Stagwell (STGW) 2 Nov 232023 Q3 Earnings call transcript

Good morning from Stagwell's offices in Miami, Florida, and welcome to Stagwell Inc.'s Earnings Webcast for Q3 2023. My name is Ben Allanson, and I lead the Investor Relations function here at Stagwell. With me today are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Frank Lanuto, the 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.

You are welcome to submit questions through the chat function.

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

the company, uncertainties related in and release, presentation the are earnings our about slide to filings. subject risk and statements including to those guidance, earnings Forward-looking SEC company's factors addressed refer resources. additional our presentation stagwellglobal.com/investor, an for Please investor to and website, financial release the non-GAAP call Mark our and with morning's over reconciliations press definitions, Penn. and like CEO, slide to and This that, provide I'd deck explanations of data. And turn to Chairman

earnings everyone Thank call. you, our and us Ben, to joining you for thank

emerging poised Our challenging environment to is more company from nimble economic this a more and than growth. year, to stronger ever, and return

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be We our of million from costs ahead and to a business to our ConcentricLife we to costs in last political of our implement. The be engineers have and soft divestiture one. expected is $XXX and cash. cost The digital rightsize to staffing strikes all in are of long-term We seems landing. season Fear as a to annualized recession will $XX XXXX, strategy. to we've made grow. Since announced the cut significant ad progress of Accenture to advance manage million as record a further our for easing favor call, spending spending, structure the earnings we ending look the

company, and We disruptive a services And and digital agency digital also cutting-edge a to for creative AR including Labs, acquisitions, renown truly experiences. platform Movers+Shakers, digital transformation leveraging accelerated its through customer innovative Field capabilities. social Left create AI emerging

positive maintaining returned in $XX in research net million business, transformation Stagwell the insights, deliver more digital prior quarter, importantly, of our quarter in and momentum particularly momentum capturing X.X% strong communications $XXX performance results. and media, our offset from net we double-digit in capability our Marketing growth new million was posting revenue this net revenue entertainment year-over-year, the posted consumer quarter. to the continued our year. third We second. to creativity revenue we third growth with strong both Cloud, saw Strong businesses and these net to most than Turning challenges down firm. Perhaps performance continue in Stagwell from and the by

for Clients quarters. low to us, record down Our net a a leaving of business million. million new figure of is $X is company back-to-back $XXX record

up client relationships an base expanding, in our economic largest, our quarter. business third of the So is our setting orientation most well us for towards impactful recovery. The continued

overall benefit Asia performance EMEA. tenet Brazil, business we've in Our weeks, our to our our be $XX XX regions. revenue few overall, partnering affiliate last continues core grew top network, diversify Agency as these in annual of third Clarita to allowing customers in XX% in a internationally, year-over-year, us growth and for of added the of This Markus in with the strategy. In growth XX% with exceeding real outsized also business the quarter. by led of in in Organic last XX% speaks business was XX%, XXX reach bright expand customers to Vietnam, international our the revenue continuing our International X grew a XX% months. million spot spend our net from net and to to

agency We Europe further Irish Mid East. the Huskies, Latin and acquired and digital also, acquisitions this reach that America, exploring earlier in will are an year, expand our

have is representing Our margin steps million a annualized XXX million and quarter, This costs. improvement result XXX the reduction in adjusted point million, to over EBITDA came a led taken $XX more an of quarter, staffing second in have QX. $XXX that actions sequential of improvement we the $XX at and since basis over a our second a staffing than basis the improvement rightsize to point levels, direct XX%,

point a quarter. currently of the costs stand first staff XX.X%, XXX of end net Our as a the revenue basis improvement since percentage at

$XXX Stagwell not we continued key EBITDA area made is our invest million million of As of Marketing $X.XX This Cloud area, trimmed such into improvement adjusted of to if during $X.XX share million OpEx the the $X to sequentially. adjusted during and XXXX. per translate posted in about have one Stagwell growth a we the EBITDA generate We investment in $X.XX EPS. to be in quarter. costs, expects the to adjusted areas. $XXX quarter, now would higher our earnings should we've The XX% for

advocacy. be is expected to negative growth Organic about revenue X%, X.X%. growth excluding net organic negative about revenue overall expect to be net We

of its Given to to temporary retrenchment the litany growth business ability testament the long-term meet year, is and a its resilience the occurring targets. events this this of

Our agencies continue to be recognized for transforming their market work.

recognized by Just business both midsized agency #X last McVoy fastest-growing GALE, month, crowned Colle large of as our was the year, the the agency, and Adweek. consultancy,

agency, compete companies, Code be brand competition Design the in for efficiency a and year area will which our of has biggest highly cloud a years XXXX XXXX companies directly defined transformation each will won areas brought Fast tech of year areas coveted last for for believe significant believe like the lead these work digital have strength, of that them. to by seen against AI, of transformation this previously companies productivity Company The move spending. to other leading been competition, its and to will Award, enterprise, Yeti. If has for Additionally, products, address. We a another hardware Innovation in Theory, from digital we their have increase the which few tech technical and a

at also award-winning a the helping Future and Newsroom AI-enabled on build positions work this Our marketing capitalize development sports Code Tipico, in us publisher, betting done the with tailwind. Theory [indiscernible], and to well audience delivering already We've of with long-term AI. transformation for and extremely generative are the European AI enterprise and expertise giant,

return in a X% we've our dragging Cloud retailer by strikes and capability fourth XX% Additionally, both to solution revenue called and we Hollywood, and our into the strategy signed quarter almost to year-over-year a next third recently the the in in in QX and all was The large down which expect point it levels sequential Stagwell net excluding are signs AI office growth over, this business advocacy, insights affected enterprise quarter, to transformation, year. Digital PrivateGPT. normal return Marketing in but consumer the quarter. third the to down

firms. ratio command of the in investment value examine asked one of no of also The meaningful best the capital outlay we authorized service of growth totaling transaction world's to even remaining Accenture. business. In replace marketing companies, Stagwell. to we meetings such to amazing great completed Xx selling all sheet is ways XX that and of was to a complete against year, the will announced of this do prescription such reflected represented our record about, few companies, $XXX a additional created in X/X to buyback. We've price, balance the which managing even which over EBITDA have double-digit while this the our use we the our or at cash Stagwell a an the for capital. million we value years, next We over a have deploy scale, less has repurchases end, portfolio in expect in continue targeted on year's initial of improvement for drug track return which of profitability. our tech-infused Yesterday, analyst many the my when representative agency, X in million by acquiring as top billions to and and a us of fact we transactions businesses asset, EBITDA of at of share giving driving the divested in of and acquisition dollars not but platform deploying developed portfolio than ConcentricLife, sell revenue price, ability prudently and should revenue recollection the sales to only $XXX brought growth the higher an closing in marketing This accelerate together to our the

investing at size and noncore of ConcentricLife which the global There's year. the our portfolio about one divesting and half of transaction get Our services. to which this actively we're asset, paring in noncore goal fine-tune scale by AI end back other expansion in time. our expect exploring the we yield assets on the is to by of will all to

lead will front, innovation, experiences the never on adept Left strategic our M&A Labs, to the form of and Left adds and Field critical products acquisition user built designing services track encompassing imagined the a marketing. prototyping cutting-edge announced experience part Field engineering. technological transformation design, record strategy of end-to-end has of which Additionally, of we and a AI before, recently

will in acquired our mainstream to is which Adweek to a Stagwell financials out as also boast time the emerging joins resonate be particular culture consumers. by as we've a focus brands we've major to They ability connect crowned for business, on best quarter the stand-alone strength digital platforms, broken Movers+Shakers, TikTok. to us. first and Gen remains have for second with reported capability. and supercharge investment social millennial world's Marketing it Constellation the and the Cloud complementary and We Network. The the that Movers Z This agency

AI the of SMC with third under of just with growth quarter, and from reported transformation annualized collaborating senior $XXX product marketing an leaders XX% revenue firms on our of pitch suite staying influencer are the Stagwell-level research is partnerships, Quest, million. AI, self-service with creative and We've SMC innovation For digital to We're an of rate year-over-year run across to the ahead year. In a and added next tools media and integrated offering monitoring profit, meantime, for to modern Harris clients the devise AI to begin service AI-powered marketers. advancements. forging we'll launched ahead AI-enabled marketing shops of

shortly partnership to offer cloud We -- to our provider development a announce a marketing also marketing that a will cloud and major products. boost with developing expect

clients options with as acquiring for for media range studio continue a or augment within media. wide of we Finally, our working small compete ways we identify including programmatic to to SMC, explore large DSP, a and to

to that pressured our draws year line reiterate I that abate. beginning a are have challenges As to this wanted XXXX top business confidence, close, our the to

and growth driven as year among be we this transformation, and fourth well to what resume Cloud sectors We from products. political and their as the cycle in as continued excluding customers customers a expect media be net return a turnaround tailwinds in start in growth, to to refocus XXXX to big technology quarter, by the our spending on customers record-breaking for activities, expect transformation. digital begin promises digital as to and see revenue advocacy a tech to Stagwell, on Marketing

relationships, particular, company products, tech commitment in strong Stagwell revolution the costs I in last leading business AI-based long-term in to growth to benefit momentum, from digital with a and in strongly and investment of space. the quarter, positioned new As large next the said remains transformation digital growing managing marketing,

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

growth and our creative which well returned largest us operating and Instructions]. In and data, stronger Good despite the to Revenues results. were as third U.S., to business. Thank you, Mark. continue everyone, and international QX, joining the in to the morning, ongoing for quarter our we our you communications markets, performance progress make across in thank improving market. discuss capabilities, media as headwinds [Operator our

margins cost to estate and operations. savings efficiency We in of office with back and operating improve the real also continued compensation, further consolidation

[ reported pass-through result, X% to costs, same a revenue million, revenue, excluding $XXX in a period As as for compared of Organic decline to $XXX declined declined million. year. Net QX the net year-over-year revenue X.X% was the ] X.X%. prior

XX% declined the grew Organic Breaking where In we restructurings auto to entertainment and down X.X%. strong the led macroeconomic strikes, XX%. Excluding geography, see organic continue net period. advocacy, revenue net by international X.X% by revenue our EMEA, company increased performance persisted, closely for and U.S. which and XX% declined headwinds, which net the APAC, and revenue followed increased by internationally, organic revenue in industries labor markets. Overall, net tech

the of approximately continue XX% customers revenue our our many third of largest In quarter, customers, net conditions, macro year-over-year. XX% grew to top resilience. XXX demonstrate Despite representing

Although budgets U.S. clients clients, a marketing invest extent have of greater spend, consumer. strength our compressed many in continued the have been to to smaller of supported the by by larger

to turning revenue by Now capability.

We Cloud as Marketing capability. Stagwell Group now expanded include reporting separate new the have to our a

like-for-like million document a last metrics the on of QX, the website. Digital year. to Investor transformation net compared in Stagwell XX% comparability, core revenue historical please delivered $XXX decline For historical reference of

an off-election year, was in is XX%. which advocacy, the Excluding decline cycle

a the in the the industry was which the As start driven reductions the to budgets. Financials and weakness by saw to while actor the by pandemic, care and and lapping weigh From care earlier health mentioned customers chose and macroeconomic and revenue, turmoil attributable of of quarters. medical I some strikes effects as the were perspective, year, banking strategy the to challenging in the conditions business technology financials in decline the the experienced in the pull continue net million in principal customers transformation Insights was diagnostic projects. Much third previously, end health impacted on an $XX of of year-over-year. decline writer X% the delay capability reported space back. testing of second lingering Consumer the of largely

macro in a positive and Entertainment $XX a impact increase and X%. Performance growth reported the million increased despite increase posting driven business an quarter. Creativity from year-over-year XX% by vertical, $X spend temporary delivered the Media on XXXX, million Media year-over-year. net Insights and The business, the growth recover Consumer the travel Research to has grew was revenue Performance of Excluding continues our in pandemic. in $XXX strong year-over-year Communications data each been which standout performer our revenue, million. challenging transportation in a environment, net quarter, third of in

software this million from $X Marketing revenue period. continues positive a X%. $XX our a net a improvement over for representing advocacy, prior quarter, revenue of to Excluding ramped period, in or products. In of comparable trend more Advanced $XX return quarter, the the Marketing Group, spending investment Stagwell of million approximately to self-service as $X.X to up year a suite our the deliver communication million perform by our and to prior products third a we Cloud them from our platform marketing Platforms enabling host delivered increased of and Group growth XXXX. Stagwell XX% the net $XX revenue throughout third activities marks This we clients, the Cloud capability, net derived in was in-house. increase sequential Media over million drive million than in came the

profitability. moving operating to and Now expenses

to pressures have previously persisted. take costs continued as We manage the to have discussed we decisive action

of to line range XX%, wanted enabled XX%. I back with a net as discuss Staffing, Our to staffing Beginning we to moment XX% drive of our our take QX, QX here. effort. our was the our of EBITDA the items reduce approximately single margins percentage adjusted have cost, to primary steps our costs to targeted actions in us in a took impactful focus greatest more revenue. to

successfully basis We points. of the end ratio XXX the XX% have improvement at reduced staff XX.X% from now first an to the quarter, of cost

of savings, took of total an we announced, eliminate Since annualized million. we costs As the to first have $XX further our of the $XX taken bringing to previously July, actions, million cost $XX year. savings half annualized annualized in additional action staffing amounting million to

about count at beginning is of head lower now X% than the Our year. the

continue monitor to our to 'XX. strong levels ensure finish staffing We a will to

make time progress million savings We $XX to the the annualized announced of from the realizing towards good cost continue at of synergies merger.

far, services With and the than implementation in is thus anticipated. our platform. actions of taken ERP global nearly QX, agency's to HR our to million complete, on we shared annualized of began systems our organizations $X finance more consolidate Based savings

remaining continue our implementing across expect further consolidation savings. to We cost brands to leading this

estate our of more date, increase our and realized $X.X savings to consolidation annualized by plan have and real part to than to we York. million New this costs both consolidate of efforts London footprint, collaboration, led As in reduce year

adjusted adjusted we and $XXX result, in margin, adjusted our paving quarter, to a to representing our EBITDA-to-net EBITDA in As with million line previous margin the XX% EBITDA [indiscernible] delivered XX% of a the comments. restoring revenue way

despite ad As year-over-year. basis additional an tough by the this to I of million investment, in have noted, for $X.X we Adjusting increased EBITDA macro points strategic our by adjusted cloud environment, amount previously XXX margin have increased would XX.X%. the spending

sheet. balance moving to Now the

year-end, We QX. reduced with deferred to approximately million take the acquisition of we position. the continue $XXX long-term strength obligations financial actions at to $XX consideration, Starting end to the by million improve from of

further in to debt reduce expect million by $XX QX. We

debt of we the be as Labs announced $XXX communicated. our previously would recently million Excluding Field balance Left the year-end impact acquisition, below

$X.XX. transaction million announced of shares million, price an call, approximately $X.XX buyback $XXX representing XXX,XXX approximately per the for average on an to inclusive to XX price This quarter AlpInvest at total our our acquired shares first also We brings share during activity at quarter, $X.X of million. the of average date,

has for $X in availability. CapEx existing remaining quarter $XXX X% with our line approximately authorization X.X% the target to the still Our million, net million stated of revenue. buyback in was of

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

X.XXx increase earlier Our used of the the as repurchase balance by the share from finance AlpInvest quarter to leverage this end, in revolver was driven largely our year.

ConcentricLife disposition and trends quarter The leverage fourth Mark positive business. cash will by an discussed bolster our impact favorable seasonal have immediate the earlier, of will on

expect per net advocacy, to earnings turn Adjusted deliver X.X% this to portion and of growth the will finally, year And net finally, Xx acquisitions Organic to will conversion. us is it I light moving expected you. And stated significantly with is for our In our in prevailing million. reducing ability open to down us to $X.XX. That now our about revenue term. expected position remarks and strategic investments the full flow strategy. And medium Allanson morning. to and to Q&A It to Importantly, free $X.XX achieve help cash between the pursue EBITDA now decline year. expected XX% back leverage is revenue, over adjusted year. full full share are year-end to we the $XXX our XX% reduce line Organic goal for will the of as we for to now the Ben concludes guidance. our help net about net over debt be be also support of million expected our call excluding is between X% to decline revising conditions, to prepared call. follows. guidance $XXX Thank to

start We're and to We're fourth Thank at to going going question gives will digital with a quarter from looking questions you rebound Frank. into off a that Instructions] transformation you, Jason XXXX? of start Kreyer ahead. with the Craig-Hallum. What in confidence [Operator couple

that looking declared companies at what now the And we're contracts. they're of those first year very pitches, of efficiency. seeing time, couple reissuing been for carefully big that is We've a

of and wave trend that we're landing that now on Plus desk products digital the that primarily coming they're where in of next year. those so based while to our they what And plan in been of kind of are as in coming a kind they're next and come on are see from. and transformation agencies. holding have the confidence going back checks what AI But produce a for our consumers, for lot seeing the we of is them RFPs

up customers. following are us tech from those in confidence from question a some just tech seeing that investments Perhaps that that rebounds Zgutowicz on and that? signs What gives and Benchmark, Mark we're about at of

year you companies the Again, pretty I saw gone efficiency, of think produced earnings. tech the having strong through

before, I some back those much thirdly, going they're now You see, to again, in the pullback to said as and and $XX think mission, this think new and owns place, back cloud a companies in I company flowing almost from more of of strategy have cut and we have cuts, because now as really the products as adopted reoriented compete see month. now in that AI one million, of to I the X, now the $XX no has saw lanes. And employees million one their that RFPs again, we

Okay.

kind creative the of little Sort through forward of you're in about a of look just some talk Wells Fargo. on managing the trends continuing from bit, that? you and Can Cahall Steven how

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Morgan Obviously, actually months. translate has talk at course of to that new some which into and the the at some business Swinburne the you just new strong expect asked, business in Stanley over Ben trends XX revenues? over last quarter can net pace you the net about of

Sure.

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the about we're think I asset, nobody of will half size. about any ever something me equally one the It that asked in looking probably that more calls. at be

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to was They together Well, the first that in scattered. these quite really have thing we the we had bring really that existing assets been did regions.

in. In growth you work will January, and seeing growth facility We of take in operations show scale after into together growth them agencies physical of together see Singapore not in kind in all all come that's together, of Asia agencies a kind our and in growth almost to the see double-digit assets growers. we really you in really all of first London European found infrastructure they're So same headquarters where brought to the put then double-digit that into to our to there. turn double-digit kind true path able the EMEA existing and of the we're really Europe,

be for are By have large a we an the to -- go very to global question, like beef contracts. better at to back in is think I terms moment, the America. more Mid strong seeing bit The positioning quarter. we're here East investment, a turmoil a earlier in but in just still at of X fourth way, pitch season looking in to Latin we'd to up those regions the

the magnitude final Frank Jeff early contribution financials. enter a couple What leading election? we revenue year to the before up questions the Riley. of the and to hand on just one But are Sinderen presidential we on of advocacy Van over as at from political, question timing B. for possible and Maybe over question reason

reads biggest think the spending is are in I election that $XX all going to this Well, be -- billion history, the of exceeding expenditures.

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that be get first to come know how the its think the depending We know much we upon primary how way second -- season in works quarter of it So hit, I the you is to it will closer election. out. don't Crescendo versus the going

XX% just quick what is Frank investor, from the was saying flow question previously cash driver question in for mid down... a the the the this Maybe point free of and an a conversion, change here, from just our and looking at conversion

Yes, certainly.

X things. share it's We rates of of function also raising a but think a average and purchase, this of the the I throughout acquisition XXXX. rates financed larger onetime interest, event. throughout both it's outstanding balance. And higher One, was more a higher

in a it's is perhaps expectation. And just that's should second, condition interest temporary potentially it we bring some think prepayments then see QX. And that is. down in all our lighter So XXXX I and

Great.

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you have IR our at do feel early chatting here to team and If questions, fourth any out reach to to next we to you quarter. year free please forward for Stagwell, look over the