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Item 7. Management’s Discussion and Analysis

2022-03-17 compared with 2021-03-16 · 355 added, 677 removed, 154 unchanged (87% of the section changed)

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” means 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 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.

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 7 “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 include items such as impairment charges, fees associated with the combination of MDC with the Stagwell Entities, 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.

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 7 that are not considered meaningful are presented as “NM”.

Recent Developments

On December 21, 2020, MDC and Stagwell Media LP, a Delaware limited partnership (“Stagwell”), announced that they entered into a definitive transaction agreement (the “Transaction Agreement”) providing for the combination of MDC with the subsidiaries of Stagwell that own and operate a portfolio of marketing services companies (the “Stagwell Entities”).

Under the terms of the Transaction Agreement, the combination between MDC and the Stagwell Entities will be effected using an “Up-C” partnership structure.

Through a series of steps and transactions (collectively, the “Transactions”), including the domestication of MDC to a Delaware corporation and the merger of MDC Delaware with one of its indirect wholly owned subsidiaries (the “MDC Merger”), MDC Delaware will become a direct subsidiary (from and after the merger, “OpCo”) of a newly-formed, Delaware-organized, NASDAQ-listed corporation (“New MDC”).

Following the MDC Merger, (i) OpCo will convert into a limited liability company that will hold MDC’s operating assets and to which Stagwell will contribute the equity interests of the Stagwell Entities (the “Stagwell Contribution”) in exchange for 216,250,000 common membership interests of OpCo (the “Stagwell OpCo Units”), and (ii) Stagwell will contribute to New MDC an aggregate amount of cash equal to $100 in exchange for shares of a new Class C series of voting-only common stock (the “New MDC Class C Stock”) equal in number to the Stagwell OpCo Units.

On a pro forma basis, without giving effect to any outstanding preference shares of MDC, the existing holders of MDC’s Class A and Class B shares would receive interests equal to approximately 26% of the combined company and Stagwell would be issued New MDC Class C Stock equivalent to approximately 74% of the voting rights of the combined company and exchangeable, together with Stagwell OpCo Units, into Class A shares of New MDC on a one-for-one basis at Stagwell’s election.

The number of Stagwell OpCo Units and shares of New MDC Class C Stock that Stagwell will receive in

the Transactions, and the percentage of the combined company that Stagwell will hold following the consummation of the Transactions, will be reduced, and the percentage of the combined company that existing MDC shareholders will hold will be proportionally increased, if Stagwell is unable to effect certain restructuring transactions prior to the closing of the Transactions.

On December 21, 2020, MDC and Broad Street Principal Investments, L.L.C., an affiliate of Goldman Sachs (“Broad Street”), entered into a letter agreement, pursuant to which Broad Street consented to the Transactions subject to entry with MDC into a definitive agreement reflecting revised terms of MDC’s issued and outstanding Series 4 convertible preference shares (the “Goldman Letter Agreement”).

The revised terms of the Series 4 convertible preference shares would (subject to the closing of the Transactions) reduce the conversion price from $7.42 to $5.00 and extend accretion for two years beyond the date on which accretion would have otherwise ceased, at a reduced rate of 6%.

In connection with the closing of the Transactions, Broad Street will have the right to redeem up to $30 million of its preference shares in exchange for a $25 million subordinated note or loan with a 3-year maturity (i.e., exchange at an approximately 17% discount to face value).

The $25 million note or loan will accrue interest at 8.0% per annum and is, pre-payable any time at par without penalty.

On December 21, 2020, MDC entered into consent and support agreements (the “Consent and Support Agreements”) with holders of more than 50% of the aggregate principal amount of its Senior Notes to consent to the consummation of the combination of MDC with the Stagwell Entities.

Pursuant to the Consent and Support Agreements, MDC agreed to increase the interest rate on the Senior Notes by 1% per annum effective as of the date of the Consent and Support Agreements and to pay a consent fee of 2% to all holders of Notes upon a successful consent solicitation, or 3% if a supplemental indenture with the waivers and amendments is executed and becomes operative and the combination of MDC with the Stagwell Entities is consummated.

On February 5, 2021, MDC announced it had received and accepted consents from holders of at least a majority in principal amount of the Senior Notes, and on February 8, 2021, MDC entered into a supplemental indenture providing for waivers and amendments in connection with the combination of MDC with the Stagwell Entities.

On February 8, 2021, MDC filed a proxy statement/prospectus on Form S-4, which describes the Transaction Agreement, the Transactions, and ancillary agreements related thereto in more detail.

The following discussion and analysis are based on and should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-K.

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 “Forward-Looking Statements” and “Risk Factors” in this Form 10-K.

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.

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

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.

We took various actions to address the pandemic.

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.

Our Partner Firms altered how they work and respond to client challenges around the world, generating impactful creative work, rapid pivots, and inventive business solutions for brands in every sector.

Early in 2020, the Company aligned operating expenses with changes in revenue.

We 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 capital expenditures where possible to preserve our cash flow.

The effects of the COVID-19 pandemic negatively impacted our results of operations, financial position and cash flows in 2020.

While it is difficult to predict the continued impact of the pandemic, we anticipate that its negative impact on our revenue will continue through the first half of 2021.

If the impact of the pandemic is prolonged beyond our expectation, the Company believes it is well positioned through the actions taken in 2020 to successfully work through the effects of COVID-19 in 2021.

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.

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-K 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 Notes included herein for additional information in connection with the Transaction.

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.

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;

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 the 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 line of business, (iii) growth from existing clients and the addition of new clients, (iv) growth by principal capability, (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 network’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 20 of the Notes to the 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 in Note 2 of the Notes to the Consolidated Financial Statements included herein.

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.

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 appears to be underway, we expect economic conditions will continue to be volatile as long as COVID-19 remains a public health threat.

We will continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact or potential impact that such developments may have on the overall economy, our clients and our operations.

If the impact of the pandemic continues to go beyond expectations, we believe we are 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 our financial statements.

The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the severity, duration and continued impact of the COVID-19 pandemic.

Recent Developments

On March 11, 2022, the Company and Mark Penn, Chief Executive Officer of the Company, entered into (i) a Second Amended and Restated Employment Agreement (the “Second A&R Employment Agreement”) and (ii) an Amended and Restated Stock Appreciation Rights Agreement (the “A&R SARs Agreement”).

The Second A&R Employment Agreement and the A&R SARs Agreement provide that, with respect to the December 14, 2021 award to Mr.

Penn of 1,500,000 stock appreciation rights (“SARs”) in respect of the Company’s Class A common stock with a base price equal to $8.27 under the Company’s 2016 Stock Incentive Plan (the “Plan”), (i) the SARs will be settled only in cash upon any exercise, and (ii) the SARs will be considered to have been granted outside of the Plan and are not subject to stockholder approval.

Significant Factors Affecting our Business and Results of Operations

In addition to the impact of the COVID-19 pandemic discussed above, the most significant factors 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.

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 creative product that our Partner Firms offer.

A client may choose to change marketing communication firms for a number of reasons, such as a change in top management and the new management wants to retain an agency that it may have previously worked with.

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.

Another factor in a client changing firms is the agency’s campaign or work failing to meet the client’s expected financial or other measures.

Acquisitions and Dispositions .

The Company’s strategy includes acquiring ownership stakes in well-managed businesses with world class expertise and strong reputations in the industry.

The Company provides post-acquisition support to Partner Firms in order to help accelerate growth, including in areas such as business and client development (including cross-selling), corporate communications, corporate development, talent recruitment and training, procurement, legal services, human resources, financial management and reporting, and real estate utilization, among other areas.

Integration is typically implemented promptly, and new Partner Firms can begin to tap into the full range of MDC’s resources immediately.

Seasonality .

Historically, the Company typically generates the highest quarterly revenues during the fourth quarter in each year.

The fourth quarter has historically been the period in the year in which the highest volumes of media placements and retail related consumer marketing occur.

See Note 21 of the Notes to the Consolidated Financial Statements included herein for information relating to the Company’s quarterly results.

Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.

Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year, In addition, client concentration increases during election years due to the cyclical nature of our advocacy Brands.

The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season.

Non-GAAP Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”).

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 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 brands that the Company has held throughout each of the comparable periods presented, and (b) “Net acquisitions, (divestitures).” Net acquisitions, (divestitures) 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 the same prior year 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.

The percentage changes included in the tables herein that are not considered meaningful are presented as “NM.”

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 included herein 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 twelve months ended December 31, 2021 and 2020 and the financial condition of the Company as of December 31, 2021.

Results of Operations:

Years Ended December 31,

2020 2019 2018

Twelve Months Ended December 31,

(Dollars in Thousands)

Integrated Networks - Group A $ 379,648 $ 392,101 $ 393,890

Integrated Networks - Group B 435,589 531,717 551,317

Media & Data Network 139,015 161,451 183,287

Integrated Agencies Network $ 819,758 $ 229,646

Media Network 374,930 254,311

Communications Network 248,832 382,815

All Other 25,843 21,260

Total Revenue $ 1,469,363 $ 888,032

Operating Income (Loss):

Integrated Networks - Group A $ 14,297 $ 35,230 $ 59,130

Integrated Networks - Group B 34,581 61,417 34,659

Media & Data Network (7,724) 2,376 (51,441)

All Other (23,021) 26,205 14,243

Corporate (63,890) (45,768) (55,157)

Total Operating Income (Loss) $ (45,757) $ 79,460 $ 1,434

Operating Income $ 44,726 $ 83,740

Other Income (Expenses)

Interest expense and finance charges, net $ (62,163) $ (64,942) $ (67,075)

Foreign exchange gain (loss) (982) 8,750 (23,258)

Other, net 20,500 (2,401) 230

Income (loss) before income taxes and equity in earnings of non-consolidated affiliates (88,402) 20,867 (88,669)

Interest expense, net (31,894) (6,223)

Foreign exchange, net (3,332) (721)

Gain on sale of business and other, net 50,058 544

Income before income taxes and equity in earnings of non-consolidated affiliates 59,558 77,340

Income tax expense 23,398 5,937

Income (loss) before equity in earnings of non-consolidated affiliates (204,957) 10,551 (118,284)

Equity in earnings of non-consolidated affiliates (2,240) 352 62

Net income (loss) (207,197) 10,903 (118,222)

Net income attributable to the noncontrolling interest (21,774) (16,156) (11,785)

Net loss attributable to MDC Partners Inc.

(228,971) (5,253) (130,007)

Accretion on and net income allocated to convertible preference shares (14,179) (12,304) (8,355)

Net loss attributable to MDC Partners Inc.

common shareholders $ (243,150) $ (17,557) $ (138,362)

Adjusted EBITDA:

Integrated Networks - Group A $ 79,793 $ 74,822 $ 75,609

Integrated Networks - Group B 84,297 84,568 74,091

Media & Data Network 9,707 7,746 12,205

All Other 30,755 37,618 38,307

Corporate (27,220) (30,601) (38,761)

Total Adjusted EBITDA $ 177,332 $ 174,153 $ 161,451

Years Ended December 31,

2020 2019 2018

Capital expenditures:

Integrated Networks - Group A $ 1,087 $ 5,934 $ 8,228

Integrated Networks - Group B 987 9,270 6,352

Media & Data Network 569 627 1,632

All Other 966 2,729 3,985

Corporate 33,694 36 67

Total $ 37,303 $ 18,596 $ 20,264

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 December 31, 2020, the Company had $12,993 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 twelve months ended December 31, 2020, 2019 and 2018.

The adjustments from Net income (loss) attributable to MDC Partners Inc.

common shareholders to Operating income (loss) are detailed in the table above.

Twelve Months Ended December 31, 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 $(243,150)

Adjustments 197,393

Operating income (loss) $14,297 $34,581 $(7,724) $(23,021) $(63,890) $(45,757)

Depreciation and amortization 6,467 17,204 4,376 7,478 1,380 36,905

Impairment and other losses 6,391 31,784 11,760 45,335 1,129 96,399

Stock-based compensation 7,580 3,191 122 304 2,982 14,179

Deferred acquisition consideration adjustments 44,073 (2,706) 375 445 — 42,187

Distributions from non-consolidated affiliates — — — — 2,175 2,175

Other items, net 985 243 798 214 29,004 31,244

Adjusted EBITDA $79,793 $84,297 $9,707 $30,755 $(27,220) $177,332

Twelve Months Ended December 31, 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.

Income before equity in earnings of non-consolidated affiliates 36,160 71,403

Equity in (income) losses of non-consolidated affiliates (240) 58

Net income 35,920 71,461

Net income attributable to noncontrolling and redeemable noncontrolling interests (14,884) (15,105)

Net income attributable to Stagwell Inc.

common shareholders $ 21,036 $ 56,356

Adjustments 97,017

Operating income (loss) $ 35,230 $ 61,417 $ 2,376 $ 26,205 $ (45,768) $ 79,460

Depreciation and amortization 8,559 15,904 4,303 8,695 868 38,329

Impairment and other losses 4,879 1,933 929 11 847 8,599

Stock-based compensation 24,420 4,303 63 374 1,880 31,040

Deferred acquisition consideration adjustments 1,734 1,261 75 2,333 — 5,403

Distributions from non-consolidated affiliates — (250) — — 2,298 2,048

Other items, net — — — — 9,274 9,274

Adjusted EBITDA $ 74,822 $ 84,568 $ 7,746 $ 37,618 $ (30,601) $ 174,153

Twelve Months Ended December 31, 2018

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.

Reconciliation to Adjusted EBITDA

Net income attributable to Stagwell Inc.

common shareholders $ 21,036 $ 56,356

Adjustments 139,796

Operating income (loss) $ 59,130 $ 34,659 $ (51,441) $ 14,243 $ (55,157) $ 1,434

Non-operating items 23,690 27,384

Operating income 44,726 83,740

Depreciation and amortization 77,503 41,025

1 unchanged sentence

Stock-based compensation 75,032 —

Deferred acquisition consideration adjustments 1,085 (4,318) 318 2,458 — (457)

Distributions from non-consolidated affiliates — — — — 779 779

Other items, net — — — — 7,879 7,879

Deferred acquisition consideration 18,721 4,497

Total other items, net 21,430 13,906

Adjusted EBITDA $ 253,652 $ 143,168

YEAR ENDED DECEMBER 31, 2020 COMPARED TO YEAR ENDED DECEMBER 31, 2019

TWELVE MONTHS ENDED DECEMBER 31, 2021 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 2020

Consolidated Results of Operations

Revenue was $1.20 billion for the twelve months ended December 31, 2020 compared to revenue of $1.42 billion for the twelve months ended December 31, 2019 representing a decrease of $216.8 million, or 15.3%.

The components of the fluctuations in revenues for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019 were as follows:

Total United States Canada Other

$ % $ % $ % $ %

(Dollars in Thousands)

December 31, 2019 $ 1,415,803 $ 1,116,045 $ 105,067 $ 194,691

Components of revenue change:

Foreign exchange impact (1,014) (0.1) % — — % (600) (0.6) % (414) (0.2) %

Non-GAAP acquisitions (dispositions), net (18,312) (1.3) % (14,607) (1.3) % (3,705) (3.5) % — — %

Organic revenue (197,466) (13.9) % (141,802) (12.7) % (18,832) (17.9) % (36,832) (18.9) %

Total Change (216,792) (15.3) % (156,409) (14.0) % (23,137) (22.0) % (37,246) (19.1) %

December 31, 2020 $ 1,199,011 $ 959,636 $ 81,930 $ 157,445

The negative foreign exchange impact of $1.0 million, or 0.1%, was attributable to the fluctuation of the U.S.

dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.

The Company utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above.

For the twelve months ended December 31, 2020, organic revenue decreased by $197.5 million or 13.9%.

The decline in revenue from existing Partner Firms was primarily attributable to reduced spending by clients in connection with the COVID-19 pandemic.

The change in revenue was primarily driven by a decline in categories including food and beverage, communications, technology, transportation, financials and automotive, partially offset by growth in healthcare.

The table below provides a reconciliation between the revenue from acquired/disposed businesses in the Statements of Operations to non-GAAP acquisitions (dispositions), net for the twelve months ended December 31, 2020:

Acquisition (Dispositions) Revenue Reconciliation All Other

(Dollars in Thousands)

GAAP revenue from 2019 and 2020 acquisitions $ —

Foreign exchange impact (248)

Contribution to non-GAAP organic revenue (growth) decline (411)

Prior year revenue from dispositions (17,653)

Non-GAAP acquisitions (dispositions), net $ (18,312)

The geographic mix in revenues for the twelve months ended December 31, 2020 and 2019 was as follows:

United States 80.1 % 78.8 %

Canada 6.8 % 7.4 %

Other 13.1 % 13.8 %

Impairment and Other Losses

The Company recognized a charge of $96.4 million for the twelve months ended December 31, 2020 consisting of an impairment of goodwill and intangible assets of $61.7 million and $12.1 million, respectively, as well as a charge of $22.7 million associated with the impairment of right-of-use lease assets and related leasehold improvements and the acceleration of variable lease expenses.

The lease charge was primarily in connection with the exit of properties in New York as part of the centralization of the Company’s New York real estate portfolio.

Operating Income (Loss)

Operating loss for the twelve months ended December 31, 2020 was $45.8 million compared to income of $79.5 million for the twelve months ended December 31, 2019, representing a change of $125.2 million.

The operating loss in 2020 was impacted by the impairment and other losses of $96.4 million as compared to operating income in 2019 being impacted by an impairment and other losses of $8.6 million in connection with a write-down of the carrying value of goodwill and right-of-use lease assets and related leasehold improvements.

In addition, the decline in revenues more than offset by the reduction in operating expenses also drove the change in operating income (loss).

Adjusted EBITDA

Adjusted EBITDA for the twelve months ended December 31, 2020 was $177.3 million, compared to $174.2 million for the twelve months ended December 31, 2019, representing an increase of $3.2 million, principally resulting from a reduction in operating expenses that more than offset the decline in revenues.

Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the twelve months ended December 31, 2020 was $62.2 million compared to $64.9 million for the twelve months ended December 31, 2019, representing a decrease of $2.8 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility and a lower amount of Senior Notes outstanding due to a partial repurchase of Notes in 2020.

Foreign Exchange Transaction Gain (Loss)

The foreign exchange loss for the twelve months ended December 31, 2020 was $1.0 million compared to a gain of $8.8 million for the twelve months ended December 31, 2019.

The change in foreign exchange was primarily attributable to the weakening of the Canadian dollar against the U.S.

dollar, in connection with a U.S.

dollar denominated indebtedness that is an obligation of our Canadian parent company.

Other, net, for the twelve months ended December 31, 2020 was income of $20.5 million compared to loss of $2.4 million for the twelve months ended December 31, 2019.

In 2020, we recognized a gain of $16.8 million related to the sale of Sloane and Company LLC (“Sloane”), an indirectly wholly owned subsidiary of the Company.

Additionally, the Company repurchased $29.7 million of Senior Notes, which resulted in a gain of $7.4 million, partially offset by a loss of $3.7 million related to other investments.

Income Tax Expense (Benefit)

Income tax expense for the twelve months ended December 31, 2020 was $116.6 million (on pre-tax loss of $88.4 million resulting in a negative effective tax rate of 131.8%) compared to $10.3 million (on pre-tax income of $20.9 million resulting in an effective tax rate of 49.4%) for the twelve months ended December 31, 2019.

The negative effective tax rate in 2020 was driven by the recognition of a valuation allowance of $128.9 million to establish a reserve primarily for U.S.

deferred tax assets.

The effective tax rate in 2019 was driven by the taxation of foreign operations, base erosion and anti-abuse tax, and non-deductible stock compensation for which a tax benefit was not recognized.

Equity in Earnings (Losses) of Non-Consolidated Affiliates

Equity in earnings (losses) of non-consolidated affiliates represents the income or losses attributable to equity method investments.

The Company recorded $2.2 million of loss for the twelve months ended December 31, 2020 compared to $0.4 million of income for the twelve months ended December 31, 2019.

Noncontrolling Interests

The effect of noncontrolling interests for the twelve months ended December 31, 2020 was $21.8 million compared to $16.2 million for the twelve months ended December 31, 2019, attributable to an increase in operating results at Partner Firms with a noncontrolling interest.

Net Income (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, the net loss attributable to MDC Partners Inc.

common shareholders for the twelve months ended December 31, 2020 was $243.2 million, or $3.34 per diluted loss per share, compared to a net loss attributable to MDC Partners Inc.

common shareholders of $17.6 million, or $0.25 per diluted loss per share, for the twelve months ended December 31, 2019.

Integrated Networks - Group A

The change in operating results in the Integrated Networks - Group A reportable segment for the twelve months ended December 31, 2020 and 2019 was as follows:

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

2021 2020 Change

Integrated Networks - Group A $ % of

Revenue $ % of

(Dollars in Thousands)

Revenue $ 379,648 $ 392,101 $ (12,453) (3.2) %

$ 1,469,363 $ 888,032 $ 581,331 65.5 %

Operating Expenses:

Cost of services sold 906,856 571,588 335,268 58.7 %

Office and general expenses 103,591 27.3 % 60,012 15.3 % 43,579 72.6 %

Office and general expenses 424,038 191,679 232,359 NM

Depreciation and amortization 77,503 41,025 36,478 88.9 %

2 unchanged sentences

Operating income $ 44,726 $ 83,740 $ (39,014) (46.6) %

Adjusted EBITDA $ 79,793 21.0 % $ 74,822 19.1 % $ 4,971 6.6 %

Revenue decline was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The decline in operating income was attributable to a decline in revenue and higher 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 twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

Integrated Networks - Group A $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 58,289 15.4 % $ 51,794 13.2 % $ 6,495 12.5 %

Staff costs 204,433 53.8 % 221,456 56.5 % (17,023) (7.7) %

Administrative 38,118 10.0 % 44,029 11.2 % (5,911) (13.4) %

Deferred acquisition consideration 44,073 11.6 % 1,734 0.4 % 42,339 NM

Stock-based compensation 7,580 2.0 % 24,420 6.2 % (16,840) (69.0) %

Depreciation and amortization 6,467 1.7 % 8,559 2.2 % (2,092) (24.4) %

Impairment and other losses 6,391 1.7 % 4,879 1.2 % 1,512 31.0 %

Total operating expenses $ 365,351 96.2 % $ 356,871 91.0 % $ 8,480 2.4 %

The increase in direct costs was associated with higher revenue from public relations services which grew in 2020 as compared to 2019.

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 deferred acquisition consideration for the twelve months ended December 31, 2020 was primarily attributable to the favorable performance of a Partner Firm achieving certain contractual targets.

Stock-based compensation expense declined in 2020 compared to 2019, which reflected the recognition of expense associated with performance based awards granted in the prior year.

The impairment and other losses in the twelve months ended December 31, 2020 included an impairment charge of $6.4 million to reduce the carrying value of right-of-use lease assets and related leasehold improvements as well as the acceleration of the variable lease expenses primarily associated with the exit of properties in New York as part of the centralization of the Company’s New York real estate portfolio.

For the twelve months ended December 31, 2019, an impairment charge of $4.9 million was attributable to the write-down of the carrying value of goodwill.

The increase in Adjusted EBITDA grew in 2020 principally from a reduction in operating expenses that more than offset the decline in revenues.

Integrated Networks - Group B

The change in operating results in the Integrated Networks - Group B reportable segment for the twelve months ended December 31, 2020 and 2019 was as follows:

Twelve Months Ended December 31,

2021 2020 Change

Integrated Networks - Group B $ % of

Revenue $ % of

(Dollars in Thousands)

Net Revenue $ 1,268,937 $ 633,230 $ 635,707 NM

Billable costs 200,426 254,802 (54,376) (21.3) %

Revenue 1,469,363 888,032 581,331 65.5 %

Operating expenses

Cost of services sold 257,524 59.1 % 328,165 61.7 % (70,641) (21.5) %

Office and general expenses 94,496 21.7 % 124,298 23.4 % (29,802) (24.0) %

Depreciation and amortization 17,204 3.9 % 15,904 3.0 % 1,300 8.2 %

Impairment and other losses 31,784 7.3 % 1,933 0.4 % 29,851 NM

401,008 92.1 % 470,300 88.4 % (69,292) (14.7) %

Operating income $ 34,581 7.9 % $ 61,417 11.6 % $ (26,836) NM

Billable costs 200,426 254,802 (54,376) (21.3) %

Staff costs 790,121 359,679 430,442 NM

Administrative costs 144,294 83,295 60,999 73.2 %

Unbillable and other costs, net 80,870 47,088 33,782 71.7 %

Adjusted EBITDA 253,652 143,168 110,484 77.2 %

The decline in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The change in operating income was attributable to a 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 B reportable segment for the twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

Integrated Networks - Group B $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 48,806 11.2 % $ 73,776 13.9 % $ (24,970) (33.8) %

Staff costs 249,963 57.4 % 306,549 57.7 % (56,586) (18.5) %

Administrative 52,766 12.1 % 66,574 12.5 % (13,808) (20.7) %

Deferred acquisition consideration (2,706) (0.6) % 1,261 0.2 % (3,967) NM

Stock-based compensation 75,032 — 75,032 100.0 %

Depreciation and amortization 77,503 41,025 36,478 88.9 %

Impairment and other losses 31,784 7.3 % 1,933 0.4 % 29,851 NM

Total operating expenses $ 401,008 92.1 % $ 470,300 88.4 % $ (69,292) (14.7) %

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.

Deferred acquisition consideration change for the twelve months ended December 31, 2020 was primarily attributable to the aggregate performance of certain Partner Firms in 2020 relative to the previously projected expectations.

The decrease in stock-based compensation expense was primarily driven by awards that fully vested in 2020.

For the twelve months ended December 31, 2020, the impairment and other losses charge of $31.8 million was attributable to a $16.1 million charge to reduce the carrying value of goodwill, a $9.1 million charge to reduce the carrying value of an intangible asset and a $6.6 million impairment to reduce the carrying value of right-of-use lease assets and related leasehold improvements as well as the acceleration of the variable lease expenses associated with the exit of properties in New York as part of the centralization of the Company’s New York real estate portfolio.

For the twelve months ended December 31, 2019, an impairment charge of $1.9 million was attributable to an impairment in connection with the sublet of a leased property, to reduce the carrying value of a right-of-use lease asset and related leasehold improvements.

Adjusted EBITDA in 2020 remained flat compared to 2019 as the decline in revenue was offset by the reduction in operating expenses.

Media & Data Network

The change in operating results in the Media & Data Network reportable segment for the twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

Media & Data Network $ % of

Revenue $ % of

(Dollars in Thousands)

Revenue $ 139,015 $ 161,451 $ (22,436) (13.9) %

Operating expenses

Cost of services sold 98,633 71.0 % 118,189 73.2 % (19,556) (16.5) %

Office and general expenses 31,970 23.0 % 35,654 22.1 % (3,684) (10.3) %

Depreciation and amortization 4,376 3.1 % 4,303 2.7 % 73 1.7 %

Impairment and other losses 11,760 8.5 % 929 0.6 % 10,831 NM

146,739 105.6 % 159,075 98.5 % (12,336) (7.8) %

Operating income (loss) $ (7,724) (5.6) % $ 2,376 1.5 % $ (10,100) NM

Adjusted EBITDA $ 9,707 7.0 % $ 7,746 4.8 % $ 1,961 25.3 %

The decrease in revenue was primarily attributable to lower spending by clients in connection with the COVID-19 pandemic.

The change in operating income (loss) 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 Media & Data Network reportable segment for the twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

Media & Data Network $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 35,864 25.8 % $ 43,232 26.8 % $ (7,368) (17.0) %

Staff costs 72,204 51.9 % 85,627 53.0 % (13,423) (15.7) %

Administrative 22,038 15.9 % 24,846 15.4 % (2,808) (11.3) %

Deferred acquisition consideration 18,721 4,497 14,224 NM

Stock-based compensation 122 0.1 % 63 — % 59 93.7 %

Depreciation and amortization 4,376 3.1 % 4,303 2.7 % 73 1.7 %

Impairment and other losses 11,760 8.5 % 929 0.6 % 10,831 NM

Total operating expenses $ 146,739 105.6 % $ 159,075 98.5 % $ (12,336) (7.8) %

Direct costs declined in connection with the reduction in revenue.

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.

For the twelve months ended December 31, 2020, the impairment and other losses included an $11.8 million charge to reduce the carrying value of goodwill and a $5.3 million charge for the acceleration of variable lease expenses of $6.5 million associated with the exit of a property in New York as part of the centralization of the Company’s New York real estate portfolio.

For the twelve months ended December 31, 2019, an impairment charge of $0.9 million was recognized, in connection with the sublet of a leased property, to reduce the carrying value of a right-of-use lease asset and related leasehold improvements.

Adjusted EBITDA in 2020 remained was higher compared to 2019 as the decline in operating expenses more than offset the decline in revenue.

The change in operating results in the All Other category for the twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

All Other $ % of

Revenue $ % of

(Dollars in Thousands)

Revenue $ 244,759 $ 330,534 $ (85,775) (26.0) %

Operating expenses

Cost of services sold 164,840 67.3 % 231,301 70.0 % (66,461) (28.7) %

Office and general expenses 50,127 20.5 % 64,322 19.5 % (14,195) (22.1) %

Depreciation and amortization 7,478 3.1 % 8,695 2.6 % (1,217) (14.0) %

Impairment and other losses 45,335 18.5 % 11 — % 45,324 NM

267,780 109.4 % 304,329 92.1 % (36,549) (12.0) %

Operating income (loss) $ (23,021) (9.4) % $ 26,205 7.9 % $ (49,226) NM

Adjusted EBITDA $ 30,755 12.6 % $ 37,618 11.4 % $ (6,863) (18.2) %

The decrease in revenue was primarily attributable to lower spending by clients due to the COVID-19 pandemic and the reduction in revenues in connection with the sale of Sloane in 2020.

The change in operating income (loss) was attributable to a 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 twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

All Other $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 44,098 18.0 % $ 67,868 20.5 % $ (23,770) (35.0) %

Staff costs 141,514 57.8 % 186,785 56.5 % (45,271) (24.2) %

Administrative 28,606 11.7 % 38,263 11.6 % (9,657) (25.2) %

Deferred acquisition consideration 445 0.2 % 2,333 0.7 % (1,888) (80.9) %

Stock-based compensation 304 0.1 % 374 0.1 % (70) (18.7) %

Depreciation and amortization 7,478 3.1 % 8,695 2.6 % (1,217) (14.0) %

Impairment and other losses 45,335 18.5 % 11 — % 45,324 NM

Total operating expenses $ 267,780 109.4 % $ 304,329 92.1 % $ (36,549) (12.0) %

Direct costs declined in line with the reduction in revenues.

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.

For the twelve months ended December 31, 2020, the impairment and other losses charge of $45.3 million was attributable to a $40.2 million charge to reduce the carrying value of goodwill, a $3.0 million impairment to reduce the carrying value of an intangible asset and a charge of $2.1 million to reduce the carrying value of right-of-use lease assets and related leasehold improvements as well as the acceleration of the variable lease expenses associated with the exit of properties in New York as part of the centralization of the Company’s New York real estate portfolio.

Adjusted EBITDA declined in 2020 compared to 2019 as a result of the decline in revenue, partially offset by the reduction of operating expenses.

The change in operating expenses for Corporate for the twelve months ended December 31, 2020 and 2019 was as follows:

2020 2019 Change

Corporate $ $ $ %

(Dollars in Thousands)

Staff costs $ 23,817 $ 29,434 $ (5,617) (19.1) %

Administrative 34,582 12,739 21,843 NM

Stock-based compensation 2,982 1,880 1,102 58.6 %

Depreciation and amortization 1,380 868 512 59.0 %

Impairment and other losses 16,240 — 16,240 100.0 %

Total operating expenses $ 63,890 $ 45,768 $ 18,122 39.6 %

Adjusted EBITDA $ (27,220) $ (30,601) $ 3,381 (11.0) %

The reduction in staff costs is primarily driven by a severance charge in 2019 not repeated in 2020.

Administrative costs were higher primarily due to costs, primarily professional fees, associated with the combination of MDC with the Stagwell Entities.

The increase in stock-based compensation expense was driven by favorable operating results in connection with awards tied to performance and the grant of new awards in 2020.

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.

YEAR ENDED DECEMBER 31, 2019 COMPARED TO YEAR ENDED DECEMBER 31, 2018

Consolidated Results of Operations

Revenue was $1.42 billion for the twelve months ended December 31, 2019, compared to revenue of $1.48 billion for the twelve months ended December 31, 2018 representing a decrease of $59.3 million, or 4.0%.

The components of the fluctuations in revenues for the twelve months ended December 31, 2019 compared to December 31, 2018 were as follows:

Total United States Canada Other

Other items, net 21,430 13,906 7,524 54.1 %

Operating Income (1)

$ 44,726 $ 83,740 $ (39,014) (46.6) %

(1) See the Results of Operations section above for a reconciliation of Operating Income to Net Income attributable to Stagwell Inc.

common shareholders.

Revenue for the twelve months ended December 31, 2021 was $1,469.4 million compared to $888.0 million for the twelve months ended December 31, 2020, an increase of $581.3 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

(Dollars in Thousands)

December 31, 2018 $ 1,475,088 $ 1,152,399 $ 124,001 $ 198,688

Components of revenue change:

Foreign exchange impact (12,697) (0.9) % — — % (2,390) (1.9) % (10,307) (5.2) %

Non-GAAP acquisitions (dispositions), net (1,563) (0.1) % 11,339 1.0 % (15,483) (12.5) % 2,581 1.3 %

Non-GAAP organic revenue growth (decline) (45,025) (3.1) % (47,693) (4.1) % (1,061) (0.9) % 3,729 1.9 %

Total Change (59,285) (4.0) % (36,354) (3.2) % (18,934) (15.3) % (3,997) (2.0) %

December 31, 2019 $ 1,415,803 $ 1,116,045 $ 105,067 $ 194,691

The negative foreign exchange impact of $12.7 million or 0.9% was attributable to the fluctuation of the U.S.

dollar against the Canadian dollar, Swedish Króna, Euro and British Pound.

The Company utilizes non-GAAP metrics called organic revenue growth (decline) and non-GAAP acquisitions (dispositions), net, as defined above.

For the twelve months ended December 31, 2019, organic revenue decreased by $45.0 million or 3.1%.

The decline in revenue from existing Partner Firms was attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients.

The change in revenue was primarily driven by a decline in categories including healthcare, food and beverage and automotive, partially offset by growth in transportation, communications, and travel/lodging and technology.

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 twelve months ended December 31, 2019:

Integrated Networks - Group B All Other Total

Integrated Agencies Network $ 220,502 $ 3,172 $ 379,467 $ 128,084 $ 510,723 $ 731,225 58.1 % NM

Media Network 233,189 3,993 52,925 55,712 112,630 345,819 23.9 % 48.3 %

Communications Network 158,279 202 31,096 (23,527) 7,771 166,050 (14.9) % 4.9 %

All Other 21,260 561 (5,826) 9,848 4,583 25,843 46.3 % 21.6 %

$ 633,230 $ 7,928 $ 457,662 $ 170,117 $ 635,707 $ 1,268,937 26.9 % NM

Component % change 1.3% 72.3% 26.9%

For the twelve months ended December 31, 2021, organic net revenue increased $170.1 million, or 26.9%, primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.

The geographic mix in net revenues for the twelve months ended December 31, 2021 and 2020 was as follows:

(Dollars in Thousands)

GAAP revenue from 2018 and 2019 acquisitions $ 17,882 $ 4,163 $ 22,045

Foreign exchange impact — 222 222

Contribution to non-GAAP organic revenue growth (decline) (6,547) (1,780) (8,327)

Prior year revenue from dispositions — (15,503) (15,503)

Non-GAAP acquisitions (dispositions), net $ 11,335 $ (12,898) $ (1,563)

The geographic mix in revenues for the years ended December 31, 2019 and 2018 was as follows:

United States $ 1,039,934 $ 550,274

Canada 7.4 % 8.4 %

United Kingdom 101,900 55,915

Other 127,103 27,041

Impairment and Other Losses

The Company recognized an impairment of goodwill and other assets charge of $8.6 million for the twelve months ended December 31, 2019 compared to $87.2 million for the twelve months ended December 31, 2018.

The impairment consisted of the write-down of $4.9 million goodwill equal to the excess carrying value above the fair value of one reporting unit within the Integrated Networks - Group A, and a charge of $3.7 million to reduce the carrying value of right-of-use lease assets and related leasehold improvements.

Operating Income (Loss)

Operating income for the twelve months ended December 31, 2019 was $79.5 million, compared to $1.4 million for the twelve months ended December 31, 2018, representing a change of $78.0 million.

The improvement was driven by a lower impairment charge in 2019 of $8.6 million associated with the write-down of the carrying value of goodwill, right-of-use lease assets and related leasehold improvements compared to $87.2 million in 2018 primarily in connection with a write-down of goodwill.

In addition, the decline in revenues more than offset by the reduction in operating expenses also drove the change in operating income.

Total $ 1,268,937 $ 633,230

Operating Income

Operating income for the twelve months ended December 31, 2021 was $44.7 million compared to $83.7 million for the twelve months ended December 31, 2020, representing a decrease of $39.0 million, primarily driven by the increase in revenue, more than offset by higher operating expenses.

The twelve months ended December 31, 2021 was impacted by an increase in stock-based compensation expense and amortization expense in connection with the merger as well as an impairment and other loss of $16.2 million in connection with a write-down of trade names no longer in use.

Adjusted EBITDA

Adjusted EBITDA for the twelve months ended December 31, 2019 was $174.2 million, compared to $161.5 million for the twelve months ended December 31, 2018, representing an increase of $12.7 million, principally resulting from a reduction in operating expenses that more than offset the decline in revenues.

Interest Expense and Finance Charges, Net

Interest expense and finance charges, net, for the twelve months ended December 31, 2019 was $64.9 million compared to $67.1 million for the twelve months ended December 31, 2018, representing a decrease of $2.2 million, primarily driven by a decline in the average amounts outstanding under the Company’s revolving credit facility in 2019.

Foreign Exchange Transaction Gain (Loss)

The foreign exchange gain for the twelve months ended December 31, 2019 was $8.8 million compared to loss of $23.3 million for the twelve months ended December 31, 2018.

The change in foreign exchange was primarily attributable to the strengthening of the Canadian dollar against the U.S.

dollar, in connection with a U.S.

dollar denominated indebtedness that is an obligation of our Canadian parent company.

Other, net for the twelve months ended December 31, 2019 was a loss of $2.4 million compared to income of $0.2 million for the twelve months ended December 31, 2018.

In 2019, we recognized a loss of $4.3 million primarily on the sale of Kingsdale Partners LP and Kingsdale Shareholder Services US LLC (collectively, “Kingsdale”), partially offset by a gain of $2.3 million primarily related to the sale of certain investments.

Income Tax Expense (Benefit)

Income tax expense for the twelve months ended December 31, 2019 was $10.3 million (on income of $20.9 million resulting in an effective tax rate of 49.4%), driven by the taxation of foreign operations, base erosion and anti-abuse tax, and non-deductible stock compensation for which a tax benefit was not recognized.

Income tax expense for the twelve months ended December 31, 2018 was $29.6 million (on a loss of $88.7 million resulting in an effective tax rate of negative 33.4%), driven by an increase in valuation allowance primarily attributed to Canada and non-deductible impairments.

Equity in Earnings (Losses) of Non-Consolidated Affiliates

Equity in earnings (losses) of non-consolidated affiliates represents the income or losses attributable to equity method investments.

The Company recorded $0.4 million of income for the twelve months ended December 31, 2019 compared to $0.1 million of income for the twelve months ended December 31, 2018.

Noncontrolling Interests

The effect of noncontrolling interests for the twelve months ended December 31, 2019 was $16.2 million compared to $11.8 million for the twelve months ended December 31, 2018, attributable to an increase in operating results at Partner Firms with a noncontrolling interest.

Net Loss Attributable to MDC Partners Inc.

Adjusted EBITDA for the twelve months ended December 31, 2021 was $253.7 million, compared to $143.2 million for the twelve months ended December 31, 2020, representing an increase of $110.5 million, principally resulting from the acquisition of MDC.

Gain on Sale of Business and Other, net

Gain on sale of business and other, net, for the twelve months ended December 31, 2021 was income of $50.1 million, compared to $0.5 million for the twelve months ended December 31, 2020, primarily due to a gain of approximately $43.0 million in connection with the sale of Reputation Defender in the third quarter of 2021.

Foreign Exchange Transaction Loss

The foreign exchange loss for the twelve months ended December 31, 2021 was $3.3 million compared to a loss of $0.7 million for the twelve months ended December 31, 2020.

Interest Expense, Net

Interest expense, net, for the twelve months ended December 31, 2021 was $31.9 million compared to $6.2 million for the twelve months ended December 31, 2020, representing an increase of $25.7 million, primarily driven by a higher level of debt in connection with the acquisition of MDC.

Income Tax Expense

The Company had an income tax expense for the twelve months ended December 31, 2021 of $23.4 million (on a pre-tax income of $59.6 million resulting in an effective tax rate of 39.3%) compared to income tax expense of $5.9 million (on pre-tax income of $77.3 million resulting in an effective tax rate of 7.7%) for the twelve months ended December 31, 2020.

The difference in the effective tax rate of 39.3% in the twelve months ended December 31, 2021 as compared to 7.7% in the same period in 2020 primarily results from a larger portion of income being subject to entity level tax as a result of the merger and non-deductible stock compensation in 2021.

Noncontrolling and Redeemable Noncontrolling Interests

The effect of noncontrolling and redeemable noncontrolling interests for the twelve months ended December 31, 2021 was $14.9 million compared to $15.1 million for the twelve months ended December 31, 2020.

Net Income Attributable to Stagwell Inc.

Common Shareholders

As a result of the foregoing, and the impact of accretion on and net income allocated to convertible preferences shares, the net loss attributable to MDC Partners Inc.

common shareholders for the twelve months ended December 31, 2019 was $17.6 million or $0.25 diluted loss per share, compared to a net loss of $138.4 million, or $2.42 diluted loss per share reported for the twelve months ended December 31, 2018.

Integrated Networks - Group A

The change in operating results in the Integrated Networks - Group A reportable segment for the twelve months ended December 31, 2019 and 2018 was as follows:

As a result of the foregoing, net income attributable to Stagwell Inc.

common shareholders for the twelve months ended December 31, 2021 was $21.0 million compared to net income attributable to Stagwell Inc.

common shareholders of $56.4 million for the twelve months ended December 31, 2020.

Integrated Agencies Network

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

2021 2020 Change

Integrated Networks - Group A $ % of

Revenue $ % of

(Dollars in Thousands)

Revenue $ 392,101 $ 393,890 $ (1,789) (0.5) %

Revenue $ 819,758 $ 229,646 $ 590,112 NM

Operating expenses

Cost of services sold 283,421 72.3 % 263,005 66.8 % 20,416 7.8 %

Office and general expenses 60,012 15.3 % 62,153 15.8 % (2,141) (3.4) %

Depreciation and amortization 8,559 2.2 % 9,602 2.4 % (1,043) (10.9) %

Cost of services sold 537,642 134,513 403,129 NM

Office and general expenses 184,085 56,592 127,493 NM

Depreciation and amortization 40,087 9,616 30,471 NM

Impairment and other losses 1,394 — 1,394 100.0 %

356,871 91.0 % 334,760 85.0 % 22,111 6.6 %

$ 763,208 $ 200,721 $ 562,487 NM

Operating income $ 56,550 $ 28,925 $ 27,625 95.5 %

Adjusted EBITDA $ 74,822 19.1 % $ 75,609 19.2 % (787) (1.0) %

Revenue decline was primarily attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients of $0.2 million, or 0.0%, and unfavorable impact of foreign exchange of $2.0 million, or 0.5%.

The change in operating income was attributable to a decline in revenue, and higher 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 twelve months ended December 31, 2019 and 2018 was as follows:

Twelve Months Ended December 31,

2021 2020 Change

Integrated Networks - Group A $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 51,794 13.2 % $ 50,830 12.9 % $ 964 1.9 %

Staff costs 221,456 56.5 % 220,197 55.9 % 1,259 0.6 %

Administrative 44,029 11.2 % 47,254 12.0 % (3,225) (6.8) %

Deferred acquisition consideration 1,734 0.4 % 1,085 0.3 % 649 59.8 %

Stock-based compensation 24,420 6.2 % 5,792 1.5 % 18,628 NM

Depreciation and amortization 8,559 2.2 % 9,602 2.4 % (1,043) (10.9) %

Impairment and other losses 4,879 1.2 % — — % 4,879 — %

Total operating expenses $ 356,871 91.0 % $ 334,760 85.0 % $ 22,111 6.6 %

The decrease in administrative costs was driven by lower spending across various categories in connection with savings initiatives.

The increase in stock-based compensation expense was driven by favorable operating results in connection with awards tied to performance.

For the twelve months ended December 31, 2019, an impairment charge of $4.9 million was primarily attributable to the write-down of goodwill equal to the excess carrying value above the fair value of a reporting unit.

Adjusted EBITDA in 2019 remained flat compared to 2018 as the decline in revenue was offset by the reduction in operating expenses.

Integrated Networks - Group B

The change in operating results in the Integrated Networks - Group B reportable segment for the twelve months ended December 31, 2019 and 2018 was as follows:

Net Revenue $ 731,225 $ 220,502 $ 510,723 NM

Billable costs 88,533 9,144 79,389 NM

Revenue 819,758 229,646 590,112 NM

Billable costs 88,533 9,144 79,389 NM

Staff costs 440,670 119,184 321,486 NM

Administrative costs 68,531 23,827 44,704 NM

Unbillable and other costs, net 55,256 35,131 20,125 57.3%

Adjusted EBITDA 166,768 42,360 124,408 NM

Stock-based compensation 47,584 — 47,584 100.0%

Depreciation and amortization 40,087 9,616 30,471 NM

Deferred acquisition consideration 18,457 2,240 16,217 NM

Impairment 1,394 — 1,394 100.0%

Other items, net 2,696 1,579 1,117 70.7%

Operating Income $ 56,550 $ 28,925 $ 27,625 95.5%

Revenue for the twelve months ended December 31, 2021 was $819.8 million compared to $229.6 million for the twelve months ended December 31, 2020, an increase of $590.1 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

(Dollars in Thousands)

Integrated Agencies Network $ 220,502 $ 3,172 $ 379,467 $ 128,084 $ 510,723 $ 731,225 58.1 % NM

Component % change 1.4 % NM 58.1 %

The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic.

The increase in net acquisition (divestitures) was driven by 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 to SMG employees in connection with the merger, depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.

Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses as detailed above.

Media Network

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

2021 2020 Change

Integrated Networks - Group B $ % of

Revenue $ % of

(Dollars in Thousands)

6 unchanged sentences

$ 359,150 $ 248,966 $ 110,184 44.3 %

Operating income $ 61,417 11.6 % $ 34,659 6.3 % $ 26,758 77.2 %

Adjusted EBITDA $ 84,568 15.9 % $ 74,091 13.4 % $ 10,477 14.1 %

Revenue decline was primarily attributable to client losses and a reduction in spending by certain clients, partially offset by new client wins and higher spending by other clients of $26.2 million, or 4.8% and unfavorable impact of foreign exchange of $4.7 million, or 0.9%, offset by a contribution of $11.3 million, or 2.1%, from an acquired Partner Firm.

The change in operating income was attributable to a decline in revenue, more than 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 B reportable segment for the twelve months ended December 31, 2019 and 2018 was as follows:

Operating income $ 15,780 $ 5,345 $ 10,435 NM

Twelve Months Ended December 31,

2021 2020 Change

Integrated Networks - Group B $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 73,776 13.9 % $ 56,755 10.3 % $ 17,021 30.0 %

Net Revenue $ 345,819 $ 233,189 $ 112,630 48.3%

Billable costs 29,111 21,122 7,989 37.8%

Revenue 374,930 254,311 120,619 47.4%

Billable costs 29,111 21,122 7,989 37.8%

Staff costs 208,997 143,749 65,248 45.4%

Administrative 66,574 12.5 % 74,618 13.5 % (8,044) (10.8) %

Deferred acquisition consideration 1,261 0.2 % (4,318) (0.8) % 5,579 NM

Administrative costs 49,359 39,239 10,120 25.8%

Unbillable and other costs, net 24,693 22,532 2,161 9.6%

Adjusted EBITDA 62,770 27,669 35,101 NM

Stock-based compensation 4,857 — 4,857 100.0%

Depreciation and amortization 23,590 19,861 3,729 18.8%

Impairment and other losses 1,933 0.4 % 17,828 3.2 % (15,895) (89.2) %

Total operating expenses $ 470,300 88.4 % $ 516,658 93.7 % $ (46,358) (9.0) %

Direct costs were higher, inclusive of higher billable costs for client arrangements accounted for as principal.

The decrease in staff costs was attributable to staffing reductions at certain Partner Firms in connection with the decline in revenue and cost savings initiatives.

The decrease in administrative costs was driven by lower spending across various categories in connection with savings initiatives.

Deferred acquisition consideration change for the twelve months ended December 31, 2019 was primarily attributable to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.

The decrease in stock-based compensation expense was driven by operating results in connection with awards tied to performance.

For the twelve months ended December 31, 2018, an impairment charge of $17.8 million primarily attributable to the write-down of goodwill equal to the excess carrying value above the fair value of a reporting unit.

The increase in Adjusted EBITDA in 2019 principally from a reduction in operating expenses that more than offset the decline in revenues.

Media & Data Network

The change in operating results in the Media & Data Network reportable segment for the twelve months ended December 31, 2019 and 2018 was as follows:

Deferred acquisition consideration 184 — 184 100.0%

Impairment 14,846 — 14,846 100.0%

Other items, net 3,513 2,463 1,050 42.6%

Operating Income $ 15,780 $ 5,345 $ 10,435 NM

Revenue for the twelve months ended December 31, 2021 was $374.9 million compared to $254.3 million for the twelve months ended December 31, 2020, an increase of $120.6 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

(Dollars in Thousands)

Media Network $ 233,189 $ 3,993 $ 52,925 $ 55,712 $ 112,630 $ 345,819 23.9 % 48.3 %

Component % change 1.7 % 22.7 % 23.9 % 48.3 %

The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic.

The increase in net acquisition (divestitures) was driven by 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 to SMG employees in connection with the merger and an impairment loss of $14.8 million was recognized in connection with a write-down of trade names no longer in use.

Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses as detailed above.

Communications Network

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

2021 2020 Change

Media & Data Network $ % of

Revenue $ % of

(Dollars in Thousands)

2 unchanged sentences

Cost of services sold 167,303 281,040 (113,737) (40.5) %

Office and general expenses 35,654 22.1 % 42,424 23.1 % (6,770) (16.0) %

Office and general expenses 52,106 25,815 26,291 NM

Depreciation and amortization 7,553 5,903 1,650 28.0 %

Impairment and other losses 929 0.6 % 59,188 32.3 % (58,259) (98.4) %

$ 226,962 $ 312,758 $ (85,796) (27.4) %

Operating income (loss) $ 2,376 1.5 % $ (51,441) (28.1) % $ 53,817 NM

Adjusted EBITDA $ 7,746 4.8 % $ 12,205 6.7 % $ (4,459) (36.5) %

The decrease in revenue was primarily attributable to client losses and a reduction in spending by certain clients.

The change in operating income (loss) was attributable to a decline in revenue, more than offset by lower operating expenses.

The change in the categories of expenses as a percentage of revenue in the Media & Data Network reportable segment for the twelve months ended December 31, 2019 and 2018 was as follows:

Operating income $ 21,870 $ 70,057 $ (48,187) (68.8) %

Twelve Months Ended December 31,

2021 2020 Change

Media & Data Network $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 43,232 26.8 % $ 43,363 23.7 % $ (131) (0.3) %

Net Revenue $ 166,050 $ 158,279 $ 7,771 4.9 %

Billable costs 82,782 224,536 (141,754) (63.1) %

Revenue 248,832 382,815 (133,983) (35.0) %

Billable costs 82,782 224,536 (141,754) (63.1) %

Staff costs 104,173 69,493 34,680 49.9 %

Administrative 24,846 15.4 % 26,452 14.4 % (1,606) (6.1) %

Deferred acquisition consideration 75 — % 318 0.2 % (243) (76.4) %

Administrative costs 16,106 10,416 5,690 54.6 %

Unbillable and other costs, net 244 (192) 436 NM

Adjusted EBITDA 45,527 78,562 (33,035) (42.0) %

Stock-based compensation 15,928 — 15,928 100.0 %

Depreciation and amortization 7,553 5,903 1,650 28.0 %

Impairment and other losses 929 0.6 % 59,188 32.3 % (58,259) (98.4) %

Total operating expenses $ 159,075 98.5 % $ 234,728 128.1 % $ (75,653) (32.2) %

The decrease in staff costs was attributable to staffing reductions in connection with client losses.

For the twelve months ended December 31, 2018, an impairment charge of $59.2 million was recognized, primarily attributable to the write-down of goodwill equal to the excess carrying value above the fair value of reporting unit.

The decrease in Adjusted EBITDA is primarily due to the reduction in revenue, partially offset by lower operating expense.

The change in operating results in the All Other category for the years ended December 31, 2019 and 2018 was as follows:

Deferred acquisition consideration 80 2,257 (2,177) (96.5) %

Other items, net 96 345 (249) (72.2) %

Operating Income $ 21,870 $ 70,057 $ (48,187) (68.8) %

Revenue for the twelve months ended December 31, 2021 was $248.8 million compared to $382.8 million for the twelve months ended December 31, 2020, a decrease of $134.0 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

(Dollars in Thousands)

Communications Network $ 158,279 $ 202 $ 31,096 $ (23,527) $ 7,771 $ 166,050 (14.9) % 4.9 %

Component % change 0.1 % 19.6 % (14.9) % 4.9 %

The decrease 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.

The increase in net acquisition (divestitures) was driven by the acquisition of MDC.

The decrease in operating income was primarily due to higher expenses in connection with the acquisition of MDC, including stock-based compensation expense for awards issued to SMG employees in connection with the merger.

The decrease in Adjusted EBITDA was due to higher expenses as discussed above.

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

2021 2020 Change

All Other $ % of

Revenue $ % of

(Dollars in Thousands)

1 unchanged sentence

Operating expenses

Cost of services sold 231,301 70.0 % 243,568 70.3 % (12,267) (5.0) %

Cost of services sold 13,866 6,681 7,185 NM

Office and general expenses 12,785 16,473 (3,688) (22.4) %

Depreciation and amortization 2,498 3,681 (1,183) (32.1) %

Impairment and other losses 11 — % 7,871 2.3 % (7,860) (99.9) %

$ 29,149 $ 26,835 $ 2,314 8.6 %

Operating income $ 26,205 7.9 % $ 14,243 4.1 % $ 11,962 84.0 %

Adjusted EBITDA $ 37,618 11.4 % $ 38,307 11.1 % $ (689) (1.8) %

The change in revenue included contributions of $3.3 million, or 1.0%, and revenue from existing Partner Firms of $1.8 million, or 0.5%, more than offset by a negative revenue impact of $16.2 million, or 4.7%, from the disposition of a Partner Firm and unfavorable impact of foreign exchange of $4.9 million, or 1.4%.

In addition, revenue from existing Partner Firms increased $1.8 million, or 0.5%, at certain Partner Firms.

The change in operating income was attributable to a 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 twelve months ended December 31, 2019 and 2018 was as follows:

Operating loss $ (3,306) $ (5,575) $ 2,269 (40.7) %

Twelve Months Ended December 31,

2021 2020 Change

All Other $ % of

Revenue $ % of

(Dollars in Thousands)

Direct costs $ 67,868 20.5 % $ 62,406 18.0 % $ 5,462 8.8 %

Net Revenue $ 25,843 $ 21,260 $ 4,583 21.6 %

Billable costs — — — — %

Revenue 25,843 21,260 4,583 21.6 %

Billable costs — — — — %

Staff costs 16,454 20,830 (4,376) (21.0) %

Administrative 38,263 11.6 % 40,739 11.8 % (2,476) (6.1) %

Deferred acquisition consideration 2,333 0.7 % 2,458 0.7 % (125) (5.1) %

Administrative costs 9,481 12,732 (3,251) (25.5) %

Unbillable and other costs, net 677 (10,409) 11,086 NM

Adjusted EBITDA (769) (1,893) 1,124 59.4 %

Stock-based compensation 39 — 39 100.0 %

Depreciation and amortization 2,498 3,681 (1,183) (32.1) %

Impairment and other losses 11 — % 7,871 2.3 % (7,860) (99.9) %

Total operating expenses $ 304,329 92.1 % $ 332,351 95.9 % $ (28,022) (8.4) %

The decrease in staff costs was primarily attributable to staff reductions and the disposition of a Partner Firm.

The decrease in administrative costs was driven by lower spending across various categories in connection with savings initiatives.

The decrease in deferred acquisition consideration was primarily attributable to the aggregate performance of certain Partner Firms in 2019 relative to the previously projected expectations.

For the twelve months ended December 31, 2019, the impairment charge was recognized in connection with the sublet of a leased property, to reduce the carrying value of a right-of-use lease asset and related leasehold improvements.

For the twelve months ended December 31, 2018, the impairment charge was primarily attributable to the write-down of goodwill equal to excess carrying value above the fair value of a reporting unit.

Adjusted EBITDA in 2019 remained flat compared to 2018 as the decline in revenue was offset by the reduction in operating expenses.

The change in operating expenses for Corporate for the twelve months ended December 31, 2019 and 2018 was as follows:

Other items, net — 1 (1) (100.0) %

Operating Loss $ (3,306) $ (5,575) $ 2,269 (40.7) %

Revenue for the twelve months ended December 31, 2021 was $25.8 million compared to $21.3 million for the twelve months ended December 31, 2020, an increase of $4.6 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

(Dollars in Thousands)

All Other $ 21,260 $ 561 $ (5,826) $ 9,848 $ 4,583 $ 25,843 46.3 % 21.6 %

Component % change 2.6 % (27.4) % 46.3 % 21.6 %

The increase in organic net revenue was attributable to higher levels of business at the central innovations group.

The decrease related to net acquisitions (divestitures) was attributable to the sale of Reputation Defender in the third quarter of 2021.

The increase in revenue was more than offset by higher expenses resulting in an operating loss in both periods.

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

2021 2020 Change

Corporate $ $ $ %

(Dollars in Thousands)

Staff costs $ 29,434 $ 30,179 $ (745) (2.5) %

Administrative 12,739 17,240 (4,501) (26.1) %

Staff costs $ 19,827 $ 6,423 $ 13,404 NM

Administrative costs 817 (2,919) 3,736 NM

Other, net — 26 (26) (100.0) %

Adjusted EBITDA (20,644) (3,530) (17,114) NM

Stock-based compensation 6,624 — 6,624 100.0 %

Depreciation and amortization 3,775 1,964 1,811 92.2 %

Impairment and other losses 847 2,317 (1,470) (63.4) %

Total operating expenses $ 45,768 $ 55,157 $ (9,389) (17.0) %

Adjusted EBITDA $ (30,601) $ (38,761) $ 8,160 (21.1) %

Staff costs declined in connection with a reduction in staff.

The decrease in administrative costs was primarily related to lower professional fees and various other costs in connection with cost savings initiatives.

Stock-based compensation was lower in the twelve months ended December 31, 2019 due to the reversal of expense previously recognized in connection with the forfeiture of a performance-based equity award.

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.

Other items, net 15,125 9,518 5,607 58.9 %

Operating Loss $ (46,168) $ (15,012) $ (31,156) NM

Operating expenses increased primarily in connection with the acquisition of MDC, including professional fees associated with the transaction.

Liquidity and Capital Resources:

The following table provides summary information about the Company’s liquidity position:

2020 2019 2018

December 31, 2021 December 31, 2020

(Dollars in Thousands)

1 unchanged sentence

Net cash provided by (used in) investing activities $ 163,952 $ (29,021)

Net cash provided by (used in) financing activities $ (73,426) $ (11,729) $ 21,434

The effects of the COVID-19 pandemic negatively impacted the Company’s cash flows in 2020.

The Company took various actions to combat the impact of COVID-19 as discussed in the Executive Summary section above.

While it is difficult to predict the continued impact of the pandemic, the Company believes it is well positioned through the actions taken in 2020 to successfully work through the effects of COVID-19 in 2021.

The Company had cash and cash equivalents of $60.8 million and $106.9 million as of December 31, 2020 and December 31, 2019, respectively.

Net cash used in financing activities $ (273,414) $ (80,141)

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.

The Company had cash and cash equivalents of $184.0 million and $92.5 million as of December 31, 2021 and 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 Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing.

At December 31, 2020, the Company had no borrowings outstanding and $192.8 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 7.50% 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 this 2020 Form 10-K and in the Company’s other SEC filings.

Working Capital

At December 31, 2020, the Company had a working capital deficit of $204.1 million compared to a deficit of $197.7 million at December 31, 2019.

The Company’s working capital is impacted by seasonality in media buying, amounts spent by clients, and timing of amounts received from clients and subsequently paid to suppliers.

Media buying is impacted by the timing of certain events, such as major sporting competitions and national holidays, and there can be a quarter to quarter lag between the time amounts received from clients for the media buying are subsequently paid to suppliers.

The Company intends to maintain sufficient cash or availability of funds under the Credit Agreement at any particular time to adequately fund working capital should there be a need to do so from time to time.

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 December 31, 2021, the Company had $110.2 million of borrowings outstanding, $24.3 million of outstanding and undrawn letters of credit resulting in $365.5 million available under its $500.0 million 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 (as defined below).

Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and the 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, to make 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-K and in the Company’s other SEC filings.

Operating Activities

Cash flows provided by operating activities for the twelve months ended December 31, 2020 was $32.6 million, primarily driven by cash flows from earnings, partially offset by unfavorable working capital requirements, primarily driven by media and other supplier payments.

Cash flows provided by operating activities for the twelve months ended December 31, 2019 was $86.5 million, primarily driven by cash flows from earnings, accompanied by nominal unfavorable working capital requirements.

Cash flows provided by operating activities for the twelve months ended December 31, 2018 was $17.3 million, primarily reflecting unfavorable working capital requirements, driven by media and other supplier payments, and deferred acquisition consideration payments.

Cash flows provided by operating activities for the twelve months ended December 31, 2021 were $200.9 million, primarily reflecting earnings and favorable working capital requirements.

Cash flows provided by operating activities for the twelve months ended December 31, 2020 were $138.1 million, primarily reflecting earnings and favorable working capital requirements.

Investing Activities

During the twelve months ended December 31, 2020, cash flows used in investing activities was $8.3 million, which primarily consisted of proceeds of $19.6 million from the sale of the Company’s equity interest in Sloane, offset by $24.3 million of capital expenditures and $1.8 million paid for acquisitions.

During the twelve months ended December 31, 2019, cash flows provided by investing activities was $0.1 million, which primarily consisted of proceeds of $23.1 million from the sale of the Company’s equity interest in Kingsdale, partially offset by $18.6 million of capital expenditures and $4.8 million paid for acquisitions.

During December 31, 2018, cash flows used in investing activities was $50.4 million, primarily consisting of cash paid of $32.7 million for acquisitions and capital expenditures of $20.3 million.

During the twelve months ended December 31, 2021, cash flows provided by investing activities were $164.0 million, which was primarily driven by $150.3 million of MDC cash in connection with the combination, $37.2 million from the sale of Reputation Defender, partially offset by capital expenditures of $22.6 million.

During the twelve months ended December 31, 2020, cash flows used in investing activities were $29.0 million, which primarily consisted of $12.1 million of capital expenditures and $14.7 million for acquisitions.

Financing Activities

During the twelve months ended December 31, 2020, cash flows used in financing activities was $73.4 million, primarily driven by $35.4 million in deferred acquisition consideration payments, $22.0 million for the purchase of a portion of the Company’s Senior Notes and $16.0 million in distribution payments.

During the twelve months ended December 31, 2019, cash flows used in financing activities was $11.7 million, primarily driven by $98.6 million in proceeds, net of fees, from the issuance of common and preferred shares, more than offset by $68.1 million in net repayments under the Credit Agreement, $30.2 million in deferred acquisition consideration payments and $12.0 million in distribution payments.

During December 31, 2018, cash flows provided by financing activities was $21.4 million, primarily driven by $68.1 million in net borrowing under the Credit Agreement, offset by $32.2 million of deferred acquisition consideration payments and $14.5 million in distribution payments.

Debt, net of debt issuance costs, was $843.2 million as of December 31, 2020 as compared to $887.6 million outstanding at December 31, 2019.

The decline of $44.4 million was primarily a result of the repurchase of a portion of the Company’s Senior Notes and the capitalization of consent fees due to all holders of the Senior Notes in connection with the consent to the

consummation of the combination of MDC with the Stagwell Entities.

See Note 11 of the Notes to the Consolidated Financial Statements for information regarding the Company’s $870.3 million aggregate principal amount of its Senior Notes and $211.5 million senior secured revolving credit agreement due February 3, 2022 (the “Credit Agreement”).

The Company is 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 continue to 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, access to the capital markets or asset sales, 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 December 31, 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:

During the twelve months ended December 31, 2021, cash flows used in financing activities were $273.4 million, which primarily consisted of $884.4 million for the repurchase of the 7.50% Notes, $202.4 million in net repayments under the revolving credit agreement, $0.0 million in distributions to minority interest holders, as well as distributions of $233.2 million to Stagwell Media, offset by receipt of $1.1 billion from the issuance of the 5.625% Notes.

During the twelve months ended December 31, 2020, cash flows used in financing activities was $80.1 million, primarily driven by $40.0 million in net borrowings under the revolving credit agreement and $0.0 million in distributions to minority interest holders.

Debt, net of debt issuance costs, as of December 31, 2021 was $1,191.6 million as compared to $198.0 million outstanding at December 31, 2020.

The increase of $993.6 million in debt was primarily a result of the Company’s issuance of the $1.1 billion aggregate principal amount of its 5.625% senior notes due 2029 (the “5.625% Notes”) in August 2021.

See Note 11 of the Notes included herein for information regarding the 5.625% Notes and the $500.0 million revolving credit agreement.

The Company is currently in compliance with the terms and conditions of its revolving 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 December 31, 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:

December 31, 2021

Total Senior Leverage Ratio (0.02)

Maximum per covenant 2.00

Total Leverage Ratio 3.04

Maximum per covenant 4.75

Fixed Charges Ratio 2.52

Minimum per covenant 1.00

Earnings before interest, taxes, depreciation and amortization (in millions) $ 190.1

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.

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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 following table provides a payment schedule of present and future obligations.

Material Cash Requirements

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.

The following table summarizes current and long-term requirements as of December 31, 2021.

Management anticipates that the obligations outstanding at December 31, 2021 will be repaid with new financing, equity offerings, asset sales and/or cash flow from operations:

Payments Due by Period

Contractual Obligations Total Less than

Material Cash Requirements Total Less than

1 Year 1 – 3 Years 3 – 5 Years After

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Deferred acquisition consideration 222,369 77,946 144,423 — —

83,065 53,730 29,335 — —

Other long-term liabilities 5,185 2,870 2,315 — —

Total contractual obligations (3)

$ 1,610,939 $ 189,028 $ 279,282 $ 991,679 $ 150,950

(1) Indebtedness includes no borrowings under the Credit Agreement which is due in 2022.

(2) Deferred acquisition consideration excludes future payments with an estimated fair value of $3.1 million that are contingent upon employment terms as well as financial performance and will be expensed as stock-based compensation over the required retention period.

The Company estimates all of the $3.1 million will be paid in 2022.

(3) Pension obligations of $17.5 million are not included since the timing of payments are not known.

Other-Balance Sheet Commitments

Media and Production

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 on behalf of their clients.

These commitments are included in 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

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 Notes 2 and 9 of the Notes to the Consolidated Financial Statements for additional information regarding contingent deferred acquisition consideration.

The following table presents the changes in the deferred acquisition consideration by segment for the year ended December 31, 2020:

December 31, 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 (28,538) (15,242) (375) (2,637) (46,792)

Additions - acquisitions and step-up transactions 5,227 2,476 — — 7,703

Redemption value adjustments (1)

44,073 (2,706) 375 445 42,187

Stock-based compensation (1)

1,195 1,611 — — 2,806

Other 2,179 52 — (4) 2,227

Ending balance of contingent payments 60,260 13,251 — 9,291 82,802

Fixed payments — 263 — — 263

$ 60,260 $ 13,514 $ — $ 9,291 $ 83,065

(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges are those that are tied to continued employment.

Redemption value adjustments and stock-based compensation are recorded within Office and general expenses on the Consolidated Statements of Operations.

Redeemable Noncontrolling Interest

Total $ 2,294,808 $ 227,132 $ 421,139 $ 217,514 $ 1,429,023

(1) Indebtedness includes no borrowings under the revolving credit agreement, which is due in 2026.

Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments.

See Note 9 of the Notes included herein 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 option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as noncontrolling interests in the equity section of the Company’s balance sheet.

Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity.

See Notes 2 and 13 of the Notes to the Consolidated Financial Statements included herein for further information.

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.

See Note 13 of the Notes included herein for additional information regarding noncontrolling 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.

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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.

Critical Accounting Policies and Estimates

MDC has prepared the consolidated financial statements 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 financial information on Form 10-K.

Critical Accounting Estimates

Stagwell has prepared the consolidated financial statements 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 financial information on Form 10-K.

Preparation of the consolidated financial statements and related disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the accompanying financial statements and footnotes.

Our significant accounting policies are discussed in Note 2 of the Notes to the Consolidated Financial Statements.

Our significant accounting policies are discussed in Note 2 of the Notes included herein.

Our critical accounting policies are those that are considered by management to require significant judgment, use of estimates and that could have a significant impact on our financial statements.

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Our critical accounting policies include our accounting for revenue recognition, business combinations, deferred acquisition consideration, redeemable noncontrolling interests, goodwill and intangible assets, income taxes and stock-based compensation.

The financial statements are evaluated on an ongoing basis and estimates are based on historical experience, current conditions

and various other assumptions believed to be reasonable under the circumstances.

The financial statements are evaluated on an ongoing basis and estimates are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances.

Actual results can differ from those estimates, and it is possible that the differences could be material.

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The Company’s 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.

See Note 5 of the Notes to the Consolidated Financial Statements included herein for further information.

See Note 5 of the Notes included herein for further information.

Business Combinations.

The Company has historically made, and may continue to make, selective acquisitions of marketing communications businesses.

In making acquisitions, the price paid is determined by various factors, including service offerings, competitive position, reputation and geographic coverage, as well as prior experience and judgment.

Due to the nature of advertising, marketing and corporate communications services companies, the companies acquired frequently have significant identifiable intangible assets, which primarily consist of customer relationships.

For each of the Company’s acquisitions, a detailed review is undertaken to identify other intangible assets and a valuation is performed for all such identified assets.

The Company uses several market participant measurements to determine estimated value.

Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values.

For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is performed for all such identified assets.

The Company uses several market participant measurements to determine the estimated value.

This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies.

Like most service businesses, a substantial portion of the intangible asset value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately.

The majority of the value of the identifiable intangible assets that the Company acquires is derived from customer relationships, including the related customer contracts, as well as trademarks.

A substantial portion of the intangible assets value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately.

The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names and trademarks.

Deferred Acquisition Consideration .

Most acquisitions include an initial payment at the time of closing and provide for future additional contingent purchase price payments.

Contingent purchase price obligations for these transactions is recorded as a deferred acquisition consideration liability, are derived from the performance of the acquired entity and are based on predetermined formulas.

These various contractual valuation formulas may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period, and, in some cases, the currency exchange rate on the date of payment.

Certain acquisitions include an initial payment at the time of closing and provide for future additional contingent purchase price payments.

Contingent purchase price obligations for these transactions are recorded as deferred acquisition consideration liabilities on the balance sheet, at the acquisition date fair value and are remeasured at each reporting period.

These liabilities are derived from the projected performance of the acquired entity.

These arrangements may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period.

At each reporting date, the Company models each business’ future performance, including revenue growth and free cash flows, to estimate the value of each deferred acquisition consideration liability.

The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s current operating results and the impact this information will have on future results included in the calculation of the estimated liability.

In addition, changes in various contractual valuation formulas as well as adjustments to present value impact quarterly adjustments.

These adjustments are recorded in results of operations.

These adjustments are recorded in the results of operations.

In instances where such contingent payments require the sellers’ continuous employment with the Company after the transaction, they are recorded as compensation expense in the Audited Consolidated Statements of Operations.

Redeemable Noncontrolling Interests .

Many of the Company’s acquisitions include contractual arrangements where the noncontrolling shareholders have an option to purchase, or may require the Company to purchase, such noncontrolling shareholders’ incremental ownership interests under certain circumstances and the Company has similar call options under the same contractual terms.

The Company typically has similar call options under the same contractual terms.

The amount of consideration under these contractual arrangements is not a fixed amount, but rather is dependent upon various valuation formulas, such as the average earnings of the relevant subsidiary through the date of exercise or the growth rate of the earnings of the relevant subsidiary during that period.

In the event that an incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity on the Consolidated Balance Sheet at their acquisition date fair value and adjusted for changes to their estimated redemption value through Common stock and other paid-in capital (but not less than their initial redemption value), except for foreign currency translation adjustments.

In the event that an incremental purchase may be required by the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine

equity on the Audited Consolidated Balance Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value through Retained earnings or Paid-in capital (when at an accumulated deficit) in the Audited Consolidated Balance Sheets (but not less than their initial redemption value), except for foreign currency translation adjustments.

These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values.

The Company reviews goodwill for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exist.

The Company performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value provided the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit.

For the annual impairment testing, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment test.

Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a business combination which is not subject to amortization is tested for impairment, at the reporting unit level, annually as of October 1st of each year, or more frequently if indicators of potential impairment exist.

For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment test.

Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel.

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For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not performed, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount.

If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired and additional analysis is not required.

However, if the carrying amount of the net

assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the recognition of an impairment charge is required.

If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired.

However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions.

For the 2020 annual impairment test, the Company used an income approach, which incorporates the use of the discounted cash flow (“DCF”) method.

The income approach requires the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.

The Company uses a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method, and the market approach, which incorporates the use of earnings and revenue multiples based on market data.

The Company generally applies an equal weighting to the income and market approaches for the impairment test.

The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.

The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective.

The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed long-term growth rates and demand trends and appropriate discount rates based on a reporting units weighted average cost of capital (“WACC”) as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit.

The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed long-term growth rates, demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit.

The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate.

The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations.

We performed the quantitative impairment test in 2020.

See Note 8 of the Notes to the Consolidated Financial Statements for additional information regarding the Company’s impairment test and impairment charges recognized.

The Company utilized long-term growth rates and a WACC for the Company’s reporting units ranging from 0% to 3% and 11% to 21%, respectively, in our annual goodwill impairment test.

For the 2020 annual goodwill impairment test, the Company had 23 reporting units, all of which were subject to the quantitative goodwill impairment test.

The excess of fair value over the carrying amount ("headroom") for the Company’s reporting units ranged from 2% to in excess of 100%.

The Company performed a sensitivity analysis which included a 1% increase in the WACC, which resulted in a nominal impairment for one reporting with a headroom of 2%.

For the 2021 annual goodwill impairment test, the Company had approximately 35 reporting units, all of which were subject to the qualitative assessment, except four reporting units that were subject to the quantitative goodwill impairment test.

For the reporting units under a qualitative assessment, we concluded that it is more likely than not that their fair value is in excess of the carrying value.

The reporting units subject to the quantitative impairment test had a fair value in excess of their carrying amount (“headroom”) above 10%.

The Company utilized a long-term growth rate of 3% and a WACC ranging from 13% to 25%.

The Company performed a sensitivity analysis which included a 1% increase in the WACC, which would not result in an impairment.

The Company believes the estimates and assumptions used in the calculations are reasonable.

However, if there was an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future.

Specifically, as mentioned above, the fair value of one reporting unit, with goodwill of approximately $89 million, exceeded its carrying value by 2% and therefore is highly sensitive to adverse changes in the facts and circumstances that could result in a possible future impairment.

Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary.

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Income Taxes.

We account for income taxes using the asset and liability method.

Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse.

The Company records associated interest and penalties as a component of income tax expense.

The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal of deferred income tax liabilities, projected future taxable income, the character of the income tax asset, tax planning strategies, changes in tax laws and other factors.

Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the

character of the income tax asset, tax planning strategies, changes in tax laws and other factors.

The periodic assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment.

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Stock-Based Compensation .

The fair value method is applied to all awards granted, modified or settled.

Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period that is the award’s vesting period.

Awards based on performance conditions are recorded as compensation expense when the performance conditions are expected to be met.

See Note 15 of the Notes to the Consolidated Financial Statements for further information.

From time to time, certain acquisitions and step-up transactions include an element of compensation related payments.

The Company accounts for those payments as stock-based compensation.

Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, generally the award’s vesting period.

The Company uses its historical volatility derived over the expected term of the award to determine the volatility factor used in determining the fair value of the award.

The Company recognizes forfeitures as they occur.

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant.

The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option pricing model or other acceptable method and is recorded in Operating income over the service period, in this case the award’s vesting period.

The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period.

The Company commences recording compensation expense related to awards that are based on performance conditions under the straight-line attribution method when it is probable that such performance conditions will be met.

New Accounting Pronouncements

Information regarding new accounting pronouncements can be found in Note 3 of the Notes to the Consolidated Financial Statements included herein.

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and other items.

ASU 2021-08 is effective January 1, 2023;

however, the Company has early adopted the standard and retrospectively applied it to the financial statements herein.

In March 2020, the FASB issued ASU 2020-04, and in January 2021 subsequently issued ASU 2021-01, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

ASU 2020-04 is effective upon issuance, through December 31, 2022.

The Company is evaluating the impact of the adoption of this guidance on the Company’s financial statements and disclosures.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis