Stagwell (STGW) - 2024 Q1 - Quarterly Report

FORM 10-Q Filing Information Outlines Stagwell Inc.'s filing status and common shares outstanding as of April 29, 2024 - Stagwell Inc. is an accelerated filer and is not a shell company[3][4] Common Shares Outstanding as of April 29, 2024 | Class of Stock | Shares Outstanding | | :--------------- | :----------------- | | Class A Common Stock | 117,581,272 | | Class C Common Stock | 151,648,741 | Table of Contents Explanatory Notes and Forward-Looking Statements Highlights the forward-looking nature of the document, subject to various risks, and advises investors to review detailed risk factors - The document contains forward-looking statements subject to various risks and uncertainties, including economic conditions, client spending, ability to attract and retain clients and employees, competition, debt compliance, and the integration of acquisitions[12][13][14][17] - Investors should carefully consider the risks detailed in the Annual Report on Form 10-K for the year ended December 31, 2023, and other SEC filings[16] PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Stagwell Inc.'s unaudited consolidated financial statements and related notes for Q1 2024 and 2023 Unaudited Consolidated Statements of Operations Consolidated Statements of Operations (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :-------------------- | :-------- | :-------- | | Revenue | $670,059 | $622,444 | | Operating Income | $25,854 | $16,233 | | Net loss | $(713) | $(2,869) | | Net income (loss) attributable to Stagwell Inc. common shareholders | $(1,282) | $1,389 | | Basic EPS | $(0.01) | $0.01 | | Diluted EPS | $(0.01) | $0.00 | Unaudited Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :-------------------- | :-------- | :-------- | | Net loss | $(713) | $(2,869) | | Other comprehensive income (loss) - Foreign currency translation adjustment | $(7,146) | $4,447 | | Comprehensive income (loss) for the period | $(7,859) | $1,578 | | Comprehensive income (loss) attributable to Stagwell Inc. common shareholders | $(4,146) | $3,614 | Unaudited Consolidated Balance Sheets Consolidated Balance Sheets (as of March 31, 2024 and December 31, 2023) | Metric (in thousands) | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Total Current Assets | $1,105,047 | $1,025,066 | | Total Assets | $3,815,119 | $3,767,047 | | Total Current Liabilities | $1,333,909 | $1,374,329 | | Total Liabilities | $3,006,224 | $2,930,983 | | Total Shareholders' Equity | $797,590 | $825,272 | Unaudited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :-------------------- | :-------- | :-------- | | Net cash used in operating activities | $(53,121) | $(85,113) | | Net cash used in investing activities | $(26,124) | $(10,815) | | Net cash provided by financing activities | $91,086 | $12,923 | | Net increase (decrease) in cash and cash equivalents | $10,087 | $(82,060) | | Cash and cash equivalents at end of period | $129,824 | $138,529 | Unaudited Consolidated Statements of Shareholders' Equity Consolidated Statements of Shareholders' Equity (Three Months Ended March 31, 2024) | Metric (in thousands) | Balance at Dec 31, 2023 | Net Income (Loss) | Other Comprehensive Loss | Shares Repurchased & Cancelled | Balance at Mar 31, 2024 | | :-------------------- | :---------------------- | :---------------- | :----------------------- | :----------------------------- | :---------------------- | | Stagwell Inc. Shareholders' Equity | $356,695 | $(1,282) | $(2,864) | $(30,586) | $337,700 | Consolidated Statements of Shareholders' Equity (Three Months Ended March 31, 2023) | Metric (in thousands) | Balance at Dec 31, 2022 | Net Income (Loss) | Other Comprehensive Income (Loss) | Shares Repurchased & Cancelled | Balance at Mar 31, 2023 | | :-------------------- | :---------------------- | :---------------- | :-------------------------------- | :----------------------------- | :---------------------- | | Stagwell Inc. Shareholders' Equity | $498,650 | $1,389 | $2,225 | $(26,129) | $480,690 | Notes to the Unaudited Consolidated Financial Statements Note 1. Business and Basis of Presentation Describes Stagwell Inc.'s business model and the basis for presenting its financial statements, including prior period revisions - Stagwell Inc. provides marketing and business solutions by combining data and creativity, aiming to build, grow, and acquire market-leading businesses in a rapidly evolving environment[38] - The Company revised its previously filed first quarter 2023 interim consolidated financial statements due to identified errors in income taxes, noncontrolling interests, and accumulated other comprehensive loss[41][42] Note 2. New Accounting Pronouncements Discusses the potential impact of new accounting standards on income taxes and segment reporting - ASU 2023-09 (Income Taxes) is effective for annual periods beginning after December 15, 2024, requiring enhanced disclosures about effective tax rate reconciliation and taxes paid, with the Company evaluating its impact[45] - ASU 2023-07 (Segment Reporting) is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, requiring improved reportable segment expense disclosures, with the Company evaluating its impact[46] Note 3. Acquisitions Details recent acquisitions and divestitures, including purchase considerations and contingent payments - In April 2024, Stagwell acquired What's Next Partners (WNP) for approximately $5 million in cash and PROS Agency for approximately $5 million (part cash, part Class A Common Stock), both with contingent consideration[43][44] - In Q1 2024, the Company acquired Team Epiphany for $15.8 million (cash and Class A Common Stock) and Sidekick Live Limited for approximately $6 million (cash, payable, and Class A Common Stock), both with contingent consideration[47][54] - In 2023, key acquisitions included Movers and Shakers, Left Field Labs, Tinsel Experiential Design, and Huskies, while ConcentricLife was sold for $245.0 million cash, resulting in a $94.5 million pre-tax gain[55][56][57][58][59] Note 4. Revenue Provides disaggregated revenue data by capability and geography, along with contract asset and liability information Revenue Disaggregated by Principal Capabilities (Three Months Ended March 31) | Principal Capabilities | 2024 (in thousands) | 2023 (in thousands) | | :------------------------ | :------------------ | :------------------ | | Digital Transformation | $195,763 | $185,515 | | Creativity and Communications | $291,653 | $263,882 | | Performance Media and Data | $77,016 | $67,974 | | Consumer Insights and Strategy | $45,769 | $49,255 | | Stagwell Marketing Cloud Group | $59,858 | $55,818 | | Total Revenue | $670,059 | $622,444 | Revenue Disaggregated by Geography (Three Months Ended March 31) | Geographical Location | 2024 (in thousands) | 2023 (in thousands) | | :-------------------- | :------------------ | :------------------ | | United States | $561,317 | $514,828 | | United Kingdom | $37,761 | $33,133 | | Other | $70,981 | $74,483 | | Total Revenue | $670,059 | $622,444 | - Contract assets (fees and reimbursable costs not yet invoiced) increased to $186.6 million as of March 31, 2024, from $141.9 million as of December 31, 2023[64] - Advance billings (contract liabilities) increased slightly to $302.5 million from $301.7 million[65] - The majority of contracts are for periods of one year or less[67] - For contracts over one year, $93.4 million of unsatisfied performance obligations are expected to be recognized, with 76% in 2024[67] Note 5. Earnings (Loss) Per Share Presents basic and diluted earnings per share calculations for common shareholders Earnings (Loss) Per Common Share (Three Months Ended March 31) | Metric | 2024 | 2023 | | :-------------------- | :-------- | :-------- | | Net loss attributable to Stagwell Inc. common shareholders | $(1,282) | $1,389 | | Basic EPS | $(0.01) | $0.01 | | Diluted EPS | $(0.01) | $0.00 | | Weighted Average Number of Common Shares Outstanding (Basic) | 112,633 | 125,199 | | Weighted Average Number of Common Shares Outstanding (Diluted) | 116,405 | 289,806 | Note 6. Deferred Acquisition Consideration Outlines changes in deferred acquisition consideration, including contingent and fixed payments Changes in Deferred Acquisition Consideration (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :---------------- | | Beginning balance | $101,058 | $161,323 | | Payments | $(1,907) | $(97,447) | | Adjustments | $1,796 | $14,303 | | Ending balance | $100,804 | $101,058 | - Deferred acquisition consideration includes contingent and fixed purchase price payments, and retention payments tied to continued employment[72] - As of March 31, 2024, $56.8 million was contingent and $44.0 million was fixed, with $30.3 million expected to be settled in Class A Common Stock[73] Note 7. Leases Details the Company's lease obligations, costs, and an impairment charge related to office space - The Company primarily leases office space globally, classified as operating leases expiring between 2024 and 2034[74] - Total lease cost for the three months ended March 31, 2024, was $24.4 million, up from $21.1 million in 2023[79] - As of March 31, 2024, the weighted average remaining lease term was 6.3 years with a weighted average discount rate of 5.5%[79][83] - An impairment charge of $1.5 million was recognized in Q1 2024 to reduce the carrying value of a right-of-use lease asset and related leasehold improvements due to ceased use of office space[81][82] Note 8. Debt Summarizes the Company's indebtedness, interest expense, and compliance with debt covenants Company Indebtedness (in thousands) | Debt Instrument | March 31, 2024 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Credit Agreement | $182,000 | $59,000 | | 5.625% Notes | $1,100,000 | $1,100,000 | | Total long-term debt | $1,269,527 | $1,145,828 | - Interest expense, net, increased to $20.4 million for Q1 2024 from $18.3 million for Q1 2023, primarily due to higher debt outstanding under the Credit Agreement and increased interest rates[84] - The Company was in compliance with all financial and nonfinancial covenants of its Credit Agreement and 5.625% Senior Notes as of March 31, 2024[87][89] Note 9. Noncontrolling and Redeemable Noncontrolling Interests Reports net income (loss) and changes attributable to noncontrolling and redeemable noncontrolling interests Net Income (Loss) Attributable to Noncontrolling and Redeemable Noncontrolling Interests (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | | :------------------------------------ | :------ | :------ | | Net loss attributable to Class C shareholders | $(1,047) | $(1,963) | | Net income attributable to other equity interest holders | $823 | $248 | | Net income (loss) attributable to redeemable noncontrolling interests | $793 | $(2,543) | | Total Net income (loss) attributable to noncontrolling and redeemable noncontrolling interests | $569 | $(4,258) | Changes in Redeemable Noncontrolling Interests (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :---------------- | | Beginning balance | $10,792 | $39,111 | | Redemptions | $0 | $(22,172) | | Distributions | $(559) | $(5,800) | | Ending balance | $11,305 | $10,792 | - Comprehensive loss attributable to noncontrolling and redeemable noncontrolling interests was $3.7 million for Q1 2024, compared to a loss of $2.0 million for Q1 2023[95][96] Note 10. Commitments, Contingencies, and Guarantees Addresses legal proceedings, undrawn letters of credit, and future minimum commitments - The Company is involved in various legal proceedings but does not expect a material adverse effect on its financial condition or results of operations[97] - As of March 31, 2024, the Company had $15.8 million in undrawn letters of credit outstanding and future minimum commitments of $23.0 million for partner associations and $53.5 million for cloud services[99][100][101] Note 11. Share Capital Details outstanding share classes, share repurchase activities, and the Employee Stock Purchase Plan - As of March 31, 2024, there were 114.8 million shares of Class A Common Stock and 151.6 million shares of Class C Common Stock outstanding[103] - Class C shares are paired with OpCo common units and can be exchanged for Class A shares on a one-to-one basis[105] - During Q1 2024, the Company repurchased 4.0 million shares of Class A Common Stock for $24.6 million under its $250.0 million repurchase program, leaving $114.0 million remaining[106][108] - The Employee Stock Purchase Plan (ESPP) has 2.9 million shares of Class A Common Stock available for issuance, allowing eligible employees to purchase shares at a 7.5% discount[109][110] Note 12. Fair Value Measurements Explains the fair value hierarchy for financial instruments, including debt and contingent consideration - The Company uses a three-level hierarchy for fair value measurements[112] - Its 5.625% Notes are classified as Level 2, with a fair value of $1,002.5 million as of March 31, 2024, compared to a carrying amount of $1,100.0 million[113] - Contingent deferred acquisition consideration is a Level 3 fair value measurement, dependent on significant assumptions like future performance and discount rates (9.1% to 9.9% as of March 31, 2024)[114] Note 13. Supplemental Information Provides supplemental details on stock-based compensation and trade receivables transfers Stock-Based Compensation (Three Months Ended March 31, in thousands) | Type of Award | 2024 | 2023 | | :-------------------- | :------ | :------ | | Employee stock incentive plans | $12,800 | $7,400 | | Profits interests awards | $1,700 | $4,600 | | Total | $14,500 | $12,000 | - The Company transferred $69.8 million in trade receivables to third parties in Q1 2024, incurring $0.9 million in fees[121][122] Note 14. Income Taxes Analyzes income tax expense, effective tax rate, and the impact of the Tax Receivable Agreement Income Tax Expense and Effective Tax Rate (Three Months Ended March 31) | Metric | 2024 | 2023 | | :-------------------- | :-------- | :-------- | | Income tax expense | $2,585 | $236 | | Pre-tax income (loss) | $1,364 | $(2,406) | | Effective tax rate | 189.5% | (9.8)% | - The significant change in effective tax rate is due to changes in pre-tax income, reduced benefit from disregarded entity structure, and increased non-deductible share-based compensation, offset by uncertain tax positions[125] - The Company is evaluating the potential consequences of the OECD's Pillar 2 global minimum tax, expecting insignificant tax expenses in 2024[126] - A Tax Receivable Agreement (TRA) liability of $26.7 million was recorded as of March 31, 2024, related to tax savings from exchanges of Paired Units[128][129] Note 15. Related Party Transactions Discloses significant transactions with related parties and outstanding loans to employees Significant Related Party Transactions (Three Months Ended March 31, in thousands) | Services | 2024 Revenue | 2023 Revenue | Due From Related Party (Mar 31, 2024) | | :---------------------------- | :----------- | :----------- | :------------------------------------ | | Marketing and advertising (1) | $0 | $694 | $0 | | Marketing and advertising (2) | $110 | $106 | $3,050 | | Marketing and website development (3) | $755 | $778 | $146 | | Polling services (4) | $460 | $89 | $644 | | Polling services (5) | $104 | $39 | $88 | | Total | $1,429 | $1,706 | $3,928 | - Related party transactions include services provided to clients where Board members or executives hold leadership positions, or where a client has a significant interest in the Company[131] - Loans to employees of a subsidiary totaling $2.7 million were outstanding as of March 31, 2024, used to purchase noncontrolling interests[133] Note 16. Segment Information Presents financial performance by reportable segment, including revenue and Adjusted EBITDA - The Company operates through three reportable segments: Integrated Agencies Network, Brand Performance Network, and Communications Network, along with 'All Other' and 'Corporate' categories[137][138] - Segment reporting structure was changed in Q1 2024, with certain agencies reclassified from Brand Performance Network to Integrated Agencies Network, and prior periods recast accordingly[136] Revenue and Adjusted EBITDA by Segment (Three Months Ended March 31, in thousands) | Segment | 2024 Revenue | 2023 Revenue | 2024 Adjusted EBITDA | 2023 Adjusted EBITDA | | :-------------------------- | :----------- | :----------- | :------------------- | :------------------- | | Integrated Agencies Network | $352,719 | $341,205 | $60,108 | $59,859 | | Brand Performance Network | $213,962 | $201,928 | $27,494 | $22,948 | | Communications Network | $93,746 | $66,459 | $19,384 | $4,012 | | All Other | $9,632 | $12,852 | $(3,986) | $(3,805) | | Corporate | N/A | N/A | $(12,684) | $(10,792) | | Total | $670,059 | $622,444 | $90,316 | $72,222 | Note 17. Revision of previously issued Unaudited Consolidated Financial Statements for the first quarter of 2023 Explains the revision of Q1 2023 financial statements to correct errors in income taxes and noncontrolling interests - Previously issued unaudited financial statements for Q1 2023 were revised to correct errors related to income taxes, noncontrolling interests, and accumulated other comprehensive loss[142] Impact of Revision on Q1 2023 Financials (in thousands) | Metric | As Reported | Adjustment | As Revised | | :------------------------------------ | :---------- | :--------- | :--------- | | Net income attributable to Stagwell Inc. common shareholders | $443 | $946 | $1,389 | | Net income (loss) attributable to Noncontrolling Interests | $(2,917) | $1,202 | $(1,715) | | Other comprehensive income | $25,688 | $(23,463) | $2,225 | | Income tax expense | $2,384 | $(2,148) | $236 | | Basic EPS | $0.00 | $0.01 | $0.01 | | Diluted EPS | $(0.01) | $0.01 | $0.00 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition and results of operations for Q1 2024, covering performance, liquidity, and estimates Executive Summary Summarizes Stagwell's strategy, key performance indicators, recent developments, and non-GAAP financial measures - Stagwell's strategy focuses on building, growing, and acquiring market-leading businesses that offer modern marketing and business solutions, leveraging data, creativity, and technology[147] - Key performance indicators monitored include revenue growth (by geography, client, capability, currency, and acquisitions), operating expenses, capital expenditures, and non-GAAP measures like net revenue and Adjusted EBITDA[148] - Recent developments include the acquisitions of What's Next Partners and PROS Agency in April 2024[150] - Significant factors affecting business include economic conditions, client profitability, M&A activity, and talent retention[151][152] - The Company typically generates its highest quarterly revenue in the fourth quarter, with increased client concentration in the Communications Network during election years[154] - Non-GAAP financial measures used include 'net revenue' (revenue excluding billable costs), 'organic net revenue growth (decline)', 'Adjusted EBITDA', and 'Adjusted Diluted EPS', which management uses to assess performance[155][156][159][160] Results of Operations Consolidated Results of Operations Analyzes the Company's overall financial performance, including revenue, operating income, and net loss Consolidated Financial Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Revenue | $670,059 | $622,444 | $47,615 | 7.6% | | Net Revenue | $532,454 | $521,662 | $10,792 | 2.1% | | Operating Income | $25,854 | $16,233 | $9,621 | 59.3% | | Adjusted EBITDA | $90,316 | $72,222 | $18,094 | 25.1% | | Net loss attributable to Stagwell Inc. common shareholders | $(1,282) | $1,389 | $(2,671) | NM | - Organic net revenue increased by $9.0 million (1.7%) for Q1 2024, driven by public affairs spending and new client wins, partially offset by budget cuts in technology, retail, and financial sectors[173] - Operating income increased by $9.6 million, primarily due to higher revenue, partially offset by increased cost of services, impairment losses, and office and general expenses[175] - Interest expense, net, increased by $2.8 million due to higher debt levels and interest rates[180] - Foreign exchange loss increased to $2.3 million from $0.7 million[181] - Income tax expense was $2.6 million (189.5% effective rate) in Q1 2024, compared to $0.2 million (-9.8% effective rate) in Q1 2023, mainly due to changes in pre-tax income and non-deductible share-based compensation[183][184] - Adjusted Diluted EPS for Q1 2024 was $0.16, compared to $0.14 for Q1 2023[188][189] Integrated Agencies Network Performance Details the financial performance of the Integrated Agencies Network, including revenue and Adjusted EBITDA Integrated Agencies Network Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Revenue | $352,719 | $341,205 | $11,514 | 3.4% | | Net Revenue | $292,772 | $304,187 | $(11,415) | (3.8)% | | Operating Income | $22,350 | $23,538 | $(1,188) | (5.0)% | | Adjusted EBITDA | $60,108 | $59,859 | $249 | 0.4% | - Organic net revenue decreased by 3.8% due to budget cuts from large clients in technology and financial services, and client losses in retail and healthcare sectors[194] - Operating income decreased by $1.2 million, primarily due to increased cost of services and impairment losses, partially offset by decreased office and general expenses[195] - Deferred acquisition consideration decreased by $3.9 million due to a reduction in fair value of certain obligations[197] Brand Performance Network Performance Examines the financial performance of the Brand Performance Network, including revenue and Adjusted EBITDA Brand Performance Network Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Revenue | $213,962 | $201,928 | $12,034 | 6.0% | | Net Revenue | $162,562 | $151,652 | $10,910 | 7.2% | | Operating Income | $13,695 | $13,698 | $(3) | 0.0% | | Adjusted EBITDA | $27,494 | $22,948 | $4,546 | 19.8% | - Organic net revenue increased by 4.9% due to new clients and increased spending in communications, consumer products, food and beverage, and transportation sectors[201] - Operating income remained flat, as increased revenue was offset by higher cost of services and office and general expenses, including occupancy-related expenses from real estate consolidation[202][203] Communications Network Performance Reviews the financial performance of the Communications Network, including revenue and Adjusted EBITDA Communications Network Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Revenue | $93,746 | $66,459 | $27,287 | 41.1% | | Net Revenue | $67,488 | $52,971 | $14,517 | 27.4% | | Operating Income (Loss) | $16,273 | $(352) | $16,625 | NM | | Adjusted EBITDA | $19,384 | $4,012 | $15,372 | NM | - Organic net revenue increased by 27.0%, driven by new clients in healthcare and consumer products, and increased spending in public affairs due to the political campaign year[208] - Operating income significantly increased by $16.6 million, primarily due to higher revenue and a decrease in office and general expenses, including a $1.7 million reduction in deferred acquisition consideration[209][210][211] All Other Segment Performance Reports the financial performance of the 'All Other' segment, including revenue and operating loss All Other Segment Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Revenue | $9,632 | $12,852 | $(3,220) | (25.1)% | | Net Revenue | $9,632 | $12,852 | $(3,220) | (25.1)% | | Operating Loss | $(6,679) | $(4,522) | $(2,157) | 47.7% | | Adjusted EBITDA | $(3,986) | $(3,805) | $(181) | 4.8% | - Organic net revenue decreased by 10.3% due to budget cuts and client losses in the food and beverage, travel and transportation, and technology sectors[215] - Operating loss increased by $2.2 million, primarily due to decreased revenue, partially offset by a decrease in cost of services from derecognition of certain noncontrolling interests[216] Corporate Performance Analyzes the financial performance of the Corporate segment, focusing on operating loss and Adjusted EBITDA Corporate Performance (Three Months Ended March 31, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | :--------- | | Operating Loss | $(19,785) | $(16,129) | $(3,656) | 22.7% |\n| Adjusted EBITDA | $(12,684) | $(10,792) | $(1,892) | 17.5% | - Operating loss increased by $3.7 million, primarily due to a $3.3 million increase in staff costs, partially offset by a $1.4 million decrease in administrative costs[218][219] - Occupancy-related expenses increased due to the commencement of two new offices and the assumption of an office from the sale of Concentric[220] Liquidity and Capital Resources Assesses the Company's cash flows, debt levels, and ability to meet future financial obligations Cash Flows Summarizes cash flows from operating, investing, and financing activities for Q1 2024 and 2023 Summary Cash Flow Information (Three Months Ended March 31, in thousands) | Cash Flow Activity | 2024 | 2023 | | :-------------------- | :-------- | :-------- | | Net cash used in operating activities | $(53,121) | $(85,113) | | Net cash used in investing activities | $(26,124) | $(10,815) | | Net cash provided by financing activities | $91,086 | $12,923 | - Cash flows used in operating activities decreased by $32.0 million, primarily due to earnings and improved working capital management[227][228] - Cash flows used in investing activities increased by $15.3 million, mainly due to higher capitalized software spend ($8.8 million vs $6.7 million) and acquisitions ($11.7 million vs $0.2 million)[229][230] - Cash flows provided by financing activities increased by $78.2 million, driven by $123.0 million in net borrowings under the Credit Agreement, partially offset by share repurchases and deferred consideration payments[231][232] Total Debt Details the Company's total debt, compliance with covenants, and future liquidity expectations - Total debt, net of issuance costs, increased to $1,269.5 million as of March 31, 2024, from $1,145.8 million at December 31, 2023[233] - The Company maintains compliance with all Credit Agreement terms, with a Total Leverage Ratio of 3.21 as of March 31, 2024, well below the maximum permitted 4.25[234][236] - The Company expects future cash flows from operations, existing cash, and available Credit Agreement funds ($442.2 million unused) to be sufficient to meet anticipated cash needs[221][226] Material Cash Requirements Outlines significant contractual obligations and the Company's plans for financing them - Material cash requirements include contractual commitments with media providers, deferred acquisition consideration, redeemable noncontrolling interests, and profits interests awards[238][239][240][241] - The Company plans to finance these obligations using available cash from operations, borrowings under the Credit Agreement, and potentially additional debt or equity financing[242] Critical Accounting Estimates References the Company's critical accounting estimates as detailed in its 2023 Form 10-K - Information regarding critical accounting estimates is referenced in Note 2 of the Company's 2023 Form 10-K[243] Website Access to Company Reports and Information Provides information on accessing Stagwell Inc.'s SEC reports and other material communications - Stagwell Inc. makes its SEC reports available free of charge on its website (www.stagwellglobal.com) and communicates material information through SEC filings, press releases, public conference calls, and social media channels[244] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the Company's exposure to market risks, including interest rate, foreign currency, and impairment risks - The Company is exposed to interest rate risk on its variable-rate debt under the Credit Agreement; a 10% change in interest rates would impact annual interest expense by $2.0 million[246][247] - Foreign exchange risk arises from non-U.S. operations, primarily in Canadian dollars, Euros, and British Pounds[248] - The Company aims to mitigate this by denominating revenues and expenses in functional currencies and may use hedging instruments[249] - An impairment charge of $1.5 million was recorded in Q1 2024 for a right-of-use lease asset and related leasehold improvements, highlighting ongoing impairment risk[250] Item 4. Controls and Procedures Evaluates disclosure controls and procedures, noting ineffectiveness due to material weaknesses and ongoing remediation efforts - As of March 31, 2024, the CEO and CFO concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[253] - The Company is actively implementing a remediation plan, including enhanced communications with the Audit Committee, improving risk assessment processes, strengthening controls over journal entries and account reconciliations, and enhancing management review controls[254][255] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during Q1 2024[256] PART II. OTHER INFORMATION Item 1. Legal Proceedings Addresses ongoing legal proceedings, with no anticipated material adverse effect on financial results - The Company does not expect current legal proceedings to have a material adverse effect on its results of operations, cash flows, or financial position[258] Item 1A. Risk Factors Confirms no material changes to previously disclosed risk factors from the 2023 Form 10-K - No material changes to the risk factors from the 2023 Form 10-K have occurred, and these risks could materially and adversely affect the Company's business, results of operations, financial condition, cash flows, projected results, and future prospects[259] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details unregistered equity sales for inducement and acquisitions, and updates on the share repurchase program - In Q1 2024, the Company granted 21,593 restricted stock units for employment inducement and issued 1,045,296 shares of Class A Common Stock as purchase consideration for acquisitions and additional subsidiary interests, all exempt from registration[260] - The Board authorized an extension and a $125.0 million increase to the share repurchase program in March 2023, allowing repurchases of up to $250.0 million of Class A Common Stock until March 1, 2026[261] Class A Common Stock Repurchases (Q1 2024) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value Remaining Under Program | | :------------------ | :--------------------- | :--------------------------- | :----------------------------------------------------- | :----------------------------------------------- | | 1/1/2024 - 1/31/2024 | 1,034,693 | $6.56 | 1,029,540 | $131,839,608 | | 2/1/2024 - 2/28/2024 | 1,587,444 | $6.47 | 1,114,223 | $124,812,923 | | 3/1/2024 - 3/31/2024 | 2,205,730 | $5.83 | 1,877,200 | $113,953,763 | | Total | 4,827,867 | $6.20 | 4,020,963 | $113,953,763 | Item 3. Defaults Upon Senior Securities Confirms no defaults occurred on senior securities during the reporting period - There were no defaults upon senior securities[264] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[265] Item 5. Other Information Confirms no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarterly period[266] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including certifications and corporate documents - Exhibits include certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2), corporate documents (3.1, 3.2), and interactive data files (101, 104)[270] Signatures Provides the official signatures for the Form 10-Q filing, including key executives and date - The report was signed by Mark Penn, Chairman of the Board and Chief Executive Officer, and Frank Lanuto, Chief Financial Officer, on May 2, 2024[274]