balance of contingent payments | $ | 81.4 | $ | — | $ | 5.5 | $ | 3.7 | $ | 28.5 | $ | 119.1 | |||||||||||
Payments | (30.8 | ) | — | (3.8 | ) | — | (14.0 | ) | (48.6 | ) | |||||||||||||
Additions (1) | — | — | 9.7 | — | — | 9.7 | |||||||||||||||||
Redemption value adjustments (2) | 2.2 | — | 1.0 | 0.2 | (1.2 | ) | 2.2 | ||||||||||||||||
Ending Balance of contingent payments | 52.8 | — | 12.4 | 3.9 | 13.3 | 82.4 | |||||||||||||||||
Fixed payments | 0.3 | — | — | — | 1.0 | 1.3 | |||||||||||||||||
$ | 53.1 | $ | — | $ | 12.4 | $ | 3.9 | $ | 14.3 | $ | 83.7 |
(1) | Additions are the initial estimated deferred acquisition payments of new acquisitions and step-up transactions completed within that fiscal period. |
(2) | Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments, including the accretion of present value and stock-based compensation charges relating to acquisition payments that are tied to continued employment. |
Consideration (4) | 2018 | 2019 | 2020 | 2021 | 2022 & Thereafter | Total | |||||||||||||||||||
(Dollars in Millions) | |||||||||||||||||||||||||
Cash | $ | 3.7 | $ | 2.1 | $ | 3.4 | $ | 2.0 | $ | 2.0 | $ | 13.2 | |||||||||||||
Shares | — | — | 0.1 | — | — | 0.1 | |||||||||||||||||||
$ | 3.7 | $ | 2.1 | $ | 3.5 | $ | 2.0 | $ | 2.0 | $ | 13.3 | (1) | |||||||||||||
Operating income before depreciation and amortization to be received (2) | $ | 2.4 | $ | 0.1 | $ | 1.5 | $ | — | $ | 0.2 | $ | 4.2 | |||||||||||||
Cumulative operating income before depreciation and amortization (3) | $ | 2.4 | $ | 2.5 | $ | 4.0 | $ | 4.0 | $ | 4.2 | (5) |
(1) | This amount is in addition to (i) the $37.0 million of options to purchase only exercisable upon termination not within the control of the Company, or death, and (ii) the $5.4 million excess of the initial redemption value recorded in redeemable noncontrolling interests over the amount the Company would be required to pay to the holders should the Company acquire the remaining ownership interests. |
(2) | This financial measure is presented because it is the basis of the calculation used in the underlying agreements relating to the put rights and is based on actual operating results. This amount represents additional amounts to be attributable to MDC Partners Inc., commencing in the year the put is exercised. |
(3) | Cumulative operating income before depreciation and amortization represents the cumulative amounts to be received by the Company. |
(4) | The timing of consideration to be paid varies by contract and does not necessarily correspond to the date of the exercise of the put. |
(5) | Amounts are not presented as they would not be meaningful due to multiple periods included. |
• | 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 redeemable noncontrolling interests and deferred acquisition consideration; |
• | the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities, and the potential impact of one or more asset sales; |
• | foreign currency fluctuations; and |
• | risks associated with the ongoing DOJ investigation of the historical production bidding practices at one of the Company’s subsidiaries. |
• | We updated our policies and procedures related to recognizing revenue and added documentation processes related to the new criteria for recognizing revenue. |
• | We added controls for reviewing variable consideration estimates and for reevaluating our significant contract judgments and estimates quarterly. |
• | We added controls to address related required disclosures regarding revenue, including the disclosure of performance obligations and our significant judgments and estimates for determining the transaction price and when to recognize revenue. |
Exhibit No. | Description | |
MDC Partners Inc. 2016 Stock Incentive Plan, as amended June 6, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 7, 2018). | ||
Statement of computation of ratio of earnings to fixed charges.* | ||
Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.* | ||
Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.* | ||
Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | ||
Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | ||
Schedule of Advertising and Communications Companies.* | ||
101 | Interactive data file.* |
MDC PARTNERS INC. | |
/s/ David Doft | |
David Doft | |
Chief Financial Officer and Authorized Signatory | |
August 7, 2018 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
(000’s) | (000’s) | ||||||
Earnings: | |||||||
Income (loss) attributable to MDC Partners Inc. | $ | (26,010 | ) | $ | 687 | ||
Additions: | |||||||
Income tax expense (benefit) | (6,353 | ) | 8,610 | ||||
Net income attributable to the noncontrolling interests | 3,442 | 3,097 | |||||
Fixed charges, as shown below | 43,883 | 42,555 | |||||
Distributions received from equity-method investments | — | — | |||||
40,972 | 54,262 | ||||||
Subtractions: | |||||||
Equity in earnings of non-consolidated affiliates | 58 | 502 | |||||
Earnings as adjusted | $ | 14,904 | $ | 54,447 | |||
Fixed charges: | |||||||
Interest on indebtedness, expensed or capitalized | 31,644 | 30,976 | |||||
Amortization of debt discount and expense and premium on indebtedness, expensed or capitalized | 1,605 | 1,480 | |||||
Interest within rent expense | 10,634 | 10,099 | |||||
Total fixed charges | $ | 43,883 | $ | 42,555 | |||
Ratio of earnings to fixed charges | N/A | 1.28 | |||||
Fixed charge deficiency | $ | 28,979 | N/A |
1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2018 of MDC Partners Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 7, 2018 | /s/ SCOTT L. KAUFFMAN | |
By: | Scott L. Kauffman | |
Title: | Chairman and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2018 of MDC Partners Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 7, 2018 | /s/ DAVID B. DOFT | |
By: | David B. Doft | |
Title: | Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 7, 2018 | ||
/s/ SCOTT L. KAUFFMAN | ||
By: | Scott L. Kauffman | |
Title: | Chairman and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 7, 2018 | ||
/s/ DAVID B. DOFT | ||
By: | David B. Doft | |
Title: | Chief Financial Officer |
Year of Initial | ||||
Company | Investment | Locations | ||
Consolidated: | ||||
Global Integrated Agencies: | ||||
72andSunny | 2010 | Los Angeles, New York, Netherlands, UK, Australia, Singapore | ||
Anomaly | 2011 | New York, Los Angeles, Netherlands, Canada, UK, China, Germany | ||
Crispin Porter + Bogusky | 2001 | Miami, Boulder, Los Angeles, UK, Denmark, Brazil, China | ||
Doner | 2012 | Detroit, Cleveland, Los Angeles, UK | ||
Doner CX | 1998 | Norwalk, Pittsburgh | ||
Forsman & Bodenfors | 2016 | Sweden | ||
kbs+ | 2004 | New York, Canada, China, UK, Los Angeles | ||
Albion | 2014 | UK | ||
Attention | 2009 | New York, Los Angeles | ||
The Media Kitchen | 2010 | New York, Canada, UK | ||
Domestic Creative Agencies: | ||||
Colle + McVoy | 1999 | Minneapolis | ||
Laird + Partners | 2011 | New York | ||
Mono Advertising | 2004 | Minneapolis, San Francisco | ||
Union | 2013 | Canada | ||
Yamamoto | 2000 | Minneapolis | ||
Civilian | 2000 | Chicago | ||
Specialist Communications: | ||||
Allison & Partners | 2010 | San Francisco, Los Angeles, New York and other US Locations, China, France, Singapore, UK, Japan, Germany | ||
Luntz Global | 2014 | Washington, D.C. | ||
Sloane & Company | 2010 | New York | ||
HL Group Partners | 2007 | New York, Los Angeles, China | ||
Hunter PR | 2014 | New York, UK | ||
Kwittken | 2010 | New York, UK, Canada | ||
Veritas | 1993 | Canada | ||
Media Services: | ||||
MDC Media Partners | 2010 | |||
Assembly | 2010 | New York, Detroit, Atlanta, Los Angeles | ||
EnPlay | 2015 | New York | ||
Trade X | 2011 | New York | ||
Unique Influence | 2015 | Austin | ||
Yes & Company | 2018 | New York | ||
Bruce Mau Design | 2004 | Canada | ||
Hello Design | 2004 | Los Angeles | ||
Northstar Research Partners | 1998 | Canada, New York, UK, Indonesia | ||
Varick Media Management | 2010 | New York | ||
All Other: | ||||
6degrees Communications | 1993 | Canada | ||
Boom Marketing | 2005 | Canada | ||
Concentric Partners | 2011 | New York, UK | ||
Gale Partners | 2014 | Canada, New York, India | ||
Instrument | 2018 | Portland | ||
Kenna | 2010 | Canada | ||
Kingsdale | 2014 | Canada, New York | ||
Redscout | 2007 | New York, San Francisco, UK | ||
Relevent | 2010 | New York | ||
Source Marketing | 1998 | Norwalk, Pittsburgh | ||
TEAM | 2010 | Ft. Lauderdale | ||
Vitro | 2004 | San Diego, Austin | ||
Y Media Labs | 2015 | Redwood City, New York, India |
Document And Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jul. 31, 2018 |
|
Document Information [Line Items] | ||
Entity Registrant Name | MDC PARTNERS INC | |
Entity Central Index Key | 0000876883 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Trading Symbol | MDCA | |
Document Type | 10-Q | |
Document Fiscal Year Focus | 2018 | |
Document Period End Date | Jun. 30, 2018 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Common Class A | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 59,809,581 | |
Common Class B | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 3,755 | |
Convertible Preferred Stock | Series 4 Convertible Preferred Stock | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 95,000 |
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Comprehensive income (loss) | ||||
Net loss | $ 5,951 | $ 13,467 | $ (22,568) | $ 3,784 |
Other comprehensive income, net of applicable tax: | ||||
Foreign currency translation adjustment | 1,848 | (550) | (429) | (618) |
Other comprehensive income | (1,848) | 550 | 429 | 618 |
Comprehensive loss for the period | 4,103 | 14,017 | (22,139) | 4,402 |
Comprehensive loss (income) attributable to the noncontrolling interests | (1,641) | (3,220) | (1,436) | (4,368) |
Comprehensive loss attributable to MDC Partners Inc. | $ 2,462 | $ 10,797 | $ (23,575) | $ 34 |
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Accounts receivable, allowance for doubtful accounts (in dollars) | $ 2,524 | $ 2,453 |
Accumulated depreciation (in dollars) | $ 120,119 | $ 123,599 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT - 6 months ended Jun. 30, 2018 - USD ($) $ in Thousands |
Total |
Convertible Preferred Stock
Series 4 Convertible Preferred Stock
|
Common Stock |
Common Stock
Common Class A [Member]
|
Additional Paid-in Capital |
Charges in Excess of Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
MDC Partners Inc. Shareholders' Deficit |
Noncontrolling Interest |
Contingent Consideration, Liability Settlements [Domain] |
Contingent Consideration, Liability Settlements [Domain]
MDC Partners Inc. Shareholders' Deficit
|
---|---|---|---|---|---|---|---|---|---|---|---|---|
Stock Issued During Period, Shares, Acquisitions | 1,011,561 | |||||||||||
Balance at Dec. 31, 2017 | $ (155,513) | $ 90,220 | $ 352,432 | $ 0 | $ (314,241) | $ (340,000) | $ (1,954) | $ (213,543) | $ 58,030 | |||
Balance (in shares) at Dec. 31, 2017 | 95,000 | 56,375,131 | 56,371,376 | |||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Net loss attributable to MDC Partners Inc. | (26,010) | (26,010) | ||||||||||
Other comprehensive income (loss) | 429 | 2,435 | 2,435 | (2,006) | ||||||||
Issuance of Series 4 convertible preference shares in private placement (in shares) | 0 | |||||||||||
Expenses for convertible preference shares (Note 9) | (97) | $ (97) | (97) | |||||||||
Issuance of restricted stock | 0 | $ 1,354 | (1,354) | |||||||||
Issuance of restricted stock (in shares) | 122,029 | |||||||||||
Shares acquired and cancelled | (493) | $ (493) | (493) | |||||||||
Shares acquired and cancelled (in shares) | (54,693) | |||||||||||
Stock-based compensation | 4,324 | 4,324 | 4,324 | |||||||||
Changes in redemption value of redeemable noncontrolling interests | (2,062) | (2,062) | (2,062) | |||||||||
Increase (decrease) in noncontrolling interests and redeemable noncontrolling interests from business acquisitions and step-up transactions | 26,191 | (1,166) | (1,166) | |||||||||
Changes in noncontrolling interests and redeemable noncontrolling interests from changes in ownership interest | (5,965) | (5,965) | ||||||||||
Cumulative effect of adoption of ASC 606 (Note 14) | (1,170) | (1,170) | (1,170) | |||||||||
Transfer to charges in excess of capital | 0 | 258 | (258) | |||||||||
Balance at Jun. 30, 2018 | $ (153,336) | $ 90,123 | $ 360,323 | $ 0 | $ (314,499) | $ (367,180) | $ 481 | $ (230,752) | $ 77,416 | |||
Balance (in shares) at Jun. 30, 2018 | 95,000 | 57,454,028 | 57,450,273 | |||||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||||||
Stock Issued During Period, Value, Acquisitions | $ 7,030 | $ 7,030 | $ 7,030 |
Basis of Presentation |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation MDC Partners Inc. (the “Company” or “MDC”) has prepared the unaudited condensed consolidated interim financial statements included herein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to these rules. The accompanying consolidated financial statements include the accounts of MDC Partners Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, contingent deferred acquisition consideration, valuation allowances for receivables, deferred tax assets and the amounts of revenue and expenses reported during the period. These estimates are evaluated on an ongoing basis and are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Actual results could differ from these estimates. 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. Results of operations for interim periods are not necessarily indicative of annual results. References herein to “Partner Firms” generally refer to the Company’s subsidiary agencies. In August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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. The new pronouncement states that any cash payments made soon after the acquisition date of a business to settle a contingent consideration liability are classified as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities up to the amount of the contingent consideration liability recognized at the acquisition date and as cash outflows from operating activities for any excess. The Company adopted the provisions of ASU 2016-15 on January 1, 2018 on a retrospective basis. As a result, $24,459 of an acquisition-related contingent consideration payment of $65,121, which was in excess of the liability initially recognized at the acquisition date, has been classified as a cash outflow within net cash provided by operating activities in the accompanying unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2017. These statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”). |
Revenue |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | Revenue Effective January 1, 2018, the Company adopted FASB 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 FASB ASC Topic 605, Revenue Recognition (“ASC 605”). See Note 13 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional details surrounding the Company’s adoption of ASC 606. The Company’s policy surrounding revenue under ASC 605 is described in Note 2 of Item 8 of the Company’s 2017 Form 10-K. The policies described herein refer to those in effect as of January 1, 2018. 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 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. 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. Although certain of our performance obligations are recognized at a point in time, we typically satisfy our performance obligations over time, as services are performed. 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. Fees for services are typically recognized using input methods that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. 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 for our client, then we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. We have determined that 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, 2018 and 2017, and the impact of adoption of ASC 606:
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 thirteen 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 more detailed information about the Company’s reportable segments, see Note 11. 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 $78,293 and $54,177 at June 30, 2018 and December 31, 2017, 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 $59,081 and $31,146 at June 30, 2018 and December 31, 2017, 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 the production process. 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, 2018 and December 31, 2017 were $184,269 and $148,133, respectively. The increase in the advance billings balance of $36,136 for the six months ended June 30, 2018 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $58,888 of revenues recognized that were included in the advance billings balances as of December 31, 2017. Changes in the contract asset and liability balances during the six months ended June 30, 2018 and December 31, 2017 were not materially impacted by write offs, impairment losses or any other factors. Practical expedients In adopting ASC 606, the Company applied the practical expedient to not disclose information about remaining performance obligations that have original expected durations of one year or less. Amounts related to those performance obligations with expected durations of more than one year are immaterial. |
Loss Per Common Share |
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Loss Per Common Share | Loss) Per Common Share The following table sets forth the computation of basic and diluted income (loss) per common share:
Anti-dilutive stock awards 327,500 327,500 1,594,761 1,233,585 Restricted stock and restricted stock unit awards of 1,308,781 and 1,443,921 for the three and six months ended June 30, 2018 and 2017, respectively, which are contingent upon the Company meeting a cumulative three year earnings target (2018, 2019 and 2020) and continued employment, are excluded from the computation of diluted income per common share as the contingency was not satisfied at June 30, 2018 or 2017. In addition, there were 95,000 shares of Preference Shares outstanding which were convertible into 10,544,708 and 9,741,680 Class A common shares at June 30, 2018 and 2017, 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. |
Acquisitions and Dispositions |
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Acquisitions and Dispositions | Acquisitions Valuations of acquired companies are based on a number of factors, including specialized know-how, reputation, competitive position and service offerings. The Company’s acquisition strategy has been focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of its various strategic business platforms to better serve the Company’s clients. The Company’s strategy includes acquiring ownership stakes in well-managed businesses with strong reputations in the industry. The Company’s model of “Perpetual Partnership” often involves acquiring a majority interest rather than a 100% interest and leaving management owners with a significant financial interest in the performance of the acquired entity for a minimum period of time, typically not less than five years. The Company’s acquisition model in this scenario typically provides for (i) an initial payment at the time of closing, (ii) additional contingent purchase price obligations based on the future performance of the acquired entity, and (iii) an option by the Company to purchase (and in some instances a requirement to so purchase) the remaining interest of the acquired entity under a predetermined formula. The Company expenses acquisition related costs as incurred. For the three and six months ended June 30, 2018 and 2017, $335 and $711, respectively, and $242 and $476 respectively, of acquisition related costs were charged to operations. Contingent purchase price obligations. The Company’s contingent purchase price obligations are generally payable within a five-year period following the acquisition date, and are based on (i) the achievement of specific thresholds of future earnings, and (ii) in certain cases, the growth rate of those earnings. Contingent purchase price obligations are recorded as deferred acquisition consideration on the balance sheet at the acquisition date fair value and adjusted at each reporting period through operating income or net interest expense, depending on the nature of the arrangement. For the three and six months ended June 30, 2018 and 2017, $5,065 and $2,480 of income, respectively, and $4,306 and $15,737 of expense, respectively, related to changes in such estimated values and was recorded in results of operations. On occasion, the Company may initiate a renegotiation of previously acquired ownership interests and any resulting change in the estimated amount of consideration to be paid is adjusted in the reporting period through operating income or net interest expense, depending on the nature of the arrangement. See Note 9 and 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included here in for additional information on deferred acquisition consideration. Options to purchase. When acquiring less than 100% ownership, 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 balance sheet. 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 balance sheet amounts. See Note 12 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information on redeemable noncontrolling interests. Employment conditions. From time to time, specifically when the projected success of an acquisition is deemed to be dependent on retention of specific personnel, such acquisition may include deferred payments that are contingent upon employment terms as well as financial performance. The Company accounts for those payments through operating income as stock-based compensation over the required retention period. For the three and six months ended June 30, 2018 and 2017, stock-based compensation included $3,486 and $2,460, respectively, and $6,315 and $5,728, respectively, of expense relating to those payments. Distributions to noncontrolling shareholders. If noncontrolling shareholders have the right to receive distributions based on the profitability of an acquired entity, the amount is recorded as income attributable to noncontrolling interests. However, there are circumstances when the Company acquires a majority interest and the selling shareholders waive their right to receive distributions with respect to their retained interest for a period of time, typically not less than five years. Under this model, the right to receive such distributions typically begins concurrently with the purchase option period and, therefore, if such option is exercised at the first available date, the Company may not record any noncontrolling interest over the entire period from the initial acquisition date through the acquisition date of the remaining interests. 2018 Acquisitions 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 estimated 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 preliminary purchase price allocation resulted in tangible assets of $10,304, identifiable intangibles of $23,130, consisting primarily of customer lists and a trade name, and goodwill of $29,514. 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 consolidated financial statements.The operating results of Instrument in the current and prior year are 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 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. 2017 Acquisitions In 2017, the Company entered into various non-material transactions in connection with certain of its majority-owned entities. As a result of the foregoing, the Company made total cash closing payments of $3,352, increased fixed deferred consideration liability by $7,208, reduced redeemable noncontrolling interests by $269, reduced noncontrolling interests by $11,947, and increased additional paid-in capital by $2,652. In addition, a stock-based compensation charge of $997 has been recognized representing the consideration paid in excess of the fair value of the interest acquired. Noncontrolling Interests Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three months ended June 30, 2018 and 2017 were as follows: Net Income (Loss) Attributable to MDC Partners Inc. and Transfers (to) from the Noncontrolling Interests
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Accounts Payable, Accruals and Other Liabilities |
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Accrued and Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts Payable, Accruals and Other Liabilities | Accounts Payable, Accruals and Other Liabilities At June 30, 2018 and December 31, 2017, accruals and other liabilities included accrued media of $191,152 and $207,482, respectively; and included amounts due to noncontrolling interest holders for their share of profits. Changes in amounts due to noncontrolling interest holders included in accrued and other liabilities for the year ended December 31, 2017 and six months ended June 30, 2018 were as follows:
At June 30, 2018 and December 31, 2017, accounts payable included $28,961 and $41,989 of outstanding checks, respectively. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt The Company’s indebtedness was comprised as follows:
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 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 at a rate of 6.50% per annum, accruing from March 23, 2016. Interest is payable semiannually in arrears on May 1 and November 1 of each year, beginning November 1, 2016. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased. The Company received net proceeds from the offering of the 6.50% Notes equal to approximately $880,000. The Company used the net proceeds to redeem all of its existing 6.75% Notes, together with accrued interest, related premiums, fees and expenses and recorded a charge for the loss on redemption of such notes of $33,298, including write offs of unamortized original issue premium and debt issuance costs. Remaining proceeds were used for general corporate purposes, including funding of deferred acquisition consideration. The 6.50% Notes are guaranteed on a senior unsecured basis by all of MDC’s existing and future restricted subsidiaries that guarantee, or are co-borrowers under or grant liens to secure, the Credit Agreement. The 6.50% Notes are unsecured and unsubordinated obligations of MDC and rank (i) equally in right of payment with all of MDC’s or any Guarantor’s existing and future senior indebtedness, (ii) senior in right of payment to MDC’s or any Guarantor’s existing and future subordinated indebtedness, (iii) effectively subordinated to all of MDC’s or any Guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness, including the Credit Agreement, and (iv) structurally subordinated to all existing and future liabilities of MDC’s subsidiaries that are not Guarantors. 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 (i) at a redemption price of 104.875% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2019, (ii) at a redemption price of 103.250% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2020, (iii) at a redemption price of 101.625% of the principal amount thereof if redeemed during the twelve-month period beginning on May 1, 2021, and (iv) at a redemption price of 100% of the principal amount thereof if redeemed on May 1, 2022 and thereafter. Prior to May 1, 2019, MDC may, at its option, redeem some or all of the 6.50% Notes at a price equal to 100% of the principal amount of the 6.50% Notes plus a “make whole” premium and accrued and unpaid interest. MDC may also redeem, at its option, prior to May 1, 2019, up to 35% of the 6.50% Notes with the proceeds from one or more equity offerings at a redemption price of 106.50% of the principal amount thereof. If MDC experiences certain kinds of changes of control (as defined in the Indenture), holders of the 6.50% Notes may require MDC to repurchase any 6.50% Notes held by them at a price equal to 101% of the principal amount of the 6.50% Notes plus accrued and unpaid interest. In addition, if MDC sells assets under certain circumstances, it must apply the proceeds from such sale and offer to repurchase the 6.50% Notes at a price equal to 100% of the principal amount plus accrued and unpaid interest. The Indenture includes covenants that, among other things, restrict MDC’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; create restrictions on the payment of dividends or other amounts from MDC’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants 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, 2018. Interest expense primarily consists of the cost of borrowing on the Company’s currently outstanding 6.50% senior unsecured notes due 2024 (the “6.50% Notes”) and the Company’s $325,000 senior secured revolving credit agreement due 2021 (the “Credit Agreement“). The Company uses the effective interest method to amortize the deferred financing costs on the 6.50% Notes. The Company uses the straight-line method to amortize the deferred financing costs on the Credit Agreement. For the three and six months ended June 30, 2018 and 2017, interest expense included $14 and $26, respectively, and $25 and $54, respectively, relating to present value adjustments for fixed deferred acquisition consideration payments. Revolving Credit Agreement On March 20, 2013, MDC, Maxxcom Inc. (a subsidiary of MDC) and each of their subsidiaries party thereto entered into an amended and restated, $225,000 senior secured revolving credit agreement due 2018 (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as agent, 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. Capitalized terms used in this section and not otherwise defined have the meanings set forth in the Credit Agreement. Effective October 23, 2014, MDC and its subsidiaries entered into an amendment to its Credit Agreement. The amendment: (i) expanded the commitments under the facility by $100,000, from $225,000 to $325,000; (ii) extended the date by an additional eighteen months to September 30, 2019; (iii) reduced the base borrowing interest rate by 25 basis points (the applicable margin for borrowing is 1.00% in the case of Base Rate Loans and 1.75% in the case of LIBOR Rate Loans); and (iv) modified certain covenants to provide the Company with increased flexibility to fund its continued growth and other general corporate purposes. Effective May 3, 2016, MDC and its subsidiaries entered into an additional amendment to its Credit Agreement. The amendment: (i) extends the date by an additional nineteen months to May 3, 2021; (ii) reduces the base borrowing interest rate by 25 basis points; (iii) provides the Company the ability to borrow in foreign currencies; and (iv) certain other modifications to provide additional flexibility in operating the Company’s business. 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 1.50% in the case of Base Rate Loans and 1.75% 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 is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary exceptions. The Credit Agreement includes covenants that, among other things, restrict MDC’s ability and the ability of its subsidiaries to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of MDC; make certain types of investments; impose limitations on dividends or other amounts from MDC’s subsidiaries; incur certain liens, sell or otherwise dispose of certain assets; enter into transactions with affiliates; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of MDC’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The Credit Agreement also contains financial covenants, including a total leverage ratio, a senior leverage ratio, a fixed charge coverage ratio and a minimum earnings level (each as more fully described in the Credit Agreement). The Credit Agreement is also subject to customary events of default. The Company is currently in compliance with all of the terms and conditions of its Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with the covenants over the next twelve months. At June 30, 2018, there were $115,244 borrowings under the Credit Agreement. At June 30, 2018, the Company had issued $5,248 of undrawn outstanding letters of credit. |
Share Capital |
6 Months Ended |
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Jun. 30, 2018 | |
Share Capital [Abstract] | |
Share Capital | Share Capital The Company’s issued and outstanding share capital is as follows: Series 4 Convertible Preference Shares A total of 95,000, non-voting convertible preference shares, all of which were issued and outstanding as of June 30, 2018 and December 31, 2017. See Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information. 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 57,450,273 and 56,371,376 Class A Shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively. On June 6, 2018, the Company’s shareholders approved additional authorized Class A Shares of 1,250,000 to be added to the Company’s 2016 Stock Incentive Plan, for a total of 2,750,000 authorized Class A Shares under the 2016 Stock Incentive Plan. Class B Common Shares (“Class B Shares”) An unlimited number of voting shares, carrying 20 votes each, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,755 Class B Shares issued and outstanding as of June 30, 2018 and December 31, 2017. |
Convertible Preference Shares (Notes) |
6 Months Ended |
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Jun. 30, 2018 | |
Convertible Preference Shares [Abstract] | |
Convertible Preference Shares | Convertible Preference Shares On March 7, 2017 (the “Issue Date”), the Company issued 95,000 newly created 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, effective March 7, 2017, the Company increased the size of its Board of Directors (the “Board”) to seven members and appointed one nominee designated by the Purchaser. Except as required by law, the Preference Shares do not have voting rights, and are not redeemable at the option of the Purchaser. The holders of the Preference Shares have the right to convert their Preference Shares in whole at any time and from time to time, and in part at any time and from time to time after the ninetieth day following the original issuance date of the Preference Shares, 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 Preference Share is $1,000. The initial Conversion Price will be $10.00 per 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 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Issue Date. During the six months ended June 30, 2018, the Preference Shares accreted at a monthly rate of approximately $7.25 per Preference Share, for total accretion of $4,095, bringing the aggregate liquidation preference to $105,447 as of June 30, 2018. 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. Holders of the 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 Preference Shares. The 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 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 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 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value. |
Fair Value Measurements |
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Fair Value Measurements | Fair Value Measurements Authoritative guidance for fair value establishes a framework for measuring fair value. 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 order to increase consistency and comparability in fair value measurements, the guidance establishes a hierarchy for observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
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. 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 non-recurring basis at June 30, 2018 and December 31, 2017:
Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices. Financial Liabilities Measured at Fair Value on a Recurring Basis The following table presents changes in deferred acquisition consideration, which is measured at fair value on a recurring basis, at June 30, 2018 and December 31, 2017:
In addition to the above amounts, there are fixed payments of $1,343 and $3,340 for total deferred acquisition consideration of $83,707 and $122,426, which reconciles to the consolidated balance sheets at June 30, 2018 and December 31, 2017, respectively. Effective January 1, 2018, as a result of the adoption of ASU 2016-15, the Company includes payments of deferred acquisition consideration relating to the liability initially recognized at the acquisition date in financing activities, and any changes as an operating activities in the Company’s consolidated statement of cash flows. See Note 13 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information. Level 3 payments relate to payments made for deferred acquisition consideration. Level 3 grants relate to contingent purchase price obligations related to acquisitions and are recorded on the balance sheet at the acquisition date fair value. The estimated liability is determined in accordance with various contractual valuation formulas that may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and, in some cases, the currency exchange rate as of the date of payment. Level 3 redemption value adjustments relate to the remeasurement and change in these various contractual valuation formulas as well as adjustments of present value. At June 30, 2018 and December 31, 2017, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity. The Company does not disclose the fair value for equity method investments or investments held at cost as it is not practical to estimate fair value since there is no readily available market data. Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis On a nonrecurring basis, the Company uses fair value measures when analyzing asset impairment. Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined such indicators are present and the review indicates that the assets will not be fully recoverable, based on undiscounted estimated cash flows over the remaining amortization periods, their carrying values are reduced to estimated fair value. Measurements based on undiscounted cash flows are considered to be Level 3 inputs. During the fourth quarter of each year, the Company evaluates goodwill and indefinite-lived intangibles for impairment at the reporting unit level. During the second quarter of 2018, the Company performed an interim goodwill impairment evaluation noting that certain reporting units' fair value exceeded their carrying value by a minimal percentage. For each acquisition, the Company performed a detailed review to identify intangible assets and a valuation is performed for all such identified assets. The Company used several market participant measurements to determine estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. The amounts allocated to assets acquired and liabilities assumed in the acquisitions were determined using Level 3 inputs. Fair value for property and equipment was based on other observable transactions for similar property and equipment. Accounts receivable represents the best estimate of balances that will ultimately be collected, which is based in part on allowance for doubtful accounts reserve criteria and an evaluation of the specific receivable balances. |
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Other Income (Loss) |
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Segment Information | Segment Information The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”) to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics. Due to changes in the Company’s internal management and reporting structure during 2018, reportable segment results for periods presented prior to the second quarter of 2018 have been recast to reflect the reclassification of certain businesses between segments. The changes were as follows:
The four reportable segments that result from applying the aggregation criteria are as follows: “Global Integrated Agencies”; “Domestic Creative Agencies”; “Specialist Communications”; and “Media Services.” In addition, the Company combines and discloses those operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein, and Note 2 of the Company’s Form 10-K for the year ended December 31, 2017.
The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed. See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for three and six months ended June 30, 2018 and 2017. |
Commitments, Contingencies and Guarantees |
6 Months Ended |
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Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments, Contingencies and Guarantees | Commitments, Contingencies, and Guarantees Deferred Acquisition Consideration. In addition to the consideration paid by the Company in respect of certain of its acquisitions at closing, additional consideration may be payable, or may be potentially payable based on the achievement of certain threshold levels of earnings. See Notes 4 and 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information. Options to Purchase. Noncontrolling shareholders in certain subsidiaries have the right in certain circumstances to require the Company to acquire the remaining ownership interests held by them. 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 2018 to 2023. 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 amount payable by the Company in the event such rights are exercised is dependent on various valuation formulas and on future events, such as the average earnings of the relevant subsidiary through the date of exercise, the growth rate of the earnings of the relevant subsidiary during that period and, in some cases, the currency exchange rate at the date of payment. Management estimates, assuming that the subsidiaries owned by the Company at June 30, 2018, perform over the relevant future periods at their trailing twelve-month earnings levels, that these rights, if all exercised, could require the Company, to pay an aggregate amount of approximately $13,330 to the owners of such rights in future periods to acquire such ownership interests in the relevant subsidiaries. Of this amount, the Company is entitled, at its option, to fund approximately $154 by the issuance of share capital. In addition, the Company is obligated under similar put option rights to pay an aggregate amount of approximately $37,003 only upon termination of such owner’s employment with the applicable subsidiary or death. The amount the Company would be required to pay to the noncontrolling interest holders should the Company acquire the remaining ownership interests is $5,397 less than the initial redemption value recorded in redeemable noncontrolling interests. Included in redeemable noncontrolling interests at June 30, 2018 was $55,730 of these put options because they are not within the control of the Company. The ultimate amount payable relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised. Natural Disasters. Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the six months ended June 30, 2018 and 2017, these operations did not incur any material costs related to damages resulting from hurricanes. Guarantees. Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable. Legal Proceedings. The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company. In addition, the Company is involved in class action suits as described below. Dismissal of Class Action Litigation in Canada. On August 7, 2015, Roberto Paniccia issued a Statement of Claim in the Ontario Superior Court of Justice in the City of Brantford, Ontario seeking to certify a class action suit naming the following as defendants: MDC, former CEO Miles S. Nadal, former CAO Michael C. Sabatino, CFO David Doft and BDO U.S.A. LLP. The Plaintiff alleged violations of section 138.1 of the Ontario Securities Act (and equivalent legislation in other Canadian provinces and territories) as well as common law misrepresentation based on allegedly materially false and misleading statements in the Company’s public statements, as well as omitting to disclose material facts with respect to the SEC investigation. On June 4, 2018, the Court dismissed (with costs) the putative class members’ motion for leave to proceed with the Plaintiff’s claims for misrepresentations of material facts pursuant to the Ontario Securities Act. Following the Court’s decision, on June 18, 2018, the Plaintiff, MDC and each of the other defendants consented to the dismissal of the action with prejudice (and without costs), subject to the Court’s formal approval. Antitrust Subpoena. In 2016, one of the Company’s subsidiary agencies received a subpoena from the U.S. Department of Justice Antitrust Division (the “DOJ”) concerning the DOJ’s ongoing investigation of production bidding practices in the advertising industry. The Company and its subsidiary are fully cooperating with this confidential investigation. Specifically, the Company and its subsidiary are providing information and engaging in discussions with the DOJ, including preliminary discussions regarding the feasibility of a potential settlement with the DOJ. However, there can be no assurance as to the timing of any settlement or that a settlement will be reached on any particular terms or at all. Moreover, the DOJ may determine to expand the scope of its investigation or initiate a proceeding to bring charges against our subsidiary or one or more members of the subsidiary agency’s former management. The DOJ may also seek to impose monetary sanctions. Commitments. At June 30, 2018, the Company had $5,248 of undrawn letters of credit. In addition, the Company has commitments to fund investments in an aggregate amount of $80. |
New Accounting Pronouncements |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements | New Accounting Pronouncements Adopted In The Current Reporting Period Effective January 1, 2018, the Company adopted FASB 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 FASB ASC Topic 605, Revenue Recognition (“ASC 605”). The following represents changes to the Company’s policies resulting from the adoption of ASC 606:
As a result of these changes, the Company recorded a cumulative effect adjustment to increase opening accumulated deficit at January 1, 2018 by $1,170. The following table summarizes the impact of adoption of ASC 606 on the unaudited condensed consolidated statement of operations during the three and six months ended June 30, 2018:
The impact on the balance sheets and shareholders’ deficit as of and for the six months ended June 30, 2018 was immaterial. There was no effect on other comprehensive income (loss) and the statement of cash flows for the three and six months ended June 30, 2018 and 2017. In May 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. This guidance is effective for annual and interim periods beginning after December 15, 2017. Amendments in this ASU are applied prospectively to any award modified on or after the adoption date. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material. In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits, which requires the presentation of the service cost component of the net periodic pension and postretirement benefits costs in the same line item in the statement of operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of the net periodic pension and postretirement benefits costs are required to be presented as non-operating expenses in the statement of operations. This guidance is effective for annual periods beginning after December 15, 2017. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is intended to reduce diversity in practice regarding the classification of certain transactions in the statement of cash flows. This guidance is effective January 1, 2018 and requires a retrospective transition method. Prior to the Company’s adoption on January 1, 2018, all cash outflows for contingent consideration were classified as a financing activity. Effective January 1, 2018, the Company is now required to classify any cash payments made soon after the acquisition date of a business to settle a contingent consideration liability as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities up to the amount of the contingent consideration liability recognized at the acquisition date and as cash outflows from operating activities for any excess. As a result, $24,459 of an acquisition-related contingent consideration payment of $65,121, which was in excess of the liability initially recognized at the acquisition date, has been classified as a cash outflow within net cash provided by operating activities in the accompanying consolidated statement of cash flows for the six months ended June 30, 2017. There was no impact on the Company’s consolidated statement of financial position and results of operations. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities, which will require equity investments, except equity method investments, to be measured at fair value and any changes in fair value will be recognized in results of operations. This guidance is effective for annual and interim periods beginning after December 15, 2017. Additionally, this guidance provides for the recognition of the cumulative effect of retrospective application of the new standard in the period of initial application. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material. Standards to be Adopted in Future Reporting Periods In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. The Company continues to assess the impact of GILTI provisions on its financial statements and whether it will be subject to U.S. GILTI inclusion in future years. As such, the Company has not made a policy election on whether to record tax effects of GILTI when paid as a period expense or to record deferred tax assets and liabilities on basis differences that are expected to affect the amount of GILTI inclusion. In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will require lessees to recognize a right-to-use asset and lease liability for most of its leases with a term of more than twelve months, including those classified as operating leases. The new guidance also requires additional quantitative and qualitative disclosures. This guidance, which will be effective for annual periods beginning after December 15, 2018, requires modified retrospective application, with early adoption permitted. The Company’s assessment of the new guidance is ongoing. Therefore, the Company is not yet in a position to assess the full impact of the application of the new guidance. However, the Company expects that the recognition of a right-to-use asset and lease liability for operating leases will have a significant impact on its balance sheet. |
Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements | Adopted In The Current Reporting Period Effective January 1, 2018, the Company adopted FASB 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 FASB ASC Topic 605, Revenue Recognition (“ASC 605”). The following represents changes to the Company’s policies resulting from the adoption of ASC 606:
As a result of these changes, the Company recorded a cumulative effect adjustment to increase opening accumulated deficit at January 1, 2018 by $1,170. The following table summarizes the impact of adoption of ASC 606 on the unaudited condensed consolidated statement of operations during the three and six months ended June 30, 2018:
The impact on the balance sheets and shareholders’ deficit as of and for the six months ended June 30, 2018 was immaterial. There was no effect on other comprehensive income (loss) and the statement of cash flows for the three and six months ended June 30, 2018 and 2017. In May 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. This guidance is effective for annual and interim periods beginning after December 15, 2017. Amendments in this ASU are applied prospectively to any award modified on or after the adoption date. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material. In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits, which requires the presentation of the service cost component of the net periodic pension and postretirement benefits costs in the same line item in the statement of operations as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of the net periodic pension and postretirement benefits costs are required to be presented as non-operating expenses in the statement of operations. This guidance is effective for annual periods beginning after December 15, 2017. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows. This new guidance is intended to reduce diversity in practice regarding the classification of certain transactions in the statement of cash flows. This guidance is effective January 1, 2018 and requires a retrospective transition method. Prior to the Company’s adoption on January 1, 2018, all cash outflows for contingent consideration were classified as a financing activity. Effective January 1, 2018, the Company is now required to classify any cash payments made soon after the acquisition date of a business to settle a contingent consideration liability as cash outflows for investing activities. Cash payments which are not made soon after the acquisition date of a business to settle a contingent consideration liability are separated and classified as cash outflows for financing activities up to the amount of the contingent consideration liability recognized at the acquisition date and as cash outflows from operating activities for any excess. As a result, $24,459 of an acquisition-related contingent consideration payment of $65,121, which was in excess of the liability initially recognized at the acquisition date, has been classified as a cash outflow within net cash provided by operating activities in the accompanying consolidated statement of cash flows for the six months ended June 30, 2017. There was no impact on the Company’s consolidated statement of financial position and results of operations. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities, which will require equity investments, except equity method investments, to be measured at fair value and any changes in fair value will be recognized in results of operations. This guidance is effective for annual and interim periods beginning after December 15, 2017. Additionally, this guidance provides for the recognition of the cumulative effect of retrospective application of the new standard in the period of initial application. The Company adopted this guidance on January 1, 2018. The impact on the Company’s consolidated statement of financial position and results of operations was not material. Standards to be Adopted in Future Reporting Periods In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Tax Cuts and Jobs Act (the “Act”). The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. The Company continues to assess the impact of GILTI provisions on its financial statements and whether it will be subject to U.S. GILTI inclusion in future years. As such, the Company has not made a policy election on whether to record tax effects of GILTI when paid as a period expense or to record deferred tax assets and liabilities on basis differences that are expected to affect the amount of GILTI inclusion. In February 2016, the FASB issued ASU 2016-02, Leases. The new guidance will require lessees to recognize a right-to-use asset and lease liability for most of its leases with a term of more than twelve months, including those classified as operating leases. The new guidance also requires additional quantitative and qualitative disclosures. This guidance, which will be effective for annual periods beginning after December 15, 2018, requires modified retrospective application, with early adoption permitted. The Company’s assessment of the new guidance is ongoing. Therefore, the Company is not yet in a position to assess the full impact of the application of the new guidance. However, the Company expects that the recognition of a right-to-use asset and lease liability for operating leases will have a significant impact on its balance sheet. |
Revenue (Tables) |
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By Location | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table presents revenue disaggregated by geography:
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Disaggregation of Revenue [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table presents revenue disaggregated by client industry vertical for the three and six months ended June 30, 2018 and 2017, and the impact of adoption of ASC 606:
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Loss Per Common Share (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Calculation of Numerator and Denominator in Earnings Per Share | The following table sets forth the computation of basic and diluted income (loss) per common share:
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Acquisitions and Dispositions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Income (Loss) Attributable to Parent and Transfers to and from Noncontrolling Interest | Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three months ended June 30, 2018 and 2017 were as follows: Net Income (Loss) Attributable to MDC Partners Inc. and Transfers (to) from the Noncontrolling Interests
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Accruals and Other Liabilities (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued and Other Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accrued and Other Liabilities | Changes in amounts due to noncontrolling interest holders included in accrued and other liabilities for the year ended December 31, 2017 and six months ended June 30, 2018 were as follows:
At June 30, 2018 and December 31, 2017, accounts payable included $28,961 and $41,989 of outstanding checks, respectively. |
Debt (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt | The Company’s indebtedness was comprised as follows:
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Liability Measured on a Non-recurring Basis | The following table presents certain information for our financial liability that is not measured at fair value on a non-recurring basis at June 30, 2018 and December 31, 2017:
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Fair Value of Financial Liabilities Measured on Recurring Basis | The following table presents changes in deferred acquisition consideration, which is measured at fair value on a recurring basis, at June 30, 2018 and December 31, 2017:
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Other Income (Loss) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other Income |
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Redeemable Noncontrolling Interest [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment |
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New Accounting Pronouncements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Adoption of ASC 606 |
The following table summarizes the impact of adoption of ASC 606 on the unaudited condensed consolidated statement of operations during the three and six months ended June 30, 2018:
|
Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|
Jun. 30, 2018 |
Mar. 31, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Significant Accounting Policies [Line Items] | ||||||
Option to purchase noncontrolling interest impairment charge | $ 0 | |||||
Beginning Balance | 62,886,000 | $ 62,886,000 | ||||
Redemptions | $ 0 | $ (11,947,000) | 26,191,000 | |||
Granted | $ 11,947,000 | |||||
Changes in redemption value | (5,965,000) | |||||
Ending Balance | 55,730,000 | 55,730,000 | $ 62,886,000 | |||
Redeemable Noncontrolling Interest | ||||||
Significant Accounting Policies [Line Items] | ||||||
Beginning Balance | $ 62,886,000 | 62,886,000 | $ 60,180,000 | 60,180,000 | ||
Redemptions | (8,858,000) | (910,000) | ||||
Granted | 0 | 1,666,000 | ||||
Changes in redemption value | 2,062,000 | 1,498,000 | ||||
Currency translation adjustments | (360,000) | 452,000 | ||||
Ending Balance | $ 55,730,000 | $ 55,730,000 | $ 62,886,000 |
Revenue - Contract Assets and Liabilities (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Revenue from Contract with Customer [Abstract] | ||
Unbilled service fees | $ 78 | $ 54 |
Unbilled outside vendor costs, billable to clients | 59,081 | 31,146 |
Advance billings | 184,269 | $ 148,133 |
Increase in advance billings | 36,136 | |
Revenue recognized | $ 58,888 |
Accruals and Other Liabilities (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Accrued and Other Liabilities [Abstract] | |||||
Beginning balance | $ 11,030 | $ 4,154 | $ 4,154 | ||
Income attributable to noncontrolling interests | $ 2,545 | $ 2,214 | 3,442 | 3,097 | 15,375 |
Distributions made | (8,927) | $ (3,840) | (8,865) | ||
Other | (716) | 366 | |||
Ending balance | $ 4,829 | $ 4,829 | $ 11,030 |
Accruals and Other Liabilities (Details Textual) - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Accrued and Other Liabilities [Abstract] | |||
Accrued media | $ 191,152 | $ 207,482 | |
Amounts due to noncontrolling interest holders for their share of profits | 4,829 | 11,030 | $ 4,154 |
Outstanding checks | $ 28,961 | $ 41,989 |
Debt (Details) - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Debt [Line Items] | ||
Revolving credit agreement | $ 115,244,000 | $ 0 |
Debt issuance costs | (15,654,000) | (17,587,000) |
Debt, Long-term and Short-term, Combined Amount, Total | 999,590,000 | 882,413,000 |
Obligations under capital leases | 701,000 | 706,000 |
Debt and Capital Lease Obligations | 1,000,291,000 | 883,119,000 |
Less current portion: | 355,000 | 313,000 |
Long-term Debt, Excluding Current Maturities, Total | 999,936,000 | 882,806,000 |
6.50% Notes due 2024 | ||
Debt [Line Items] | ||
Senior Notes | $ 900,000,000 | $ 900,000,000 |
Fair Value Measurements (Details) - 6.50% Notes due 2024 - Fair Value, Inputs, Level 1 - Senior Notes - USD ($) $ in Thousands |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Liabilities: | ||
Long term debt, Carrying Amount | $ 900,000 | $ 900,000 |
Long term debt, Fair Value | $ 787,500 | $ 904,500 |
Fair Value Measurements (Details 1) - Fair Value, Inputs, Level 3 - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||
Beginning balance of contingent payments | $ 119,086 | $ 224,754 |
Payments | (48,586) | (110,234) |
Additions | 9,723 | 0 |
Redemption value adjustments | 2,203 | 3,273 |
Foreign translation adjustment | (62) | 1,293 |
Ending balance of contingent payments | $ 82,364 | $ 119,086 |
Fair Value Measurements (Details Textual) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2017 |
Jun. 30, 2018 |
|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Deferred acquisition consideration | $ 122,426 | $ 83,707 | |
Fixed payments | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Deferred acquisition consideration | $ 3,340 | $ 1,343 | |
Common Stock | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Stock issued during period (shares) | 3,353,939 | ||
Common Stock | Common Class A | |||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||
Deferred acquisition consideration settled through issuance of shares | $ 28,727 | $ 28,727 |
Other Income (Loss) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Other Income and Expenses [Abstract] | ||||
Other income (expense) | $ 592 | $ 150 | $ 1,033 | $ 278 |
Foreign currency transaction gain | (6,549) | 6,446 | (13,209) | 8,885 |
Other, net | $ (5,957) | $ 6,596 | $ (12,176) | $ 9,163 |
Commitments, Contingencies and Guarantees (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Other Commitments [Line Items] | |||
Redeemable noncontrolling interests | $ 55,730 | $ 62,886 | |
Investment commitments | 80 | ||
Amount of letters of credit outstanding | 5,248 | ||
Minimum | |||
Other Commitments [Line Items] | |||
Redeemable noncontrolling interest obligation, year of payment | 2018 | ||
Maximum | |||
Other Commitments [Line Items] | |||
Redeemable noncontrolling interest obligation, year of payment | 2023 | ||
Contractual redemption right | |||
Other Commitments [Line Items] | |||
Redemption value | 13,330 | ||
Contractual redemption right | Common Class A | |||
Other Commitments [Line Items] | |||
Redemption value | 154 | ||
Termination or death redemption right | |||
Other Commitments [Line Items] | |||
Redemption value | 37,003 | ||
Excess initial redemption value | |||
Other Commitments [Line Items] | |||
Redemption value | $ 5,397 |
New Accounting Pronouncements (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Net cash provided by (used in) operating activities | $ (61,713) | $ (726) |
Payment for contingent consideration | 65,121 | |
Accounting Standards Update 2016-15 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Net cash provided by (used in) operating activities | $ (24,459) |
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