STGW - Earnings call transcript Q2 2022

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Michaela Pewarski

Good morning, everyone. Welcome to the Stagwell Inc. webcast for the second quarter of 2022. On today's webcast, Mark Penn, Chairman and Chief Executive Officer, will first provide an overview of Stagwell's second quarter, followed by a full review of the 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

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

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

you slide Mark get to to it to release reconciliations our press Chief and explanations Chairman refer turn presentation Officer, definitions, I'd non-GAAP morning's financial Penn. And and of and over like to this also data. for started, now We Executive

Mark Penn

morning, that Good with strong for Results. track quarter creativity our stack and on growth. of XX% bringing growth to XXXX, growth strong Michaela. to Second organic plan toughest share. helping joining of XX% XX% quarterly net year. X-year technology is for year Stagwell keeping of achieved demonstrating in delivered us of industry-leading this XX% you, face working, comparisons XX%. market We in us revenue XXXX full XX% Stagwell's discuss and our We're with margins, delivered on and expand our the growth We Quarter Thank top our of of to combination another XQ the us you our organic thank

in last organic and XX% increasing Digital our on quarter. XX% propelled to top of XX% growth of capabilities revenue year's the second organically EBITDA adjusted the net contributed services digital in quarter. of growth, XX% the Our

among like We're to will is from $X growing resources of estate yield to systems propel management. mix We opportunities unique be believe services in advertising of be the These industry million industry, will of some higher. and growth, dominant the The than human can on that us by promised for digital the and clients. channels XX% many digital way TV, accounting, of and place our The the wallet continue are has in state-of-the-art digital in with about and competitive complexity XXXX, platforms operations to marketplaces QX companies our media, areas. emerging buying real largely clients so higher client trends increases the headwinds $X.X are prevailing growth of Stagwell. handle largest contributing our for synergies. size significantly share systems and all platforms Connected TikTok, Our new turning legacy well e-commerce media of these out-of-home, we increase. our are unified top of and grown to to this rise media XX implementing a about in million, buying more To average

significantly, to the into we deliver strong continue of back year, growth. to head and eased we comparisons our As expect this half

up gearing for fourth U.S. our which margins quarter. expect benefit third businesses, Advocacy we the the to and the also and especially election Targeted are in Victory and midterm Our SKDK, cycle, growth

guidance. ahead full to prudent to of we're taking approach plan, perform continue we a year While

XX% period billion grew million, the XX% increase $XXX of revenue pro a of adjusted million QX growth net forma to last year, revenue Year-to-date, XX% versus net the in million incumbents organic already strong While have outlook revenue for net was over reaffirming organic of we outlook XX% minimally XX% same X% Taking organic a growth our results. XX% prior with raised to including $XXX are and our X% year at closer to to growth. growth, EBITDA. the year. look $XXX $X.XX

growth pyramid XX% strong organic were of first across businesses, principal and Advocacy in digital QX. the up XX% half capabilities Growth year. the layers Excluding was our for which for accounted quarter of our revenue net XX% XX% the the was and of for overall

Our continues media group subsidiary, businesses XX% in XX% the organically XX% a engineering more on the of in its and of growth top digital prior complexity XXX% within in Theory and than driven Theory organic grew significant year. scope and by organically. on expansion which the similar integrated by their QX, of in the compounding led success and True to prior year. in was organically be growth Code the agency fully Logic, grew transformation range grew GALE, This network, Stagwell the Code engagements.

fundraising organically XX% Our the quarter. than online businesses also in grew more

media performance XX% the organically of growth on XQ network, Stagwell most layer, grew data XXXX. XX% of Our media and top which in includes

business Our was quarter had with in Strength business. recovery flagship in integrated agencies a strong e-commerce New network second the as full-service network as The raft in X doors. we travel contracts, travel up the months by omnichannel Brand also quarter has client company driven scaled April. business of large opening assembly New media across a in X seen new opportunities doubled Brand acquired previous business, our which volumes. the nearly scaled the Galaxy, into the Galaxy media are our

organic sports, NRG, driven businesses QX consultancy second had gaming, content technology strategy grown film having XXXX. strong the streaming, their good on growth Our our technology consumer by growth of entertainment and in and quarter XX% clients. with insights growth and top another in XX% continued with quarter

equally strategy the in Poll brand an side, SaaS Harris quarter their with Harris brand On product, The gains had significant The strong platform.

significant of X% grew and Lastly, organically our top Creativity year's Communications levels. on XX% growth prior businesses

existing and business such Hotels Amazon Google, along from XX% business, driven and spending roughly Partners, global wins with Allison as grew clients and increased Dyson new InBev, InterContinental AB by Our from PR Group.

at took made lines Bodenfors, of business the South from in of PR Anomaly, the and Partners, June. strong advertising debut political of Academy & which brought $XXX con France. XX known second Awards Brown. prestigious EBITDA of home increase was of come Observatory, to million And including winning campaign Polis, prior creative Our an pandemic an its the the in the Enforcement increase had as festival Creativity, an for May. Stagwell place amazing has EBITDA TV $XXX million bringing adjusted made for a awards, first half, XX% year, XX%. the our back Adjusted and for overall Allison X The SKDK night, best versus Shontel quarter,

a as to of quarter-after-quarter Year-to-date, $X.XX of to heavier We quarter, also in we've generated of a continue per back of million $X.XX expect generated grow net On income in year and basis, we diluted cycle fully positive we in-person second weighting earnings net due $XX million of strong million of of incremental diluted $XX and the of we're and net the income fully share as achieved con travel earnings at equating the Advocacy to half most full XX% expenses EBITDA above full EBITDA the income. seasonality far margins of were popular still the our a impact and the XX% entertainment year election businesses. incurred margin, at we and of net pitches competitors. QX the force, festival, revenue. $X holiday in We and back EPS.

XX% cost which the in fell focus control ratio, continued improvement versus XX% comp-to-revenue our on QX in the to in of prior year. evident is Our

Others network yet nearshore careful technology assisted balancing been by labor in offshore check. industry is growth that's our and integrated in keeping with as talent not engineering ability and the carefully high Our to of teams. productivity costs have control onshore

mix We quarter, higher-margin driven to in for of during of pandemic, expect number as year to a the of the by came long business target expansion expansion into growing of the beginning X year slowing new to healthy new see continue and a XX quarters a of QX digital now was the end the successful after opportunities margin remainder companies of the the as resumption a a annual record of term rush business. heading of and million of observed pitches the We bps of margin the XX out Net XXXX. of and business capabilities. over end XXXX strong a we new in prepare $XX

principal Johnson XX-month TikTok expansions We In across XXandSunny; our & net Company; won at wins Creativity Rams Allison $XXX Sloane Our LA business trailing and and notable at new with and numerous we the Thomson had million. business is at Communications, Johnson with Doner. at capabilities. while GoodRx business JPMorgan digital Reuters one and and Theory Code YML and new agency Chase. MetLife Lenovo on significant with transfer Consumer insights & work at business and won Mayo with Clinic, strategy, is business Harris, Partners, & the work expansion with

further commerce Bodenfors, of joining network. hybrid networks creative coming outlook. across is their from new are world Forsman creative, reported largest pitches deeper, and capability. growth media Observatory the are fuel responding growth years from is cuts companies, which particularly kids expand bringing clients, and larger sector. quarter them -- procurement To agencies, These captured This is to all the and earnings any kinds to without vitro separating and lasting new the expand net shift in are trend. not media our accounts in Of again, creative the X technology are digital mega-cap demands from now media the of the more which we X media As true helping business CPB, together creative media and land relationships, of second this more are better-than-expected of statistics. we technology in more to the clients breadth, After XX% in Stagwell

implementing all all the helping and of enable media offerings agencies mix bring we're integrated advertising between agencies by Stagwell to studio. connected media These offer clients. a will broad of Stagwell capabilities in-house to Additionally, different flavors moves our media

and which activation. scaled SaaS enhanced tools real-time contextual the creative built our engagement Apollo audience progress in program, be of identification call marketers. We of investments SaaS consumer modern platform uncovers This AI-powered will Stagwell we we our that also in data July, insights DAS Marketing and understanding technology a and consumer, for and acquisition platform, and marketing. into integrated suite Cloud, made in-house Q, the announced In for analytics for

data TMA the funded modernize political Targeted which Direct how on TMA team, enhanced campaigns which announced In we to live Minnesota to bolted We offering and we the are integrated are of and around bringing data will Victory, also engineering our a to events for the stadiums, launching in we experience and technology reality and managed. are launch augmented the area. soon cloud-specific entity sits are have on acquisition and combined multiuser together track Twins. June, an will with be

Our investments on growing data, of existing can Stagwell streams. revenue building and acquisitions leverage of indicative in acquiring and predictable client developing Apollo recurring Marketing our Through more flow. and are and and the TMA software into our focus Cloud we

balance the to sheet and allocation. Turning capital

Our X.Xx EBITDA at net million. of leverage adjusted LTM, $XXX stands

us, behind the decline with through all flow LTM in We is cash meaningfully leverage May, year's free upgraded significant back generate corporate payments fourth third to now nearly family Moody's the we Stagwell's in both payments BX. as rating while and expect year-end quarters bonus EBITDA In expanding. this to

through leaving the also authorization was million which plan repurchase quarter, in in returned million million $XXX we During approximately of to $XX the our repurchase capital shareholders $XXX place. announced stock May, of

high shares at undervalued We continue given our being margins. our growth to industry-leading view grossly as

sum, an year As mix in in viable our a towards we levels. cash to new after reminder, completed payments to the X/X flow cash targeting decades. M&A achieving holding legacy and growth being industry-leading is margins can the combination, for In towards a repurchases. flow reduction X/X first free M&A showing goal related companies Stagwell X of the maintain we're of allocation alternative of is of Stagwell debt of share free at acquisitions, X/X and

investments Our we're and and work as the marketplace to Cloud, continued Marketing fortify expansion. optimize us scale profitability. detail. our second software and leadership that, for recapping the present we technology to in and pleased And am network, after position more doing With financials proprietary growth corporate hard the CFO, second data our Stagwell future Frank will support to quarter discuss video our which a Lanuto, I results, brief infrastructure quarter our in

reminder, a you via can chat As the ask bot. questions

Okay, video. let's the Presentation] roll [Audio/Video

Frank Lanuto

discuss QX morning, Good join Mark. our and six-month us everyone. We're results. pleased Thanks, today to you to have

provide will then results results, our the recent with January combined results, today as my will of which XXXX. comments case prior with excluding year, revenue, be limited pro supplemental an the period an if Revenue performance. million GAAP the results QX useful Net $XXX combination forma information XXX%. prior XXX%. The million X, pro same or of million evaluate supplemented million was had a will been $XXX $XXX increase versus has include costs, the for was discussion business to the for post-merger or in $XXX occurred forma pass-through in our Stagwell's increase on of versus As period

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

for months, year, the For adjusted million X period of the an or was EBITDA increase prior $XX same million in versus the XXX%. $XXX

results versus $XXX in to from the now the of will the the costs, company remainder Revenue forma the prior was months. year. combined pro revenue Net of and quarter pass-through increased million of an excluding XX% Now or for in $XXX prior my the second increase period, quarter, focus comments $XXX the on XX%. million million $XXX for the for QX X million

respectively. Excluding revenue Advocacy, revenue and XX%, XX% and net increased

Net prior in increased excluding or from costs, $XXX pass-through an XX%. prior to increased billion to year, months, of from million billion the the XX%. an $X.XX X or increase year, $X.XX of increase the in billion For revenue, $X.XX revenue

increased and for an XX%, and months, And the Excluding organic quarter Advocacy, revenue X net and XX% respectively. net revenue and XX% XX% increased on by respectively. revenue basis,

by our principal revenue our segments our capabilities. As we reportable both you know, report and

discussed his in by me already with I won't remarks, capabilities our And principal to has here. repeat segments. those Mark As turn performance that, our details let

the X network. reportable agencies media of integrated network, segments, and communications have the We the consisting network

EBITDA our margin revenue XX% XX% the election digital the business the XX-Q $XX will million for Please growth segments X During closely year. for larger and digital, our by Advocacy and period driven respectively, or the we segment demand of strategy months, of and second to the months, or network turning of in an contract these media million X strength creative forthcoming The the by million services, XX to in I QX increased between results by several and the of go-to-market segments. segment, net our certain QX and contract enhance XX%, Beginning revenue the discuss refer reportable and operating by pitches the $XX $XX businesses more to by million quarter respectively, million million our Communications details organic our with $XX quarter, in XX% prior these $XX XX% driven now segments. increased travel-related Integrated ramp-up basis in And the the wins points. approximately Form our for media repositioned largest and in months, and of in for prior our QX grew XX% $XX for now increased Agencies, $XX in respectively, our and business. the the million components X% net QX $XXX reportable Adjusted million net and organic slightly in capabilities. X and lower driven integrate each EBITDA and XX% from costs. of from midterm its $XX in or revenue integrated by wins. and period by to or in million with Organic

lower a as of managed returning, businesses effectively gradually largest EBITDA for XX.X%, approximately with at points decrease expense increase wage our all expenses from partially ago. ratio Excluding a basis as of down quarter XX% in-person to increased of offset in is has Advocacy, revenue growth in slight increased the attributable business EBITDA compensation and travel entertainment pitches, company unbillable The new associated margins year and with meetings certain revenue XX single inflation. in by tied the costs are a period several direct margin an to its adjusted to

an $XXX or EBITDA For period higher prior approximately versus the prior the XX% period of $XXX margin XX from in the points. XX.X%, to million by EBITDA million basis months, adjusted six approximately with increased

increased Advocacy, to EBITDA XX.X%. XX%, Excluding adjusted XX.X% EBITDA with from our margin rising

We make with initiative. continue progress to synergies our core

remain the have to charges cost of expected rate savings run took balance for principally expected year we From run of and annualized $XX.X schedule million quarter, XXXX. $XX.X approximately achieve implementations million. our now approximately million by savings in $X.X date, turning savings the approximately systems sheet. of with inception with to in reduced $X.X we million, And of $XX $X.X During XXXX on full million. to million, rate of and of charges end our savings We taken headcount

quarter, noncontrolling completed for scaled the disclosed a obligations, of TMA redeemable and respectively, X% the in and line with company's provider leading profits and the which the of and million the $X.X of include acquisition total, million revenue, commerce Brand in company estimates. During response or marketplace previously our In Galaxy, decreased interests in the CapEx marketing and X solutions; direct QX a million. consideration, from arena. acquisition quarter M&A-related $XX.X year-to-date $XXX deferred data New and months to Direct, firm $XXX the interests previous approximately was political million

program $XX to capital also of shares million through We acquired approximately repurchase returning during our quarter, our our stock shareholders. the

remaining $XXX BX credit during increased citing momentum, We approximately Moody's operating have corporate And deleveraging. focus BX, million million our the on to quarter, Service from Investor $XXX rating family and the company's authorization. under

Moving in approximately with our quarter cash, to million and $XX drawn the $XXX We million ended million revolver. liquidity. $XXX against

to expect the borrowings with be year business. of of the high the in the following driven the X reductions by projected cyclicality this watermark for quarters We

ratio Our X.XXx. XX total was at leverage June

to guidance. revenue to pro XX% growth growth million. $XXX XX% of to Excluding leverage obligations, of The to forma reaffirming net its X.Xx. million Advocacy adjusted XX% year finally, was excluding M&A pro $XXX of and net EBITDA revenue our net company And XX%, moving full guidance forma of is

the or Thank you. Ukraine. for based not significant concludes war ongoing macro from remarks is prepared impact this adverse reflect rates any exchange and in our does on outlook That foreign morning. conditions Our changes prevailing in

via screen. now your button of your for chat at open Q&A. the Please questions it up will top submit the We

Michaela Pewarski

question, Before just from next One noise the window We'll time. at apologize clear washers schedule our them with World the background to for first I beforehand here Trade. the wanted definitely

Michaela Pewarski

first particularly Mark question Targeted Victory. is tough on Good and the from COVID and a the Advocacy, first So questions, Two comp. Mark from Zgutowicz morning, nice Frank, Benchmark. quarter on

what curious differently, circled midterms? Just said XH business you dollars are to how your Or the in upside? Advocacy surprise fluid of now versus how is much those front the of could

Mark Penn

then past in to what up which pattern that about in midterms think a secular presidential general jumps because election. I previous we've And higher the is is seen the presidential are next a follow there a election of that even election pattern equal the growth.

about raised last we time. So $X billion

We billion. $X.X on expect billion politics to much into be will raise such estimates. given to $X.X heat appear the those up additional and even how those are with introduction the issues we political stream but Again, know we estimates, to as our of don't further track

wouldn't We in have again. occur will Georgia existed round always trigger that fundraising like have past whole additional an the runoff the time, in that as that like events otherwise possible last something another then a of

Michaela Pewarski

Second Mark. larger-scale your environment impact here? question for of you to how Example, do macro And the What's any see of Do on year? the your have these RFPs for remainder the expect you RFPs current positioning? of visibility pause. put any

Mark Penn

As are seeing actually we my I now. opposite in remarks, said the

and business year, the a While pitches low going rush saw of $XX a But a late we back slight for when which after We're really up of million fall we flood be due in between significant opened beginning than we got which the fall pitches. up, con, saw the of of of raft from very new into new or to now pitches. resolved. are most have now

market. things. may resumption, I been But was saw a So really very seeing I of we Had a flood pitch those not I concerned. healthy that have seen what here are

now things kind think pitches. today we're trades slowdown just the see any are or in was X that finals million-plus industry. seeing Topgolf are seeing We're $XX Anomaly. where for the that -- in just this We announced by in pausing I or in X pitches there you right won not of

Michaela Pewarski

slowdown slowing from or it be have of next seeing is highlighted due Steiner the Stagwell's in factors? other any digital-only spend question ad Many half. agencies Is Avi second at backdrop The to Great. macro JPMorgan. the platforms collection

Mark Penn

buying mine Again, principally online remember is performance-oriented media. that our and

likely, cut So I media. cut seen, going I've to Remember, to less on revenue-producing contrary it's They're some think, articles non-revenue-producing digital media. first. going is companies to our the growth are

the because we travel market-competitive media, in insularity any what just strong stack strong of and the a them? people growth something very report But And I have the entertainment our from consumer travel up in is we of business. the not beneficiaries hot No. economy, If clients are more different, our we such gearing and We're are of when summer, trying acting. terms we we're to that particularly Remember, Our going restrain season, rebound is Fed very like I and economy, a tech economy. season. be to that think a for looks are the holiday consumer I'll it. seeing holiday what seeing and how what's see It's wins. have in see

Michaela Pewarski

expect Follow-up elevated that Can down cash half balance second the pay to to from slides comments? we Any the Avi. where in is cash debt at revolver the levels. beyond X/X year-end? as will revolver balance the to allocation The guidance end generated company's for balance at

Mark Penn

we don't in give think But general, guidance. I yes. specific

having terms of as the all pointed bonus well of acquisitions, year Frank all we're having growth business. high of the number the the a at payments, in payments both watermark, in of of as as out, circularity a think, taxes launched I and DAC the strong

very, year of the up. down the political as end to that is season to Frank, by heats flow expect into particularly very significantly realized, add? and as We come the anything year the that the the cash also end of

Frank Lanuto

script. and you No, it did covered address the Mark, I think it, I in

optionality the opportunities cash. also things. It's do with each at X/X we in there's other do you mean not arise, if for may and free the of the I locked -- what So bucket.

Michaela Pewarski

grow the different shape signals year, With thinking question of portions of how advertising we we've back of seeing half? in deceleration. to mixed square with we strongly, have to Cahall like Wells market out end Fargo. XQ the platform? CTV should some Search, next Steve continued growth This at from yourself ad can market. Social, serving from numbers the comp while the the of as seen about coming the Relatedly, be organic have comes toughest your of see in How Agencies some started what the you're

Mark Penn

market or there difficult and ad trends at are read the to is X then X because overall Well, happening once, Stagwell. there's

I in. in is you're advertising seeing You're increased come itself, in, think come seeing new competition what the marketplaces seeing industry online you're right? TikTok

seeing people Netflix choices You're number now of X have when than that more in their placement choices only and expand. will the advertising

out think is the market read. I spread So harder going to that increasingly be and to

also The formula of think market both trend see companies. And or of continued I which are favorable second right, is those media a its from placement. then here is digital trends, you're of in face to the share you X quite seeing Stagwell that movement mix offline to gaining

Michaela Pewarski

it The accretive be next given par? your bonds, question Wouldn't comes the from stock? an discount investor. thoughts highly significant What to buying are to back on

Mark Penn

past, don't I have back. $XXX buy market the program. we on to showing various bonds Right shifts. is its stock that some comment There's credit million want did now, I directly. in the authorization buyback -- a

think I your I don't So appreciate observation. comment. I'd

Michaela Pewarski

the investor. an from question And comes next

second good concern this your staff churn comp-to-revenue Has inflation. compensation a affected recent And the for of productivity? mentioned control is in You this ratio during half? and

Mark Penn

No.

and we be comp. what productivity distributing specific may even for higher also, to revenue great successful more. paid down. look to comp-to-revenue who that which in been then think we're keep nationally I at we is means what of out, manage the some in have comp pointed internationally our both that to That We employees, we ratio. the workforce, agencies. as And we is you're ways And manage seeing really that productivity don't seeing really

at whereas as think I've be some I companies, other tight as controls not the have. So seen we

I about think great successfully now productivity, Remember, we're managed of people. at XX,XXX talent. actually we've the attracting combination

So we've a literally thousands attractive, industry. added we come company, been very to people of the for in growing the place to marketing have people and

we're way great people. in adding doing a and for we're I And that prudently so people, lasting think creates so successfully careers

Michaela Pewarski

any Do Great. And our to that I'll you Penn. turn closing it concludes questions. have back comments? Mark

Mark Penn

work that that mix that the -- of and lines. believe is believe I brought right XX the the award-winning data, is sciences, I And hope put track between digital margins Thank growth, media while will the maintaining us now all it's to on having really quarter infrastructure you. that, as creativity strong managing profitability the to strong Marketing way we Thank the been on that both And award-winning and that lead more to will DAS quarter, SaaS doing I top in can in amazing time, player our XX% marketplace. we're Cloud, at I see kinds At way. creative time the much. in and we we become we're building of that this investors think to growth, just XX% expand same remain strong infrastructure and major a that, the to the long-term industry-leading same another to of of and very that are controls come. right you

Stagwell (STGW) 6 Aug 222022 Q2 Earnings call transcript