UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023March 31, 2024
or
| | | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission File Number: 001-13718
Stagwell Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 86-1390679 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
| | | |
One World Trade Center, Floor 65
| | |
New York, | New York | | 10007 |
(Address of principal executive offices) | | (Zip Code) |
(646) 429-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, par value $0.001 per share | STGW | NASDAQ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”
accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated Filer | ☐ | Accelerated Filer | ☒ |
Non-accelerated Filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares outstanding as of November 1, 2023,April 29, 2024, was 120,634,327117,581,272 shares of Class A Common Stock and 151,648,740151,648,741 shares of Class C Common Stock.
STAGWELL INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION | |
Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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| PART II. OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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EXPLANATORY NOTE
References in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to “Stagwell,” the “Company,” “we,” “us,” “our” and “our”the "Company" refer to Stagwell Inc. and, unless the context otherwise requires or otherwise is expressly stated, its subsidiaries.
All dollar amounts are stated in U.S. dollars unless otherwise stated.
Note About
Forward-Looking Statements
This document contains forward-looking statements,statements. within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company’s representatives may also make forward-looking statements orally or in writing from time to time. Statements in this document that are not historical facts, including, statements about the Company’s beliefs and expectations, future financial performance, growth, and future prospects, the Company’s strategy, business and economic trends and growth, technological leadership and differentiation, potential and completed acquisitions, anticipated operating efficiencies and synergies and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Forward-looking statements, which are generally denoted by words such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “create,” “estimate,” “expect,” “focus,” “forecast,” “foresee,” “future,” “goal,” “guidance,” “in development,” “intend,” “likely,” “look,” “maintain,” “may,” “ongoing,” “opportunity,” “outlook,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or the negative of such terms or other variations thereof and terms of similar substance used in connection with any discussion of current plans, estimates and projections are subject to change based on a number of factors, including those outlined in this section.
Forward-looking statements in this document are based on certain key expectations and assumptions made by the Company. Although the management of the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. The material assumptions upon which such forward-looking statements are based include, among others, assumptions with respect to general business, economic and market conditions, the competitive environment, anticipated and unanticipated tax consequences and anticipated and unanticipated costs. These forward-looking statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section. These forward-looking statements are subject to various risks and uncertainties, many of which are outside the Company’s control. Therefore, you should not place undue reliance on such statements. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the following:
•risks associated with international, national and regional unfavorable economic conditions that could affect the Company or its clients;
•the continued impact of the coronavirus pandemic (“COVID-19”), and evolving strains of COVID-19 on the economy and demand for the Company’s services, which may precipitate or exacerbate other risks and uncertainties;
•inflation and actions taken by central banks to counter inflation;
•the Company’s ability to attract new clients and retain existing clients;
•the impact of a reduction in client spending and changes in client advertising, marketing and corporate communications requirements;
•financial failure of the Company’s clients;
•the Company’s ability to retain and attract key employees;
•the Company’s ability to compete in the markets in which it operates;
•the Company’s ability to achieve its cost saving initiatives;
•the Company’s implementation of strategic initiatives;
•the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration;
•the Company’s ability to manage its growth effectively, including effectively;
•the successful completionCompany's ability to identify, complete and integration ofintegrate acquisitions that complement and expand the Company’s business capabilities;capabilities, to identify and complete divestitures and to achieve the anticipated benefits therefrom;
•the Company’s ability to develop products incorporating new technologies, including augmented reality, artificial intelligence, and virtual reality, and realize benefits from such products;
•an inability to realize expected benefits of the combination of the Company’s business with the businessuse of MDC Partners Inc. (the “Transactions”) and other completed, pending or contemplated acquisitions;artificial intelligence, including generative artificial intelligence;
•adverse tax consequences in connection with the Transactions for the Company, its operations and its shareholders,stockholders, that may differ from the expectations of the Company, including that future changes in tax law,laws, potential increases to corporate tax rates in the United States and disagreements with the tax authorities on the Company’s determination of value and computations of its attributesdeterminations that may result in increased tax costs;
•adverse tax consequences in connection with the occurrenceTransactions, including the incurrence of material Canadian federal income tax (including material “emigration tax”) as a result of the Transactions;;
•the Company’s unremediated material weaknesses in internal control over financial reporting and its ability to establish and maintain an effective system of internal control over financial reporting;reporting, including the risk that the Company’s internal controls will fail to detect misstatements in its financial statements;
•the Company’s ability to accurately forecast its future financial performance and provide accurate guidance;
•the Company’s ability to protect client data from security incidents or cyberattacks;
•economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflictconflicts between Russia and Ukraine)Ukraine and in Israel and Gaza), terrorist activities and natural disasters;
•stock price volatility; and
•foreign currency fluctuations.
Investors should carefully consider these risks and the additional risk factors described in more detail in our Annual Report on Form 10-K for the year ended December 31, 20222023 (our “2022“2023 Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2023,11, 2024, and accessible on the SEC’s website at www.sec.gov, under the caption “Risk Factors,” and in the Company’s other SEC filings.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
| | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 | |
Revenue | Revenue | $ | 617,573 | | | $ | 663,791 | | | $ | 1,872,282 | | | $ | 1,979,607 | | |
Revenue | |
Revenue | |
Operating Expenses | |
Operating Expenses | |
Operating Expenses | Operating Expenses | | |
Cost of services | Cost of services | 384,980 | | | 417,134 | | | 1,201,309 | | | 1,253,765 | | |
Cost of services | |
Cost of services | |
Office and general expenses | |
Office and general expenses | |
Office and general expenses | Office and general expenses | 160,021 | | | 119,186 | | | 481,379 | | | 429,121 | | |
Depreciation and amortization | Depreciation and amortization | 38,830 | | | 32,207 | | | 107,795 | | | 95,642 | | |
Depreciation and amortization | |
Depreciation and amortization | |
Impairment and other losses | Impairment and other losses | — | | | 25,211 | | | 10,562 | | | 28,034 | | |
| 583,831 | | | 593,738 | | | 1,801,045 | | | 1,806,562 | | |
Impairment and other losses | |
Impairment and other losses | |
| | | | | 644,205 | |
| | | | | 644,205 | |
| | | | | 644,205 | |
Operating Income | |
Operating Income | |
Operating Income | Operating Income | 33,742 | | | 70,053 | | | 71,237 | | | 173,045 | | |
Other income (expenses): | Other income (expenses): | | |
Other income (expenses): | |
Other income (expenses): | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net | Interest expense, net | (25,886) | | | (19,672) | | | (67,755) | | | (56,552) | | |
Foreign exchange, net | Foreign exchange, net | (140) | | | (3,927) | | | (2,288) | | | (4,163) | | |
Foreign exchange, net | |
Foreign exchange, net | |
| Other, net | Other, net | (271) | | | 147 | | | (467) | | | 182 | | |
| | (26,297) | | | (23,452) | | | (70,510) | | | (60,533) | | |
Income before income taxes and equity in earnings of non-consolidated affiliates | 7,445 | | | 46,601 | | | 727 | | | 112,512 | | |
Other, net | |
| Other, net | |
| | | | | (24,490) | |
| | | | | (24,490) | |
| | | | | (24,490) | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income tax expense | Income tax expense | 4,324 | | | 11,540 | | | 12,425 | | | 20,150 | | |
Income (loss) before equity in earnings of non-consolidated affiliates | 3,121 | | | 35,061 | | | (11,698) | | | 92,362 | | |
Income tax expense | |
Income tax expense | |
Loss before equity in earnings of non-consolidated affiliates | |
Loss before equity in earnings of non-consolidated affiliates | |
Loss before equity in earnings of non-consolidated affiliates | |
Equity in income (loss) of non-consolidated affiliates | Equity in income (loss) of non-consolidated affiliates | (4) | | | 213 | | | (447) | | | 1,053 | | |
Net income (loss) | 3,117 | | | 35,274 | | | (12,145) | | | 93,415 | | |
Equity in income (loss) of non-consolidated affiliates | |
Equity in income (loss) of non-consolidated affiliates | |
Net loss | |
Net loss | |
Net loss | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | (2,464) | | | (24,665) | | | 8,548 | | | (59,668) | | |
Net income (loss) attributable to Stagwell Inc. common shareholders | Net income (loss) attributable to Stagwell Inc. common shareholders | $ | 653 | | | $ | 10,609 | | | $ | (3,597) | | | $ | 33,747 | | |
Net income (loss) attributable to Stagwell Inc. common shareholders | |
Net income (loss) attributable to Stagwell Inc. common shareholders | |
| Earnings (Loss) Per Common Share: | |
| Earnings (Loss) Per Common Share: | |
| Earnings (Loss) Per Common Share: | Earnings (Loss) Per Common Share: | | |
| Basic | Basic | $ | 0.01 | | | $ | 0.08 | | | $ | (0.03) | | | $ | 0.27 | | |
| Basic | |
| Basic | |
| Diluted | |
| Diluted | |
| Diluted | Diluted | $ | 0.00 | | | $ | 0.08 | | | $ | (0.03) | | | $ | 0.26 | | |
Weighted Average Number of Common Shares Outstanding: | Weighted Average Number of Common Shares Outstanding: | | | | | | | | |
Weighted Average Number of Common Shares Outstanding: | |
Weighted Average Number of Common Shares Outstanding: | |
Basic | |
Basic | |
Basic | Basic | 110,787 | | | 125,384 | | | 118,772 | | | 124,710 | | |
Diluted | Diluted | 265,006 | | | 130,498 | | | 118,772 | | | 131,550 | | |
Diluted | |
Diluted | |
See Notes to the Unaudited Consolidated Financial Statements.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2024 | | 2023 | | |
COMPREHENSIVE INCOME (LOSS) | | | | | | | | | |
Net loss | | | | | $ | (713) | | | $ | (2,869) | | | |
Other comprehensive income (loss) - Foreign currency translation adjustment | | | | | (7,146) | | | 4,447 | | | |
| | | | | | | | | |
| | | | | | | | | |
Comprehensive income (loss) for the period | | | | | (7,859) | | | 1,578 | | | |
Comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests | | | | | 3,713 | | | 2,036 | | | |
Comprehensive income (loss) attributable to Stagwell Inc. common shareholders | | | | | $ | (4,146) | | | $ | 3,614 | | | |
See Notes to the Unaudited Consolidated Financial Statements.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)BALANCE SHEETS
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
COMPREHENSIVE INCOME (LOSS) | | | | | | | |
Net income (loss) | $ | 3,117 | | | $ | 35,274 | | | $ | (12,145) | | | $ | 93,415 | |
| | | | | | | |
Other comprehensive (loss) - Foreign currency translation adjustment | (13,516) | | | (30,505) | | | (6,153) | | | (59,678) | |
| | | | | | | |
| | | | | | | |
Comprehensive income (loss) for the period | (10,399) | | | 4,769 | | | (18,298) | | | 33,737 | |
Comprehensive (income) loss attributable to the noncontrolling and redeemable noncontrolling interests | 5,483 | | | (24,665) | | | 34,829 | | | (59,668) | |
Comprehensive income (loss) attributable to Stagwell Inc. common shareholders | $ | (4,916) | | | $ | (19,896) | | | $ | 16,531 | | | $ | (25,931) | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| | | |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 129,824 | | | $ | 119,737 | |
Accounts receivable, net | 744,287 | | | 697,178 | |
Expenditures billable to clients | 111,721 | | | 114,097 | |
Other current assets | 119,215 | | | 94,054 | |
Total Current Assets | 1,105,047 | | | 1,025,066 | |
Fixed assets, net | 77,215 | | | 77,825 | |
Right-of-use lease assets - operating leases | 241,709 | | | 254,278 | |
Goodwill | 1,495,313 | | | 1,498,815 | |
Other intangible assets, net | 800,691 | | | 818,220 | |
Other assets | 95,144 | | | 92,843 | |
Total Assets | $ | 3,815,119 | | | $ | 3,767,047 | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS ("RNCI"), AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 437,021 | | | $ | 414,980 | |
Accrued media | 270,491 | | | 291,777 | |
Accruals and other liabilities | 194,967 | | | 233,046 | |
Advance billings | 302,484 | | | 301,674 | |
Current portion of lease liabilities - operating leases | 64,039 | | | 65,899 | |
Current portion of deferred acquisition consideration | 64,907 | | | 66,953 | |
Total Current Liabilities | 1,333,909 | | | 1,374,329 | |
Long-term debt | 1,269,527 | | | 1,145,828 | |
Long-term portion of deferred acquisition consideration | 35,897 | | | 34,105 | |
Long-term lease liabilities - operating leases | 271,380 | | | 281,307 | |
Deferred tax liabilities, net | 38,856 | | | 40,509 | |
Other liabilities | 56,655 | | | 54,905 | |
Total Liabilities | 3,006,224 | | | 2,930,983 | |
Redeemable Noncontrolling Interests | 11,305 | | | 10,792 | |
Commitments, Contingencies and Guarantees (Note 10) | | | |
Shareholders’ Equity | | | |
Common shares - Class A & B | 115 | | | 118 | |
Common shares - Class C | 2 | | | 2 | |
| | | |
Paid-in capital | 333,896 | | | 348,494 | |
Retained earnings | 19,618 | | | 21,148 | |
Accumulated other comprehensive loss | (15,931) | | | (13,067) | |
Stagwell Inc. Shareholders’ Equity | 337,700 | | | 356,695 | |
Noncontrolling interests | 459,890 | | | 468,577 | |
Total Shareholders’ Equity | 797,590 | | | 825,272 | |
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity | $ | 3,815,119 | | | $ | 3,767,047 | |
See Notes to the Unaudited Consolidated Financial Statements.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| | | |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 98,705 | | | $ | 220,589 | |
Accounts receivable, net | 670,090 | | | 645,846 | |
Expenditures billable to clients | 128,903 | | | 93,077 | |
Other current assets | 104,082 | | | 71,443 | |
Total Current Assets | 1,001,780 | | | 1,030,955 | |
Fixed assets, net | 81,373 | | | 98,878 | |
Right-of-use lease assets - operating leases | 245,187 | | | 273,567 | |
Goodwill | 1,572,489 | | | 1,566,956 | |
Other intangible assets, net | 844,004 | | | 907,529 | |
Other assets | 125,376 | | | 115,447 | |
Total Assets | $ | 3,870,209 | | | $ | 3,993,332 | |
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 306,956 | | | $ | 357,253 | |
Accrued media | 183,510 | | | 240,506 | |
Accruals and other liabilities | 205,861 | | | 248,477 | |
Advance billings | 335,600 | | | 337,034 | |
Current portion of lease liabilities - operating leases | 67,976 | | | 76,349 | |
Current portion of deferred acquisition consideration | 104,294 | | | 90,183 | |
Total Current Liabilities | 1,204,197 | | | 1,349,802 | |
Long-term debt | 1,498,129 | | | 1,184,707 | |
Long-term portion of deferred acquisition consideration | 29,443 | | | 71,140 | |
Long-term lease liabilities - operating leases | 271,285 | | | 294,049 | |
Deferred tax liabilities, net | 47,717 | | | 40,109 | |
Other liabilities | 55,099 | | | 69,780 | |
Total Liabilities | 3,105,870 | | | 3,009,587 | |
Redeemable Noncontrolling Interests | 10,085 | | | 39,111 | |
Commitments, Contingencies and Guarantees (Note 9) | | | |
Shareholders' Equity | | | |
Common shares - Class A & B | 116 | | | 132 | |
Common shares - Class C | 2 | | | 2 | |
| | | |
Paid-in capital | 324,926 | | | 491,899 | |
Retained earnings | 24,586 | | | 29,445 | |
Accumulated other comprehensive loss | (18,813) | | | (38,941) | |
Stagwell Inc. Shareholders' Equity | 330,817 | | | 482,537 | |
Noncontrolling interests | 423,437 | | | 462,097 | |
Total Shareholders' Equity | 754,254 | | | 944,634 | |
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity | $ | 3,870,209 | | | $ | 3,993,332 | |
See Notes to the Unaudited Consolidated Financial Statements.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
| | | Nine Months Ended September 30, |
| | 2023 | | 2022 | |
| | Three Months Ended March 31, |
| 2024 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | |
Net income (loss) | $ | (12,145) | | | $ | 93,415 | | |
Adjustments to reconcile net income to cash (used in) provided by operating activities: | | |
Cash flows from operating activities: | |
Cash flows from operating activities: | |
Net income | |
Net income | |
Net income | |
Adjustments to reconcile net income to cash used in operating activities: | |
Adjustments to reconcile net income to cash used in operating activities: | |
Adjustments to reconcile net income to cash used in operating activities: | |
Stock-based compensation | |
Stock-based compensation | |
Stock-based compensation | Stock-based compensation | 34,615 | | | 33,410 | | |
Depreciation and amortization | Depreciation and amortization | 107,795 | | | 95,642 | | |
Depreciation and amortization | |
Depreciation and amortization | |
Amortization of right-of-use lease assets and lease liability interest | |
Amortization of right-of-use lease assets and lease liability interest | |
Amortization of right-of-use lease assets and lease liability interest | |
Impairment and other losses | Impairment and other losses | 10,562 | | | 28,034 | | |
| Impairment and other losses | |
Impairment and other losses | |
Deferred income taxes | Deferred income taxes | (1,112) | | | (1,557) | | |
Deferred income taxes | |
Deferred income taxes | |
Adjustment to deferred acquisition consideration | |
Adjustment to deferred acquisition consideration | |
Adjustment to deferred acquisition consideration | Adjustment to deferred acquisition consideration | 10,881 | | | (14,420) | | |
| Other, net | Other, net | (4,292) | | | 1,679 | | |
| Other, net | |
| Other, net | |
Changes in working capital: | |
Changes in working capital: | |
Changes in working capital: | Changes in working capital: | | |
Accounts receivable | Accounts receivable | (25,405) | | | (34,637) | | |
Accounts receivable | |
Accounts receivable | |
Expenditures billable to clients | |
Expenditures billable to clients | |
Expenditures billable to clients | Expenditures billable to clients | (36,217) | | | 5,525 | | |
Other assets | Other assets | 6,539 | | | 4,100 | | |
Other assets | |
Other assets | |
Accounts payable | |
Accounts payable | |
Accounts payable | Accounts payable | (58,716) | | | 34,630 | | |
Accrued expenses and other liabilities | Accrued expenses and other liabilities | (149,267) | | | (138,947) | | |
Accrued expenses and other liabilities | |
Accrued expenses and other liabilities | |
Advance billings | Advance billings | (1,759) | | | (23,017) | | |
Advance billings | |
Advance billings | |
Current portion of lease liabilities - operating leases | |
Current portion of lease liabilities - operating leases | |
Current portion of lease liabilities - operating leases | |
Deferred acquisition related payments | Deferred acquisition related payments | (9,021) | | | (10,776) | | |
Net cash (used in) provided by operating activities | (127,542) | | | 73,081 | | |
Deferred acquisition related payments | |
Deferred acquisition related payments | |
Net cash used in operating activities | |
Net cash used in operating activities | |
Net cash used in operating activities | |
Cash flows from investing activities: | |
Cash flows from investing activities: | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | |
Capital expenditures | Capital expenditures | (12,205) | | | (16,103) | | |
Capital expenditures | |
Capital expenditures | |
Acquisitions, net of cash acquired | |
Acquisitions, net of cash acquired | |
Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (6,678) | | | (37,461) | | |
Capitalized software | Capitalized software | (19,026) | | | (9,392) | | |
Capitalized software | |
Capitalized software | |
| Other | |
| Other | |
| Other | Other | (6,939) | | | (1,328) | | |
Net cash used in investing activities | Net cash used in investing activities | (44,848) | | | (64,284) | | |
Net cash used in investing activities | |
Net cash used in investing activities | |
Cash flows from financing activities: | |
Cash flows from financing activities: | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | |
Repayment of borrowings under revolving credit facility | Repayment of borrowings under revolving credit facility | (1,250,500) | | | (855,000) | | |
Repayment of borrowings under revolving credit facility | |
Repayment of borrowings under revolving credit facility | |
Proceeds from borrowings under revolving credit facility | |
Proceeds from borrowings under revolving credit facility | |
Proceeds from borrowings under revolving credit facility | Proceeds from borrowings under revolving credit facility | 1,562,500 | | | 989,500 | | |
Shares repurchased and cancelled | Shares repurchased and cancelled | (203,958) | | | (43,637) | | |
Shares repurchased and cancelled | |
Shares repurchased and cancelled | |
Distributions to noncontrolling interests | |
Distributions to noncontrolling interests | |
Distributions to noncontrolling interests | Distributions to noncontrolling interests | (24,538) | | | (38,486) | | |
Payment of deferred consideration | Payment of deferred consideration | (31,666) | | | (61,089) | | |
| Purchase of noncontrolling interest | — | | | (3,600) | | |
| Debt issuance costs | (150) | | | — | | |
Payment of deferred consideration | |
Payment of deferred consideration | |
| Net cash provided by (used in) financing activities | 51,688 | | | (12,312) | | |
| Net cash provided by financing activities | |
| Net cash provided by financing activities | |
| Net cash provided by financing activities | |
Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (1,182) | | | (15,243) | | |
Net decrease in cash and cash equivalents | (121,884) | | | (18,758) | | |
Effect of exchange rate changes on cash and cash equivalents | |
Effect of exchange rate changes on cash and cash equivalents | |
Net increase (decrease) in cash and cash equivalents | |
Net increase (decrease) in cash and cash equivalents | |
Net increase (decrease) in cash and cash equivalents | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 220,589 | | | 184,009 | | |
Cash and cash equivalents at beginning of period | |
Cash and cash equivalents at beginning of period | |
Cash and cash equivalents at end of period | |
Cash and cash equivalents at end of period | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 98,705 | | | $ | 165,251 | | |
| Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | | |
| Supplemental Cash Flow Information: | |
| Supplemental Cash Flow Information: | |
Cash income taxes paid | Cash income taxes paid | $ | 40,088 | | | $ | 23,315 | | |
Cash income taxes paid | |
Cash income taxes paid | |
Cash interest paid | |
Cash interest paid | |
Cash interest paid | Cash interest paid | 63,878 | | | 61,016 | | |
| Non-cash investing and financing activities: | Non-cash investing and financing activities: | | |
| Non-cash investing and financing activities: | |
| Non-cash investing and financing activities: | |
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(amounts in thousands)
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | |
Establishment of Tax Receivables Agreement liability | — | | | 17,649 | | | |
Non-cash payments for deferred acquisition consideration | 20,119 | | | — | | | |
Reduction of Deferred tax liability related to exchange of Paired Units | — | | | 20,763 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 | | |
Acquisitions of business | 6,139 | | | — | | | |
Acquisitions of noncontrolling interest | 10,167 | | | — | | | |
Share issuances | 341 | | | — | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See Notes to the Unaudited Consolidated Financial Statements.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three Months Ended September 30, 2023 |
| | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
Balance at June 30, 2023 | | | | | | | 116,039 | | | $ | 116 | | | 151,649 | | | $ | 2 | | | $ | 309,521 | | | $ | 27,496 | | | $ | (13,244) | | | $ | 323,891 | | | $ | 438,299 | | | $ | 762,190 | |
Net income | | | | | | | — | | | — | | | — | | | — | | | — | | | 653 | | | — | | | 653 | | | 2,464 | | | 3,117 | |
Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,569) | | | (5,569) | | | (7,947) | | | (13,516) | |
Total other comprehensive income (loss) | | | | | | | | | | | | | | | | | 653 | | | (5,569) | | | (4,916) | | | (5,483) | | | (10,399) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,155) | | | (8,155) | |
Changes in redemption value of RNCI | | | | | | | — | | | — | | | — | | | — | | | — | | | (3,562) | | | — | | | (3,562) | | | — | | | (3,562) | |
Restricted awards granted or vested | | | | | | | 670 | | | 1 | | | — | | | — | | | 174 | | | — | | | — | | | 175 | | | — | | | 175 | |
Shares repurchased and cancelled | | | | | | | (818) | | | (1) | | | — | | | — | | | (4,604) | | | — | | | — | | | (4,605) | | | — | | | (4,605) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | | | | | | — | | | — | | | — | | | — | | | 17,050 | | | — | | | — | | | 17,050 | | | — | | | 17,050 | |
Change in ownership held by Class C holders | | | | | | | — | | | — | | | — | | | — | | | (215) | | | — | | | — | | | (215) | | | 215 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Other (1) | | | | | | | — | | | — | | | — | | | — | | | 3,000 | | | (1) | | | — | | | 2,999 | | | (1,439) | | | 1,560 | |
Balance at September 30, 2023 | | | | | | | 115,891 | | | $ | 116 | | | 151,649 | | | $ | 2 | | | $ | 324,926 | | | $ | 24,586 | | | $ | (18,813) | | | $ | 330,817 | | | $ | 423,437 | | | $ | 754,254 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended March 31, 2024 |
| | | | | | Common Shares - Class A | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders’ Equity | | Noncontrolling Interests | | Shareholders’ Equity |
| | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at December 31, 2023 | | | | | | | 118,469 | | | $ | 118 | | | 151,649 | | | $ | 2 | | | $ | 348,494 | | | $ | 21,148 | | | $ | (13,067) | | | $ | 356,695 | | | $ | 468,577 | | | $ | 825,272 | |
| Net income (loss) | | | | | | | — | | | — | | | — | | | — | | | — | | | (1,282) | | | — | | | (1,282) | | | 569 | | | (713) | |
| Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,864) | | | (2,864) | | | (4,282) | | | (7,146) | |
| Total other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | (1,282) | | | (2,864) | | | (4,146) | | | (3,713) | | | (7,859) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of noncontrolling interest | | | | | | | — | | | — | | | — | | | — | | | 1,744 | | | — | | | — | | | 1,744 | | | (10,226) | | | (8,482) | |
| Changes in redemption value of RNCI | | | | | | | — | | | — | | | — | | | — | | | — | | | (250) | | | — | | | (250) | | | — | | | (250) | |
| Restricted awards granted or vested | | | | | | | 151 | | | — | | | — | | | — | | | 254 | | | — | | | — | | | 254 | | | — | | | 254 | |
| Shares repurchased and cancelled | | | | | | | (4,828) | | | (5) | | | — | | | — | | | (30,581) | | | — | | | — | | | (30,586) | | | — | | | (30,586) | |
| Restricted shares forfeited | | | | | | | (18) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | | | | | | — | | | — | | | — | | | — | | | 13,550 | | | — | | | — | | | 13,550 | | | — | | | 13,550 | |
| Change in ownership held by Class C shareholders | | | | | | | — | | | — | | | — | | | — | | | (6,047) | | | — | | | — | | | (6,047) | | | 6,047 | | | — | |
| Shares issued, acquisitions | | | | | | | 993 | | | 1 | | | — | | | — | | | 6,138 | | | — | | | — | | | 6,139 | | | — | | | 6,139 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | 52 | | | 1 | | | — | | | — | | | 344 | | | 2 | | | — | | | 347 | | | (795) | | | (448) | |
| Balance at March 31, 2024 | | | | | | | 114,819 | | | $ | 115 | | | 151,649 | | | $ | 2 | | | $ | 333,896 | | | $ | 19,618 | | | $ | (15,931) | | | $ | 337,700 | | | $ | 459,890 | | | $ | 797,590 | |
(1)The Other line within Paid-in Capital includes $3.0 million in connection with the modification of certain stock-appreciation rights from equity to cash-settled that were subsequently exercised in equity.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued)
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Nine Months Ended September 30, 2023 |
| | | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at December 31, 2022 | | | | | | | 131,724 | | | $ | 132 | | | 160,909 | | | $ | 2 | | | $ | 491,899 | | | $ | 29,445 | | | $ | (38,941) | | | $ | 482,537 | | | $ | 462,097 | | | $ | 944,634 | |
| Net loss | | | | | | | — | | | — | | | — | | | — | | | — | | | (3,597) | | | — | | | (3,597) | | | (8,548) | | | (12,145) | |
| Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 20,128 | | | 20,128 | | | (26,281) | | | (6,153) | |
| Total other comprehensive income (loss) | | | | | | | | | | | | | | | | | (3,597) | | | 20,128 | | | 16,531 | | | (34,829) | | | (18,298) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (19,164) | | | (19,164) | |
| Changes in redemption value of RNCI | | | | | | | — | | | — | | | — | | | — | | | — | | | (621) | | | — | | | (621) | | | — | | | (621) | |
| Restricted awards granted or vested | | | | | | | 3,647 | | | 4 | | | — | | | — | | | 171 | | | — | | | — | | | 175 | | | — | | | 175 | |
| Shares repurchased and cancelled | | | | | | | (31,580) | | | (32) | | | — | | | — | | | (204,926) | | | — | | | — | | | (204,958) | | | — | | | (204,958) | |
| Restricted shares forfeited | | | | | | | (13) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | | | | | | — | | | — | | | — | | | — | | | 33,883 | | | — | | | — | | | 33,883 | | | — | | | 33,883 | |
| Change in ownership held by Class C holders | | | | | | | — | | | — | | | — | | | — | | | (14,597) | | | — | | | — | | | (14,597) | | | 14,597 | | | — | |
| Shares issued, acquisitions | | | | | | | 2,853 | | | 3 | | | — | | | — | | | 20,116 | | | — | | | — | | | 20,119 | | | — | | | 20,119 | |
| Conversion of Class C to Class A shares | | | | | | | 9,260 | | | 9 | | | (9,260) | | | — | | | (9) | | | — | | | — | | | — | | | — | | | — | |
| Other (1) | | | | | | | — | | | — | | | — | | | — | | | (1,611) | | | (641) | | | — | | | (2,252) | | | 736 | | | (1,516) | |
| Balance at September 30, 2023 | | | | | | | 115,891 | | | $ | 116 | | | 151,649 | | | $ | 2 | | | $ | 324,926 | | | $ | 24,586 | | | $ | (18,813) | | | $ | 330,817 | | | $ | 423,437 | | | $ | 754,254 | |
(1)The Other line within Paid-in Capital includes $1.6 million in connection with the modification of certain stock-appreciation rights from equity to cash-settled that were subsequently exercised in equity.
See Notes to the Unaudited Consolidated Financial Statements.
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued)
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 |
| | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at June 30, 2022 | 131,838 | | | $ | 135 | | | 164,427 | | | $ | 2 | | | $ | 368,345 | | | $ | 10,268 | | | $ | (34,451) | | | $ | 344,299 | | | $ | 513,085 | | | $ | 857,384 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 10,609 | | | — | | | 10,609 | | | 24,665 | | | 35,274 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (30,505) | | | (30,505) | | | — | | | (30,505) | |
| Total other comprehensive income (loss) | | | | | | | | | | | 10,609 | | | (30,505) | | | (19,896) | | | 24,665 | | | 4,769 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Changes in redemption value of RNCI | — | | | — | | | — | | | — | | | — | | | (14,658) | | | — | | | (14,658) | | | — | | | (14,658) | |
| Restricted awards granted or vested | 1,689 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | | | — | |
| Shares repurchased and cancelled | (2,032) | | | (4) | | | — | | | — | | | (13,872) | | | — | | | — | | | (13,876) | | | — | | | (13,876) | |
| Restricted shares forfeited | (3) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 9,583 | | | — | | | — | | | 9,583 | | | — | | | 9,583 | |
| Conversion of Class C to Class A shares | 51 | | | 1 | | | (51) | | | — | | | (1) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Finalization of MDC acquisition accounting | — | | | — | | | — | | | — | | | (16,294) | | | — | | | — | | | (16,294) | | | 2,301 | | | (13,993) | |
| | | | | | | | | | | | | | | | | | | | |
| Other | 1 | | | 1 | | | — | | | — | | | 904 | | | 354 | | | — | | | 1,259 | | | (5,575) | | | (4,316) | |
| Balance at September 30, 2022 | 131,544 | | | $ | 135 | | | 164,376 | | | $ | 2 | | | $ | 348,663 | | | $ | 6,573 | | | $ | (64,956) | | | $ | 290,417 | | | $ | 534,476 | | | $ | 824,893 | |
STAGWELL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued)
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
| | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders' Equity | | Noncontrolling Interests | | Shareholders' Equity |
| | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at December 31, 2021 | 118,252 | | | $ | 118 | | | 179,970 | | | $ | 2 | | | $ | 382,893 | | | $ | (6,982) | | | $ | (5,278) | | | $ | 370,753 | | | $ | 508,287 | | | $ | 879,040 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 33,747 | | | — | | | 33,747 | | | 59,668 | | | 93,415 | |
| Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | — | | | (59,678) | | | (59,678) | | | — | | | (59,678) | |
| Total other comprehensive income (loss) | | | | | | | | | | | 33,747 | | | (59,678) | | | (25,931) | | | 59,668 | | | 33,737 | |
| | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (29,957) | | | (29,957) | |
| Changes in redemption value of RNCI | — | | | — | | | — | | | — | | | — | | | (20,546) | | | — | | | (20,546) | | | — | | | (20,546) | |
| Restricted awards granted or vested | 3,678 | | | 4 | | | — | | | — | | | (4) | | | — | | | — | | | — | | | — | | | — | |
| Shares repurchased and cancelled | (6,011) | | | (6) | | | — | | | — | | | (43,637) | | | — | | | — | | | (43,643) | | | — | | | (43,643) | |
| Restricted shares forfeited | (111) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 25,475 | | | — | | | — | | | 25,475 | | | — | | | 25,475 | |
| Conversion of Class C to Class A shares | 15,594 | | | 16 | | | (15,594) | | | — | | | (16) | | | — | | | — | | | — | | | — | | | — | |
| Purchases of noncontrolling interests | — | | | — | | | — | | | — | | | (1,000) | | | — | | | — | | | (1,000) | | | (3,600) | | | (4,600) | |
| Acquisition of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,667 | | | 2,667 | |
| Finalization of MDC acquisition accounting | — | | | — | | | — | | | — | | | (16,294) | | | — | | | — | | | (16,294) | | | 2,301 | | | (13,993) | |
| Other | 142 | | | 3 | | | — | | | — | | | 1,246 | | | 354 | | | — | | | 1,603 | | | (4,890) | | | (3,287) | |
| Balance at September 30, 2022 | 131,544 | | | $ | 135 | | | 164,376 | | | $ | 2 | | | $ | 348,663 | | | $ | 6,573 | | | $ | (64,956) | | | $ | 290,417 | | | $ | 534,476 | | | $ | 824,893 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended March 31, 2023 |
| | | | | | Common Shares - Class A & B | | Common Shares - Class C | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Stagwell Inc. Shareholders’ Equity | | Noncontrolling Interests | | Shareholders’ Equity |
| | | | | | | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | | |
| Balance at December 31, 2022 | | | | | | | 131,724 | | | $ | 132 | | | 160,909 | | | $ | 2 | | | $ | 491,899 | | | $ | 22,095 | | | $ | (15,478) | | | $ | 498,650 | | | $ | 430,164 | | | $ | 928,814 | |
| Net income | | | | | | | — | | | — | | | — | | | — | | | — | | | 1,389 | | | — | | | 1,389 | | | (4,258) | | | (2,869) | |
| Other comprehensive loss | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,225 | | | 2,225 | | | 2,222 | | | 4,447 | |
| Total other comprehensive income (loss) | | | | | | | — | | | — | | | — | | | — | | | — | | | 1,389 | | | 2,225 | | | 3,614 | | | (2,036) | | | 1,578 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Distributions to noncontrolling interests | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,025) | | | (8,025) | |
| Changes in redemption value of RNCI | | | | | | | — | | | — | | | — | | | — | | | — | | | 1,076 | | | — | | | 1,076 | | | — | | | 1,076 | |
| Restricted awards granted or vested | | | | | | | 1,838 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | | | — | |
| Shares repurchased and cancelled | | | | | | | (3,766) | | | (4) | | | — | | | — | | | (26,125) | | | — | | | — | | | (26,129) | | | — | | | (26,129) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation | | | | | | | — | | | — | | | — | | | — | | | 7,392 | | | — | | | — | | | 7,392 | | | — | | | 7,392 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Change in ownership held by Class C shareholders | | | | | | | — | | | — | | | — | | | — | | | (3,273) | | | — | | | — | | | (3,273) | | | 3,273 | | | — | |
| Other | | | | | | | — | | | — | | | — | | | — | | | — | | | (640) | | | — | | | (640) | | | 1,217 | | | 577 | |
| Balance at March 31, 2023 | | | | | | | 129,796 | | | $ | 130 | | | 160,909 | | | $ | 2 | | | $ | 469,891 | | | $ | 23,920 | | | $ | (13,253) | | | $ | 480,690 | | | $ | 424,593 | | | $ | 905,283 | |
See Notes to the Unaudited Consolidated Financial Statements
STAGWELL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
Stagwell Inc. (the “Company,” “we,” or “Stagwell”), incorporated under the laws of Delaware, conducts its business through its networks and its portfolio of marketing services firms (“Brands”), 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.
The accompanying consolidated financial statementsUnaudited Consolidated Financial Statements include the accounts of Stagwell and its subsidiaries. Stagwell has prepared the unaudited consolidated interim financial statements included herein in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting interim financial information on Form 10-Q. Accordingly, pursuant to these rules, the footnotes do not include certain information and disclosures. The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates about current and future results of operations and cash flows that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. The consolidated resultsreports for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 20222023 (“20222023 Form 10-K”).
The accompanying financial statements reflect all adjustments, consisting of normal recurring accruals, which in the opinion of management are necessary for a fair statement, in all material respects, of the information contained therein. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior year financial information to conform to the current year presentation.
Revision of Previously Issued Unaudited Consolidated Financial Statements
In connection with the preparation of the consolidated financial statements during 2023, the Company identified the following errors in the areas of income taxes, noncontrolling interests, and accumulated other comprehensive loss related to its previously filed 2022 annual consolidated financial statements.
We recorded an out-of-period adjustment in
•In the first quarter of 2023, which should have been reflected in the prior year financial statements. The impact of the adjustment waswe identified an error related to allocateforeign currency gains and losses not being allocated from Accumulated other comprehensive loss to noncontrolling interest shareholders. As a result of the correction, Noncontrolling interests and Accumulated other comprehensive loss declinedwas overstated by approximately $24.0 million, but there$23.5 million. There was no impact to Total Shareholders’ Equity. The adjustment was reflected within other comprehensive income (loss). There was no impact to Net income in the annual or interim periods within the year endedEquity as of December 31, 2022. The Company evaluatedAlso, we identified a $2.1 million understatement of income tax expense, and overstatement to income tax payable (Accruals and Other Liabilities) and deferred tax asset (Other Current Assets) of $2.4 million and $4.5 million, respectively, relating to an error in the impactcalculation of valuation allowances. These errors were originally corrected within the out-of-period adjustment and concluded that this error wasfirst quarter of 2023 as management determined the errors were not material to the current period or anyquarterly financial statements as of its previously issued financial statements.and for the three months ended March 31, 2023.
•In the second quarter of 2023, we recorded a $5.3 million and $7.4 million out-of-period adjustment, respectively,identified an error related to increasean understatement of income tax expense and income tax payable (Accruals and Other Liabilities) by $5.3 million due to correct an understatementincorrect applications of the expense which should have been reflected in the prior year financial statements.tax payments. The Company evaluatedalso identified a misclassification of $12.9 million as a result of improper netting of income tax receivables (Other Current Assets) and payables (Accruals and Other Liabilities). This error resulted in an incremental $7.3 million misclassification of income tax receivables and payables as of March 31, 2023, which was originally corrected within the impactsecond quarter of the out-of-period adjustment and concluded that2023 as management determined the errors were not material to the current period or anyquarterly financial statements as of its previously issued financial statements. The adjustment is not expected to be materialand for the three and six months ended June 30, 2023.
•In the fourth quarter of 2023, we identified an incremental $10.4 million understatement of tax expense as well as balance sheet misclassification between income tax accounts included within Other Current Assets, Other Assets, Accruals and Other Liabilities, and Deferred Tax Liabilities. These errors were related to the year ending December 31, 2023.incorrect applications of tax payments, and the incorrect calculation of deferred tax balances for items mainly associated with interest expense, intangible assets, fixed assets, state tax, basis adjustment for partnership, and the related valuation allowance. We also identified an error in our tax receivable agreement (“TRA”) liability calculation which resulted in a $2.1 million overstatement of other expenses and of Other Liabilities.
As a result of the above, the Company’s previously filed first quarter of 2023 interim consolidated financial statements have been revised. See Note 17 of the Notes included herein for additional information. The remaining 2023 interim financial statements will be presented as revised when such financial statements are issued.
Recent Developments
On October 2, 2023,April 3, 2024, the Company acquired 100%What’s Next Partners (“WNP”), for 4.3 million Euros (“€”) (approximately $5 million) in cash. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of €8.5 million (approximately $9 million), partially subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of the membership interest of Left Field Labs, LLC, a digital experience design and strategy company, for approximately $9.4 million in cash, and 825 thousand shares ofCompany's Class A Common Stock,common stock, par value $0.001 per share (the “Class A Common Stock”), at the Company’s discretion.
On April 5, 2024, the Company acquired PROS Agency (“PROS”), for 26.5 million Brazilian reals (“R$”) (approximately $5 million) of which R$21.2 million (approximately $4 million) was paid in cash and R$5.3 million (approximately $1 million) in 182,256 shares of Class A Common Stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of R$72.5 million (approximately $14 million), partially subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion.
2. New Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures (“ASU 2023-09”), to enhance the transparency and decision usefulness of income tax disclosures by requiring disaggregated information about an entity’s effective tax rate reconciliation, as well as information on taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is evaluating the impact of the adoption of this guidance on the Company’s financial statements and disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Segment Disclosures (“ASU 2023-07”), to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the impact of the new requirements, effective for the Company’s 2024 Financial Statements, to determine the level of disclosure of segment expenses.
3. Acquisitions
2024 Acquisitions
Acquisition of Team Epiphany
On January 2, 2024, the Company acquired Team Epiphany, LLC (“Epiphany”), for $15.8 million, of which $10.8 million was paid in cash and $5.0 million in 797,916 shares of Class A Common Stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of $17.0 million, subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion.
The consideration has been allocated to the assets acquired and assumed liabilities of Epiphany based upon fair values. The preliminary purchase price allocation is as follows:
| | | | | |
| Amount |
| (dollars in thousands) |
Cash and cash equivalents | $ | 1,095 | |
Accounts receivable, net | 8,677 | |
Expenditures billable to clients | 4,823 | |
Other current assets | 402 | |
Right-of-use lease assets | 2,788 | |
Fixed assets | 184 | |
Identifiable intangible assets | 4,316 | |
Accounts payable | (1,086) | |
Accruals and other liabilities | (664) | |
Advance billings | (8,808) | |
Current portion of lease liabilities - operating leases | (516) | |
Long-term lease liabilities - operating leases | (2,600) | |
Net assets assumed | 8,611 | |
Goodwill | 7,237 | |
Purchase price consideration | $ | 15,848 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of Epiphany. Goodwill of $7.2 million was assigned to the Integrated Agencies Network reportable segment. The goodwill is deductible for income tax purposes.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is three years. The following table presents the details of identifiable intangible assets acquired:
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Useful Life in Years |
| | (dollars in thousands) | | |
Customer relationships | | $ | 3,767 | | | 3 |
Trade names | | 549 | | | 3 |
Total acquired intangible assets | | $ | 4,316 | | | |
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2023. The pro forma revenue and net income (loss) for the three months ended March 31, 2024 would not be materially different from the actual revenue and net income (loss) reported. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time.
| | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | (dollars in thousands) |
Revenue | | $ | 630,838 | |
Net loss | | $ | (2,121) | |
Revenue and Net income attributable to Epiphany, included within the Unaudited Consolidated Statements of Operations for the three months ended March 31, 2024 was $13.4 million and less than $0.1 million, respectively.
The purchase price accounting is not yet final as the Company may still make adjustments due to changes in post-closing adjustments.
Other 2024 Acquisitions
On March 1, 2024, the Company acquired Sidekick Live Limited (“Sidekick”), for 4.6 million British pounds (“£”) (approximately $6 million) of which £3.6 million (approximately $5 million) was paid in cash, £0.1 million (approximately $0.2 million) was incurred as a certain payable to sellers, and £0.9 million (approximately $1 million) in 195,431 shares of Class A Common Stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of £8.0 million (approximately $10 million), subject to continued employment requirements and meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion. The excess of purchase consideration over the fair value of the net assets acquired was mainly recorded as goodwill, which is primarily attributable to the assembled workforce of Sidekick and expected growth related to new customer relationships. Goodwill of $2.0 million was assigned to the Communications Network reportable segment. The goodwill is not fully deductible for income tax purposes. The purchase price accounting is not yet final as the Company may still make adjustments due to changes in post-closing adjustments.
2023 Acquisitions
On November 1, 2023, the Company acquired Movers and Shakers LLC (“Movers and Shakers”), a digital creative company, for $14.7 million, of which $10.2 million was paid in cash and $4.5 million in 1.0 million shares of Class A Common Stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of $35.0 million, subject to meeting certain future earnings targets and continued employment, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion. The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of Movers and Shakers and expected growth related to new customer relationships. Goodwill of $8.2 million was assigned to the Integrated Agencies Network reportable segment. The goodwill is fully deductible for income tax purposes. The purchase price accounting is not yet final as the Company may still make adjustments due to changes in post-closing adjustments.
On October 2, 2023, the Company acquired Left Field Labs LLC (“LFL”), a digital experience design and strategy company, for $13.2 million, of which $9.4 million was paid in cash and $3.8 million in 825,402 of Class A Common Stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of $51.0 million, subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion.
On October 31, 2023, the Company completed the sale of its integrated healthcare marketing agency and pharmaceutical commercialization platform, ConcentricLife, for $245 million in cash.
On November 1, 2023, the Company acquired Movers and Shakers LLC, a business that provides social media marketing solutions, for approximately $15 million, to be paid in cash or up to 30% in shares of Class A Common stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of $35 million, subject to meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion.
2. Acquisitions
2022 Acquisitions
Acquisition of Brand New Galaxy
On April 19, 2022, the Company acquired Brand New Galaxy (“BNG”), for approximately $20.9 million of cash consideration, as well as contingent consideration up to a maximum value of $50.0 million. The contingent consideration is due upon meeting certain future earnings targets through 2024, with approximately 67% payable in cash and 33% payable in shares of Class A Common Stock.
The consideration has been allocated to the assets acquired and assumed liabilities of BNG based upon fair values, with any excess purchase price allocated to goodwill. The purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| | (dollars in thousands) |
Cash and cash equivalents | | $ | 2,766 | |
Accounts receivable | | 10,147 | |
Other current assets | | 671 | |
Fixed assets | | 1,587 | |
Identifiable intangible assets | | 12,740 | |
Other assets | | 1,583 | |
Accounts payable | | (4,771) | |
Accruals and other liabilities | | (6,880) | |
Advance billings | | (1,159) | |
Other liabilities | | (3,642) | |
Net assets assumed | | 13,042 | |
Goodwill | | 24,643 | |
Purchase price consideration | | $ | 37,685 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of BNG. Goodwill of $24.6 million was assigned to the Brand Performance Network reportable segment. The majority of the goodwill is non-deductible for income tax purposes.
Intangible assets consist of trade names, customer relationships and developed technology. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately ten years. The following table presents the details of identifiable intangible assets acquired:
| | | | | | | | | | | | | | |
| | Fair Value | | Estimated Useful Life in Years |
| | (dollars in thousands) |
Customer relationships | | $ | 6,150 | | | 10 |
Trade names | | 5,500 | | | 10 |
Developed technology | | 1,090 | | | 7 |
Total acquired intangible assets | | $ | 12,740 | | | |
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time.
| | | | | | | | | | |
| | | | Nine Months Ended September 30, 2022 |
| | | (dollars in thousands) |
Revenue | | | | $ | 1,989,833 | |
Net income | | | | $ | 92,670 | |
Revenue attributable to BNG, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2023 was $7.7 million and $21.8 million, respectively, and Net loss was $0.7 million and $0.2 million, respectively. Revenue attributable to BNG, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2022 was $5.9 million and $11.2 million, respectively, and Net loss was $2.5 million and $2.6 million, respectively.
Acquisition of TMA Direct, Inc.
On May 31, 2022, the Company acquired approximately 87% of TMA Direct, Inc. (“TMA Direct”) for approximately $17.2 million of cash consideration and approximately $0.5 million of deferred acquisition payments. The Company was also granted an option to purchase the remaining 13% minority interest in TMA Direct for up to approximately $13.3 million.
The consideration has been allocated to the assets acquired and assumed liabilities of TMA Direct based upon fair values, with any excess purchase price allocated to goodwill. The purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| | (dollars in thousands) |
Accounts receivable | | $ | 582 | |
Other current assets | | 669 | |
Identifiable intangible assets | | 13,200 | |
Accounts payable | | (379) | |
Other liabilities | | (270) | |
Noncontrolling interests | | (2,667) | |
Net assets assumed | | 11,135 | |
Goodwill | | 6,569 | |
Purchase price consideration | | $ | 17,704 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of TMA Direct. Goodwill of $6.6 million was assigned to the Communications Network reportable segment. The majority of the goodwill is deductible for income tax purposes.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is ten years. The following table presents the details of identifiable intangible assets acquired:
| | | | | | | | | | | | | | |
| | Fair Value | | Estimated Useful Life in Years |
| | (dollars in thousands) |
Customer relationships | | $ | 11,400 | | | 10 |
Trade names | | 1,800 | | | 10 |
Total acquired intangible assets | | $ | 13,200 | | | |
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time.
| | | | | | | | | | |
| | | | Nine Months Ended September 30, 2022 |
| | | | (dollars in thousands) |
Revenue | | | | $ | 1,983,437 | |
Net income | | | | $ | 94,768 | |
Revenue attributable to TMA Direct, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2023 was $2.1 million and $8.7 million, respectively and Net income was $0.3 million and $0.7 million, respectively. Revenue attributable to TMA Direct, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2022 was $3.8 million and $5.0 million, respectively, and Net income was $1.4 million and $1.6 million, respectively.
Acquisition of Maru Group Limited Ltd.
On October 3, 2022, the Company acquired Maru Group Limited Ltd. (“Maru”) for approximately £23.0 million (approximately $25.8 million) in cash consideration.
The consideration has been allocated to the assets acquired and assumed liabilities of Maru based upon fair values, with any excess purchase price allocated to goodwill. The purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| | (dollars in thousands) |
Cash and cash equivalents | | $ | 1,033 | |
Accounts receivable | | 7,374 | |
Other current assets | | 899 | |
Fixed assets | | 157 | |
Identifiable intangible assets | | 14,300 | |
Other assets | | 1,920 | |
Accounts payable | | (4,087) | |
Accruals and other liabilities | | (9,154) | |
Advance billings | | (6,462) | |
Deferred tax liability | | (3,328) | |
Other liabilities | | (2,891) | |
Net assets assumed | | (239) | |
Goodwill | | 26,033 | |
Purchase price consideration | | $ | 25,794 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of MaruLFL and expected growth related to new customer relationships and geographic expansion.relationships. Goodwill of $26.0 million was assigned to the All Other reportable segment. The goodwill is partially deductible for income tax purposes.
Intangible assets consist of trade names, customer relationships, and developed technology. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately eight years. The following table presents the details of identifiable intangible assets acquired:
| | | | | | | | | | | | | | |
| | Fair Value | | Estimated Useful Life in Years |
| | (dollars in thousands) |
Customer relationships | | $ | 4,900 | | | 10 |
Trade names | | 4,000 | | | 10 |
Developed technology | | 5,400 | | | 2-7 |
Total acquired intangible assets | | $ | 14,300 | | | |
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time.
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| | (dollars in thousands) |
Revenue | | $ | 672,435 | | | $ | 2,009,482 | |
Net income | | $ | 30,113 | | | $ | 79,414 | |
Revenue attributable to Maru, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2023 was $7.7 million and $25.5 million, respectively and Net loss was $3.2 million and $7.6 million, respectively.
Acquisition of Wolfgang, LLC.
On October 3, 2022, the Company acquired the remaining 80% interest that it did not already own in Wolfgang, LLC., (“Wolfgang”) for approximately $3.8 million in cash consideration and 175 thousand shares of Class A Common Stock with a fair value of $1.2 million.
The consideration has been allocated to the assets acquired and assumed liabilities of Wolfgang based upon fair values, with any excess purchase price allocated to goodwill. The purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| | (dollars in thousands) |
Cash and cash equivalents | | $ | 1,606 | |
Accounts receivable | | 1,180 | |
Other current assets | | 100 | |
Identifiable intangible assets | | 1,055 | |
Other assets | | 46 | |
Current liabilities | | (278) | |
Net assets assumed | | 3,709 | |
Goodwill | | 2,451 | |
Purchase price consideration including fair value of previously owned interest | | $ | 6,160 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of Wolfgang. Goodwill of $2.5$8.0 million was assigned to the Integrated Agencies Network reportable segment. The majority of the goodwill is fully deductible for income tax purposes.
Intangible assets consist of customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately five years.
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time.
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| | (dollars in thousands) |
Revenue | | $ | 665,615 | | | $ | 1,988,548 | |
Net income | | $ | 35,114 | | | $ | 94,769 | |
Revenue attributable to Wolfgang, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2023 was $1.5 million and $3.6 million, respectively, and Net income was $0.1 million and $0.4 million, respectively.
Acquisition of Epicenter Experience LLC.
On October 3, 2022, the Company acquired the assets of Epicenter Experience LLC., (“Epicenter”) for approximately $9.9 million in cash consideration, as well as contingent consideration up to a maximum value of $5.0 million. The contingent consideration is subject to meeting certain future earnings targets through 2024 and can be paid up to 25% in shares of Class A Common Stock.
The consideration has been allocated to the assets acquired and assumed liabilities of Epicenter based upon fair values. The purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| | (dollars in thousands) |
Accounts receivable | | $ | 901 | |
Other current assets | | 45 | |
Identifiable intangible assets | | 7,300 | |
Accounts payable | | (148) | |
Other current liabilities | | (650) | |
Net assets assumed | | 7,448 | |
Goodwill | | 4,416 | |
Purchase price consideration | | $ | 11,864 | |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of Epicenter. Goodwill of $4.4 million was assigned to the All Other reportable segment. The majority of the goodwill is deductible for income tax purposes.
The intangible asset acquired was developed technology. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately five years.
Pro Forma Financial Information
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only andaccounting is not necessarily indicative ofyet final as the results of operations that actually would have been achieved had the acquisition been consummated as of that time.
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| | (dollars in thousands) |
Revenue | | $ | 664,882 | | | $ | 1,982,784 | |
Net income | | $ | 35,147 | | | $ | 93,023 | |
Revenue attributableCompany may still make adjustments due to Epicenter, included within the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2023 was $1.1 million and $3.3 million, respectively, and Net loss was $0.1 million and less than $0.1 million, respectively.
Other Acquisitionschanges in post-closing adjustments.
On July 3, 2023, the Company acquired Tinsel Experiential Design LLC (“Tinsel”), a marketing and design company, for approximately $2.5 million in cash consideration, subject to post-closing adjustments. In connection with the agreement,acquisition, the previous ownerssellers are entitled to contingent consideration, subject to continued employment, and meeting certain future earnings targets. The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of Tinsel and expected growth related to new customer relationships. Goodwill of $1.6 million was assigned to the Integrated Agencies Network reportable segment. The majority of goodwill is fully deductible for income tax purposes. The purchase price accounting is not yet final as the Company may still make adjustments due to changes in post-closing adjustments.
On April 25, 2023, the Company acquired Huskies, Ltd. (“Huskies”), for approximately €5.2 million (approximately $5.6$6 million) of cash consideration, of which €0.9 million (approximately $1.0$1 million) is deferred, subject to post-closing adjustments. The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributable to the assembled workforce of Huskies and expected growth related to new customer relationships and geographic expansion. Goodwill of $2.6 million was assigned to the Brand Performance Network reportable segment. The majority of goodwill is non-deductible for income tax purposes. The purchase price accounting is not yet final as the Company may still make adjustments due to changes in post-closing adjustments.
2023 Dispositions
On July 12, 2022,October 31, 2023, the Company acquired PEP Group Holdings B.V.sold ConcentricLife (“Concentric”), an omnichannel content creation and adaption production companywhich was included in Integrated Agencies Network, to a strategic buyer for approximately $0.5$245.0 million in cash consideration, as well as contingent consideration up toresulting in a maximum valuepre-tax gain of €2.6$94.5 million. The contingent consideration is subject to meeting certain future earnings targets through 2025.
On July 15, 2022,gain was recognized within Gain on sale of business within the Company acquired Apollo Program II Inc., a real-time artificial intelligence-powered software-as-a-service platform, for approximately $2.3 million in cash consideration, as well as guaranteed deferred paymentsConsolidated Statements of $1.0 million and $1.5 million on or prior to July 1, 2023 and July 1, 2024, respectively.
2022 Purchases of Noncontrolling Interests
On April 1, 2022, the Company acquired the remaining interest in Hello Design, LLC (“Hello Design”) that itOperations. The divestiture did not already own for an aggregate purchase pricerepresent a strategic shift that would have a major effect on the Company’s consolidated results of $4.6 million, comprisedoperations, and therefore its results of a closing cash paymentoperations were not reported as discontinued operations.
3.4. Revenue
Disaggregated Revenue Data
The Company provides a broad range of services to a large base of clients across the full spectrum of verticals globally. The primary source of revenue is from Brand arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Brands. Representation of a client rarely means that Stagwell handles marketing communications for all Brands or product lines of the client in every geographical location. The Company’s Brands often cooperate with one another through referrals and the sharing of both services and expertise, which enables Stagwell to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate, independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing clients across the Stagwell network.
The following table presents revenue disaggregated by our principal capabilities for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023. We reclassified certain brands into the Stagwell Marketing Cloud Group (software-as-a-service and data-as-a-service tools for the in-house marketers) principal capability in the third quarter of 2023. WeAll prior periods presented have reported disaggregated revenue data using the new classification and have recast the 2022 disaggregated revenue databeen revised to conform to the current year classification.reflect these changes.
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | Three Months Ended March 31, | |
| | | | | Three Months Ended March 31, | |
| | | | | Three Months Ended March 31, | |
Principal Capabilities | Principal Capabilities | Reportable Segment | | 2023 | | 2022 | | 2023 | | 2022 | |
| | (dollars in thousands) | |
| | | | | | | (dollars in thousands) | |
| | | | | | | (dollars in thousands) | |
| | | | | | | (dollars in thousands) | |
Digital Transformation | Digital Transformation | All segments | | $ | 141,543 | | | $ | 187,664 | | | $ | 487,114 | | | $ | 583,977 | | |
Creativity and Communications | Creativity and Communications | All segments | | 300,026 | | | 304,971 | | | 851,652 | | | 892,416 | | |
Creativity and Communications | |
Creativity and Communications | |
Performance Media and Data | |
Performance Media and Data | |
Performance Media and Data | Performance Media and Data | Brand Performance Network | | 72,785 | | | 67,302 | | | 215,691 | | | 202,622 | | |
Consumer Insights and Strategy | Consumer Insights and Strategy | Integrated Agencies Network | | 45,929 | | | 50,256 | | | 147,310 | | | 156,460 | | |
Consumer Insights and Strategy | |
Consumer Insights and Strategy | |
Stagwell Marketing Cloud Group | Stagwell Marketing Cloud Group | All segments | | 57,290 | | | 53,598 | | | 170,515 | | | 144,132 | | |
| $ | 617,573 | | | $ | 663,791 | | | $ | 1,872,282 | | | $ | 1,979,607 | | |
Stagwell Marketing Cloud Group | |
Stagwell Marketing Cloud Group | |
| | | | | | | $ | |
| | | | | | | $ | |
| | | | | | | $ | |
Stagwell has historically largely focused where the Company was founded, in North America, the largest market for its services in the world. The Company has expanded its global footprint to support clients in international markets. Stagwell’s Brands are located in the United States and United Kingdom, and more than 32 other countries around the world. The Company continues to expand its global footprint to support clients in international markets. Historically, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses.
The following table presents revenue disaggregated by geography for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
Geographical Location | Geographical Location | Reportable Segment | | 2023 | | 2022 | | 2023 | | 2022 | |
| | (dollars in thousands) | |
| | | | | | | (dollars in thousands) | |
| | | | | | | (dollars in thousands) | |
| | | | | | | (dollars in thousands) | |
United States | United States | All | | $ | 498,314 | | | $ | 553,744 | | | $ | 1,523,420 | | | $ | 1,650,610 | | |
United Kingdom | United Kingdom | All | | 40,323 | | | 42,774 | | | 116,889 | | | 125,950 | | |
United Kingdom | |
United Kingdom | |
Other | Other | All | | 78,936 | | | 67,273 | | | 231,973 | | | 203,047 | | |
| $ | 617,573 | | | $ | 663,791 | | | $ | 1,872,282 | | | $ | 1,979,607 | | |
Other | |
Other | |
| | | | | | | $ | |
| | | | | | | $ | |
| | | | | | | $ | |
Contract Assets and Liabilities
Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees were $187.4 million and $116.4 million at September 30, 2023 and December 31, 2022, respectively, and are included as a component of Accounts receivable, net on the Unaudited Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $128.9 million and $93.1 million at September 30, 2023 and December 31, 2022, respectively, and are included on the Unaudited Consolidated Balance Sheets as Expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services. In arrangements in which we are acting as principal, contract assets are included as a component of Accounts receivable on the Unaudited Consolidated Balance Sheet. These assets were $186.6 million and $141.9 million as of March 31, 2024 and December 31, 2023, respectively. In arrangements in which we are acting as agent, contract assets are included on the Unaudited Consolidated Balance Sheet as Expenditures billable to clients. These assets were $111.7 million and $114.1 million as of March 31, 2024 and December 31, 2023, respectively.
Contract liabilities represent advanced billings to customers for fees and reimbursements of third-party costs, whether we act as principal or agent. Such fees and reimbursements of third-party costs are classified as Advance billings on the Company’s Unaudited Consolidated Balance Sheets.Sheet. In arrangements in which we are acting as an agent, the recognition related to the contract liability is presented on a net basis within the Unaudited Consolidated Statements of Operations. Advance billings at September 30, 2023March 31, 2024 and December 31, 20222023 were $335.6$302.5 million and $337.0$301.7 million, respectively. The decreaseincrease in Advance billings of $1.4$0.8 million for the ninethree months ended September 30, 2023March 31, 2024 was primarily driven by $185.8 million of revenue recognized that was included in the Advance billings balances as of December 31, 2023, the incurrence of third-party costs, offset by cash payments received or due in advance of satisfying our performance obligations, offset by $300.2obligations.
The Company acquired $5.5 million in contact assets and $8.8 million in contact liabilities in connection with the acquisition of revenues recognized that wereEpiphany. See Note 3 of the Notes included in the Advance billings balances as of December 31, 2022 and reductions dueherein for additional information related to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the ninethree months ended September 30, 2023March 31, 2024 were not materially impacted by write offs, impairment losses or any other factors.
Unsatisfied Performance Obligations
The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we had approximately $122.5$93.4 million of unsatisfied performance obligations as of September 30, 2023March 31, 2024 of which we expect to recognize approximately 30% in 2023, 57%76% in 2024, 23% in 2025 and 13%1% in 2025.2026.
4.5. Earnings (Loss) Per Share
The following tablestable set forth the computations of basic and diluted loss per common share for the three and nine months ended September 30, 2023March 31, 2024 (amounts in thousands, except per share amounts):
| | | | | | | |
| Three Months Ended September 30,March 31, | | |
| 20232024 | | |
EarningsLoss Per Share - Basic | | | |
Numerator: | | | |
Net incomeloss | $ | 3,117 (713) | | | |
| | | |
Net incomeloss attributable to Class C shareholders | 1,047 | | (33) | | |
Net income attributable to other equity interest holders | (1,616) | | (2,431) | | |
Net income attributable to noncontrolling and redeemable noncontrolling interests | (569) | | (2,464) | | |
| | | |
Net incomeloss attributable to Stagwell Inc. common shareholders | $ | 653 (1,282) | | | |
| | | |
Denominator: | | | |
Weighted average number of common shares outstanding | 110,787112,633 | | | |
EarningsLoss Per Share - Basic | $ | 0.01(0.01) | | | |
| | | |
| | | |
EarningsLoss Per Share - Diluted | | | |
Numerator: | | | |
Net incomeloss attributable to Stagwell Inc. common shareholders | $ | 653 (1,282) | | | |
NetAdjustment to net loss: | |
Fair value adjustment for deferred acquisition obligations (net of income attributable to Class C shareholderstax expense) | (224) | | 33 | | |
| $ | 686 (1,506) | | | |
| | | |
Denominator: | | | |
Basic - Weighted Average number of common shares outstanding | 110,787112,633 | | | |
Dilutive shares: | | | |
Stock appreciation rights | 407 | | | |
Restricted share and restricted unit awards | 2,139 | | | |
Employee Stock Purchase Plan shares | 24 | | | |
Class A shares | 113,357 | | | |
Class C shares | 151,649 | | | |
Diluted - Weighted average number of common shares outstanding | 265,006 | | | |
| | | |
Earnings Per Share - Diluted | $ | 0.00 | | | |
| | | |
Anti-dilutive: | | | |
Class A Shares to settle deferred acquisition obligations | 7,4803,772 | | | |
| | | | | |
| | Nine Months Ended September 30,
| | 2023
Earnings Per Share - Basic | |
Numerator: | |
Net loss | $ | (12,145) | |
| |
Net loss attributable to Class C shareholders | 7,684 | |
Net loss attributable to other equity interest holders | 864 | |
Net loss attributable to noncontrolling and redeemable noncontrolling interests | 8,548 | |
| |
Net loss attributable to Stagwell Inc. common shareholders | $ | (3,597) | |
| |
Denominator: | |
Dilutive - Weighted average number of common shares outstanding | 118,772116,405 | |
EarningsLoss Per Share - Basic & Diluted | $ | (0.03)(0.01) | |
| |
Anti-dilutive: | |
Class C Shares | 151,649 | |
Stock Appreciation Rights and Restricted Awards | 5,5324,531 | |
| Class A Shares to settle deferred acquisition obligations | 6,843 |
Employee Stock Purchase Plan shares | 7249 | |
The following table sets forth the computations of basic and diluted earnings per common share for the three and nine months ended September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | | Nine Months Ended September 30, |
| | 2022 | | | 2022 |
Earnings Per Share - Basic | | (amounts in thousands, except per share amounts) |
Numerator: | | | | | |
Net income | | $ | 35,274 | | | | $ | 93,415 | |
| | | | | |
Net income attributable to Class C shareholders | | (19,286) | | | | (51,027) | |
Net income attributable to other equity interest holders | | (5,379) | | | | (8,641) | |
Net income attributable to noncontrolling and redeemable noncontrolling interests | | (24,665) | | | | (59,668) | |
| | | | | |
Net income attributable to Stagwell Inc. common shareholders | | $ | 10,609 | | | | $ | 33,747 | |
| | | | | |
Denominator: | | | | | |
Weighted Average number of common shares outstanding | | 125,384 | | | | 124,710 | |
| | | | | |
Earnings Per Share - Basic | | $ | 0.08 | | | | $ | 0.27 | |
| | | | | |
Earnings Per Share - Diluted | | | | | |
Numerator: | | | | | |
Net income attributable to Stagwell Inc. common shareholders | | $ | 10,609 | | | | $ | 33,747 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Denominator: | | | | | |
Basic - Weighted Average number of common shares outstanding | | 125,384 | | | | 124,710 | |
| | | | | |
Stock appreciation right awards | | 1,837 | | | | 1,885 | |
Restricted share and restricted unit awards | | 3,277 | | | | 4,955 | |
Dilutive - Weighted average number of common shares outstanding | | 130,498 | | | | 131,550 | |
| | | | | |
| | | | | |
Earnings Per Share - Diluted | | $ | 0.08 | | | | $ | 0.26 | |
| | | | | |
| | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | 2023 |
Earnings Per Share - Basic | | | | | (amounts in thousands, except per share amounts) |
Numerator: | | | | | |
Net loss | | | | | $ | (2,869) | |
| | | | | |
Net loss attributable to Class C shareholders | | | | | 1,963 | |
Net loss attributable to other equity interest holders | | | | | 2,295 | |
Net loss attributable to noncontrolling and redeemable noncontrolling interests | | | | | $ | 4,258 | |
| | | | | |
Net income attributable to Stagwell Inc. common shareholders | | | | | $ | 1,389 | |
| | | | | |
Denominator: | | | | | |
Weighted Average number of common shares outstanding | | | | | 125,199 | |
Earnings Per Share - Basic | | | | | $ | 0.01 | |
| | | | | |
Earnings Per Share - Diluted | | | | | |
Numerator: | | | | | |
Net income attributable to Stagwell Inc. common shareholders | | | | | $ | 1,389 | |
Net loss attributable to Class C shareholders | | | | | (1,963) | |
| | | | | $ | (574) | |
| | | | | |
| | | | | |
Denominator: | | | | | |
Basic - Weighted Average number of common shares outstanding | | | | | 125,199 | |
Dilutive shares: | | | | | |
Stock appreciation right awards | | | | | 1,929 | |
Restricted share and restricted unit awards | | | | | 1,769 | |
| | | | | |
Class C Shares | | | | | 160,909 | |
Dilutive - Weighted average number of common shares outstanding | | | | | 289,806 | |
| | | | | |
| | | | | |
Earnings Per Share - Diluted | | | | | $ | — | |
| | | | | |
Restricted stock awards of 3.74.6 million and 2.30.7 million as of September 30,March 31, 2024 and 2023, and 2022, respectively, were excluded from the computation of diluted earnings (loss) per common share because the performance contingencies necessary for vesting were not met as of the reporting date.
5.
6. Deferred Acquisition Consideration
Deferred acquisition consideration on the Unaudited Consolidated Balance SheetsSheet consists of deferred obligations related to contingent and fixed purchase price payments, and contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recordedArrangements that are not contingent upon future employment are initially measured at the acquisition date fair value and adjustedare remeasured at each reporting period within Office and general expenses on the Unaudited Consolidated Statements of Operations.
Arrangements that are contingent upon future employment are expensed as earned over the respective vesting (employment) period within Office and general expenses on the Unaudited Consolidated Statements of Operations. The following table presents changes in deferred acquisition consideration measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the Unaudited Consolidated Balance SheetsSheet as of September 30, 2023March 31, 2024 and Consolidated Balance Sheet as of December 31, 2022:2023:
| | September 30, 2023 | | December 31, 2022 |
| (dollars in thousands) |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (dollars in thousands) | | | (dollars in thousands) |
Beginning balance | Beginning balance | $ | 161,323 | | | $ | 222,369 | |
Payments (1) | Payments (1) | (60,806) | | | (74,963) | |
Adjustments to deferred acquisition consideration (2) | Adjustments to deferred acquisition consideration (2) | 10,881 | | | (12,779) | |
Additions (3) | Additions (3) | 22,172 | | | 26,594 | |
Currency translation adjustment | Currency translation adjustment | 140 | | | (758) | |
Other | Other | 27 | | | 860 | |
Ending balance (4) | Ending balance (4) | $ | 133,737 | | | $ | 161,323 | |
|
(1) Includes deferred acquisition consideration payments settled in the shares of Class A Common Stock of $20.1$32.8 million and $1.0 million, respectively, for the period ended September 30, 2023 and December 31, 2022.2023.
(2) AdjustmentAdjustments to deferred acquisition consideration contains fair value changes from the Company’s initial estimates of deferred acquisition payments.payments and accretion of expense as awards are earned over the vesting period.
(3) In 2021, the Company entered into an agreement to purchase the remaining 26.7% interest in Targeted Victory it did not previously own. The agreement provided for the purchase of 50% of the interest on October 1, 2021 (payable(paid in October 2023) and 50% on July 31, 2023 (payable in October 2025 with a seller’s right to defer until October 2027). In connection with the purchase, the estimated amount payable in October 2025, was reclassified from redeemable noncontrolling interest to deferred acquisition consideration.consideration in 2023.
(4) The contingent and fixed deferred acquisition consideration obligation was $90.9$56.8 million and $42.8$44.0 million, respectively, as of September 30, 2023March 31, 2024 and $69.9$57.5 million and $91.4$43.6 million, respectively, as of December 31, 2022.2023. The deferred acquisition consideration as of September 30,March 31, 2024 and December 31, 2023, includes $42.6$30.3 million and $29.3 million, respectively, expected to be settled in shares of Class A Common Stock.
6.7. Leases
The Company leases office space in North America, Europe, Asia, South America, Africa, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years 20232024 through 2034. The Company’s finance leases are immaterial.
Lease costs are recognized in the Unaudited Consolidated Statements of Operations over the lease term on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset.
Some of the Company’s leases include options to extend or renew the leases through 2044. The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option.
From time to time, the Company enters into sublease arrangements with unrelated third parties. These leasessubleases are classified as operating leases and expire between years 20232024 through 2032. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America and Europe.
As of September 30, 2023,March 31, 2024, the Company entered into threetwo operating leases for which the commencement date has not yet occurred primarily because of the premises being prepared for occupancy by the landlord. Accordingly, these threetwo leases
represent an obligation of the Company that is not reflected within the Unaudited Consolidated Balance SheetsSheet as of September 30, 2023.March 31, 2024. The aggregate future liability related to these leases is approximately $6.0$2.9 million.
The discount rate used for leases accounted for under the FASB’s Accounting Standards Codification (“ASC”)ASC 842 is the Company’s collateralized credit adjusted borrowing rate.
The following table presents lease costs and other quantitative information for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:
| | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 | |
Lease Cost: | Lease Cost: | (dollars in thousands) | |
Lease Cost: | |
Lease Cost: | | | | | | (dollars in thousands) |
Operating lease cost | Operating lease cost | $ | 19,029 | | $ | 19,966 | | $ | 57,557 | | $ | 54,929 | |
Variable lease cost | Variable lease cost | 5,517 | | 4,759 | | 15,735 | | 13,963 | |
Variable lease cost | |
Variable lease cost | |
Sublease rental income | |
Sublease rental income | |
Sublease rental income | Sublease rental income | (1,903) | | (3,636) | | (7,519) | | (11,128) | |
Total lease cost | Total lease cost | $ | 22,643 | | $ | 21,089 | | $ | 65,773 | | $ | 57,764 | |
Total lease cost | |
Total lease cost | |
Additional information: | |
Additional information: | |
Additional information: | Additional information: | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | Cash paid for amounts included in the measurement of lease liabilities for operating leases | | |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | |
Cash paid for amounts included in the measurement of lease liabilities for operating leases | |
Operating cash flows | |
Operating cash flows | |
Operating cash flows | Operating cash flows | $ | 22,823 | | $ | 22,694 | | $ | 67,095 | | $ | 69,827 | |
| Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments | $ | 8,145 | | $ | 5,189 | | $ | 14,681 | | $ | 27,878 | |
Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments (1) | |
| Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments (1) | |
| Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments (1) | |
|
(1) Includes Right-of-use lease assets obtained in exchange for operating lease liabilities related to acquisitions.
As of September 30, 2023,March 31, 2024, the weighted average remaining lease term (in years)was 6.3 years and the weighted average discount rate were 6.4 and 5.1%, respectively.was 5.5%.
Operating lease expense is included in Office and general expenses in the Unaudited Consolidated Statements of Operations. The Company’s lease expense for leases with a term of 12 months or less is immaterial.
ForIn the three months ended September 30, 2023,March 31, 2024, the Company did not record an impairment for leases. In the nine months ended September 30, 2023, the Company recordedcompany ceased using certain office space and as such recognized a charge of $9.2$1.5 million to reduce the carrying value of two of its right-of-use lease assets and related leasehold improvements. The right-of-use lease assets related to agencies within the Integrated Agencies Network.
In the three and nine months ended September 30, 2022, the Company recorded a charge of $1.7 million and $2.0 million, respectively, primarily to reduce the carrying value of one of its right-of-use lease assets and related leasehold improvements. The right-of-use lease assets and related leasehold improvements related to an agency within the Integrated Agencies Network.
With regard to the aforementioned impairments, the Company evaluated the facts and circumstances related to the use of the assets which indicated that they may not be recoverable. Using estimated sublease income to develop expected future cash flows, it was determined that the fair value of the assets were less than their carrying value. The impairment charges arecharge is included in Impairment and other losses within the Unaudited Consolidated Statements of Operations.
The following table presents minimum future rental payments under the Company’s leases as of September 30, 2023March 31, 2024 and their reconciliation to the corresponding lease liabilities:
| | | Maturity Analysis | | Maturity Analysis |
| (dollars in thousands) |
Remaining 2023 | $ | 20,220 | |
| (dollars in thousands) | | | (dollars in thousands) |
2024 | 2024 | 79,852 | |
2025 | 2025 | 63,117 | |
2026 | 2026 | 51,672 | |
2027 | 2027 | 47,110 | |
2028 | |
Thereafter | Thereafter | 139,394 | |
Total | Total | 401,365 | |
Less: Present value discount | Less: Present value discount | (62,105) | |
Lease liability | Lease liability | $ | 339,260 | |
7.8. Debt
As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company’s indebtedness was comprised as follows:
| | March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (dollars in thousands) | | | (dollars in thousands) |
Credit Agreement | |
| | September 30, 2023 | | December 31, 2022 |
| (dollars in thousands) |
Credit Agreement | $ | 412,000 | | | $ | 100,000 | |
5.625% Notes | |
5.625% Notes | |
5.625% Notes | 5.625% Notes | 1,100,000 | | | 1,100,000 | |
Debt issuance costs | Debt issuance costs | (13,871) | | | (15,293) | |
5.625% Notes, net of debt issuance costs | |
Total long-term debt | Total long-term debt | $ | 1,498,129 | | | $ | 1,184,707 | |
|
Interest expense related to long-term debt included in Interest expense, net on the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30,March 31, 2024 and 2023, was $25.3$20.4 million and $65.9 million, respectively, and for the three and nine months ended September 30, 2022 was $19.0 million and $54.9$18.3 million, respectively.
The amortization of debt issuance costs included in Interest expense, net on the Unaudited Consolidated Statements of Operations for the three and nine months ended September 30,March 31, 2024 and 2023 was $0.7 million and $2.5 million, respectively, and for the three and nine months ended September 30, 2022 was $0.6 million and $1.8 million, respectively.
Revolving Credit Agreement
The Company is party to a senior secured revolving credit facility with a five-year maturity with a syndicate of banks (the “Credit Agreement”). On May 4, 2023, the Company amended theThe Credit Agreement to, among other things, increase theprovides revolving commitments under the Credit Agreement by $140.0 million from $500.0 millionof up to $640.0 million and permitpermits restricted payments for share repurchases or redemptions from certain of its stockholders in an aggregate principal amount of up to $150.0 million.
The Credit Agreement contains sub-limits for revolving loans denominated in pounds and euros not to exceed the U.S. dollar equivalent of $50.0 million in pounds and $50.0 million in euros and $100.0 million in the aggregate. Additionally, the Credit Agreement contains a $15.0 million sub-limit for letters of credit denominated in pounds or euros.
Borrowings pursuant to the Credit Agreement bear interest at a rate equal to, at the Company’s option, (i) the greatest of (a) the prime rate of interest in effect on such day, (b) the federal funds effective rate plus 0.50% and (c) the Secured Overnight Financing Rate (“SOFR”) plus 0.10%, plus 1% in each case, plus the applicable margin (calculated based on the Company’s Total Leverage Ratio, as defined in the Credit Agreement) at that time or (ii) the SOFR rate plus 0.10% plus the applicable margin (calculated based on the borrowers’ total leverage ratio) at that time.
Advances under the Credit Agreement may be prepaid in whole or in part from time to time without penalty or premium. The Credit Agreement commitment may be reduced by the Company from time to time. Principal amounts outstanding under the Credit Agreement are due and payable in full at maturity on August 3, 2026.
The Credit Agreement contains a number of financial and nonfinancial covenants and is guaranteed by substantially all of our present and future subsidiaries, subject to customary exceptions. The Company was in compliance with all covenants as of September 30, 2023.March 31, 2024.
A portion of the Credit Agreement in an amount not to exceed $50.0 million is available for the issuance of standby letters of credit. As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company had issued undrawn outstanding letters of credit of $24.9$15.8 million and $25.3$16.2 million, respectively.
Senior Notes
The Company had $1.1 billion aggregate principal amount of 5.625% senior notes (“5.625% Notes”) outstanding as of September 30, 2023.March 31, 2024. The 5.625% Notes are due August 15, 2029 and bear annual interest of 5.625% to be paid semiannually on February 15 and August 15 of each year, commencing on February 15, 2022.year.
The 5.625% Notes are guaranteed on a senior unsecured basis by substantially all of the Company’s subsidiaries. The 5.625% Notes rank (i) equally in right of payment with all of the Company’s or any guarantor’s existing and future unsubordinated indebtedness, (ii) senior in right of payment to the Company’s or any guarantor’s existing and future subordinated indebtedness, (iii) effectively subordinated to any of the Company’s or any guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness, including the Credit Agreement, and (iv) structurally subordinated to all existing and future liabilities of the Company’s subsidiaries that are not guarantors.
Our obligations under the 5.625% Notes are unsecured and are effectively junior to our secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. Borrowings under the Credit Agreement are secured by
substantially all of the assets of the Company, and any existing and future subsidiary guarantors, including all of the capital stock of each restricted subsidiary.
The Company may, at its option, redeem the 5.625% Notes in whole at any time or in part from time to time, on and after August 15, 2024 at a redemption price of 102.813% of the principal amount thereof if redeemed during the twelve-month period beginning on August 15, 2024, at a redemption price of 101.406% of the principal amount thereof if redeemed during the twelve-month period beginning on August 15, 2025 and at a redemption price of 100% of the principal amount thereof if redeemed on August 15, 2026 and thereafter. Prior to August 15, 2024, the Company may, at its option, redeem some or all of the 5.625% Notes at a price equal to 100% of the principal amount of the 5.625% Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to August 15, 2024, up to 40% of the 5.625% Notes with the net proceeds from one or more equity offerings at a redemption price of 105.625% of the principal amount thereof.
If the Company experiences certain kinds of changes of control (as defined in the indenture), holders of the 5.625% Notes may require the Company to repurchase any 5.625% Notes held by them at a price equal to 101% of the principal amount of the 5.625% Notes plus accrued and unpaid interest. In addition, if the Company sells assets under certain circumstances, it may be required to use the net sale proceeds (as defined in the indenture) to offer to repurchase the 5.625% Notes at a price equal to 100% of the principal amount of the 5.625% Notes plus accrued and unpaid interest, up to the net sale proceeds amount.
The indenture includes covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries (as defined in the indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of the Company; make certain types of investments; create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 5.625% Notes are also subject to certain covenants, customary events of default, including cross-payment default and cross-acceleration provisions. The Company was in compliance with all covenants as of September 30, 2023.March 31, 2024.
8.9. Noncontrolling and Redeemable Noncontrolling Interests
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as Noncontrolling interests within Shareholder’sShareholders’ Equity in the Unaudited Consolidated Balance Sheets.Sheet. Where the incremental purchase may be required of the Company, the amounts are recorded as Redeemable noncontrolling interests in mezzanine equity in the Unaudited Consolidated Balance SheetsSheet at their estimated acquisition date redemption value and adjusted at each
reporting period for changes to their estimated redemption value through Retained earnings (but not less than their initial redemption value), except for foreign currency translation adjustments.
The following table presents Net income (loss) attributable to noncontrolling and redeemable noncontrolling interests between holders of Class C common stock, par value $0.00001 per share (the “Class C Common Stock”)shareholders and other equity interest holders for the three and nine months ended September 30, 2023March 31, 2024 and 2022:2023:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | |
| (dollars in thousands) | |
Net income (loss) attributable to Class C shareholders | $ | 33 | | | $ | 19,286 | | | $ | (7,684) | | | $ | 51,027 | | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | |
| | | | | (dollars in thousands) | |
| | | | | (dollars in thousands) | |
| | | | | (dollars in thousands) | |
Net loss attributable to Class C shareholders | |
Net income attributable to other equity interest holders | Net income attributable to other equity interest holders | 1,001 | | | 2,287 | | | 1,221 | | | 4,083 | | |
Net income (loss) attributable to noncontrolling interests | $ | 1,034 | | | $ | 21,573 | | | $ | (6,463) | | | $ | 55,110 | | |
Net income attributable to other equity interest holders | |
Net income attributable to other equity interest holders | |
Net loss attributable to noncontrolling interests | |
Net loss attributable to noncontrolling interests | |
Net loss attributable to noncontrolling interests | |
Net income (loss) attributable to redeemable noncontrolling interests | |
Net income (loss) attributable to redeemable noncontrolling interests | |
Net income (loss) attributable to redeemable noncontrolling interests | Net income (loss) attributable to redeemable noncontrolling interests | 1,430 | | | 3,092 | | | (2,085) | | | 4,558 | | |
Net income (loss) attributable to noncontrolling and redeemable noncontrolling interests | Net income (loss) attributable to noncontrolling and redeemable noncontrolling interests | $ | 2,464 | | | $ | 24,665 | | | $ | (8,548) | | | $ | 59,668 | | |
Net income (loss) attributable to noncontrolling and redeemable noncontrolling interests | |
Net income (loss) attributable to noncontrolling and redeemable noncontrolling interests | |
The following table presents noncontrolling interests between holders of Class C Common Stockshareholders and other equity interest holders as of September 30, 2023March 31, 2024 and December 31, 2022:2023:
| | September 30, 2023 | | December 31, 2022 |
| (dollars in thousands) |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (dollars in thousands) | | | (dollars in thousands) |
Noncontrolling interest of Class C shareholders | Noncontrolling interest of Class C shareholders | $ | 393,763 | | | $ | 428,406 | |
Noncontrolling interest of other equity interest holders | 29,674 | | | 33,691 | |
Noncontrolling interest of other equity interest holders (1) | |
Total noncontrolling interests | Total noncontrolling interests | $ | 423,437 | | | $ | 462,097 | |
(1) In January 2024, the Company entered into an agreement to purchase the remaining ownership interest in a subsidiary it previously controlled, the consideration for which was a portion of the subsidiary that was transferred to the noncontrolling interest owner. The non-cash purchase resulted in a reduction of the subsidiary noncontrolling interest by approximately $10 million.
The following table presents changes in redeemable noncontrolling interests:
| | September 30, 2023 | | December 31, 2022 |
| (dollars in thousands) |
| March 31, 2024 | | | March 31, 2024 | | December 31, 2023 |
| (dollars in thousands) | | | (dollars in thousands) |
Beginning balance | Beginning balance | $ | 39,111 | | | $ | 43,364 | |
Redemptions (1) | Redemptions (1) | (22,172) | | | (1,400) | |
| Distributions | Distributions | (5,374) | | | (2,822) | |
Distributions | |
Distributions | |
Changes in redemption value | Changes in redemption value | 621 | | | (8,711) | |
| Net income (loss) attributable to redeemable noncontrolling interests | Net income (loss) attributable to redeemable noncontrolling interests | (2,085) | | | 8,135 | |
Net income (loss) attributable to redeemable noncontrolling interests | |
Net income (loss) attributable to redeemable noncontrolling interests | |
Other | Other | (16) | | | 545 | |
Ending balance | Ending balance | $ | 10,085 | | | $ | 39,111 | |
(1) Redemptions for the nine monthsyear ended September 30,December 31, 2023, is associated with redeemable noncontrolling interest of a certain brand we did not previously own. The amount was reclassified as a deferred acquisition contingent obligation (see Note 5)6).
The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 20232024 to 2027.2028. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights.
The redeemable noncontrolling interest of $10.1$11.3 million as of September 30, 2023,March 31, 2024, consists of $6.2$7.8 million, assuming that the subsidiaries meet certain performance metrics, and $3.9$3.5 million upon termination of such owner’s employment with the applicable subsidiary or death.
These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. As such, there is no related impact on the Company’s earnings (loss) per share calculations for the three and nine months ended September 30, 2023March 31, 2024 and 2022.2023.
Comprehensive LossIncome (Loss) Attributable to Noncontrolling and Redeemable Noncontrolling Interests
For the three months ended September 30,March 31, 2024, comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests was $3.7 million, which consists of $0.6 million of net income and $4.3 million of other comprehensive loss.
For the three months ended March 31, 2023, comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests was $5.5$2.0 million, which consists of $2.5 million of net income and $7.9 million of other comprehensive loss.
For the nine months ended September 30, 2023, comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests was $34.8 million, which consists of $8.5$4.3 million of net loss and $26.3$2.2 million of other comprehensive loss.income.
9.10. Commitments, Contingencies, and Guarantees
Legal Proceedings. The Company’s operating entities are involved in legal proceedings and regulatory inquiries of various types. While any litigation or investigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company.
Guarantees. Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees
typically extend for a number of years. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying unaudited consolidated financial statementsUnaudited Consolidated Financial Statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable.
Commitments. At September 30, 2023,March 31, 2024, the Company had $24.9$15.8 million of undrawn letters of credit outstanding. See Note 8 of the Notes included herein for additional information.
The Company entered into threetwo operating leases for which the commencement date has not yet occurred as of September 30, 2023.March 31, 2024. See Note 67 of the Notes included herein for additional information.
In the ordinary course of business, the Company may enter into long-term, non-cancellable contracts with partner associations that include revenue or profit-sharing commitments related to the provision of its services. These contracts may also include provisions that require the partner associations to meet certain performance targets prior to any obligation to the Company. As of September 30, 2023,March 31, 2024, the Company estimates its future minimum commitments under these non-cancellable agreements to be: $2.7 million, $6.8 million, $6.6 million, $4.0 million, $2.9 million and $6.8$5.2 million for the remainder of 2023, 2024, and $6.9 million, $4.2 million, $3.0 million, $3.1 million and $3.8 million for 2025, 2026, 2027, 2028, and thereafter, respectively.
The Company has also entered into a certain long-term, non-cancellable contract with a certain vendor for cloud services that requires the Company to commit to minimum spending over the contract term. As of March 31, 2024, the Company estimates its future minimum commitments under this agreement to be: $5.5 million for the remainder of 2024, and $6.9 million, $8.7 million, $10.4 million, $12.7 million and $15.3 million for 2025, 2026, 2027, 2028, and thereafter, respectively.
10.11. Share Capital
The authorized and outstanding share capital of the Company is below.
Class A Common Stock
There are 1.0 billion shares of Class A Common Stock authorized, of which 115.9114.8 million shares were issued and outstanding as of September 30, 2023.March 31, 2024. Each share of Class A Common Stock carries one vote and represents an economic interest in the Company.
During the nine months ended September 30, 2023, each remaining shareClass C Common Stock
There are 250.0 million shares of Class C Common Stock authorized, par value $0.00001 per share (the “Class C Common Stock”) of which 151.6 million shares were issued and outstanding as of September 30, 2023.March 31, 2024. Each share of Class C Common Stock carries one vote and does not represent an economic interest in the Company. Each share of Class C Common Stock is paired with a corresponding common unit of Stagwell Global LLC (“OpCo”)OpCo (each such paired share of Class C Common Stock and common unit of OpCo, a “Paired Unit”). Each holder of Paired Units may, at its option, exchange such Paired Units for shares of Class A Common Stock on a one-to-one basis (i.e., one Paired Unit for one share of Class A Common Stock).
In the three and nine months ended September 30, 2023, holders of the Paired Units exchanged approximately nil and 9.3 million Paired Units, respectively, for the same number of shares of Class A Common Stock.
Class A Common Stock Repurchases
The Company may purchase up to an aggregate of $250.0 million ofshares of outstanding Class A Common Stock under its stock repurchase program (the “Repurchase Program”) as well as repurchases outside of the Repurchase Program.
On March 1, 2023, the Company’s board of directors (the “Board”) authorized an extension and a $125.0 million increase in the size of the Repurchase Program to an aggregate of $250.0 million, with any previous purchases under the Repurchase Program continuing to count against that limit.. The Repurchase Program as amended, will expireexpires on March 1, 2026.
Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices, including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice. Our boardBoard of directorsDirectors (the “Board”) will review the Repurchase Program periodically and may authorize adjustments of its terms.
During the ninethree months ended September 30, 2023, 6.7March 31, 2024, 4.0 million shares of Class A Common Stock were repurchased pursuant to the Repurchase Program at an aggregate value, excluding fees, of $42.5$24.6 million. These shares were repurchased at an average price of $6.38$6.11 per share. The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $155.7$114.0 million as of September 30, 2023.
In addition to the repurchases under the Repurchase Program, on May 23, 2023, the Company repurchased approximately 23.3 million shares of Class A Common Stock from certain affiliates of AlpInvest Partners B.V. at a price of $6.43 per share, for an aggregate total repurchase price of approximately $150.0 million.March 31, 2024.
Employee Stock Purchase Plan
The Board adopted the 2023 Employee Stock Purchase Plan (the “ESPP”), which was approved at the Company’s annual meeting of shareholders held on June 14, 2023. A total of 3.0 million shares of Class A Common Stock isare reserved for sale under the ESPPEmployee Stock Purchase Plan (the “ESPP”) to eligible employees as defined in the plan. Under the ESPP, eligible employees can elect to withhold up to 15% of their earnings, subject to certain maximums, to purchase shares of Class A Common Stock on certain plan-defined dates. The purchase price for each offering period is 92.5% of the fair market value of shares of Class A Common Stock at the end of the offering period. The plan is considered compensatory resulting in the fair value of the discount being expensed over the service period.
The total number of shares authorized that remained available to be issued was 2.9 million as of March 31, 2024. During the three and nine months ended September 30, 2023,March 31, 2024, there were no material costsexpenses incurred by the Company related to the ESPP and contributions to the ESPP were nominal.
11.12. Fair Value Measurements
A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below:
•Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
•Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
•Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The following table presents certain information for our financial liability that is not measured at fair value on a recurring basis as of September 30, 2023March 31, 2024 and December 31, 2022:2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (dollars in thousands) |
5.625% Notes | $ | 1,100,000 | | | $ | 881,705 | | | $ | 1,100,000 | | | $ | 902,000 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (dollars in thousands) |
5.625% Notes | $ | 1,100,000 | | | $ | 1,002,496 | | | $ | 1,100,000 | | | $ | 1,010,658 | |
The fair value of this instrument is based on quoted market prices in markets that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy.
Financial Instruments Measured at Fair Value on a Recurring Basis
Contingent deferred acquisition consideration (Level 3 fair value measurement) is initially recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with models of each business’ future performance, including revenue growth and free cash flows. These models are dependent upon significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate. These growth rates are consistent with the Company’s long-term forecasts. As of September 30, 2023,March 31, 2024, the discount rate used to measure these liabilities ranged from 5.2%9.1% to 5.6%9.9%.
As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation, the fair value measurements presented on the Unaudited Consolidated Balance SheetsSheet are subject to material uncertainty.
See Note 56 of the Notes included herein for additional information regarding contingent deferred acquisition consideration.
As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the carrying amount of the Company’s financial instruments, including cash, cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill, intangible assets (Level 3 fair value measurements) and right-of-use lease assets (Level 2 fair value measurement). Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment.
The Company recognized an impairment of an intangible asset for the nine months ended September 30, 2023. The Company recognized an impairment of goodwill in the three and nine months ended September 30, 2022. See Note 127 of the Notes included herein for additional information.
The Company recognized an impairment ofinformation on right-of-use lease assets for the nine months ended September 30, 2023 and for the three and nine months ended September 30, 2022. See Note 6 of the Notes included herein for additional information.assets.
12.13. Supplemental Information
Stock Based Awards
Stock-based compensation recognized for awards authorized under the Company’s employee stock incentive plans during the ninethree months ended September 30,March 31, 2024 and 2023 and 2022 was $33.3$12.8 million and $26.3$7.4 million, respectively. This increase was included as a component of stock-based compensation in Office and general expenses and Cost of services within the Unaudited Consolidated Statements of Operations.
On June 14, 2023, the Company’s compensation committee approved the modification of certain stock appreciation right awards. The modification provides the grantees the option to settle the awards in either cash or Class A Common Stock. As a result, the Company recognized $4.3 million and $0.5 million of incremental stock-based compensation expense for the three and nine months ended September 30, 2023, respectively, and a liability of $6.0 million as of September 30, 2023. The incremental expense is included in Office and general expenses in the Unaudited Consolidated Statement of Operations. The associated liability is included in Accruals and other liabilities in the Unaudited Consolidated Balance Sheets.
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the respective subsidiary (the “profits interests awards”). The awards generally provide the employee the right, but not the obligation, to sell their profits interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, receive a profit share distribution. The profits interests awards are primarily settled in cash, with certain awards having stock-settlement provisions at the Company’s discretion. The corresponding liability associated with these profits interests awards was $17.3$19.8 million and $21.0$20.3 million at September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and is included as a component of Accruals and other liabilities and Other liabilities on the Unaudited Consolidated Balance Sheets.Sheet. Stock-based compensation recognized for these awards was $1.3$1.7 million and $5.6$4.6 million for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively. This was included as a component of stock-based compensation in Cost of services within the Unaudited Consolidated Statements of Operations.
Transfer of Accounts Receivable
The Company transfers certain of its trade receivable assets to third parties under agreements to sell certain of its accounts receivables.agreements. Per the terms of these agreements, the Company surrenders control over its trade receivables upon transfer.
The trade receivables transferred to the third parties were $263.7$69.8 million and $87.9$56.2 million for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively. The amount collected and due to the third parties under these arrangements was $10.1$3.7 million as of September 30, 2023March 31, 2024 and $5.7$1.8 million as of December 31, 2022.2023. Fees for these arrangements were recorded in Office and general expenses in the Unaudited Consolidated Statements of Operations and totaled $4.1$0.9 million and $0.6$1.0 million for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
Impairment and Other Losses
The Company recognized an impairment and other losses charge of $10.6 million for the nine months ended September 30, 2023 related to the impairment of an intangible asset totaling $1.4 million, right-of-use lease assets totaling $6.1 million and its related leasehold improvements totaling $3.1 million.
The intangible asset impairment related to the discontinuation of a trade name in the Brand Performance Network reportable segment.
The Company recognized an impairment and other losses charge of $28.0 million for the nine months ended September 30, 2022, primarily related to the impairment of goodwill totaling $23.5 million, and the impairment of right-of-use lease assets and related leasehold improvements totaling $2.0 million. The goodwill impairment was to write-down the carrying value in excess of the fair value at two reporting units, one within the Brand Performance Network and one within the All Other category. The right-of-use lease asset and related leasehold improvement impairment was recorded in two reporting units, one in Brand Performance Network reporting segment, and one in Integrated Agencies Network reporting segment. The expense was recorded within Impairment and other losses on the Unaudited Consolidated Statements of Operations.
Current Expected Credit Losses
The Company adopted ASC 326, Current Expected Credit Losses, on January 1, 2023, which requires the measurement and recognition of expected credit losses using a current expected credit loss model. The allowance for credit losses on expected future uncollectible accounts receivable is estimated considering forecasts of future economic conditions in addition to information about past events and current conditions. The adoption resulted in an increase in the allowance for accounts receivables and a decrease to opening Retained earnings of $2.1 million, of which $1.4 million was subsequently allocated to noncontrolling interests. These amounts are presented within the “Other” line on the Statement of Shareholders’ Equity.
13.14. Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.
The Company had an income tax expense for the three months ended September 30, 2023March 31, 2024 of $4.3$2.6 million (on a pre-tax income of $7.4$1.4 million resulting in an effective tax rate of 58.1%189.5%) compared to income tax expense of $11.5$0.2 million (on pre-tax incomeloss of $46.6$2.4 million resulting in an effective tax rate of 24.8%(9.8)%) for the three months ended September 30, 2022.March 31, 2023.
The difference in the effective tax rate of 58.1%189.5% in the three months ended September 30, 2023,March 31, 2024, as compared to 24.8%(9.8)% in the three months ended September 30, 2022, March 31, 2023, is due to the change in the pretax income, and relateda reduction in benefit from the disregarded entity structure.
The Company had an income tax expense for the nine months ended September 30, 2023 of $12.4 million (on a pre-tax income of $0.7 million resulting in an effective tax rate of 1709.1%) compared to income tax expense of $20.2 million (on pre-tax income of $112.5 million resulting in an effective tax rate of 17.9%) for the nine months ended September 30, 2022.
The difference in the effective tax rate of 1709.1% in the nine months ended September 30, 2023, as compared to 17.9% in the nine months ended September 30, 2022, is primarily due to the change in pre-tax income, tax benefit of impairments offset bystructure, and an increase in valuation allowance, lowernon-deductible share-based compensation, windfallsoffset by uncertain tax positions added in 2023.
The OECD (Organisation for Economic Co-operation and out-of-period adjustmentsDevelopment) has proposed a global minimum tax of 15% of reported profits (Pillar 2) that has been agreed upon in 2023. See Note 1principle by over 140 countries. During 2023, many countries took steps to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we are still evaluating the Notespotential consequences of Pillar 2 on our longer-term financial position. In 2024, we expect to the Unaudited Consolidated Financial Statements.incur insignificant tax expenses in connection with Pillar 2.
Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the next 12 months, based on the information currently available, we do not expect any change to be material to our unaudited consolidated financial statements.
Tax Receivables Agreement
In connection with the Tax Receivable Agreement (“TRA”), the Company is required to make cash payments to Stagwell Media LP (“Stagwell Media”) equal to 85% of certain U.S. federal, state and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (defined in Note 10)11) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the TRA. The TRA liability is an estimate and actual amounts payable under the TRA could differ from this estimate.
In connection with the exchange of Paired Units for shares of Class A Common Stock, the Company has recognized a TRA liability of $28.7 million and an associated deferred tax asset of $33.8 million as of September 30, 2023 and December 31, 2022. There were no exchanges of Paired Units for shares of Class A Common Stock during 2023.2024. As of March 31, 2024, the Company has recorded a TRA liability of $26.7 million, and an associated deferred tax asset, net of amortization, of $29.0 million, in connection with the exchange of Paired Units and the projected obligations under the TRA.
14.15. Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, including its affiliates. The transactions may range in the nature and value of services underlying the arrangements. The following table presents significant related party transactions where a thirdrelated party receives services from the Company:
| | | | | Total Transaction Value | |
| | | | Total Transaction Value | |
| | | | Total Transaction Value | | | | | | | Revenue | | Due From Related Party |
| | | | | | | Three Months Ended March 31, | | | | | | | | | Three Months Ended March 31, | | March 31, 2024 | | December 31, 2023 |
Services | |
| | | | (dollars in thousands) | |
| | | | (dollars in thousands) | |
| | | | (dollars in thousands) | |
Marketing and advertising services (1) | |
Marketing and advertising services (1)(2) | |
Marketing and website development services (3) | |
Polling services (4) | |
Polling services (4)(5) | |
| | | Total Transaction Value | | Revenue | | Due From Related Party |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | September 30, 2023 | | December 31, 2022 |
Services | | | | 2023 | | 2022 | | 2023 | | 2022 | | |
| | | (dollars in thousands) |
Marketing and advertising services (1)(2) | | | Continuous (7) | | $ | 665 | | | $ | 718 | | | $ | 1,823 | | | $ | 866 | | | | $ | 1,544 | | | $ | 1,029 | |
Marketing and advertising services (2) | | | $3,576 and Continuous (7) | | 600 | | | 966 | | | 1,193 | | | 2,038 | | | | 4,283 | | | 4,831 | |
Marketing and website development services (3) | | | $7,165 and Continuous (7) | | 759 | | | 2,658 | | | 2,702 | | | 6,945 | | | | 609 | | | 488 | |
Polling services (4)(5) | | | $1,903 | | 670 | | | 93 | | | 962 | | | 303 | | | | 420 | | | 280 | |
Polling services (5) | | | $797 | | 116 | | | 109 | | | 282 | | | 477 | | | | 169 | | | — | |
Polling services (6) | | | $4,431 | | 90 | | | 1,295 | | | 1,046 | | | 2,248 | | | | 7 | | | — | |
| Total | Total | | | | $ | 2,900 | | | $ | 5,839 | | | $ | 8,008 | | | $ | 12,877 | | | | $ | 7,032 | | | $ | 6,628 | |
| Total | |
| Total | |
(1) A member of the Company’s boardCompany's Board was the President of directors holdsa client. This person retired from his position, and is no longer an executive leadership position or is on the board of directorsemployee of the client.client effective January 2, 2024
(2) Brands’ partners and executives either hold a key leadership position in or are on the board of directors of the client.
(3) Client has a significant interest in the Company.
(4) A family member of the Company’s Chief Executive Officer holds a key leadership position in the client.
(5) A family member of the Company’s President holds a key leadership position in the client.
(6) Founder of the client has significant interest in the Company.
(7) Certain of the contractual arrangements within these transactions were entered into for an indefinite term and are invoiced as services are provided, while others have a fixed definitive contract value.
In 2019, a Brand entered into a loan agreement with a related party who holds a minority interest in the Brand. The loan receivable of $1.2$0.4 million and $3.6$0.8 million due from the third party is included within Other current assets in the Company’s Unaudited Consolidated Balance SheetsSheet as of September 30, 2023March 31, 2024 and Consolidated Balance Sheet as of December 31, 2022,2023, respectively. The Company recognized less than $0.1 million and $0.2less than $0.1 million for the three and nine months ended September 30,March 31, 2024 and 2023, respectively, and $0.1 million and $0.2 million for the three and nine months ended September 30, 2022, respectively, of interest income within Interest expense, net on its Unaudited Consolidated Statements of Operations. In addition, in 2021, the Brand entered into an arrangement to obtain sales and management services from the same third party. Under the arrangement, the Brand has incurred $1.1$0.4 million and $1.8$0.2 million of related party expense for the three and nine months ended September 30,March 31, 2024 and 2023, respectivelyrespectively. As of March 31, 2024 and December 31, 2023, $0.6 million and $1.3 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023 and December 31, 2022, $0.8 million and $1.4$0.6 million, respectively, was due to the third party.
In 2018, a Brand entered into an agreement to provide marketing and advertising services to a related party whose partners hold executive leadership positions in the Brand. Under the arrangement, the Brand recognized $0.2 million and $0.3 million of revenue for the three months ended March 31, 2024 and 2023, respectively. No revenue was due from the related party as of March 31, 2024 and December 31, 2023, respectively. In addition, on behalf of the related party, the Brand serves as an agent to transfer funds from one of the related party’s customers to the related party. The Brand does not receive revenue from this arrangement. No funds were due to the related party as of March 31, 2024. As of December 31, 2023, $0.7 million was due to the related party.
In 2022, the Company made loans to three employees of a subsidiary each in the amount of approximately $0.9 million, together with interest on the unpaid principal balance at a fixed interest rate equal to 3.5% per annum, compounding quarterly. The cash from the loan was used by the employees to purchase the noncontrolling interest of 13.3% in TMA Direct. As of March 31, 2024 $2.7 million was due from the related parties and included in Other assets in the Unaudited Consolidated Balance Sheet.
16. Segment Information
The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource
allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.
The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income excluding non-operating income or expense to achieve operating income, 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.
The Company made changes to its internal management and reporting structure in the first quarter of 2023,2024, resulting in an updatea change to ourits reportable segments (Networks). The change in reportable segments was that Mono,Specifically, certain agencies previously inwithin the Integrated AgenciesBrand Performance Network isare now within Allison & Partners in the Communications Network, and Storyline (a Brand specializing in research and survey generation), previously in the Communications Network, is now within Constellation in the Integrated Agencies Network. Periods presented prior to the first quarter of 20232024 have been recast to reflect the reclassification of certain reporting units (Brands) between operating segments.
The Company has three reportable segments as follows: “Integrated Agencies Network,” “Brand Performance Network” and the “Communications Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria, and includes the elimination of certain intercompany services, as “All Other.” This segment also includes the elimination of intercompany revenue. The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes included herein.
•The Integrated Agencies Network includes five operating segments: the Anomaly Alliance, Constellation, the Doner Partner Network, Code and Theory, and National Research Group. The operating segments offer an array of complementary services spanning our core capabilities of Digital Transformation, Performance Media & Data, Consumer Insights & Strategy, and Creativity & Communications. The Brands included in the operating segments that comprise the Integrated Agencies Network reportable segment are as follows: Anomaly Alliance (Anomaly, Concentric and Scout (Brands))(Anomaly), Constellation (72andSunny, Crispin LLC, Colle McVoy, Hunter, Instrument, Redscout, Team Enterprises, Storyline,Harris Insights, Left Field Labs, Movers and Harris Insights)Shakers, and Team Epiphany), the Doner Partner Network (Doner, KWT Global, Harris X, Veritas, Doner North, and Yamamoto (Brands))Yamamoto), Code and Theory, (Code and Theory and Y Media Labs) and National Research Group.
These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments may occasionally compete with each other for new business or have business move between them.
•The Brand Performance Network (“BPN”) is comprised of a single operating segment. BPN includes a unified media and data management structure with omnichannel media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Brands in this segment aim to provide scaled creative performance through developing and executing sophisticated omnichannel campaign strategies leveraging significant amounts of consumer data. BPN’s Brands provide media solutions such as audience analysis, media planning, and buying across a range of digital and traditional platforms (out-of-home, paid search, social media, lead generation, programmatic, television, broadcast, among others) and includes multichannel Brands Assembly, Brand New Galaxy, Crispin Porter Bogusky,Vitro, Forsman & Bodenfors, Goodstuff, Bruce Mau, digital creative & transformation consultancy Gale, B2B specialist Multiview, CX specialists Kenna, and travel media experts Ink.
•The Communications Network reportable segment is comprised of a single operating segment, our specialist network that provides advocacy, strategic corporate communications, investor relations, public relations, online fundraising and other services to both corporations and political and advocacy organizations and consists of our Allison & Partners,brands, SKDK brands, and Targeted Victory brands.
•All Other consists of the Company’s digital innovation group and Stagwell Marketing Cloud Group, including Maru and Epicenter, and products such as ARound, PRophet and ARound.SmartAssets.
•Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees,
including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the
corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category.
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | |
| (dollars in thousands) | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | |
| | | | | (dollars in thousands) | |
| | | | | (dollars in thousands) | |
| | | | | (dollars in thousands) | |
Revenue: | Revenue: | |
Integrated Agencies Network | Integrated Agencies Network | $ | 348,781 | | | $ | 366,437 | | | $ | 1,032,914 | | | $ | 1,092,364 | | |
Integrated Agencies Network | |
Integrated Agencies Network | |
Brand Performance Network | |
Brand Performance Network | |
Brand Performance Network | Brand Performance Network | 173,361 | | | 171,463 | | | 574,729 | | | 563,546 | | |
Communications Network | Communications Network | 82,505 | | | 122,455 | | | 230,261 | | | 314,472 | | |
Communications Network | |
Communications Network | |
All Other | All Other | 12,926 | | | 3,436 | | | 34,378 | | | 9,225 | | |
All Other | |
All Other | |
Total Revenue | |
Total Revenue | |
Total Revenue | Total Revenue | $ | 617,573 | | | $ | 663,791 | | | $ | 1,872,282 | | | $ | 1,979,607 | | |
| Adjusted EBITDA: | Adjusted EBITDA: | | |
| Adjusted EBITDA: | |
| Adjusted EBITDA: | |
Integrated Agencies Network | |
Integrated Agencies Network | |
Integrated Agencies Network | Integrated Agencies Network | $ | 77,177 | | | $ | 76,198 | | | $ | 211,377 | | | $ | 215,462 | | |
Brand Performance Network | Brand Performance Network | 23,193 | | | 24,312 | | | 67,387 | | | 89,259 | | |
Brand Performance Network | |
Brand Performance Network | |
Communications Network | |
Communications Network | |
Communications Network | Communications Network | 17,294 | | | 25,489 | | | 35,754 | | | 59,089 | | |
All Other | All Other | (4,005) | | | (363) | | | (10,166) | | | (972) | | |
All Other | |
All Other | |
Corporate | Corporate | (11,890) | | | (10,544) | | | (39,193) | | | (35,015) | | |
Corporate | |
Corporate | |
Total Adjusted EBITDA | |
Total Adjusted EBITDA | |
Total Adjusted EBITDA | Total Adjusted EBITDA | $ | 101,769 | | | $ | 115,092 | | | $ | 265,159 | | | $ | 327,823 | | |
| Depreciation and amortization | Depreciation and amortization | $ | (38,830) | | | $ | (32,207) | | | $ | (107,795) | | | $ | (95,642) | | |
| Depreciation and amortization | |
| Depreciation and amortization | |
Impairment and other losses | |
Impairment and other losses | |
Impairment and other losses | Impairment and other losses | — | | | (25,211) | | | (10,562) | | | (28,034) | | |
Stock-based compensation | Stock-based compensation | (12,065) | | | (12,258) | | | (34,615) | | | (33,410) | | |
Stock-based compensation | |
Stock-based compensation | |
Deferred acquisition consideration | |
Deferred acquisition consideration | |
Deferred acquisition consideration | Deferred acquisition consideration | (6,401) | | | 29,789 | | | (10,881) | | | 14,420 | | |
Other items, net | Other items, net | (10,731) | | | (5,152) | | | (30,069) | | | (12,112) | | |
Other items, net | |
Other items, net | |
Total Operating Income | |
Total Operating Income | |
Total Operating Income | Total Operating Income | $ | 33,742 | | | $ | 70,053 | | | $ | 71,237 | | | $ | 173,045 | | |
| Other Income (expenses): | Other Income (expenses): | | |
| Other Income (expenses): | |
| Other Income (expenses): | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net | Interest expense, net | $ | (25,886) | | | $ | (19,672) | | | $ | (67,755) | | | $ | (56,552) | | |
Foreign exchange, net | Foreign exchange, net | (140) | | | (3,927) | | | (2,288) | | | (4,163) | | |
Foreign exchange, net | |
Foreign exchange, net | |
| Other, net | Other, net | (271) | | | 147 | | | (467) | | | 182 | | |
Income before income taxes and equity in earnings of non-consolidated affiliates | 7,445 | | | 46,601 | | | 727 | | | 112,512 | | |
| Other, net | |
| Other, net | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income tax expense | Income tax expense | 4,324 | | | 11,540 | | | 12,425 | | | 20,150 | | |
Income (loss) before equity in earnings of non-consolidated affiliates | 3,121 | | | 35,061 | | | (11,698) | | | 92,362 | | |
Income tax expense | |
Income tax expense | |
Loss before equity in earnings of non-consolidated affiliates | |
Loss before equity in earnings of non-consolidated affiliates | |
Loss before equity in earnings of non-consolidated affiliates | |
Equity in income (loss) of non-consolidated affiliates | Equity in income (loss) of non-consolidated affiliates | (4) | | | 213 | | | (447) | | | 1,053 | | |
Net income (loss) | 3,117 | | | 35,274 | | | (12,145) | | | 93,415 | | |
Equity in income (loss) of non-consolidated affiliates | |
Equity in income (loss) of non-consolidated affiliates | |
Net loss | |
Net loss | |
Net loss | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | (2,464) | | | (24,665) | | | 8,548 | | | (59,668) | | |
Net income (loss) attributable to Stagwell Inc. common shareholders | Net income (loss) attributable to Stagwell Inc. common shareholders | $ | 653 | | | $ | 10,609 | | | $ | (3,597) | | | $ | 33,747 | | |
Net income (loss) attributable to Stagwell Inc. common shareholders | |
Net income (loss) attributable to Stagwell Inc. common shareholders | |
The Company’s long-lived assets (i.e., Right-of-use-lease assets-operating leases and Fixed asset, net) was $318.9 million ($260.4 million in the United States and $58.5 million in all other countries) as of March 31, 2024, and $332.1 million ($268.5 million in the United States and $63.6 million in all other countries) as of December 31, 2023.
The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed.
See Note 34 of the Notes included herein for a summary of the Company’s revenue by geographic region for the three and nine months ended September 30,March 31, 2024 and 2023.
17. Revision of previously issued Unaudited Consolidated Financial Statements for the first quarter of 2023 and 2022.
The following table presents selected unaudited revised financial information for the three months ended March 31, 2023, in connection with the revision detailed in Note 1 included herein. There were no changes to previously issued cash flows generated from (used by) operating, investing, or financing activities for any of the impacted periods. The quarterly interim consolidated balance sheet was only impacted by the effects of the balance sheet adjustments discussed in Note 1 of the Notes included herein. For the three months ended March 31, 2023, we have included the line items that were impacted by the correction of errors originally adjusted as out-of-period in the 2023 interim financial statements.
The impact of the revision on the previously issued unaudited quarterly financial information is as follows:
| | | | | | | | | | | | | | | | | |
Unaudited Consolidated Statements of Operations and | | | | | |
Unaudited Consolidated Statements of Comprehensive Income (Loss) | | | | | |
| Three Months Ended March 31, 2023 |
| As reported | | Adjustment | | As revised |
Income tax expense | $ | 2,384 | | | $ | (2,148) | | | $ | 236 | |
Loss before equity in earnings of non-consolidated affiliates | (4,790) | | | 2,148 | | | (2,642) | |
Net loss | (5,017) | | | 2,148 | | | (2,869) | |
Net loss attributable to noncontrolling and redeemable noncontrolling interests | 5,460 | | | (1,202) | | | 4,258 | |
Net income attributable to Stagwell Inc. common shareholders | 443 | | | 946 | | | 1,389 | |
| | | | | |
Earnings (Loss) Per Common Share | | | | | |
Basic | 0.00 | | 0.01 | | 0.01 |
Diluted | (0.01) | | | 0.01 | | 0.00 |
| | | | | |
Other comprehensive income - foreign currency translation adjustment | 4,425 | | | 22 | | | 4,447 | |
Other comprehensive income | 4,425 | | | 22 | | | 4,447 | |
Comprehensive income (loss) for the period | (592) | | | 2,170 | | | 1,578 | |
Comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests | 26,723 | | | (24,687) | | | 2,036 | |
Comprehensive income attributable to Stagwell Inc. common shareholders | 26,131 | | | (22,517) | | | 3,614 | |
| | | | | | | | | | | | | | | | | |
Unaudited Consolidated Statements of Shareholders' Equity | | | | | |
| Three Months Ended March 31, 2023 |
| As reported | | Adjustment | | As revised |
Net income attributable to Stagwell Inc. common shareholders | $ | 443 | | | $ | 946 | | | $ | 1,389 | |
Net income (loss) attributable to Noncontrolling Interests | (2,917) | | | 1,202 | | | (1,715) | |
| | | | | |
Other comprehensive income | 25,688 | | | (23,463) | | | 2,225 | |
Other comprehensive income (loss) attributable to Noncontrolling Interests | (21,263) | | | 23,485 | | | 2,222 | |
Total other comprehensive income | $ | 4,425 | | | $ | 22 | | | $ | 4,447 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
TheThe following discussion and analysis isare based on and should be read in conjunction with our unaudited consolidated financial statementsUnaudited Consolidated Financial Statements and the notes related thereto included elsewhere in Part 1, Item 1 of this Form 10-Q. The following discussion and analysis containscontain forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the captions “Note about Forward-Looking Statements” in this Form 10-Q and “Forward-Looking Statements” and “Risk Factors” in our 2022this Form 10-K.10-Q. The following discussion and analysis also includesinclude a discussion of certain non-GAAP financial measures. A description of the non-GAAP financial measures discussed in this section and reconciliations to the comparable GAAP financial measures are below.
In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer 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 20232024 means the period beginning January 1, 2023,2024 and ending December 31, 2023)2024).
Executive Summary
Overview
Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. Stagwell’s differentiation lies in its creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. Stagwell leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and media-agnostic. The Company’s strategy is intended to challenge the industry status quo, realize outsized returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
Stagwell manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenue, operating expenses, capital expenditures and the non-GAAP financial measures described below. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth from existing clients and the addition of new clients, (iii) growth by principal capability, (iv) growth from currency changes, and (v) 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 network’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.
Revision of Previously Issued Consolidated Financial Statements
In connection with the preparation of the consolidated financial statements during 2023, the Company identified errors in the areas of income taxes, noncontrolling interests, and accumulated other comprehensive loss related to its previously filed 2022 financial statements. The Company revised the 2022 annual financial statements in its 2023 Form 10-K. See Notes 1, 21 and 22 of the Notes in the Company’s 2023 Form 10-K for additional information regarding the correction of the errors. See Notes 1 and 17 of the Notes included herein for information regarding the revisions made to the previously issued unaudited financial statements for the first quarter of 2023.
Recent Developments
On October 2, 2023,April 3, 2024, the Company acquired 100%What’s Next Partners (“WNP”), for 4.3 million Euros (“€”) (approximately $5 million) in cash. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of €8.5 million (approximately $9 million), partially subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of the membership interest of Left Field Labs, LLC, a digital experience design and strategy company, for approximately $9.4 million in cash, and 825 thousand shares ofCompany's Class A Common Stock,common stock, par value $0.001 per share (the “Class A Common Stock”), at the Company’s discretion.
On April 5, 2024, the Company acquired PROS Agency (“PROS”), for 26.5 million Brazilian reals (“R$”) (approximately $5 million) of which R$21.2 million (approximately $4 million) was paid in cash and R$5.3 million (approximately $1 million) in 182,256 shares of Class A Common Stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of $51.0R$72.5 million (approximately $14 million), partially subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion.
On October 31, 2023, the Company completed the sale of its integrated healthcare marketing agency and pharmaceutical commercialization platform, ConcentricLife, for $245 million in cash.
On November 1, 2023, the Company acquired Movers and Shakers LLC, a business that provides social media marketing solutions, for approximately $15 million, to be paid in cash or up to 30% in shares of Class A Common stock, subject to post-closing adjustments. In connection with the acquisition, the sellers are entitled to contingent consideration up to a maximum value of $35 million, subject to meeting certain future earnings targets, of which a portion may be settled in shares of Class A Common Stock at the Company’s discretion.
Significant Factors Affecting our Business and Results of Operations
The most significant factors affecting our business and results of operations include national, regional, and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most
significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products that our portfolio of marketing services firms, which we refer to as “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 a Brand that it may have previously worked with. In addition, if the client is merged or acquired by another company, the
marketing communication firm is often changed. Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.
Seasonality
Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year. In addition, within our Communications Network, 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 Financial Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“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 financial measures included are “net revenue,” “organic net revenue growth or decline,(decline),” “Adjusted EBITDA,” and “Adjusted Diluted EPS.”
“OrganicNet revenue” refers to revenue growth” and “Organic revenue decline” refer to the positive or negative revenue results, respectively, of subtracting the impact of foreign exchange and acquisitions (dispositions) from total revenue growth.
excluding billable costs. The impact of foreign currency represents the period-over-period change in revenue driven by the fluctuation of foreign exchange rates between such periods and is calculated as the difference between prior period revenue reported and prior period revenue converted utilizing the current period foreign exchange rates.
The impact of acquisitions is calculated as follows: (a) for entities purchased in the current year, prior year revenue of the acquired entity beginning on the acquisition date, as if we acquired the entity in the prior year, through the end of the reported period and (b) for entities purchased in the prior year, prior year revenue of the acquired entity as if we acquired the entity at the beginning of the reported period through the date of acquisition (prior year revenue for the period we did not own the acquired entity).
The impact of divestitures is calculated as the prior year revenue of the disposed entity from the date of disposition, as if the entity was disposed of in the prior year, to the end of the reporting period.
“Net Organic revenue growth” and “Net Organic revenue decline” include the adjustments above and also excludes the impact ofCompany believes billable costs in analyzing Organic revenue growth (decline) as these costs and their fluctuations are not indicative of the operating performance of ourits underlying business.
“Organic net revenue growth (decline)” reflects the year-over-year change in the Company’s reported net revenue attributable to the Company’s management of the entities it owns. We calculate organic net revenue growth (decline) by subtracting the net impact of acquisitions (divestitures) and the impact of foreign currency exchange fluctuations from the aggregate year-over-year increase or decrease in the Company’s reported net revenue.
The net impact of acquisitions (divestitures) reflects the year-over-year change in the Company’s reported net revenue attributable to the impact of all individual entities that were acquired or divested in the current and prior year. We calculate impact of an acquisition as follows: (a) for an entity acquired during the current year, we present the entity’s prior year net revenue for the same period during which we owned it in the current year as impact of the acquisition in the current year; and (b) for an entity acquired in the prior year, we present the entity’s prior year net revenue for the period during which we did not own the entity in the prior year as impact of the acquisition in the current year. We calculate impact of a divestiture as follows: (a) for a divestiture in the current year, we present the entity’s prior year net revenue for the same period during which we no longer owned it in the current year as impact of the divestiture in the current year; and (b) for a divestiture in the prior year, we present the entity’s prior year net revenue for the period during which we owned it in the prior year as impact of the divestiture in the current year. We calculate the impact of any acquisition or divestiture without adjusting for foreign currency exchange fluctuations.
The impact of foreign currency exchange fluctuations reflects the year-over-year change in the Company’s reported net revenue attributable to changes in foreign currency exchange rates. We calculate the impact of foreign currency exchange fluctuations for the portion of the reporting period in which we recognized revenue from a foreign entity in both the current year and the prior year. The impact is calculated as the difference between (1) reported prior period net revenue (converted to U.S. dollars at historical foreign currency exchange rates) and (2) prior period net revenue converted to U.S. dollars at current period foreign exchange rates.
“Adjusted EBITDAEBITDA” 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. Adjusted EBITDA for our reportable segments is reconciled to Operating Income (Loss), as Net Income (Loss) is not a relevant reportable segment financial metric.
“Adjusted Diluted EPSEPS” is defined as (i) Net income (loss) attributable to Stagwell Inc. common shareholders, plus net income (loss) attributable to Class C shareholders, excluding the impact of amortization expense, impairment and other losses, stock-based compensation, deferred acquisition consideration adjustments, discrete tax items, and other items, based on total consolidated amounts, then allocated to Stagwell Inc. common shareholders and Class C shareholders, based on their respective income allocation percentage using a normalized effective income tax rate divided by (ii) (a) the weighted average number of common shares outstanding plus (b) the weighted average number of shares of Class C commonCommon Stock outstanding. Other items includesinclude restructuring costs, acquisition-related expenses, and non-recurring items. The diluted weighted average shares
outstanding include shares of Class C Common Stock as if converted to shares of Class A Common Stock to calculate Adjusted Diluted EPS.
All amounts are in U.S. 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 in Item 2 herein that are not considered meaningful are presented as “NM.”
Segments
The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics.
The CODM uses Adjusted EBITDA as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.
The Company made changes to its internal management and reporting structure in the first quarter of 2023,2024, resulting in an updatea change to ourits reportable segments (Networks). The change in reportable segments was that Mono,Specifically, certain agencies previously inwithin the Integrated AgenciesBrand Performance Network isare now within Allison & Partners in the Communications Network, and Storyline (a Brand specializing in research and survey generation), previously in the Communications Network, is now within Constellation in the Integrated Agencies Network. Periods presented prior to the first quarter of 20232024 have been recast to reflect the reclassification of certain reporting units (Brands) between operating segments.
The Company has three reportable segments as follows: “Integrated Agencies Network,” “Brand Performance Network” and the “Communications Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria, and includes the elimination of certain intercompany services, as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Unaudited Consolidated Financial Statements included herein and in Note 2 of the Company’s Audited Consolidated Financial Statements included in the 20222023 Form 10-K.
In addition, Stagwell reports its corporate office expenses incurred in connection with the strategic resources provided to the networks, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate. Corporate provides client and business development support to the networks as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions.
The following discussion focuses on the operating performance of the Company for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 and the financial condition of the Company as of September 30, 2023.March 31, 2024.
(Results of Operations:
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 | |
| (dollars in thousands) |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | Three Months Ended March 31, | |
| | | | | 2024 | | | | | | | 2024 | | 2023 |
| | | | | (dollars in thousands) | | | | | | | (dollars in thousands) |
Revenue: | Revenue: | | |
Integrated Agencies Network | |
Integrated Agencies Network | |
Integrated Agencies Network | Integrated Agencies Network | $ | 348,781 | | | $ | 366,437 | | | $ | 1,032,914 | | | $ | 1,092,364 | | |
Brand Performance Network | Brand Performance Network | 173,361 | | | 171,463 | | | 574,729 | | | 563,546 | | |
Communications Network | Communications Network | 82,505 | | | 122,455 | | | 230,261 | | | 314,472 | | |
All Other | All Other | 12,926 | | | 3,436 | | | 34,378 | | | 9,225 | | |
Total Revenue | Total Revenue | $ | 617,573 | | | $ | 663,791 | | | $ | 1,872,282 | | | $ | 1,979,607 | | |
| Operating Income | Operating Income | $ | 33,742 | | | $ | 70,053 | | | $ | 71,237 | | | $ | 173,045 | | |
Operating Income | |
Operating Income | |
| Other Income (Expenses): | Other Income (Expenses): | | |
Other Income (Expenses): | |
Other Income (Expenses): | |
Interest expense, net | |
Interest expense, net | |
Interest expense, net | Interest expense, net | $ | (25,886) | | | $ | (19,672) | | | $ | (67,755) | | | $ | (56,552) | | |
Foreign exchange, net | Foreign exchange, net | (140) | | | (3,927) | | | (2,288) | | | (4,163) | | |
| Other, net | Other, net | (271) | | | 147 | | | (467) | | | 182 | | |
Income before income taxes and equity in earnings of non-consolidated affiliates | 7,445 | | | 46,601 | | | 727 | | | 112,512 | | |
Other, net | |
Other, net | |
Income (loss) before income taxes and equity in earnings of non-consolidated affiliates | |
Income tax expense | Income tax expense | 4,324 | | | 11,540 | | | 12,425 | | | 20,150 | | |
Income (loss) before equity in earnings of non-consolidated affiliates | 3,121 | | | 35,061 | | | (11,698) | | | 92,362 | | |
Loss before equity in earnings of non-consolidated affiliates | |
Equity in income (loss) of non-consolidated affiliates | Equity in income (loss) of non-consolidated affiliates | (4) | | | 213 | | | (447) | | | 1,053 | | |
Net income (loss) | 3,117 | | | 35,274 | | | (12,145) | | | 93,415 | | |
Net loss | |
Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | Net (income) loss attributable to noncontrolling and redeemable noncontrolling interests | (2,464) | | | (24,665) | | | 8,548 | | | (59,668) | | |
Net income (loss) attributable to Stagwell Inc. common shareholders | Net income (loss) attributable to Stagwell Inc. common shareholders | $ | 653 | | | $ | 10,609 | | | $ | (3,597) | | | $ | 33,747 | | |
| Reconciliation to Adjusted EBITDA: | Reconciliation to Adjusted EBITDA: | | |
Reconciliation to Adjusted EBITDA: | |
Reconciliation to Adjusted EBITDA: | |
Net income (loss) attributable to Stagwell Inc. common shareholders | |
Net income (loss) attributable to Stagwell Inc. common shareholders | |
Net income (loss) attributable to Stagwell Inc. common shareholders | Net income (loss) attributable to Stagwell Inc. common shareholders | $ | 653 | | | $ | 10,609 | | | $ | (3,597) | | | $ | 33,747 | | |
Non-operating items (1) | Non-operating items (1) | 33,089 | | | 59,444 | | | 74,834 | | | 139,298 | | |
Operating income | Operating income | 33,742 | | | 70,053 | | | 71,237 | | | 173,045 | | |
Depreciation and amortization | Depreciation and amortization | 38,830 | | | 32,207 | | | 107,795 | | | 95,642 | | |
Impairment and other losses | Impairment and other losses | — | | | 25,211 | | | 10,562 | | | 28,034 | | |
Stock-based compensation | Stock-based compensation | 12,065 | | | 12,258 | | | 34,615 | | | 33,410 | | |
Deferred acquisition consideration | Deferred acquisition consideration | 6,401 | | | (29,789) | | | 10,881 | | | (14,420) | | |
Other items, net | Other items, net | 10,731 | | | 5,152 | | | 30,069 | | | 12,112 | | |
Adjusted EBITDA | Adjusted EBITDA | $ | 101,769 | | | $ | 115,092 | | | $ | 265,159 | | | $ | 327,823 | | |
| (1) Non-operating items includes items within the Statements of Operations, below Operating Income, and above Net income (loss) attributable to Stagwell Inc. common shareholders. | (1) Non-operating items includes items within the Statements of Operations, below Operating Income, and above Net income (loss) attributable to Stagwell Inc. common shareholders. | |
(1) Non-operating items includes items within the Statements of Operations, below Operating Income, and above Net income (loss) attributable to Stagwell Inc. common shareholders. | |
THREE MONTHS ENDED SEPTEMBER 30, 2023MARCH 31, 2024 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2022MARCH 31, 2023
Consolidated Results of Operations
The components of operating results for the three months ended September 30, 2023March 31, 2024 compared to the three months ended September 30, 2022March 31, 2023 were as follows:
| | Three Months Ended September 30, | |
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| $ | | % | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | 2024 | |
| | 2024 | |
| | 2024 | |
| | (dollars in thousands) | |
| | (dollars in thousands) | |
| | (dollars in thousands) | |
| | | | | | $ | |
| | | | | | $ | |
| | | | | | $ | |
Revenue | |
Revenue | |
Revenue | Revenue | | $ | 617,573 | | | $ | 663,791 | | | $ | (46,218) | | | (7.0) | % | |
Operating Expenses | Operating Expenses | | |
Operating Expenses | |
Operating Expenses | |
Cost of services | |
Cost of services | |
Cost of services | Cost of services | | 384,980 | | | 417,134 | | | (32,154) | | | (7.7) | % | |
Office and general expenses | Office and general expenses | | 160,021 | | | 119,186 | | | 40,835 | | | 34.3 | % | |
Office and general expenses | |
Office and general expenses | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | | 38,830 | | | 32,207 | | | 6,623 | | | 20.6 | % | |
Impairment and other losses | Impairment and other losses | | — | | | 25,211 | | | (25,211) | | | (100.0) | % | |
| $ | 583,831 | | | $ | 593,738 | | | $ | (9,907) | | | (1.7) | % | |
Impairment and other losses | |
Impairment and other losses | |
| | $ | |
| | $ | |
| | $ | |
Operating Income | Operating Income | | $ | 33,742 | | | $ | 70,053 | | | $ | (36,311) | | | (51.8) | % | |
Operating Income | |
Operating Income | |
| | Three Months Ended September 30, | |
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| $ | | % | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| | | | | $ | |
| | | | | $ | |
| | | | | $ | |
Net Revenue | |
Net Revenue | |
Net Revenue | Net Revenue | $ | 534,864 | | | $ | 555,754 | | | $ | (20,890) | | | (3.8) | % | |
Billable costs | Billable costs | 82,709 | | | 108,037 | | | (25,328) | | | (23.4) | % | |
Billable costs | |
Billable costs | |
Revenue | |
Revenue | |
Revenue | Revenue | 617,573 | | 663,791 | | (46,218) | | | (7.0) | % | |
| Billable costs | Billable costs | 82,709 | | | 108,037 | | | (25,328) | | | (23.4) | % | |
| Billable costs | |
| Billable costs | |
Staff costs | |
Staff costs | |
Staff costs | Staff costs | 338,914 | | | 349,127 | | | (10,213) | | | (2.9) | % | |
Administrative costs | Administrative costs | 62,339 | | | 61,600 | | | 739 | | | 1.2 | % | |
Administrative costs | |
Administrative costs | |
Unbillable and other costs, net | |
Unbillable and other costs, net | |
Unbillable and other costs, net | Unbillable and other costs, net | 31,842 | | | 29,935 | | | 1,907 | | | 6.4 | % | |
Adjusted EBITDA | Adjusted EBITDA | 101,769 | | | 115,092 | | | (13,323) | | | (11.6) | % | |
Adjusted EBITDA | |
Adjusted EBITDA | |
Stock-based compensation | |
Stock-based compensation | |
Stock-based compensation | Stock-based compensation | 12,065 | | | 12,258 | | | (193) | | | (1.6) | % | |
Depreciation and amortization | Depreciation and amortization | 38,830 | | | 32,207 | | | 6,623 | | | 20.6 | % | |
Depreciation and amortization | |
Depreciation and amortization | |
Deferred acquisition consideration | |
Deferred acquisition consideration | |
Deferred acquisition consideration | Deferred acquisition consideration | 6,401 | | | (29,789) | | | 36,190 | | | NM | |
Impairment and other losses | Impairment and other losses | — | | | 25,211 | | | (25,211) | | | (100.0) | % | |
Impairment and other losses | |
Impairment and other losses | |
Other items, net | Other items, net | 10,731 | | | 5,152 | | | 5,579 | | | NM | |
Other items, net | |
Other items, net | |
Operating Income (1) | |
Operating Income (1) | |
Operating Income (1) | Operating Income (1) | $ | 33,742 | | | $ | 70,053 | | | $ | (36,311) | | | (51.8) | % | |
| (1) See the Results of Operations section above for a reconciliation of Operating Income to Net income (loss) attributable to Stagwell Inc. common shareholders. | (1) See the Results of Operations section above for a reconciliation of Operating Income to Net income (loss) attributable to Stagwell Inc. common shareholders. | |
| (1) See the Results of Operations section above for a reconciliation of Operating Income to Net income (loss) attributable to Stagwell Inc. common shareholders. | |
| (1) See the Results of Operations section above for a reconciliation of Operating Income to Net income (loss) attributable to Stagwell Inc. common shareholders. | |
Revenue
Revenue for the three months ended September 30, 2023March 31, 2024 was $617.6$670.1 million, compared to $663.8$622.4 million for the three months ended September 30, 2022, a decreaseMarch 31, 2023, an increase of $46.2$47.6 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended September 30, 2023March 31, 2024 compared to the three months ended September 30, 2022March 31, 2023 were as follows:
| | Net Revenue - Components of Change | | Change |
| Three Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
| | | Net Revenue - Components of Change | |
| | | Net Revenue - Components of Change | |
| | | Net Revenue - Components of Change | |
| Three Months Ended March 31, 2023 | |
| Three Months Ended March 31, 2023 | |
| Three Months Ended March 31, 2023 | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| (dollars in thousands) | |
Integrated Agencies Network | |
Integrated Agencies Network | |
Integrated Agencies Network | Integrated Agencies Network | $311,926 | | $664 | | $2,117 | | $(17,639) | | $(14,858) | | $297,068 | | (5.7)% | | (4.8)% |
Brand Performance Network | Brand Performance Network | 160,473 | | 2,666 | | 1,573 | | (2,284) | | 1,955 | | 162,428 | | (1.4)% | | 1.2% |
Brand Performance Network | |
Brand Performance Network | |
Communications Network | |
Communications Network | |
Communications Network | Communications Network | 79,919 | | 70 | | — | | (17,573) | | (17,503) | | 62,416 | | (22.0)% | | (21.9)% |
All Other | All Other | 3,436 | | (32) | | 9,738 | | (190) | | 9,516 | | 12,952 | | (5.5)% | | NM |
| $555,754 | | $3,368 | | $13,428 | | $(37,686) | | $(20,890) | | $534,864 | | (6.8)% | | (3.8)% |
All Other | |
All Other | |
| $521,662 | |
| $521,662 | |
| $521,662 | |
Component % change | Component % change | | | 0.6% | | 2.4% | | (6.8)% | | (3.8)% | | | | | | |
| Component % change | |
Component % change | |
For the three months ended September 30, 2023,March 31, 2024, organic net revenue decreased $37.7increased $9.0 million, or 6.8%1.7%. The macroeconomic uncertainty continuesincrease was primarily attributable to challenge the industryan increase in 2023. This contributedpublic affairs spend with 2024 being a political campaign year and new wins in 2024, partially offset by a decrease in client spending due to certain clients pausing projects and reduced spending, specificallybudget cuts in the technology, sector. In addition, the loss of clients also contributed to the decline in organic net revenue. retail, and financial sectors. The increasedecrease in net acquisitions (divestitures) was primarily driven by the acquisitions of Team Epiphany, LLC (“Epiphany”), Movers and Shakers LLC (“Movers and Shakers”), Huskies, Ltd. (“Huskies”), Epicenter Experience and Left Field Labs LLC (“Epicenter”Left Field Labs”), Wolfgang, LLCoffset by the sale of ConcentricLife (“Wolfgang”Concentric”) and Maru Group Limited Ltd. (“Maru”).in the fourth quarter of 2023.
The geographic mix in net revenues for the three months ended September 30,March 31, 2024 and 2023 and 2022 iswas as follows:
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| | Three Months Ended September 30, | | 2024 | | 2023 |
| 2023 | | 2022 |
| (dollars in thousands) |
| (dollars in thousands) | | | (dollars in thousands) |
United States | United States | $ | 424,163 | | | $ | 453,160 | |
United Kingdom | United Kingdom | 42,114 | | | 42,443 | |
United Kingdom | |
United Kingdom | |
Other | |
Other | |
Other | Other | 68,587 | | | 60,151 | |
Total | Total | $ | 534,864 | | | $ | 555,754 | |
Total | |
Total | |
Impairment and Other LossesOperating Income
The Company recognized an impairment and other losses charge of $25.2Operating income for the three months ended March 31, 2024 was $25.9 million, compared to $16.2 million for the three months ended September 30, 2022, primarily related to the impairmentMarch 31, 2023, representing an increase of goodwill totaling $23.5 million. The goodwill impairment was to write-down the carrying value in excess of the fair value at two reporting units, one in the Brand Performance Network and one within the All Other category. The expense was recorded within Impairment and other losses on the Unaudited Consolidated Statements of Operations.
Operating Income
Operating Income for the three months ended September 30, 2023 was $33.7 million, compared to Operating Income of $70.1 million for the three months ended September 30, 2022, representing a decrease of $36.3$9.6 million. The change in Operating Income was primarily attributable to a decreasethe increase in Revenue partially offset by an increase in Cost of services, and Impairment and other losses and an increase in Office and general expenses and Depreciation and amortization.expenses.
The decreaseincrease in Cost of services was primarily attributable to lowerhigher billable costs, commensurate with lower revenue, lower staffthe increase in revenues, the inclusion of costs due to cost savings initiatives and lower stock-based compensation primarily due to a reductionfrom acquired entities, partially offset by the elimination of costs of Concentric which was sold in fair valuethe fourth quarter of profits interest awards.2023.
The increase in Office and general expenses was primarily attributable to an increaseincreases in stock-based compensation and occupancy-related expenses, partially offset by a decrease in deferred acquisition consideration expense.
consideration. Occupancy-related expenses increased primarily due to the acceleration of lease expense due to the cease-use of property associated with the Company’s real estate consolidation initiative.Deferred acquisition consideration increased approximately $36.2decreased $3.9 million, primarily attributable toas a significantresult of a reduction in the fair value of the deferred acquisition consideration liability associated with a certain Brand that occurredobligations in the thirdfirst quarter of 2022.2024 versus the same period last year.
Depreciation and amortization expenseStock-based compensation increased approximately $6.6$4.1 million primarily attributable to accelerationan increase in the number of amortization forshares being expensed and a higher weighted average grant date fair value in the discontinuationfirst quarter of certain trade names,2024 as well ascompared to the recognitionfirst quarter of intangible assets in connection with the acquisition2023.
Impairment and Epicenter.
Other, net
Other, net,other losses for the three months ended September 30, 2023March 31, 2024 was expense of $0.3 million, compared to income of $0.1 million for the three months ended September 30, 2022, representing a decrease of $0.4$1.5 million.
Foreign Exchange Transaction Gain (Loss)
The foreign exchange loss for the three months ended September 30, 2023 This was $0.1 million comparedattributable to a losscharge to reduce the carrying value of $3.9 million fora right-of-use lease asset and related leasehold improvements. The right-of-use lease asset and related leasehold improvements were related to an agency within the three months ended September 30, 2022, primarily attributable to the U.S. dollar weakening against the Euro and British Pound.Integrated Agencies Network.
Interest Expense, Net
Interest expense, net for the three months ended September 30, 2023March 31, 2024 was $25.9$21.0 million compared to $19.7$18.2 million for the three months ended September 30, 2022, representingMarch 31, 2023, an increase of $6.2$2.8 million, primarily attributable to higher levels of debt outstanding under the Credit Agreement (as defined and discussed in Note 78 of the Notes to the Unaudited Consolidated Financial Statements included herein), and a higher interest rate of borrowings on amounts outstanding under the Credit Agreement.
Foreign Exchange, Net
The foreign exchange loss for the three months ended March 31, 2024 was $2.3 million, compared to a loss of $0.7 million for the three months ended March 31, 2023, primarily attributable to a loan funding originating in British Pounds and payable in United States Dollars.
Other, Net
Other, net for the three months ended March 31, 2024 was $1.3 million of a loss, compared to income of $0.2 million for the three months ended March 31, 2023. The increase in expense was primarily driven by a loss on investments.
Income Tax Expense
The Company had an income tax expense for the three months ended September 30, 2023March 31, 2024 of $4.3$2.6 million (on a pre-tax income of $7.4$1.4 million resulting in an effective tax rate of 58.1%189.5%), compared to income tax expense of $11.5$0.2 million (on pre-tax incomeloss of $46.6$2.4 million resulting in an effective tax rate of 24.8%(9.8)%) for the three months ended September 30, 2022.March 31, 2023.
The difference in the effective tax rate of 58.1%189.5% in the three months ended September 30, 2023March 31, 2024 as compared to 24.8%(9.8)% in the three months ended September 30, 2022,March 31, 2023 is due to the change in the pretaxpre-tax income, and relateda reduction in benefit from the disregarded entity structure.structure, and an increase in non-deductible share-based compensation, offset by a reduction in uncertain tax positions.
Noncontrolling and Redeemable Noncontrolling Interests
The effect of noncontrolling and redeemable noncontrolling interests for the three months ended September 30, 2023March 31, 2024 was income of $2.5$0.6 million compared to incomea loss of $24.7$4.3 million for the three months ended September 30, 2022, representing a decrease of $22.2 million.March 31, 2023. The change is attributable to the decline in net income (loss) resulting in a lower noncontrolling interest allocated to the holders of Class C Common Stock.
Net Income (Loss) Attributable to Stagwell Inc. Common Shareholders
As a result of the foregoing, net income attributable to Stagwell Inc. common shareholders for the three months ended September 30, 2023 was $0.7 million, compared to net income attributable to Stagwell Inc. common shareholders of $10.6 million for the three months ended September 30, 2022.
Earnings (Loss) Per Share
Dilutive EPS and Adjusted Diluted EPS for the three months ended September 30, 2023 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | GAAP | | Adjustments (1) | | Non-GAAP |
| | (amounts in thousands, except per share amounts) |
Net income attributable to Stagwell Inc. common shareholders | | $ | 653 | | | $ | 20,844 | | | $ | 21,497 | |
Net income attributable to Class C shareholders | | 33 | | | 26,530 | | | 26,563 | |
Net income attributable to Stagwell Inc. and Class C and adjusted net income | | $ | 686 | | | $ | 47,374 | | | $ | 48,060 | |
| | | | | | |
Weighted average number of common shares outstanding | | 113,357 | | | 5,663 | | | 119,020 | |
Weighted average number of common Class C shares outstanding | | 151,649 | | | — | | | 151,649 | |
Weighted average number of shares outstanding | | 265,006 | | | 5,663 | | | 270,669 | |
| | | | | | |
Dilutive EPS and Adjusted Diluted EPS | | $ | 0.00 | | | | | $ | 0.18 | |
| | | | | | |
Adjustments to Net income(1) |
| | | | | | |
| | |
Amortization | | | | $ | 31,182 | | | |
Impairment and other losses | | | | — | | | |
Stock-based compensation | | | | 12,065 | | | |
Deferred acquisition consideration | | | | 6,401 | | | |
Other items, net | | | | 10,731 | | | |
| | | | $ | 60,379 | | | |
Adjusted tax expense | | | | (13,005) | | | |
| | | | $ | 47,374 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Diluted EPS and Adjusted Diluted EPS for the three months ended September 30, 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | GAAP | | Adjustments (1) | | Non-GAAP |
| | (amounts in thousands, except per share amounts) |
Net income attributable to Stagwell Inc. common shareholders | | $ | 10,609 | | | $ | 16,863 | | | $ | 27,472 | |
| | | | | | |
| | | | | | |
| | | | | | |
Weighted average number of common shares outstanding | | 130,498 | | | — | | | 130,498 | |
| | | | | | |
| | | | | | |
| | | | | | |
Diluted EPS and Adjusted Diluted EPS | | $ | 0.08 | | | | | $ | 0.21 | |
| | | | | | |
Adjustments to Net income (1) |
| | | | | | |
| | |
Amortization | | | | $ | 25,808 | | | |
Impairment and other losses | | | | 25,211 | | | |
Stock-based compensation | | | | 12,258 | | | |
Deferred acquisition consideration | | | | (29,789) | | | |
Other items, net | | | | 5,152 | | | |
| | | | 38,640 | | | |
Adjusted tax expense | | | | (420) | | | |
| | | | $ | 38,220 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Less: Net income attributable to Class C shareholders | | | | (21,357) | | | |
Net income attributable to Stagwell Inc. common shareholders | | | | $ | 16,863 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Adjusted EBITDA
Adjusted EBITDA for the three months ended September 30, 2023 was $101.8 million, compared to $115.1 million for the three months ended September 30, 2022, representing a decrease of $13.3 million, primarily attributable to the decrease in revenue, partially offset by lower operating expenses.
Integrated Agencies Network
The components of operating results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2023 | | 2022 | | Change |
| | (dollars in thousands) |
| | | | | | $ | | % |
Revenue | | $ | 348,781 | | | $ | 366,437 | | | $ | (17,656) | | | (4.8) | % |
Operating Expenses | | | | | | | | |
Cost of services | | 221,781 | | | 235,035 | | | (13,254) | | | (5.6) | % |
Office and general expenses | | 62,975 | | | 62,434 | | | 541 | | | 0.9 | % |
Depreciation and amortization | | 22,559 | | | 18,286 | | | 4,273 | | | 23.4 | % |
Impairment and other losses | | — | | | 1,735 | | | (1,735) | | | (100.0) | % |
| | $ | 307,315 | | | $ | 317,490 | | | $ | (10,175) | | | (3.2) | % |
Operating Income | | $ | 41,466 | | | $ | 48,947 | | | $ | (7,481) | | | (15.3) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| | | | | $ | | % |
Net Revenue | $ | 297,068 | | | $ | 311,926 | | | $ | (14,858) | | | (4.8) | % |
Billable costs | 51,713 | | | 54,511 | | | (2,798) | | | (5.1) | % |
Revenue | 348,781 | | | 366,437 | | | (17,656) | | | (4.8) | % |
| | | | | | | |
Billable costs | 51,713 | | | 54,511 | | | (2,798) | | | (5.1) | % |
Staff costs | 177,173 | | | 190,975 | | | (13,802) | | | (7.2) | % |
Administrative costs | 28,610 | | | 27,343 | | | 1,267 | | | 4.6 | % |
Unbillable and other costs, net | 14,108 | | | 17,410 | | | (3,302) | | | (19.0) | % |
Adjusted EBITDA | 77,177 | | | 76,198 | | | 979 | | | 1.3 | % |
Stock-based compensation | 6,706 | | | 5,308 | | | 1,398 | | | 26.3 | % |
Depreciation and amortization | 22,559 | | | 18,286 | | | 4,273 | | | 23.4 | % |
Deferred acquisition consideration | 1,018 | | | 841 | | | 177 | | | 21.0 | % |
Impairment and other losses | — | | | 1,735 | | | (1,735) | | | (100.0) | % |
Other items, net | 5,428 | | | 1,081 | | | 4,347 | | | NM |
Operating Income | $ | 41,466 | | | $ | 48,947 | | | $ | (7,481) | | | (15.3) | % |
`Revenue
Revenue for the three months ended September 30, 2023 was $348.8 million, compared to $366.4 million for the three months ended September 30, 2022, a decrease of $17.7 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
Integrated Agencies Network | $311,926 | | $664 | | $2,117 | | $(17,639) | | $(14,858) | | $297,068 | | (5.7)% | | (4.8)% |
Component % change | | | 0.2% | | 0.7% | | (5.7)% | | (4.8)% | | | | | | |
The decline in organic net revenue was primarily attributable to the loss of clients in the retail sector and clients who withheld spending in the financial, and technology sectors due to uncertain macroeconomic factors. The increase in net acquisition (divestitures) was primarily attributable to the acquisition of Wolfgang.
Operating Income
Operating Income for the three months ended September 30, 2023 was $41.5 million, compared to $48.9 million for the three months ended September 30, 2022, representing a decrease of $7.5 million. The change in Operating Income was primarily attributable to a decrease in Revenue and Cost of services, and an increase in Depreciation and amortization.
The decrease in Cost of services was primarily attributable to lower billable costs, commensurate with lower revenue and lower staff costs associated with cost saving initiatives.
Depreciation and amortization expense increased approximately $4.3 million, primarily attributable to acceleration of amortization for the discontinuation of a certain trade name, as well as the recognition of intangible assets in connection with acquisition of Wolfgang.
Operating Income was lower and Adjusted EBITDA was higher,amounts are driven by the decrease in revenuemix of income and expenses as detailed above.
Brand Performance Network
The components of operating results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | |
| | 2023 | | 2022 | | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 173,361 | | | $ | 171,463 | | | $ | 1,898 | | | 1.1 | % | |
Operating Expenses | | | | | | | | | |
Cost of services | | 101,928 | | | 105,298 | | | (3,370) | | | (3.2) | % | |
Office and general expenses | | 56,070 | | | 47,386 | | | 8,684 | | | 18.3 | % | |
Depreciation and amortization | | 9,229 | | | 8,205 | | | 1,024 | | | 12.5 | % | |
Impairment and other losses | | — | | | 7,494 | | | (7,494) | | | (100.0) | % | |
| | $ | 167,227 | | | $ | 168,383 | | | $ | (1,156) | | | (0.7) | % | |
Operating Income | | $ | 6,134 | | | $ | 3,080 | | | $ | 3,054 | | | 99.2 | % | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | |
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| | | | | $ | | % | |
Net Revenue | $ | 162,428 | | | $ | 160,473 | | | $ | 1,955 | | | 1.2 | % | |
Billable costs | 10,933 | | | 10,990 | | | (57) | | | (0.5) | % | |
Revenue | 173,361 | | | 171,463 | | | 1,898 | | | 1.1 | % | |
| | | | | | | | |
Billable costs | 10,933 | | | 10,990 | | | (57) | | | (0.5) | % | |
Staff costs | 103,349 | | | 100,062 | | | 3,287 | | | 3.3 | % | |
Administrative costs | 22,953 | | | 23,661 | | | (708) | | | (3.0) | % | |
Unbillable and other costs, net | 12,933 | | | 12,438 | | | 495 | | | 4.0 | % | |
Adjusted EBITDA | 23,193 | | | 24,312 | | | (1,119) | | | (4.6) | % | |
Stock-based compensation | 1,744 | | | 2,923 | | | (1,179) | | | (40.3) | % | |
Depreciation and amortization | 9,229 | | | 8,205 | | | 1,024 | | | 12.5 | % | |
Deferred acquisition consideration | 2,130 | | | 1,444 | | | 686 | | | 47.5 | % | |
Impairment and other losses | — | | | 7,494 | | | (7,494) | | | (100.0) | % | |
Other items, net | 3,956 | | | 1,166 | | | 2,790 | | | NM | |
Operating Income | $ | 6,134 | | | $ | 3,080 | | | $ | 3,054 | | | 99.2 | % | |
Revenue
Revenue for the three months ended September 30, 2023 was $173.4 million, compared to $171.5 million for the three months ended September 30, 2022, an increase of $1.9 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
Brand Performance Network | $160,473 | | $2,666 | | $1,573 | | $(2,284) | | $1,955 | | $162,428 | | (1.4)% | | 1.2% |
Component % change | | | 1.7% | | 1.0% | | (1.4)% | | 1.2% | | | | | | |
The decline in organic net revenue was primarily attributable to client losses and decreased spending in the communications sector, primarily as a result of the writer and actor strike, the healthcare sector due to reduced budgets and work post the peak of the COVID pandemic, and the transportation and travel/lodging sector. The increase in net acquisitions (divestitures) was primarily driven by a $1.6 million increase in revenuederived from the acquisition of Huskies.
Operating Income
Operating Income for the three months ended September 30, 2023 was $6.1 million compared to $3.1 million for the three months ended September 30, 2022, representing an increase of $3.1 million. The change in Operating Income was primarily attributable to an increase in Revenue and Office and general, and a decrease in Cost of services and Impairment and other losses.
The decrease in Cost of services was primarily attributable to lower staff costs associated with cost saving initiatives and lower stock-based compensation.
Stock-based compensation expense decreased approximately $1.2 million, primarily attributable to a decrease in the value of profits interests awards.
The increase in Office and general expenses was primarily attributable to an increase in staff costs due to increased headcount and an increase in employee salaries.
Deferred acquisition consideration increased approximately $0.7 million primarily attributable to the increase in fair value of certain awards, partially offset by a decrease due to the earn out period for a certain award ending in the second quarter of 2023.
Impairment and other losses decreased by approximately $7.5 million due to the impairment of goodwill in the third quarter of 2022.
Operating Income increased and Adjusted EBITDA decreased primarily due to a slight increase in revenues, partially offset by a decrease in expenses as detailed above.
Communications Network
The components of operating results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | |
| | 2023 | | 2022 | | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 82,505 | | | $ | 122,455 | | | $ | (39,950) | | | (32.6) | % | |
Operating Expenses | | | | | | | | | |
Cost of services | | 51,913 | | | 75,649 | | | (23,736) | | | (31.4) | % | |
Office and general expenses | | 18,551 | | | (9,666) | | | 28,217 | | | NM | |
Depreciation and amortization | | 2,784 | | | 2,683 | | | 101 | | | 3.8 | % | |
| | | | | | | | | |
| | $ | 73,248 | | | $ | 68,666 | | | $ | 4,582 | | | 6.7 | % | |
Operating Income | | $ | 9,257 | | | $ | 53,789 | | | $ | (44,532) | | | (82.8) | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| | | | | $ | | % |
Net Revenue | $ | 62,416 | | | $ | 79,919 | | | $ | (17,503) | | | (21.9) | % |
Billable costs | 20,089 | | | 42,536 | | | (22,447) | | | (52.8) | % |
Revenue | 82,505 | | | 122,455 | | | (39,950) | | | (32.6) | % |
| | | | | | | |
Billable costs | 20,089 | | | 42,536 | | | (22,447) | | | (52.8) | % |
Staff costs | 37,412 | | | 45,030 | | | (7,618) | | | (16.9) | % |
Administrative costs | 7,626 | | | 9,332 | | | (1,706) | | | (18.3) | % |
Unbillable and other costs, net | 84 | | | 68 | | | 16 | | | 23.5 | % |
Adjusted EBITDA | 17,294 | | | 25,489 | | | (8,195) | | | (32.2) | % |
Stock-based compensation | 1,252 | | | 671 | | | 581 | | | 86.6 | % |
Depreciation and amortization | 2,784 | | | 2,683 | | | 101 | | | 3.8 | % |
Deferred acquisition consideration | 3,757 | | | (32,074) | | | 35,831 | | | NM |
| | | | | | | |
Other items, net | 244 | | | 420 | | | (176) | | | (41.9) | % |
Operating Income | $ | 9,257 | | | $ | 53,789 | | | $ | (44,532) | | | (82.8) | % |
Revenue
Revenue for the three months ended September 30, 2023 was $82.5 million, compared to $122.5 million for the three months ended September 30, 2022, a decrease of $40.0 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
Communications Network | $79,919 | | $70 | | $— | | $(17,573) | | $(17,503) | | $62,416 | | (22.0)% | | (21.9)% |
Component % change | | | 0.1% | | —% | | (22.0)% | | (21.9)% | | | | | | |
The decline in organic net revenue was attributable to decreased spending in public relations and related advocacy services as compared to higher spending in 2022 associated with the 2022 elections and decreased spending in the technology sector driven by unfavorable macroeconomic conditions.
Operating Income
Operating Income for the three months ended September 30, 2023 was $9.3 million, compared to $53.8 million for the three months ended September 30, 2022, representing a decrease of $44.5 million. The change in Operating Income was primarily attributable to a decrease in Revenue and Costs of services, and an increase in Office and general expenses.
The decrease in Cost of services was primarily attributable to lower billable costs, commensurate with lower revenue, and lower staff costs associated with cost saving initiatives.
The increase in Office and general expenses was primarily attributable to an increase in deferred acquisition consideration expense, partially offset by a decrease in staff costs (as detailed above).
Deferred acquisition consideration increased approximately $35.8 million, primarily attributable to a significant reduction in the fair value of the deferred acquisition consideration liability associated with a certain Brand that occurred in the third quarter of 2022.
Operating Income and Adjusted EBITDA were lower, drivenentities not entirely owned by the decrease in revenue and increase in expenses as detailed above.
All Other
The components of operating results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2023 | | 2022 | | Change |
| | (dollars in thousands) |
| | | | | | $ | | % |
Revenue | | $ | 12,926 | | | $ | 3,436 | | | $ | 9,490 | | | NM |
Operating Expenses | | | | | | | | |
Cost of services | | 9,203 | | | 1,152 | | | 8,051 | | | NM |
Office and general expenses | | 7,784 | | | 2,653 | | | 5,131 | | | NM |
Depreciation and amortization | | 2,138 | | | 1,207 | | | 931 | | | 77.1 | % |
Impairment and other losses | | — | | | 15,982 | | | (15,982) | | | (100.0) | % |
| | $ | 19,125 | | | $ | 20,994 | | | $ | (1,869) | | | (8.9) | % |
Operating Loss | | $ | (6,199) | | | $ | (17,558) | | | $ | 11,359 | | | (64.7) | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| | | | | $ | | % |
Net Revenue | $ | 12,952 | | | $ | 3,436 | | | $ | 9,516 | | | NM |
Billable costs | (26) | | | — | | | (26) | | | (100.0) | % |
Revenue | 12,926 | | | 3,436 | | | 9,490 | | | NM |
| | | | | | | |
Billable costs | (26) | | | — | | | (26) | | | (100.0) | % |
Staff costs | 10,391 | | | 2,735 | | | 7,656 | | | NM |
Administrative costs | 1,849 | | | 1,045 | | | 804 | | | 76.9 | % |
Unbillable and other costs, net | 4,717 | | | 19 | | | 4,698 | | | NM |
Adjusted EBITDA | (4,005) | | | (363) | | | (3,642) | | | NM |
Stock-based compensation | 268 | | | 7 | | | 261 | | | NM |
Depreciation and amortization | 2,138 | | | 1,207 | | | 931 | | | 77.1 | % |
Deferred acquisition consideration | (504) | | | — | | | (504) | | | (100.0) | % |
Impairment and other losses | — | | | 15,982 | | | (15,982) | | | (100.0) | % |
Other items, net | 292 | | | (1) | | | 293 | | | NM |
Operating Loss | $ | (6,199) | | | $ | (17,558) | | | $ | 11,359 | | | (64.7) | % |
Revenue
Revenue for the three months ended September 30, 2023 was $12.9 million, compared to $3.4 million for the three months ended September 30, 2022, an increase of $9.5 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
All Other | $3,436 | | $(32) | | $9,738 | | $(190) | | $9,516 | | $12,952 | | (5.5)% | | NM |
Component % change | | | (0.9)% | | NM | | (5.5)% | | NM | | | | | | |
The increase in net acquisitions (divestitures) was primarily driven by a $6.4 million increase in revenue from the acquisition of Maru.
Operating Loss
Operating Loss for the three months ended September 30, 2023 was $6.2 million compared to $17.6 million for the three months ended September 30, 2022, representing a decrease of $11.4 million. The change in Operating Loss was primarily attributable to an increase in Revenue, Cost of services, and Office and general expenses, and a decrease in Impairment and other losses.
The increase in Cost of services was primarily attributable to higher unbillable and staff costs, commensurate with higher revenue, and due to the acquisition of Maru.
The increase in Office and general expenses was primarily attributable to an increase in staff costs primarily associated with the acquisition of Maru.
The decrease in Impairment and other losses was primarily attributable to the impairment of goodwill during the third quarter of 2022.
The decrease in Operating Loss and decrease in Adjusted EBITDA were driven by higher revenue, partially offset by higher expenses as detailed above.
Corporate
The components of operating results for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | |
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| | | | | $ | | % | |
Staff costs | $ | 10,589 | | | $ | 10,325 | | | $ | 264 | | | 2.6 | % | |
Administrative costs | 1,301 | | | 219 | | | 1,082 | | | NM | |
| | | | | | | | |
Adjusted EBITDA | (11,890) | | | (10,544) | | | (1,346) | | | 12.8 | % | |
Stock-based compensation | 2,095 | | | 3,349 | | | (1,254) | | | (37.4) | % | |
Depreciation and amortization | 2,120 | | | 1,826 | | | 294 | | | 16.1 | % | |
| | | | | | | | |
Other items, net | 811 | | | 2,486 | | | (1,675) | | | (67.4) | % | |
Operating Loss | $ | (16,916) | | | $ | (18,205) | | | $ | 1,289 | | | (7.1) | % | |
Operating Loss for the three months ended September 30, 2023 was $16.9 million, compared to $18.2 million for the three months ended September 30, 2022, representing a decrease of $1.3 million.
The decrease in Operating Loss was primarily attributable to lower stock-based compensation expense attributable to the vesting of certain awards in 2023.
NINE MONTHS ENDED SEPTEMBER 30, 2023 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2022
Consolidated Results of Operations
The components of operating results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2023 | 2022 | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 1,872,282 | | | $ | 1,979,607 | | | $ | (107,325) | | | (5.4) | % | |
Operating Expenses | | | | | | | | | |
Cost of services | | 1,201,309 | | | 1,253,765 | | | (52,456) | | | (4.2) | % | |
Office and general expenses | | 481,379 | | | 429,121 | | | 52,258 | | | 12.2 | % | |
Depreciation and amortization | | 107,795 | | | 95,642 | | | 12,153 | | | 12.7 | % | |
Impairment and other losses | | 10,562 | | | 28,034 | | | (17,472) | | | (62.3) | % | |
| | $ | 1,801,045 | | | $ | 1,806,562 | | | $ | (5,517) | | | (0.3) | % | |
Operating Income | | $ | 71,237 | | | $ | 173,045 | | | $ | (101,808) | | | (58.8) | % | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | |
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| | | | | $ | | % | |
Net Revenue | $ | 1,595,586 | | | $ | 1,638,707 | | | $ | (43,121) | | | (2.6) | % | |
Billable costs | 276,696 | | | 340,900 | | | (64,204) | | | (18.8) | % | |
Revenue | 1,872,282 | | 1,979,607 | | (107,325) | | | (5.4) | % | |
| | | | | | | | |
Billable costs | 276,696 | | | 340,900 | | | (64,204) | | | (18.8) | % | |
Staff costs | 1,034,645 | | | 1,040,117 | | | (5,472) | | | (0.5) | % | |
Administrative costs | 196,846 | | | 183,359 | | | 13,487 | | | 7.4 | % | |
Unbillable and other costs, net | 98,936 | | | 87,408 | | | 11,528 | | | 13.2 | % | |
Adjusted EBITDA | 265,159 | | | 327,823 | | | (62,664) | | | (19.1) | % | |
Stock-based compensation | 34,615 | | | 33,410 | | | 1,205 | | | 3.6 | % | |
Depreciation and amortization | 107,795 | | | 95,642 | | | 12,153 | | | 12.7 | % | |
Deferred acquisition consideration | 10,881 | | | (14,420) | | | 25,301 | | | NM | |
Impairment and other losses | 10,562 | | | 28,034 | | | (17,472) | | | (62.3) | % | |
Other items, net | 30,069 | | | 12,112 | | | 17,957 | | | NM | |
Operating Income (1) | $ | 71,237 | | | $ | 173,045 | | | $ | (101,808) | | | (58.8) | % | |
| | | | | | | | |
(1) See the Results of Operations section above for a reconciliation of Operating Income to Net income (loss) attributable to Stagwell Inc. common shareholders. | |
Revenue
Revenue for the nine months ended September 30, 2023 was $1,872.3 million, compared to $1,979.6 million for the nine months ended September 30, 2022, a decrease of $107.3 million.
Net Revenue
The components of the fluctuations in net revenue for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change | | |
| Nine Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Nine Months Ended September 30, 2023 | | Organic | | Total | | | | |
| (dollars in thousands) | | | | | | | | |
Integrated Agencies Network | $929,033 | | $(3,173) | | $6,271 | | $(39,004) | | $(35,906) | | $893,127 | | (4.2)% | | (3.9)% | | | | |
Brand Performance Network | 487,829 | | (2,466) | | 11,296 | | (5,636) | | 3,194 | | 491,023 | | (1.2)% | | 0.7% | | | | |
Communications Network | 212,620 | | (282) | | 1,918 | | (37,224) | | (35,588) | | 177,032 | | (17.5)% | | (16.7)% | | | | |
All Other | 9,225 | | (170) | | 35,135 | | (9,786) | | 25,179 | | 34,404 | | NM | | NM | | | | |
| $1,638,707 | | $(6,091) | | $54,620 | | $(91,650) | | $(43,121) | | $1,595,586 | | (5.6)% | | (2.6)% | | | | |
Component % change | | | (0.4)% | | 3.3% | | (5.6)% | | (2.6)% | | | | | | | | | | |
For the nine months ended September 30, 2023 and 2022, organic net revenue decreased $91.7 million, or 5.6%. The macroeconomic uncertainty continues to challenge the industry in 2023. This contributed to certain clients pausing projects and reduced spending, specifically in the technology sector. In addition, the loss of clients also contributed to the decline in organic net revenue. The increase in net acquisitions (divestitures) was primarily driven by the acquisitions of Maru, Epicenter, TMA Direct, Inc. (“TMA”), Brand New Galaxy (“BNG”), Huskies, and Wolfgang.
The geographic mix in net revenues for the nine months ended September 30, 2023 and 2022 was as follows:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| (dollars in thousands) |
United States | $ | 1,276,144 | | | $ | 1,333,571 | |
United Kingdom | 115,829 | | | 122,798 | |
Other | 203,614 | | | 182,338 | |
Total | $ | 1,595,587 | | | $ | 1,638,707 | |
Impairment and Other Losses
The Company recognized an impairment and other losses charge of $10.6 million during the nine months ended September 30, 2023 related to the impairment of an intangible asset totaling $1.4 million, right-of-use lease assets totaling $6.1 million and the associated leasehold improvements totaling $3.1 million. The expense was recorded within Impairment and other losses on the Unaudited Consolidated Statements of Operations.
The Company recognized an impairment and other losses charge of $28.0 million for the nine months ended September 30, 2022, primarily related to the impairment of goodwill totaling $23.5 million, and the impairment of right-of-use lease assets and related leasehold improvements totaling $2.0 million. The goodwill impairment was to write-down the carrying value in excess of the fair value at two reporting units, one within the Brand Performance Network and one within the All Other category. The right-of-use lease asset and related leasehold improvement impairment was recorded in two reporting units, one in Brand Performance Network reporting segment, and one in Integrated Agencies Network reporting segment. The expense was recorded within Impairment and other losses on the Unaudited Consolidated Statements of Operations.
Operating Income
Operating Income for the nine months ended September 30, 2023 was $71.2 million, compared to $173.0 million for the nine months ended September 30, 2022, representing a decrease of $101.8 million. The change in Operating Income was primarily attributable to a decrease in Revenue, Cost of services, and Impairment and other losses, partially offset by an increase in Office and general expenses, and Depreciation and amortization.
The decrease in Cost of services was primarily attributable to lower billable costs commensurate with lower revenue and lower staff costs associated with cost-savings initiatives, partially offset by higher unbillable and staff costs primarily associated with the acquisitions of Maru and Epicenter.
The increase in Office and general expenses was primarily attributable to an increase in stock-based compensation expense, deferred acquisition consideration, and occupancy-related expenses.
Occupancy-related expenses increased primarily due to nonrecurring credits incurred in the first quarter of 2022 connected with a benefit associated with the initiative to consolidate real estate in New York City.
Deferred acquisition consideration increased approximately $25.3 million, primarily attributable to a significant reduction in the fair value of the deferred acquisition consideration liability associated with a certain Brand that occurred in the third quarter of 2022.
Stock-based compensation increased $1.2 million primarily attributable to new awards being issued in 2023, partially offset by the reduction in the fair value of certain profits interest awards.
Depreciation and amortization expense increased $12.2 million, primarily attributable to the recognition of intangible assets in connection with the acquisition of Maru, Wolfgang, and Epicenter.
Other, net
Other, net for the nine months ended September 30, 2023 was an expense of $0.5 million, compared to income of $0.2 million for the nine months ended September 30, 2022.
Foreign Exchange, Net
The foreign exchange loss for the nine months ended September 30, 2023 was $2.3 million, compared to a loss of $4.2 million for the nine months ended September 30, 2022, primarily attributable due to the U.S. dollar weakening against the Euro and British Pound.
Interest Expense, Net
Interest expense, net for the nine months ended September 30, 2023 was $67.8 million compared to $56.6 million for the nine months ended September 30, 2022, representing an increase of $11.2 million, primarily attributable to higher levels of debt outstanding under the Credit Agreement, and a higher interest rate of borrowings on amounts outstanding under the Credit Agreement.
Income Tax Expense
The Company had an income tax expense for the nine months ended September 30, 2023 of $12.4 million (on a pre-tax income of $0.7 million resulting in an effective tax rate of 1709.1%) compared to income tax expense of $20.2 million (on pre-tax income of $112.5 million resulting in an effective tax rate of 17.9%) for the nine months ended September 30, 2022.
The difference in the effective tax rate of 1709.1% in the nine months ended September 30, 2023 as compared to 17.9% in the nine months ended September 30, 2022 is primarily due to the change in pre-tax income, tax benefit of impairments offset by an increase in valuation allowance, lower share-based compensation windfalls and out-of-period adjustments in 2023. See Note 1 in the Notes to the Unaudited Consolidated Financial Statements.
Noncontrolling and Redeemable Noncontrolling Interests
The effect of noncontrolling and redeemable noncontrolling interests for the nine months ended September 30, 2023 was a loss of $8.5 million compared to income of $59.7 million for the nine months ended September 30, 2022, representing a decrease of $68.2 million. The change is attributable to the decline in net income (loss) resulting in a lower noncontrolling interest allocated to the holders of Class C Common Stock.Company.
Net Income (Loss) Attributable to Stagwell Inc. Common Shareholders
As a result of the foregoing, net loss attributable to Stagwell Inc. common shareholders for the ninethree months ended September 30, 2023March 31, 2024 was $3.6$1.3 million compared to net income of $33.7$1.4 million for the ninethree months ended September 30, 2022.March 31, 2023.
Earnings (Loss) Per Share
Diluted EPS and Adjusted Diluted EPS for the ninethree months ended September 30, 2023 wasMarch 31, 2024 were as follows:
| | GAAP | | Adjustments(1) | | Non-GAAP |
| (amounts in thousands, except per share amounts) |
| | GAAP | | | | GAAP | | Adjustments(1) | | Non-GAAP |
| | (amounts in thousands, except per share amounts) | | | | (amounts in thousands, except per share amounts) |
Net income (loss) attributable to Stagwell Inc. common shareholders | Net income (loss) attributable to Stagwell Inc. common shareholders | | $ | (3,597) | | | $ | 61,195 | | | $ | 57,598 | |
Net income attributable to Class C shareholders | Net income attributable to Class C shareholders | | — | | | 70,200 | | | 70,200 | |
Net income (loss) attributable to Stagwell Inc. and Class C and adjusted net income | Net income (loss) attributable to Stagwell Inc. and Class C and adjusted net income | | $ | (3,597) | | | $ | 131,395 | | | $ | 127,798 | |
| Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | | 118,772 | | | 10,736 | | | 129,508 | |
Weighted average number of common shares outstanding | |
Weighted average number of common shares outstanding | |
Weighted average number of common Class C shares outstanding | Weighted average number of common Class C shares outstanding | | — | | | 156,092 | | | 156,092 | |
Weighted average number of shares outstanding | Weighted average number of shares outstanding | | 118,772 | | | 166,828 | | | 285,600 | |
| Diluted EPS and Adjusted Diluted EPS | Diluted EPS and Adjusted Diluted EPS | | $ | (0.03) | | | $ | 0.45 | |
Diluted EPS and Adjusted Diluted EPS | |
Diluted EPS and Adjusted Diluted EPS | |
| Adjustments to Net Income (loss)(1) | Adjustments to Net Income (loss)(1) | |
Adjustments to Net Income (loss) (1) | |
Adjustments to Net Income (loss) (1) | |
Amortization | |
Amortization | |
Amortization | Amortization | | $ | 86,605 | | |
Impairment and other losses | Impairment and other losses | | 10,562 | | |
Impairment and other losses | |
Impairment and other losses | |
Stock-based compensation | |
Stock-based compensation | |
Stock-based compensation | Stock-based compensation | | 34,615 | | |
Deferred acquisition consideration | Deferred acquisition consideration | | 10,881 | | |
Deferred acquisition consideration | |
Deferred acquisition consideration | |
| Other items, net | Other items, net | | 30,069 | | |
|
| | 172,732 | | |
Other items, net | |
| Other items, net | |
| |
| |
| |
Adjusted tax expense | Adjusted tax expense | | (33,653) | | |
Adjusted tax expense | |
Adjusted tax expense | |
| |
| |
|
| | 139,079 | | |
| Net loss attributable to Class C shareholders | Net loss attributable to Class C shareholders | | (7,684) | | |
| | $ | 131,395 | | |
Net loss attributable to Class C shareholders | |
| Allocation of adjustments to net income (loss) | |
Net loss attributable to Class C shareholders | |
| | | | $ | |
| | | | $ | |
| | | | $ | |
| Allocation of adjustments to net income (loss) 1 | |
| Allocation of adjustments to net income (loss) 1 | |
| Allocation of adjustments to net income (loss) 1 | |
Net income attributable to Stagwell Inc. common shareholders | |
Net income attributable to Stagwell Inc. common shareholders | |
Net income attributable to Stagwell Inc. common shareholders | Net income attributable to Stagwell Inc. common shareholders | | $ | 61,195 | | |
| Net income attributable to Class C shareholders | Net income attributable to Class C shareholders | | 77,884 | | |
| Net income attributable to Class C shareholders | |
| Net income attributable to Class C shareholders | |
Net loss attributable to Class C shareholders | Net loss attributable to Class C shareholders | | (7,684) | | |
Net loss attributable to Class C shareholders | |
Net loss attributable to Class C shareholders | |
| | | | 24,554 | |
| | | | 24,554 | |
| | | | 24,554 | |
| | | | $ | |
| | | | $ | |
| | | | $ | |
| | 70,200 | | |
| | $ | 131,395 | | |
| | |
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Diluted EPS and Adjusted Diluted EPS for the ninethree months ended September 30, 2022 wasMarch 31, 2023 were as follows:
| | | GAAP | | | | GAAP | | Adjustments(1) | | Non-GAAP |
| | (amounts in thousands, except per share amounts) | | | | (amounts in thousands, except per share amounts) |
Net income attributable to Stagwell Inc. common shareholders | |
Net income (loss) attributable to Class C shareholders | |
Net income (loss) attributable to Stagwell Inc. and Class C and adjusted net income | |
| Weighted average number of common shares outstanding | |
Weighted average number of common shares outstanding | |
Weighted average number of common shares outstanding | |
Weighted average number of common Class C shares outstanding | |
Weighted average number of shares outstanding | |
| Diluted EPS and Adjusted Diluted EPS | |
Diluted EPS and Adjusted Diluted EPS | |
Diluted EPS and Adjusted Diluted EPS | |
| Adjustments to Net income (loss) (1) | |
Adjustments to Net income (loss) (1) | |
Adjustments to Net income (loss) (1) | |
Amortization | |
Amortization | |
Amortization | |
Impairment and other losses | |
Impairment and other losses | |
Impairment and other losses | |
Stock-based compensation | |
Stock-based compensation | |
Stock-based compensation | |
Deferred acquisition consideration | |
Deferred acquisition consideration | |
Deferred acquisition consideration | |
Other items, net | |
Other items, net | |
Other items, net | |
| | | GAAP | | Adjustments(1) | | Non-GAAP |
| | (amounts in thousands, except per share amounts) |
Net income attributable to Stagwell Inc. common shareholders | | $ | 33,747 | | | $ | 52,699 | | | $ | 86,446 | |
| | Weighted average number of common shares outstanding | | 131,550 | | | — | | | 131,550 | |
| | Diluted EPS and Adjusted Diluted EPS | | $ | 0.26 | | | $ | 0.66 | |
| Adjustments to Net income(1) | |
Amortization | | $ | 75,877 | | |
Impairment and other losses | | 28,034 | |
Stock-based compensation | | 33,410 | | |
Deferred acquisition consideration | | (14,420) | | |
Other items, net | | 12,112 | | |
| | 135,013 | | |
Adjusted tax expense | Adjusted tax expense | | (15,569) | | |
| | $ | 119,444 | | |
| Less: Net income to attributable to Class C shareholders | | (66,745) | | |
Net income attributable to Stagwell Inc. common shareholders | | $ | 52,699 | | |
Adjusted tax expense | |
Adjusted tax expense | |
| | |
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Adjusted EBITDA
Adjusted EBITDA for the ninethree months ended September 30, 2023March 31, 2024 was $265.2$90.3 million, compared to $327.8$72.2 million for the ninethree months ended September 30, 2022,March 31, 2023, representing a decreasean increase of $62.7$18.1 million, primarily driven by loweran increase in Operating Income, as discussed above.
Integrated Agencies Network
The components of operating results for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| $ | | % |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | 2024 | |
| | 2024 | |
| | 2024 | |
| | (dollars in thousands) | |
| | (dollars in thousands) | |
| | (dollars in thousands) | |
| | | | | | $ | |
| | | | | | $ | |
| | | | | | $ | |
Revenue | |
Revenue | |
Revenue | Revenue | | $ | 1,032,914 | | | $ | 1,092,364 | | | $ | (59,450) | | | (5.4) | % |
Operating Expenses | Operating Expenses | |
Operating Expenses | |
Operating Expenses | |
Cost of services | |
Cost of services | |
Cost of services | Cost of services | | 668,261 | | | 707,437 | | | (39,176) | | | (5.5) | % |
Office and general expenses | Office and general expenses | | 190,417 | | | 192,781 | | | (2,364) | | | (1.2) | % |
Office and general expenses | |
Office and general expenses | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | | 61,416 | | | 55,136 | | | 6,280 | | | 11.4 | % |
Impairment and other losses | Impairment and other losses | | 9,175 | | | 2,519 | | | 6,656 | | | NM |
| $ | 929,269 | | | $ | 957,873 | | | $ | (28,604) | | | (3.0) | % |
Impairment and other losses | |
Impairment and other losses | |
| | $ | |
| | $ | |
| | $ | |
Operating Income | Operating Income | | $ | 103,645 | | | $ | 134,491 | | | $ | (30,846) | | | (22.9) | % |
Operating Income | |
Operating Income | |
| | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | Nine Months Ended September 30, |
| 2024 | | 2023 | | Change |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| $ | | % |
| (dollars in thousands) | | | (dollars in thousands) |
| | | | | $ | | | | | | | $ | | % |
Net Revenue | Net Revenue | $ | 893,127 | | | $ | 929,033 | | | $ | (35,906) | | | (3.9) | % | Net Revenue | $ | 292,772 | | | $ | | $ | 304,187 | | | $ | | $ | (11,415) | | | (3.8) | | (3.8) | % |
Billable costs | Billable costs | 139,787 | | | 163,331 | | | (23,544) | | | (14.4) | % | Billable costs | 59,947 | | | 37,018 | | 37,018 | | | 22,929 | | 22,929 | | | 61.9 | | 61.9 | % |
Revenue | Revenue | 1,032,914 | | | 1,092,364 | | | (59,450) | | | (5.4) | % | Revenue | 352,719 | | | 341,205 | | 341,205 | | | 11,514 | | 11,514 | | | 3.4 | | 3.4 | % |
| Billable costs | |
Billable costs | |
Billable costs | Billable costs | 139,787 | | | 163,331 | | | (23,544) | | | (14.4) | % | 59,947 | | | 37,018 | | 37,018 | | | 22,929 | | 22,929 | | | 61.9 | | 61.9 | % |
Staff costs | Staff costs | 548,012 | | | 575,959 | | | (27,947) | | | (4.9) | % | Staff costs | 186,534 | | | 196,165 | | 196,165 | | | (9,631) | | (9,631) | | | (4.9) | | (4.9) | % |
Administrative costs | Administrative costs | 86,200 | | | 86,002 | | | 198 | | | 0.2 | % | Administrative costs | 30,602 | | | 31,381 | | 31,381 | | | (779) | | (779) | | | (2.5) | | (2.5) | % |
Unbillable and other costs, net | Unbillable and other costs, net | 47,538 | | | 51,610 | | | (4,072) | | | (7.9) | % | Unbillable and other costs, net | 15,528 | | | 16,782 | | 16,782 | | | (1,254) | | (1,254) | | | (7.5) | | (7.5) | % |
Adjusted EBITDA | Adjusted EBITDA | 211,377 | | | 215,462 | | | (4,085) | | | (1.9) | % | Adjusted EBITDA | 60,108 | | | 59,859 | | 59,859 | | | 249 | | 249 | | | 0.4 | | 0.4 | % |
Stock-based compensation | Stock-based compensation | 15,945 | | | 15,044 | | | 901 | | | 6.0 | % | Stock-based compensation | 9,321 | | | 8,288 | | 8,288 | | | 1,033 | | 1,033 | | | 12.5 | | 12.5 | % |
Depreciation and amortization | Depreciation and amortization | 61,416 | | | 55,136 | | | 6,280 | | | 11.4 | % | Depreciation and amortization | 19,381 | | | 18,950 | | 18,950 | | | 431 | | 431 | | | 2.3 | | 2.3 | % |
Deferred acquisition consideration | Deferred acquisition consideration | 8,118 | | | 5,697 | | | 2,421 | | | 42.5 | % | Deferred acquisition consideration | 2,045 | | | 5,991 | | 5,991 | | | (3,946) | | (3,946) | | | (65.9) | | (65.9) | % |
Impairment and other losses | Impairment and other losses | 9,175 | | | 2,519 | | | 6,656 | | | NM | Impairment and other losses | 1,500 | | | — | | — | | | 1,500 | | 1,500 | | | 100.0 | | 100.0 | % |
Other items, net | Other items, net | 13,078 | | | 2,575 | | | 10,503 | | | NM | Other items, net | 5,511 | | | 3,092 | | 3,092 | | | 2,419 | | 2,419 | | | 78.2 | | 78.2 | % |
Operating Income | Operating Income | $ | 103,645 | | | $ | 134,491 | | | $ | (30,846) | | | (22.9) | % | Operating Income | $ | 22,350 | | | $ | | $ | 23,538 | | | $ | | $ | (1,188) | | | (5.0) | | (5.0) | % |
Revenue
Revenue for the ninethree months ended September 30, 2023March 31, 2024 was $1,032.9$352.7 million compared to $1,092.4$341.2 million for the ninethree months ended September 30, 2022, a decreaseMarch 31, 2023, an increase of $59.5$11.5 million.
Net Revenue
The components of the fluctuations in net revenue for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | Net Revenue - Components of Change | | Change |
| Nine Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Nine Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
| | | Net Revenue - Components of Change | | | | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended March 31, 2023 | | | Three Months Ended March 31, 2023 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended March 31, 2024 | | Organic | | Total |
| (dollars in thousands) | |
Integrated Agencies Network | |
Integrated Agencies Network | |
Integrated Agencies Network | Integrated Agencies Network | $929,033 | | $(3,173) | | $6,271 | | $(39,004) | | $(35,906) | | $893,127 | | (4.2)% | | (3.9)% | $304,187 | | $369 | | $(357) | | $(11,429) | | $(11,417) | | $292,770 | | (3.8)% |
Component % change | Component % change | | (0.3)% | | 0.7% | | (4.2)% | | (3.9)% | |
The declinedecrease in organic net revenue was primarily attributable to the loss oflower spending due to budget cuts by large clients in the retail sectortechnology and clients who withheld spendingfinancial services sectors, and client losses during the later part of 2023 in the financial, communicationsretail and retail sector due to uncertain macroeconomic factors and the writer and actor strikes.healthcare sectors. The increasedecrease in net acquisitions (divestitures) was primarily driven by a $4.6 million increasethe sale of Concentric in revenue from the acquisitionfourth quarter of Wolfgang.2023, partially offset by the acquisitions of Epiphany, Movers and Shakers and Left Field Labs.
Operating Income
Operating Incomeincome for the ninethree months ended September 30, 2023March 31, 2024 was $103.6$22.4 million, compared to $134.5$23.5 million for the ninethree months ended September 30, 2022,March 31, 2023, representing a decrease of $30.8$1.2 million. The change in Operating Income was primarily attributable to a decrease in Revenue and Cost of services, partially offset by an increase in Impairment and other losses and Depreciation and amortization.
The decrease in Cost of services was primarily attributable to lower billable costs, commensurate with lower revenue and lower staff costs associated with cost savings initiatives.
Depreciation and amortization expense increased $6.3 million, primarily attributable to the recognition of intangible assets in connection with the acquisition of Wolfgang.
Impairment and other losses increased approximately $6.7 million due to the impairment of two right-of-use assets and the related leasehold improvements in the second quarter of 2023.
Operating Income and Adjusted EBITDA were lower, driven by the decrease in revenue, partially offset by a decrease in expenses as detailed above.
Brand Performance Network
The components of operating results for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2023 | | 2022 | | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 574,729 | | | $ | 563,546 | | | $ | 11,183 | | | 2.0 | % | |
Operating Expenses | | | | | | | | | |
Cost of services | | 357,224 | | | 341,796 | | | 15,428 | | | 4.5 | % | |
Office and general expenses | | 163,832 | | | 152,668 | | | 11,164 | | | 7.3 | % | |
Depreciation and amortization | | 26,021 | | | 25,044 | | | 977 | | | 3.9 | % | |
Impairment and other losses | | 1,387 | | | 8,051 | | | (6,664) | | | (82.8) | % | |
| | $ | 548,464 | | | $ | 527,559 | | | $ | 20,905 | | | 4.0 | % | |
Operating Income | | $ | 26,265 | | | $ | 35,987 | | | $ | (9,722) | | | (27.0) | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| | | | | $ | | % |
Net Revenue | $ | 491,023 | | | $ | 487,829 | | | $ | 3,194 | | | 0.7 | % |
Billable costs | 83,706 | | | 75,717 | | | 7,989 | | | 10.6 | % |
Revenue | 574,729 | | | 563,546 | | | 11,183 | | | 2.0 | % |
| | | | | | | |
Billable costs | 83,706 | | | 75,717 | | | 7,989 | | | 10.6 | % |
Staff costs | 313,813 | | | 297,243 | | | 16,570 | | | 5.6 | % |
Administrative costs | 70,963 | | | 65,830 | | | 5,133 | | | 7.8 | % |
Unbillable and other costs, net | 38,860 | | | 35,497 | | | 3,363 | | | 9.5 | % |
Adjusted EBITDA | 67,387 | | | 89,259 | | | (21,872) | | | (24.5) | % |
Stock-based compensation | 3,365 | | | 9,152 | | | (5,787) | | | (63.2) | % |
Depreciation and amortization | 26,021 | | | 25,044 | | | 977 | | | 3.9 | % |
Deferred acquisition consideration | 1,112 | | | 7,349 | | | (6,237) | | | (84.9) | % |
Impairment and other losses | 1,387 | | | 8,051 | | | (6,664) | | | (82.8) | % |
Other items, net | 9,237 | | | 3,676 | | | 5,561 | | | NM |
Operating Income | $ | 26,265 | | | $ | 35,987 | | | $ | (9,722) | | | (27.0) | % |
Revenue
Revenue for the nine months ended September 30, 2023 was $574.7 million, compared to $563.5 million for the nine months ended September 30, 2022, an increase of $11.2 million.
Net Revenue
The components of the fluctuations in net revenue for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Nine Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Nine Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
Brand Performance Network | $487,829 | | $(2,466) | | $11,296 | | $(5,636) | | $3,194 | | $491,023 | | (1.2)% | | 0.7% |
Component % change | | | (0.5)% | | 2.3% | | (1.2)% | | 0.7% | | | | | | |
The decline in organic net revenue was primarily attributable to decreased spending and client losses in the communications sector, primarily as a result of the writer and actor strike, as well as decreased spending in the retail and healthcare sectors. The increase in net acquisitions (divestitures) was primarily driven by a $7.8 million increase in revenue from the acquisition of BNG and $2.7 million increase in revenue from the acquisition of Huskies.
Operating Income
Operating Income for the nine months ended September 30, 2023 was $26.3 million, compared to $36.0 million for the nine months ended September 30, 2022, representing a decrease of $9.7 million. The change in Operating Incomeincome was primarily attributable to an increase in Revenue, CostsCost of services, and OfficeImpairment and general expenses,other losses, partially offset by a decrease in ImpairmentOffice and other losses.general expenses.
The increase in Cost of services was primarily attributable to higher billable costs, commensurate with higher revenue, higherpartially offset by a decrease in staff costs primarily associated with an increased headcount resultingdue to the sale of Concentric in higher salary coststhe fourth quarter of 2023 and the acquisition of Huskies, partially offset by lowera decrease in stock-based compensation.
Stock-based compensation expense decreased approximately $5.8 million,The decrease in Office and general expenses was primarily attributable to a decrease in deferred acquisition consideration, and staff costs (as discussed above), partially offset by an increase in stock-based compensation.
Deferred acquisition consideration decreased $3.9 million, primarily as a result of a reduction in the fair value of profits interests awards.certain obligations in the first quarter of 2024 versus the same period last year.
Stock-based compensation increased $1.0 million primarily attributable to an increase in the number of shares being expensed and weighted average grant date fair value in the first quarter of 2024 as compared to the first quarter of 2023.
Impairment and other losses for the three months ended March 31, 2024 was $1.5 million. This was attributable to a charge to reduce the carrying value of a right-of-use lease asset and related leasehold improvements.
Adjusted EBITDA increased $0.2 million, primarily driven by a decrease in Operating Income, partially offset by an increase in Other items, net, due to an increase in severance-related expenses.
Brand Performance Network
The components of operating results for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | 2023 | | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 213,962 | | | $ | 201,928 | | | $ | 12,034 | | | 6.0 | % | |
Operating Expenses | | | | | | | | | |
Cost of services | | 139,787 | | | 132,048 | | | 7,739 | | | 5.9 | % | |
Office and general expenses | | 52,966 | | | 48,245 | | | 4,721 | | | 9.8 | % | |
Depreciation and amortization | | 7,514 | | | 7,937 | | | (423) | | | (5.3) | % | |
| | | | | | | | | |
| | $ | 200,267 | | | $ | 188,230 | | | $ | 12,037 | | | 6.4 | % | |
Operating Income | | $ | 13,695 | | | $ | 13,698 | | | $ | (3) | | | — | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 | | Change |
| (dollars in thousands) |
| | | | | $ | | % |
Net Revenue | $ | 162,562 | | | $ | 151,652 | | | $ | 10,910 | | | 7.2 | % |
Billable costs | 51,400 | | | 50,276 | | | 1,124 | | | 2.2 | % |
Revenue | 213,962 | | | 201,928 | | | 12,034 | | | 6.0 | % |
| | | | | | | |
Billable costs | 51,400 | | | 50,276 | | | 1,124 | | | 2.2 | % |
Staff costs | 98,431 | | | 96,060 | | | 2,371 | | | 2.5 | % |
Administrative costs | 22,071 | | | 20,931 | | | 1,140 | | | 5.4 | % |
Unbillable and other costs, net | 14,566 | | | 11,713 | | | 2,853 | | | 24.4 | % |
Adjusted EBITDA | 27,494 | | | 22,948 | | | 4,546 | | | 19.8 | % |
Stock-based compensation | 2,043 | | | 567 | | | 1,476 | | | NM |
Depreciation and amortization | 7,514 | | | 7,937 | | | (423) | | | (5.3) | % |
Deferred acquisition consideration | (777) | | | (1,179) | | | 402 | | | (34.1) | % |
| | | | | | | |
Other items, net | 5,019 | | | 1,925 | | | 3,094 | | | NM |
Operating Income | $ | 13,695 | | | $ | 13,698 | | | $ | (3) | | | — | % |
Revenue
Revenue for the three months ended March 31, 2024 was $214.0 million, compared to $201.9 million for the three months ended March 31, 2023, an increase of $12.0 million.
Net Revenue
The components of the fluctuations in net revenue for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended March 31, 2023 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended March 31, 2024 | | Organic | | Total |
| (dollars in thousands) | | | | |
Brand Performance Network | $151,652 | | $1,708 | | $1,708 | | $7,496 | | $10,912 | | $162,564 | | 4.9% | | 7.2% |
Component % change | | | 1.1% | | 1.1% | | 4.9% | | 7.2% | | | | | | |
The increase in organic net revenue was primarily attributable to new clients and increased spending by existing clients specifically in communications, consumer products, food and beverage, and transportation sectors. The increase in net acquisitions was primarily driven by the acquisition of Huskies.
Operating Income
Operating Income for the three months ended March 31, 2024 was $13.7 million, compared to $13.7 million for the three months ended March 31, 2023 representing no change, primarily attributable to an increase in Revenue, offset by an increase in Cost of services and Office and general expenses.
The increase in Cost of services was primarily attributable to higher billable and unbillable costs, commensurate with the increase in revenues and an increase in staff costs due to cost saving initiatives in 2023.
The increase in Office and general expenses was primarily attributable to an increase in staff costsoccupancy-related expenses related to the acceleration of lease expense due to the cease-use of property associated with the Company’s real estate consolidation initiative.
Adjusted EBITDA increased $4.5 million, primarily driven by an increased headcount and salary increases, anincrease in Other Items, net due to the increase in occupancy-related expenses partially offset by a decreasediscussed above, and an increase in deferred acquisition consideration.
Occupancy-related expensesstock-based compensation. Stock-based compensation increased primarily due to nonrecurring credits incurredan increase in the number of shares being expensed and weighted average grant date fair value in the first quarter of 2022 connected with a benefit associated with the initiative to consolidate real estate in New York City.
Deferred acquisition consideration decreased approximately $6.2 million primarily attributable2024 as compared to the reduction in fair value in 2023 associated with a Brand that was acquired in the second quarter of 2022 and the earn out period for a certain award ending in the secondfirst quarter of 2023.
Impairment and other losses decreased approximately $6.7 million, primarily due to the impairment of goodwill and right of use assets in 2022, as discussed above.
Operating Income and Adjusted EBITDA decreased due to an increase in revenues more than offset by an increase in expenses as detailed above.
Communications Network
The components of operating results for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | Nine Months Ended September 30, | |
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| $ | | % | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | Three Months Ended March 31, | |
| | 2024 | |
| | 2024 | |
| | 2024 | |
| | (dollars in thousands) | |
| | (dollars in thousands) | |
| | (dollars in thousands) | |
| | | | | | $ | |
| | | | | | $ | |
| | | | | | $ | |
Revenue | |
Revenue | |
Revenue | Revenue | | $ | 230,261 | | | $ | 314,472 | | | $ | (84,211) | | | (26.8) | % | |
Operating Expenses | Operating Expenses | | |
Operating Expenses | |
Operating Expenses | |
Cost of services | |
Cost of services | |
Cost of services | Cost of services | | 149,873 | | | 200,328 | | | (50,455) | | | (25.2) | % | |
Office and general expenses | Office and general expenses | | 51,551 | | | 29,223 | | | 22,328 | | | 76.4 | % | |
Office and general expenses | |
Office and general expenses | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | | 8,216 | | | 7,787 | | | 429 | | | 5.5 | % | |
| | | $ | |
| | $ | 209,640 | | | $ | 237,338 | | | $ | (27,698) | | | (11.7) | % | |
Operating Income | | $ | 20,621 | | | $ | 77,134 | | | $ | (56,513) | | | (73.3) | % | |
| | $ | |
| | | $ | |
Operating Income (Loss) | |
Operating Income (Loss) | |
Operating Income (Loss) | |
| | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | Nine Months Ended September 30, |
| 2024 | | 2023 | | Change |
| 2023 | | 2022 | | Change |
| (dollars in thousands) |
| $ | | % |
| (dollars in thousands) | | | (dollars in thousands) |
| | | | | $ | | | | | | | $ | | % |
Net Revenue | Net Revenue | $ | 177,032 | | | $ | 212,620 | | | $ | (35,588) | | | (16.7) | % | Net Revenue | $ | 67,488 | | | $ | | $ | 52,971 | | | $ | | $ | 14,517 | | | 27.4 | | 27.4 | % |
Billable costs | Billable costs | 53,229 | | | 101,852 | | | (48,623) | | | (47.7) | % | Billable costs | 26,258 | | | 13,488 | | 13,488 | | | 12,770 | | 12,770 | | | 94.7 | | 94.7 | % |
Revenue | Revenue | 230,261 | | | 314,472 | | | (84,211) | | | (26.8) | % | Revenue | 93,746 | | | 66,459 | | 66,459 | | | 27,287 | | 27,287 | | | 41.1 | | 41.1 | % |
| Billable costs | |
Billable costs | |
Billable costs | Billable costs | 53,229 | | | 101,852 | | | (48,623) | | | (47.7) | % | 26,258 | | | 13,488 | | 13,488 | | | 12,770 | | 12,770 | | | 94.7 | | 94.7 | % |
Staff costs | Staff costs | 115,846 | | | 128,784 | | | (12,938) | | | (10.0) | % | Staff costs | 39,264 | | | 40,077 | | 40,077 | | | (813) | | (813) | | | (2.0) | | (2.0) | % |
Administrative costs | Administrative costs | 25,096 | | | 24,475 | | | 621 | | | 2.5 | % | Administrative costs | 8,704 | | | 8,756 | | 8,756 | | | (52) | | (52) | | | (0.6) | | (0.6) | % |
Unbillable and other costs, net | Unbillable and other costs, net | 336 | | | 272 | | | 64 | | | 23.5 | % | Unbillable and other costs, net | 136 | | | 126 | | 126 | | | 10 | | 10 | | | 7.9 | | 7.9 | % |
Adjusted EBITDA | Adjusted EBITDA | 35,754 | | | 59,089 | | | (23,335) | | | (39.5) | % | Adjusted EBITDA | 19,384 | | | 4,012 | | 4,012 | | | 15,372 | | 15,372 | | | NM | | NM |
Stock-based compensation | Stock-based compensation | 2,177 | | | 1,077 | | | 1,100 | | | NM | Stock-based compensation | 1,049 | | | 507 | | 507 | | | 542 | | 542 | | | NM | | NM |
Depreciation and amortization | Depreciation and amortization | 8,216 | | | 7,787 | | | 429 | | | 5.5 | % | Depreciation and amortization | 2,894 | | | 2,713 | | 2,713 | | | 181 | | 181 | | | 6.7 | | 6.7 | % |
Deferred acquisition consideration | Deferred acquisition consideration | 3,403 | | | (27,466) | | | 30,869 | | | NM | Deferred acquisition consideration | (1,114) | | | 539 | | 539 | | | (1,653) | | (1,653) | | | NM | | NM |
| Other items, net | Other items, net | 1,337 | | | 557 | | | 780 | | | NM |
Operating Income | $ | 20,621 | | | $ | 77,134 | | | $ | (56,513) | | | (73.3) | % |
Other items, net | |
Other items, net | | 282 | | | 605 | | | (323) | | | (53.4) | % |
Operating Income (Loss) | | Operating Income (Loss) | $ | 16,273 | | | $ | (352) | | | $ | 16,625 | | | NM |
Revenue
Revenue for the ninethree months ended September 30, 2023March 31, 2024 was $230.3$93.7 million, compared to $314.5$66.5 million for the ninethree months ended September 30, 2022, a decreaseMarch 31, 2023, an increase of $84.2$27.3 million.
Net Revenue
The components of the fluctuations in net revenue for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | Net Revenue - Components of Change | | Change |
| Nine Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Nine Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
| | | Net Revenue - Components of Change | | | | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended March 31, 2023 | | | Three Months Ended March 31, 2023 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended March 31, 2024 | | Organic | | Total |
| (dollars in thousands) | |
Communications Network | |
Communications Network | |
Communications Network | Communications Network | $212,620 | | $(282) | | $1,918 | | $(37,224) | | $(35,588) | | $177,032 | | (17.5)% | | (16.7)% | $52,971 | | $(49) | | $273 | | $14,292 | | $14,516 | | $67,487 | | 27.0% | | 27.4% |
Component % change | Component % change | | (0.1)% | | 0.9% | | (17.5)% | | (16.7)% | |
The declineincrease in organic net revenue was primarily attributable to decreased spending in public relations and related advocacy services as compared to higher spending in 2022 associated with the 2022 elections as well as decreased spendingnew clients in the technologyhealthcare and consumer products sectors, and increased spending by existing clients in the public affairs sector due toas 2024 is a reduction in budgets stemming from the current macroeconomic conditions. The increase in net acquisitions (divestitures) was driven by a $1.9 million increase in revenue from the acquisition of TMA.political campaign year.
Operating Income (Loss)
Operating income (loss) for the ninethree months ended September 30, 2023March 31, 2024 was $20.6$16.3 million compared to $77.1$0.4 million for the ninethree months ended September 30, 2022,March 31, 2023, representing a decreasean increase of $56.5$16.6 million. The change in Operating Incomeincome (loss) was primarily attributable to a decreasean increase in Revenue and CostsCost of services, and an increasea decrease in Office and general expenses.
The decreaseincrease in Cost of services was primarily attributable to loweran increase in billable costs, commensurate with lowerhigher revenue, andpartially offset by a decrease in staff costs associated with cost savings initiatives.primarily attributable to restructuring costs.
The increasedecrease in Office and general expenses was primarily attributable to an increase in deferred acquisition consideration expense, partially offset by a decrease in staff costs related to cost saving initiatives.consideration.
Deferred acquisition consideration increased approximately $30.9decreased $1.7 million, primarily attributable to a significant reduction in the fair value of the deferred acquisition consideration liability associated with a certain Brand that occurred in the third quarter of 2022.Brand.
Operating Income and Adjusted EBITDA were lowerincreased $15.4 million, primarily driven by lower revenue, partially offset by lower expenses as detailed above.an increase in Operating Income.
All Other
The components of operating results for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2023 | | 2022 | | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 34,378 | | | $ | 9,225 | | | $ | 25,153 | | | NM | |
Operating Expenses | | | | | | | | | |
Cost of services | | 25,796 | | | 4,204 | | | 21,592 | | | NM | |
Office and general expenses | | 18,502 | | | 6,029 | | | 12,473 | | | NM | |
Depreciation and amortization | | 6,152 | | | 2,458 | | | 3,694 | | | NM | |
Impairment and other losses | | — | | | 17,464 | | | (17,464) | | | (100.0) | % | |
| | $ | 50,450 | | | $ | 30,155 | | | $ | 20,295 | | | 67.3 | % | |
Operating Loss | | $ | (16,072) | | | $ | (20,930) | | | $ | 4,858 | | | (23.2) | % | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | |
| | 2024 | | 2023 | | Change | |
| | (dollars in thousands) | |
| | | | | | $ | | % | |
Revenue | | $ | 9,632 | | | $ | 12,852 | | | $ | (3,220) | | | (25.1) | % | |
Operating Expenses | | | | | | | | | |
Cost of services | | 5,754 | | | 7,680 | | | (1,926) | | | (25.1) | % | |
Office and general expenses | | 8,136 | | | 7,746 | | | 390 | | | 5.0 | % | |
Depreciation and amortization | | 2,421 | | | 1,948 | | | 473 | | | 24.3 | % | |
| | | | | | | | | |
| | $ | 16,311 | | | $ | 17,374 | | | $ | (1,063) | | | (6.1) | % | |
Operating Loss | | $ | (6,679) | | | $ | (4,522) | | | $ | (2,157) | | | 47.7 | % | |
| | Three Months Ended March 31, | | | Three Months Ended March 31, |
| 2024 | | | 2024 | | 2023 | | Change |
| (dollars in thousands) | | | (dollars in thousands) |
| | | | | $ | | | | | | | $ | | % |
Net Revenue | | Net Revenue | $ | 9,632 | | | $ | 12,852 | | | $ | (3,220) | | | (25.1) | % |
| Revenue (1) | |
Revenue (1) | |
Revenue (1) | | 9,632 | | | 12,852 | | | (3,220) | | | (25.1) | % |
| | | Nine Months Ended September 30, |
Staff costs | |
| | 2023 | | 2022 | | Change |
Staff costs | |
| | (dollars in thousands) |
| $ | | % |
Net Revenue | $ | 34,404 | | | $ | 9,225 | | | $ | 25,179 | | | NM |
Billable costs | (26) | | | — | | | (26) | | | (100.0) | % |
Revenue (1) | 34,378 | | | 9,225 | | | 25,153 | | | NM |
| Billable costs | (26) | | | — | | | (26) | | | (100.0) | % |
Staff costs | Staff costs | 31,124 | | | 7,919 | | | 23,205 | | | NM | 7,821 | | | 10,487 | | 10,487 | | | (2,666) | | (2,666) | | | (25.4) | | (25.4) | % |
Administrative costs (1) | Administrative costs (1) | 1,244 | | | 2,249 | | | (1,005) | | | (44.7) | % | Administrative costs (1) | 3,209 | | | 3,195 | | 3,195 | | | 14 | | 14 | | | 0.4 | | 0.4 | % |
Unbillable and other costs, net | Unbillable and other costs, net | 12,202 | | | 29 | | | 12,173 | | | NM | Unbillable and other costs, net | 2,588 | | | 2,975 | | 2,975 | | | (387) | | (387) | | | (13.0) | | (13.0) | % |
Adjusted EBITDA | Adjusted EBITDA | (10,166) | | | (972) | | | (9,194) | | | NM | Adjusted EBITDA | (3,986) | | | (3,805) | | (3,805) | | | (181) | | (181) | | | 4.8 | | 4.8 | % |
Stock-based compensation | Stock-based compensation | 427 | | | 15 | | | 412 | | | NM | Stock-based compensation | 98 | | | 32 | | 32 | | | 66 | | 66 | | | NM | | NM |
Depreciation and amortization | Depreciation and amortization | 6,152 | | | 2,458 | | | 3,694 | | | NM | Depreciation and amortization | 2,421 | | | 1,948 | | 1,948 | | | 473 | | 473 | | | 24.3 | | 24.3 | % |
Deferred acquisition consideration | Deferred acquisition consideration | (1,752) | | | — | | | (1,752) | | | (100.0) | % | Deferred acquisition consideration | — | | | (1,263) | | (1,263) | | | 1,263 | | 1,263 | | | (100.0) | | (100.0) | % |
Impairment and other losses | — | | | 17,464 | | | (17,464) | | | (100.0) | % |
| Other items, net | |
Other items, net | |
Other items, net | Other items, net | 1,079 | | | 21 | | | 1,058 | | | NM | 174 | | | — | | — | | | 174 | | 174 | | | 100.0 | | 100.0 | % |
Operating Loss | Operating Loss | $ | (16,072) | | | $ | (20,930) | | | $ | 4,858 | | | (23.2) | % | Operating Loss | $ | (6,679) | | | $ | | $ | (4,522) | | | $ | | $ | (2,157) | | | 47.7 | | 47.7 | % |
(1) All Other Revenue and Administrative costs include approximately $6.0 million of eliminations of intercompany services.
Revenue
Revenue for the ninethree months ended September 30, 2023March 31, 2024 was $34.4$9.6 million, compared to $9.2$12.9 million for the ninethree months ended September 30, 2022, an increaseMarch 31, 2023, a decrease of $25.2$3.2 million.
Net Revenue
The components of the fluctuations in net revenue for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | Net Revenue - Components of Change | | Change |
| Nine Months Ended September 30, 2022 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Nine Months Ended September 30, 2023 | | Organic | | Total |
| (dollars in thousands) | | | | |
| | | Net Revenue - Components of Change | | | | | Net Revenue - Components of Change | | | | | | Change |
| Three Months Ended March 31, 2023 | | | Three Months Ended March 31, 2023 | | Foreign Currency | | Net Acquisitions (Divestitures) | | Organic | | Total Change | | Three Months Ended March 31, 2024 | | Organic | | Total |
| (dollars in thousands) | |
All Other | |
All Other | |
All Other | All Other | $9,225 | | $(170) | | $35,135 | | $(9,786) | | $25,179 | | $34,404 | | NM | | NM | $12,852 | | $(202) | | $(1,691) | | $(1,326) | | $(3,219) | | $9,633 | | (10.3)% | | (25.0)% |
Component % change | Component % change | | (1.8)% | | NM | | NM | | NM | |
The declinedecrease in organic net revenue was primarily attributable to budget cuts and client losses from clients in the elimination of intercompany revenue during the nine months ended September 30, 2023. The increase in net acquisitions (divestitures) was primarily driven by a $21.2 million increase in revenue from the acquisition of Marufood and a $3.2 million increase in revenue from the acquisition of Epicenter.beverage, travel and transportation, and technology sectors.
Operating Loss
Operating Loss for the ninethree months ended September 30, 2023March 31, 2024 was $16.1$6.7 million compared to $20.9$4.5 million for the ninethree months ended September 30, 2022,March 31, 2023, representing a decreasean increase of $4.9$2.2 million. The change in Operating Loss was primarily attributable to an increasea decrease in Revenue, Cost of services, Office and general expenses and Depreciation and amortization, partially offset by a decrease in Impairment and other losses.Cost of services.
The increasedecrease in Cost of servicesServices was primarily attributable to higher unbillable and staff costs, commensurate with higher revenue, and due to the acquisitionsderecognition of Maru and Epicenter.certain noncontrolling interest in the first quarter of 2024.
The increase in Office and general expenses wasAdjusted EBITDA decreased $0.2 million, primarily attributable todriven by an increase in staff costs primarily associated with the acquisitions of Maru and Epicenter.
Depreciation and amortization expense increased approximately $3.7 million, primarily attributable to the recognition of intangible assets in connection with the acquisitions of Maru and Epicenter.
Impairment and other losses decreased primarily due to the impairment of goodwill in the third quarter of 2022.
The decrease in Operating Loss, and Adjusted EBITDA were driven by higher revenue, more than offset by higher expenses (as detailed above), and partially offset by a decrease in Impairment and other losses.as discussed above.
Corporate
The components of operating results for the ninethree months ended September 30, 2023March 31, 2024 compared to the ninethree months ended September 30, 2022March 31, 2023 were as follows:
| | Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| Three Months Ended March 31, | |
| | | Nine Months Ended September 30, | |
|
| 2023 | | 2022 | | Change | |
| (dollars in thousands) | |
| $ | | % | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| (dollars in thousands) | |
| | | | | $ | |
| | | | | $ | |
| | | | | $ | |
Staff costs | |
Staff costs | |
Staff costs | Staff costs | $ | 25,850 | | | $ | 30,212 | | | $ | (4,362) | | | (14.4) | % | |
Administrative costs | Administrative costs | 13,343 | | | 4,803 | | | 8,540 | | | NM | |
| Administrative costs | |
Administrative costs | |
Unbillable and other costs, net | |
Unbillable and other costs, net | |
Unbillable and other costs, net | |
Adjusted EBITDA | |
Adjusted EBITDA | |
Adjusted EBITDA | Adjusted EBITDA | (39,193) | | | (35,015) | | | (4,178) | | | 11.9 | % | |
Stock-based compensation | Stock-based compensation | 12,701 | | | 8,122 | | | 4,579 | | | 56.4 | % | |
Stock-based compensation | |
Stock-based compensation | |
Depreciation and amortization | |
Depreciation and amortization | |
Depreciation and amortization | Depreciation and amortization | 5,990 | | | 5,217 | | | 773 | | | 14.8 | % | |
| Other items, net | Other items, net | 5,338 | | | 5,283 | | | 55 | | | 1.0 | % | |
| Other items, net | |
| Other items, net | |
Operating Loss | Operating Loss | $ | (63,222) | | | $ | (53,637) | | | $ | (9,585) | | | 17.9 | % | |
Operating Loss | |
Operating Loss | |
Operating Loss for the ninethree months ended September 30, 2023March 31, 2024 was $63.2$19.8 million compared to $53.6$16.1 million for the ninethree months ended September 30, 2022,March 31, 2023, representing an increase of $9.6$3.7 million. The increase in Operating Loss was primarily attributable to an increase in stock-based compensation,staff costs, partially offset by a decrease in Staffadministrative costs.
Staff costs decreased due to cost-savings initiatives.
Stock-based compensation expense increased approximately $4.6by $3.3 million primarily attributable to the modificationas a result of certain share-based payment awards, awards granteda health insurance benefit recognized in the second and third quarter of 2023, and the completed vesting of awards in the second half of 2022 as well as the first quarter of 2023.
Administrative costs decreased by $1.4 million primarily attributable to a reduction in professional, consulting and legal fees partially offset by an increase in occupancy related expenses.
Occupancy-related expenses increased primarily due to the commencement of two new offices in the first quarter of 2024 and the assumption of an office, as part of the sale of Concentric, that was previously included under Integrated Agencies Network.
Liquidity and Capital Resources:
The following table provides summary information about the Company’s liquidity position:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
| (dollars in thousands) |
Net cash (used in) provided by operating activities | $ | (127,542) | | | $ | 73,081 | |
Net cash used in investing activities | (44,848) | | | (64,284) | |
Net cash provided by (used in) financing activities | 51,688 | | | (12,312) | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| (dollars in thousands) |
Net cash used in operating activities | $ | (53,121) | | | $ | (85,113) | |
Net cash used in investing activities | (26,124) | | | (10,815) | |
Net cash provided by financing activities | 91,086 | | | 12,923 | |
The Company had cash and cash equivalents of $98.7$129.8 million and $220.6$119.7 million as of September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The Company expects to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months and subsequent periods. The Company has historically maintained and expanded its business using cash generated from operating activities, funds available under the Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing. On May 4, 2023, as discussed in Note 7 of the Notes included herein, the Company amended theThe Credit Agreement to, among other things, increase theprovides revolving commitments under the Credit Agreement by $140.0 million from $500.0 millionof up to $640.0 million and permitpermits restricted payments for share repurchases or redemptions from certain of its stockholders in an aggregate principal amount of up to $150.0 million. As of September 30, 2023,March 31, 2024, the Company had $412.0$182.0 million of borrowings outstanding $24.9and $15.8 million of outstandingissued and undrawn letters of credit resulting in $203.1$442.2 million unused amount under the Credit Agreement.
The Company transfers certain of its trade receivable assets to third parties under agreements to sell certain of its accounts receivables.agreements. Per the terms of these agreements, the Company surrenders control over its trade receivables upon transfer.
The trade receivables transferred to the third parties were $263.7$69.8 million and $87.9$56.2 million for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively. The amount collected and due to the third parties under these arrangements was $10.1$3.7 million as of September 30, 2023March 31, 2024 and $5.7$1.8 million as of December 31, 2022.2023. Fees for these arrangements were recorded in Office and general expenses in the Unaudited Consolidated Statements of Operations and totaled $4.1$0.9 million and $0.6$1.0 million for the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, respectively.
On March 1, 2023, the Board authorizedThe Company may purchase up to an extension and a $125.0aggregate of $250.0 million increase in the sizeof shares of ouroutstanding Class A Common Stock under its stock repurchase program (the(the “Repurchase Program”) to an aggregate of $250.0 million, with any previous purchases under the Repurchase Program continuing to count against that limit.. The Repurchase Program as amended, will expireexpires on March 1, 2026.
During the ninethree months ended September 30, 2023, 6.7March 31, 2024, 4.0 million shares of Class A Common Stock were repurchased pursuant to the Repurchase Program at an aggregate value, excluding fees, of $42.5$24.6 million. These shares were repurchased at an average price of $6.38$6.11 per share. The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $155.7$114.0 million as of September 30, 2023.March 31, 2024. The Company's Board of Directors (the “Board”) will review the Repurchase Program periodically and may authorize adjustments of its terms. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice.
On May 23, 2023, the Company repurchased approximately 23.3 million shares of Class A Common Stock from certain AlpInvest Partners B.V. at a price of $6.43 per share, for an aggregate total repurchase price of approximately $150.0 million.
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition consideration payments, purchases of noncontrolling interests, subsidiary awards, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 5.625% Notes (as defined in Note 8 of the Notes included herein) and Credit Agreement. The Company expects to make estimated cash payments in the future to satisfy obligations under theour Tax Receivables Agreement with Stagwell Media LP and OpCo (“TRA”) (see Note 1314 of the Notes included herein for additional details). The amount and timing of payments are contingent on the Company achieving certain tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (each as defined in Note 1011 of the Notes included herein) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to the Company making payments under the TRA. 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 Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months and subsequent periods. The Company’s
ability to make scheduled deferred acquisition consideration payments to make principal and interest payments, to refinance indebtedness or to fund planned capital expenditures or other obligations will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in this Form 10-Q and in the Company’s other SEC filings.
Cash Flows
Operating Activities
Cash flows used in operating activities for the ninethree months ended September 30, 2023,March 31, 2024, were $127.5 million, primarily driven by unfavorable working capital requirements, including the timing of media supplier payments, partially offset by earnings.
Cash flows provided by operating activities for the nine months ended September 30, 2022, were $73.1$53.1 million, primarily driven by earnings, partially offset by unfavorable working capital requirements, including the timing of media supplier payments.
Cash flows used in operating activities for the three months ended March 31, 2023, were $85.1 million, primarily driven by earnings and unfavorable working capital requirements timing of media supplier payments.
Investing Activities
Cash flows used in investing activities were $44.8$26.1 million for the ninethree months ended September 30, 2023,March 31, 2024, primarily driven by $19.0$8.8 million in capitalized software spend, $12.2$5.4 million in capital expenditures, and $6.7$11.7 million for acquisitions, net of cash acquired.
Cash flows used in investing activities were $64.3$10.8 million for the ninethree months ended September 30, 2022,March 31, 2023, primarily driven by $9.4$6.7 million in capital capitalized software spend, $16.1$3.4 million in capital expenditures, and $37.5$0.2 million in acquisitions, net of cash acquired.
Financing Activities
During the ninethree months ended September 30,March 31, 2024, cash flows provided by financing activities were $91.1 million, primarily driven by $123.0 million in net borrowings under the Credit Agreement, shares repurchased and cancelled of $29.7 million, payments of deferred consideration of $1.7 million, and distributions to noncontrolling interests of $0.6 million.
During the three months ended March 31, 2023, cash flows provided by financing activities were $51.7$12.9 million, primarily driven by $312.0$50.0 million in net borrowings under the Credit Agreement, partially offset by shares repurchased and cancelled$10.9 million of $204.0 million, payments of deferred consideration of $31.7 million, and distributions to noncontrolling interests of $24.5 million.
During the nine months ended September 30, 2022, cash flows used in financing activities were $12.3 million, primarily driven by $134.5and $26.1 million in net borrowings under the Credit Agreement, partially offset primarily by shares repurchased and cancelled of $43.6 million, payments of deferred consideration of $61.1 million, and distributions to noncontrolling interests of $38.5 million.cancelled.
Total Debt
Debt, net of debt issuance costs, as of September 30, 2023,March 31, 2024, was $1,498.1$1,269.5 million as compared to $1,184.7$1,145.8 million outstanding at December 31, 2022.2023. See Note 78 to the Unaudited Consolidated Financial Statements included herein for information regarding the Company’s 5.625% Notes, and the Credit Agreement, which provides for a $640.0 million senior secured revolving credit facility maturing on August 3, 2026.
The Company is currently in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.
If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.
Pursuant to the Credit Agreement, the Company must maintain a Total Leverage Ratio (as defined in the Credit Agreement) below an established threshold. For the period ended September 30, 2023,March 31, 2024, the Company’s calculation of this ratio, and the maximum permitted under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:
| | | | | |
| September 30, 2023March 31, 2024 |
Total Leverage Ratio | 3.753.21 |
Maximum per covenant | 4.25 |
These ratios and measures are not based on GAAP and are not presented as alternative measures of operating performance or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.
Material Cash Requirements
The Company’s Brands 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 Brands purchase media for clients and act as an agent for a disclosed principal. These commitments are included in Accounts payable and Accrued media when the media services are delivered by the media providers. Stagwell takes precautions against default on payment for these services including the procurement of credit insurance and has historically had a very low incidence of default. Stagwell is still
exposed to the risk of significant uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic downturn.
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments. See Note 56 of the Notes included herein for additional information regarding contingent deferred acquisition consideration. As of September 30, 2023, approximately $42.6 million of the deferred acquisition consideration is expected to be settled in shares of Class A Common Stock.
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 89 of the Notes included herein for additional information regarding noncontrolling interests and redeemable noncontrolling interests.
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the respective subsidiary (the “profits interests awards”). The awards generally provide the employee the right, but not the obligation, to sell its interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, receive a profit share distribution.
The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the Credit Agreement (or any refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity. The ultimate amount payable in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.
Critical Accounting Estimates
See Note 2 of the Company’s 20222023 Form 10-K for information regarding the Company’s critical accounting estimates.
Website Access to Company Reports and Information
Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. Stagwell Inc.’s Internet website address is www.stagwellglobal.com. The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to the Exchange Act, will be made available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the SEC. The Company announces material information to the public through a variety of means, including filings with the SEC, press releases, public conference calls, and its website. The Company uses these channels, as well as social media, including its Twitter account (@stagwell) and its LinkedIn page (https://www.linkedin.com/company/stagwell/), to communicate with investors and the public about the Company, its products and services, and other matters. Therefore, investors, the media, and others interested in the Company are encouraged to review the information the Company makes public in these locations, as such information could be deemed to be material information. Information on or that can be accessed through the Company’s websites or these social media channels is not part of this Form 10-Q, and the inclusion of the Company’s website addresses and social media channels are inactive textual references only.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company is exposed to market risk related to interest rates, foreign currencies and impairment risk.
Debt Instruments: At September 30, 2023,March 31, 2024, the Company’s debt obligations consisted of amounts outstanding under its Credit Agreement and the 5.625% Notes. The 5.625% Notes bear a fixed 5.625% interest rate. The Credit Agreement bears
interest at variable rates based upon SOFR, EURIBOR, and SONIA depending on the duration of the borrowing product. The Company’s ability to obtain the required bank syndication commitments depends in part on conditions in the bank market at the time of syndication.
On April 28, 2022, the Company amended its Credit Agreement. This amendment replaced references to LIBOR with references to SOFR. With regard to our variable rate debt, a 10% increase or decrease in interest rates would change our annual interest expense by approximately $2.5$2.0 million.
Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar, the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations. The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Company’s Audited Consolidated Financial Statements included in the 20222023 Form 10-K. For the most part, revenues and expenses incurred related to the non-U.S. operations are denominated in their functional currency. This reduces the impact that fluctuations in exchange rates will have on profit margins. Translation of intercompany debt, which is not
intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany balances are included in net income (loss). TheFrom time to time, the Company generally does notmay enter into foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
Impairment Risk: For the ninethree months ended September 30, 2023,March 31, 2024, the Company recorded an impairment charge of $10.6$1.5 million to reduce the carrying value of twoone of its right-of-use lease assets and related leasehold improvements and a long lived asset, specifically a trade name. improvements. See Note 7 of the Notes included herein for additional information.
See the Significant Accounting Policies section in the “Notes to Audited Consolidated Financial Statements” of the Company’s 20222023 Form 10-K for information related to impairment testing for Goodwill, Right-of-use lease assets and long livedlong-lived assets and the risk of potential impairment charges in future periods. See the Critical Accounting Estimates section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s 2023 Form 10-K for information related to the risk of potential impairment charges in future periods.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assuranceensure that information required to be disclosed in our reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified byin the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO, and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rules 13a-15(e)Rule 13a-15(b) and 15d-15(e)15d- 15(b) of the Exchange Act. Based on that evaluation, and in light of the material weaknesses identified in our internal control over financial reporting as disclosed in our Form 10-K for the fiscal year ended December 31, 2022,2023, our CEO and CFO concluded that, as of September 30, 2023,March 31, 2024, our disclosure controls and procedures were not effective.
Material Weakness Remediation Plan and Status
Under
The Company, under the leadership of our CFO, has continued to improve our internal control over financial reporting and our Senior Vice President of Sarbanes-Oxley Act, the Company has made significant progress withwe believe these actions will be effective in the remediation of thesethe material weaknesses, and continued to execute on the previously communicated remediationhowever these activities through currently remain ongoing.
September 30, 2023. Particularly:
•We continued our enhanced communications with the Audit Committee of the Board of Directors for increased oversight. The Company also formally reports quarterly to the Audit Committee regarding progress against the remediation plan.plan.
•WeIn the prior year, we designed and implemented controls over theour risk assessment process that includeincluded detailed qualitative and quantitative factors to identify and assess risks and implement or modify controls in response to those risks. We are further enhancing our risk assessment process to identify potential risks related to the ongoing performance of controls. The risk assessment is regularly updated for new entities and changes in risk profile.
•Based on our assessment of the current state of the system of internal control at the consolidated and brand levels, we enhanced existing business processes and control activities and assessed the adequacy of resources.
•We implemented new controls and enhancedare improving existing controls across our information technology environment including generalall business processes covering all significant accounts, focusing on controls related to access, change managementover the review of journal entries, account reconciliations and segregation of duties as well as assessing the sufficiency of resources with an appropriate level of accounting knowledge, experience, and centralized certain ITtraining in the finance and accounting functions.
•We redesigned and strengthened control activities over reconciliations including enhanced review and approval controls.
•We designed and enhancedare enhancing our management review controls to improve monitoring of internal control over financial reporting.
•We also formalized internal control policies and procedures and conducted multiple in-depth training sessions with control owners throughout the Company.
The Company has also continued to roll out its finance transformation initiative, which involves a phased deployment of new enterprise resource planning and human resource information systems and a shared service platform.
During the nine months ended September 30, 2023, management evaluated our internal control processes, remediated gaps in the design of internal controls and has been making progress in performing operating effectiveness testing. We will consider the above material weaknesses to be fully remediated once the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively. We may also conclude that additional measures may be requiredIn addition, as we continue to remediatemonitor the material weaknesses ineffectiveness of our internal control over financial reporting, whichwe may necessitate furtherperform additional internal control changes.changes as necessary.
Change
Changes in Internal Control Over Financial Reporting
Other than the changes discussed above in connection with our implementation of the remediation plan, there
There were no other changes in our internal control over financial reporting (as such term is defined in Rules 13a–15(f)13a-15(f) and 15d–15(f)15d-15(f) under the Exchange Act) that occurred during our most recentthe quarter ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not currently expect that these proceedings will have a material adverse effect on our results of operations, cash flows or financial position.
Item 1A. Risk Factors
There have been no material changes to the risk factors in Part I, Item 1A “Risk Factors” of our 20222023 Form 10-K. These risks could materially and adversely affect our business, results of operations, financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which we are subject to include the factors listed under “Note About Forward-Lookingnote about “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
In the three months ended September 30, 2023,March 31, 2024, the Company granted the Company granted 85,04121,593 restricted stock units underlying shares of Class A Common Stock andas inducement for employment. We also issued 222,5691,045,296 shares of Class A Common Stock as purchase consideration in connection with acquisitions and for additional interests in subsidiaries. These transactions were exempt from registration under Section 4(a)(2) of the Securities Act. The 85,042 shares were granted as inducement for employment. The 222,569 shares were issued as a result of the exercise of stock appreciation rights that were granted as inducement for employment. The Company received no cash proceeds and no commissions were paid to any person in connection with the issuance of these shares.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
On March 1, 2023, the Board authorized an extension and a $125.0 million increase in the size of the Repurchase Program. Under the Repurchase Program, as amended, we may repurchase up to an aggregate of $250.0 million outstandingof shares of our outstanding Class A Common Stock, with any previous purchases under the Repurchase Program continuing to count against that limit. The Repurchase Program will expire on March 1, 2026. Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices (including through trading plans that may
be adopted in accordance with Rule 10b5-1 of the Exchange Act), in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice. The Board will review the Repurchase Program periodically and may authorize adjustments of its terms. Pursuant to its Credit Agreement (as defined and discussed in Note 78 of the Notes included herein) and the indenture governing the 5.625% Notes, the Company is currently limited as to the dollar value of shares it may repurchase in the open market.
The following table details our monthly shares repurchased during the thirdfirst quarter of 20232024 and the approximate dollar value of shares that may yet be purchased pursuant to the Repurchase Program:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (2) |
7/1/2023 - 7/31/2023 | | 230,630 | | | $ | 7.93 | | | — | | | $ | 158,434,817 | |
8/1/2023 - 8/31/2023 | | 2,194 | | | $ | 5.66 | | | — | | | $ | 158,434,817 | |
9/1/2023 - 9/30/2023 | | 585,710 | | | $ | 4.72 | | | 585,710 | | | $ | 155,660,866 | |
Total | | 818,534 | | | $ | 5.63 | | | 585,710 | | | $ | 155,660,866 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (2) |
1/1/2024 - 1/31/2024 | | 1,034,693 | | | $ | 6.56 | | | 1,029,540 | | | $ | 131,839,608 | |
2/1/2024 - 2/28/2024 | | 1,587,444 | | | $ | 6.47 | | | 1,114,223 | | | $ | 124,812,923 | |
3/1/2024 - 3/31/2024 | | 2,205,730 | | | $ | 5.83 | | | 1,877,200 | | | $ | 113,953,763 | |
Total | | 4,827,867 | | | $ | 6.20 | | | 4,020,963 | | | $ | 113,953,763 | |
(1) Includes information for all shares repurchased by the Company, including shares repurchased as part of the Company’s publicly announced Repurchase Program, and 232,824806,904 shares to settle employee tax withholding obligations related to the vesting of restricted stock awards and restricted stock units.
(2) Only includes information for shares repurchased as part of the Company’s publicly announced Repurchase Program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the quarterly period covered by this Form 10-Q, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K).
Unregistered Sales of Equity Securities
On November 1, 2023, the Company issued 2,845,446 shares of Class A Common Stock in fulfillment of $12.7 million of its payment obligation with respect to the purchase of additional interests in its Targeted Victory subsidiary.
The issuance of the shares is exempt from registration under Section 4(a)(2) of the Securities Act, as amended. The Company will receive no cash proceeds and no commissions will be paid to any person in connection with the issuance.
On November 1, 2023, the Company acquired Movers and Shakers LLC, a business that provides social media marketing solutions, for approximately $15 million, approximately $4.5 million of which was paid through the issuance of 1,006,766 shares of Class A Common Stock. In connection with the acquisition, the previous owners are entitled to two contingent payments, each up to $17.5 million, subject to meeting certain future earnings targets for the three-year period from November 1, 2023 to November 1, 2026 and the two-year period from November 1, 2026 to November 1, 2028. The Company may elect to pay up to 50% of each contingent payment in shares of Class A Common Stock. The number of shares issued will be calculated based on the volume-weighted average closing price of the Class A Common Stock for the 10 trading days immediately prior to the earlier of the date the Company notifies the sellers of its election or the payment due date.
The issuance of the shares is exempt from registration under Section 4(a)(2) of the Securities Act, as amended. The Company will receive no cash proceeds and no commissions will be paid to any person in connection with the issuance.
Item 6. Exhibits
The exhibits required by this item are listed on the Exhibit Index.
EXHIBIT INDEX
| | | | | | | | |
Exhibit No. | | Description |
| | Second Amended and Restated Certificate of Incorporation of Stagwell Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company'sCompany’s Form 10-Q filed on May 9, 2023). |
| | Amended and Restated Bylaws of Stagwell Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed on August 2, 2021). |
| | Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.* |
| | Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.* |
| | Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
| | Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
101 | | Interactive Data File, for the period ended September 30, 2023.March 31, 2024. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.* |
104 | | Cover Page Interactive Data File. The cover page XBRL tags are embedded within the inline XBRL document and are included in Exhibit 101.* |
* Filed herewith.
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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STAGWELL INC. |
|
/s/ Mark Penn |
Mark Penn |
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
NovemberMay 2, 20232024 |
| |
/s/ Frank Lanuto |
Frank Lanuto |
Chief Financial Officer (Principal Financial Officer) |
NovemberMay 2, 20232024 |
| |