Stagwell Inc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis are based on and should be read in conjunction with our unaudited condensed consolidated financial statements and the notes related thereto included elsewhere in this Current Report on Form 10-Q. The following discussion and analysis contains forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the captions “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q (this “Form 10-Q”). The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. A description of the non-GAAP measures discussed in this section and reconciliations to the comparable GAAP measures are below. In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer (i) with respect to events occurring or periods ending before August 2, 2021, to Stagwell Marketing Group LLC and its direct and indirect subsidiaries and (ii) with respect to events occurring or periods ending on or after August 2, 2021, to Stagwell Inc. and its direct and indirect subsidiaries. 37 Table of Contents 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 2021 means the period beginning January 1, 2021, and ending December 31, 2021). Executive Summary Business Combination On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell Media (the “Stagwell Subject Entities”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC (“Stagwell Marketing or SMG”) and its direct and indirect subsidiaries. On August 2, 2021 (the “Closing Date”), we completed the previously announced combination of MDC and the Stagwell Subject Entities and a series of steps and related transactions (such combination transactions, the “Transactions”). In connection with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo Holdings LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc. The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer and Stagwell Marketing treated as the accounting acquirer. As a result of the Transactions and the change in our business and operations, under applicable accounting principles, the historical financial results of Stagwell Marketing prior to August 2, 2021 are considered our historical financial results. Accordingly, historical information presented in this Form 10-Q for events occurring or periods ending before August 2, 2021 does not reflect the impact of the Transactions and may not be comparable with historical information for events occurring or periods ending on or after August 2, 2021, which do not include the financial results of MDC. See Note 4 of the Unaudited Condensed Consolidated Financial Statements for additional information in connection with the Transaction. Overview Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell’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. Stagwell’s differentiation lies in its 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. Stagwell 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. Stagwell manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenue, operating expenses, capital expenditures and non-GAAP measures described below. 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 networks. These indicators may include a networks 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 Network's next generation team that is in place as part of a potential succession plan to succeed the current senior executive team. While a recovery from the COVID-19 pandemic is underway, economic conditions will be volatile as long as COVID-19 remains a public health threat. The Company continues to monitor developments, We will continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on the overall economy, our clients and operations. If the impact of the pandemic continues to go beyond expectations, the Company believes it is well positioned through the actions implemented at the onset of the pandemic to successfully work through the effects of COVID-19 on our business. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements. The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the continued impact of the COVID-19 pandemic. 38 Table of Contents Recent Developments On October 1, 2021 (the "closing date"), the Company entered into an agreement to purchase the remaining 26.7% interest in Targeted Victory it did not previously own for a combination of cash and Class A Common shares, up to 50% with certain exceptions, determined at the option of the Company. The agreement provides for the purchase of half of the remaining interest on the closing date and the other half on July 31, 2023 ("second purchase"). The total purchase price, which is capped at $135 million with certain exceptions, is based on a formula taking a multiple of the two-year average of earnings that includes the year of and the year subsequent to the year of the purchase. The seller has the option to extend the measurement period for two years in connection with the second purchase. On September 23, 2021, the Company provided notices of conversion to each holder of record of each of the Company’s Series 6 and Series 8 Preferred Stock. See Note 12 of the Unaudited Condensed Consolidated Financial Statements for additional information in connection with the conversion of the Preferred Stock to Class A Common Shares. Significant Factors Affecting our Business and Results of Operations The most significant factors affecting our business and results of operations include national, regional, and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products that our Brands offer. A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain an agency that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery. Seasonality Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year with a significant increase during the even years. The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season. The even years benefit from the U.S. election cycles. Non-GAAP Measures 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 decline” and “Adjusted EBITDA.” Organic Revenue: “Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms that the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP acquisitions (dispositions), net”. Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year. Adjusted EBITDA is defined as Net income (loss) attributable to Stagwell Inc. common shareholders excluding non-operating income or expense to achieve operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, and other items. Other items include restructuring costs, acquisition-related expenses, and non-recurring items. 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. 39 Table of Contents The percentage changes included in the tables herein Item 2 that are not considered meaningful are presented as “NM.” Segments 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 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. The Company has three reportable segments as follows: “Integrated Agencies Network,” “Media Network” and the “Communications 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. See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for the Company's significant accounting policies. In addition, Stagwell reports its corporate office expenses incurred in connection with the strategic resources provided to the networks, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate. Corporate provides client and business development support to the networks as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions. The following discussion focuses on the operating performance of the Company for the three and nine months ended September 30, 2021 and 2020 and the financial condition of the Company as of September 30, 2021. 40 Table of Contents Results of Operations: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Dollars in Thousands) Revenue: Integrated Agencies Network $ 288,479 $ 55,293 $ 441,229 $ 163,540 Media Network 103,418 60,777 235,539 185,714 Communications Network 67,348 106,909 157,794 210,100 All Other 7,389 5,118 22,874 15,616 Total Revenue $ 466,634 $ 228,097 $ 857,436 $ 574,970 Operating Income (Loss): Integrated Agencies Network $ 17,173 $ 7,909 $ 37,838 $ 20,403 Media Network (9,088) 2,957 (5,580) (1,748) Communications Network (6,871) 19,414 7,886 34,420 All Other (90) (1,010) (3,345) (3,446) Corporate (20,758) (2,824) (25,987) (4,742) Operating Income (loss) $ (19,634) $ 26,446 $ 10,812 $ 44,887 Other Income (Expenses): Interest expense, net $ (11,912) $ (1,778) $ (15,197) $ (4,665) Foreign exchange, net (893) (856) (1,955) 794 Gain on sale of business and other, net 45,621 263 46,806 948 Income before income taxes and equity in earnings of non-consolidated affiliates 13,182 24,075 40,466 41,964 Income tax expense 5,183 2,618 9,205 3,211 Income before equity in earnings of non-consolidated affiliates 7,999 21,457 31,261 38,753 Equity in losses (income) of non-consolidated affiliates (76) (35) (75) 7 Net income 7,923 21,422 31,186 38,760 Net income attributable to noncontrolling and redeemable noncontrolling interests (9,994) (3,614) (10,987) (4,636) Net income (loss) attributable to Stagwell Inc. common shareholders (2,071) 17,808 20,199 34,124 Net income allocated to convertible preference shares — — — — Net income (loss) attributable to Stagwell Inc. common shareholders $ (2,071) $ 17,808 $ 20,199 $ 34,124 Reconciliation to Adjusted EBITDA Net income (loss) attributable to Stagwell Inc. common shareholders $ (2,071) $ 17,808 $ 20,199 $ 34,124 Non-operating items (17,563) 8,638 (9,387) 10,763 Operating Income (loss) $ (19,634) $ 26,446 $ 10,812 $ 44,887 Depreciation and amortization 24,790 9,974 46,122 29,838 41 Table of Contents Impairment and other losses 14,926 — 14,926 — Stock-based compensation 53,465 — 9,456 1,270 Deferred acquisition consideration 3,422 149 53,465 — Total other items, net 10,549 554 15,298 2,976 Adjusted EBITDA $ 87,518 $ 37,123 $ 150,079 $ 78,971 42 Table of Contents THREE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2020 Consolidated Results of Operations The components of operating results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Three Months Ended September 30, 2021 2020 Change $ $ $ % (Dollars in Thousands) Revenue: $ 466,634 $ 228,097 $ 238,537 NM Operating Expenses: Cost of services sold 324,782 149,011 175,771 NM Office and general expenses 121,770 42,666 79,104 NM Depreciation and amortization 24,790 9,974 14,816 NM Impairment and other losses $ 14,926 $ — $ 14,926 $ — $ 486,268 $ 201,651 $ 284,617 NM Operating Income (loss) $ (19,634) $ 26,446 $ (46,080) NM Three Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 409,328 $ 152,860 $ 256,468 NM Billable costs 57,306 75,237 (17,931) (23.8) % Revenue 466,634 228,097 238,537 104.6 % Billable costs 57,306 75,237 (17,931) (23.8) % Staff costs 270,067 97,744 172,323 NM Administrative costs 42,799 21,846 20,953 95.9 % Other, net 8,944 (3,853) 12,797 NM Adjusted EBITDA 87,518 37,123 50,395 NM Stock-based compensation 53,465 — 53,465 — % Depreciation and amortization 24,790 9,974 14,816 NM Deferred acquisition consideration 3,422 149 3,273 NM Impairment and other losses 14,926 — 14,926 — % Other items, net 10,549 554 9,995 NM Operating Income (1) $ (19,634) $ 26,446 $ (46,080) NM (1) See the Results of Operations section above for a reconciliation of Operating Income to Net Income attributable to Stagwell Inc. common shareholders. Revenue Revenue was $466.6 million three months ended September 30, 2021 and $228.1 million for three months ended September 30, 2020, an increase of $238.5 million. Net Revenue The components of the fluctuations in net revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: 43 Table of Contents Net Revenue - Components of Change Change Three Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Three Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Integrated Agencies Network $ 53,044 $ 2,129 $ 138,896 $ 62,163 $ 203,188 $ 256,232 117.2 % NM Media Network 55,602 (1,558) 19,969 25,072 43,483 99,085 45.1 % 78.2 % Communications Network 39,096 235 12,202 (4,917) 7,520 46,616 (12.6) % 19.2 % All Other 5,118 131 1,558 588 2,277 7,395 11.5 % 44.5 % Total $ 152,860 $ 937 $ 172,625 $ 82,906 $ 256,468 $ 409,328 54.2 % NM Component % change 0.6% N/M 54.2% N/M For the three months ended September 30, 2021, organic net revenue increased $82.9 million, or 54.2%, primarily attributable to increased spending in connection with the recovery from the COVID-19 pandemic and the impact from the acquisition of MDC. The geographic mix in net revenues for the three months ended September 30, 2021 and 2020 was as follows: 2021 2020 United States $ 337,814 $ 134,831 United Kingdom 30,194 13,589 Other 41,320 4,440 $ 409,328 $ 152,860 Operating Income (Loss) Operating loss for the three months ended September 30, 2021 was $19.6 million, compared to operating income of $26.4 million for the three months ended September 30, 2020, representing an increase of $46.1 million, primarily driven by the increase in revenue, more than offset by an increase in operating expenses. The operating loss for the three months ended September 30, 2021 was impacted by the impairment and other losses of $14.9 million in connection with a write-down of trade names no longer in use and stock-based compensation expense of $53.5 million in connection with the merger. Adjusted EBITDA Adjusted EBITDA for the three months ended September 30, 2021 was $87.5 million, compared to $37.1 million for the three months ended September 30, 2020, representing an increase of $50.4 million, principally resulting from an increase in revenue, partially offset by higher operating expenses. The acquisition of MDC contributed to higher revenue and expenses. Gain on Sale of Business and Other, net Gain on sale of business and other, net, for the three months ended September 30, 2021 was income of $45.6 million compared to income of $0.3 million for the three months ended September 30, 2020, primarily due to the a gain of approximately $43 million in connection with sale of Reputation Defender in the third quarter of 2021. Foreign Exchange, Net The foreign exchange loss for the three months ended September 30, 2021 was $0.9 million compared to a loss of $0.9 million for the three months ended September 30, 2020. Interest Expense, Net Interest expense, net for the three months ended September 30, 2021 was $11.9 million compared to $1.8 million for the three months ended September 30, 2020, representing an increase of $10.1 million, primarily driven by an increase in debt in connection with the acquisition of MDC. Income Tax Expense 44 Table of Contents The Company had an income tax expense for the three months ended September 30, 2021 of $5.2 million (on a pre-tax income of $13.2 million resulting in an effective tax rate of 39.3%) compared to an income tax expense of $2.6 million (on pre-tax loss of $24.1 million resulting in an effective tax rate of 10.9%) for the three months ended September 30, 2020. The difference in the effective tax rate of 39.3% in the three months ended September 30, 2021 as compared to 10.9% in the same period in 2020 primarily results from the expansion of the group to include more tax-paying entities and proportionally less pre-tax income not subject to tax within the group, as well as non-deductible share based compensation expenses incurred during the third quarter related to the merger. Noncontrolling Interests The effect of noncontrolling interests for the three months ended September 30, 2021 was $10.0 million compared to $3.6 million for the three months ended September 30, 2020. Net Income (Loss) Attributable to Stagwell Inc. Common Shareholders As a result of the foregoing, net loss attributable to Stagwell Inc. c ommon shareholders for the three months ended September 30, 2021 was $2.1 million compared to income of $17.8 million for the three months ended September 30, 2020. Integrated Agencies Network The components of operating results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Three Months Ended September 30, 2021 2020 Change Integrated Agencies Network $ $ $ % (Dollars in Thousands) Revenue: $ 288,479 $ 55,293 $ 233,186 NM Operating Expenses: Cost of services sold 203,377 32,034 171,343 NM Office and general expenses 53,452 13,058 40,394 NM Depreciation and amortization 14,396 2,292 12,104 NM Impairment and other losses $ 81 $ — $ 81 — % $ 271,306 $ 47,384 $ 223,922 NM Operating income $ 17,173 $ 7,909 $ 9,264 NM Three Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 256,232 $ 53,044 $ 203,188 NM Billable costs 32,247 2,249 29,998 NM GAAP Revenue 288,479 55,293 233,186 NM Billable costs 32,247 2,249 29,998 NM Staff costs 162,685 37,481 125,204 NM Administrative costs 21,448 5,533 15,915 NM Other, net 3,743 (1,240) 4,983 NM Adjusted EBITDA 68,356 11,270 57,086 NM Stock-based compensation 32,443 — 32,443 — % Depreciation and amortization 14,396 2,292 12,104 NM Deferred acquisition consideration 3,422 787 2,635 NM Impairment and other losses 81 — 81 — % Other items, net 841 282 559 NM Operating Income $ 17,173 $ 7,909 $ 9,264 NM Revenue 45 Table of Contents Revenue was $288.5 million three months ended September 30, 2021 and $55.3 million for three months ended September 30, 2020, an increase of $233.2 million. Net Revenue The components of the fluctuations in net revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Net Revenue - Components of Change Change Three Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Three Months Ended September 30, 2021 Organic Total Integrated Agencies Network $ 53,044 $ 2,129 $ 138,896 $ 62,163 $ 203,188 $ 256,232 117.2 % NM Component % change 4.0% NM NM NM The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic and the impact from the acquisition of MDC in the third quarter of 2021. The increase in expenses was driven by the impact from the acquisition of MDC. Stock-based compensation expense increased in the third quarter of 2021, driven by awards issued in connection with the acquisition of MDC and depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC. Operating income increased $9.3 million as the increase in revenue, more than offset higher operating expenses. The increase in Adjusted EBITDA was driven by higher revenue, partially offset by higher expenses. Media Network The components of operating results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Three Months Ended September 30, 2021 2020 Change Media Network $ $ $ % (Dollars in Thousands) Revenue: $ 103,418 $ 60,777 $ 42,641 70.2 % Operating Expenses: Cost of services sold 56,994 33,966 23,028 67.8 % Office and general expenses 34,069 18,951 15,118 79.8 % Depreciation and amortization 6,597 4,903 1,694 34.6 % Impairment and other losses 14,846 — 14,846 — % $ 112,506 $ 57,820 $ 54,686 94.6 % Operating income (loss) $ (9,088) $ 2,957 $ (12,045) NM 46 Table of Contents Three Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 99,085 $ 55,602 $ 43,483 78.2 % Billable costs 4,333 5,175 (842) (16.3) % GAAP Revenue 103,418 60,777 42,641 70.2 % Billable costs 4,333 5,175 (842) (16.3) % Staff costs 66,608 37,196 29,412 79.1 % Administrative costs 12,589 9,544 3,045 31.9 % Other, net 4,517 731 3,786 517.9 % Adjusted EBITDA 15,371 8,131 7,240 89.0 % Stock-based compensation 2,608 — 2,608 — % Depreciation and amortization 6,597 4,903 1,694 34.6 % Impairment and other losses 14,846 — 14,846 — % Other items, net 408 271 137 50.5 % Operating Income $ (9,088) $ 2,957 $ (12,045) NM Revenue Revenue was $103.4 million three months ended September 30, 2021 and $60.8 million for three months ended September 30, 2020, an increase of $42.6 million. Net Revenue The components of the fluctuations in net revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Net Revenue - Components of Change Change Three Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Three Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Media Network $ 55,602 $ (1,558) $ 19,969 $ 25,072 $ 43,483 $ 99,085 45.1 % 78.2 % Component % change (2.8)% 35.9% 45.1% 78.2% The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic and the impact from the acquisition of MDC in the third quarter of 2021. The increase in expenses was driven by the impact from the acquisition of MDC and an impairment loss of $14.9 million in connection with a write-down of trade names no longer in use. The operating loss in the third quarter of 2021 was driven by the impairment of the trade names. The increase in Adjusted EBITDA was driven by higher revenue, partially offset by higher expenses. Communications Network The components of operating results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: 47 Table of Contents Three Months Ended September 30, 2021 2020 Change Communications Network $ $ $ % (Dollars in Thousands) Revenue: $ 67,348 $ 106,909 $ (39,561) (37.0) % Operating Expenses: Cost of services sold 59,550 81,536 (21,986) (27.0) % Office and general expenses 12,559 4,504 8,055 NM Depreciation and amortization 2,110 1,455 655 45.0 % Impairment and other losses — $ — $ — — % $ 74,219 $ 87,495 $ (13,276) (15.2) % Operating income (6,871) 19,414 (26,285) NM Three Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 46,616 $ 39,096 $ 7,520 19.2 % Billable costs 20,732 67,813 (47,081) (69.4) % GAAP Revenue 67,348 106,909 (39,561) (37.0) % Billable costs 20,732 67,813 (47,081) (69.4) % Staff costs 30,071 17,258 12,813 74.2 % Administrative costs 5,445 1,926 3,519 182.7 % Other, net 788 (319) 1,107 NM Adjusted EBITDA 10,312 20,231 (9,919) (49.0) % Stock-based compensation 15,384 — 15,384 — % Depreciation and amortization 2,110 1,455 655 45.0 % Deferred acquisition consideration — (638) 638 (100.0) % Other items, net (311) — (311) — % Operating Income $ (6,871) $ 19,414 $ (26,285) NM Revenue Revenue was $67.3 million three months ended September 30, 2021 and $106.9 million for three months ended September 30, 2020, a decrease of $39.6 million. Net Revenue The components of the fluctuations in net revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Net Revenue - Components of Change Change Three Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Three Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Communications Network $ 39,096 $ 235 $ 12,202 $ (4,917) $ 7,520 $ 46,616 (12.6) % 19.2 % Component % change 0.6% 31.2% (12.6)% 19.2% The decline in organic net revenue was attributable to lower advocacy business compared to the prior year period that included higher levels of business in connection with the 2020 elections. 48 Table of Contents The increase in expenses was driven by higher staff costs from the impact of the acquisition of MDC and stock-based compensation expense in the third quarter of 2021, driven by awards issued in connection with the acquisition of MDC. The operating loss in the third quarter of 2021 was driven by stock-based compensation expense. Adjusted EBITDA was lower in the third quarter of 2021 driven by higher net revenue, more than offset by higher expenses. All Other The components of operating results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Three Months Ended September 30, 2021 2020 Change All Other $ $ $ % (Dollars in Thousands) Revenue: $ 7,389 $ 5,118 $ 2,271 44.4 % Operating Expenses: Cost of services sold 3,286 1,388 1,898 NM Office and general expenses 3,701 3,925 (224) (5.7) % Depreciation and amortization 493 815 (322) (39.5) % Impairment and other losses $ (1) $ — $ (1) — % $ 7,479 $ 6,128 $ 1,351 22.0 % Operating income $ (90) $ (1,010) $ 920 (91.1) % Three Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 7,395 $ 5,118 $ 2,277 44.5 % Billable costs (6) — (6) — % GAAP Revenue 7,389 5,118 2,271 44.5 % Billable costs (6) — (6) — % Staff costs 5,211 5,282 (71) (1.3) % Administrative costs 2,101 3,054 (953) (31.2) % Other, net (336) (3,025) 2,689 88.9 % Adjusted EBITDA 419 (193) 612 NM Stock-based compensation 16 — 16 — % Depreciation and amortization 493 815 (322) (39.5) % Impairment (1) — (1) — % Other items, net 1 2 (1) (100.0) % Operating Income $ (90) $ (1,010) $ 920 91.1 % Revenue Revenue was $7.4 million three months ended September 30, 2021 and $5.1 million for three months ended September 30, 2020, an increase of $2.3 million. Net Revenue The components of the fluctuations in net revenue for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: 49 Table of Contents Net Revenue - Components of Change Change Three Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Three Months Ended September 30, 2021 Organic Total (Dollars in Thousands) All Other $ 5,118 $ 131 $ 1,558 $ 588 $ 2,277 $ 7,395 11.5 % 44.5 % Component % change 2.6 % 30.4 % 11.5 % 44.5 % The increase in organic net revenue was attributable to higher levels of business at the central innovations group. The increase in revenue was more than offset by higher expenses resulting in an operating loss in both periods. Corporate The components of operating results for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 were as follows: Three Months Ended September 30, 2021 2020 Change $ % Total Direct Costs $ — $ — $ — — % Staff costs $ 5,492 $ 527 $ 4,965 NM Administrative costs 1,216 1,789 (573) (32.0) % Other costs 232 — 232 — Adjusted EBITDA (6,940) (2,316) (4,624) NM Stock-based compensation 3,014 — 3,014 NM Depreciation and amortization 1,194 509 685 NM Deferred acquisition consideration — — — — Impairment and other losses — — — — Other items, net 9,610 (1) 9,611 NM Operating Loss $ (20,758) $ (2,824) $ (17,934) NM Operating expenses increased primarily in connection with the acquisition of MDC, including professional fees associated with the transaction. NINE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2020 Consolidated Results of Operations The components of operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Nine Months Ended September 30, 2021 2020 Change $ $ $ % (Dollars in Thousands) Revenue: $ 857,436 $ 574,970 $ 282,466 49.1 % Operating Expenses: Cost of services sold 558,856 373,064 185,792 49.8 % Office and general expenses 226,720 127,181 99,539 78.3 % Depreciation and amortization 46,122 29,838 16,284 54.6 % Impairment and other losses $ 14,926 $ — $ 14,926 — % $ 846,624 $ 530,083 $ 316,541 59.7 % Operating income $ 10,812 $ 44,887 $ (34,075) (75.9) % 50 Table of Contents Nine Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 749,246 $ 434,052 $ 315,194 72.6 % Billable costs 108,190 140,918 (32,728) (23.2) % GAAP Revenue 857,436 574,970 282,466 49.1 % Billable costs 108,190 140,918 (32,728) (23.2) % Staff costs 512,511 305,737 206,774 67.6 % Administrative costs 84,612 60,771 23,841 39.2 % Other, net 2,044 (11,427) 13,471 NM Adjusted EBITDA 150,079 78,971 71,108 90.0 % Stock-based compensation 53,465 — 53,465 — % Depreciation and amortization 46,122 29,838 16,284 54.6 % Deferred acquisition consideration 9,456 1,270 8,186 NM Impairment and other losses 14,926 — 14,926 — % Other items, net 15,298 2,976 12,322 NM Operating Income $ 10,812 $ 44,887 $ (34,075) (75.9) % Revenue Revenue for the nine months ended September 30, 2021 was $857.4 million compared to $575.0 million for the nine months ended September 30, 2020, an increase of $282.5 million. Net Revenue Net Revenue - Components of Change Change Nine Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Nine Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Integrated Agencies Network $ 156,757 $ 1,057 $ 138,896 $ 108,198 $ 248,151 $ 404,908 69.0 % 158.3 % Media Network 171,286 3,659 19,969 21,278 44,906 216,192 12.4 % 26.2 % Communications Network 90,393 72 12,202 2,605 14,879 105,272 2.9 % 16.5 % All Other 15,616 476 1,558 5,224 7,258 22,874 33.5 % 46.5 % $ 434,052 $ 5,264 $ 172,625 $ 137,305 $ 315,194 $ 749,246 31.6 % 72.6 % Component % change 1.2% 39.8% 31.6% 72.6% For the nine months ended September 30, 2021, organic net revenue increased $137.3 million, or 31.6%, primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic and the impact from the acquisition of MDC. The geographic mix in net revenues for the nine months ended September 30, 2021 and 2020 is as follows: 2021 2020 United States $ 632,307 $ 376,737 United Kingdom 60,392 41,550 Other 56,547 15,765 Total $ 749,246 $ 434,052 51 Table of Contents Operating Income Operating income for the nine months ended September 30, 2021 was $10.8 million compared to $44.9 million for the nine months ended September 30, 2020, representing an increase of $34.1 million, primarily driven by the increase in revenue, more than offset by an increase in operating expenses. The nine months ended September 30, 2021 was impacted by the impairment and other losses of $14.9 million in connection with a write-down of trade names no longer in use and stock-based compensation expense of $53.5 million in connection with the merger. Adjusted EBITDA Adjusted EBITDA for the nine months ended September 30, 2021 was $150.1 million, compared to $79.0 million for the nine months ended September 30, 2020, representing an increase of $71.1 million, principally resulting from an increase in revenue, partially offset by higher operating expenses. The acquisition of MDC contributed to higher revenue and expenses. Gain on Sale of Business and Other, net Gain on sale of business and other, net, for the nine months ended September 30, 2021 was income of $46.8 million, compared to income of $0.9 million for the nine months ended September 30, 2020, primarily due to the a gain of approximately $43 million in connection with sale of Reputation Defender in the third quarter of 2021. Foreign Exchange Transaction Gain (Loss) The foreign exchange gain for the nine months ended September 30, 2021 was $2.0 million compared to a loss of $0.8 million for the nine months ended September 30, 2020. Interest Expense, Net Interest expense, net, for the nine months ended September 30, 2021 was $15.2 million compared to $4.7 million for the nine months ended September 30, 2020, representing an increase of $10.5 million, primarily driven by an increase in debt in connection with the acquisition of MDC. Income Tax Expense (Benefit) The Company had an income tax expense for the nine months ended September 30, 2021 of $9.2 million (on a pre-tax income of $40.5 million resulting in an effective tax rate of 22.7%) compared to income tax expense of $3.2 million (on pre-tax income of $42.0 million resulting in an effective tax rate of 7.7%) for the nine months ended September 30, 2020. The difference in the effective tax rate of 22.7% in the nine months ended September 30, 2021 as compared to 7.7% in the same period in 2020 primarily results from the expansion of the group to include more tax-paying entities and proportionally less pre-tax income not subject to tax within the group, as well as non-deductible share based compensation expenses incurred during the third quarter related to the merger. Noncontrolling Interests The effect of noncontrolling interests for the nine months ended September 30, 2021 was $11.0 million compared to $4.6 million for the nine months ended September 30, 2020. Net Income (Loss) Attributable to Stagwell Inc. Common Shareholders As a result of the foregoing, net income attributable to Stagwell Inc. common shareholders for the nine months ended September 30, 2021 was $20.2 million compared to net loss attributable to Stagwell Inc. common shareholders of $34.1 million for the nine months ended September 30, 2020. Integrated Agencies Network The components of operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: 52 Table of Contents Nine Months Ended September 30, 2021 2020 Change Integrated Agencies Network $ $ $ % (Dollars in Thousands) Revenue $ 441,229 $ 163,540 $ 277,689 NM Operating expenses Cost of services sold 292,523 96,951 195,572 NM Office and general expenses 90,971 39,471 51,500 NM Depreciation and amortization 19,816 6,715 13,101 NM Impairment and other losses 81 — 81 — % $ 403,391 $ 143,137 $ 260,254 NM Operating income $ 37,838 $ 20,403 $ 17,435 85.5 % Nine Months Ended September 30, Integrated Agencies Network 2021 2020 Change $ % Net Revenue $ 404,908 $ 156,757 $ 248,151 NM Billable costs 36,321 6,783 29,538 NM GAAP Revenue 441,229 163,540 277,689 NM Billable costs 36,321 6,783 29,538 NM Staff costs 269,191 112,321 156,870 NM Administrative costs 34,150 17,086 17,064 99.9 % Other, net 607 (1,563) 2,170 NM Adjusted EBITDA 100,960 28,913 72,047 NM Stock-based compensation 32,443 — 32,443 — % Depreciation and amortization 19,816 6,715 13,101 NM Deferred acquisition consideration 9,456 787 8,669 NM Impairment 81 — 81 — % Other items, net 1,326 1,008 318 31.6 % Operating Income $ 37,838 $ 20,403 $ 17,435 85.5 % Revenue Revenue for the nine months ended September 30, 2021 was $441.2 million compared to $163.5 million for the nine months ended September 30, 2020, an increase of $277.7 million. Net Revenue The components of the fluctuations in net revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Net Revenue - Components of Change Change Nine Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Nine Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Integrated Agencies Network $ 156,757 $ 1,057 $ 138,896 $ 108,198 $ 248,151 $ 404,908 69.0 % 158.3 % Component % change 0.7% 88.6% 69.0% NM 53 Table of Contents The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic and the impact from the acquisition of MDC. The increase in expenses was driven by the impact from the acquisition of MDC. Stock-based compensation expense increased, driven by awards issued in connection with the acquisition of MDC and depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC. Operating income increased as the increase in revenue, more than offset higher operating expenses. The increase in Adjusted EBITDA was driven by higher revenue, partially offset by higher expenses. Media Network The components of operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Nine Months Ended September 30, 2021 2020 Change Media Network $ $ $ % (Dollars in Thousands) Revenue $ 235,539 $ 185,714 $ 49,825 26.8 % Operating expenses Cost of services sold 134,183 114,686 19,497 17.0 % Office and general expenses 75,049 58,025 17,024 29.3 % Depreciation and amortization 17,041 14,751 2,290 15.5 % Impairment and other losses 14,846 — 14,846 — % $ 241,119 $ 187,462 $ 53,647 28.6 % Operating income $ (5,580) $ (1,748) $ (3,822) NM Nine Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 216,192 $ 171,286 $ 44,906 26.2 % Billable costs 19,347 14,428 4,919 34.1 % GAAP Revenue 235,539 185,714 49,825 26.8 % Billable costs 19,347 14,428 4,919 34.1 % Staff costs 154,422 129,782 24,640 19.0 % Administrative costs 30,445 27,265 3,180 11.7 % Other, net 1,536 (754) 2,290 NM Adjusted EBITDA 29,789 14,993 14,796 98.7 % Stock-based compensation 2,608 — 2,608 — % Depreciation and amortization 17,041 14,751 2,290 15.5 % Impairment 14,846 — 14,846 — % Other items, net 874 1,990 (1,116) (56.1) % Operating Income $ (5,580) $ (1,748) $ (3,832) NM Revenue Revenue for the nine months ended September 30, 2021 was $235.5 million compared to $185.7 million for the nine months ended September 30, 2020, an increase of $49.8 million. Net Revenue The components of the fluctuations in net revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: 54 Table of Contents Net Revenue - Components of Change Change Nine Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Nine Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Media Network $ 171,286 $ 3,659 $ 19,969 $ 21,278 $ 44,906 $ 216,192 12.4 % 26.2 % Component % change 2.1% 11.7% 12.4% 26.2% The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic and the impact from the acquisition of MDC. The increase in expenses was driven by the impact from the acquisition of MDC and an impairment loss of $14.9 million in connection with a write-down of trade names no longer in use. The operating loss in the third quarter of 2021 was driven by the impairment of the trade names. The increase in Adjusted EBITDA was driven by higher revenue, partially offset by higher expenses. 55 Table of Contents Communications Network The components of operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Nine Months Ended September 30, 2021 2020 Change Communications Network $ $ $ % (Dollars in Thousands) Revenue $ 157,794 $ 210,100 $ (52,306) (24.9) % Operating expenses Cost of services sold 119,147 156,272 (37,125) (23.8) % Office and general expenses 25,674 15,198 10,476 68.9 % Depreciation and amortization 5,087 4,210 877 20.8 % Impairment and other losses — — — — % $ 149,908 $ 175,680 $ (25,772) (14.7) % Operating income $ 7,886 $ 34,420 $ (26,534) (77.1) Nine Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 105,272 $ 90,393 $ 14,879 16.5 % Billable costs 52,522 119,707 (67,185) (56.1) % GAAP Revenue 157,794 210,100 (52,306) (24.9) % Billable costs 52,522 119,707 (67,185) (56.1) % Staff costs 67,332 46,174 21,158 45.8 % Administrative costs 9,637 5,768 3,869 67.1 % Other, net 1 (688) 689 (100.1) % Adjusted EBITDA 28,302 39,139 (10,837) (27.7) % Stock-based compensation 15,384 — 15,384 NM Depreciation and amortization 5,087 4,210 877 20.8 % Deferred acquisition consideration — 483 (483) (100.0) % Other items, net (55) 26 (81) NM Operating Income $ 7,886 $ 34,420 $ (26,534) (77.1) % Revenue Revenue for the nine months ended September 30, 2021 was $157.8 million compared to $210.1 million for the nine months ended September 30, 2020, a decrease of $52.3 million. Net Revenue The components of the fluctuations in net revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Net Revenue - Components of Change Change Nine Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Nine Months Ended September 30, 2021 Organic Total (Dollars in Thousands) Communications Network $ 90,393 $ 72 $ 12,202 $ 2,605 $ 14,879 $ 105,272 2.9 % 16.5 % Component % change 0.1% 13.5% 2.9% 16.5% 56 Table of Contents The increase in organic net revenue was attributable to the impact from the acquisition of MDC and higher levels of communications services in connection with the recovery from the COVID-19 pandemic. The increase in expenses was driven by higher staff costs from the impact of the acquisition of MDC and stock-based compensation expense driven by awards issued in connection with the acquisition of MDC. Operating income declined due to higher net revenue, more than offset by the increase in expenses. The decrease in Adjusted EBITDA was due to higher net revenue, more than offset by the increase in expenses. All Other The components of operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Nine Months Ended September 30, 2021 2020 Change All Other $ $ $ % (Dollars in Thousands) Revenue $ 22,874 $ 15,616 $ 7,258 46.5 % Operating expenses Cost of services sold 11,850 4,971 6,879 NM Office and general expenses 12,357 11,395 962 8.4 % Depreciation and amortization 2,013 2,696 (683) (25.3) % Impairment and other losses (1) — (1) — % $ 26,219 $ 19,062 $ 7,157 37.5 % Operating income $ (3,345) $ (3,446) $ 101 (2.9) % Nine Months Ended September 30, 2021 2020 Change $ % Net Revenue $ 22,874 $ 15,616 $ 7,258 46.5 % Billable costs — — — — % GAAP Revenue 22,874 15,616 7,258 46.5 % Billable costs — — — — % Staff costs 15,643 16,116 (473) (2.9) % Administrative costs 8,647 8,671 (24) (0.3) % Other, net (100) (8,422) 8,322 (98.8) % Adjusted EBITDA (1,316) (749) (567) (75.7) % Stock-based compensation 16 — 16 — % Depreciation and amortization 2,013 2,696 (683) (25.3) % Operating Income $ (3,345) $ (3,446) $ 101 (2.9) % Revenue Revenue for the nine months ended September 30, 2021 was $22.9 million compared to $15.6 million for the nine months ended September 30, 2020, an increase of $7.3 million. Net Revenue 57 Table of Contents The components of the fluctuations in net revenue for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Net Revenue - Components of Change Change Nine Months Ended September 30, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Nine Months Ended September 30, 2021 Organic Total (Dollars in Thousands) All Other $ 15,616 $ 476 $ 1,558 $ 5,224 $ 7,258 $ 22,874 33.5 % 46.5 % Component % change 3.0% 10.0% 33.5% 46.5% The increase in organic net revenue was attributable to higher levels of business at the central innovations group. The increase in revenue was more than offset by higher expenses resulting in an operating loss in both periods. Corporate The components of operating results for the nine months ended September 30, 2021 compared to the nine months ended September 30,2020 were as follows: Nine Months Ended September 30, Corporate 2021 2020 Change $ % Staff costs $ 5,923 $ 1,344 $ 4,579 NM Administrative costs 1,733 1,981 (248) (12.5) % Other, net — — — — % Adjusted EBITDA (7,656) (3,325) (4,331) NM Stock-based compensation 3,014 — 3,014 NM Depreciation and amortization 2,165 1,466 699 NM Impairment — — — — % Other items, net 13,152 (49) 13,201 (100.2) % Operating Income $ (25,987) $ (4,742) $ (21,245) NM Operating expenses increased primarily in connection with the acquisition of MDC, including professional fees associated with the transaction. Liquidity and Capital Resources: Liquidity The following table provides summary information about the Company’s liquidity position: September 30, 2021 September 30, 2020 (Dollars in Thousands) Net cash provided by operating activities $ 20,146 $ 93,184 Net cash provided by (used in) investing activities $ 153,721 $ (16,421) Net cash used in financing activities $ (151,860) $ (43,700) We continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on our liquidity. If the impact of the pandemic is beyond our expectation, the Company believes it is well positioned through the actions implemented at the beginning of the pandemic to successfully work through the effects of COVID-19 for the foreseeable future. 58 Table of Contents The Company had cash and cash equivalents of $115.5 million and $92.5 million as of September 30, 2021 and December 31, 2020, 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 revolving credit agreement, and other initiatives, such as obtaining additional debt and equity financing. At September 30, 2021, the Company had $181.1 million of borrowings outstanding and $292.8 million available under the revolving credit agreement. The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, purchases of noncontrolling interests, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 5.625% Notes. 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 revolving 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 this form 10-Q and in the Company’s other SEC filings. Cash Flows Operating Activities Cash flows provided by operating activities for the nine months ended September 30, 2021 were $20.1 million, primarily reflecting earnings, partially offset by unfavorable working capital requirements. Cash flows provided by operating activities for the nine months ended September 30, 2020 were $93.2 million, primarily reflecting earnings and favorable working capital requirements. Investing Activities During the nine months ended September 30, 2021, cash flows provided by investing activities were $153.7 million, which was primarily driven by $130.2 million of MDC cash in connection with the combination, $37.2 million from the sale of Reputation Defender, partially offset by capital expenditures of $13.7 million. During the nine months ended September 30, 2020, cash flows used in investing activities were $16.4 million, which primarily consisted of $9.0 million of capital expenditures and $5.5 million for acquisitions. Financing Activities During the nine months ended September 30, 2021, cash flows used in financing activities were $151.9 million, which primarily consisted of $884.4 million for the in repurchase of the 7.50% Notes, $127.1 million in net repayments under the revolving credit agreement, $19.2 million in distributions to minority interest holders, as well as distributions of $204.9 million to Stagwell Media, offset by receipt of $1.1 billion from the issuance of the 5.625% Notes. During the nine months ended September 30, 2020, cash flows used in financing activities was $43.7 million, primarily driven by $58.3 million in net borrowings under the revolving credit agreement, more than offset by distributions of $98.6 million to Stagwell Media. Total Debt Debt, net of debt issuance costs, as of September 30, 2021 was $1,265.7 million as compared to $198.0 million outstanding at December 31, 2020. The increase of $1,067.7 million in debt was primarily a result of the Company’s issuance of the 5.625% Notes. See Note 9 for information regarding the Company’s 5.625% Notes and $500.0 million revolving 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 its revolving credit agreement, or if the Company uses the maximum available amount under the 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 revolving credit agreement, the Company must comply with its total leverage ratio covenant, as such term is specifically defined in the agreement. For the period ended September 30, 2021, the Company’s calculation of each of these covenants, and the specific requirements under the revolving credit agreement, respectively, were calculated based on the trailing twelve months as follows: 59 Table of Contents September 30, 2021 Total Leverage Ratio 3.08 Maximum per covenant 4.75 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. Stagwell takes precautions against default on payment for these services and has historically had a very low incidence of default. Stagwell 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. See Note 7 for additional information regarding contingent deferred acquisition consideration. 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 10 for additional information regarding noncontrolling interests and redeemable noncontrolling interests. The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the revolving 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 Note 2 for information regarding the Company’s critical accounting policies. Website Access to Company Reports and Information Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. Stagwell Inc.’s Internet website address is www.stagwellglobal.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.