Stagwell Inc. Price & Performance (STGW)

The result, Stagwell's 2024 work sets the stage for another period of best in class growth in 2025 and beyond. Q4 marked a continuation of the improving trends we saw throughout the year. During the quarter, we grew revenue by 20%, net revenue by 14%, These results were driven by continued strong momentum in digital transformation, which grew revenue by 22%, net revenue by 15%, year over year by performance, media and data, which grew revenue by 12% and net revenue by 16%. Year over year. Adjusted EBITDA for the fourth quarter was $123,000,000 as we continue to invest in growing our cloud and AI based software solutions. We also made strong progress in managing our cost structure, bringing our comp to revenue ratio down to 57.5% a record low for Stagwell. For the full year, Stagwell posted revenue of $2,840,000,000 growth of 12% over the prior year, net revenue of $2,300,000,000 growth of 7% and adjusted EBITDA of $411,000,000 representing an 18% margin, an improvement of 120 bps versus 2023. Stagwell's return to industry leading growth was due to five First, we saw a rebound followed by an acceleration in our digital transformation businesses. We saw growth of 12% among our tech customers within digital transformation in the fourth led by Code and Theories unique blend of engineering expertise, and creative ability.

Ahead of Election Day, Code and Theory launched Context Lens in collaboration with RealClearPolitics a cutting edge anticipatory generative AI tool that offers relevant visual pulling data for into political trends. And Left Field Labs created best phones forever AI road trip. A generative AI powered campaign for Google Pixel which zoos Gemini and Imagine to respond to fan suggestions. The interactive adventure was Google Pixel's highest performing Instagram post. This is just a taste what we can do with AI for brands. As I discussed with Elon Musk at CES in early January twenty twenty five, this is the year where companies begin to recognize what AI can do and build applications around it. And our digital transformation agencies are ready to do [indiscernible] Second, results were strengthened by the culmination of 80% in the fourth quarter Targeted Victory raised $400,000,000 in low dollar contributions and supported over a hundred candidates and political groups. SKDK created, printed and sent over 86,700,000 pieces of mail, wrote over 3,000 scripts, and produced nearly a thousand ads and a hundred film shoots. Wonder came our best in class AI powered text messaging platform supported over 500 political and advocacy organizations sending more than 4,000,000,000 text messages to support organizations fundraising, voter contact, and get out the vote efforts.

While advocacy will experience headwinds in 2025 due to the lack of a federal election called We still expect it to be a solid year in advocacy. We anticipate an uptick in public affairs and issue advocacy campaigns this year. Remain very optimistic looking ahead to the midterms seasons in 2026 and a twenty twenty eight presidential cycle which should break all records with primaries on both sides. Third, our new business momentum continued as we posted a $102,000,000 in net new business, the third consecutive quarter with net new business figures in excess of a hundred million. This brings our trailing twelve month figure to $382,000,000 yet another record for the company. This year end figure is a hundred and 11,000,000 larger than in 2023, 169,000,000 larger [indiscernible] 2022. The results in the fourth quarter were led by high profile wins with Starbucks, Stellantis, and Target, And we've seen this momentum continue into the New Year with recently announced wins with MassMutual and work breaking just today with Visa. These wins show that we are winning ever larger mandates with the world's leading companies, Our average top customer is now a $25,000,000 relationship. The thesis of Stagwell is that as we scale, we will climb the ladder up to larger and larger assignments.

And that is exactly what is happening now. Our number one client scales to over $80,000,000 of working year, and tech companies are four out of five of our top clients underscoring that we are truly a tech company. Fourth, Stagwell made significant investments to enhance our tools to help marketers. In the fourth quarter, we invested $23,000,000 in OpEx to grow our cloud and AI based software solutions. This brings our full year investment in the Stagwell Marketing Cloud to approximately $70,000,000 These investments are beginning to pay off as the Skywell Marketing Cloud delivered 24% revenue growth in the fourth quarter the third consecutive quarter of double digit growth. And so our long term margin is considerably understated by these OpEx investments. We also made strong progress in our Stagwell ID graph to centralize our data and information to better target consumers. And we are on the cusp of launching the machine, a fully integrated AI based content development platform built in conjunction with Adobe. Both are scheduled Finally, [indiscernible] Was also aggressive in M and A throughout 2024, announcing 11 transactions. Our biggest move was our push in The Middle East a region in which we see a number of opportunities.

Led by the acquisition of Consolum, a highly regarded public [indiscernible] Of leaders in Israeli social agency We saw more than 150% growth in net revenue in the region in 2024, as we've grown our headcount to more than 500 people there, We continue to push in the region and close the year strongly by announcing our intent to acquire Create Group, a deal that should close before the end of the first We also augmented our presence in Europe, with the acquisitions of Sidekick, a UK digital and experiential agency and WNP a best in class French creative agent. In Latin America, we added a foothold with pros a Brazilian PR and social agency, And early in 2025, we announced our agreement to acquire ADK Global, which will give us offices in 10 Asian markets and increases our headcount in the region to over 2,000. From a capability standpoint, we added to our multicultural and experiential with the addition of team Epiphany while strengthening SMC suite of SaaS products through the acquisitions of Uniceppta, an AI enabled social listening and media monitoring company and Veradot AI, an AI based brand tracking We believe that Stagwell's M and A machine is underappreciated by the investment Over the last nine years, Stagwell has grown from an idea to more than $2,800,000,000 revenue company, and it is It is there today because of the investment platform we have built combined with the incredible organic growth opportunities afforded by the expanding network that these acquisitions are placed into.

The result of these five breakthroughs was a second half that comfortably outstripped the industry [indiscernible] Our second half total net revenue growth of 11% was more than 400 basis points stronger than our nearest of 9% was almost 300 basis points. Stagwell is uniquely positioned heading into 2025 to take advantage of a rapidly changing industry landscape. No one else has our Goldilocks blend of industry leading capabilities geographical scale and meaningful size We're excited for what the new year will bring and we're confident in issuing 2025 guidance of total net revenue growth of approximately 8% adjusted EBITDA of $410,000,000 to $460,000,000 free cash flow conversion of over 45% adjusted earnings per share of $0.75 to $0.88 I think it's important to look not just at organic growth, but our total growth as we are aggressively adding new geographies And we are still a relative teenager on the on the way up the ladder of scale. We'll guide to total growth from now on, but to avoid any confusion as we make this transition, we expect next year advocacy to fall off by about 30% but non advocacy to grow organically in the 5.5% to 7.5% range led by double digit growth of our digital transformation unit.

Putting all of this together, when you look at the decline of the political cycle and our continued organic growth, and our new acquisitions we expect to achieve 8% total growth in 2025 and understanding the components of total growth is the key to understanding our path to unlimited future growth and scale. Before Frank Linnuno, our Chief Financial Officer, walks through some of our financial results in more detail, I wanted to share with you a short video with you that shows just how transformational 2024 was for SAGO. The video combines scenes from some of our best work, enhanced with AI, and driven by Adobe's innovative new AI based Firefly video tool, that we are beta testing. The video showcases Stagwell's outstanding client work new innovations, and incredible wins across the network. Let's roll.

Twenty twenty four was a breakthrough year for Stagwell Stagwell. The Challenger Network delivered industry leading growth for the quarter with 630,000,000 in net revenue. A hundred and $23,000,000 in adjusted EBITDA, and for the year with double digit expansion and $2,800,000,000 in revenue, dollars 2,300,000,000.0 in net revenue, and $411,000,000 in adjusted EBITDA. We achieved 382,000,000 in net new business, another company record. Our breakthrough growth was driven by I'm back.

Best in class client work, and winning multiyear assignments. Strategic global expansion, strong performance in digital and the Stagwell Marketing Cloud, and an historic year for advocacy. We are the Goldilocks Company. The right mix of collaboration, and scale. 10 out of 10. In 2025, we will drive another year of transformational growth. That's Red Hawk.

Thank you, Mark. Good morning, everyone. And thank you for joining us to discuss our fourth quarter and full year results. Prepared remarks conclude, please feel free to submit them through the chat function. Stagwell delivered strong fourth quarter financial results. Capping a breakthrough year for the company. For the quarter, we reported revenue of $789,000,000 an increase of 20% as compared to the same period in the prior year and net revenue of $630,000,000 an increase of 14%. Over the prior period. For the full year, revenue grew 12% to 2,840,000,000.00 and net revenue grew 7% to 2,300,000,000.0 In the fourth quarter, digital transformation revenue grew 22% to $182,000,000 led by strong performances in our advocacy businesses as well as growth of 12% among tech customers. We have seen an uptick in the number of AI projects that our digital transformation agencies have been selected indicating that we are at the beginning of a new wave of AI driven digital transformation work.

For the full year, digital transformation grew 13% to $718,000,000 Stagwell 1 Marketing Cloud, posted $81,000,000 of revenue in the fourth quarter, an increase of 24% over the prior year. Driven by significant growth in WonderCave, our advocacy focused text messaging platform as well as strength among our retail, communications, and technology customers. For the full year, SMC grew 19% to $280,000,000 in revenue. Performance Media and Data, reported $89,000,000 in revenue in fourth quarter with growth accelerating to 12% over the prior period. The growth was driven by continued strength in the consumer products, healthcare and business services sectors. The strength in technology, which began in the third quarter continued in Q4, as the sector's revenue grew more than 60%. For the full year, revenue grew to $324,000,000 a year over year increase 10% Creativity and Communications delivered $387,000,000 of revenue in the fourth an increase of 25% over the prior period The results driven by significant new business wins in the retail, technology and automotive sectors, organic growth with our existing customers and by strength in our advocacy businesses. For the full year, revenue grew to 1,330,000,000.00 increase of 14% over the prior year. And Consumer Insights and Strategy reported $50,000,000 of revenue in [indiscernible] a decrease of 1% as compared to the prior year.

For the full year, revenue was $190,000,000 a decrease of 1% over the prior year. Results in the fourth quarter and for the full year We're bolstered by a record breaking political season Advocacy revenue in the fourth quarter rose to $127,000,000 an increase of 80% year over year and 46% over the prior political cycle. For the full year, advocacy revenue increased 72 percent $363,000,000 an increase of 18% over prior political cycle. And excluding advocacy, total company revenues increased 13% year over year in the fourth quarter and 7% Moving to operating expenses. We continue to improve margins through effective cost management. Our single largest expense, declined in the fourth quarter to 57.5% of net revenue. Or three twenty basis points lower versus the prior period. We also made further progress on our cost savings initiatives in the fourth quarter and throughout 2024. In the fourth quarter, we identified and actioned approximately $6,000,000 in annualized real estate savings through the consolidation of legacy office space into our regional hub model. This brings our 24 annualized real estate synergies to more than $10,000,000 We also identified and actioned more than $4,000,000 In addition, additional annualized savings through the centralization of software, and technology costs.

As a result, Stagwell delivered $123,000,000 in adjusted EBITDA in with a margin of 19.6% an improvement of approximately two thirty basis points over the prior period. Excluding our cloud investment of $23,000,000 this quarter, our fourth quarter adjusted EBITDA margin would have been approximately 23.2%. For the full year, adjusted EBITDA came in at $411,000,000 representing a margin of 18%.

On net revenue and improvement of 120 basis points over the prior year. Again, adjusting for our cloud investment, our full year margin would have been approximately 21% Now moving to the balance sheet. We continue to focus on capital allocation to maintain a strong financial position. Our DAC balance ticked up in the fourth quarter as we added a number of larger acquisitions. At $102,000,000 the DAC balance is in line with the year end 2023 balance but is approximately still $60,000,000 less than that of year end 2022. Throughout 2024, we announced 11 acquisitions, continue to focus on keeping our DAC balance at prudent levels through appropriate structuring of transactions. We also reduced NCI balances by approximately down to 22,000,000 And during the quarter, we acquired approximately 1,000,000 share at an average price of $6.61 per share for approximately $7,000,000 This brings our full year repurchases to 14,800,000.0 shares at an average price of 6.31 or approximately $93,000,000 Our buyback authorization as of year end still had $170,000,000 in remaining availability. CapEx and capitalized software for the quarter which is broadly in line with our target. Cash flows from operations for the full year [indiscernible] $63,000,000 relative to 2023, driven principally by improvements in our working capital management.

As a result, we ended the year $131,000,000 in cash and drawings under our revolver $264,000,000 resulting in a leverage ratio of three times. And finally, as Mark noted, we are issuing full year 2025 guidance as follows: Total net revenue growth is expected to be approximately 8%.

Adjusted EBITDA is expected to be between $410,000,000 to €460,000,000 We expect to deliver in excess 45% free cash flow conversion and adjusted earnings per share is expected to be between $0.75 and $0.88 That concludes our prepared remarks for this morning. I will now turn the call back over to Ben to open the Q and A portion of the call.

Thank you, Frank. If you do have any questions, please submit them via the chat button at the top of the screen. We're going to start with sort of a question we've received from a number of investors there, and this is about our change in guidance philosophy. And moving to total net revenue growth. Perhaps you could just go a little bit more into why that change has come about as well as talking a little bit about the start of the year. Well, I think I realized that people were grossly underestimating kind of the growth that we have built here as we grow and we continue to scale up in the industry We are very efficient at deploying capital at lower levels than that has been accretive to our business as opposed to what you see in the industry where they do the opposite. But you have to combine that with the organic growth that you see as led by digital transfer you see we have a very strong picture of 5.5% to 7.5 non political organic growth for next year because we're really firing on all cylinders. We are bringing in new scaled accounts at a much higher level than ever before.

We are doing expanding our network into new regions that are providing new opportunities beginning to get past the first rounds of government contracts that will add another 10% to 15% to this business. I think people have to look at the totality of it. I think that they were missing that. Still going to be letting you figure out how organic growth is working, but we are in a very strong organic growth mode I had a peak at January, and the January is the strongest January. That we've had in the history of the company.

Good stuff. Maybe just turn a little bit to digital transformation. A number of questions we received from analysts about digital transformation One said up to two consecutive quarters now of really, really nice strong growth in digital transformation. Could you maybe talk about any changes that we've seen over the course of last call it, six months in particular has led to this really strong rebound and acceleration in in the capability?

Well, absolutely. And I think that I've been very clear at saying that that we thought that the tech companies went into efficiency mode and now they're in competition mode. AI is breaking on the scene [indiscernible] clients are going to have to adopt to AI. And we are set up with this combination of designers and engineers in particular, to help companies implement the agentic AI, which will really kind of be critical to the connection that companies have with consumers. To redoing all of the websites now to be AI based, to really understand how the layer of information and data that we have about Stagwell influence how both advertisements and web construct and the things that you see when you log on or enter a website, will change based on knowing who you are. The wonderful world of AI here is real. You can't just build chips You can't have just centralized applications. Every company needs a set of personalized well driven AI applications we're going to be coming out with some really super interesting ones. I hope people will come to an Investor Day that we've set up in early April which will display think, some of those incredible things that are being built by the digital transformation teams at Stagwell.

Fantastic.

Let's turn a little bit, a question from Jason Crier at Craig Hallum here.

How would you characterize the volume of RFP activity today versus what you saw maybe last year? Maybe how are we how is Stagwell's positioning in such a way to ultimately take advantage of potentially upticks in RFP or changing environments in the RFP market.

We continue to have busier than ever flows of RFP We did over $1,300,000,000 of RFPs. We generally we generally don't participate in about 20% of those that we were asked. And our win ratio has been above 30% We are clearly growing share out of these RFPs. We expect to do about $1,500,000,000 of RFPs in 2025. Not counting the various government ones we have now put in experts at government contracts. We are the right scale and size now to begin to compete for those major contracts for recruiting, for HHS, for for these major contracts, which are hundreds and hundreds of millions of dollars, which previously have gone only to our competitors. Good stuff.

Little bit about about everything that's going on in the industry at the moment. Obviously, there was a report the December about potential merger between two of the larger players in the industry. Laura Martin asking, as your competitors consolidate is that good for Stagwell, bad for Stagwell Stagwell? In 2025 and beyond? Maybe some thoughts that you might have on that?

Look, I don't think people need another marketing behemoth out there. I don't see that the industrial logic of the Omnicom IPG merger suggests that it is a merger of strength. It's It's a merger fundamentally of of weakness for companies that got too big too big and deal and are dealing with too many legacy assets.

They're going to dump thousands and thousands of people back on the market [indiscernible] Who who don't want to be in a ship that's getting rid of $750,000,000 of people, but want to be on something like Stagwell, where they see the future oriented built on the latest AI technology. We're an exciting place. We have over 200,000 people applying to work for our company right now.

So I think that from that position, and I think also clients, as you can see, when you look at our wins from Starbucks to Visa to Target, you can see that people want a more nimble digitally based but high level creative shop What we really offer is the combination of highest level of creativity and technology as opposed to the idea that somehow a faceless meaningless computer combined into a huge behemoth will really be the answer That's why I set up coming out of WPP That's why I set up Sagewill in the first place. Because the market needed an alternative like Stagwell.

Great. Good stuff.

Maybe a question just about the margin here and this one Cameron McVeigh and Morgan Stanley. Obviously, we talk a lot about our investments in the products and things, but where do we see our long term margin trending over time? And when do you kind of expect us to [indiscernible] Look, I think you're going to see these significant investments in in technology probably continue through definitely through this year, probably through half of of next year. And then I think you're going to see them significantly decline. I think we're building the basics internally the ID graph, the machine, We are We are now dedicating more and more salespeople to the products across communications, which is now a research, which is now a complete suite and the media pieces that we're in the verge of putting together.

So I think you're going to see that for about a year and a half, and then I think you're going to see that [indiscernible] and you really have to look at what our real margin is is probably about 25% greater than you're seeing today. That as we take off on the On the on the tech products themselves, they tend to have 60% to 80% gross margins embedded in them as well.

Absolutely. Two more questions before we wrap up. Just a little bit on SMC, a couple of questions coming through from a number of people. Could you just maybe talk about the strong momentum we've begun to see in that over the second half of twenty twenty twenty four? What are you excited about with the products heading into '25?

I'm really excited in the communications sector now. We have really a complete suite of products. It's very competitive. We have profit, which is earned, which is the AI basis. We have an influencer marketing platform. And now we have global media monitoring, which has tremendous, I think, [indiscernible] both for the rest of the agencies and offerings at Stagwell and for the cloud. Think in research with the addition of Barrow, we now have suite of research products And I think on the media thing, we're now putting together a suite that will first, I think, drive internally a very competitive product against Publicis on data and media. Where we'll really have the latest in terms of how you apply an ID graph and how you use AI to really manage thousands of pieces of content and to vary and test them.

So I think this is coming together. It's coming together incredibly well. I think from start, we felt it was important to have a central tech group to do services first, to get 4,000 clients, but really continue to invest in this technology. Think you're going to see again an Investor Day where these things are going. And let me just mention our AI experience at stadiums, with sponsors like like Uber and others is way ahead of anybody else.

On the Investigate question, this is our last question for the day. Obviously, we're going to be holding this on April 2. It will be a virtual invest day. From an investor. Can you give us a little bit of a sneak peek as to maybe something we might be able to see the Investor Day coming up in about [indiscernible] Okay. I think I think the main thing for investors is you have to ask yourself, okay?

Is this a company with a long term growth profile? I started at nine years with an assistant and we're sitting here with nearly $3,000,000,000 in revenue B, can we scale up and be a true competitor in the industry industry that wants better creative, that wants more nimble adaptation of [indiscernible] Wants to get rid of the old fashioned models. The answer to those two questions, yes, at Investor Day. I think you're going to have to say, why aren't more people invested at Stagwell? And then third, going to get a peak at how we're applying the latest technologies both to clients and internally to offer better, more streamlined services. I think it's going to be exciting. I think that we're really showing the promise of what we said, which is that we would be the challenger holding company that is the Goldilocks size not too big, not too small, just right, for major clients around the world is coming to fruition.

Well, with that, that's the end of our Q and A section for today. Thank you so much for attending.

We hope you'll be able to join us on April 2 for our virtual Investor Day as well as additional information about the day.