Stagwell (STGW) 9 May 232023 Q1 Earnings call transcript

Good morning from Stagwell’s worldwide headquarters at One World Trade Center in New York City and welcome to Stagwell Inc.’s Earnings Webcast for the First Quarter of 2023. My name is Ben Allanson and I recently joined Stagwell to lead the Investor Relations function.

With me today are Mark Penn, Stagwell’s Chairman and Chief Executive Officer; and Frank Lanuto, Chief Financial Officer. Mark will provide a business update and Frank will share our financial review. After the prepared remarks, we will open the floor for Q&A.

submit the to function. welcome are questions chat through You

you like following non-GAAP Before I’d remind financial that and we begin, statements to the forward-looking remarks data. include

are those statements in addressed release, the to Forward-looking company, and earnings uncertainties including presentation SEC the earnings risk about our guidance company’s subject slide factors to and related filings.

to additional provide press data. morning’s slide deck resources. definitions, non-GAAP our and release stagwellglobal.com/investors, of an for website, refer This Please investor and reconciliations explanations presentation and financial

the turn CEO, to over to like and I’d that, call our Chairman Mark With Penn.

our everyone announce of Thank repurchase can call. advised teams you, A has you and day and advisory XX legal over thank an stock Ben, independent directors, Stagwell entered future definitive for I investors. from that is a into and a Inc. to Stagwell for for to joining Stagwell, by its its Inc. shares agreement, million of negotiated us for class AlpInvest. Today important group earnings by

affect not necessity of will to in and the avoid will outstanding reduce should AlpInvest. about further XXX move secondary X% exiting shares of the relation any issuances by This number million the but to float,

actions LP Media are held Group, go as release stepped addition, separate in remove interest I documentation soon from overhang will have final these in an remaining to and Stagwell Media the by remaining any In up advanced Stagwell a negotiations investors from to Stagwell the per the expected redeem believe stock. to AlpInvest.

which extraordinary organic far XX% especially with year. expectations earnings. average address growth, for QX line an above the me quarter, XX% XXXX, compared QX last These when management’s revenue the results in are net to Let featured

reverse the last growth. be to the by performance in show expect growth is This in double-digit last math This compared would overshadowed means will quarters, two we average work that which of to XXXX QX. year that

to our a building of Remember that four-year investment political growth. at is the up of the company marketing quarter in slowdowns of strongest the QX of face cloud, is cycle, previous time tech is our compared XXXX is and bottom and

revenue ex-advocacy, net Revenue, We of revenue, increase after and million a XXXX. year, XX.X% by net X% in after ex-advocacy, rang last X% a QX up $XXX this $XXX increased revenue XX.X% million increased quarter. increase and by of

As with last ex-advocacy a expected, year. XX%. X% advocacy revenue On growth organic of purely organic our net declined targets. stack growth XX% two-year XX% long-term a on basis net target increase The is revenue after declined

year, the and at of give and year. in tech While wins we guidance, headwinds noted we the X.X% as our organic growth companies we increased for XX% reaffirm not target for to issued given and Growing the do important its have modern forefront an reasons. Stagwell quarter-by-quarter the marketing. a that great of confidence of guidance previously previously do companies new industry economy? Two slowing of recognition business slowing Why

Net important with up alone favor. were at racked of $XX has months an April million net quarter, close new company growth. over continued new the of additional of wins with million our pitches XX business in the back client After line for in as in broke however, million QX is last the over $XXX business and $XX in new the consistent QX holding that

Global. Notable U.S. remit XXandSunny, Stagwell at at Association. National and during relations won Running with the with expanded Sleep T-Mobile Brooks wins quarter Number public the Restaurant Theory, and Steel its Code included business also Assembly at

beginning restaurant the American comeback. cosmetic tech which Creative fast and April wins make new were for at chain casual company a on good included an a to The assignments Assembly, Google major Microsoft companies for Advertising European and signs

as XXXX Agency one for share of been previously and listed has market with exceptional. agencies A-List. Age’s named X% the a Anomaly The was ten company most growing the than on Adweek’s Ad industry Year recognition recent less of

of growth was MilkPEP XXX% start AdAge’s which another to year, Agency A-list path-breaking strong Milk. is now grew running last XXXX, This on five Year, a campaign and of and named in year is based of the Adweek for on the off idea XX% number Gale, Breakthrough Media Wood

And Doner the North the the named Agency Allison+Partners was Partner AdAge the as Year Year. of Agency list week was and just named of Standout as well Network SABRE’s on last American

is media why We a by XX% pipeline expect PR have exceed to to digital transformation, have or share, market in our award winning and above strengthening that we in $X advertising, more. top we brands far pitches continue XXXX’s billion which

closely The revenue net in two for which managed we is out X% It watch only us QX as slowdown grew XX% them. business. XX% will went companies of important XXXX. tech but and mode, still grew our industry, into these our of growth some segments We of in

on tech the as a marketing are now and in set renewed there competition generative generation lifting this We seeing and and some earnings a industry new the of tech products AI is curtain of experiences. were bring quarter to with solid

a industry in also and The had XX% JPMorgan, our quarter. their X% platform XXXX. about the second grew is in is We Bank as had a client. This digital Silicon client, Valley have but no and major acquirer, Republic we which exposure, of industry business but First Bank as banking finance we did declined X%

here exposure is limited. Our

our scaling in the are million $XX with a of excess investment such Epicenter revenue that the line this in million as EBITDA. to included generate still lower levels Maru posted carried $X credit, of of cloud-related and but in rent cloud of to expectations. Comparisons internal year companies EBITDA and one-time addition quarter marketing We Data last

intact tech these faced back and they as the typically come as teams some reorganize after in cutbacks. slowdowns kept companies clients We also

normal capability an this to confidence ramps business however, political our of million million half and up into savings heading to capability, are the second in reaffirm return $XX year taking us in guidance gives margins are on us second as taken have the will annualized moving shifts and in hit for such $XX the hit work the make Election. quarter to out clients from about will year Presidential that EBITDA ability As to out we the third additional begins comms that in the and and quarter

As coming are deployment central planned kick off and operations. $XX in increased systems automation will to online AI of based previously, the us a our midyear central in next our the in million that enable across especially noted reductions on media and company but expense

is was this quarter This the the earnouts year of bonuses, time debt paid position in with as previous are taxes and terms liquidity, years. our that is so consistent that of and uneventful

the at and including activities be XX normal of the to transaction. at M&A X.XX million year about expect with net We times stock buyback the shares leverage end

During them our in moves the We of significance. scale Concentric strengthens into quarter, which marketing to In give digital-first we our We added combined creative just the took efficiency. a of company and European Life greater companies offerings. Huskies Ireland Company April several internal in health

smaller Brad we new combined a Crispin at and of high brand And Simms leadership Maggie is scale + larger the agencies Malek pitches. powered to several with but access of getting relaunch under Porter Crispin to Bogusky wealth already talent.

of disrupting as new paradigm key Brand and combination a Network, competitors. digital, is to media the strategic that the represented sets by Our creative Performance

of to collectively our Importantly, we group, Marketing the Starting and $XX at over break represent advanced and in revenue and of that the development XX%. net which software XX% growing group. two year $XXX known net involves million are divisions, continue that media pure about this software products our plays the Cloud we of to the out tech million next Cloud as Stagwell up intend finances expected commitment platforms about ramp revenue quarter, growing

million $XX we and media year infuse with more invest us trade to that in our studio that build it expect to as desk up full Cloud we through will and development this the year. of We later available capabilities this and externally network make products provide the

and deploying efficiency. significantly We all tools will fully agencies be it over believe across time AI enhance will our

be three forces four will the of delighting at around stadium ramping experience We now right across products already are three stadiums fans that major key up augmented leagues. reality sports available the sales

subscription with award year its software. Terminal year, $XX,XXX generative product prestigious and The an recently industry with average a a Harris growing clients for PRophet, XXX% AI over innovative was that a XXX honored last PR of Brand and

its www.prprophet.ai and to just to try up and PRophet out yourself. it go with It sign That’s in LexisNexis stack-run high addition technology. deploy its invite content and you to value I the www.prprophet.ai. to represents journalist database. expand use edge announced for ability and state-of-the-art partnership the premium our advanced

with a what that will is AI and services partnership taking Lastly, we let the space. in be new the first companies, we co-develop to generative verticals. tech major have This of and establish here. together us many applications the consumer for for Code lead new and just and Oracle Theory’s partnerships announced Theory that scale clients marketing with to recognizing This me is and note to expertise products direction is the their Code across work

we closing, really are morning. we buyback excited about transaction announced the this In

We some that eliminated ownership in have structure, way simplified uncertainty done value. and shared creates our so a

working relentless for to value full get in will shareholders. be We our

Stagwell. most I never tech still managers technology. countries slowdowns, near-recessions, Through of in group have we pandemics, We at world’s believe talented professionals XX stand combining the and and creativity

are advancing and XXXX. technology growing new continually onward clients, building We moving scale, in in new with

more Chief financial to to like Officer I’d our walk of it our you Lanuto Frank to Financial Now some over in hand through results detail.

our morning, first Good Mark. results. you for everyone. thank discuss quarter you, us to joining Thank And

As them free if to submit a conclude, you a to question the feel reminder, chat would the through ask remarks after like please prepared function.

and our start the growth. year-end in first of by XXXX I reiterating results half expectations for comments, remarks budgeted were quarter lighter with that have would Mark’s earlier consistent that the line our first with will

cycle a performance. our to of stronger finally extent second a given This which growth and is attributed in of our extraordinary QX lesser and spend phasing historically our half to in XXXX, to the advocacy client shift was biannual principally uncharacteristic business

This by two-year stack of latter XX%. organic of point revenue is our net the strength evidenced

quarters We is of spending in client pickup expect the this in remaining that signs already and begun the have I see happening. year to a

million, let numbers. X% X%. the was the costs, X.X% the same period on was our Starting declined to in reported with decline results, the With decline me excluding of organic year. to terms, that, pass-through revenue Net prior turn million. QX our revenue, In $XXX $XXX a year-over-year

in principally results expected our decline principal the Digital Turning Transformation net was by Advocacy to declined revenue cyclical business. capability. to X%. This attributed organic

decline Excluding organic was X%. revenue the net Advocacy,

remainder of trends namely, prepared our the organic growth Transformation attributed approximately restructured companies a spending The capability of in about the a On in net workforces. decline annual as that seen growth rate their an holdback revenue to XX%. spoke Mark basis or of is two-year XX% has his remarks, largely Digital

Media X% our Again, XX% & Data by strong Assembly driven a was This saw Data from annualized looking in & Performance Media businesses. two-year growth at an performance the basis. on growth and net grown revenue. XX.X% has Performance stack, or organic Ink

Insights X% prior Consumer Strategy in organic off in an year. XX% & saw growth the revenue exceptionally strong growth coming net

& X% net And the with consistent Communications a X% Creativity segment annualized, in our two-year the finally, saw at quarter. revenue again, this is in decline looking organic But, projections X% was growth once stack which our or capability. for

can the period, As by are you strong remain the our results and over growth two-year reviewing competition. higher see, than our rates primary

expenses X% operating quarter. million our in to costs, increased to the first $XXX year-over-year Moving

in Our in in QX. temporary of revenue in the same we the points in increase period softness XXX the prior quarter, by ratio in ratio increase year. client the experienced is principally driven to spending The compensation versus compensation an XX% at came the basis

reduce Our brands with taken to compensation action to revenue. expenses have already align

run more approximately million will should the this And in in quarter, of We as which generate result annualized savings Mark which eliminated $XX further another will approximately rate XXX we savings. quarter, take $XX additional million. action first highlighted, in than roles

the We to performance will year necessary, remainder monitor if will further make adjustments. the and, continue over we of

driven by real million certain of XX% finally, increase, to of of in has of favorable the properties acquisitions $X.X arrangements of T&E principally approximately year-over-year. XXXX pre-pandemic levels, expenses the returned the during G&A near representing XX% and the addition included non-recurrence $X.X or million eight of increase, approximately XX% post-QX travel as higher was estate subletting $XX This business XX% representing increased or million the increase. by or of $X.X million

negative of to shareholders to ahead from income As for a $XX quarter. the me, decreased available, internal excuse Net for the attributed $X.XX result, EBITDA earnings that income was adjusted the available budget principally previously. share the in million, year, were came in $XX.X $XXX,XXX we And to in common at adjusted discussed quarter. operating million attributable EPS our finally, prior and decline per $X.XX positive

to from remains earnout, million lower by balance million million but to of end reduce by on or target the obligations deferred to the businesses as to to consideration XX%, under $XXX XXXX. due Moving $XXX $X higher the the million performance than sheet company DAC year increased $XX the year-over-year was acquisition less by end slightly of

the program. We $XX average also of share acquired million an X.X recently our million $X.XX under quarter stock shares repurchase per during for price at expanded approximately

we million $XXX result, revolver ended a and the As with drawings of $XXX our of under quarter cash million.

X.XX times the year to ago. on our Our a times, remain leverage of compared stated leverage track to bringing down X was achieve medium-term. to times the over X.XX as goal We

pursue And Xth, expanded company goals. our took $XXX in the our and business the raise to finally, provision this million as limit credit opportunity provides with we $XXX to it and from borrowing additional flexibility on million. to credit May exercised a capacity our credit agreement revolving We limit

unchanged revolving to and to million to approximately fund expect closing covenants repurchase share. of earnings shares The upon we per facility XX accretive for remain rate will from million $XXX the the and transaction, more the structure utilize be AlpInvest, primary than

And our of reiterating to of Advocacy to finally, guidance EBITDA to of adjusted million organic million including share earnings XX%, $X.XX. growth $XXX guidance, growth $XXX moving of to revenue and net adjusted XX% X.X% we net excluding our organic revenue full-year XX%, to $X.XX per are

prepared will the to back Ben call this call. I morning. now the That concludes turn over Allanson our open Q&A the to of portion remarks for

Thank you Frank.

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share please of generative view how at We impact Laura ChatGPT will your Martin you forward? question from Could moving AI business like your start will Needham. with a

for I say this tech have I earnings We view the -- you us. see major the Well, from can think opportunity already that as companies gave a I can we report major as clients.

significant We a culture. have engineering

generative marketplace. already released in which is a the have AI PRophet, We engine

I analyze to apply we our possible our We of helping our are across combing that from one tools every application and will research creative, can, it new network. possible features. through as be that to ability utilize to quickly these helping as differentiating believe

that, of profitable -- of rate most new the for this X% segment. to we your revenues follow-up model Laura. down a first Transformation this this Digital as year? year-on-year XXXX as Digital think or Do as And this also and should the run in Great. Transformation is from is a were blip quarter a you

I When out, see then in a Advocacy. negative a the blip. X%. Number they have going laid was tech would that, one, they out I reported which as includes things who’s forward this reorganize with. are Advocacy X% you charge lot as throughout and companies it And take figure usually off projects of of to people,

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B Great. question related a from at note, Sinderen Riley. a Van Jeff On

across within segments about what segments, growth business most niches those the various in cautious you areas are are near-term? near-term? optimistic you and look where what most are seeing Also, your in you increasingly the and areas about As the you

well. Well, very The after there surprise. Brand quite Terminal in strong doing Look, look, out research. continues growth I previous greater I XX% the to is think that really really they research see year, uncertainty is Harris always had for

something I Digital showed a think slowdown. Transformation of

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in Media pitches Creative I are and Network combining our we really the largescale is always getting think Media future. us. capability think own. where Performance its Brand with and all area a to I of That’s where the our companies why sweet Creativity seeing about that standout is I for we are am new concerned Creative spot in on are Creative the link

that that interesting most that. combination generally smaller while -- edge growers relative in been But that seems the the always of have the of at ways, really part the That some for the Stagwell believe fascinating really we to us. here the provides it’s industry to and

question notes Fargo. Wells trends, new continuing a Related Cahall Steve the from and business at

say As referenced? months look million added thought you million trailing like of today, since I $XX what’s to your industry, net you you $XXX think about business XX new I the have

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lot And we new increased Cannes also Beach and last called are be remember business coming our Cannes to a got with something going a out even at major have Cannes this which year we into year presence of of Sport player. of we kind

to should to bit Marketing we segments Turning year you going Stagwell next breaking Zgutowicz announced next XXXX the Marketing bit a within Obviously revenue Cloud incremental Cloud investments Benchmark. Cloud. and question explain a think impact we Could or quarter. how the of A and different the the are little from that at Mark you in about in onwards? out Stagwell little some margin be of Cloud-related quarter

significant think PRophet. the mean, going I have the investments we putting next in AI, Studio, Media versions generative Sure. to of made together that, I applying

putting in Terminal into the Research unified the a We with Brand Maru offering. now Harris of the are midst together experience

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refining products Harris ready and million I we Terminal, of $XX we there be as think Around in market I and so the spend to On marketplace. we Brand investing sales the out, to will are but PRophet, that forces. go that, not I now, in engineering, to expand it. investing will pointed about up believe we some

a I investment. think that year be XXXX is going of to

Having that, increase But see profitability significant of XXXX. software XX% we I within up components revenue themselves XXXX. are that in a Media still going Advanced We said and in increases within out the think expect platforms. revenue digits the double the really to Marketing ramp think there’s Cloud you

a just them do function. Great. And if you everyone, questions, any put have please reminder into chat the additional to

little to you could a Could just turn going Crockett March to to from are quarter the we guidance? future? from didn’t -- approach Can to the Why in We a questions for in outlook? talk change about guide more specifically two full-year Barton providing you your quickly Rosenblatt. addition your approach bit

don’t lot think there a I I quarter-by-quarter a to get to we shift clients marketing, of end to the In into refine by is want of the quarters, and year to proposition. trying think guidance. around get of lumpiness considerably. in the just there’s We business risky quarter-by-quarter tend things guidance

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a Great. Mark holdings And your approach? this share repurchase you you many how also Could AlpInvest. address there? from Barton share on your news broader Can could give shares another the represent and this and this us any and is repurchase change question from of fits within how own sense just

the our and shares XXX remaining XX.X AlpInvest -- that million it’s to any fund. Steve share in has Well, million. which would pool negotiations take are interest million advanced in I There reducing XX

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I think We revenue to have per $XXX,XXX season. per is goal the in -- sponsorship stadium about get

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