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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020
or

| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________
Commission File Number: 001-13718
MDC Partners Inc.
(Exact name of registrant as specified in its charter)

Canada |  | 98-0364441
(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)
One World Trade Center, Floor 65 |  |
New York, | New York |  | 10007
(Address of principal executive offices) |  | (Zip Code)

(646) 429-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Class A Subordinate Voting Shares, no par value | MDCA | NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer | ☐ | Accelerated Filer | ☒
Non-accelerated Filer | ☐ | Smaller reporting company | ☒
Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares outstanding as of October 23, 2020 was 73,528,105 Class A subordinate voting shares and 3,743 Class B multiple voting shares.

Table of Contents
MDC PARTNERS INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

|  | Page
| PART I. FINANCIAL INFORMATION |
Item 1. | Financial Statements | 4
| Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 | 4
| Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 | 5
| Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 | 6
| Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 | 7
| Unaudited Condensed Consolidated Statements of Shareholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019 | 8
| Notes to Unaudited Condensed Consolidated Financial Statements | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 27
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 49
Item 4. | Controls and Procedures | 50
| PART II. OTHER INFORMATION |
Item 1. | Legal Proceedings | 51
Item 1A. | Risk Factors | 51
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 51
Item 3. | Defaults Upon Senior Securities | 52
Item 4. | Mine Safety Disclosures | 52
Item 5. | Other Information | 53
Item 6. | Exhibits | 54
Signatures | 54

References in this Quarterly Report on Form 10-Q to “MDC Partners,” “MDC,” the “Company,” “we,” “us” and “our” refer to MDC Partners Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries. References in this Quarterly Report on Form 10-Q to “Partner Firms” generally refer to the Company’s subsidiary agencies.
All dollar amounts are stated in U.S. dollars unless otherwise stated.
Note About Forward-Looking Statements
This document contains forward-looking statements. The Company’s representatives may also make forward-looking statements orally or in writing from time to time. Statements in this document that are not historical facts, including, statements about the Company’s beliefs and expectations, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
2

Table of Contents
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
•risks associated with international, national and regional unfavorable economic conditions that could affect the Company or its clients, including as a result of the novel coronavirus pandemic (“COVID-19”);
•the effects of the outbreak of COVID-19, including the measures to reduce its spread, and the impact on the economy and demand for our services, which may precipitate or exacerbate other risks and uncertainties;
•developments involving the proposal by Stagwell Media LP to enter into a business combination with the Company (the “Potential Transaction”), including the impact of the announcement of the formation of the special committee, the reaching of an agreement in principle on certain aspects of a Potential Transaction, and the continuing discussion and review of a Potential Transaction on the Company’s business, whether any Potential Transaction will occur, and/or the ability to implement any Potential Transaction or other transaction;
•the Company’s ability to attract new clients and retain existing clients;
•reduction in client spending and changes in client advertising, marketing and corporate communications requirements;
•financial failure of the Company’s clients;
•the Company’s ability to retain and attract key employees;
•the Company’s ability to achieve the full amount of its stated cost saving initiatives;
•the Company’s implementation of strategic initiatives;
•the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration;
•the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities; and
•foreign currency fluctuations.
Investors should carefully consider these risk factors, other risk factors described herein, and the additional risk factors outlined in more detail in the Company’s 2019 Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 5, 2020 and accessible on the SEC’s website at www.sec.gov., under the caption “Risk Factors,” and in the Company’s other SEC filings.
3

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of United States dollars, except per share amounts)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenue: |  |  |  |  |  |  |
Services | $ | 283,423 |  |  | $ | 342,907 |  |  | $ | 870,843 |  |  | $ | 1,033,828 |
Operating Expenses: |  |  |  |  |  |  |
Cost of services sold | 172,531 |  |  | 222,448 |  |  | 560,856 |  |  | 700,351 |
Office and general expenses | 72,512 |  |  | 79,726 |  |  | 205,075 |  |  | 234,120 |
Depreciation and amortization | 9,332 |  |  | 9,368 |  |  | 27,437 |  |  | 28,869 |
Impairment and other losses | 159 |  |  | 1,944 |  |  | 19,159 |  |  | 1,944 |
| 254,534 |  |  | 313,486 |  |  | 812,527 |  |  | 965,284 |
Operating income | 28,889 |  |  | 29,421 |  |  | 58,316 |  |  | 68,544 |
Other Income (Expenses): |  |  |  |  |  |  |
Interest expense and finance charges, net | (15,266) |  |  | (16,110) |  |  | (46,819) |  |  | (49,284) |
Foreign exchange gain (loss) | 2,159 |  |  | (3,973) |  |  | (7,256) |  |  | 4,401 |
Other, net | 505 |  |  | (431) |  |  | 22,723 |  |  | (4,559) |
| (12,602) |  |  | (20,514) |  |  | (31,352) |  |  | (49,442) |
Income before income taxes and equity in earnings of non-consolidated affiliates | 16,287 |  |  | 8,907 |  |  | 26,964 |  |  | 19,102 |
Income tax expense | 1,452 |  |  | 3,457 |  |  | 7,029 |  |  | 6,292 |
Income before equity in earnings of non-consolidated affiliates | 14,835 |  |  | 5,450 |  |  | 19,935 |  |  | 12,810 |
Equity in earnings (losses) of non-consolidated affiliates | (31) |  |  | 63 |  |  | (829) |  |  | 352 |
Net income | 14,804 |  |  | 5,513 |  |  | 19,106 |  |  | 13,162 |
Net income attributable to the noncontrolling interest | (10,728) |  |  | (7,265) |  |  | (14,620) |  |  | (10,737) |
Net income (loss) attributable to MDC Partners Inc. | 4,076 |  |  | (1,752) |  |  | 4,486 |  |  | 2,425 |
Accretion on and net income allocated to convertible preference shares | (3,716) |  |  | (3,306) |  |  | (10,528) |  |  | (8,931) |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 360 |  |  | $ | (5,058) |  |  | $ | (6,042) |  |  | $ | (6,506) |
Income (loss) Per Common Share: |  |  |  |  |  |  |
Basic |  |  |  |  |  |  |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | — |  |  | $ | (0.07) |  |  | $ | (0.08) |  |  | $ | (0.10) |
Diluted |  |  |  |  |  |  |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | — |  |  | $ | (0.07) |  |  | $ | (0.08) |  |  | $ | (0.10) |
Weighted Average Number of Common Shares Outstanding: |  |  |  |  |  |  |
Basic | 73,207,619 |  |  | 72,044,480 |  |  | 72,713,257 |  |  | 68,154,306 |
Diluted | 73,476,779 |  |  | 72,044,480 |  |  | 72,713,257 |  |  | 68,154,306 |

See notes to the Unaudited Condensed Consolidated Financial Statements.
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(thousands of United States dollars)

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Comprehensive Income (Loss) |  |  |  |  |  |  |
Net income | $ | 14,804 |  |  | $ | 5,513 |  |  | $ | 19,106 |  |  | $ | 13,162 |
Other comprehensive income (loss), net of applicable tax: |  |  |  |  |  |  |
Foreign currency translation adjustment | 2,375 |  |  | (1,461) |  |  | 11,171 |  |  | (7,505) |
Other comprehensive income (loss) | 2,375 |  |  | (1,461) |  |  | 11,171 |  |  | (7,505) |
Comprehensive income for the period | 17,179 |  |  | 4,052 |  |  | 30,277 |  |  | 5,657 |
Comprehensive income attributable to the noncontrolling interests | (10,962) |  |  | (6,969) |  |  | (14,755) |  |  | (10,830) |
Comprehensive income (loss) attributable to MDC Partners Inc. | $ | 6,217 |  |  | $ | (2,917) |  |  | $ | 15,522 |  |  | $ | (5,173) |

See notes to the Unaudited Condensed Consolidated Financial Statements.
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of United States dollars)

| September 30, 2020 |  | December 31, 2019
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash equivalents | $ | 37,075 |  |  | $ | 106,933 |
Accounts receivable, less allowance for doubtful accounts of $3,703 and $3,304 | 403,636 |  |  | 449,288 |
Expenditures billable to clients | 21,884 |  |  | 30,133 |
Other current assets | 67,585 |  |  | 35,613 |
Total Current Assets | 530,180 |  |  | 621,967 |
Fixed assets, at cost, less accumulated depreciation of $138,859 and $129,579 | 87,908 |  |  | 81,054 |
Right of use assets - operating leases | 227,362 |  |  | 223,622 |
Goodwill | 710,013 |  |  | 731,691 |
Other intangible assets, net | 46,600 |  |  | 54,893 |
Deferred tax assets | 82,576 |  |  | 84,900 |
Other assets | 21,493 |  |  | 30,179 |
Total Assets | $ | 1,706,132 |  |  | $ | 1,828,306 |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND SHAREHOLDERS’ DEFICIT |  |  |
Current Liabilities: |  |  |
Accounts payable | $ | 128,643 |  |  | $ | 200,148 |
Accruals and other liabilities | 323,414 |  |  | 353,575 |
Advance billings | 157,101 |  |  | 171,742 |
Current portion of lease liabilities - operating leases | 40,038 |  |  | 48,659 |
Current portion of deferred acquisition consideration | 39,321 |  |  | 45,521 |
Total Current Liabilities | 688,517 |  |  | 819,645 |
Long-term debt | 860,422 |  |  | 887,630 |
Long-term portion of deferred acquisition consideration | 6,824 |  |  | 29,699 |
Long-term lease liabilities - operating leases | 257,107 |  |  | 219,163 |
Other liabilities | 38,439 |  |  | 25,771 |
Total Liabilities | 1,851,309 |  |  | 1,981,908 |
Redeemable Noncontrolling Interests | 25,172 |  |  | 36,973 |
Commitments, Contingencies, and Guarantees (Note 9) |  |  |
Shareholders’ Deficit: |  |  |
Convertible preference shares, 145,000 authorized, issued and outstanding at September 30, 2020 and December 31, 2019 | 152,746 |  |  | 152,746 |
Common stock and other paid-in capital | 106,037 |  |  | 101,469 |
Accumulated deficit | (476,293) |  |  | (480,779) |
Accumulated other comprehensive loss (income) | 6,768 |  |  | (4,269) |
MDC Partners Inc. Shareholders' Deficit | (210,742) |  |  | (230,833) |
Noncontrolling interests | 40,393 |  |  | 40,258 |
Total Shareholders' Deficit | (170,349) |  |  | (190,575) |
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Deficit | $ | 1,706,132 |  |  | $ | 1,828,306 |

See notes to the Unaudited Condensed Consolidated Financial Statements.
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of United States dollars)

| Nine Months Ended September 30,
| 2020 |  | 2019
Cash flows from operating activities: |  |  |
Net income | $ | 19,106 |  |  | $ | 13,162 |
Adjustments to reconcile net income to cash used in operating activities: |  |  |
Stock-based compensation | 10,568 |  |  | 12,632 |
Depreciation and amortization | 27,437 |  |  | 28,869 |
Impairment and other losses | 19,159 |  |  | 1,944 |
Adjustment to deferred acquisition consideration | 515 |  |  | (3,627) |
Deferred income taxes | 2,263 |  |  | 6,292 |
Gain on sale of assets and other | (4,199) |  |  | (2,649) |
Changes in working capital: |  |  |
Accounts receivable | 43,708 |  |  | 835 |
Expenditures billable to clients | 8,248 |  |  | 3,716 |
Prepaid expenses and other current assets | 1,991 |  |  | 3,280 |
Accounts payable, accruals and other current liabilities | (109,256) |  |  | (96,527) |
Acquisition related payments | (7,514) |  |  | (4,816) |
Advance billings | (14,517) |  |  | 31,049 |
Net cash used in operating activities | (2,491) |  |  | (5,840) |
Cash flows from investing activities: |  |  |
Capital expenditures | (11,474) |  |  | (13,786) |
Proceeds from sale of assets | 19,616 |  |  | 23,050 |
Acquisitions, net of cash acquired | (1,816) |  |  | (5,778) |
Other | (1,777) |  |  | (179) |
Net cash provided by investing activities | 4,549 |  |  | 3,307 |
Cash flows from financing activities: |  |  |
Repayments of borrowings under revolving credit facility | (456,428) |  |  | (1,172,909) |
Proceeds from borrowings under revolving credit facility | 456,428 |  |  | 1,112,857 |
Proceeds from issuance of common and convertible preference shares, net of issuance costs | — |  |  | 98,620 |
Acquisition related payments | (35,331) |  |  | (30,155) |
Distributions to noncontrolling interests and other | (14,639) |  |  | (10,615) |
Repurchase of Senior Notes | (21,999) |  |  | — |
Net cash used in financing activities | (71,969) |  |  | (2,202) |
Effect of exchange rate changes on cash, cash equivalents, and cash held in trusts | 53 |  |  | 8 |
Net decrease in cash and cash equivalents, including cash classified within current assets held for sale | (69,858) |  |  | (4,727) |
Change in cash and cash equivalents held in trusts classified within held for sale | — |  |  | (3,307) |
Change in cash and cash equivalents classified within assets held for sale | — |  |  | 4,441 |
Net decrease in cash and cash equivalents | (69,858) |  |  | (3,593) |
Cash and cash equivalents at beginning of period | 106,933 |  |  | 30,873 |
Cash and cash equivalents at end of period | $ | 37,075 |  |  | $ | 27,280 |
Supplemental disclosures: |  |  |
Cash income taxes paid | $ | 2,700 |  |  | $ | 3,631 |
Cash interest paid | $ | 29,311 |  |  | $ | 32,525 |

See notes to the Unaudited Condensed Consolidated Financial Statements.
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(thousands of United States dollars, except share amounts)

| Three Months Ended
| September 30, 2020
| Convertible Preference Shares |  | Common Shares |  | Common Stock and Other Paid-in |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | MDC Partners Inc. Shareholders' Deficit |  | Noncontrolling Interests |  | Total Shareholder's Deficit
| Shares |  | Amount |  | Shares |  | Capital |  |  |  |  |
Balance at June 30, 2020 | 145,000 |  |  | $ | 152,746 |  |  | 72,587,390 |  |  | $ | 98,234 |  |  | $ | (480,368) |  |  | $ | 4,627 |  |  | $ | (224,761) |  |  | $ | 40,158 |  |  | $ | (184,603) |
Net income attributable to MDC Partners Inc. | — |  |  | — |  |  | — |  |  | — |  |  | 4,076 |  |  | — |  |  | 4,076 |  |  | — |  |  | 4,076 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,141 |  |  | 2,141 |  |  | 234 |  |  | 2,375 |
Vesting of restricted awards | — |  |  | — |  |  | 1,047,423 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares acquired and cancelled | — |  |  | — |  |  | (80,120) |  |  | (129) |  |  | — |  |  | — |  |  | (129) |  |  | — |  |  | (129) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 4,210 |  |  | — |  |  | — |  |  | 4,210 |  |  | — |  |  | 4,210 |
Changes in redemption value of redeemable noncontrolling interests | — |  |  | — |  |  | — |  |  | 1,574 |  |  | — |  |  | — |  |  | 1,574 |  |  | — |  |  | 1,574 |
Business acquisitions and step-up transactions, net of tax | — |  |  | — |  |  | — |  |  | 2,129 |  |  | — |  |  | — |  |  | 2,129 |  |  | — |  |  | 2,129 |
Other | — |  |  | — |  |  | — |  |  | 19 |  |  | (1) |  |  | — |  |  | 18 |  |  | 1 |  |  | 19 |
Balance at September 30, 2020 | 145,000 |  |  | $ | 152,746 |  |  | 73,554,693 |  |  | $ | 106,037 |  |  | $ | (476,293) |  |  | $ | 6,768 |  |  | $ | (210,742) |  |  | $ | 40,393 |  |  | $ | (170,349) |

| Nine Months Ended
| September 30, 2020
| Convertible Preference Shares |  | Common Shares |  | Common Stock and Other Paid-in |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | MDC Partners Inc. Shareholders' Deficit |  | Noncontrolling Interests |  | Total Shareholder's Deficit
| Shares |  | Amount |  | Shares |  | Capital |  |  |  |  |
Balance at December 31, 2019 | 145,000 |  |  | $ | 152,746 |  |  | 72,154,603 |  |  | $ | 101,469 |  |  | $ | (480,779) |  |  | $ | (4,269) |  |  | $ | (230,833) |  |  | $ | 40,258 |  |  | $ | (190,575) |
Net income attributable to MDC Partners Inc. | — |  |  | — |  |  | — |  |  | — |  |  | 4,486 |  |  | — |  |  | 4,486 |  |  | — |  |  | 4,486 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 11,036 |  |  | 11,036 |  |  | 135 |  |  | 11,171 |
Vesting of restricted awards | — |  |  | — |  |  | 1,807,984 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares acquired and cancelled | — |  |  | — |  |  | (407,894) |  |  | (861) |  |  | — |  |  | — |  |  | (861) |  |  | — |  |  | (861) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 5,243 |  |  | — |  |  | — |  |  | 5,243 |  |  | — |  |  | 5,243 |
Changes in redemption value of redeemable noncontrolling interests | — |  |  | — |  |  | — |  |  | (1,056) |  |  | — |  |  | — |  |  | (1,056) |  |  | — |  |  | (1,056) |
Business acquisitions and step-up transactions, net of tax | — |  |  | — |  |  | — |  |  | 1,626 |  |  | — |  |  | — |  |  | 1,626 |  |  | — |  |  | 1,626 |
Other | — |  |  | — |  |  | — |  |  | (384) |  |  | — |  |  | 1 |  |  | (383) |  |  | — |  |  | (383) |
Balance at September 30, 2020 | 145,000 |  |  | $ | 152,746 |  |  | 73,554,693 |  |  | $ | 106,037 |  |  | $ | (476,293) |  |  | $ | 6,768 |  |  | $ | (210,742) |  |  | $ | 40,393 |  |  | $ | (170,349) |

See notes to the Unaudited Condensed Consolidated Financial Statements.
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MDC PARTNERS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT - (continued)
(thousands of United States dollars, except share amounts)

| Three Months Ended
| September 30, 2019
| Convertible Preference Shares |  | Common Shares |  | Common Stock and Other Paid-in |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |  | MDC Partners Inc. Shareholders' Deficit |  | Noncontrolling Interests |  | Total Shareholder's Deficit
| Shares |  | Amount |  | Shares |  | Capital |  |  |  |  |
Balance at June 30, 2019 | 145,000 |  |  | $ | 152,746 |  |  | 71,947,743 |  |  | $ | 97,455 |  |  | $ | (471,349) |  |  | $ | (1,713) |  |  | $ | (222,861) |  |  | $ | 40,261 |  |  | $ | (182,600) |
Net loss attributable to MDC Partners Inc. | — |  |  | — |  |  | — |  |  | — |  |  | (1,752) |  |  | — |  |  | (1,752) |  |  | — |  |  | (1,752) |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,165) |  |  | (1,165) |  |  | (296) |  |  | (1,461) |
Vesting of restricted awards | — |  |  | — |  |  | 372,953 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares acquired and cancelled | — |  |  | — |  |  | (174,279) |  |  | (499) |  |  | — |  |  | — |  |  | (499) |  |  | — |  |  | (499) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 1,409 |  |  | — |  |  | — |  |  | 1,409 |  |  | — |  |  | 1,409 |
Changes in redemption value of redeemable noncontrolling interests | — |  |  | — |  |  | — |  |  | 767 |  |  | — |  |  | — |  |  | 767 |  |  | — |  |  | 767 |
Business acquisitions and step-up transactions, net of tax | — |  |  | — |  |  | — |  |  | (648) |  |  | — |  |  | — |  |  | (648) |  |  | — |  |  | (648) |
Changes in ownership interest | — |  |  | — |  |  | — |  |  | (109) |  |  | — |  |  | — |  |  | (109) |  |  | — |  |  | (109) |
Other | — |  |  | — |  |  | — |  |  | (11) |  |  | (5) |  |  | — |  |  | (16) |  |  | (9) |  |  | (25) |
Balance at September 30, 2019 | 145,000 |  |  | $ | 152,746 |  |  | 72,146,417 |  |  | $ | 98,364 |  |  | $ | (473,106) |  |  | $ | (2,878) |  |  | $ | (224,874) |  |  | $ | 39,956 |  |  | $ | (184,918) |

| Nine Months Ended
| September 30, 2019
| Convertible Preference Shares |  | Common Shares |  | Common Stock and Other Paid-in |  | Accumulated Deficit |  | Accumulated Other Comprehensive Income |  | MDC Partners Inc. Shareholders' Deficit |  | Noncontrolling Interests |  | Total Shareholder's Deficit
| Shares |  | Amount |  | Shares |  | Capital |  |  |  |  |
Balance at December 31, 2018 | 95,000 |  |  | $ | 90,123 |  |  | 57,521,323 |  |  | $ | 58,579 |  |  | $ | (475,526) |  |  | $ | 4,720 |  |  | $ | (322,104) |  |  | $ | 64,514 |  |  | $ | (257,590) |
Net income attributable to MDC Partners Inc. | — |  |  | — |  |  | — |  |  | — |  |  | 2,425 |  |  | — |  |  | 2,425 |  |  | — |  |  | 2,425 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (7,598) |  |  | (7,598) |  |  | 93 |  |  | (7,505) |
Issuance of common and convertible preference shares | 50,000 |  |  | 62,623 |  |  | 14,285,714 |  |  | 35,997 |  |  | — |  |  | — |  |  | 98,620 |  |  | — |  |  | 98,620 |
Vesting of restricted awards | — |  |  | — |  |  | 566,932 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Shares acquired and cancelled | — |  |  | — |  |  | (227,552) |  |  | (577) |  |  | — |  |  | — |  |  | (577) |  |  | — |  |  | (577) |
Stock-based compensation | — |  |  | — |  |  | — |  |  | 1,918 |  |  | — |  |  | — |  |  | 1,918 |  |  | — |  |  | 1,918 |
Changes in redemption value of redeemable noncontrolling interests | — |  |  | — |  |  | — |  |  | 3,496 |  |  | — |  |  | — |  |  | 3,496 |  |  | — |  |  | 3,496 |
Business acquisitions and step-up transactions, net of tax | — |  |  | — |  |  | — |  |  | (745) |  |  | — |  |  | — |  |  | (745) |  |  | — |  |  | (745) |
Changes in ownership interest | — |  |  | — |  |  | — |  |  | (293) |  |  | — |  |  | — |  |  | (293) |  |  | (24,642) |  |  | (24,935) |
Other | — |  |  | — |  |  | — |  |  | (11) |  |  | (5) |  |  | — |  |  | (16) |  |  | (9) |  |  | (25) |
Balance at September 30, 2019 | 145,000 |  |  | $ | 152,746 |  |  | 72,146,417 |  |  | $ | 98,364 |  |  | $ | (473,106) |  |  | $ | (2,878) |  |  | $ | (224,874) |  |  | $ | 39,956 |  |  | $ | (184,918) |

See notes to the Unaudited Condensed Consolidated Financial Statements.
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MDC PARTNERS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(thousands of United States dollars, except per share amounts, unless otherwise stated)
1. Basis of Presentation and Recent Developments
MDC Partners Inc. (the “Company” or “MDC”), incorporated under the laws of Canada, is a leading provider of global marketing, advertising, activation, communications and strategic consulting solutions. Through its Networks (and underlying agencies generally referred to as “Partner Firms”), MDC delivers a wide range of customized services in order to drive growth and business performance for its clients.
The accompanying consolidated financial statements include the accounts of MDC, its subsidiaries and variable interest entities for which the Company is the primary beneficiary. MDC has prepared the unaudited condensed consolidated interim financial statements included herein in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, the financial statements have been condensed and do not include certain information and disclosures pursuant to these rules. The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates about current and future results of operations and cash flows that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as revised in the Company’s Current Report on Form 8-K filed August 31, 2020 (“2019 Form 10-K”).
The COVID-19 pandemic has negatively impacted the Company’s results of operations, financial position, and cash flows. While it is difficult to predict the full scale of the impact, the Company has taken actions to address the impact of the pandemic, such as working closely with our clients, reducing our expenses and monitoring liquidity. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. However, if the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the judgments, assumptions and estimates will be updated and could result in different results in the future.
The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior year financial information to conform to the current year presentation.
The Company reorganized its management structure in 2020 which resulted in a change to our reportable segments. Prior periods presented have been recast to reflect the change in reportable segments. The Company began to present the Integrated Agencies Network reportable segment, which aggregated four operating segments (Constellation, Anomaly Alliance, Doner Partner Network and Colle McVoy), in the first quarter of 2020. In connection with our discussions with the SEC, the Company has changed the prior presentation for the Integrated Agencies Network. Beginning in the second quarter of 2020, the Company separated the Integrated Agencies Network into two reportable segments: Integrated Networks - Group A (Anomaly Alliance and Colle McVoy) and Integrated Networks - Group B (Constellation and Doner Partner Network). The change was made to aggregate the operating segments that have the most similar historical average long-term profitability. See Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
Recent Developments
On June 26, 2020, MDC announced that its Board of Directors formed a Special Committee of independent directors to review the preliminary, non-binding proposal made by Stagwell Media LP with respect to a potential merger with the Company (the “Potential Transaction”). Mark Penn, Chairman and Chief Executive Officer of the Company, is also the manager of The Stagwell Group LLC, the general partner of Stagwell Media LP. The Special Committee has retained legal counsel and an independent financial advisor to assist in its evaluation of the Potential Transaction. The Special Committee has not reached a conclusion regarding the Potential Transaction. On October 6, 2020, the Company announced that the Special Committee reached a significant milestone in discussions with Stagwell Media LP with respect to the Potential Transaction and that, having reached an agreement in principle on certain aspects of the Potential Transaction, the Company expected to proceed with confirmatory due diligence and negotiation of definitive documentation. The agreement in principle is non-binding and subject to several conditions, including obtaining relevant third-party consents to the Potential Transaction (in certain cases prior to entering into definitive documentation). No assurances can be given regarding the likelihood of obtaining such consents, of reaching agreement on definitive documentation, of ultimately completing the Potential Transaction, or as to the terms of any such Potential Transaction.
In addition, the Company withdrew its registration statement and preliminary proxy statement/prospectus, filed on August 31, 2020 and amended on September 3, 2020, pursuant to which the Company proposed to change its jurisdiction of
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incorporation from the federal jurisdiction of Canada to the State of Delaware (the “U.S. Domestication”). The Company instead expects the U.S. Domestication to be considered in conjunction with the Potential Transaction.
2. Acquisitions and Dispositions
2020 Acquisition
On July 1, 2020, the Company acquired the remaining 10% ownership interest of Veritas it did not already own for an aggregate purchase price of $2,187, of which $1,087 was a deferred cash payment. As a result of the transaction, the Company reduced noncontrolling and redeemable noncontrolling interests by $2,651. The difference between the purchase price and the noncontrolling interest of $464 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
On March 19, 2020, the Company acquired the remaining 22.5% ownership interest of KWT Global it did not already own for an aggregate purchase price of $2,118, comprised of a closing cash payment of $729 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $1,389. The contingent deferred payments are based on the financial results of the underlying business from 2019 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $1,615. The difference between the purchase price and the redeemable noncontrolling interest of $503 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
2020 Disposition
On February 14, 2020, the Company sold substantially all the assets and certain liabilities of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company, to an affiliate of The Stagwell Group LLC (“Stagwell”), for an aggregate sale price of $26,696, consisting of cash received at closing plus contingent deferred payments expected to be paid over the next two years. The sale resulted in a gain of $16,827, which is included in Other, net within the Unaudited Condensed Consolidated Statements of Operations. Sloane was included within Allison & Partners which is included within the All Other category.
2019 Acquisitions
On November 15, 2019, the Company acquired the remaining 35% ownership interest of Laird + Partners it did not already own for an aggregate purchase price of $2,389, comprised of a closing cash payment of $1,588 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $801. The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $5,045. The difference between the purchase price and the redeemable noncontrolling interest of $2,656 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets.
Effective April 1, 2019, the Company acquired the remaining 35% ownership interest of HPR Partners LLC (Hunter) it did not already own for an aggregate purchase price of $10,234, comprised of a closing cash payment of $3,890 and additional contingent deferred acquisition payments with an estimated present value at the acquisition date of $6,344. The contingent deferred payments are based on the financial results of the underlying business from 2018 to 2020 with final payment due in 2021. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $9,486. The difference between the purchase price and the redeemable noncontrolling interest of $745 was recorded in Common stock and other paid-in capital in the Unaudited Condensed Consolidated Balance Sheets
2019 Disposition
On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City that provides shareholder advisory services. As consideration for the sale, the Company received cash plus the assumption of certain liabilities totaling approximately $50,000 in the aggregate. The sale resulted in a loss of $3,000, which was included in Other, net within the Unaudited Condensed Consolidated Statements of Operations.
3. Revenue
The Company’s revenue recognition policies are established in accordance with ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The MDC network provides an extensive range of services to our clients, offering a variety of marketing and communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast), public relations services including strategy, editorial, crisis support or issues management, media training, influencer engagement and events management. We also provide media buying and planning
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across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast), experiential marketing and application/website design and development.
The primary source of the Company’s revenue is from agency arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost plus margin.
The determination of our performance obligations is specific to the services included within each contract. Based on a client’s requirements within the contract, and how these services are provided, multiple services could represent separate performance obligations or be combined and considered one performance obligation. Contracts that contain services that are not significantly integrated or interdependent, and that do not significantly modify or customize each other, are considered separate performance obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing services to be separate performance obligations if included in the same contract as each of these services can be provided on a stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website design and development are typically each considered one performance obligation as there is a significant integration of these services into a combined output.
We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation.
Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date.
Within each contract, we identify whether the Company is principal or agent at the performance obligation level. In arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other arrangements where a third-party supplier, rather than the Company, is primarily responsible for the integration of services into the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client, we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of MDC’s agencies under a production services agreement is to facilitate a client’s purchasing of production capabilities from a third-party production company in accordance with the client’s strategy and guidelines. The obligation of MDC’s agencies under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its media plan. We do not obtain control prior to transferring these services to our clients; therefore, we primarily act as agent for production and media buying services.
A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related to performance incentives as we satisfy the performance obligation to which the performance incentives are related.
Disaggregated Revenue Data
The Company provides a broad range of services to a large base of clients across the full spectrum of industry verticals globally. 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.
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The following table presents revenue disaggregated by client industry vertical for the three and nine months ended September 30, 2020 and 2019:

|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Industry | Reportable Segment |  | 2020 |  | 2019 |  | 2020 |  | 2019
Food & Beverage | All |  | $ | 48,153 |  |  | $ | 64,774 |  |  | $ | 152,586 |  |  | $ | 204,743 |
Retail | All |  | 39,390 |  |  | 39,420 |  |  | 108,882 |  |  | 111,899 |
Consumer Products | All |  | 37,175 |  |  | 38,510 |  |  | 111,371 |  |  | 119,866 |
Communications | All |  | 20,227 |  |  | 48,147 |  |  | 58,234 |  |  | 136,819 |
Automotive | All |  | 13,399 |  |  | 19,125 |  |  | 51,610 |  |  | 55,857 |
Technology | All |  | 41,220 |  |  | 28,148 |  |  | 129,569 |  |  | 84,294 |
Healthcare | All |  | 25,120 |  |  | 25,152 |  |  | 71,970 |  |  | 74,403 |
Financials | All |  | 22,529 |  |  | 28,054 |  |  | 66,282 |  |  | 81,049 |
Transportation and Travel/Lodging | All |  | 9,674 |  |  | 20,541 |  |  | 35,226 |  |  | 65,111 |
Other | All |  | 26,536 |  |  | 31,036 |  |  | 85,113 |  |  | 99,787 |
|  |  | $ | 283,423 |  |  | $ | 342,907 |  |  | $ | 870,843 |  |  | $ | 1,033,828 |

MDC has historically focused its operations primarily where the Company was founded in North America, the largest market for its services in the world. MDC’s Partner Firms are located in the United States, Canada, and an additional eleven countries around the world. In the past, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses.
The following table presents revenue disaggregated by geography for the three and nine months ended September 30, 2020 and 2019:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
Geographic Location | Reportable Segment |  | 2020 |  | 2019 |  | 2020 |  | 2019
United States | All |  | $ | 228,255 |  |  | $ | 271,671 |  |  | $ | 703,158 |  |  | $ | 819,347 |
Canada | All |  | 20,299 |  |  | 25,895 |  |  | 55,164 |  |  | 72,837 |
Other | All |  | 34,869 |  |  | 45,341 |  |  | 112,521 |  |  | 141,644 |
|  |  | $ | 283,423 |  |  | $ | 342,907 |  |  | $ | 870,843 |  |  | $ | 1,033,828 |

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 $70,999 and $65,004 at September 30, 2020 and December 31, 2019, 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 $21,884 and $30,133 at September 30, 2020 and December 31, 2019, respectively, and are included on the Unaudited Condensed Consolidated Balance Sheets as Expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services.
Contract liabilities consist of fees billed to clients in excess of fees recognized as revenue and are classified as Advance billings and within Accruals and other liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets. In arrangements in which we are acting as an agent, the revenue recognition related to the contract liability is presented on a net basis within the Condensed Consolidated Statements of Operations. Advance billings at September 30, 2020 and December 31, 2019 were $157,101 and $171,742, respectively. The decrease in the advance billings balance of $14,641 for the nine months ended September 30, 2020 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $127,961 of revenues recognized that were included in the advance billings balances as of December 31, 2019 and reductions due to the incurrence of third-party costs. Contract liabilities classified within Accruals and other liabilities at September 30, 2020 and December 31, 2019 were $197,650 and $216,931, respectively. The decrease in the balance of $19,281 for the nine months ended September 30, 2020 was primarily driven by cash payments received or due in advance of
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satisfying our performance obligations, offset by $190,342 of revenues recognized that were included in the balance as of December 31, 2019 and reductions due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the nine months ended September 30, 2020 were not materially impacted by write offs, impairment losses or any other factors.
The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we had approximately $14,556 of unsatisfied performance obligations as of September 30, 2020, of which we expect to recognize approximately 66% in 2020, 31% in 2021 and 3% in 2022.
4. Income (Loss) Per Common Share
The following table sets forth the computation of basic and diluted income (loss) per common share:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Numerator: |  |  |  |  |  |  |
Net income (loss) attributable to MDC Partners Inc. | $ | 4,076 |  |  | $ | (1,752) |  |  | $ | 4,486 |  |  | $ | 2,425 |
Accretion on convertible preference shares | (3,579) |  |  | (3,306) |  |  | (10,528) |  |  | (8,931) |
Net income allocated to convertible preference shares | (137) |  |  | — |  |  | — |  |  | — |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 360 |  |  | $ | (5,058) |  |  | $ | (6,042) |  |  | $ | (6,506) |
Denominator: |  |  |  |  |  |  |
Basic weighted average number of common shares outstanding | 73,207,619 |  |  | 72,044,480 |  |  | 72,713,257 |  |  | 68,154,306 |
Dilutive effect of equity awards | 269,160 |  |  | — |  |  | — |  |  | — |
Diluted weighted average number of common shares outstanding | 73,476,779 |  |  | 72,044,480 |  |  | 72,713,257 |  |  | 68,154,306 |
Basic | $ | — |  |  | $ | (0.07) |  |  | $ | (0.08) |  |  | $ | (0.10) |
Diluted | $ | — |  |  | $ | (0.07) |  |  | $ | (0.08) |  |  | $ | (0.10) |

Anti-dilutive stock awards 2,325,800 3,714,595 3,539,060 3,714,595
Restricted stock and restricted stock unit awards of 3,220,342 and 135,386 as of September 30, 2020 and 2019 respectively, are excluded from the computation of diluted income (loss) per common share because the performance contingency necessary for vesting has not been met as of the reporting date. In addition, there were 145,000 Preference Shares outstanding which were convertible into 28,287,863 and 26,133,613 Class A common shares at September 30, 2020 and 2019, 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.
5. Deferred Acquisition Consideration
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each reporting period through operating income, for contingent purchase price payments, or net interest expense, for fixed purchase price payments. The Company accounts for retention payments through operating income as stock-based compensation over the required retention period.
The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the balance sheets as of September 30, 2020 and December 31, 2019.
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| September 30, |  | December 31,
| 2020 |  | 2019
Beginning Balance of contingent payments | $ | 74,671 |  |  | $ | 82,598 |
Payments | (41,326) |  |  | (30,719) |
Redemption value adjustments (1) | 2,814 |  |  | 15,451 |
Additions - acquisitions and step-up transactions | 7,703 |  |  | 7,145 |
Other | 2,020 |  |  | 196 |
Ending Balance of contingent payments | $ | 45,882 |  |  | $ | 74,671 |
Fixed payments | 263 |  |  | 549 |
| $ | 46,145 |  |  | $ | 75,220 |

(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
The following table presents the impact to the Company’s Statements of operations due to the redemption value adjustments for the contingent deferred acquisition consideration:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Loss (Income) attributable to fair value adjustments | $ | 2,803 |  |  | $ | 1,943 |  |  | $ | 515 |  |  | $ | (3,627) |
Stock-based compensation | 770 |  |  | 1,540 |  |  | 2,299 |  |  | 1,010 |
Redemption value adjustments | $ | 3,573 |  |  | $ | 3,483 |  |  | $ | 2,814 |  |  | $ | (2,617) |

6. Leases
The Company leases office space in North America, Europe, Asia, South America, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years 2020 through 2032. The Company’s finance leases are immaterial.
The Company’s leasing policies are established in accordance with ASC 842, and accordingly, the Company recognizes on the balance sheet at the time of lease commencement a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments. Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All right-of-use lease assets are reviewed for impairment. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.
Lease costs are recognized in the Unaudited Condensed Consolidated Statements of Operations over the lease term on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset.
Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate. Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities. Lease liabilities are not remeasured as a result of changes in the index or rate, rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred. In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other variable operating expenses. Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances which the variable lease payments are based upon occur.
Some of the Company’s leases include options to extend or renew the leases through 2040. The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option.
From time to time, the Company enters into sublease arrangements both with unrelated third-parties and with our partner agencies. These leases are classified as operating leases and expire between years 2020 through 2025. Sublease income is
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recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Asia, Europe and Australia.
As of September 30, 2020, the Company has entered into three operating leases for which the commencement date has not yet occurred as the premises are in the process of being prepared for occupancy by the landlord. Accordingly, these three leases represent an obligation of the Company that is not reflected within the Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020. The aggregate future liability related to these leases is approximately $12,677.
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate.
The following table presents lease costs and other quantitative information for the three and nine months ended September 30, 2020 and 2019:

| Three Months Ended September 30, |  | Nine Months Ended September 30, |
| 2020 |  | 2019 |  | 2020 |  | 2019 |
Lease Cost: |  |  |  |  |  |  |  |
Operating lease cost | $ | 18,495 |  |  | $ | 16,605 |  |  | $ | 53,397 |  |  | $ | 50,519 |  |
Variable lease cost | 3,580 |  |  | 4,960 |  |  | 11,808 |  |  | 14,285 |  |
Sublease rental income | (2,940) |  |  | (2,376) |  |  | (8,637) |  |  | (6,565) |  |
Total lease cost | $ | 19,135 |  |  | $ | 19,189 |  |  | $ | 56,568 |  |  | $ | 58,239 |  |
Additional information: |  |  |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities for operating leases |  |  |  |  |  |  |  |
Operating cash flows | $ | 17,703 |  |  | $ | 16,988 |  |  | $ | 52,930 |  |  | $ | 52,163 |  |
Right-of-use assets obtained in exchange for operating lease liabilities and other non-cash adjustments | $ | (814) |  |  | $ | 8,783 |  |  | $ | 37,120 |  |  | $ | 267,796 |  |
Weighted average remaining lease term (in years) - Operating leases | 7.35 |  | 7.0 |  | 7.35 |  | 7.0 |
Weighted average discount rate - Operating leases | 10.6 |  | 8.7 |  | 10.6 |  | 8.7 |

In the nine months ended September 30, 2020, the Company recorded a charge of $5,777 primarily to reduce the carrying value of its right-of-use lease assets and related leasehold improvements of three of its agencies within its Integrated Networks - Group B reportable segment and leased space of Corporate. The Company evaluated the facts and circumstances related to the use of the assets which indicated that they may not be recoverable. Using adjusted quoted market prices to develop expected future cash flows, it was determined that the fair value of the assets were less than their carrying value. This impairment charge is included in Impairment and other losses within the Unaudited Condensed Consolidated Statements of Operations.
In the three and nine months ended September 30, 2019, the Company recorded an impairment charge of $1,933 to reduce the carrying value of its right-of-use lease assets and related leasehold improvements.
Operating lease expense is included in office and general expenses in the Unaudited Condensed Consolidated Statements of Operations. The Company’s lease expense for leases with a term of 12 months or less is immaterial.
The following table presents minimum future rental payments under the Company’s leases at September 30, 2020 and their reconciliation to the corresponding lease liabilities:
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| Maturity Analysis
Remaining 2020 | $ | 17,241 |
2021 | 67,718 |
2022 | 61,473 |
2023 | 57,429 |
2024 | 50,894 |
Thereafter | 190,461 |
Total | 445,216 |
Less: Present value discount | (148,071) |
Lease liability | $ | 297,145 |

7. Debt
As of September 30, 2020 and December 31, 2019, the Company’s indebtedness was comprised as follows:

| September 30, 2020 |  | December 31, 2019
Revolving credit agreement | $ | — |  |  | $ | — |
6.50% Notes due 2024 | 870,256 |  |  | 900,000 |
Debt issuance costs | (9,834) |  |  | (12,370) |
| $ | 860,422 |  |  | $ | 887,630 |

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 defined below), as guarantors (the “Guarantors”) and The Bank of New York Mellon, as trustee, relating to the issuance by MDC of $900,000 aggregate principal amount of the senior notes due 2024 (the “6.50% Notes”). The 6.50% Notes were sold in a private placement in reliance on exemptions from registration under the Securities Act of 1933. The 6.50% Notes bear interest, payable semiannually in arrears on May 1 and November 1, at a rate of 6.50% per annum. The 6.50% Notes mature on May 1, 2024, unless earlier redeemed or repurchased.
In April 2020, the Company repurchased $29,744 of the 6.50% Notes, at a weighted average price equal to 73.90% of the principal amount totaling $21,999, and accrued interest of $946. As a result of the repurchase, we recognized an extinguishment gain of $7,388.
MDC may, at its option, redeem the 6.50% Notes in whole at any time or in part from time to time, at varying prices based on the timing of the redemption.
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 September 30, 2020.
Revolving Credit Agreement
The Company is party to a $211,500 secured revolving credit facility due February 3, 2022.
On May 29, 2020, the Company, Maxxcom Inc., a subsidiary of the Company (“Maxxcom”), and each of their subsidiaries party thereto entered into an amendment (the “Second Amendment”) to the existing senior secured revolving credit facility, dated as of May 3, 2016 (as amended, the “Credit Agreement”), among the Company, Maxxcom, each of their subsidiaries
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party thereto, Wells Fargo Capital Finance, LLC, as agent (“Wells Fargo”), and the lenders from time to time party thereto. Advances under the Credit Agreement are to be used for working capital and general corporate purposes, in each case pursuant to the terms of the Credit Agreement.
The Second Amendment reduced the aggregate maximum amount of revolving commitments provided by the lenders to $211,500 from $250,000, extended the maturity date of the Credit Agreement from May 3, 2021 to February 3, 2022, and expanded the eligibility criteria for certain of the Company’s receivables to be included in the borrowing base.
Advances under the Credit Agreement, as amended by the Second Amendment, will bear interest as follows: (i) Non-Prime Rate Loans bear interest at the Non-Prime Rate plus the Non-Prime Rate Margin and (ii) all other Obligations bear interest at the Prime Rate, plus the Prime Rate Margin. The Non-Prime Rate Margin and Prime Rate Margin will range from 2.50% to 3.00% for Non-Prime Rate Loans and from 1.75% to 2.25% for Prime 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 Second Amendment increased the required minimum earnings before interest, taxes and depreciation and amortization from $105 million to $120 million measured on a trailing 12-month basis. The total leverage ratio applicable on each testing date through the period ending December 31, 2020 remained at 6.25:1.0. The total leverage ratio applicable on each testing date after December 31, 2020 will be 5.5:1.0.
The Credit Agreement, which includes financial and non-financial covenants, is guaranteed by substantially all of MDC’s present and future subsidiaries, other than immaterial subsidiaries and subject to customary exceptions, and collateralized by a portion of MDC’s outstanding receivable balance. The Company was in compliance with all of the terms and conditions of its Credit Agreement as of September 30, 2020.
At September 30, 2020 and December 31, 2019, the Company had issued undrawn outstanding letters of credit of $18,576 and $4,836, respectively.
8. Noncontrolling and Redeemable Noncontrolling Interests
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the Company’s Unaudited Condensed Consolidated Balance Sheets. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their estimated acquisition date redemption value and adjusted at each reporting period for changes to their estimated redemption value through additional paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments. On occasion, the Company may initiate a renegotiation to acquire an incremental ownership interest and the amount of consideration paid may differ materially from the amounts recorded in the Company’s Unaudited Condensed Consolidated Balance Sheets.
Noncontrolling Interests
Changes in amounts due to noncontrolling interest holders included in Accruals and other liabilities on the Unaudited Condensed Consolidated Balance Sheets for the year ended December 31, 2019 and nine months ended September 30, 2020 were as follows:
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| Noncontrolling Interests
Balance, December 31, 2018 | $ | 9,278 |
Income attributable to noncontrolling interests | 16,156 |
Distributions made | (11,392) |
Other | (14) |
Balance, December 31, 2019 | $ | 14,028 |
Income attributable to noncontrolling interests | 14,620 |
Distributions made | (14,499) |
Other | (218) |
Balance, September 30, 2020 | $ | 13,931 |

Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the three and nine months ended September 30, 2020 and 2019 were as follows:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Net income (loss) attributable to MDC Partners Inc. | $ | 4,076 |  |  | $ | (1,752) |  |  | $ | 4,486 |  |  | $ | 2,425 |
Transfers from the noncontrolling interest: |  |  |  |  |  |  |
Increase (decrease) in MDC Partners Inc. paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests | 2,129 |  |  | (648) |  |  | 1,626 |  |  | (745) |
Net transfers from noncontrolling interests | $ | 2,129 |  |  | $ | (648) |  |  | $ | 1,626 |  |  | $ | (745) |
Change from net income (loss) attributable to MDC Partners Inc. and transfers to noncontrolling interests | $ | 6,205 |  |  | $ | (2,400) |  |  | $ | 6,112 |  |  | $ | 1,680 |

Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:

| Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2019
Beginning Balance | $ | 36,973 |  |  | $ | 51,546 |
Redemptions | (12,289) |  |  | (14,530) |
Granted | — |  |  | — |
Changes in redemption value | 1,056 |  |  | (3,163) |
Currency translation adjustments | (568) |  |  | 3 |
Other | — |  |  | 3,117 |
Ending Balance | $ | 25,172 |  |  | $ | 36,973 |

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 2020 to 2024. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.
The redeemable noncontrolling interest of $25,172 as of September 30, 2020, consists of $17,640 based on the performance of subsidiaries assuming the reporting date is the redemption date and such rights are exercised, $7,532 upon termination of such owner’s employment with the applicable subsidiary or death and $0 representing the initial redemption value (required floor) recorded for certain acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership interests for such subsidiaries.
These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. For the nine months ended September 30, 2020 and 2019, there was no related impact on the Company’s loss per share calculation.
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9. Commitments, Contingencies, and Guarantees
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.
Deferred Acquisition Consideration and Options to Purchase. See Notes 5 and 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding potential payments associated with deferred acquisition consideration and the acquisition of noncontrolling shareholders’ ownership interest in subsidiaries.
Natural Disasters. Certain of the Company’s operations are located in regions of the United States which typically are subject to hurricanes. During the three and nine months ended September 30, 2020 and 2019, 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.
Commitments. At September 30, 2020, the Company had $18,576 of undrawn letters of credit.
The Company entered into operating leases for which the commencement date has not yet occurred as of September 30, 2020. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information.
10. Share Capital
The authorized and outstanding share capital of the Company is as follows:
Series 6 Convertible Preference Shares
On March 14, 2019 (the “Series 6 Issue Date”), the Company entered into a securities purchase agreement with Stagwell Agency Holdings LLC (“Stagwell Holdings”), an affiliate of Stagwell, pursuant to which Stagwell Holdings agreed to purchase (i) 14,285,714 newly authorized Class A shares (the “Stagwell Class A Shares”) for an aggregate contractual purchase price of $50,000 and (ii) 50,000 newly authorized Series 6 convertible preference shares (“Series 6 Preference Shares”) for an aggregate contractual purchase price of $50,000. The Company received proceeds of approximately $98,620 net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. The proceeds allocated to the Stagwell Class A Shares were $35,997 and to Series 6 Preference Shares were $62,623 based on their relative fair value calculated by utilizing a Monte Carlo Simulation model. In connection with the closing of the transaction, the Company increased the size of its Board and appointed two nominees designated by Stagwell Holdings. Except as required by law, the Series 6 Preference Shares do not have voting rights and are not redeemable at the option of Stagwell Holdings.
The holders of the Series 6 Preference Shares have the right to convert their Series 6 Preference Shares in whole at any time and from time to time, and in part at any time and from time to time, into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation preference per share of each Series 6 Preference Share is $1,000. The initial Conversion Price is $5.00 per Series 6 Preference Share, subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities.
The Series 6 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 6 Issue Date. During the nine months ended September 30, 2020, the Series 6 Preference Shares accreted at a monthly rate of $7.39, for total accretion of $3,260, bringing the aggregate liquidation preference to $56,521 as of September 30, 2020. The accretion is considered in the calculation of net loss attributable to MDC Partners Inc. common shareholders. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 6 Preference Shares.
Holders of the Series 6 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 6 Preference Shares. The Series 6 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Series 6 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion
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Price or (ii) after the fifth anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.
Following certain change in control transactions of the Company in which holders of Series 6 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the Series 6 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.
Series 4 Convertible Preference Shares
On March 7, 2017 (the “Series 4 Issue Date”), the Company issued 95,000 newly created Preference Shares (“Series 4 Preference Shares”) to affiliates of The Goldman Sachs Group, Inc. (collectively, the “Purchaser”) pursuant to a $95,000 private placement. The Company received proceeds of approximately $90,123, net of fees and estimated expenses, which were primarily used to pay down existing debt under the Company’s credit facility and for general corporate purposes. In connection with the closing of the transaction, the Company increased the size of its Board and appointed one nominee designated by the Purchaser. Except as required by law, the Series 4 Preference Shares do not have voting rights and are not redeemable at the option of the Purchaser.
Subsequent to the ninetieth day following the Series 4 Issue Date, the holders of the Series 4 Preference Shares have the right to convert their Series 4 Preference Shares in whole at any time and from time to time and in part at any time and from time to time into a number of Class A Shares equal to the then-applicable liquidation preference divided by the applicable conversion price at such time (the “Conversion Price”). The initial liquidation preference per share of each Series 4 Preference Share is $1,000. The Conversion Price of a Series 4 Preference Share is subject to customary adjustments for share splits and combinations, dividends, recapitalizations and other matters, including weighted average anti-dilution protection for certain issuances of equity or equity-linked securities. In connection with the anti-dilution protection provision triggered by the issuance of equity securities to Stagwell Holdings, the Conversion Price per Series 4 Preference Share was reduced to $7.42 from the initial Conversion Price of $10.00.
The Series 4 Preference Shares’ liquidation preference accretes at 8.0% per annum, compounded quarterly until the five-year anniversary of the Series 4 Issue Date. During the nine months ended September 30, 2020, the Series 4 Preference Shares accreted at a monthly rate of approximately $8.67 per Series 4 Preference Share, for total accretion of $7,268, bringing the aggregate liquidation preference to $126,019 as of September 30, 2020. The accretion is considered in the calculation of net income (loss) attributable to MDC Partners Inc. common shareholders. See Note 4 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information regarding the Series 4 Preference Shares.
Holders of the Series 4 Preference Shares are entitled to dividends in an amount equal to any dividends that would otherwise have been payable on the Class A Shares issued upon conversion of the Series 4 Preference Shares. The Series 4 Preference Shares are convertible at the Company’s option (i) on and after the two-year anniversary of the Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least 125% of the Conversion Price or (ii) after the fifth anniversary of the Series 4 Issue Date, if the closing trading price of the Class A Shares over a specified period prior to conversion is at least equal to the Conversion Price.
Following certain change in control transactions of the Company in which holders of Series 4 Preference Shares are not entitled to receive cash or qualifying listed securities with a value at least equal to the liquidation preference plus accrued and unpaid dividends, (i) holders will be entitled to cash dividends on the liquidation preference at an increasing rate (beginning at 7%), and (ii) the Company will have a right to redeem the Series 4 Preference Shares for cash at the greater of their liquidation preference plus accrued and unpaid dividends or their as-converted value.
Class A Common Shares (“Class A Shares”)
These are an unlimited number of subordinate voting shares, carrying one vote each, with a par value of $0, 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 73,550,950 and 72,150,854 Class A Shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.
Class B Common Shares (“Class B Shares”)
These are an unlimited number of voting shares, carrying twenty votes each, with a par value of $0, convertible at any time at the option of the holder into one Class A share for each Class B share. There were 3,743 and 3,749 Class B Shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.
11. Fair Value Measurements
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A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below:
•Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
•Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
•Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Financial Liabilities that are not Measured at Fair Value on a Recurring Basis
The following table presents certain information for our financial liability that is not measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019:

|  | September 30, 2020 |  | December 31, 2019
|  | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Liabilities: |  |  |  |  |  |  |  |
6.50% Senior Notes due 2024 |  | $ | 870,256 |  |  | $ | 800,000 |  |  | $ | 900,000 |  |  | $ | 812,250 |

Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices in markets that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy.
Financial Liabilities Measured at Fair Value on a Recurring Basis
Contingent deferred acquisition consideration (Level 3 fair value measurement) is recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with various contractual valuation formulas and is dependent upon significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate. These growth rates are consistent with the Company’s long-term forecasts. As of September 30, 2020, the discount rate used to measure these liabilities was 11.41%.
As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation, the fair value measurements presented on the Unaudited Condensed Consolidated Balance Sheets are subject to material uncertainty.
See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding contingent deferred acquisition consideration.
At September 30, 2020 and December 31, 2019, 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.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill, intangible assets (Level 3 fair value measurement) and right-of-use lease assets (Level 2 fair value measurement). Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment. The Company did not recognize an impairment of goodwill or intangible assets in the three months ended September 30, 2020. The company did not recognize an impairment of goodwill or intangible assets in the three and nine months ended September 30, 2019.
The Company recognized a charge of $5,777 primarily to reduce the carrying value of its right-of-use lease assets and leasehold improvements in the nine months ended September 30, 2020. The company recognized an impairment charge of $1,933 to reduce the carrying value of right-of-use assets and related leasehold improvements in the three and nine months ended September 30, 2019. See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for further information.
12. Supplemental Information
Impairment and Other Losses
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The Company recognized a charge of $19,159 for the nine months ended September 30, 2020 consisting of a goodwill impairment of $13,382 and an impairment of right-of-use lease assets and losses of $5,777.
Given the impact of the COVID-19 pandemic, the Company performed an interim goodwill impairment test in the second quarter of 2020 that resulted in a goodwill impairment, as discussed above, and the fair value of one reporting unit, with goodwill of approximately $130,780, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future. The Company used an income approach to measure its goodwill for impairment. This methodology incorporates the use of the discounted cash flow method. The income approach requires the exercise of significant judgment and inputs, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
See Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for additional information regarding the impairment of right-of-use lease assets and losses.
During the first quarter of 2020, the Company reassessed its estimate of the useful life of a trademark in the amount of $14,600, acquired as a result of a business combination. The Company revised the useful life to 5 years from indefinite lived.
Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted into law and the new legislation contains several key tax provisions, including the five-year net operating loss carryback, an adjusted business interest limitation, and payroll tax deferral. The Company is required to recognize the effect of tax law changes in the period of enactment, which required the Company to reassess the net realizability of its deferred tax assets and liabilities. The Company has assessed the applicability of the CARES Act and determined there is no impact.
The Company had an income tax expense for the three months ended September 30, 2020 of $1,452 (on a pre-tax income of $16,287 resulting in an effective tax rate of 8.9%) compared to income tax expense of $3,457 (on pre-tax income of $8,907 resulting in an effective tax rate of 38.8%) for the three months ended September 30, 2019.
The difference in effective tax rate of 8.9% in the three months ended September 30, 2020 as compared to 38.8% in the same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period. Such decrease was primarily attributable to an increase in forecasted foreign earnings for which there is no tax expense provided due to valuation allowance, partially offset by an increase in base erosion and anti-abuse tax (“BEAT”).
The Company had income tax expense for the nine months ended September 30, 2020 of $7,029 (on pre-tax income of $26,964 resulting in an effective tax rate of 26.1%) compared to an expense of $6,292 (on pre-tax income of $19,102 resulting in an effective tax rate of 32.9%) for the nine months ended September 30, 2019.
The difference in effective tax rate of 26.1% in the nine months ended September 30, 2020 as compared to 32.9% in same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period, such decrease primarily attributable to an increase in forecasted foreign earnings for which there is no tax expense provided due to valuation allowance, partially offset by an increase in base erosion and anti-abuse tax (“BEAT”).
Payroll Taxes
In accordance with the payroll tax deferral provision under the CARES Act, the Company is deferring the employer portion of the social security payroll tax of 6.2%. The Company anticipates the deferral through December 31, 2020 to be approximately $16,000 which is payable in equal installments on December 31, 2021 and 2022.
13. Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, including Stagwell and its affiliates. The transactions may range in the nature and value of services underlying the arrangements. Below are the related party transactions that are significant in nature:
In October 2019, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate, in which the Stagwell affiliate and the Partner Firm will collaborate to provide various services to a client of the Partner Firm. The Partner Firm and the Stagwell affiliate pitched and won this business together, with the client ultimately determining the general scope of work for each agency. Under the arrangement, which was structured as a sub-contract due to client preference, the Partner Firm is expected to pay the Stagwell affiliate, for services provided by the Stagwell affiliate in connection with serving the client, approximately $816 which is expected to be recognized through the end of 2020. As of September 30, 2020, $225 was owed to the affiliate.
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During 2020, a Partner Firm of the Company entered into an arrangement with certain Stagwell affiliates to perform media planning, buying and reporting services. Under the arrangement, the Partner Firm is expected to receive from the Stagwell affiliate approximately $5,276, which is expected to be recognized through the end of 2020. As of September 30, 2020, $957 was due from the affiliate.
In January 2020, a Partner Firm of the Company entered into an arrangement with a Stagwell affiliate to develop advertising technology for the Partner Firm. Under the arrangement the Partner Firm recorded approximately $475, of which $17 was owed to the affiliate as of September 30, 2020. This transaction has been completed.
In August 2020, the Company entered into an arrangement with a Stagwell affiliate to provide audience and brand research, concept testing and landscape related to the ongoing new business pitches for clients of the Company. Under the arrangement the Company is expected to pay the Stagwell affiliate approximately $145, which is expected to be recognized through October 2020. As of September 30, 2020, $82 was owed to the affiliate.
On February 14, 2020, Sloane sold substantially all its assets and certain liabilities to an affiliate of Stagwell. See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information related to this transaction.
The Company entered into an agreement commencing on January 1, 2020 to sublease office space through July 2021 to a company whose chairman is a member of the Company’s Board of Directors. As of September 30, 2020, the total future rental income related to the sublease is approximately $140.
14. 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”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.
The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income (loss) attributable to MDC Partners Inc. common shareholders' plus or minus adjustments to operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates, less contributions to date, plus undistributed earnings (losses). Other items, net includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.
Effective in the first quarter of 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”). Mr. Penn appointed key agency executives that report directly into him to lead each Network. In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments. See Note 1 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for information regarding a change in reportable segments between the first and second quarter of 2020.
The three reportable segments that result from our reassessment are as follows: “Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein and Note 2 of the Company’s 2019 Form 10-K.
•The Integrated Networks - Group A reportable segment is comprised of the Anomaly Alliance (Anomaly, Concentric Partners, Hunter, Mono, Y Media Labs) and Colle McVoy operating segments.
•The Integrated Networks - Group B reportable segment is comprised of the Constellation (72andSunny, CPB, Instrument and Redscout) and Doner Partner Network (6degrees, Doner, KWT, Union, Veritas and Yamamoto) operating segments.
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The operating segments aggregated within the Integrated Networks - Group A and B reportable segments provide a range of services for their clients, primarily including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast) as well as public relations and communications services, experiential, social media and influencer marketing. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments compete with each other for new business and from time to time have business move between them. While the operating segments are similar in nature, the distinction between the Integrated Networks - Group A and B is the aggregation of operating segments that have the most similar historical and expected average long-term profitability.
•The Media & Data Network reportable segment is comprised of a single operating segment that combines media buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast) with technology and data capabilities. The Media & Data Network includes Gale Partners, Kenna, MDC Media and Northstar.
•All Other consists of the Company’s remaining operating segments that provide a range of services including advertising, public relations and marketing communication services, but generally do not have similar services offerings or financial characteristics as those aggregated in the reportable segments. The All Other category includes Allison & Partners, Bruce Mau, Forsman & Bodenfors, Hello, Team and Vitro.
•Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category.
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| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenue: | (Dollars in Thousands)
Integrated Networks - Group A | $ | 87,064 |  |  | $ | 99,299 |  |  | $ | 260,420 |  |  | $ | 276,286 |
Integrated Networks - Group B | 112,159 |  |  | 129,057 |  |  | 323,264 |  |  | 395,622 |
Media & Data Network | 33,572 |  |  | 36,235 |  |  | 103,181 |  |  | 118,923 |
All Other | 50,628 |  |  | 78,316 |  |  | 183,978 |  |  | 242,997 |
Total | $ | 283,423 |  |  | $ | 342,907 |  |  | $ | 870,843 |  |  | $ | 1,033,828 |
Adjusted EBITDA: |  |  |  |  |  |  |
Integrated Networks - Group A | $ | 21,009 |  |  | $ | 23,974 |  |  | $ | 54,516 |  |  | $ | 43,128 |
Integrated Networks - Group B | 29,598 |  |  | 21,989 |  |  | 63,121 |  |  | 65,117 |
Media & Data Network | 3,031 |  |  | 1,354 |  |  | 5,710 |  |  | 2,388 |
All Other | 7,146 |  |  | 9,221 |  |  | 23,936 |  |  | 26,962 |
Corporate | (6,726) |  |  | (7,333) |  |  | (17,496) |  |  | (20,478) |
Total Adjusted EBITDA | $ | 54,058 |  |  | $ | 49,205 |  |  | $ | 129,787 |  |  | $ | 117,117 |
Depreciation and amortization | $ | (9,332) |  |  | $ | (9,368) |  |  | $ | (27,437) |  |  | $ | (28,869) |
Impairment and other losses | (159) |  |  | (1,944) |  |  | (19,159) |  |  | (1,944) |
Stock-based compensation | (6,459) |  |  | (6,026) |  |  | (10,568) |  |  | (12,632) |
Deferred acquisition consideration adjustments | (2,803) |  |  | (1,943) |  |  | (515) |  |  | 3,627 |
Distributions from non-consolidated affiliates | (208) |  |  | 202 |  |  | (1,273) |  |  | 171 |
Other items, net | (6,208) |  |  | (705) |  |  | (12,519) |  |  | (8,926) |
Total Operating Income | $ | 28,889 |  |  | $ | 29,421 |  |  | $ | 58,316 |  |  | $ | 68,544 |
Other Income (Expenses): |  |  |  |  |  |  |
Interest expense and finance charges, net | $ | (15,266) |  |  | $ | (16,110) |  |  | $ | (46,819) |  |  | $ | (49,284) |
Foreign exchange gain (loss) | 2,159 |  |  | (3,973) |  |  | (7,256) |  |  | 4,401 |
Other, net | 505 |  |  | (431) |  |  | 22,723 |  |  | (4,559) |
Income before income taxes and equity in earnings of non-consolidated affiliates | 16,287 |  |  | 8,907 |  |  | 26,964 |  |  | 19,102 |
Income tax expense | 1,452 |  |  | 3,457 |  |  | 7,029 |  |  | 6,292 |
Income before equity in earnings of non-consolidated affiliates | 14,835 |  |  | 5,450 |  |  | 19,935 |  |  | 12,810 |
Equity in earnings (losses) of non-consolidated affiliates | (31) |  |  | 63 |  |  | (829) |  |  | 352 |
Net income | 14,804 |  |  | 5,513 |  |  | 19,106 |  |  | 13,162 |
Net income attributable to the noncontrolling interest | (10,728) |  |  | (7,265) |  |  | (14,620) |  |  | (10,737) |
Net income (loss) attributable to MDC Partners Inc. | 4,076 |  |  | (1,752) |  |  | 4,486 |  |  | 2,425 |
Accretion on and net income allocated to convertible preference shares | (3,716) |  |  | (3,306) |  |  | (10,528) |  |  | (8,931) |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 360 |  |  | $ | (5,058) |  |  | $ | (6,042) |  |  | $ | (6,506) |

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| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Depreciation and amortization: | (Dollars in Thousands)
Integrated Networks - Group A | $ | 1,601 |  |  | $ | 2,132 |  |  | $ | 4,908 |  |  | $ | 6,420 |
Integrated Networks - Group B | 4,813 |  |  | 3,872 |  |  | 13,726 |  |  | 11,964 |
Media & Data Network | 786 |  |  | 1,004 |  |  | 2,401 |  |  | 3,332 |
All Other | 1,933 |  |  | 2,168 |  |  | 5,735 |  |  | 6,523 |
Corporate | 199 |  |  | 192 |  |  | 667 |  |  | 630 |
Total | $ | 9,332 |  |  | $ | 9,368 |  |  | $ | 27,437 |  |  | $ | 28,869 |
Stock-based compensation: |  |  |  |  |  |  |
Integrated Networks - Group A | $ | 4,024 |  |  | $ | 4,330 |  |  | $ | 5,880 |  |  | $ | 8,564 |
Integrated Networks - Group B | 742 |  |  | 740 |  |  | 2,388 |  |  | 3,231 |
Media & Data Network | 131 |  |  | 16 |  |  | 122 |  |  | 22 |
All Other | 141 |  |  | 107 |  |  | 339 |  |  | 363 |
Corporate | 1,421 |  |  | 833 |  |  | 1,839 |  |  | 452 |
Total | $ | 6,459 |  |  | $ | 6,026 |  |  | $ | 10,568 |  |  | $ | 12,632 |
Capital expenditures: |  |  |  |  |  |  |
Integrated Networks - Group A | $ | 269 |  |  | $ | 1,083 |  |  | $ | 835 |  |  | $ | 5,120 |
Integrated Networks - Group B | 694 |  |  | 4,108 |  |  | 899 |  |  | 6,287 |
Media & Data Network | 72 |  |  | 116 |  |  | 269 |  |  | 460 |
All Other | 79 |  |  | 545 |  |  | 536 |  |  | 1,889 |
Corporate | 23,073 |  |  | 11 |  |  | 25,338 |  |  | 30 |
Total | $ | 24,187 |  |  | $ | 5,863 |  |  | $ | 27,877 |  |  | $ | 13,786 |

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.
Corporate’s capital expenditures in 2020 are primarily for leasehold improvements at its new headquarters at One World Trade Center in connection with the centralization of the Company’s New York real estate portfolio. As of September 30, 2020, the Company had $16,403 of capital expenditures that were incurred in the current year, but not yet paid.
See Note 3 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a summary of the Company’s revenue by geographic region for the three and nine months ended September 30, 2020 and 2019.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, references to the “Company” or “MDC” mean MDC Partners Inc. and its subsidiaries, and references to a “fiscal year” mean the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2020 means the period beginning January 1, 2020, and ending December 31, 2020).
The Company reports its financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In addition, the Company has included non-GAAP financial measures and ratios, which management uses to operate the business, which it believes provide useful supplemental information to both management and readers of this report in making period-to-period comparisons in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures determined in accordance with GAAP. The non-GAAP measures included are “organic revenue growth” or “organic revenue decline” and “Adjusted EBITDA.”
Organic revenue growth or organic revenue decline refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating the prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of in the current period. The organic revenue growth (decline) component reflects the constant currency impact (a) of the change in revenue of the Partner Firms which the Company has held throughout each of the
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comparable periods presented and (b) “non-GAAP acquisitions (dispositions), net.” Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year or same period as the current reportable period, taking into account their respective pre-acquisition revenues for the applicable periods and (iii) for dispositions, the revenue effect from such dispositions as if they had been disposed of during the equivalent period in the prior year. The Company believes that isolating the impact of acquisition activity and foreign currency impacts is an important and informative component to understand the overall change in the Company’s consolidated revenue. The change in the consolidated revenue that remains after these adjustments illustrates the underlying financial performance of the Company’s businesses. Specifically, it represents the impact of the Company’s management oversight, investments and resources dedicated to supporting the businesses’ growth strategy and operations. In addition, it reflects the network benefit of inclusion in the broader portfolio of firms that includes, but is not limited to, cross-selling and sharing of best practices. This approach isolates changes in performance of the business that take place under the Company’s stewardship, whether favorable or unfavorable, and thereby reflects the potential benefits and risks associated with owning and managing a talent-driven services business.
Accordingly, during the first twelve months of ownership by the Company, the organic growth measure may credit the Company with growth from an acquired business that is dependent on work performed prior to the acquisition date, and may include the impact of prior work in progress, existing contracts and backlog of the acquired businesses. It is the presumption of the Company that positive developments that may have taken place at an acquired business during the period preceding the acquisition will continue to result in value creation in the post-acquisition period.
While the Company believes that the methodology used in the calculation of organic revenue change is entirely consistent with our closest U.S. competitors, the calculations may not be comparable to similarly titled measures presented by other publicly traded companies in other industries. Additional information regarding the Company’s acquisition activity as it relates to potential revenue growth is provided in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Certain Factors Affecting our Business.”
Adjusted EBITDA is defined as Net income (loss) attributable to MDC Partners Inc. common shareholders plus or minus adjustments to operating income (loss) plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, distributions from non-consolidated affiliates, and other items, net. Distributions from non-consolidated affiliates includes (i) cash received for profit distributions from non-consolidated affiliates, and (ii) consideration from the sale of ownership interests in non-consolidated affiliates less contributions to date plus undistributed earnings (losses). Other items includes items such as severance expense and other restructuring expenses, including costs for leases that will either be terminated or sublet in connection with the centralization of our New York real estate portfolio.
The following discussion focuses on the operating performance of the Company for the three and nine months ended September 30, 2020 and September 30, 2019 and the financial condition of the Company as of September 30, 2020. This analysis should be read in conjunction with the interim Unaudited Condensed Consolidated Financial Statements presented in this interim report and the annual Audited Consolidated Financial Statements and Management’s Discussion and Analysis presented in the 2019 Form 10-K.
Direct costs represent billable or non-billable internal and third-party expenses that are directly tied to providing services to our clients where we are principal in the arrangement. Direct costs exclude staff costs, which are presented separately.
All amounts are in dollars unless otherwise stated. Amounts reported in millions herein are computed based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.
The percentage changes included in the tables herein Item 2 that are not considered meaningful are presented as “NM.”
Executive Summary
The novel coronavirus (“COVID-19”) is a pandemic that has altered how society interacts across the world. The outbreak of COVID-19 and the measures put in place to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, have adversely impacted the global economy. The Company implemented comprehensive controls and procedures to protect our employees, families, clients, and their communities. This included implementing a world-wide work-from-home policy and stress-testing our infrastructure to ensure that all employees had the tools and resources to work virtually. Our leadership and business continuity teams also proactively took thorough measures to ensure the highest level of continued service and partnership for our clients.
The effects of the COVID-19 pandemic have negatively impacted our results of operations, financial position and cash flows; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19. While it is difficult to predict the full scale of the impact, the Company has taken actions to address the pandemic. Our Partner Firms have altered how they work and respond to client challenges around the world, generating
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impactful creative work, rapid pivots, and inventive business solutions for brands in every sector. We have also moved quickly to align our operating expenses with changes in revenue. We have implemented freezes on hiring, staff reductions, furloughs, salary reductions, benefit reductions and a significant reduction in discretionary spending. In addition to expense reductions, we tightened our capital expenditures where possible to preserve our cash flow. Given these measures, the Company believes it is well positioned to successfully work through the effects of COVID-19.
MDC conducts its business through its network of Partner Firms, which provide marketing and business solutions that realize the potential of combining data and creativity. MDC’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. MDC’s differentiation lies in its best-in-class creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. MDC leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and media-agnostic. The Company’s work is designed to challenge the industry status quo, realize outsized returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
MDC manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenues, operating expenses, capital expenditures and non-GAAP measures described above. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth by client industry vertical, (iii) growth from existing clients and the addition of new clients, (iv) growth by primary discipline, (v) growth from currency changes, and (vi) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our Partner Firms. These indicators may include a Partner Firm’s recent new client win/loss record; the depth and scope of a pipeline of potential new client account activity; the overall quality of the services provided to clients; and the relative strength of the Partner Firm’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.
Effective in 2020, the Company reorganized its management structure resulting in the aggregation of certain Partner Firms into integrated groups (“Networks”). Mark Penn, Chief Executive Officer and Chairman of the Company, appointed key agency executives, that report directly into him, to lead each Network. In connection with the reorganization, we reassessed our reportable segments to align our external reporting with how we operate the Networks under our new organizational structure. Prior periods presented have been recast to reflect the change in reportable segments. See Notes 1 and 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements included herein for a description of each of our reportable segments, the All Other category, as well as information regarding a change in reportable segments between the first and second quarter of 2020.
The three reportable segments that result from our assessment are as follows: “Integrated Networks - Group A,” “Integrated Networks - Group B” and the “Media & Data Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Condensed Consolidated Financial Statements included herein and Note 2 of the Company’s 2019 Form 10-K.
In addition, MDC reports its corporate office expenses incurred in connection with the strategic resources provided to the Partner Firms, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate, including interest expense and public company overhead costs. Corporate provides client and business development support to the Partner Firms as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions.
Certain Factors Affecting Our Business
See the Executive Summary section of Item 7 of the Company’s 2019 Form 10-K for information regarding certain factors affecting our business.
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Results of Operations:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Revenue: | (Dollars in Thousands)
Integrated Networks - Group A | $ | 87,064 |  |  | $ | 99,299 |  |  | $ | 260,420 |  |  | $ | 276,286 |
Integrated Networks - Group B | 112,159 |  |  | 129,057 |  |  | 323,264 |  |  | 395,622 |
Media & Data Network | 33,572 |  |  | 36,235 |  |  | 103,181 |  |  | 118,923 |
All Other | 50,628 |  |  | 78,316 |  |  | 183,978 |  |  | 242,997 |
Total Revenue | $ | 283,423 |  |  | $ | 342,907 |  |  | $ | 870,843 |  |  | $ | 1,033,828 |
Operating Income (Loss): |  |  |  |  |  |  |
Integrated Networks - Group A | $ | 12,700 |  |  | $ | 17,441 |  |  | $ | 39,337 |  |  | $ | 28,553 |
Integrated Networks - Group B | 23,636 |  |  | 15,488 |  |  | 33,080 |  |  | 52,189 |
Media & Data Network | 2,114 |  |  | 331 |  |  | 2,777 |  |  | (1,041) |
All Other | 5,201 |  |  | 5,272 |  |  | 18,045 |  |  | 19,408 |
Corporate | (14,762) |  |  | (9,111) |  |  | (34,923) |  |  | (30,565) |
Total Operating Income | $ | 28,889 |  |  | $ | 29,421 |  |  | $ | 58,316 |  |  | $ | 68,544 |
Other Income (Expenses): |  |  |  |  |  |  |
Interest expense and finance charges, net | $ | (15,266) |  |  | $ | (16,110) |  |  | $ | (46,819) |  |  | $ | (49,284) |
Foreign exchange gain (loss) | 2,159 |  |  | (3,973) |  |  | (7,256) |  |  | 4,401 |
Other, net | 505 |  |  | (431) |  |  | 22,723 |  |  | (4,559) |
Income before income taxes and equity in earnings of non-consolidated affiliates | 16,287 |  |  | 8,907 |  |  | 26,964 |  |  | 19,102 |
Income tax expense | 1,452 |  |  | 3,457 |  |  | 7,029 |  |  | 6,292 |
Income before equity in earnings of non-consolidated affiliates | 14,835 |  |  | 5,450 |  |  | 19,935 |  |  | 12,810 |
Equity in earnings (losses) of non-consolidated affiliates | (31) |  |  | 63 |  |  | (829) |  |  | 352 |
Net income | 14,804 |  |  | 5,513 |  |  | 19,106 |  |  | 13,162 |
Net income attributable to the noncontrolling interest | (10,728) |  |  | (7,265) |  |  | (14,620) |  |  | (10,737) |
Net income (loss) attributable to MDC Partners Inc. | 4,076 |  |  | (1,752) |  |  | 4,486 |  |  | 2,425 |
Accretion on and net income allocated to convertible preference shares | (3,716) |  |  | (3,306) |  |  | (10,528) |  |  | (8,931) |
Net income (loss) attributable to MDC Partners Inc. common shareholders | $ | 360 |  |  | $ | (5,058) |  |  | $ | (6,042) |  |  | $ | (6,506) |
Adjusted EBITDA: |  |  |  |  |  |  |
Integrated Networks - Group A | $ | 21,009 |  |  | $ | 23,974 |  |  | $ | 54,516 |  |  | $ | 43,128 |
Integrated Networks - Group B | 29,598 |  |  | 21,989 |  |  | 63,121 |  |  | 65,117 |
Media & Data Network | 3,031 |  |  | 1,354 |  |  | 5,710 |  |  | 2,388 |
All Other | 7,146 |  |  | 9,221 |  |  | 23,936 |  |  | 26,962 |
Corporate | (6,726) |  |  | (7,333) |  |  | (17,496) |  |  | (20,478) |
Total Adjusted EBITDA | $ | 54,058 |  |  | $ | 49,205 |  |  | $ | 129,787 |  |  | $ | 117,117 |

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| Three Months Ended September 30, |  | Nine Months Ended September 30, |
| 2020 |  | 2019 |  | 2020 |  | 2019 |
Capital expenditures: | (Dollars in Thousands) |
Integrated Networks - Group A | $ | 269 |  |  | $ | 1,083 |  |  | $ | 835 |  |  | $ | 5,120 |  |
Integrated Networks - Group B | 694 |  |  | 4,108 |  |  | 899 |  |  | 6,287 |  |
Media & Data Network | 72 |  |  | 116 |  |  | 269 |  |  | 460 |  |
All Other | 79 |  |  | 545 |  |  | 536 |  |  | 1,889 |  |
Corporate | 23,073 |  |  | 11 |  |  | 25,338 |  |  | 30 |  |
Total | $ | 24,187 |  |  | $ | 5,863 |  |  | $ | 27,877 |  |  | $ | 13,786 |  |

Corporate’s capital expenditures in 2020 are primarily for leasehold improvements at its new headquarters at One World Trade Center in connection with the centralization of the Company’s New York real estate portfolio. As of September 30, 2020, the Company had $16,403 of capital expenditures that were incurred in the current year, but not yet paid.
The following tables reconcile Net income (loss) attributable to MDC Partners Inc. common shareholders (GAAP) to Adjusted EBITDA (non-GAAP) for the three and nine months ended September 30, 2020 and 2019. The adjustments from Net income (loss) attributable to MDC Partners Inc. common shareholders to Operating income (loss) are detailed in the table above.

| Three Months Ended September 30, 2020
| Integrated Networks - Group A |  | Integrated Networks - Group B |  | Media & Data Network |  | All Other |  | Corporate |  | Total
| (Dollars in Thousands)
Net income attributable to MDC Partners Inc. common shareholders |  |  |  |  |  |  |  |  |  |  | $ | 360 |
Adjustments |  |  |  |  |  |  |  |  |  |  | 28,529 |
Operating income (loss) | $ | 12,700 |  |  | $ | 23,636 |  |  | $ | 2,114 |  |  | $ | 5,201 |  |  | $ | (14,762) |  |  | $ | 28,889 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization | 1,601 |  |  | 4,813 |  |  | 786 |  |  | 1,933 |  |  | 199 |  |  | 9,332 |
Impairment and other losses | — |  |  | 157 |  |  | — |  |  | 2 |  |  | — |  |  | 159 |
Stock-based compensation | 4,024 |  |  | 742 |  |  | 131 |  |  | 141 |  |  | 1,421 |  |  | 6,459 |
Deferred acquisition consideration adjustments | 2,684 |  |  | 250 |  |  | — |  |  | (131) |  |  | — |  |  | 2,803 |
Distributions from non-consolidated affiliates | — |  |  | — |  |  | — |  |  | — |  |  | 208 |  |  | 208 |
Other items, net | — |  |  | — |  |  | — |  |  | — |  |  | 6,208 |  |  | 6,208 |
Adjusted EBITDA | $ | 21,009 |  |  | $ | 29,598 |  |  | $ | 3,031 |  |  | $ | 7,146 |  |  | $ | (6,726) |  |  | $ | 54,058 |

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| Three Months Ended September 30, 2019
| Integrated Networks - Group A |  | Integrated Networks - Group B |  | Media & Data Network |  | All Other |  | Corporate |  | Total
| (Dollars in Thousands)
Net loss attributable to MDC Partners Inc. common shareholders |  |  |  |  |  |  |  |  |  |  | $ | (5,058) |
Adjustments |  |  |  |  |  |  |  |  |  |  | 34,479 |
Operating income (loss) | $ | 17,441 |  |  | $ | 15,488 |  |  | $ | 331 |  |  | $ | 5,272 |  |  | $ | (9,111) |  |  | $ | 29,421 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization | 2,132 |  |  | 3,872 |  |  | 1,004 |  |  | 2,168 |  |  | 192 |  |  | 9,368 |
Impairment and other losses | — |  |  | 1,933 |  |  | — |  |  | 11 |  |  | — |  |  | 1,944 |
Stock-based compensation | 4,330 |  |  | 740 |  |  | 16 |  |  | 107 |  |  | 833 |  |  | 6,026 |
Deferred acquisition consideration adjustments | 71 |  |  | 206 |  |  | 3 |  |  | 1,663 |  |  | — |  |  | 1,943 |
Distributions from non-consolidated affiliates | — |  |  | (250) |  |  | — |  |  | — |  |  | 48 |  |  | (202) |
Other items, net | — |  |  | — |  |  | — |  |  | — |  |  | 705 |  |  | 705 |
Adjusted EBITDA | $ | 23,974 |  |  | $ | 21,989 |  |  | $ | 1,354 |  |  | $ | 9,221 |  |  | $ | (7,333) |  |  | $ | 49,205 |

| Nine Months Ended September 30, 2020
| Integrated Networks - Group A |  | Integrated Networks - Group B |  | Media & Data Network |  | All Other |  | Corporate |  | Total
| (Dollars in Thousands)
Net loss attributable to MDC Partners Inc. common shareholders |  |  |  |  |  |  |  |  |  |  | $ | (6,042) |
Adjustments |  |  |  |  |  |  |  |  |  |  | 64,358 |
Operating income (loss) | $ | 39,337 |  |  | $ | 33,080 |  |  | $ | 2,777 |  |  | $ | 18,045 |  |  | $ | (34,923) |  |  | $ | 58,316 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization | 4,908 |  |  | 13,726 |  |  | 2,401 |  |  | 5,735 |  |  | 667 |  |  | 27,437 |
Impairment and other losses | — |  |  | 17,786 |  |  | 35 |  |  | 209 |  |  | 1,129 |  |  | 19,159 |
Stock-based compensation | 5,880 |  |  | 2,388 |  |  | 122 |  |  | 339 |  |  | 1,839 |  |  | 10,568 |
Deferred acquisition consideration adjustments | 4,391 |  |  | (3,859) |  |  | 375 |  |  | (392) |  |  | — |  |  | 515 |
Distributions from non-consolidated affiliates | — |  |  | — |  |  | — |  |  | — |  |  | 1,273 |  |  | 1,273 |
Other items, net | — |  |  | — |  |  | — |  |  | — |  |  | 12,519 |  |  | 12,519 |
Adjusted EBITDA | $ | 54,516 |  |  | $ | 63,121 |  |  | $ | 5,710 |  |  | $ | 23,936 |  |  | $ | (17,496) |  |  | $ | 129,787 |

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| Nine Months Ended September 30, 2019
| Integrated Networks - Group A |  | Integrated Networks - Group B |  | Media & Data Network |  | All Other |  | Corporate |  | Total
| (Dollars in Thousands)
Net loss attributable to MDC Partners Inc. common shareholders |  |  |  |  |  |  |  |  |  |  | $ | (6,506) |
Adjustments |  |  |  |  |  |  |  |  |  |  | 75,050 |
Operating income (loss) | $ | 28,553 |  |  | $ | 52,189 |  |  | $ | (1,041) |  |  | $ | 19,408 |  |  | $ | (30,565) |  |  | $ | 68,544 |
Adjustments: |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization | 6,420 |  |  | 11,964 |  |  | 3,332 |  |  | 6,523 |  |  | 630 |  |  | 28,869 |
Impairment and other losses | — |  |  | 1,933 |  |  | — |  |  | 11 |  |  | — |  |  | 1,944 |
Stock-based compensation | 8,564 |  |  | 3,231 |  |  | 22 |  |  | 363 |  |  | 452 |  |  | 12,632 |
Deferred acquisition consideration adjustments | (409) |  |  | (3,950) |  |  | 75 |  |  | 657 |  |  | — |  |  | (3,627) |
Distributions from non- consolidated affiliates | — |  |  | (250) |  |  | — |  |  | — |  |  | 79 |  |  | (171) |
Other items, net | — |  |  | — |  |  | — |  |  | — |  |  | 8,926 |  |  | 8,926 |
Adjusted EBITDA | $ | 43,128 |  |  | $ | 65,117 |  |  | $ | 2,388 |  |  | $ | 26,962 |  |  | $ | (20,478) |  |  | $ | 117,117 |

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THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2019
Consolidated Results of Operations
Revenues
Revenue was $283.4 million for the three months ended September 30, 2020 compared to revenue of $342.9 million for the three months ended September 30, 2019.
The components of the fluctuations in revenues for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 are as follows:

| Total |  | United States |  | Canada |  | Other
| $ |  | % |  | $ |  | % |  | $ |  | % |  | $ |  | %
| (Dollars in Thousands)
September 30, 2019 | $ | 342,907 |  |  |  |  | $ | 271,671 |  |  |  |  | $ | 25,895 |  |  |  |  | $ | 45,341 |  |  |
Components of revenue change: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange impact | 873 |  |  | 0.3 | % |  | — |  |  | — | % |  | (179) |  |  | (0.7) | % |  | 1,052 |  |  | 2.3 | %
Non-GAAP acquisitions (dispositions), net | (4,076) |  |  | (1.2) | % |  | (4,076) |  |  | (1.5) | % |  | — |  |  | — | % |  | — |  |  | — | %
Organic revenue | (56,281) |  |  | (16.4) | % |  | (39,339) |  |  | (14.5) | % |  | (5,417) |  |  | (20.9) | % |  | (11,525) |  |  | (25.4) | %
Total Change | $ | (59,484) |  |  | (17.3) | % |  | $ | (43,415) |  |  | (16.0) | % |  | $ | (5,596) |  |  | (21.6) | % |  | $ | (10,473) |  |  | (23.1) | %
September 30, 2020 | $ | 283,423 |  |  |  |  | $ | 228,256 |  |  |  |  | $ | 20,299 |  |  |  |  | $ | 34,868 |  |  |

The positive foreign exchange impact of $0.9 million, or 0.3%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.
For the three months ended September 30, 2020, organic revenue declined $56.3 million, or 16.4%, primarily attributable to reduced spending by clients in connection with the COVID-19 pandemic.
The table below provides a reconciliation between revenue from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the three months ended September 30, 2020:

|  |  |  |  | All Other |  | Total
|  |  |  |  | (Dollars in Thousands)
GAAP revenue from 2019 and 2020 acquisitions |  |  |  |  | $ | — |  |  | $ | — |
Foreign exchange impact |  |  |  |  | — |  |  | — |
Contribution to non-GAAP organic revenue growth (decline) |  |  |  |  | — |  |  | — |
Prior year revenue from dispositions |  |  |  |  | (4,076) |  |  | (4,076) |
Non-GAAP acquisitions (dispositions), net |  |  |  |  | $ | (4,076) |  |  | $ | (4,076) |

The geographic mix in revenues for the three months ended September 30, 2020 and 2019 is as follows:

| 2020 |  | 2019
United States | 80.5 | % |  | 79.2 | %
Canada | 7.2 | % |  | 7.6 | %
Other | 12.3 | % |  | 13.2 | %

Operating Income (Loss)
Operating income for the three months ended September 30, 2020 was $28.9 million, compared to operating income of $29.4 million for the three months ended September 30, 2019, representing a change of $0.5 million, primarily driven by the decline in revenue, mostly offset by a reduction in operating expenses to align our costs with revenues impacted by the COVID-19 pandemic.
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Adjusted EBITDA
Adjusted EBITDA for the three months ended September 30, 2020 was $54.1 million, compared to $49.2 million for the three months ended September 30, 2019, representing an increase of $4.9 million, principally resulting from a reduction in operating expenses, partially offset by the decline in revenues.
Other, Net
Other, net, for the three months ended September 30, 2020 was income of $0.5 million compared to a loss of $0.4 million for the three months ended September 30, 2019.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange gain for the three months ended September 30, 2020 was $2.2 million compared to a loss of $4.0 million for the three months ended September 30, 2019. The change in the foreign exchange impact was primarily attributable to the strengthening of the Canadian dollar against the U.S. dollar in 2020 compared to the prior year period. The change is primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.
Interest Expense and Finance Charges, Net
Interest expense and finance charges, net, for the three months ended September 30, 2020 was $15.3 million compared to $16.1 million for the three months ended September 30, 2019, representing a decrease of $0.8 million, primarily driven by a decline in the Company’s $900,000 aggregate principal amount of senior notes due 2024 (the “6.50% Notes”).
Income Tax Expense (Benefit)
Income tax expense for the three months ended September 30, 2020 was $1.5 million (on a pre-tax income of $16.3 million resulting in an effective tax rate of 8.9%) compared to an income tax expense of $3.5 million (on pre-tax income of $8.9 million resulting in an effective tax rate of 38.8%) for the three months ended September 30, 2019.
The difference in effective tax rate of 8.9% in the three months ended September 30, 2020 as compared to 38.8% in the same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period. This decrease was primarily attributable to an increase in forecasted foreign earnings for which there is no tax expense provided due to valuation allowance, partially offset by an increase in base erosion and anti-abuse tax (“BEAT”).
Noncontrolling Interests
The effect of noncontrolling interests for the three months ended September 30, 2020 was $10.7 million compared to $7.3 million for the three months ended September 30, 2019.
Net Income (Loss) Attributable to MDC Partners Inc. Common Shareholders
As a result of the foregoing, net income attributable to MDC Partners Inc. common shareholders for the three months ended September 30, 2020 was $0.4 million, with no diluted income per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $5.1 million, or $0.07 diluted loss per share, for the three months ended September 30, 2019.
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Integrated Networks - Group A
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group A reportable segment for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group A |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue: |  | $ | 87,064 |  |  |  |  | $ | 99,299 |  |  |  |  | $ | (12,235) |  |  | (12.3) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 54,784 |  |  | 62.9 | % |  | 65,431 |  |  | 65.9 | % |  | (10,647) |  |  | (16.3) | %
Office and general expenses |  | 17,979 |  |  | 20.7 | % |  | 14,295 |  |  | 14.4 | % |  | 3,684 |  |  | 25.8 | %
Depreciation and amortization |  | 1,601 |  |  | 1.8 | % |  | 2,132 |  |  | 2.1 | % |  | (531) |  |  | (24.9) | %
|  | $ | 74,364 |  |  | 85.4 | % |  | $ | 81,858 |  |  | 82.4 | % |  | $ | (7,494) |  |  | (9.2) | %
Operating income |  | $ | 12,700 |  |  | 14.6 | % |  | $ | 17,441 |  |  | 17.6 | % |  | $ | (4,741) |  |  | (27.2) | %
Adjusted EBITDA |  | $ | 21,009 |  |  | 24.1 | % |  | $ | 23,974 |  |  | 24.1 | % |  | $ | (2,965) |  |  | (12.4) | %

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group A reportable segment for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group A |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 12,075 |  |  | 13.9 | % |  | $ | 10,849 |  |  | 10.9 | % |  | $ | 1,226 |  |  | 11.3 | %
Staff costs |  | 44,667 |  |  | 51.3 | % |  | 53,707 |  |  | 54.1 | % |  | (9,040) |  |  | (16.8) | %
Administrative |  | 9,313 |  |  | 10.7 | % |  | 10,769 |  |  | 10.8 | % |  | (1,456) |  |  | (13.5) | %
Deferred acquisition consideration |  | 2,684 |  |  | 3.1 | % |  | 71 |  |  | 0.1 | % |  | 2,613 |  |  | NM
Stock-based compensation |  | 4,024 |  |  | 4.6 | % |  | 4,330 |  |  | 4.4 | % |  | (306) |  |  | (7.1) | %
Depreciation and amortization |  | 1,601 |  |  | 1.8 | % |  | 2,132 |  |  | 2.1 | % |  | (531) |  |  | (24.9) | %
Total operating expenses |  | $ | 74,364 |  |  | 85.4 | % |  | $ | 81,858 |  |  | 82.4 | % |  | $ | (7,494) |  |  | (9.2) | %

The increase in direct costs was in connection with higher revenue at the Network’s public relations business in the third quarter. This increase more than offset the decline in direct costs in other areas of the Network.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The change in deferred acquisition consideration for the three months ended September 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income for the three months ended September 30, 2020.
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Integrated Networks - Group B
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group B |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue: |  | $ | 112,159 |  |  |  |  | $ | 129,057 |  |  |  |  | $ | (16,898) |  |  | (13.1) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 61,398 |  |  | 54.7 | % |  | 77,132 |  |  | 59.8 | % |  | (15,734) |  |  | (20.4) | %
Office and general expenses |  | 22,155 |  |  | 19.8 | % |  | 30,632 |  |  | 23.7 | % |  | (8,477) |  |  | (27.7) | %
Depreciation and amortization |  | 4,813 |  |  | 4.3 | % |  | 3,872 |  |  | 3.0 | % |  | 941 |  |  | 24.3 | %
Impairment and other losses |  | 157 |  |  | 0.1 | % |  | 1,933 |  |  | 1.5 | % |  | (1,776) |  |  | (91.9) | %
|  | $ | 88,523 |  |  | 78.9 | % |  | $ | 113,569 |  |  | 88.0 | % |  | $ | (25,046) |  |  | (22.1) | %
Operating income |  | $ | 23,636 |  |  | 21.1 | % |  | $ | 15,488 |  |  | 12.0 | % |  | $ | 8,148 |  |  | 52.6 | %
Adjusted EBITDA |  | $ | 29,598 |  |  | 26.4 | % |  | $ | 21,989 |  |  | 17.0 | % |  | $ | 7,609 |  |  | 34.6 | %

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The increase in operating income was attributable to lower operating expenses, as outlined below, partially offset by the decline in revenue.
The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group B |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 13,575 |  |  | 12.1 | % |  | $ | 16,730 |  |  | 13.0 | % |  | $ | (3,155) |  |  | (18.9) | %
Staff costs |  | 56,287 |  |  | 50.2 | % |  | 73,081 |  |  | 56.6 | % |  | (16,794) |  |  | (23.0) | %
Administrative |  | 12,699 |  |  | 11.3 | % |  | 17,007 |  |  | 13.2 | % |  | (4,308) |  |  | (25.3) | %
Deferred acquisition consideration |  | 250 |  |  | 0.2 | % |  | 206 |  |  | 0.2 | % |  | 44 |  |  | 21.4 | %
Stock-based compensation |  | 742 |  |  | 0.7 | % |  | 740 |  |  | 0.6 | % |  | 2 |  |  | 0.3 | %
Depreciation and amortization |  | 4,813 |  |  | 4.3 | % |  | 3,872 |  |  | 3.0 | % |  | 941 |  |  | 24.3 | %
Impairment and other losses |  | 157 |  |  | 0.1 | % |  | 1,933 |  |  | 1.5 | % |  | (1,776) |  |  | (91.9) | %
Total operating expenses |  | $ | 88,523 |  |  | 78.9 | % |  | $ | 113,569 |  |  | 88.0 | % |  | $ | (25,046) |  |  | (22.1) | %

Direct costs declined in connection with the reduction in revenue as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The increase in Adjusted EBITDA is principally for the same reasons as the growth in Operating income.
Media & Data Network
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the three months ended September 30, 2020 and 2019 was as follows:
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|  | 2020 |  | 2019 |  | Change
Media & Data Network |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue |  | $ | 33,572 |  |  |  |  | $ | 36,235 |  |  |  |  | $ | (2,663) |  |  | (7.3) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 23,608 |  |  | 70.3 | % |  | 26,219 |  |  | 72.4 | % |  | (2,611) |  |  | (10.0) | %
Office and general expenses |  | 7,064 |  |  | 21.0 | % |  | 8,681 |  |  | 24.0 | % |  | (1,617) |  |  | (18.6) | %
Depreciation and amortization |  | 786 |  |  | 2.3 | % |  | 1,004 |  |  | 2.8 | % |  | (218) |  |  | (21.7) | %
Impairment and other losses |  | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | %
|  | $ | 31,458 |  |  | 93.7 | % |  | $ | 35,904 |  |  | 99.1 | % |  | $ | (4,446) |  |  | (12.4) | %
Operating income |  | $ | 2,114 |  |  | 6.3 | % |  | $ | 331 |  |  | 0.9 | % |  | $ | 1,783 |  |  | NM
Adjusted EBITDA |  | $ | 3,031 |  |  | 9.0 | % |  | $ | 1,354 |  |  | 3.7 | % |  | $ | 1,677 |  |  | NM

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The increase in operating income was attributable to lower operating expenses, as outlined below, partially offset by the decline in revenue.
The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Media & Data Network |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 9,159 |  |  | 27.3 | % |  | $ | 8,009 |  |  | 22.1 | % |  | $ | 1,150 |  |  | 14.4 | %
Staff costs |  | 16,105 |  |  | 48.0 | % |  | 20,940 |  |  | 57.8 | % |  | (4,835) |  |  | (23.1) | %
Administrative |  | 5,277 |  |  | 15.7 | % |  | 5,932 |  |  | 16.4 | % |  | (655) |  |  | (11.0) | %
Deferred acquisition consideration |  | — |  |  | — | % |  | 3 |  |  | — | % |  | (3) |  |  | (100.0) | %
Stock-based compensation |  | 131 |  |  | 0.4 | % |  | 16 |  |  | — | % |  | 115 |  |  | NM
Depreciation and amortization |  | 786 |  |  | 2.3 | % |  | 1,004 |  |  | 2.8 | % |  | (218) |  |  | (21.7) | %
Impairment and other losses |  | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | %
Total operating expenses |  | $ | 31,458 |  |  | 93.7 | % |  | $ | 35,904 |  |  | 99.1 | % |  | $ | (4,446) |  |  | (12.4) | %

The increase in direct costs was in connection with higher revenue at the Network’s data business in the third quarter. This increase more than offset the decline in direct costs at the Media business.
The decline in staff costs was attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The increase in Adjusted EBITDA is principally for the same reasons as the increase in Operating income.
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All Other
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the All Other category for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
All Other |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue |  | $ | 50,628 |  |  |  |  | $ | 78,316 |  |  |  |  | $ | (27,688) |  |  | (35.4) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 32,741 |  |  | 64.7 | % |  | 53,666 |  |  | 68.5 | % |  | (20,925) |  |  | (39.0) | %
Office and general expenses |  | 10,751 |  |  | 21.2 | % |  | 17,199 |  |  | 22.0 | % |  | (6,448) |  |  | (37.5) | %
Depreciation and amortization |  | 1,933 |  |  | 3.8 | % |  | 2,168 |  |  | 2.8 | % |  | (235) |  |  | (10.8) | %
Impairment and other losses |  | 2 |  |  | — | % |  | 11 |  |  | — | % |  | (9) |  |  | (81.8) | %
|  | $ | 45,427 |  |  | 89.7 | % |  | $ | 73,044 |  |  | 93.3 | % |  | $ | (27,617) |  |  | (37.8) | %
Operating income |  | $ | 5,201 |  |  | 10.3 | % |  | $ | 5,272 |  |  | 6.7 | % |  | $ | (71) |  |  | (1.3) | %
Adjusted EBITDA |  | $ | 7,146 |  |  | 14.1 | % |  | $ | 9,221 |  |  | 11.8 | % |  | $ | (2,075) |  |  | (22.5) | %

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic, including the Company’s experiential business.
The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
The change in the categories of expenses as a percentage of revenue in the All Other category for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
All Other |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 6,912 |  |  | 13.7 | % |  | $ | 15,565 |  |  | 19.9 | % |  | $ | (8,653) |  |  | (55.6) | %
Staff costs |  | 29,984 |  |  | 59.2 | % |  | 43,081 |  |  | 55.0 | % |  | (13,097) |  |  | (30.4) | %
Administrative |  | 6,586 |  |  | 13.0 | % |  | 10,449 |  |  | 13.3 | % |  | (3,863) |  |  | (37.0) | %
Deferred acquisition consideration |  | (131) |  |  | (0.3) | % |  | 1,663 |  |  | 2.1 | % |  | (1,794) |  |  | NM
Stock-based compensation |  | 141 |  |  | 0.3 | % |  | 107 |  |  | 0.1 | % |  | 34 |  |  | 31.8 | %
Depreciation and amortization |  | 1,933 |  |  | 3.8 | % |  | 2,168 |  |  | 2.8 | % |  | (235) |  |  | (10.8) | %
Impairment and other losses |  | 2 |  |  | — | % |  | 11 |  |  | — | % |  | (9) |  |  | (81.8) | %
Total operating expenses |  | $ | 45,427 |  |  | 89.7 | % |  | $ | 73,044 |  |  | 93.3 | % |  | $ | (27,617) |  |  | (37.8) | %

Direct costs declined in line with the reduction in revenues as discussed above.
The decline in staff costs was primarily attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, and the exclusion of the deferred acquisition consideration.
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Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the three months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Corporate |  | $ |  | $ |  | $ |  | %
|  | (Dollars in Thousands)
Staff costs |  | $ | 6,013 |  |  | $ | 5,772 |  |  | $ | 241 |  |  | 4.2 | %
Administrative |  | 7,129 |  |  | 2,314 |  |  | 4,815 |  |  | NM
Stock-based compensation |  | 1,421 |  |  | 833 |  |  | 588 |  |  | 70.6 | %
Depreciation and amortization |  | 199 |  |  | 192 |  |  | 7 |  |  | 3.6 | %
Total operating expenses |  | $ | 14,762 |  |  | $ | 9,111 |  |  | $ | 5,651 |  |  | 62.0 | %
Adjusted EBITDA |  | $ | (6,726) |  |  | $ | (7,333) |  |  | $ | 607 |  |  | (8.3) | %

Administrative costs were higher due to higher professional fees associated with restructuring activities and an increase in occupancy costs related to the Company’s new space at One World Trade Center as part of the centralization of its New York real estate portfolio.
Stock-based compensation increased primarily as a result of the increased level of awards outstanding and more stock-based compensation being recorded in 2020 due to the expectation that certain performance vesting conditions will be met.
The increase in Adjusted EBITDA is a result of the change in operating expenses, more than offset by the exclusion of professional fees associated with restructuring activities and the occupancy costs associated with the centralization of our New York real estate portfolio.
NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2019
Consolidated Results of Operations
Revenues
Revenue was $870.8 million for the nine months ended September 30, 2020 compared to revenue of $1,033.8 million for the nine months ended September 30, 2019. The components of the fluctuations in revenues for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 are as follows:

| Total |  | United States |  | Canada |  | Other
| $ |  | % |  | $ |  | % |  | $ |  | % |  | $ |  | %
| (Dollars in Thousands)
September 30, 2019 | $ | 1,033,828 |  |  |  |  | $ | 819,347 |  |  |  |  | $ | 72,837 |  |  |  |  | $ | 141,644 |  |  |
Components of revenue change: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange impact | (3,835) |  |  | (0.4) | % |  | — |  |  | — | % |  | (1,054) |  |  | (1.4) | % |  | (2,781) |  |  | (2.0) | %
Non-GAAP acquisitions (dispositions), net | (13,865) |  |  | (1.3) | % |  | (10,160) |  |  | (1.2) | % |  | (3,705) |  |  | (5.1) | % |  | — |  |  | — | %
Organic revenue | (145,285) |  |  | (14.1) | % |  | (106,029) |  |  | (12.9) | % |  | (12,914) |  |  | (17.7) | % |  | (26,342) |  |  | (18.6) | %
Total Change | $ | (162,985) |  |  | (15.8) | % |  | $ | (116,189) |  |  | (14.2) | % |  | $ | (17,673) |  |  | (24.3) | % |  | $ | (29,123) |  |  | (20.6) | %
September 30, 2020 | $ | 870,843 |  |  |  |  | $ | 703,158 |  |  |  |  | $ | 55,164 |  |  |  |  | $ | 112,521 |  |  |

The negative foreign exchange impact of $3.8 million, or 0.4%, was attributable to the fluctuation of the U.S. dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.
For the nine months ended September 30, 2020, organic revenue declined $145.3 million, or 14.1%, primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
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The table below provides a reconciliation between the revenue from acquired/disposed businesses in the statement of operations to non-GAAP acquisitions (dispositions), net for the nine months ended September 30, 2020:

|  |  |  |  | All Other |  | Total |  |
|  |  |  |  | (Dollars in Thousands) |  |
GAAP revenue from 2019 and 2020 acquisitions |  |  |  |  | $ | — |  |  | $ | — |  |  |
Foreign exchange impact |  |  |  |  | (248) |  |  | (248) |  |  |
Contribution to non-GAAP organic revenue growth |  |  |  |  | (411) |  |  | (411) |  |  |
Prior year revenue from dispositions |  |  |  |  | (13,206) |  |  | (13,206) |  |  |
Non-GAAP acquisitions (dispositions), net |  |  |  |  | $ | (13,865) |  |  | $ | (13,865) |  |  |

The geographic mix in revenues for the nine months ended September 30, 2020 and 2019 is as follows:

| 2020 |  | 2019
United States | 80.8 | % |  | 79.3 | %
Canada | 6.3 | % |  | 7.0 | %
Other | 12.9 | % |  | 13.7 | %

Impairment and Other Losses
The Company recognized a charge of $19.2 million for the nine months ended September 30, 2020 consisting of a goodwill impairment of $13.4 million and an impairment of right-of-use lease assets and loss of $5.8 million.
Given the impact of the COVID-19 pandemic, the Company performed an interim goodwill impairment test in the second quarter of 2020 that resulted in a goodwill impairment, as discussed above, and the fair value of one reporting unit, with goodwill of approximately $130,780, exceeding its carrying value by a minimal percentage.
The Company recorded a loss of $5.8 million primarily to reduce the excess carrying value of certain right-of-use lease assets and related leasehold improvements above the fair value.
Operating Income
Operating income for the nine months ended September 30, 2020 was $58.3 million compared to $68.5 million for the nine months ended September 30, 2019, representing a decline of $10.2 million, driven by the decline in revenue, partially offset by a reduction in operating expenses to align our costs with revenues impacted by the COVID-19 pandemic.
Adjusted EBITDA
Adjusted EBITDA for the nine months ended September 30, 2020 was $129.8 million, compared to $117.1 million for the nine months ended September 30, 2019, representing an increase of $12.7 million, principally resulting from the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily from the exclusion of the impairment and other losses of $19.2 million.
Other, Net
Other, net, for the nine months ended September 30, 2020 was income of $22.7 million, primarily driven by a gain on the sale of Sloane and on the repurchase of a portion of the Company’s 6.50% Notes, compared to a loss of $4.6 million for the nine months ended September 30, 2019, primarily driven by a loss on the sale of Kingsdale.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange loss for the nine months ended September 30, 2020 was $7.3 million compared to a gain of $4.4 million for the nine months ended September 30, 2019. The change in foreign exchange was primarily attributable to the weakening of the Canadian dollar against the U.S. dollar. The change primarily related to U.S. dollar denominated indebtedness that is an obligation of our Canadian parent company.
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Interest Expense and Finance Charges, Net
Interest expense and finance charges, net, for the nine months ended September 30, 2020 was $46.8 million compared to $49.3 million for the nine months ended September 30, 2019, representing a decrease of $2.5 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility and a lower amount of the 6.5% Notes outstanding.
Income Tax Expense (Benefit)
Income tax expense for the nine months ended September 30, 2020 was $7.0 million (on pre-tax income of $27.0 million resulting in an effective tax rate of 26.1%) compared to an expense of $6.3 million (on pre-tax income of $19.1 million resulting in an effective tax rate of 32.9%) for the nine months ended September 30, 2019.
The difference in effective tax rate of 26.1% in the nine months ended September 30, 2020 as compared to 32.9% in same period in 2019 results from a decrease in the estimated annual effective tax rate which is applied to the pre-tax income in the current period. This decrease was primarily attributable to an increase in forecasted foreign earnings for which there is no tax expense provided due to valuation allowance, partially offset by an increase in base erosion and anti-abuse tax (“BEAT”).
Noncontrolling Interests
The effect of noncontrolling interests for the nine months ended September 30, 2020 was $14.6 million compared to $10.7 million for the nine months ended September 30, 2019.
Net Loss Attributable to MDC Partners Inc. Common Shareholders
As a result of the foregoing and the impact of accretion on and net income allocated to convertible preference shares, net loss attributable to MDC Partners Inc. common shareholders for the nine months ended September 30, 2020 was $6.0 million, or $0.08 diluted loss per share, compared to net loss attributable to MDC Partners Inc. common shareholders of $6.5 million, or $0.10 diluted loss per share, for the nine months ended September 30, 2019.
Integrated Networks - Group A
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group A reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group A |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue |  | $ | 260,420 |  |  |  |  | $ | 276,286 |  |  |  |  | $ | (15,866) |  |  | (5.7) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 170,501 |  |  | 65.5 | % |  | 198,518 |  |  | 71.9 | % |  | (28,017) |  |  | (14.1) | %
Office and general expenses |  | 45,674 |  |  | 17.5 | % |  | 42,795 |  |  | 15.5 | % |  | 2,879 |  |  | 6.7 | %
Depreciation and amortization |  | 4,908 |  |  | 1.9 | % |  | 6,420 |  |  | 2.3 | % |  | (1,512) |  |  | (23.6) | %
|  | $ | 221,083 |  |  | 84.9 | % |  | $ | 247,733 |  |  | 89.7 | % |  | $ | (26,650) |  |  | (10.8) | %
Operating income |  | $ | 39,337 |  |  | 15.1 | % |  | $ | 28,553 |  |  | 10.3 | % |  | $ | 10,784 |  |  | 37.8 | %
Adjusted EBITDA |  | $ | 54,516 |  |  | 20.9 | % |  | $ | 43,128 |  |  | 15.6 | % |  | $ | 11,388 |  |  | 26.4 | %

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The increase in operating income was attributable to a decline in operating expenses, as outlined below, partially offset by lower revenue.
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The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group A reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group A |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 30,478 |  |  | 11.7 | % |  | $ | 34,660 |  |  | 12.5 | % |  | $ | (4,182) |  |  | (12.1) | %
Staff costs |  | 147,222 |  |  | 56.5 | % |  | 166,179 |  |  | 60.1 | % |  | (18,957) |  |  | (11.4) | %
Administrative |  | 28,204 |  |  | 10.8 | % |  | 32,319 |  |  | 11.7 | % |  | (4,115) |  |  | (12.7) | %
Deferred acquisition consideration |  | 4,391 |  |  | 1.7 | % |  | (409) |  |  | (0.1) | % |  | 4,800 |  |  | NM
Stock-based compensation |  | 5,880 |  |  | 2.3 | % |  | 8,564 |  |  | 3.1 | % |  | (2,684) |  |  | (31.3) | %
Depreciation and amortization |  | 4,908 |  |  | 1.9 | % |  | 6,420 |  |  | 2.3 | % |  | (1,512) |  |  | (23.6) | %
Total operating expenses |  | $ | 221,083 |  |  | 84.9 | % |  | $ | 247,733 |  |  | 89.7 | % |  | $ | (26,650) |  |  | (10.8) | %

Direct costs declined in connection with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The change in deferred acquisition consideration for the nine months ended September 30, 2020 was primarily attributable to an increase in the projected performance of certain Partner Firms relative to previously projected expectations.
The increase in Adjusted EBITDA is principally for the same reasons as the increase in Operating income for the nine months ended September 30, 2020.
Integrated Networks - Group B
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the Integrated Networks - Group B reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group B |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue |  | $ | 323,264 |  |  |  |  | $ | 395,622 |  |  |  |  | $ | (72,358) |  |  | (18.3) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 190,701 |  |  | 59.0 | % |  | 242,267 |  |  | 61.2 | % |  | (51,566) |  |  | (21.3) | %
Office and general expenses |  | 67,971 |  |  | 21.0 | % |  | 87,269 |  |  | 22.1 | % |  | (19,298) |  |  | (22.1) | %
Depreciation and amortization |  | 13,726 |  |  | 4.2 | % |  | 11,964 |  |  | 3.0 | % |  | 1,762 |  |  | 14.7 | %
Impairment and other losses |  | 17,786 |  |  | 5.5 | % |  | 1,933 |  |  | 0.5 | % |  | 15,853 |  |  | NM
|  | $ | 290,184 |  |  | 89.8 | % |  | $ | 343,433 |  |  | 86.8 | % |  | $ | (53,249) |  |  | (15.5) | %
Operating income |  | $ | 33,080 |  |  | 10.2 | % |  | $ | 52,189 |  |  | 13.2 | % |  | $ | (19,109) |  |  | (36.6) | %
Adjusted EBITDA |  | $ | 63,121 |  |  | 19.5 | % |  | $ | 65,117 |  |  | 16.5 | % |  | $ | (1,996) |  |  | (3.1) | %

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The decrease in operating income was primarily attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
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The change in the categories of expenses as a percentage of revenue in the Integrated Networks - Group B reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Integrated Networks - Group B |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 35,675 |  |  | 11.0 | % |  | $ | 51,456 |  |  | 13.0 | % |  | $ | (15,781) |  |  | (30.7) | %
Staff costs |  | 185,477 |  |  | 57.4 | % |  | 227,832 |  |  | 57.6 | % |  | (42,355) |  |  | (18.6) | %
Administrative |  | 38,991 |  |  | 12.1 | % |  | 50,967 |  |  | 12.9 | % |  | (11,976) |  |  | (23.5) | %
Deferred acquisition consideration |  | (3,859) |  |  | (1.2) | % |  | (3,950) |  |  | (1.0) | % |  | 91 |  |  | (2.3) | %
Stock-based compensation |  | 2,388 |  |  | 0.7 | % |  | 3,231 |  |  | 0.8 | % |  | (843) |  |  | (26.1) | %
Depreciation and amortization |  | 13,726 |  |  | 4.2 | % |  | 11,964 |  |  | 3.0 | % |  | 1,762 |  |  | 14.7 | %
Impairment and other losses |  | 17,786 |  |  | 5.5 | % |  | 1,933 |  |  | 0.5 | % |  | 15,853 |  |  | NM
Total operating expenses |  | $ | 290,184 |  |  | 89.8 | % |  | $ | 343,433 |  |  | 86.8 | % |  | $ | (53,249) |  |  | (15.5) | %

Direct costs declined in connection with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact of the COVID-19 pandemic on the business.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and related cost containment initiatives.
The decrease in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, in addition to an incremental reduction of operating expenses, primarily from the exclusion of the goodwill and right-of-use lease asset impairments.
Media & Data Network
The change in expenses, operating income (loss) and Adjusted EBITDA as a percentage of revenue in the Media & Data Network reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change |
Media & Data Network |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | % |
|  | (Dollars in Thousands) |
Revenue |  | $ | 103,181 |  |  |  |  | $ | 118,923 |  |  |  |  | $ | (15,742) |  |  | (13.2) | % |
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 74,396 |  |  | 72.1 | % |  | 89,806 |  |  | 75.5 | % |  | (15,410) |  |  | (17.2) | % |
Office and general expenses |  | 23,572 |  |  | 22.8 | % |  | 26,826 |  |  | 22.6 | % |  | (3,254) |  |  | (12.1) | % |
Depreciation and amortization |  | 2,401 |  |  | 2.3 | % |  | 3,332 |  |  | 2.8 | % |  | (931) |  |  | (27.9) | % |
Impairment and other losses |  | 35 |  |  | — | % |  | — |  |  | — | % |  | 35 |  |  | — | % |
|  | $ | 100,404 |  |  | 97.3 | % |  | $ | 119,964 |  |  | 100.9 | % |  | $ | (19,560) |  |  | (16.3) | % |
Operating income (loss) |  | $ | 2,777 |  |  | 2.7 | % |  | $ | (1,041) |  |  | (0.9) | % |  | $ | 3,818 |  |  | NM |
Adjusted EBITDA |  | $ | 5,710 |  |  | 5.5 | % |  | $ | 2,388 |  |  | 2.0 | % |  | $ | 3,322 |  |  | NM |

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.
The increase in operating income was attributable to a decline in operating expenses, as outlined below, partially offset by lower revenue.
The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the nine months ended September 30, 2020 and 2019 was as follows:
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|  | 2020 |  | 2019 |  | Change
Media & Data Network |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 27,843 |  |  | 27.0 | % |  | $ | 32,852 |  |  | 27.6 | % |  | $ | (5,009) |  |  | (15.2) | %
Staff costs |  | 53,418 |  |  | 51.8 | % |  | 64,727 |  |  | 54.4 | % |  | (11,309) |  |  | (17.5) | %
Administrative |  | 16,210 |  |  | 15.7 | % |  | 18,956 |  |  | 15.9 | % |  | (2,746) |  |  | (14.5) | %
Deferred acquisition consideration |  | 375 |  |  | 0.4 | % |  | 75 |  |  | 0.1 | % |  | 300 |  |  | NM
Stock-based compensation |  | 122 |  |  | 0.1 | % |  | 22 |  |  | — | % |  | 100 |  |  | NM
Depreciation and amortization |  | 2,401 |  |  | 2.3 | % |  | 3,332 |  |  | 2.8 | % |  | (931) |  |  | (27.9) | %
Impairment and other losses |  | 35 |  |  | — | % |  | — |  |  | — | % |  | 35 |  |  | — | %
Total operating expenses |  | $ | 100,404 |  |  | 97.3 | % |  | $ | 119,964 |  |  | 100.9 | % |  | $ | (19,560) |  |  | (16.3) | %

Direct costs declined in connection with the reduction in revenues as discussed above.
The decline in staff costs was attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The increase in Adjusted EBITDA is principally for the same reasons as the increase in Operating income (loss).
All Other
The change in expenses, operating income and Adjusted EBITDA as a percentage of revenue in the All Other category for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
All Other |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Revenue |  | $ | 183,978 |  |  |  |  | $ | 242,997 |  |  |  |  | $ | (59,019) |  |  | (24.3) | %
Operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Cost of services sold |  | 125,258 |  |  | 68.1 | % |  | 169,760 |  |  | 69.9 | % |  | (44,502) |  |  | (26.2) | %
Office and general expenses |  | 34,731 |  |  | 18.9 | % |  | 47,295 |  |  | 19.5 | % |  | (12,564) |  |  | (26.6) | %
Depreciation and amortization |  | 5,735 |  |  | 3.1 | % |  | 6,523 |  |  | 2.7 | % |  | (788) |  |  | (12.1) | %
Impairment and other losses |  | 209 |  |  | 0.1 | % |  | 11 |  |  | — | % |  | 198 |  |  | NM
|  | $ | 165,933 |  |  | 90.2 | % |  | $ | 223,589 |  |  | 92.0 | % |  | $ | (57,656) |  |  | (25.8) | %
Operating income |  | $ | 18,045 |  |  | 9.8 | % |  | $ | 19,408 |  |  | 8.0 | % |  | $ | (1,363) |  |  | (7.0) | %
Adjusted EBITDA |  | $ | 23,936 |  |  | 13.0 | % |  | $ | 26,962 |  |  | 11.1 | % |  | $ | (3,026) |  |  | (11.2) | %

The decrease in revenue was primarily attributable to lower spending by clients due to the COVID-19 pandemic and a reduction in revenues in connection with the sale of Sloane in 2020 and Kingsdale in 2019.
The decrease in operating income was attributable to the decline in revenue, partially offset by lower operating expenses, as outlined below.
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The change in the categories of expenses as a percentage of revenue in the All Other category for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
All Other |  | $ |  | % of Revenue |  | $ |  | % of Revenue |  | $ |  | %
|  | (Dollars in Thousands)
Direct costs |  | $ | 33,831 |  |  | 18.4 | % |  | $ | 48,680 |  |  | 20.0 | % |  | $ | (14,849) |  |  | (30.5) | %
Staff costs |  | 106,399 |  |  | 57.8 | % |  | 138,070 |  |  | 56.8 | % |  | (31,671) |  |  | (22.9) | %
Administrative |  | 19,812 |  |  | 10.8 | % |  | 29,285 |  |  | 12.1 | % |  | (9,473) |  |  | (32.3) | %
Deferred acquisition consideration |  | (392) |  |  | (0.2) | % |  | 657 |  |  | 0.3 | % |  | (1,049) |  |  | NM
Stock-based compensation |  | 339 |  |  | 0.2 | % |  | 363 |  |  | 0.1 | % |  | (24) |  |  | (6.6) | %
Depreciation and amortization |  | 5,735 |  |  | 3.1 | % |  | 6,523 |  |  | 2.7 | % |  | (788) |  |  | (12.1) | %
Impairment and other losses |  | 209 |  |  | 0.1 | % |  | 11 |  |  | — | % |  | 198 |  |  | NM
Total operating expenses |  | $ | 165,933 |  |  | 90.2 | % |  | $ | 223,589 |  |  | 92.0 | % |  | $ | (57,656) |  |  | (25.8) | %

Direct costs declined in connection with the reduction in revenues as discussed above.
The decline in staff costs was primarily attributable to a reduction in staff to combat the impact on the business from the COVID-19 pandemic.
Administrative costs were lower due to a decline in spending resulting from the orders to work-from-home given the COVID-19 pandemic and other cost containment initiatives.
The decline in Adjusted EBITDA is principally for the same reasons as the reduction in Operating income, in addition to incremental operating expenses, primarily from the exclusion of deferred acquisition consideration and depreciation and amortization.
Corporate
The change in operating expenses and Adjusted EBITDA for Corporate for the nine months ended September 30, 2020 and 2019 was as follows:

|  | 2020 |  | 2019 |  | Change
Corporate |  | $ |  | $ |  | $ |  | %
|  | (Dollars in Thousands)
Staff costs |  | $ | 14,703 |  |  | $ | 19,623 |  |  | $ | (4,920) |  |  | (25.1) | %
Administrative |  | 16,585 |  |  | 9,860 |  |  | 6,725 |  |  | 68.2 | %
Stock-based compensation |  | 1,839 |  |  | 452 |  |  | 1,387 |  |  | NM
Depreciation and amortization |  | 667 |  |  | 630 |  |  | 37 |  |  | 5.9 | %
Impairment and other losses |  | 1,129 |  |  | — |  |  | 1,129 |  |  | — | %
Total operating expenses |  | $ | 34,923 |  |  | $ | 30,565 |  |  | $ | 4,358 |  |  | 14.3 | %
Adjusted EBITDA |  | $ | (17,496) |  |  | $ | (20,478) |  |  | $ | 2,982 |  |  | (14.6) | %

The reduction in staff costs is primarily driven by a severance charge in 2019 not repeated in 2020.
Administrative costs were higher due to higher professional fees associated with restructuring activities and an increase in occupancy costs related to the Company’s new space at One World Trade Center as part of the centralization of its New York real estate portfolio.
In connection with the forfeiture of performance-based equity awards, stock-based compensation expense in the prior year included the reversal of expense previously recognized.
The impairment was recognized to write-down the carrying value of a right-of-use lease asset to its fair value.
The increase in Adjusted EBITDA is a result of the change in operating expenses, and the exclusion of professional fees associated with restructuring activities and the occupancy costs associated with the centralization of our New York real estate portfolio.
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Liquidity and Capital Resources:
Liquidity
The following table provides summary information about the Company’s liquidity position:

| September 30, 2020 |  | September 30, 2019 |  |  |  |  |
| (Dollars in Thousands) |  |  |  |  |
Net cash used in operating activities | $ | (2,491) |  |  | $ | (5,840) |  |  |  |  |  |
Net cash provided by investing activities | $ | 4,549 |  |  | $ | 3,307 |  |  |  |  |  |
Net cash used in financing activities | $ | (71,969) |  |  | $ | (2,202) |  |  |  |  |  |

The effects of the COVID-19 pandemic have negatively impacted the Company’s cash flows; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19. While it is difficult to predict the full scale of the impact, the Company has taken various actions as discussed in the Executive Summary section above.
The Company had cash and cash equivalents of $37.1 million and $106.9 million as of September 30, 2020 and December 31, 2019, respectively. The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months. The Company has historically been able to maintain and expand its business using cash generated from operating activities, funds available under its Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing. At September 30, 2020, the Company had no borrowings outstanding and $192.9 million available under the Credit Agreement.
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 6.50% Notes due 2024. Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Company’s Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months. The Company’s ability to make scheduled deferred acquisition payments, principal and interest payments, to refinance indebtedness or to fund planned capital expenditures will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in the Company’s 2019 Form 10-K and in the Company’s other SEC filings.
Cash Flows
Operating Activities
Cash flows used in operating activities for the nine months ended September 30, 2020 was $2.5 million, primarily reflecting earnings, more than offset by unfavorable working capital requirements, primarily driven by media and other supplier payments.
Cash flows used in operating activities for the nine months ended September 30, 2019 was $5.8 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments.
Investing Activities
During the nine months ended September 30, 2020, cash flows provided by investing activities was $4.5 million, which primarily consisted of proceeds of $19.6 million from the sale of the Company’s equity interest in Sloane, partially offset by $11.5 million of capital expenditures and $1.8 million paid for acquisitions.
During the nine months ended September 30, 2019, cash flows provided by investing activities was $3.3 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by $13.8 million of capital expenditures and $5.8 million paid for acquisitions.
Financing Activities
During the nine months ended September 30, 2020, cash flows used in financing activities was $72.0 million, which primarily consisted of $35.3 million in deferred acquisition consideration payments, $22.0 million for the purchase of a portion of the 6.50% Notes and $14.5 million in distributions to minority interest holders.
During the nine months ended September 30, 2019, cash flows used in financing activities was $2.2 million, primarily driven by $98.6 million in proceeds from the issuance of common and preferred shares, more than offset by $60.1 million in net repayments under the Credit Agreement, $30.2 million in deferred acquisition consideration payments and $10.0 million in distribution payments.
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Total Debt
Debt, net of debt issuance costs, as of September 30, 2020 was $860.4 million as compared to $887.6 million outstanding at December 31, 2019. The decline of $27.2 million was primarily a result of the repurchase of a portion of its 6.50% Notes. See Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements for information regarding the Company’s 6.50% Notes and $211.5 million senior secured revolving credit agreement due February 3, 2022 (the “Credit Agreement”).
The Company is currently in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.
If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the Credit Agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.
Pursuant to the Credit Agreement, the Company must comply with certain financial covenants including, among other things, covenants for (i) total senior leverage ratio, (ii) total leverage ratio, (iii) fixed charges ratio, and (iv) minimum earnings before interest, taxes and depreciation and amortization, in each case as such term is specifically defined in the Credit Agreement. For the period ended September 30, 2020, the Company’s calculation of each of these covenants, and the specific requirements under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:

| September 30, 2020
Total Senior Leverage Ratio | 0.02 |
Maximum per covenant | 2.00 |
Total Leverage Ratio | 4.38 |
Maximum per covenant | 6.25 |
Fixed Charges Ratio | 3.03 |
Minimum per covenant | 1.00 |
Earnings before interest, taxes, depreciation and amortization (in millions) | $ | 199.3 |
Minimum per covenant (in millions) | $ | 120.0 |

These ratios and measures are not based on GAAP and are not presented as alternative measures of operating performance or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.
Contractual Obligations and Other Commercial Commitments
The Company’s agencies enter into contractual commitments with media providers and agreements with production companies on behalf of its clients at levels that exceed the revenue from services. Some of our agencies purchase media for clients and act as an agent for a disclosed principal. These commitments are included in Accounts payable and Accruals and other liabilities when the media services are delivered by the media providers. MDC takes precautions against default on payment for these services and has historically had a very low incidence of default. MDC is still exposed to the risk of significant uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic downturn.
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. See Note 5 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding contingent deferred acquisition consideration.
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The following table presents the changes in the deferred acquisition consideration by segment for the nine months ended September 30, 2020:

| September 30, 2020
| Integrated Networks - Group A |  | Integrated Networks - Group B |  | Media & Data Network |  | All Other |  | Total
| (Dollars in Thousands)
Beginning Balance of contingent payments | $ | 36,124 |  |  | $ | 27,060 |  |  | $ | — |  |  | $ | 11,487 |  |  | $ | 74,671 |
Payments | (23,131) |  |  | (15,242) |  |  | (375) |  |  | (2,578) |  |  | (41,326) |
Additions - acquisitions and step-up transactions | 5,227 |  |  | 2,476 |  |  | — |  |  | — |  |  | 7,703 |
Redemption value adjustments (1) | 4,391 |  |  | (3,859) |  |  | 375 |  |  | (392) |  |  | 515 |
Stock-based compensation | 1,195 |  |  | 1,104 |  |  | — |  |  | — |  |  | 2,299 |
Other | 2,179 |  |  |  |  | — |  |  | (159) |  |  | 2,020 |
Ending Balance of contingent payments | 25,985 |  |  | 11,539 |  |  | — |  |  | 8,358 |  |  | 45,882 |
Fixed payments | — |  |  | 263 |  |  | — |  |  | — |  |  | 263 |
| $ | 25,985 |  |  | $ | 11,802 |  |  | $ | — |  |  | $ | 8,358 |  |  | $ | 46,145 |

(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information regarding redeemable noncontrolling interests.
The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the Credit Agreement (and refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity. The ultimate amount payable in the future 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.
Critical Accounting Policies
See the Company’s 2019 Form 10-K for information regarding the Company’s critical accounting policies.
Website Access to Company Reports and Information
MDC Partners Inc.’s Internet website address is www.mdc-partners.com. The Company’s Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act” ), will be made available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the SEC. The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this quarterly report on Form 10-Q. From time to time, the Company may use its website as a channel of distribution of material company information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to interest rates, foreign currencies and impairment risk.
Debt Instruments: At September 30, 2020, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the 6.5% Notes. The 6.5% Notes bear a fixed 6.50% interest rate. The Credit Agreement bears interest at variable rates based upon the Euro rate, U.S. bank prime rate and U.S. base rate, at the Company’s option. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of
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syndication. Given that there were no borrowings under the Credit Agreement, as of September 30, 2020, a 1.0% increase or decrease in the weighted average interest rate, which was 2.89% at September 30, 2020, would have no interest impact.
Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s 2019 Form 10-K. For the most part, revenues and expenses incurred related to the non-U.S. operations are denominated in their functional currency. This minimizes the impact that fluctuations in exchange rates will have on profit margins. Translation of intercompany debt, which is not intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany balances are included in net earnings (loss). The Company generally does not enter into foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
The Company is exposed to foreign currency fluctuations relating to its intercompany balances between the U.S. and Canada. For every one cent change in the foreign exchange rate between the U.S. and Canada, the impact to the Company’s financial statements would be approximately $3.8 million.
Impairment Risk: At September 30, 2020, the Company had goodwill of $710.0 million. The Company reviews goodwill for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exist. See the Critical Accounting Policies and Estimates section in the Company’s 2019 Form 10-K for information related to impairment testing and the risk of potential impairment charges in future periods. Given the impact of the COVID-19 pandemic, the Company performed interim goodwill impairment tests in 2020. The company did not recognize a goodwill impairment for the three months ended September 30, 2020. Additionally, the interim test resulted in the fair value of one reporting unit, with goodwill of approximately $130.8 million, exceeding its carrying value by a minimal percentage. If the duration of the COVID-19 pandemic is longer and the operational impact is greater than estimated, the Company could recognize an impairment of goodwill in the future.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. However, our disclosure controls and procedures are designed to provide reasonable assurances of achieving our control objectives.
We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, and in light of the material weakness identified in our internal controls over financial reporting with respect to accounting for income taxes, as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, our CEO and CFO concluded that, as of September 30, 2020, our disclosure controls and procedures are ineffective to ensure that decisions can be made timely with respect to required disclosures, as well as ensuring that the recording, processing, summarization and reporting of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 is appropriate.
Changes in Internal Control Over Financial Reporting
We have given consideration to the impact of the COVID-19 and have concluded that there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During the period covered by this Quarterly Report on Form 10-Q, we are actively engaged in remediation efforts to enhance and improve our internal controls over financial reporting with respect to accounting for income taxes, but have not yet remediated the material weakness described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Our remediation efforts will continue to be implemented throughout our 2020 fiscal year. We believe the controls that will be
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put in place will eliminate the material weakness with respect to accounting for income taxes and solidify the effectiveness of our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not currently expect that these proceedings will have a material adverse effect on our results of operations, cash flows or financial position.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the factors discussed in “Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, and the Risk Factors described below, which could materially and adversely affect our business, results of operations or financial condition.
Potential uncertainty resulting from a proposed business combination and related matters may adversely affect our business.
On June 26, 2020, MDC announced that its Board of Directors formed a Special Committee of independent directors to review the preliminary, non-binding proposal made by Stagwell Media LP with respect to a potential merger with the Company (the “Potential Transaction”). Mark Penn, Chairman and Chief Executive Officer of the Company, is also the manager of The Stagwell Group LLC, the general partner of Stagwell Media LP. The Special Committee has retained legal counsel and an independent financial advisor to assist in its evaluation of the Potential Transaction. The Special Committee has not reached a conclusion regarding the Potential Transaction. On October 6, 2020, the Company announced that the Special Committee reached a significant milestone in discussions with Stagwell Media LP with respect to the Potential Transaction and that, having reached an agreement in principle on certain aspects of the Potential Transaction, the Company expected to proceed with confirmatory due diligence and negotiation of definitive documentation. The agreement in principle is non-binding and subject to several conditions, including obtaining relevant third-party consents to the Potential Transaction (in certain cases prior to entering into definitive documentation). No assurances can be given regarding the likelihood of obtaining such consents, of reaching agreement on definitive documentation, of ultimately completing the Potential Transaction, or as to the terms of any such Potential Transaction. The review and consideration of the Potential Transaction, as well as any alternatives that may become available to the Company, may require the expenditure of significant time and resources by us. Such a proposal may create uncertainty for our employees, customers and business partners. The market price of our Class A shares may reflect various assumptions as to whether the proposed transaction with Stagwell Media LP will occur or perceived uncertainties in our future direction and variations in our share price may occur as a result of changing assumptions or perceptions regarding the Potential Transaction. A definitive agreement regarding a transaction, or a failure to reach a definitive agreement regarding a transaction, could result in a significant change in the market price of our Class A shares. These matters, alone or in combination, may harm our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In the three months ended September 30, 2020, the Company issued 600,000 Class A shares to management of a Company subsidiary in transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. These shares were issued as payments in lieu of cash for the Company’s obligation to make deferred payments as part of the purchase price for a prior acquisition and therefore did not result in any proceeds to the Company. No commissions were paid to any person in connection with the issuance or sale of these shares.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
For the three months ended September 30, 2020, the Company made no open market purchases of its Class A shares or its Class B shares. Pursuant to its Credit Agreement and the indenture governing the 6.50% Notes, the Company is currently limited as to the dollar amount of shares it may repurchase in the open market.
For the three months ended September 30, 2020, the Company’s employees surrendered Class A shares in connection with the required tax withholding resulting from the vesting of restricted stock. The Company paid these withholding taxes on behalf of the related employees. These Class A shares were subsequently retired and no longer remain outstanding as of September 30, 2020. The following table details those shares withheld during the second quarter of 2020:
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Period |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Program |  | Maximum Number of Shares That May Yet Be Purchased Under the Program
7/1/2020 - 7/31/2020 |  | — |  |  | $ | — |  |  | — |  |  | — |
8/1/2020 - 8/31/2020 |  | — |  |  | — |  |  | — |  |  | — |
9/1/2020 - 9/30/2020 |  | 80,120 |  |  | 1.61 |  |  | — |  |  | — |
Total |  | 80,120 |  |  | $ | 1.61 |  |  | — |  |  | — |

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Other Information
None
Item 6. Exhibits
The exhibits required by this item are listed on the Exhibit Index.
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EXHIBIT INDEX

Exhibit No. |  | Description
3.1 |  | Articles of Amalgamation, dated January 1, 2004 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 10, 2004).
3.1.1 |  | Articles of Continuance, dated June 28, 2004 (incorporated by reference to Exhibit 3.3 to the Company’s Form 10-Q filed on August 4, 2004).
3.1.2 |  | Articles of Amalgamation, dated July 1, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on July 30, 2010).
3.1.3 |  | Articles of Amalgamation, dated May 1, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on May 2, 2011).
3.1.4 |  | Articles of Amalgamation, dated January 1, 2013 (incorporated by reference to Exhibit 3.1.4 to the Company’s Form 10-K filed on March 10, 2014).
3.1.5 |  | Articles of Amalgamation, dated April 1, 2013 (incorporated by reference to Exhibit 3.1.5 to the Company’s Form 10-K filed on March 10, 2014).
3.1.6 |  | Articles of Amalgamation, dated July 1, 2013 (incorporated by reference to Exhibit 3.1.6 to the Company’s Form 10-K filed on March 10, 2014).
3.1.7 |  | Articles of Amendment, dated March 7, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 7, 2017).
3.1.8 |  | Articles of Amendment, dated March 14, 2019 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on March 15, 2019).
3.2 |  | General By-law No. 1, as amended on April 29, 2005 (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed on March 16, 2007).
4.1 |  | First Supplemental Indenture, dated as of September 16, 2020, among the Additional Note Guarantors and The Bank of New York Mellon, as trustee, to Indenture, dated as of March 23, 2016, among the Company, the Guarantors, and The Bank of New York Mellon, as trustee.*
10.1 |  | Separation Agreement and General Release between MDC Partners Inc and Jonathan Mirsky, dated as of September 22, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 23, 2020).†
31.1 |  | 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.*
31.2 |  | 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.*
32.1 |  | Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2 |  | Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.1 |  | Schedule of Advertising and Communications Companies.*
101 |  | Interactive data file.*

* Filed electronically herewith.
† Indicates management contract or compensatory plan.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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MDC PARTNERS INC.
/s/ Frank Lanuto
Frank Lanuto
Chief Financial Officer
(Principal Financial Officer)
October 29, 2020
/s/ Mark Penn
Mark Penn
Chairman of the Board and Chief Executive Officer
(Authorized Signatory)
October 29, 2020

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