STGW - Earnings call transcript Q3 2021

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Operator

Thank you and good morning everyone. Welcome to the Stagwell Inc. Conference Call for the Third Quarter of 2021. On today's call, Mark Penn, Chairman and Chief Executive Officer, will first provide an overview of Stagwell's third quarter results, followed by a review of financial results from our Chief Financial Officer, Frank Lanuto.

We will then take questions which you can submit through the chat function on the video webcast portal.

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

the earnings further uncertainties about are earnings statements release statements the presentation including the our relating discussed Forward-looking combination, and company's SEC slide are filings. results combination company, for will included the giving be in subject January effect call been X, in in as Unless otherwise referenced to to and had if on stated, on completed pro this the the historical full detailed cautionary those results to XXXX. guidance, forma

For your website our reference, to we an presentation stagwellglobal.com. investor at posted

non-GAAP call, our Chairman press turn and this We also to for to I'd it refer now over Mark CEO, slide releases you to start data. like financial And reconciliations to the definitions, Penn. morning's of and presentations explanations and

Mark Penn

digital net $XXX joining our Inc. combined on Thank by everyone, go revenue is hit and we significant organic by The business in is further and pandemic a full up the And GAAP best by driven and by to to includes thank off-cycle the makes and pro revenue working. morning the because the digital the research. The our revenue, you, the third for year displayed revenue new The quarter recovery basis was higher growth our our deliver power measure pass-through strength believe, million trends demonstrating clear. XX.X% that many The we results offer. as our our is strength beyond to continue net advocacy XXXX transformation, brands we grew given than and high XX.X%. levels and discuss started and vary net of online the benefit expenses forma us profitability XX.X% looking excluding significantly above revenues record revenue reinforces revenue, services report new net them our to digital results. businesses our pandemic company levels, mere digital platform abundantly combination sets amplified of to mix our performance growth. year-over-year that XX.X% experiences of of us will pre-pandemic organic I'm The revenue grew across organic you. long-lasting quarter our digital to to of Net at company's powered of rush measure, that pleased one and The that businesses. Stagwell platform heights. businesses XQ that is conviction of quarter majority delivered for XXXX of Good new of first media us thing Stagwell

cycle back to comes been XX.X% the of for million in up, G&A these quarter, political We year the we of business. steady, growing while head prior expect continue digital and a from as we back margin the growth those into Adjusted to the year. a up on and as EBITDA, next travel next marketing representing in trends net was margins $XXX.X dropped we've strong revenues, as strong an a ramped off base very our percentage result a ratio because able have have We've a comp-to-revenue as kept overall year. costs maintain central XX.X%

report has businesses competitors, recruitment combination especially stepped central candidates. tight, whose of They database that While a Stagwell the created up talent an place attractive outdated. to marketing and recruiters built sourcing is XXX,XXX and relative in models are and the methods directly industry have advertising and over for our talent, applicants

grew year. the XXXX, $XXX period versus Network, increase. revenues prior of and million Year-to-date integrated XX% $X.XXX year, XX% versus year-over-year Code partners XX.X% EBITDA a $X.XXX Theory and in the EBITDA agencies the Alliance, the adjusted network billion increase build first increased and Anomaly XX.X%. same revenue network Our year-over-year Constellation of Doner a third bringing basis, quarter million a prior strong net On which segment in results in net was on of includes our billion year-over-year year, versus half $XXX a adjusted year-to-date

Our Media includes while XX% XX% media which grew offline our as digital well media and Group and EBITDA our business net XXXX. precision travel grew XQ revenues operations data and versus both year-over-year, as content adjusted

across all at way high-growth to is businesses that growth look to our our Another digital isolate segments. sit

These the fundraising purchasing agencies spent net were through time XQ products advocacy our media digital XXXX XX% including nearly both their consumers our net more digital and revenues transformation, grew pre-pandemic of levels. online, businesses growth. business, research and and XQ pandemic net Excluding growth as online drove and organic revenue revenues XX%, XX% discovering

Our net over time. increase digital and advocacy businesses, our fundraising, high-growth mix contributed XX% including to revenues of online that expect we continue to XQ

heavily to contributing businesses. factor of pandemic Another more the of our a was some strong the beginning recovery impacted in growth

the of vaccination Experiential the by the doubled year, running business XX% levels, levels. variant rates. as reinvest XXXX driven a while approximately relatively in business pivoted as Experiential at Our remains business, and revenue; were offerings it's as prior Delta an grew net versus travel concerns part declined quarter to digital XX% more areas year-over-year to began uptick small than travel formats. events in content XX% of pre-pandemic with below is less lockdowns than in-person of the business lifted our clients high some of still

leverage. greater and third Within nonpolitical was PR Media of Media both to delivered integrated those advocacy Revenues sequential decline it's expect the revenue reported Group tactics modest EBITDA expansion the continued during net the in pandemic for a net started by while up, our degree offset expected an margin also and Group of performance strong strong The We The and quarter strategies implemented contract half grew Adjusted forward. operating segment year-over-year. expected the in ramp this agencies businesses was maintained. as Stagwell a off-cycle first as of going our X% of XX%, larger at result the recovery an Network which cost grew wins as of from saving, decline segment, costs down than much our businesses impressive faster of and XX%. revenue were year. Media communications in group partially a formation in

the our more up approach last cycle. spent indication is XXXX, XXXX. expectations advertising early fundraising the with and strong in seeing record for sheet sheet. an quarter we're coming at on looking cycle of midterm race with widely fundraising increase we flexible house the last advertising $XXX high-margin in services for governor's grabs our experts as incented the demand balance As remains balance those week Quickly represents we million an industry elections, at with than $XXX million supporting which predicting ended of and for robust are end X.Xx. The with the remains XXX% as our Virginia Liquidity from at levels media of leverage and cash and quarter

narrow $XXX the Our of end billion now to range strong upper give us to the million been the at which for raising a $XXX $X.XX revenue results year pro our higher $XXX year to time million end forma year-end $X.XX confidence revised in beginning to have adjusted second to year-to-date of year. revenue million full that expectations and are from EBITDA we million, to billion expect guidance with the We into the the to heading XQ. $XXX

does not estimated activity. quarter is $XX guidance include by have the million $XX our business updated Confidence million. at on in new been which Our robust synergies significant supported net guidance any in of client

Schein where record. business as J&J, Athleta and Code and Groupon KALM at of in of Sachs, Assembly. digital, named Stagwell at CRM winning Theory TikTok, note, wins Vitro. and was and new GALE business Vivid at with with clients H&R and Sea-Insurance a and are Aetna And Hasbro, of Block, Nike Network and Fitbit particularly new and X-XXX- [ph] media at won wins [ph] XXandSunny, Media as strong Media business won DeBeers ForeverXX, Anamoly; Amazon MillerKnoll, as Seats, & Flowers and Goldman Partners Some JPMorgan. well Allison had Henry quarter with at agency The

for for worldwide. more global our The media scale Assembly business BXC brands BXB complex collaborated We some the an PR benefit for in Network, platform combination home network Grason, COVID, specialist partner key media it provides accelerating including Assembly, and As important testing the omnichannel Forward PMX, assembly creative, truly transaction supports our a offering Notably, company at data, is Forward for solutions, offering create flu created of client with secure of took transcreation Media marketers agency, technology, to our wins. most digital-first challenges, a -- on BXB account digital Stagwell agencies and and PMX, Locaria. leading aimed consultancy media end, multiregional and a agencies, under we Media offline a and more group that of force integrated to for the more. larger at media creative and then global win a Kitchen that several A spanning step rapid And To media global the Multiview. allow provides bringing of for united August, continuing towards we the streamlining efficiently our GALE, care are to health media brands media that new wins growth with together to data dynamic integrated a multichannel our offers another contract solutions brand, and and brand. creativity, approach. MMI,

of clients $X.X powerhouse. been largest Assembly, outlet offices media accounts Assembly the move now the under countries XX broader by across has for a and X,XXX of employees press media the sitting piece billion staff, media within the with consists network and one The management. XX calling received and new well the network's

by with to now multiregional driver with a to this plan campaigns We The affiliate program multiyear, have our larger, now expect powerhouse multi-region our a markets. into contract move grow way and arrangement winning core recent We of platform a continues support worldwide. continue growing as Nike, XX. is program XX expanded of affiliates be evidenced the to expansion this to to the contract global new in

for with Stagwell afforded the in pay Allison example & clients in Rica, Partners want been affiliate Partners enter to path footprint providing of to X Latin equipped [ph] team excellence PR new who connect Mexico, Ecuador, digital a Salvador, development success Latin American create across capabilities Allison international and North countries South market and new XXX Grupo PR of specialists of affiliate in leadership marketing, beginning Guatemala, center the alliance joint a and formed is the & and already America. team America program X brands This has help America, Garnier. the U.S. market a alliance and for Mexico. to Costa Latin The to Peru of brands. in venture As a One is a form between quick dividends program the of expected, the expansion joint our boosts Miami Honduras Panama, Central El content in and based

M&A few Finally, I'd like the up to a comments wrap front. with on

As September believe Stagwell an see over Reputation creation sustainable proceeds in million statement XXXX, of platform subsequent income company. on $XX the million We XX, we Defender you through with to the growth. organic for will gain of M&A for value a $XX provides incredible sold and

you talent team of cash strong flows of our will what to investment employees We're are express out the our larger and about transform is at us my Investor and support World want next already, I of and broaden to strategy. growth and and strategically and transformation our collaboration combined our leaders turning Center digital us state-of-the-art and campus balance Monday, will sheet, and go-forward our marketing. I the work. all Day to a in platform cooperation strong business. right new playing great will Our and They allow award-winning gratitude see capabilities winning creativity balance do learn with of leaders integrated global improved showing more and hope the Stagwell Stagwell. expansion. utilize media can and to the all and Trade attend I professional seeing our

walk to directions results us I be future of over economy. our Treasury Frank in it Secretary, will Larry also talk with With about to Former that, through to our financial more detail. turn Lanuto Summers,

Frank Lanuto

Thanks, morning, everyone. Mark. Good

completed the combination X. reported, results. discuss business company I today, post-combination it's August previously And will our we've first As on

purposes, accounting the business Marketing Our for identified Group acquirer. former as treated combination merger Stagwell was as reverse a accounting with

in supplemental period period evaluate versus partial month a between limited to Marketing post-acquisition results or nine provide begin on me My January XXX.X%. or combination results the U.S. pass-through business. will pro the costs, former for information X, for former XX. today August revenue, our include X will be period the and results. of with occurred Net now MDC comments results the QX of QX for the help GAAP useful for GAAP three As the Group $XXX report additional the and was a excluding September results million as let results Revenue discussion the result, if historical our the and $XXX U.S. supplemented which was And forma of business will with an Stagwell million XXXX. The periods million versus numbers combined for the pro same $XXX prior million the $XXX year an increase prior increase of in XXX.X%. forma for

an million increase million For the revenue, an the million same of XX.X%. the $XXX was nine prior was increase XX.X%. pass-through for versus $XXX prior Net versus period $XXX year the million months, of revenue in costs, or excluding $XXX in period or

revenue. increase for the increased to year $XXX of in for and was nine of prior for or XXX same with to an the same $XX from $XXX quarter the an for will combined $XX pro prior prior for the the million XX.X%. And million In of company or XXX.X%. million for shift year $XXX month excuse XX. an adjusted $XXX $XX XX.X%. EBITDA September prior remainder EBITDA to periods me, now in was third from revenue my increased adjusted the $XXX comments Net million -- in ended period increase The QX, to million was million results XX%. increase of the versus period increase year nine for million months, of for an million the the revenue the forma in Moving QX versus year Starting

of nine increase revenue month similarly months, billion XX.X%. prior by to increased the $X.XX nine revenue XX.X% the increase For for or basis, billion the year the of XX.X% billion revenue from organic periods, an increased billion an year in On respectively. from to and increased an $X.XX Net or in and $X.XX prior XX.X%. net $X.XXX quarter

by performance or which all XX%. million which or our across In at which QX, digital $XX relations or by business revenue Looking lines million $XX increased million XX%. XX%. or increased which grew $XX million net And Creative business. public lines. XX%. led we $X Research of increased increased

largely growing sector services Looking at by travel, shortages. double public by to effects but almost strong driven we year-over-year. by up QX than and communications saw monitor within sector, net we client to affairs and the the revenues continue as sector This challenges the situation chain by any little automotive on was more declines to across semiconductor adapt impact levels double-digit will seen technology chip from ensure grew and approximately supply cyclical a All digits Outside necessary. to sectors spending have other XX% all financial basis, with we expected forward increases and reported client sectors offset automotive going of sector, XX% all our year-over-year. partially clients

the as lines, Communications $XX across XX.X%. $XX select All led and segments, grew or revenue includes Communications Integrated Integrated which declined Group by net and Network Defender million million other. includes from our to select in grew XX.X% Reputation of consisting product Similar Central million cyclical our some and pre-revenue year-over-year which or as million Media segment to in now Network, advocacy XX.X%. well $X businesses our which broadly the The products X.X%. grew QX, reportable PR Innovations segments, or The revenues businesses all digital Agencies which reports other Turning our and the results reportable it's segments. $X slightly company or Agencies by four grew Media,

costs. our Turning to

year. as to from synergies will plan. roughly or the run synergies control compared Excluding quarter in to The over achieve our led increase to rate kick and in still expansion. cost operating revenue, expect tracking of our to impact related include more margin costs combination to smaller from new materially the we significant which leading the $XX anticipate businesses, strong are in did cyclical million a We the any of our impact not expenses advocacy

the a ended. XX.X% months increased EBITDA million increased XX.X% in nine for to $XXX As million and $XXX our adjusted to result, QX

of year XX.X% XX.X% to month advocacy adjusted XX% Excluding impact margins and increased as periods, net to cyclical the the respectively. the three for from EBITDA revenue increased from prior nine and XX.X% to our compared business,

Assembly a which impairment the During the to company of name million. Assembly media in under brand related segment. connection of the $XX media name charge quarter, the Forward the of and PMX The company's also the noncash operational company's charge recorded approximately now the with retirement operate in brands, PMX the uniting Forward trade

quarter against liquidity million revolver. our end approximately $XXX drawn to $XXX in sheet; finished and Moving $XXX with remained cash QX strong. million We our balance our million

was limit. Our X.XXx ratio covenant Xx well below leverage the

X.XXX% to the to XXXX, environment and balance successfully we with notes quarter, which During reducing early sheet, senior in improve of stability interest $XX interest sheet. new of $X.X refinancing mature approximately senior our further took mature comparative on annual billion refinanced favorable scheduled to XXXX. basis. We a simultaneously The additional long-term our took our adds X.X% eight our while the balance rate steps notes balance scheduled million cost by advantage to in was year

the of Series provided converted quarter, of also into Series preferred notices, X company's be During XX the and X approximately the shares. convertible Pursuant shares the common will conversion stock. company these to notices preferred Class million our A of

in of saving further structure the company's the eliminate series expect million. to well $XX the QX. be conversion We The as the Shares simplify another both Preferred Shares, capital completed of up to of accretion preferred conversion of will as Preferred

fund obligations. M&A-related million, of to in $X of the Moving QX ended approximately CapEx $X million obligations including one the respectively. in and agencies. our million ended will funded approximately for $XXX liabilities. and another $X and months nine In the with acquisition-related $X step-up QX, quarter during ownership interest in We was approximately our M&A our we million quarter million

thank expect $X our CapEx X.X%. For approximately of $XX are spending, in total our bringing approximately the remainder in who to to of million drive pro And previous to Operator, closing, line previously continue who range with we of adjusted the to the million up of as company's a to all $X.XX the it strong now year mentioned, EBITDA year, this $XXX year and total billion Mark [ph] our X% or combination to million. to want raising employees $XXX the to and billion company's of remainder In revenue full making guidance forma we to year, open with a of $X.XX revenue reality million contributed we'll another for guidance Q&A. the respect to I the X% performance.

Operator

We Lina question Instructions] two [Operator have Paribas, from a It's BNP a at question. Exane. Ghayor part

in So from light I of market part inflation. rising a client particularly ask the bit is, wanted two, supply and disruption seeing good chain the you're apart in one, first behavior results, on little the to what and

Mark Penn

that, time Frank we've think for back the order auto cut move as I industry marketing -- the seen to to in because had that chips of lack now said, the cars. of long a

seen really the haven't outside significant of We kind pullback. auto industry any of

to some question? these part the through and the transitory. looking second season the are marketing continue of expecting So to shortages that are people of be says to me that holiday And

Operator

rising Was inflation.

Mark Penn

in will marketing additional a lot inflation. generally, not seen margin of industry. more haven't inflation for thing we to marketplace. kind the a marketing for Generally, the reaction create it bad rising of Again, Generally, competition rising is and

haven't, any direct So again, really effects. we seen

we to ratio to the of our really which think We growing be quality out talent on, growing been wage generally space, inflation as able as I attract think company employer choice. have there to in comp I has we've rising, commented we're revenue seen keep constant to terms that been we're hope able our marketing the because some business of modern in a because I

Operator

be Do inflation, is And talent. more the was may from the the just be tech continue to and Stagwell digital related that resilient exposed follow-up a to to wage given wage inflation inflation. expect labor and to shortage to to offering you salary you savvy

Mark Penn

for years. that's Again, an actually been think issue I

about We also diversifying but we're engineers have engineering X,XXX our locations.

done has now pandemic the built a more distributed in workforce actually of what engineering. of has part So terms

got our we've the capability. has And greatly Argentina. Truelogic expand also, been of So to down acquisition in engineering able successful been and that's very

have operations We in India.

operations have Manila, We in Canada.

able at And to looking able and to to quality really to we're our a clients. expanded a service that been marketplace. juggle I we'll of deliver global we've think more So that continue be

Operator

margins. next Have The margins EBITDA on question normalized? EBITDA is

Mark Penn

I don't think back where to it fully is. that is travel

have I pretty think generally, much the other expenses outside travel normalized. of

comp-to-revenue seeing, think I you're stabilized. think I as I said, ratio

think in comment our on the business any that? to we're other keep Frank, to growing fairly constant. I able G&A be fortunate

Frank Lanuto

said, In us. addition think still room there's to margin I what for for Mark some expansion

margin the on going do think margins I expect to expansion execute that continue as think while forward. I see we we are synergies stable, So would our to some

Mark Penn

And cycle particularly, to expect back uptick in the half in, towards next political see the year. margin kicks an we'd of year, the the

Operator

is question see do M&A. you next Where on The opportunities acquisitions? future for

Mark Penn

I that Europe. network very strong our America in and think North is

build got I out think Latin we've to America.

strengthen our I there continue we in to think can I India Asia. and in opportunities network think are

which So for more think we're our The expansion seeing that as with stand because do have important up already the affiliates, platform build as an to larger entry out into I we we what first larger network going think we more are is larger contracts. the U.S., we're Stagwell we're pitches. aspect the we building in our global unified and see just I

Any again, smaller acquisitions are So acquisitions. that's what our to really capabilities is freestanding Number extend -- we of one. such no number small bolt-ons are we the two, there do always now platforms.

have or in a of a AR. marketplace Amazon of specialty, say, advertising or So Walmart might you

have that network terms the at technologies absorb I give to, three the really able or of spaces. platform being have our think, core added well capabilities to firepower. capital rates those them looking track we're I able some are you'll So incredibly always And acquisitions continue to think we're course, those significantly to areas a in really cost to add-on to proven and And of marketing and deploy higher works of which digital then, here that. new than in a build capital. And of being record have we going

Operator

about sell-side at Can next have that the is business been any there Sidoti. benefits the talk early of question The surprised you combination? you? from Have Chris McGinnis areas

Mark Penn

I how at surprised I'm everybody came Well, think quickly together.

time frankly, the the as single employees executives vision. the I And think was think things a of and as think, dragged single conclusion been merger on. for long appreciated have I the a a as waiting it, single platform, everybody done, a company, soon I it having

And together digital client say, so seen also seen got stronger the I a faster come It's, early scale. generally services I've things people needs. we've modern than than new I that expected. the because a think, got And think I it's It's expected somewhat I I've reaction, marketer clearly, platform.

So really I closings that's up. I've of in in seen couple couple us moved successful last $XX think in really seen the more I've million years bids a than here. months -- and of

Operator

see The further for improving deleveraging. next Frank, you question financial performance, is do given opportunities for

Frank Lanuto

see at could throw merger and will cash we if current delever with we activity. appropriate reinvigorate in levels operating but significant and and acquisition flows we our line strategy to that further think the off want I Well, as

cash that well. use we'll help So flows support as activity to

Perhaps So where is it a going moving right I us from much significant no higher, see little it really don't difference. now.

Operator

services and you in. the question, of global more your for focused specific Can chatted building to terms out you plans One in which expansion are global on footprint? speak future

Mark Penn

weaker fill going those future. in offline the that, content in largest basis. of global opportunities that creation to markets we've and we're somewhat play focused sure we're to a global interested the about really companies think nature. I holding going Again, learn I expanded We some on media the because making think both Day been really think have and more there order for in to earlier And a we to I think said, that on come Clearly, developing great contracts. in Investor I are and those also And I want there's transcreation. plans somewhat on lot of the area achieve our as to areas I think out in

bring a And digital-first firms platform someone a so there there are many, think, really haven't into to network. that out had or I them

Investor specifically -- So talk on to those we're going are. think plans I more but what Day, about

Operator

questions we have. That's all the

it So any over if have I'll concluding turn to you comments. Mark

Mark Penn

employees thank really great Again, think new well network you. our for just first for really our first portends combined, together. and quarter I want We're Thank I future. and for I all coming producing, think, to this leaders a the

I in said I even before, detail Investor learn our to Day, you'll plans Thank future. you'll come hope As where greater the you. for

Stagwell (STGW) 7 Nov 212021 Q3 Earnings call transcript