Stagwell (STGW) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2023 and 2022, detailing revenue, net loss, cash flows, and balance sheet changes with explanatory notes Unaudited Consolidated Statements of Operations The company reported a 3.2% revenue decrease and a shift from net income to a net loss of $5.0 million for Q1 2023 | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue | $622,444 | $642,903 | $(20,459) | -3.2% | | Operating Income | $16,233 | $54,660 | $(38,427) | -70.3% | | Net income (loss) | $(5,017) | $33,622 | $(38,639) | -114.9% | | Net income attributable to Stagwell Inc. common shareholders | $443 | $12,675 | $(12,232) | -96.5% | | Basic Income Per Common Share | $0.00 | $0.10 | $(0.10) | -100.0% | | Diluted Income (Loss) Per Common Share | $(0.01) | $0.10 | $(0.11) | -110.0% | Unaudited Consolidated Statements of Comprehensive Income (Loss) Comprehensive income shifted to a loss of $0.6 million in Q1 2023, primarily due to the net loss and foreign currency adjustments | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Net income (loss) | $(5,017) | $33,622 | $(38,639) | -114.9% | | Foreign currency translation adjustment | $4,425 | $(5,347) | $9,772 | -182.7% | | Comprehensive income (loss) for the period | $(592) | $28,275 | $(28,867) | -102.1% | | Comprehensive income attributable to Stagwell Inc. common shareholders | $26,131 | $7,328 | $18,803 | 256.6% | Unaudited Consolidated Balance Sheets Cash and cash equivalents decreased by 37.2% to $138.5 million, while total assets and liabilities also saw declines | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Cash and cash equivalents | $138,529 | $220,589 | $(82,060) | -37.2% | | Total Current Assets | $973,117 | $1,030,955 | $(57,838) | -5.6% | | Total Assets | $3,900,933 | $3,993,332 | $(92,399) | -2.3% | | Total Current Liabilities | $1,250,185 | $1,349,802 | $(99,617) | -7.4% | | Total Liabilities | $2,949,483 | $3,009,587 | $(60,104) | -2.0% | | Total Shareholders' Equity | $918,933 | $944,634 | $(25,701) | -2.7% | Unaudited Consolidated Statements of Cash Flows Net cash used in operating activities increased by 75.2% to $85.1 million, leading to a total cash decrease of $82.1 million | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Net cash used in operating activities | $(85,113) | $(48,577) | $(36,536) | 75.2% | | Net cash used in investing activities | $(10,815) | $(8,289) | $(2,526) | 30.5% | | Net cash provided by financing activities | $12,923 | $6,529 | $6,394 | 98.0% | | Net decrease in cash and cash equivalents | $(82,060) | $(48,856) | $(33,204) | 68.0% | Unaudited Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased by $25.7 million, influenced by share repurchases and changes in noncontrolling interests | Metric | Balance at December 31, 2022 (in thousands) | Balance at March 31, 2023 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------------------------------------ | :----------------------------------------- | :-------------------- | | Stagwell Inc. Shareholders' Equity | $482,537 | $487,094 | $4,557 | | Noncontrolling interests | $462,097 | $431,839 | $(30,258) | | Total Shareholders' Equity | $944,634 | $918,933 | $(25,701) | - The company repurchased and cancelled 2.6 million shares of Class A & B Common Stock under an approved plan, totaling $17.9 million for the three months ended March 31, 2023[24] Notes to Unaudited Consolidated Financial Statements Provides detailed context on business operations, acquisitions, revenue, debt, equity, and other significant accounting details 1. Business and Basis of Presentation Stagwell focuses on modern marketing services, with recent updates including an ESPP, increased credit limits, and a share repurchase agreement - The Company's strategy focuses on building, growing, and acquiring market-leading businesses that offer modern marketing services by leveraging data and creativity[28][159] - The Board adopted the 2022 Employee Stock Purchase Plan (ESPP) in March 2023, reserving 3.0 million shares of Class A common stock for eligible employees[32][161] - The Credit Agreement was amended on May 4, 2023, increasing the borrowing limit from $500.0 million to $640.0 million[33][162] - On May 9, 2023, the Company agreed to repurchase approximately 23.3 million shares from AlpInvest Partners for an aggregate total value of approximately $150.0 million[34][163] 2. Acquisitions Stagwell completed multiple acquisitions in 2022, adding goodwill and intangible assets across various segments - Acquired Brand New Galaxy (BNG) for approximately $20.9 million cash and up to $50.0 million contingent consideration, adding $24.6 million in goodwill to the Brand Performance Network[36][38] - Acquired approximately 87% of TMA Direct, Inc. for $17.2 million cash and $0.5 million deferred acquisition payments, assigning $6.6 million in goodwill to the Communications Network[44][46] - Acquired Maru Group Limited Ltd. for approximately $25.8 million cash, resulting in $23.4 million in goodwill assigned to the All Other reportable segment[51][52] - Acquired the remaining 80% interest in Wolfgang, LLC. for $3.8 million cash and 175 thousand Class A shares ($1.2 million fair value), adding $2.5 million in goodwill to the Integrated Agencies Network[57][58] - Acquired Epicenter Experience LLC. for approximately $9.9 million cash and up to $5.0 million contingent consideration, assigning $4.4 million in goodwill to the All Other reportable segment[63][65] 3. Revenue Total revenue decreased by 3.2% in Q1 2023, with declines in Digital Transformation and Creativity, offset by growth in Performance Media and Data | Principal Capabilities | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Digital Transformation | $190,319 | $210,809 | $(20,490) | -9.7% | | Creativity and Communications | $261,354 | $279,242 | $(17,888) | -6.4% | | Performance Media and Data | $109,488 | $99,776 | $9,712 | 9.7% | | Consumer Insights and Strategy | $61,283 | $53,076 | $8,207 | 15.5% | | Total Revenue | $622,444 | $642,903 | $(20,459) | -3.2% | | Geographical Location | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | United States | $507,092 | $537,231 | $(30,139) | -5.6% | | United Kingdom | $41,271 | $39,813 | $1,458 | 3.7% | | Other | $74,081 | $65,859 | $8,207 | 12.5% | | Total Revenue | $622,444 | $642,903 | $(20,459) | -3.2% | - Unbilled service fees (contract assets) increased to $170.8 million at March 31, 2023, from $116.4 million at December 31, 2022[77] - Unsatisfied performance obligations totaled approximately $90.8 million as of March 31, 2023, with 61% expected to be recognized in 2023[80] 4. Income (Loss) Per Share The company reported a diluted loss per common share of $(0.01) for the three months ended March 31, 2023, a decrease from $0.10 income per share in the prior year, primarily due to the shift from net income to net loss | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Basic Income Per Common Share | $0.00 | $0.10 | | Diluted Income (Loss) Per Common Share | $(0.01) | $0.10 | | Weighted Average Number of Common Shares Outstanding (Basic, in thousands) | 125,199 | 122,285 | | Weighted Average Number of Common Shares Outstanding (Diluted, in thousands) | 289,806 | 297,484 | 5. Deferred Acquisition Consideration Contingent deferred acquisition consideration increased to $165.7 million, with adjustments reflecting fair value changes | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $161,323 | $222,369 | | Adjustments to deferred acquisition consideration | $4,088 | $(12,779) | | Ending balance | $165,684 | $161,323 | - Approximately $51.5 million of the deferred acquisition consideration is expected to be settled in the Company's shares of Class A Common Stock[84] 6. Leases Total lease costs increased to $21.1 million in Q1 2023, with operating lease liabilities totaling $354.9 million Lease Cost Metrics | Lease Cost Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------ | :------------------------------------------------- | :------------------------------------------------- | | Operating lease cost | $19,578 | $14,016 | | Variable lease cost | $4,561 | $5,160 | | Sublease rental income | $(3,052) | $(3,276) | | Total lease cost | $21,087 | $15,900 | - As of March 31, 2023, the weighted average remaining lease term was 6.3 years and the weighted average discount rate was 4.6%[92] Lease Maturity Analysis (as of March 31, 2023) | Lease Maturity Analysis (as of March 31, 2023) | Amount (in thousands) | | :------------------------------------- | :-------------------- | | Remaining 2023 | $68,803 | | 2024 | $78,098 | | 2025 | $60,457 | | 2026 | $45,148 | | 2027 | $40,652 | | Thereafter | $120,424 | | Total | $413,582 | | Less: Present value discount | $(58,665) | | Lease liability | $354,917 | 7. Debt Total long-term debt increased to $1.24 billion, primarily due to increased Credit Agreement borrowings and a higher limit | Debt Component | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------- | :-------------------------------- | :-------------------------------- | | Credit Agreement | $150,000 | $100,000 | | 5.625% Notes | $1,100,000 | $1,100,000 | | Debt issuance costs | $(14,719) | $(15,293) | | Total long-term debt | $1,235,281 | $1,184,707 | - The Credit Agreement was amended on May 4, 2023, increasing the revolving credit facility limit from $500.0 million to $640.0 million[33][96] - The Company was in compliance with all covenants of the Credit Agreement as of March 31, 2023[100][108] 8. Noncontrolling and Redeemable Noncontrolling Interests Net income attributable to noncontrolling interests shifted to a loss of $2.9 million, with redeemable interests decreasing Net Income (Loss) Attributable to Noncontrolling Interests | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Net income (loss) attributable to Class C shareholders | $(3,165) | $17,721 | | Net income (loss) attributable to noncontrolling interests | $(2,917) | $18,537 | Noncontrolling and Redeemable Noncontrolling Interests Balances | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Total noncontrolling interests | $431,839 | $462,097 | | Redeemable Noncontrolling Interests (Ending balance) | $32,517 | $39,111 | - Comprehensive loss attributable to noncontrolling and redeemable noncontrolling interests was $26.7 million for the three months ended March 31, 2023, comprising $5.5 million net loss and $21.3 million other comprehensive loss[115] 9. Commitments, Contingencies, and Guarantees The company faces various legal proceedings and has $24.6 million in undrawn letters of credit and future commitments - The Company does not expect legal proceedings or claims to have a material adverse effect on its financial condition or results of operations[116] - As of March 31, 2023, the Company had $24.6 million of undrawn letters of credit outstanding[118] Future Minimum Commitments (as of March 31, 2023) | Future Minimum Commitments (as of March 31, 2023) | Amount (in millions) | | :------------------------------------------------- | :------------------- | | Remainder of 2023 | $6.4 | | 2024 | $5.8 | | 2025 | $5.4 | | 2026 | $3.9 | | 2027 | $3.2 | | Thereafter | $7.8 | | Total | $32.5 | 10. Share Capital The stock repurchase program was increased to $250.0 million, with $17.9 million in repurchases in Q1 2023 - The stock repurchase program was extended and increased by $125.0 million to an aggregate of $250.0 million, expiring on March 1, 2026[120] - During Q1 2023, 2.6 million shares of Class A Common Stock were repurchased under the program for $17.9 million, at an average price of $6.91 per share[122] - As of March 31, 2023, $180.4 million remained available for repurchases under the program[122] - On May 9, 2023, the Company agreed to repurchase approximately 23.3 million shares from AlpInvest Partners for $150.0 million at $6.43 per share[123] 11. Fair Value Measurements The 5.625% Notes had a fair value of $962.5 million, and no impairment was recognized for assets in Q1 2023 Fair Value of Financial Instruments | Financial Instrument | March 31, 2023 Carrying Amount (in thousands) | March 31, 2023 Fair Value (in thousands) | | :------------------- | :-------------------------------------------- | :--------------------------------------- | | 5.625% Notes | $1,100,000 | $962,500 | - The fair value of the 5.625% Notes is based on quoted market prices in inactive markets, classifying it as Level 2 within the fair value hierarchy[129] - Contingent deferred acquisition consideration is a Level 3 fair value measurement, with a discount rate of 5.2% used as of March 31, 2023[130] - No impairment of goodwill, intangible assets, or right-of-use lease assets was recognized for the three months ended March 31, 2023[134] 12. Supplemental Information Stock-based compensation increased to $7.4 million, and trade receivables transferred to third parties rose significantly Stock-Based Compensation | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Stock-based compensation (employee stock incentive plans) | $7,400 | $7,200 | | Stock-based compensation (profits interests awards) | $4,600 | $700 | - Trade receivables transferred to third parties increased significantly to $82.0 million for the three months ended March 31, 2023, from $7.5 million in the prior year[138] - The adoption of ASC 326 (Current Expected Credit Losses) on January 1, 2023, resulted in a $2.1 million decrease in opening Retained Earnings[139] 13. Income Taxes The company reported an income tax expense of $2.4 million on a pre-tax loss, resulting in a (99.1)% effective tax rate Income Tax Metrics | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Income tax expense | $2,384 | $3,189 | | Income (loss) before income taxes | $(2,406) | $35,781 | | Effective tax rate | (99.1)% | 8.9% | - The significant change in effective tax rate was primarily due to the pre-tax loss, an increase in valuation allowance, and an increase in uncertain tax positions in 2023[142] - As of March 31, 2023, the Company recorded a Tax Receivables Agreement (TRA) liability of $28.7 million with an associated deferred tax asset of $33.8 million[144] 14. Related Party Transactions Related party revenue decreased to $2.0 million, with amounts due from related parties increasing to $7.1 million Related Party Revenue | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Total Related Party Revenue | $1,978 | $3,244 | Due From Related Party | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Due From Related Party | $7,140 | $6,628 | - Related party transactions include marketing, advertising, website development, and polling services with clients where company board members, executives, or family members hold key positions or significant interests[146] 15. Segment Information Total revenue decreased by 3.2% and Adjusted EBITDA by 28.8%, with varied performance across updated segments - The Company updated its reportable segments in Q1 2023, reclassifying certain brands between the Integrated Agencies Network and Communications Network[151] Segment Performance | Segment | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue: | | | | | | Integrated Agencies Network | $329,792 | $348,751 | $(18,959) | -5.4% | | Brand Performance Network | $213,340 | $197,787 | $15,553 | 7.9% | | Communications Network | $66,460 | $93,255 | $(26,795) | -28.7% | | All Other | $12,852 | $3,110 | $9,742 | NM | | Total Revenue | $622,444 | $642,903 | $(20,459) | -3.2% | | Adjusted EBITDA: | | | | | | Integrated Agencies Network | $59,385 | $68,888 | $(9,503) | -13.8% | | Brand Performance Network | $23,421 | $31,248 | $(7,827) | -25.0% | | Communications Network | $4,013 | $16,438 | $(12,425) | -75.6% | | All Other | $(3,805) | $(124) | $(3,681) | NM | | Corporate | $(10,792) | $(15,038) | $4,246 | -28.2% | | Total Adjusted EBITDA | $72,222 | $101,412 | $(29,190) | -28.8% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial performance, highlighting revenue declines, increased expenses, and a net loss, alongside liquidity and accounting estimates Executive Summary Stagwell's strategy focuses on modern marketing services, with recent corporate developments and key factors influencing business performance - Stagwell's strategy is to build, grow, and acquire market-leading businesses that deliver modern marketing services by combining data and creativity[159] - Key performance indicators include revenue, operating expenses, capital expenditures, and non-GAAP measures like organic revenue growth, Adjusted EBITDA, and Adjusted Diluted EPS[160][167][168][169] - Significant factors affecting business include economic conditions, client profitability, M&A activity, changes in client management, and the ability to attract and retain key employees[164] - The company typically generates its highest quarterly revenue during the fourth quarter, with client concentration increasing during election years[166] Results of Operations Q1 2023 saw a 3.2% revenue decrease and a 70.3% drop in operating income, leading to a net loss due to lower client spending Consolidated Results of Operations Consolidated revenue decreased by 3.2% to $622.4 million, leading to a net loss of $5.0 million and a 28.8% Adjusted EBITDA decline | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue | $622,444 | $642,903 | $(20,459) | -3.2% | | Net Revenue | $521,662 | $526,637 | $(4,975) | -0.9% | | Operating Income | $16,233 | $54,660 | $(38,427) | -70.3% | | Adjusted EBITDA | $72,222 | $101,412 | $(29,190) | -28.8% | | Net income attributable to Stagwell Inc. common shareholders | $443 | $12,675 | $(12,232) | -96.5% | | Diluted EPS | $(0.01) | $0.10 | $(0.11) | -110.0% | | Adjusted Diluted EPS | $0.13 | $0.22 | $(0.09) | -40.9% | - Organic net revenue decreased by $16.1 million (3.1%), primarily due to a decline in spending by existing clients, particularly lower advocacy services compared to higher spending in Q1 2022 associated with elections[182] - Cost of services increased due to higher compensation expense, including stock-based compensation, and an increase in headcount, partially offset by lower billable costs[185] - Office and general expenses increased due to lower occupancy expense benefits in Q1 2022 and an increase in deferred acquisition consideration expense[186] Integrated Agencies Network Revenue decreased by 5.4% to $329.8 million, with operating income down 48.3% due to reduced technology sector client spending | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue | $329,792 | $348,751 | $(18,959) | -5.4% | | Net Revenue | $292,904 | $303,666 | $(10,762) | -3.5% | | Operating Income | $23,528 | $45,516 | $(21,988) | -48.3% | | Adjusted EBITDA | $59,385 | $68,888 | $(9,503) | -13.8% | - The decline in organic net revenue was primarily attributable to decreased spending by existing clients, particularly in the technology sector, who withheld spending in Q1 2023[201] - Office and general expenses increased due to higher deferred acquisition consideration expense (up $7.3 million) and an increase in severance expense[204] Brand Performance Network Revenue increased by 7.9% to $213.3 million, but operating income and Adjusted EBITDA declined due to higher costs | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue | $213,340 | $197,787 | $15,553 | 7.9% | | Net Revenue | $162,934 | $155,482 | $7,452 | 4.8% | | Operating Income | $13,707 | $18,042 | $(4,335) | -24.0% | | Adjusted EBITDA | $23,421 | $31,248 | $(7,827) | -25.0% | - The increase in organic net revenue was primarily attributable to new clients and increased spending by existing clients[209] - Cost of services increased due to higher billable and staff costs associated with providing services and the acquisition of Brand New Galaxy[211] - Deferred acquisition consideration decreased by approximately $3.3 million due to a reduction in fair value associated with a brand acquired in Q2 2022[212] Communications Network Revenue decreased by 28.7% to $66.5 million, shifting to an operating loss due to lower advocacy services spending | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue | $66,460 | $93,255 | $(26,795) | -28.7% | | Net Revenue | $52,972 | $64,379 | $(11,407) | -17.7% | | Operating Income (Loss) | $(351) | $12,959 | $(13,310) | NM | | Adjusted EBITDA | $4,013 | $16,438 | $(12,425) | -75.6% | - The decline in organic net revenue was attributable to decreased spending, primarily due to lower advocacy services as compared to higher spending in Q1 2022 associated with the 2022 elections[217] - The decrease in Operating Income and Adjusted EBITDA was driven by lower revenue, partially offset by a decrease in billable costs associated with providing services[218][219] All Other Revenue significantly increased to $12.9 million due to acquisitions, but operating loss widened from higher costs | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :---------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Revenue | $12,852 | $3,110 | $9,742 | NM | | Net Revenue | $12,852 | $3,110 | $9,742 | NM | | Operating Loss | $(4,522) | $(633) | $(3,889) | NM | | Adjusted EBITDA | $(3,805) | $(124) | $(3,681) | NM | - The increase in net acquisitions (divestitures) was primarily driven by an $8.9 million increase in revenue from the acquisition of Maru[223] - The increase in Operating Loss and decrease in Adjusted EBITDA were driven by higher staff and administrative costs associated with providing services and the acquisition of Maru, which more than offset the revenue growth[224][225] Corporate Corporate operating loss decreased by 24.0% to $16.1 million, driven by lower staff and administrative costs | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------------------------------------------- | :------------------------------------------------- | :-------------------- | :------- | | Operating Loss | $(16,129) | $(21,224) | $5,095 | -24.0% | | Adjusted EBITDA | $(10,792) | $(15,038) | $4,246 | -28.2% | | Staff costs | $6,824 | $9,156 | $(2,332) | -25.5% | | Administrative costs | $3,977 | $5,882 | $(1,905) | -32.4% | - The decrease in Operating Loss was primarily attributable to lower staff costs, professional fees, and merger-related costs incurred in 2022[226] Liquidity and Capital Resources Cash and cash equivalents decreased to $138.5 million, with increased cash used in operating activities and higher total debt | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--------------------------------------- | :------------------------------------------------- | :------------------------------------------------- | | Net cash used in operating activities | $(85,113) | $(48,577) | | Net cash used in investing activities | $(10,815) | $(8,289) | | Net cash provided by financing activities | $12,923 | $6,529 | - Cash and cash equivalents decreased to $138.5 million as of March 31, 2023, from $220.6 million at December 31, 2022[227] - As of March 31, 2023, the Company had $325.4 million available under its $500.0 million Credit Agreement[227] - The remaining value of shares permitted to be repurchased under the Repurchase Program was $180.4 million as of March 31, 2023[231] - The Company's Total Leverage Ratio was 2.79 as of March 31, 2023, well below the maximum permitted covenant of 4.25[242] Critical Accounting Estimates This section refers to the company's 2022 Form 10-K for detailed information regarding its critical accounting estimates - Information regarding the Company's critical accounting estimates is detailed in its 2022 Form 10-K[249] Item 3. Quantitative and Qualitative Disclosures about Market Risk Stagwell is exposed to interest rate, foreign currency, and impairment risks, with no impairment charges in Q1 2023 - The Company is exposed to market risk related to interest rates, foreign currencies, and impairment risk[251] - A 10% increase or decrease in variable interest rates would change the Company's annual interest expense by $1.1 million[253] - The Company's non-U.S. operations primarily transact in their functional currency, which reduces the impact of exchange rate fluctuations on profit margins, and it generally does not use foreign currency hedging instruments[254] - No impairment related to goodwill, right-of-use leases, or intangible assets was recognized for the three months ended March 31, 2023[255] Item 4. Controls and Procedures Disclosure controls were ineffective due to material weaknesses in internal control, with remediation efforts underway - The Company's disclosure controls and procedures were not effective as of March 31, 2023, due to identified material weaknesses in internal control over financial reporting[258] - Remediation efforts include hiring a Senior Vice President of SOX reporting, establishing a SOX Steering Committee, enhancing communications with the Audit Committee, and designing and implementing controls over risk assessment and information technology[259] - The material weaknesses will be considered fully remediated once applicable controls operate effectively for a sufficient period and are tested by management[260] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings but does not anticipate a material adverse effect on its financials - The Company is involved in various legal proceedings but does not expect them to have a material adverse effect on its financial condition or results of operations[263] Item 1A. Risk Factors No material changes to previously disclosed risk factors; additional risks are in other sections of this Form 10-Q - No material changes to the risk factors described in the Company's 2022 Form 10-K have occurred[264] - Additional risks are outlined in the 'Note About Forward-Looking Statements' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations' sections of this Form 10-Q[264] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Stagwell granted shares in unregistered sales and increased its stock repurchase program to $250.0 million - In Q1 2023, 3,556 shares of Class A Common Stock were granted to an employee as an inducement for employment in an unregistered sale[265] - The stock repurchase program was extended and increased by $125.0 million to an aggregate of $250.0 million, expiring on March 1, 2026[266] Stock Repurchase Program Activity | Period | Total Number of Shares Purchased (under program) | Average Price Paid Per Share | Approximate Dollar Value Remaining (in millions) | | :------------------- | :--------------------------------------------- | :--------------------------- | :----------------------------------------------- | | 1/1/2023 - 1/31/2023 | 1,156,022 | $6.56 | $65.5 | | 2/1/2023 - 2/28/2023 | 1,066,967 | $7.06 | $58.0 | | 3/1/2023 - 3/31/2023 | 361,802 | $9.09 | $180.4 | | Total (Q1 2023) | 2,584,791 | $6.91 (average for program) | $180.4 (as of 3/31/2023) | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - There were no defaults upon senior securities[268] Item 4. Mine Safety Disclosures This item is not applicable to Stagwell Inc - Mine Safety Disclosures are not applicable to the Company[269] Item 5. Other Information The Credit Agreement was amended to increase revolving commitments and permit share repurchases and certain investments - On May 4, 2023, the Credit Agreement was amended to provide additional revolving commitments of $140.0 million[272] - The amendment permits restricted payments for share repurchases or redemptions from certain stockholders up to an aggregate principal amount of $150.0 million[272] - The amendment also allows certain investments and financings for the Borrowers' business related to software-as-a-service and data-as-a-service technology solutions[272] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents and certifications - The Exhibit Index lists documents such as the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Stock Repurchase Agreement, and the Amended and Restated Credit Agreement[277] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002 are included[277] Signatures The Form 10-Q is duly signed by the Chairman and CEO, and CFO, dated May 9, 2023 - The report is signed by Mark Penn, Chairman of the Board and Chief Executive Officer, and Frank Lanuto, Chief Financial Officer, on May 9, 2023[282]