Stagwell (US:STGW)2021-11-09 21:17Acquisition and Corporate Structure - The company completed the acquisition of MDC Partners Inc. on August 2, 2021, resulting in MDC becoming a wholly owned subsidiary and changing its name to Midas OpCo Holdings LLC[224]. - The company entered into an agreement on October 1, 2021, to purchase the remaining 26.7% interest in Targeted Victory for a total purchase price capped at $135 million[229]. - The acquisition of MDC contributed to higher revenue and expenses, impacting both adjusted EBITDA and operating income[287]. Financial Performance - The company reported that revenue growth is analyzed by geographic location, client industry vertical, and new client additions, among other factors[227]. - Total revenue for the three months ended September 30, 2021, was $466.6 million, an increase of $238.5 million or 104.6% compared to $228.1 million for the same period in 2020[246]. - Adjusted EBITDA for the three months ended September 30, 2021, was $87.5 million, representing an increase of $50.4 million from $37.1 million in the same period in 2020[251]. - Operating loss for the three months ended September 30, 2021, was $19.6 million, a decrease of $46.1 million compared to operating income of $26.4 million for the same period in 2020[250]. - Net loss attributable to Stagwell Inc. common shareholders for the three months ended September 30, 2021, was $2.1 million, compared to net income of $17.8 million for the same period in 2020[259]. - Adjusted EBITDA for the nine months ended September 30, 2021, was $150.1 million, representing an increase of $71.1 million or 90.0% compared to $79.0 million for the same period in 2020[287]. - Operating income for the nine months ended September 30, 2021, was $10.8 million, a decrease of $34.1 million or 75.9% compared to $44.9 million for the same period in 2020, primarily due to increased operating expenses[286]. - Total revenue for the nine months ended September 30, 2021, was $857.4 million, an increase of $282.5 million or 49.1% compared to $575.0 million for the same period in 2020[283]. Revenue Segmentation - The company has three reportable segments: Integrated Agencies Network, Media Network, and Communications Network[238]. - Revenue from the Integrated Agencies Network was $288.5 million for the three months ended September 30, 2021, compared to $55.3 million for the same period in 2020, reflecting a significant increase[246]. - Media Network revenue was $103.4 million for the three months ended September 30, 2021, a 70.2% increase from $60.8 million in 2020[267]. - Communications Network revenue decreased to $67.3 million for the three months ended September 30, 2021, down $39.6 million or 37.0% from $106.9 million in 2020[272]. - The Media Network segment reported revenue of $235.54 million for the nine months ended September 30, 2021, an increase of $49.83 million or 26.8% compared to $185.71 million in the same period in 2020[303]. Operating Expenses and Costs - The increase in expenses was driven by the acquisition of MDC, with stock-based compensation expenses rising significantly due to awards related to this acquisition[263]. - Operating expenses for the nine months ended September 30, 2021, totaled $846.6 million, an increase of $316.5 million or 59.7% compared to $530.1 million for the same period in 2020[281]. - Staff costs for the nine months ended September 30, 2021, were $512.5 million, an increase of $206.8 million or 67.6% compared to $305.7 million for the same period in 2020[282]. Tax and Interest - The effective tax rate for the three months ended September 30, 2021, was 39.3%, compared to 10.9% for the same period in 2020, primarily due to the expansion of the group to include more tax-paying entities[257]. - The effective tax rate increased to 22.7% for the nine months ended September 30, 2021, compared to 7.7% in the same period in 2020, primarily due to the expansion of tax-paying entities within the group[291][292]. - Interest expense, net for the three months ended September 30, 2021, was $11.9 million, an increase of $10.1 million compared to $1.8 million for the same period in 2020[254]. Cash Flow and Debt - Cash flows provided by operating activities were $20.1 million for the nine months ended September 30, 2021, down from $93.2 million in 2020[322]. - Cash flows provided by investing activities were $153.7 million for the nine months ended September 30, 2021, primarily driven by $130.2 million from the acquisition of MDC[323]. - Cash flows used in financing activities were $151.9 million for the nine months ended September 30, 2021, including $884.4 million for the repurchase of 7.50% Notes[325]. - As of September 30, 2021, total debt was $1,265.7 million, an increase of $1,067.7 million from $198.0 million at December 31, 2020, primarily due to the issuance of 5.625% Notes[327]. - The company had cash and cash equivalents of $115.5 million as of September 30, 2021, compared to $92.5 million as of December 31, 2020[320]. Market Risks and Compliance - The company is exposed to market risks related to interest rates, foreign currencies, and impairment risk[338]. - The company has historically maintained a low incidence of default on payments for media services, although it remains exposed to significant uncollectible receivables from clients[332]. - The company is currently in compliance with all terms of the Credit Agreement and expects to remain compliant over the next twelve months[328].