Stagwell (STGW) - 2024 Q2 - Quarterly Results

Earnings Release Summary This section provides an overview of Stagwell's financial performance for Q2 and H1 2024, along with management's strategic commentary and full-year outlook Financial Highlights (Q2 & H1 2024) Stagwell reported a 6% increase in Q2 2024 revenue to $671 million, driven by 42% growth in Advocacy. Net revenue grew 2% to $554 million, with organic net revenue up 1.2%. However, Adjusted EBITDA declined 6% to $86 million, and the company recorded a net loss of $3 million, consistent with the prior-year period. The company also announced a record $113 million in net new business for the quarter Q2 & H1 2024 Key Financial Results | Metric | Q2 2024 | Q2 2023 | % Change | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $671 million | $632 million | +6% | $1.3 billion | $1.25 billion | +7% | | Net Revenue | $554 million | $545 million | +2% | $1.1 billion | $1.07 billion | +2% | | Organic Net Revenue Growth | 1.2% | - | - | 1.5% | - | - | | Net Loss (to Common Shareholders) | $(3) million | $(3) million | 0% | $(4) million | $(2) million | -100% | | Adjusted EBITDA | $86 million | $91 million | -6% | $176 million | $163 million | +8% | | EPS (Diluted) | $(0.03) | $(0.03) | 0% | $(0.04) | $(0.01) | -300% | | Adjusted EPS (Diluted) | $0.14 | $0.18 | -22% | $0.30 | $0.31 | -3% | - The company achieved record net new business wins of $113 million in the second quarter, contributing to a last-twelve-month (LTM) total of $324 million[1][2][3] Management Commentary Management expressed confidence in a strong second half of 2024, citing record-breaking net new business wins from major clients like General Motors, Macy's, and Target. The CEO emphasized strategic growth through expanded capabilities, AI deployments, and global reach. The CFO confirmed the growth strategy is working, bolstering confidence in the full-year guidance - CEO Mark Penn highlighted record net new business wins of $113 million in Q2 and noted that recent wins from General Motors, Macy's, Target, and Zales will bolster H2 performance[3] - The company's strategy focuses on growing capabilities to secure larger client contracts ($20-$40 million), expanding AI and Stagwell Marketing Cloud deployments, and increasing global reach[4] - CFO Frank Lanuto attributed the solid Q2 revenue growth to strong performance in Creativity & Communications, Advocacy, and Performance Media & Data, alongside investments in converting the revenue pipeline, such as the SPORT BEACH activation at Cannes[4] 2024 Financial Outlook Stagwell reaffirmed its full-year 2024 financial guidance. The company continues to project organic net revenue growth of 5% to 7%, Adjusted EBITDA between $400 million and $450 million, and Adjusted EPS in the range of $0.75 to $0.88 Reaffirmed 2024 Full-Year Guidance | Metric | Guidance | | :--- | :--- | | Organic Net Revenue Growth | 5% to 7% | | Organic Net Revenue Growth (ex-Advocacy) | 4% to 5% | | Adjusted EBITDA | $400 million to $450 million | | Free Cash Flow Conversion | ~50% | | Adjusted EPS | $0.75 - $0.88 | - The guidance assumes no impact from foreign exchange fluctuations, acquisitions, or dispositions[5] Financial Statements This section presents Stagwell's detailed consolidated statements of operations, balance sheets, cash flows, and segment performance for the reported periods Consolidated Statements of Operations For the second quarter of 2024, Stagwell's revenue increased to $671.2 million from $632.3 million year-over-year. Operating income was stable at $21.9 million. The company reported a net loss attributable to common shareholders of $3.0 million, or $(0.03) per share, unchanged from the prior-year quarter. For the first six months, the net loss attributable to common shareholders widened to $4.2 million from $1.8 million in the prior year Consolidated Statements of Operations Highlights (in millions) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $671.2 million | $632.3 million | $1.34 billion | $1.25 billion | | Operating Income | $21.9 million | $21.3 million | $47.8 million | $37.5 million | | Net Loss | $(4.0) million | $(5.0) million | $(4.7) million | $(7.8) million | | Net Loss Attributable to Common Shareholders | $(3.0) million | $(3.2) million | $(4.2) million | $(1.8) million | | Diluted EPS | $(0.03) | $(0.03) | $(0.04) | $(0.01) | Segment Performance In Q2 2024, the Communications Network was the primary growth driver with a 12.4% increase in organic net revenue. The Brand Performance Network grew 1.5% organically, while the Integrated Agencies Network was nearly flat at 0.1%. For the first half of the year, the Communications Network again led with 19.2% organic growth. The Communications Network also generated a strong Adjusted EBITDA of $22.2 million in Q2, second only to the larger Integrated Agencies Network's $68.0 million Q2 2024 Organic Net Revenue Growth by Segment | Segment | Organic Change % | | :--- | :--- | | Integrated Agencies Network | 0.1% | | Brand Performance Network | 1.5% | | Communications Network | 12.4% | | All Other | (41.4)% | | Total | 1.2% | H1 2024 Organic Net Revenue Growth by Segment | Segment | Organic Change % | | :--- | :--- | | Integrated Agencies Network | (1.8)% | | Brand Performance Network | 3.2% | | Communications Network | 19.2% | | All Other | (23.0)% | | Total | 1.5% | Q2 2024 Adjusted EBITDA by Segment (in millions) | Segment | Adjusted EBITDA | | :--- | :--- | | Integrated Agencies Network | $68.0 million | | Brand Performance Network | $17.7 million | | Communications Network | $22.2 million | | All Other | $(3.1) million | | Corporate | $(18.6) million | | Total | $86.1 million | Consolidated Balance Sheets As of June 30, 2024, Stagwell's balance sheet showed total assets of $3.79 billion and total liabilities of $3.05 billion. Cash and cash equivalents stood at $136.1 million, an increase from $119.7 million at the end of 2023. Long-term debt increased significantly to $1.42 billion from $1.15 billion over the same period, while total shareholders' equity declined from $825.3 million to $729.9 million Balance Sheet Highlights (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $136.1 million | $119.7 million | | Total Current Assets | $1.10 billion | $1.03 billion | | Total Assets | $3.79 billion | $3.77 billion | | Total Current Liabilities | $1.22 billion | $1.37 billion | | Long-term debt | $1.42 billion | $1.15 billion | | Total Liabilities | $3.05 billion | $2.93 billion | | Total Shareholders' Equity | $729.9 million | $825.3 million | Consolidated Statements of Cash Flows For the first six months of 2024, the company significantly reduced its cash outflow from operating activities to $67.6 million, compared to a $144.1 million outflow in the same period of 2023. Cash used in investing activities increased to $52.2 million, while cash provided by financing activities rose to $138.3 million, largely due to net borrowings under the revolving credit facility. Overall, cash and cash equivalents increased by $16.3 million during the period Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(67.6) million | $(144.1) million | | Net cash used in investing activities | $(52.2) million | $(30.1) million | | Net cash provided by financing activities | $138.3 million | $58.5 million | | Net increase (decrease) in cash | $16.3 million | $(115.3) million | - The company's cash and cash equivalents increased from $119.7 million at the beginning of the period to $136.1 million at the end of June 2024[63] Supplementary Information This section defines and reconciles non-GAAP financial measures and outlines forward-looking statements and associated risk factors Non-GAAP Financial Measures The company uses several non-GAAP financial measures to supplement its reported results, believing they provide useful period-to-period comparisons. These measures include Organic Revenue, Net New Business, Adjusted EBITDA, Adjusted Diluted EPS, and Free Cash Flow. The report provides specific definitions for how each of these metrics is calculated - Key non-GAAP measures are used to analyze performance, including: - Organic Revenue: Adjusts for acquisitions, divestitures, and foreign currency impacts - Net New Business: An estimate of annualized revenue from new wins minus losses - Adjusted EBITDA: Net income adjusted for items like depreciation, amortization, stock-based compensation, and other non-recurring costs - Adjusted Diluted EPS: Adjusted net income divided by diluted weighted average shares - Free Cash Flow: Adjusted EBITDA less capex, changes in working capital, cash taxes, interest, and minority distributions[7][8][9] Reconciliation of Non-GAAP Measures The report provides detailed reconciliations for its non-GAAP measures, most notably for Adjusted Diluted EPS. For Q2 2024, the GAAP net loss of $3.0 million attributable to common shareholders was adjusted by $18.9 million in add-backs to arrive at a non-GAAP adjusted net income of $16.0 million. This resulted in an Adjusted Diluted EPS of $0.14, compared to the GAAP EPS of $(0.03) Q2 2024 Reconciliation of GAAP EPS to Adjusted Diluted EPS | Metric | Amount (in millions) | | :--- | :--- | | GAAP Diluted EPS | $(0.03) | | Adjustments (Amortization, Stock Comp, etc.) | +$0.17 (Implied) | | Non-GAAP Adjusted Diluted EPS | $0.14 | - Major adjustments to reconcile GAAP net income to non-GAAP adjusted net income for Q2 2024 include amortization ($35.0 million), deferred acquisition consideration ($7.2 million), stock-based compensation ($5.9 million), and other items ($8.9 million), offset by an adjusted tax expense[41] Forward-Looking Statements and Risk Factors This section cautions investors that the report contains forward-looking statements based on management's current expectations and assumptions, which are not guarantees of future performance. It outlines numerous risk factors that could cause actual results to differ materially, including economic conditions, client spending, competition, employee retention, integration of acquisitions, cybersecurity, and geopolitical tensions - The document contains forward-looking statements subject to change and various risks and uncertainties[11][12] - Key risk factors listed include: - Unfavorable economic conditions affecting the company or its clients - Ability to attract and retain clients and key employees - Ability to compete and successfully implement strategic initiatives - Risks related to debt compliance, acquisitions, and new technologies like AI - Unremediated material weaknesses in internal control over financial reporting[13]