STGW - Earnings call 2 2023

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Ben Allanson

Good morning from Stagwell's global headquarters at One World Trade Center in New York City, and welcome to Stagwell Inc.'s earnings webcast for Q2 2023. My name is Ben Allanson, and I lead the Investor Relations function here at Stagwell. With me today are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Frank Lanuto, the Chief Financial Officer. Mark will provide a business update, and Frank will share our financial review. After the prepared remarks, we will open the floor for Q&A.

You are welcome to submit questions through the chat function.

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

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

Mark Penn

Thank In posted improvements in you, joining call. the for face everyone revenue, EBITDA of sequential quarter-over-quarter and and thank Ben, Stagwell you margin. significant to headwinds, earnings us for our industry and sector

to expect year the to new We metrics all to on rest accelerate. continue throughout have of the business continued wins as improve

first Cloud to area for out off position As value in leadership breaking that have promised are be this the we as proposition AI. that our investments in a show potential great results time, which and Group marketing for our we'll Marketing enhance paying Stagwell strive the quarter

or the increased we the quarter pitches. being X-year environment. In within a XX had XX%. the should means new than continue power to the during business This new to up down $XX sequentially won months which new economic billion, more year, stack from X% $XXX for $XX of year. million brings million, by about these growth $XX long-term the this deliver million revenue to in last challenging XXXX. to of stack strong prior improving $X.XX against targets periods net maintain through industry reputation million of the first continues of quarter a continued business of This record and following Stagwell. of over that we our we to quarter our fourth We This record as new net more numbers Our net million, quarter, invited business second this grow, net business delivered in (sic) remainder $XXX

clients million clients as revenue last to net growth XX in top X $XX XX comping year-over-year XX% get continue Our with in months. largest the the clients larger showed

Even back, the as relationships. companies tech client financial company smaller successfully increase projects we pulled to in reorienting and are top the from multifaceted larger shows the

Our in international growth new XX%. business increased net of Asia by by or year-over-year, particularly X% revenue Pacific led strong

expansion markets a ability priority more a the said, previously will future for we international be and growth key driver is in of in global strategic As us our relationships. and for land to

our we presidential We're economic affects cycle, in headwinds, slowdowns, which of is are industry off and which to pullbacks, writers first financial with particularly sectors and the bottom bottom the to the Hollywood also actors government-induced hitting earnest about cycle strike, As a at the in the tech a industry-specific advertising kick we and research. debates. of believe entertainment political

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a continue in in taken to be million quarter, to We'll steps annualized further costs. annualized million further that by beginning which head since end deliver expect took X% about the proactive additional of controlling reduced the the sales. our And actions staffing also we've realize staff of the since savings. These year. quarter, costs second should reduce $XX of staffing count actions globally $XX We to during have we the

sequentially. improvement down as to of basis costs percentage staff came revenue net a a Our point XX%, XXX

year. be allows expense to of media cost the We addition synergies but network. Completion staffing further systems to These in us AI $XX the in next to steps systems Many the across online biggest related industry the improvement we aim operations We next to our we're during the of the quarter to shift EBITDA Stagwell investments automation announced important months flows increased streamline strong attention quarter. Stagwell shared call. investment realize these we our operations. will per over the helping the $X next adjusted in posted million reductions revolve our XX% factor this year. And that a broader we and quarter In positioned achieve online marketing of it's Cannes central the for to remains services now to world's deployment of levels, us well in now operations $X.XX company. continue to across coming per festival, through event. first work especially around made looking a the on quarter, actions few our a central in our spending and efficiency about marketing Cloud these to first on cash that the model at to earnings million significant share the and firm make to the at of EBITDA quarter, in

should to This cash $XXX adjusted of We expect to of into XX% million to flow. $X.XX of EBITDA generate free and $XXX that translate XX% about million EPS. convert figure's

nonpolitical to growth X% We X% be year. and revenue in this net expect organic overall between

a uncertainty you economy. of was tech number, clients tens lower seen laid stance of as around media companies retail can from as in they XX% on the of transitory As the more banks. the disallocations tech of reductions are but regional the net thousands temporary impacted growth client these a workers. bearish losses, took spend and clients off many not see reflection business We've among by from Revenue restructurings estimates new

to this strike, a become can by the a positioned As surge of result our adjust a and when so business large quarter business, typically coming end a a XXXX base well remits. jump, digital for new have Hollywood We and a margin lower full and costs the organization year. ability in the expanded surge will that X variable turnarounds season in quarter fourth in the see cost cost that AI-based client we leaner political to to banner transformation happen, and of We're have bottom line. in this

consumer athenahealth quarter Wingstop Gale. wins assembly, previously, Donor, about showed second mentioned result We the company net I saw Virgin a at Wings at Anomaly, Buffalo at As Mobile ever large million. biggest and second $XX dollar at Wild at at FB, Mandarin in a new significant business multimillion Oriental XXandSunny, Patagonia American health coming with

have Beach, announced momentum, expanding adding agency X,XXX continued marketers raising our publications go-to ad existing new culture. Throughout and agencies X new Porter Lions since Additionally, more up the relationships client campaign. and the hosting last agencies major include attend Crispin "The client visibility. the Gold we of a talk done highly in months created marketing These the creative industry the held XX we X Lion awards, led Communications sports Officer. our novel this at Doppelganger Beth recognizing and Cannes their XX Sport athletes, integrated as the industry have Stagwell's sports a experience, about virtually we together event, XX work for Gale Winner" successful for in partners fandom all play totally transformational the Sidhu, partners. At by for picked spearheaded June, wins than We and the category offering, and Chief XX over months. XX At festivities achieved and to data Cannes on Festival the future a week, executed brought Brand work creative unique and Cannes,

participate continue We show our are mark We've to a of eligibility. Last to in signing we opportunities result exceed year, momentum in. as and pitches year billion and billion pitch already target in we X.X in dollar X participated of the pitches. and rate win this a multimillion with event, XX% about about hit that expect deals already of we

with revenue granularity For the Cloud net by around of the providing additional representing media gates the X growth a divisions; year-over-year. excess principally products, advanced coming platforms, Stagwell out sponsorships. We're platform time, Marketing revenue principally first SaaS by consists of million, XX% of and in advertising the the which driven software driven Group, of $XX and we're

this and margin, expect next and are media the wide enter small range gross a particularly DSP with on large fully revenue our front. fully this be programmatic margin accelerate to will to the for We in news growth expect media. results competitive as look market. be Desk, showing the our of to clients products Tests We combined clients beat of lower Trade for studio compete the for year but a position on higher continued with combined behalf that data

focus and as research Brand are Terminal, open suite combined is corporate analysis of and of tables, engines research deployed XXX Harris which now tested has with being a quickly to Maru, branded over clients AI-driven products, Harris Our developed, products. groups

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designers, announced to to advantage partnership. leadership in our of high our and we of AI of the marketing positioned ratio recently well a application position AI Given take are to engineers to take

election Republican to the we half expenditures. second expect debates and will once up history with billion get We $XX anticipate in in political XXXX underway, the the in over the the biggest cycle be pick

of investment in bought stock. In $XX bulk quarter. $XXX million first back activities, this million in that of our sales. about terms year, quarter was to is our we first M&A the our the in This In announced of largest addition in half was the transaction

quarterly shares lower used Class calculate count also our share the the average reduced million to from been EPS. XXX to has shares than count our We today eliminated and B share

acquired on recently also and design engagement. experiential marketing immersive Tinsel, We and focused customer studio experience a

will the the mark the goal balance end from sheet, of back For up generally of the Xx to noncore near be rest the net our cash the divestment flow we hit is as work leverage the consider some to here to year. working weighted assets as smaller to positive shore of year, we typically of

network our to to However, we the continue front M&A a on to basis. on scale look for will necessary achieve clients opportunities expand larger global the out key growing build that keep and

by As and it carefully marketing this cost on this to of in year estimated investment company economic, cash the and new we're takes EPS, the the going from the and and marketing. AI-based relationships, growing particular, game-changing digital accelerating EBITDA focus an $X.XX revolution turnaround At coming of us shape, virtually any this next business growth in typical digital and clear relative in remain benefit the metric. that potential position flow products. long-term for to in strongly should With an positioned development large greater we adjusted efficiency and for we remain year to and XXXX cycles. transformation political undervalued other tech both in of wins, technology and the concentrated manage be

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

Frank Lanuto

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

QX organic conclude, $XXX reminder, the submit to a the decline would to prior the terms, Net million, you same In declined decline of as period chat ask prepared question a was revenue, free was like the them revenue compared to for function. Reported year. the year-over-year X% pass-through to please X%. remarks million. X% excluding feel in As if $XXX after through costs,

North were period. Results impacted net American Excluding in X% the revenue advocacy, principally declined the market. organic for

in digital in and year. X%, across research in in clients strike digital and tech causing transformation on capabilities. banking gains by media strategy decline adversely financial within including of transformation, and As writers A principal in the in the at actors our weighing What delays internationally, regional grew turmoil, in enhancement revenue, their XX% services. The customers disruption as combination of experienced we our all net U.S. a Pacific to X%, felt our acutely respectively tech organic net over where prior a decline robust entertainment the EMEA workforces. led comparable of was discipline, revenues and more and the led restructured the uncertainty sector within and factors spanned period revenue projects organically the Asia in

the these temporary with believe transformation for our are digital transformative strong, quarter the significant with and no Importantly, demand of very new we strength shift second or circumstances to derived business projects area. data-driven our XX% media inexorable impact of clients digital this on the than more from in solutions. The remains

global We organically representing resume to net strong temporary customers growth approximately a services standpoint, are our planned, positioned progressing revenue is top these abate. XX% our delivering year-over-year. clients our as to as stated trending growing From for well larger now our largest strategy conditions XX% with revenue, integrated XXX of

Stagwell we're XX% and revenue, Media the more net a $XX also prior from pleased derived initiate Group We Stagwell Cloud came period. progress about million Group capability. In $XX a from about increase Cloud in specifics the within platform approximately this comparable of to and over net disclosure Platforms products. the Group, our the representing million million software quarter, revenue are our excited Marketing $XX delivered Advanced second was than certain with Marketing

will in investments we increased scale. achieve Continued group as lead to margins the

revenue slowing to cost steps with the took prevailing conditions profitability. company to QX operating expenses align the generate resulted will and million We as the cost reducing million, to XXX quarter, over $XX points net Moving streams. and percentage of and from our quarter. savings basis in $XX the for of the a half structure approximately of first annualized improvement respectively, of to The first responded XX% year costs actions cost personnel QX revenue in and the an and the

realize take a City. with We York of also In connection in New This $X.X a our property to exit in also marks reduce charge from footprint. of fully our million company of our lease merger. steps took stages real expects QX, after $XX the to impairment continue cost estate million million early the announced the savings was annualized cost that announced in we program to recently The initiative. savings $XX the shortly

and our As delivered line margin EBITDA margin representing expectations. a $XX the XX% a million paving adjusted quarter, to restoring annually, way EBITDA in with in we to result, adjusted the prior XX% of XX% to our

balance sheet. the Moving to

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

the reduce to XXXX. expect levels of minimis to less end to of the We that than $XXX XXXX by by end million de and

We also of million, quarter $X.XX. stated million, $XXX at approximately to an XX X.X activity price per total for half brings of million. of at in during This average to approximately shares with share representing approximately average the our for buyback our $XX of first acquired X.X% million $X.XX X% million quarter price an line the for the was CapEx net shares $X revenue. target

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

in X.XXx, was increase to leverage repurchases finance used largely by driven revolver year. the and this Our share balance our the

revenue we million. million conditions, X% full In are between is the Xx light effect term. And be been share would year the with Adjusted to down organic expected to setting Excluding Xx XXXX. and moving guidance medium on of to second leverage prevailing line finally, achieving over repurchases, leverage to to net growth of remain goal have EBITDA our full as and bringing in follows: quarter expected stated X% guidance. the net of our to $XXX of track be is net $XXX year. the We for approximately our committed now

flow back per be is XX% I to morning. prepared the for free Q&A share cash webcast $X.XX. That We to Allanson open to $X.XX expect expected to XX% Ben will turn and now earnings adjusted between concludes conversion our and deliver remarks over to portion. this the

Ben Allanson

the more submit question top a the revenue? He in chat quarter Frank. please to Benchmark with reminder, digital dynamics transformation We'll them a transformation. over off our challenging digital do proved just the of if via start with the little asked, a second talking you, from which Thank -- And you Mark at questions, organic Zgutowicz, about regards have any screen. button at just

Mark Penn

Well, transformation mast layoffs. had with lot they that what I eliminated frankly of they And tech think happened digital a layoffs, the companies a was when heads of projects. had mass of the lot

And tended that lot so have a to create of disruption.

same the reduced really time, the consideration AI digest a think large-scale business people companies. months some during or for And those at reorganization projects, new it was so this I of pulled technology. companies period And as this And the a some they to of back, of projects within now there just of yet were back pulled also, took companies be doing. are the there formulated real particularly kind which the number of of not software importance being tech

Ben Allanson

Great.

and and Next which that in thoughts this driven being progression net new P&L latest question, a new net the from at the half new second might is is margins Considering business? year just of this Van Jeff Riley. What quarter. on net winning, your the this how turning obviously EBITDA in revenue B. by growth, evolve number and Sinderen terms big you're to business this business, are

Mark Penn

where I we at think you are that we're going. the look can math implied guidance Well, and through of between where

on sequential the then I right, you've improvement metrics the think script, generally seen not this of year. the is half expect and quarter said towards all weighted I in back the third all Marketing in metrics as quarter, the unusual. in fourth quarter. sequential I've in clearly improvement would in again That's

a as out probably what as the And said, bit expecting. I'm see of do math there. you we yourself So figure that's remaining the I progression little and that could

Ben Allanson

over [indiscernible] Sachs. at Good. At Goldman costs

the you've cost in now OpEx which these taken to XQ, which release, steps steps fully adjustments benefiting make cited run rate in implemented and remain steps progress? are in You

Frank Lanuto

head this reductions don't to back of further realize actions material any time half and start expect of now benefits have of the the to all have in the We to affected We as those. take the cap personnel year. just of

Ben Allanson

Great.

just going What in ad now and about is at Barton about is reading all in political Turning be Stagwell? actually. from We're -- primary? over for an Is question Republican this What Stagwell that Crockett seeing seeing environment? a over the is the Stagwell to Rosenblatt. advocacy, slowdowns fundraising to issue

Mark Penn

somewhat far There of fundraising political about we're positive season last tracking in what of the here going lot ahead All slowdowns with real side, primary, be see season. debate. I this. what were. is were first all late signs on think seeing are the there advocacy to this they so things the And August. a really thing Will primary next are happens what fairly explode we're through But a that will

get in year going next, history. I think of so couple we've a advocacy gets this don't developing. And to question it I that the the far, the related there's or does kind of weeks. event that's the beginning be any said, going, we're towards watch think kind of positive end election is I whether the biggest once in of of this seeing got signals that how But season as to will

Ben Allanson

Great.

topic generative to which over from on lot about internally a the Needham. at we've Martin AI, Laura talked Now

cost drive to You drive side? revenue will what in ways do primarily your you it Stagwell, savings mentioned release. for additional GenAI economics think or press In on

Mark Penn

and to kind I And of behalf customer improved want I want rewriting an take we to think they even going on see surface transformation XX realized see, explosion XX people It's to AI them next way I an strong fully really actions all that's to really almost digital and over our I of that consumers for a of have of think get think when converse they be quite division. of new what means And think see we've to interfaces. don't transformation generative entirely don't scratched Well, projects. to the digital that. months, the it.

to little resources digital take So the and a that's to but marketing very major transformation. going good into to AI get where to be I think put going while for really be that's time going it's snowball,

think I their to initially that's Oracle problems. them clients with the we tackle and these moved partnership begin why help to

to some the open research I be creating, that gruntwork a do related analyzed with to efficient and reduced, I were think, marketplace. storyboards research do help refine industry or works spot, from it to basis, testing really focus to I news the on going we a of read reducing and or analysts to $X processing PRophet help are pitches. it's amount But produce and think, also obviously, more our series products our of it processes. to think already each. taking more do and us work. And we costs We're out $X.XX to -- how tables at have data used said, We're now, of But groups which invoices of help $X streamlining so much of of internal analyzed will how all releases a we're on we're efficient. even that ended $X.XX product. of the looking are and in invoices will going find the already to and greatly that really We've kind fair thirdly, be is generative sell process as that to AI lot it, and generate deploying that down conclusions on the

Ben Allanson

any if to turn do please reminder, you have questions. throw will of questions, them the a I in a couple chat. Just additional investor

being important stronger the Stagwell done in what's First, to the address is America Latin future position plan, region? group to a

Mark Penn

in worked A I deal America down is Brazil. America, I Latin in few personally was ago, months Latin important. a great

Latin in transactions, is I America network, number Having have think, priority. Latin underway a think, right, expand I will, at that within our absolute an stages clearly full We America. top a of various of capabilities completion

too where bringing market particularly probably a in companies this at a of more Latin end here You of American that operations. committed by we the we these growth rates I lot looking potential in believe think that year. EMEA, can I growing international been see in resources have now fragmented. I'm our have our growth to

more And I'm I significant developments market fill see next important that. in on East as you'll we're most at the Mid strongly. second to us think looking, the then for

Ben Allanson

we what and turn general. entertainment in remainder couple the are of year? sales of the we allocation, assumptions about capital a Before the have Based questions the for on just on the question tech environment a here to for guidance,

Mark Penn

I think the assumptions strike are sure relative strike. our modest be kind of writers writers going is the when to over. to not We're

time to expect think, next in think in recovery I do terms I basis. strike to on be the a companies is particularly tried company that how We've modest as slow think fourth We it to tech, have year, comeback the I end much think some AI. see these think they generative really outlook here to over. And by quarter, in will be, for this figuring integrate again, over it treading built in and growing this is very but assumptions our expenses strengthen of conservative to year that until of our entertainment research watching that I carefully, we've I

Ben Allanson

the we in significant bonds equity they're related. revolver. And I have the last you I'm here amounts from for buying between to question, X I a general, at discounted then cash back remind going your as them outstanding are allocation capital of is an And Can us here, think, combine what think and repaying excess price? question and related thoughts our M&A, under on flow the priority just on buying

Mark Penn

I old year, it's taking use said, acquisitions, stockholder -- shareholder we Frank as I that before new on as as to possibly And growth -- side. but X/X think up ones a I we've we've fair kind we've Obviously, we're for X/X small company. a plan and more disposition a our build and departed done are that X/X flow, buyback -- well of to as measures this some from moves. we question, various to and think, for somewhat said we're the that that's noted, cash pay think I for our

great to continue it's important and our take So make our to cash, expand tech investments to network. products us critically the grow for

think a I we've medium-term the to getting to, decisions the buying a terms we'll of in I to to haven't so think date. that's of bonds, And that make made -- going any priority. discount time, be possible about same At set such it's goal but we decision

Ben Allanson

think have. that's today. the we Thank us very for it. that Now you really We question joining I last appreciate much

all please If ir@stagwellglobal.com, don't joining you those. questions, And have us. to hesitate again of once reach you for to out thank address any happy

Stagwell (STGW) 8 Aug 232023 Q2 Earnings call transcript