Stagwell Inc (STGW) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis are based on and should be read in conjunction with our Audited Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-K. The following discussion and analysis contain forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the captions “Forward-Looking Statements” and “Risk Factors” in this Form 10-K. The following discussion and analysis also include a discussion of certain non-GAAP financial measures. A description of the non-GAAP financial measures discussed in this section and reconciliations to the comparable GAAP measures are below.
In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer to Stagwell Inc. and its direct and indirect subsidiaries. References to a “fiscal year” mean the Company’s year commencing on January 1 of that year and ending December 31 of that year (e.g., fiscal 2024 means the period beginning January 1, 2024, and ending December 31, 2024).
Executive Summary
Overview
Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell’s strategy is to build, grow, and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. We believe Stagwell’s differentiation lies in its creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications and strategic consulting services to clients. Stagwell leverages its range of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and media-agnostic. The Company’s strategy is intended to challenge the industry status quo, realize returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
Stagwell manages its business by monitoring several financial and non-financial performance indicators. The key indicators that we focus on are revenue, operating expenses, capital expenditures and the non-GAAP financial measures described below. Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth from existing clients and the addition of new clients, (iii) growth by principal capability, (iv) growth from currency changes, and (v) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our networks. These indicators may include a network’s recent new client win/loss record; the depth and scope of a pipeline of potential new client account activity; the overall quality of the services provided to clients; and the relative strength of the network’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.
Recent Developments
On January 1, 2025, the Company entered into a stock purchase agreement to acquire ADK Group, an integrated marketing solutions company. The purchase price is dependent on the closing balance sheet but is estimated to be approximately $24 million. The acquisition is expected to close in the second quarter of 2025.
On December 23, 2024, the Company entered into a sale purchase agreement to acquire Create Group Holding Limited, a strategic digital communications group in Middle East, for approximately $16 million subject to post-closing adjustments. Under the agreement, the sellers are entitled to contingent consideration up to a maximum value of approximately $24 million, subject to continued employment and meeting certain future earnings targets, of which a portion may be settled in shares of Class A common stock, par value $0.001 per share (the “Class A Common Stock”) at the Company’s discretion. The acquisition is expected to close in the second quarter of 2025.
Significant Factors Affecting our Business and Results of Operations
The most significant factors affecting our business and results of operations include national, regional, and local economic conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. We believe the two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products that our portfolio of marketing services firms, which we refer to as “Brands,” offer. A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain a Brand that it may have previously worked with. In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed. Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.
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Seasonality
Historically, we typically generate the highest quarterly revenue during the fourth quarter of each year. In addition, within our Communications Network, client concentration increases during election years due to the cyclical nature of our advocacy Brands. The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season.
Non-GAAP Financial Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). In addition, the Company has included non-GAAP financial measures and ratios, which management uses to operate the business, which it believes provide useful supplemental information to both management and readers of this report in making period-to-period comparisons in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures determined in accordance with GAAP. The non-GAAP financial measures included are “net revenue,” “organic net revenue growth (decline),” “Adjusted EBITDA,” and “Adjusted Diluted EPS.”
“Net revenue” refers to revenue excluding billable costs. The Company believes billable costs and their fluctuations are not indicative of the operating performance of its underlying business.
“Organic net revenue growth (decline)” reflects the year-over-year change in the Company’s reported net revenue attributable to the Company’s management of the entities it owns. We calculate organic net revenue growth (decline) by subtracting the net impact of acquisitions (divestitures) and the impact of foreign currency exchange fluctuations from the aggregate year-over-year increase or decrease in the Company’s reported net revenue.
The net impact of acquisitions (divestitures) reflects the year-over-year change in the Company’s reported net revenue attributable to the impact of all individual entities that were acquired or divested in the current and prior year. We calculate impact of an acquisition as follows: (a) for an entity acquired during the current year, we present the entity’s prior year net revenue for the same period during which we owned it in the current year as impact of the acquisition in the current year; and (b) for an entity acquired in the prior year, we present the entity’s prior year net revenue for the period during which we did not own the entity in the prior year as impact of the acquisition in the current year. We calculate impact of a divestiture as follows: (a) for a divestiture in the current year, we present the entity’s prior year net revenue for the same period during which we no longer owned it in the current year as impact of the divestiture in the current year; and (b) for a divestiture in the prior year, we present the entity’s prior year net revenue for the period during which we owned it in the prior year as impact of the divestiture in the current year. We calculate the impact of any acquisition or divestiture without adjusting for foreign currency exchange fluctuations.
The impact of foreign currency exchange fluctuations reflects the year-over-year change in the Company’s reported net revenue attributable to changes in foreign currency exchange rates. We calculate the impact of foreign currency exchange fluctuations for the portion of the reporting period in which we recognized revenue from a foreign entity in both the current year and the prior year. The impact is calculated as the difference between (1) reported prior period net revenue (converted to U.S. dollars at historical foreign currency exchange rates) and (2) prior period net revenue converted to U.S. dollars at current period foreign exchange rates.
“Adjusted EBITDA” is defined as Net income (loss) attributable to Stagwell Inc. common shareholders excluding non-operating income or expense to achieve operating income (loss), plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, and other items. Other items primarily includes restructuring, certain system implementation and acquisition-related expenses. Adjusted EBITDA for our reportable segments is reconciled to Operating Income (Loss), as Net Income (Loss) is not a relevant reportable segment financial metric.
“Adjusted Diluted EPS” is defined as (i) Net income (loss) attributable to Stagwell Inc. common shareholders, plus net income (loss) attributable to Class C shareholders, excluding the impact of amortization expense, impairment and other losses, stock-based compensation, deferred acquisition consideration adjustments, discrete tax items, and other items (as defined above), based on total consolidated amounts, then allocated to Stagwell Inc. common shareholders and Class C shareholders, based on their respective income allocation percentage using a normalized effective income tax rate divided by (ii) (a) the weighted average number of common shares outstanding plus (b) the weighted average number of outstanding shares of Class C common stock par value $0.00001 per share (the “Class C Common Stock”). The diluted weighted average shares outstanding include shares of Class C Common Stock as if converted to shares of Class A Common Stock to calculate Adjusted Diluted EPS.
All amounts are in U.S. dollars unless otherwise stated. Amounts reported in millions herein are computed based on the amounts in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.
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The percentage changes included in the tables in Item 7 herein that are not considered meaningful are presented as “NM.”
Segments
The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics. All segments follow the same basis of presentation and accounting policies as those described throughout the Notes included herein.
The CODM uses Adjusted EBITDA (as defined above) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.
The Company has three reportable segments as follows: “Integrated Agencies Network,” “Brand Performance Network” and the “Communications Network.” The composition of these segments are as follows:
•The Integrated Agencies Network includes five operating segments: the Anomaly Alliance, Constellation, the Doner Partner Network, Code and Theory Network, and National Research Group. The operating segments offer an array of complementary services spanning our core capabilities of Digital Transformation, Performance Media & Data, Consumer Insights & Strategy, Stagwell Marketing Cloud Group and Creativity & Communications. The Brands included in the operating segments that comprise the Integrated Agencies Network reportable segment includes: Anomaly Alliance (Anomaly, What’s Next Partners), Constellation (72andSunny, Crispin LLC, Colle McVoy, Hunter, Redscout, Team Enterprises, Harris Insights, Movers and Shakers, and Team Epiphany), the Doner Partner Network (Doner, KWT Global, Harris X, Veritas, Doner North, and Yamamoto), Code and Theory Network (Code and Theory, Instrument, Left Field Labs), and National Research Group.
These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments may occasionally compete with each other for new business or have business move between them.
•The Brand Performance Network (“BPN”) comprises a single operating segment. BPN includes a unified media and data management structure with omnichannel media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Brands in this segment aim to provide scaled creative performance through developing and executing sophisticated omnichannel campaign strategies leveraging significant amounts of consumer data. BPN’s Brands provide media solutions such as audience analysis, media planning, and buying across a range of digital and traditional platforms (out-of-home, paid search, social media, lead generation, programmatic, television, broadcast, among others) and includes multichannel Brands Assembly, CPB International, Stagwell Production, Vitro, Forsman & Bodenfors, Goodstuff, Bruce Mau, digital creative & transformation consultancy Gale, B2B specialist Multiview, CX specialists Kenna, and travel media experts Ink.
•The Communications Network reportable segment comprises a single operating segment, our specialist network that provides advocacy, strategic corporate communications, investor relations, public relations, online fundraising and other services to both corporations and political and advocacy organizations and includes Allison, SKDK, Targeted Victory, and Consulum.
The Company combines and discloses operating segments that do not meet the aggregation criteria and includes the elimination of certain intercompany services and revenue, within “All Other.” All Other consists of the Company’s “software as a service” (“SaaS”) and “data as a service” (“DaaS”) technology tools.
The Company reports corporate expenses as “Corporate.” Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office.
The Company made changes to its internal management and reporting structure in the first quarter of 2024, resulting in a change to its reportable segments (Networks). Specifically, certain agencies previously within the Brand Performance Network
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are now in the Integrated Agencies Network. Periods presented prior to the first quarter of 2024 have been recast to reflect the reclassification of certain reporting units (Brands) between operating segments.
The following discussion focuses on the operating performance of the Company for the years ended December 31, 2024, and 2023 and the financial condition of the Company as of December 31, 2024.
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Results of Operations:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||||||
| (dollars in thousands) | ||||||||||
| Revenue: | ||||||||||
| Integrated Agencies Network | $ | 1,535,445 | $ | 1,418,711 | ||||||
| Brand Performance Network | 751,884 | 728,174 | ||||||||
| Communications Network | 515,140 | 333,707 | ||||||||
| All Other | 38,747 | 46,585 | ||||||||
| Total Revenue | $ | 2,841,216 | $ | 2,527,177 | ||||||
| Operating Income | $ | 133,068 | $ | 90,527 | ||||||
| Other Income (Expenses): | ||||||||||
| Interest expense, net | $ | (92,317) | $ | (90,644) | ||||||
| Foreign exchange, net | (1,656) | (2,960) | ||||||||
| Gain on sale of business | — | 94,505 | ||||||||
| Other, net | (1,372) | (359) | ||||||||
| Income before income taxes and equity in earnings of non-consolidated affiliates | 37,723 | 91,069 | ||||||||
| Income tax expense | 13,182 | 40,557 | ||||||||
| Income before equity in earnings of non-consolidated affiliates | 24,541 | 50,512 | ||||||||
| Equity in income (loss) of non-consolidated affiliates | 503 | (8,870) | ||||||||
| Net income | 25,044 | 41,642 | ||||||||
| Net income attributable to noncontrolling and redeemable noncontrolling interests | (22,785) | (41,508) | ||||||||
| Net income attributable to Stagwell Inc. common shareholders | $ | 2,259 | $ | 134 | ||||||
| Reconciliation to Adjusted EBITDA: | ||||||||||
| Net income attributable to Stagwell Inc. common shareholders | $ | 2,259 | $ | 134 | ||||||
| Non-operating items (1) | 130,809 | 90,393 | ||||||||
| Operating income | 133,068 | 90,527 | ||||||||
| Depreciation and amortization | 151,652 | 142,831 | ||||||||
| Impairment and other losses | 1,715 | 11,395 | ||||||||
| Stock-based compensation | 52,161 | 57,179 | ||||||||
| Deferred acquisition consideration | 22,995 | 13,060 | ||||||||
| Other items, net | 49,196 | 45,147 | ||||||||
| Adjusted EBITDA | $ | 410,787 | $ | 360,139 | ||||||
| (1) Non-operating items includes items within the Statements of Operations, below Operating Income, and above Net income (loss) attributable to Stagwell Inc. common shareholders. |
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YEAR ENDED DECEMBER 31, 2024 COMPARED TO YEAR ENDED DECEMBER 31, 2023
Consolidated Results of Operations
The components of operating results for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
| Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||||||||
| (dollars in thousands) | |||||||||||||||
| $ | % | ||||||||||||||
| Revenue | $ | 2,841,216 | $ | 2,527,177 | $ | 314,039 | 12.4 | % | |||||||
| Operating Expenses | |||||||||||||||
| Cost of services | 1,842,978 | 1,621,174 | 221,804 | 13.7 | % | ||||||||||
| Office and general expenses | 711,803 | 661,250 | 50,553 | 7.6 | % | ||||||||||
| Depreciation and amortization | 151,652 | 142,831 | 8,821 | 6.2 | % | ||||||||||
| Impairment and other losses | 1,715 | 11,395 | (9,680) | (84.9) | % | ||||||||||
| $ | 2,708,148 | $ | 2,436,650 | $ | 271,498 | 11.1 | % | ||||||||
| Operating Income | $ | 133,068 | $ | 90,527 | $ | 42,541 | 47.0 | % |
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||
| $ | % | |||||||||||||
| Net Revenue | $ | 2,296,662 | $ | 2,152,454 | $ | 144,208 | 6.7 | % | ||||||
| Billable costs | 544,554 | 374,723 | 169,831 | 45.3 | % | |||||||||
| Revenue | 2,841,216 | 2,527,177 | 314,039 | 12.4 | % | |||||||||
| Billable costs | 544,554 | 374,723 | 169,831 | 45.3 | % | |||||||||
| Staff costs | 1,449,706 | 1,389,168 | 60,538 | 4.4 | % | |||||||||
| Administrative costs | 281,707 | 259,780 | 21,927 | 8.4 | % | |||||||||
| Unbillable and other costs, net | 154,462 | 143,367 | 11,095 | 7.7 | % | |||||||||
| Adjusted EBITDA | 410,787 | 360,139 | 50,648 | 14.1 | % | |||||||||
| Stock-based compensation | 52,161 | 57,179 | (5,018) | (8.8) | % | |||||||||
| Depreciation and amortization | 151,652 | 142,831 | 8,821 | 6.2 | % | |||||||||
| Deferred acquisition consideration | 22,995 | 13,060 | 9,935 | 76.1 | % | |||||||||
| Impairment and other losses | 1,715 | 11,395 | (9,680) | (84.9) | % | |||||||||
| Other items, net | 49,196 | 45,147 | 4,049 | 9.0 | % | |||||||||
| Operating Income (1) | $ | 133,068 | $ | 90,527 | $ | 42,541 | 47.0 | % | ||||||
| (1) See the Results of Operations section above for a reconciliation of Operating Income to Net income (loss) attributable to Stagwell Inc. common shareholders. |
Revenue
Revenue for the year ended December 31, 2024 was $2,841.2 million, compared to $2,527.2 million for the year ended December 31, 2023, an increase of $314.0 million.
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Net Revenue
The components of the fluctuations in net revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
| Net Revenue - Components of Change | Change | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2023 | Foreign Currency | Net Acquisitions (Divestitures) | Organic | Total Change | Year Ended December 31, 2024 | Organic | Total | ||||||||
| (dollars in thousands) | |||||||||||||||
| Integrated Agencies Network | $1,232,798 | $226 | $7,208 | $32,521 | $39,955 | $1,272,753 | 2.6% | 3.2% | |||||||
| Brand Performance Network | 627,810 | 2,220 | 2,252 | 18,948 | 23,420 | 651,230 | 3.0% | 3.7% | |||||||
| Communications Network | 245,261 | (28) | 22,177 | 66,385 | 88,534 | 333,795 | 27.1% | 36.1% | |||||||
| All Other | 46,585 | (984) | (609) | (6,108) | (7,701) | 38,884 | (13.1)% | (16.5)% | |||||||
| $2,152,454 | $1,434 | $31,028 | $111,746 | $144,208 | $2,296,662 | 5.2% | 6.7% | ||||||||
| Component % change | 0.1% | 1.4% | 5.2% | 6.7% |
For the year ended December 31, 2024, organic net revenue increased $111.7 million, or 5.2%. The increase was primarily attributable to new wins and increased spending by clients in the retail, technology, and consumer products sectors. This increase was further driven by new wins and increased revenue in the public affairs sector as a result of the current political campaign year. This increase was partially offset by losses and a decrease in client spending due to budget cuts in the business services sector. The increase in net acquisitions (divestitures) was impacted by acquisitions and dispositions, including the acquisitions of Team Epiphany, LLC (“Epiphany”), Movers and Shakers LLC (“Movers and Shakers”), Left Field Labs LLC (“Left Field Labs”), What’s Next Partners (“WNP”), Huskies, Ltd. (“Huskies”), PROS Agency (“PROS”), Sidekick Live Limited (“Sidekick”), Consulum (Cayman) Limited (“Consulum”), and L.D.R.S. Group Ltd. (“Leaders”), partially offset by the sale of ConcentricLife (“Concentric”) in the fourth quarter of 2023 and the derecognition of a certain noncontrolling interest in the first quarter of 2024.
The geographic mix in net revenues for the year ended December 31, 2024 and 2023 was as follows:
| Year Ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2024 | 2023 | ||||||
| (dollars in thousands) | |||||||
| United States | $ | 1,844,887 | $ | 1,727,412 | |||
| United Kingdom | 158,391 | 160,275 | |||||
| Other | 293,384 | 264,767 | |||||
| Total | $ | 2,296,662 | $ | 2,152,454 |
Operating Income
Operating Income for the year ended December 31, 2024, was $133.1 million, compared to $90.5 million for the year ended December 31, 2023, representing an increase of $42.5 million. The increase in Operating Income was primarily attributable to an increase in Revenue and a decrease in Impairment and other losses, partially offset by an increase in Cost of services, Office and general expenses, and Depreciation and amortization.
The increase in Cost of services was primarily attributable to higher billable costs and staff costs, commensurate with the increase in revenue as well as the inclusion of costs from acquired entities.
The increase in Office and general expenses was primarily attributable to an increase in staff costs, commensurate with the increase in revenue, the inclusion of costs from acquired entities and an increase in deferred acquisition consideration, partially offset by a decrease in stock-based compensation.
Stock-based compensation decreased $5.0 million, primarily due to a decrease in the fair value and number of awards, partially offset by an increase in the fair value of profits interest awards.
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Deferred acquisition consideration increased $9.9 million, primarily attributable to acquisitions, the change in the fair value of certain obligations, as well as the earn out period of certain brands ending during 2024.
Depreciation and amortization increased $8.8 million, primarily attributable to the Company’s acquisitions of businesses and the acceleration of amortization of certain tradenames during the year ended December 31, 2024, as the Company ceased use of these Brand names.
Impairment and other losses for the year ended December 31, 2024 was $1.7 million. This was attributable to charges to reduce the carrying value of right-of-use lease assets and related leasehold improvements within the Integrated Agencies Network and Corporate. Impairment and other losses for the year ended December 31, 2023 was $11.4 million, primarily related to the impairment of right-of-use lease assets totaling $6.9 million and the associated leasehold improvements totaling $3.1 million.
Interest Expense, Net
Interest expense, net for the year ended December 31, 2024 was $92.3 million, compared to $90.6 million for the year ended December 31, 2023, an increase of $1.7 million, primarily attributable to higher levels of debt outstanding under the Credit Agreement (as defined and discussed in Note 11 of the Notes to the Audited Consolidated Financial Statements included herein), and a higher interest rate on amounts outstanding under the Credit Agreement.
Foreign Exchange, Net
The foreign exchange loss for the year ended December 31, 2024, was $1.7 million, compared to a loss of $3.0 million for the year ended December 31, 2023, primarily attributable to the movement in the British Pound.
Gain on Sale of Business
The Company recognized a pre-tax gain of $94.5 million related to the sale of Concentric for the year ended December 31, 2023.
Other, Net
Other, net for the year ended December 31, 2024 was an expense of $1.4 million, compared to an expense of $0.4 million for the year ended December 31, 2023.
Income Tax Expense
The Company had an income tax expense for the year ended December 31, 2024 of $13.2 million (on a pre-tax income of $37.7 million resulting in an effective tax rate of 34.9%), compared to income tax expense of $40.6 million (on pre-tax income of $91.1 million resulting in an effective tax rate of 44.5%) for the year ended December 31, 2023.
The difference in the effective tax rate of 34.9% in the year ended December 31, 2024, compared to 44.5% in the year ended December 31, 2023, is primarily due to a decrease on gain related to sale of business, and a change in prior period adjustments offset by an increase in foreign tax and a reduction in tax benefits for share based compensation
Noncontrolling and Redeemable Noncontrolling Interests
The effect of noncontrolling and redeemable noncontrolling interests for the year ended December 31, 2024 was income of $22.8 million, compared to an income of $41.5 million for the year ended December 31, 2023. The amounts are driven by the mix of income and loss derived from entities not entirely owned by the Company.
Net Income (Loss) Attributable to Stagwell Inc. Common Shareholders
As a result of the foregoing, net income attributable to Stagwell Inc. common shareholders for the year ended December 31, 2024, was $2.3 million, compared to net income of $0.1 million for the year ended December 31, 2023.
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Earnings Per Share
Diluted EPS and Adjusted Diluted EPS for the year ended December 31, 2024, were as follows:
| GAAP | Adjustments(1) | Non-GAAP | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (amounts in thousands, except per share amounts) | |||||||||||
| Net income attributable to Stagwell Inc. common shareholders | $ | 2,259 | $ | 80,403 | $ | 82,662 | |||||
| Net income attributable to Class C shareholders | — | 123,942 | 123,942 | ||||||||
| Net income attributable to Stagwell Inc. and Class C and adjusted net income | $ | 2,259 | $ | 204,345 | $ | 206,604 | |||||
| Weighted average number of common shares outstanding | 115,752 | 2,234 | 117,986 | ||||||||
| Weighted average number of common Class C shares outstanding | — | 151,649 | 151,649 | ||||||||
| Weighted average number of shares outstanding | 115,752 | 153,883 | 269,635 | ||||||||
| Diluted EPS and Adjusted Diluted EPS (1) | $ | 0.02 | $ | 0.77 | |||||||
| Adjustments to Net Income | |||||||||||
| Amortization | $ | 122,442 | |||||||||
| Impairment and other losses | 1,715 | ||||||||||
| Stock-based compensation | 52,161 | ||||||||||
| Deferred acquisition consideration | 22,995 | ||||||||||
| Other items, net | 49,196 | ||||||||||
| 248,509 | |||||||||||
| Adjusted tax expense | (61,308) | ||||||||||
| 187,201 | |||||||||||
| Net income attributable to Class C shareholders | 17,144 | ||||||||||
| $ | 204,345 | ||||||||||
| Allocation of adjustments to Net income | |||||||||||
| Net income attributable to Stagwell Inc. common shareholders - add-backs | $ | 80,403 | |||||||||
| Net income attributable to Class C shareholders - add-backs | 106,798 | ||||||||||
| Net income attributable to Class C shareholders | 17,144 | ||||||||||
| 123,942 | |||||||||||
| $ | 204,345 |
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
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Diluted EPS and Adjusted Diluted EPS for the year ended December 31, 2023, were as follows:
| GAAP | Adjustments(1) | Non-GAAP | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (amounts in thousands, except per share amounts) | |||||||||||
| Net income attributable to Stagwell Inc. common shareholders | $ | 134 | $ | 52,712 | $ | 52,846 | |||||
| Net income attributable to Class C shareholders | — | 106,153 | 106,153 | ||||||||
| Net income attributable to Stagwell Inc. and Class C and adjusted net income | $ | 134 | $ | 158,865 | $ | 158,999 | |||||
| Weighted average number of common shares outstanding | 122,170 | 3,628 | 125,798 | ||||||||
| Weighted average number of common Class C shares outstanding | — | 154,972 | 154,972 | ||||||||
| Weighted average number of shares outstanding | 122,170 | 158,600 | 280,770 | ||||||||
| Diluted EPS and Adjusted Diluted EPS (1) | $ | — | $ | 0.57 | |||||||
| Adjustments to Net income | |||||||||||
| Amortization | $ | 113,835 | |||||||||
| Impairment and other losses | 11,395 | ||||||||||
| Stock-based compensation | 57,179 | ||||||||||
| Deferred acquisition consideration | 13,060 | ||||||||||
| Gain on sale of business | (94,505) | ||||||||||
| Other items, net | 45,147 | ||||||||||
| 146,111 | |||||||||||
| Adjusted tax expense | (26,312) | ||||||||||
| 119,799 | |||||||||||
| Net income attributable to Class C shareholders | 39,066 | ||||||||||
| $ | 158,865 | ||||||||||
| Allocation of adjustments to Net income | |||||||||||
| Net income attributable to Stagwell Inc. common shareholders - add-backs | $ | 52,712 | |||||||||
| Net income to attributable to Class C shareholders - add-backs | 67,087 | ||||||||||
| Net income attributable to Class C shareholders | 39,066 | ||||||||||
| 106,153 | |||||||||||
| Net income attributable to Stagwell Inc. common shareholders | $ | 158,865 |
(1) Adjusted Diluted EPS is defined within the Non-GAAP Financial Measures section of the Executive Summary.
Adjusted EBITDA
Adjusted EBITDA for the year ended December 31, 2024, was $410.8 million, compared to $360.1 million for the year ended December 31, 2023, representing an increase of $50.6 million, primarily driven by an increase in Operating Income, as discussed above.
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Integrated Agencies Network
The components of operating results for the year ended December 31, 2024 compared to the year ended December 31, 2023 were as follows:
| Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||||||||
| (dollars in thousands) | |||||||||||||||
| $ | % | ||||||||||||||
| Revenue | $ | 1,535,445 | $ | 1,418,711 | $ | 116,734 | 8.2 | % | |||||||
| Operating Expenses | |||||||||||||||
| Cost of services | 1,026,587 | 928,406 | 98,181 | 10.6 | % | ||||||||||
| Office and general expenses | 290,991 | 280,388 | 10,603 | 3.8 | % | ||||||||||
| Depreciation and amortization | 78,076 | 81,957 | (3,881) | (4.7) | % | ||||||||||
| Impairment and other losses | 1,500 | 11,299 | (9,799) | (86.7) | % | ||||||||||
| $ | 1,397,154 | $ | 1,302,050 | $ | 95,104 | 7.3 | % | ||||||||
| Operating Income | $ | 138,291 | $ | 116,661 | $ | 21,630 | 18.5 | % |
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||
| $ | % | |||||||||||||
| Net Revenue | $ | 1,272,753 | $ | 1,232,798 | $ | 39,955 | 3.2 | % | ||||||
| Billable costs | 262,692 | 185,913 | 76,779 | 41.3 | % | |||||||||
| Revenue | 1,535,445 | 1,418,711 | 116,734 | 8.2 | % | |||||||||
| Billable costs | 262,692 | 185,913 | 76,779 | 41.3 | % | |||||||||
| Staff costs | 792,041 | 768,846 | 23,195 | 3.0 | % | |||||||||
| Administrative costs | 128,954 | 122,618 | 6,336 | 5.2 | % | |||||||||
| Unbillable and other costs, net | 72,756 | 71,776 | 980 | 1.4 | % | |||||||||
| Adjusted EBITDA | 279,002 | 269,558 | 9,444 | 3.5 | % | |||||||||
| Stock-based compensation | 27,253 | 27,485 | (232) | (0.8) | % | |||||||||
| Depreciation and amortization | 78,076 | 81,957 | (3,881) | (4.7) | % | |||||||||
| Deferred acquisition consideration | 13,290 | 11,931 | 1,359 | 11.4 | % | |||||||||
| Impairment and other losses | 1,500 | 11,299 | (9,799) | (86.7) | % | |||||||||
| Other items, net | 20,592 | 20,225 | 367 | 1.8 | % | |||||||||
| Operating Income | $ | 138,291 | $ | 116,661 | $ | 21,630 | 18.5 | % |
Revenue
Revenue for the year ended December 31, 2024 was $1,535.4 million, compared to $1,418.7 million for the year ended December 31, 2023, an increase of $116.7 million.
Net Revenue
The components of the fluctuations in net revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
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| Net Revenue - Components of Change | Change | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2023 | Foreign Currency | Net Acquisitions (Divestitures) | Organic | Total Change | Year Ended December 31, 2024 | Organic | Total | ||||||||
| (dollars in thousands) | |||||||||||||||
| Integrated Agencies Network | $1,232,798 | $226 | $7,208 | $32,521 | $39,955 | $1,272,753 | 2.6% | 3.2% | |||||||
| Component % change | —% | 0.6% | 2.6% | 3.2% |
The increase in organic net revenue was primarily attributable to new client wins and higher spending in the technology and retail sectors, partially offset by budget cuts and client losses in the food and beverage and business services sectors. The increase in net acquisitions (divestitures) was primarily driven by acquisitions and dispositions, including the acquisitions of Epiphany, Movers and Shakers, Left Field Labs, and WNP, partially offset by the sale of Concentric in the fourth quarter of 2023.
Operating Income
Operating Income for the year ended December 31, 2024, was $138.3 million, compared to $116.7 million for the year ended December 31, 2023, representing an increase of $21.6 million. The increase in Operating Income was primarily attributable to an increase in Revenue and a decrease in Impairment and other losses and Depreciation and amortization, partially offset by an increase in Cost of services and Office and general expenses.
The increase in Cost of sales was primarily attributable to higher billable costs and staff costs, commensurate with the increase in revenue as well as the inclusion of costs from acquired entities.
The increase in Office and general expenses was primarily attributable to an increase in staff and other business development related costs, commensurate with the increase in revenue, as well as the inclusion of costs from acquired entities.
Deferred acquisition consideration increased $1.4 million, primarily attributable to the Company’s acquisitions.
Impairment and other losses for the year ended December 31, 2024 was $1.5 million. This was attributable to a charge to reduce the carrying value of a right-of-use lease asset and related leasehold improvements. Impairment and other losses for the year ended December 31, 2023, was $11.3 million, primarily related to right-of-use lease assets totaling $6.8 million and the associated leasehold improvements totaling $3.1 million.
Depreciation and amortization decreased $3.9 million, primarily attributable to the acceleration of amortization of a tradename in the third quarter of 2023. As a result, amortization expense of $3.1 million was recorded in the year ended December 31, 2023, representing the remaining amortization expense associated with this tradename.
Adjusted EBITDA increased $9.4 million, primarily driven by an increase in Revenue, partially offset by an increase in expenses, as discussed above.
Brand Performance Network
The components of operating results for the year ended December 31, 2024, compared to the year ended December 31, 2023 were as follows:
| Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||||||||
| (dollars in thousands) | |||||||||||||||
| $ | % | ||||||||||||||
| Revenue | $ | 751,884 | $ | 728,174 | $ | 23,710 | 3.3 | % | |||||||
| Operating Expenses | |||||||||||||||
| Cost of services | 461,447 | 441,836 | 19,611 | 4.4 | % | ||||||||||
| Office and general expenses | 214,333 | 209,820 | 4,513 | 2.2 | % | ||||||||||
| Depreciation and amortization | 34,595 | 33,250 | 1,345 | 4.0 | % | ||||||||||
| Impairment and other losses | — | 96 | (96) | (100.0) | % | ||||||||||
| $ | 710,375 | $ | 685,002 | $ | 25,373 | 3.7 | % | ||||||||
| Operating Income | $ | 41,509 | $ | 43,172 | $ | (1,663) | (3.9) | % |
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| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||
| $ | % | |||||||||||||
| Net Revenue | $ | 651,230 | $ | 627,810 | $ | 23,420 | 3.7 | % | ||||||
| Billable costs | 100,654 | 100,364 | 290 | 0.3 | % | |||||||||
| Revenue | 751,884 | 728,174 | 23,710 | 3.3 | % | |||||||||
| Billable costs | 100,654 | 100,364 | 290 | 0.3 | % | |||||||||
| Staff costs | 397,301 | 386,803 | 10,498 | 2.7 | % | |||||||||
| Administrative costs | 93,155 | 87,337 | 5,818 | 6.7 | % | |||||||||
| Unbillable and other costs, net | 65,901 | 55,891 | 10,010 | 17.9 | % | |||||||||
| Adjusted EBITDA | 94,873 | 97,779 | (2,906) | (3.0) | % | |||||||||
| Stock-based compensation | 6,977 | 6,204 | 773 | 12.5 | % | |||||||||
| Depreciation and amortization | 34,595 | 33,250 | 1,345 | 4.0 | % | |||||||||
| Deferred acquisition consideration | (7,744) | 2,851 | (10,595) | NM | ||||||||||
| Impairment and other losses | — | 96 | (96) | (100.0) | % | |||||||||
| Other items, net | 19,536 | 12,206 | 7,330 | 60.1 | % | |||||||||
| Operating Income | $ | 41,509 | $ | 43,172 | $ | (1,663) | (3.9) | % |
Revenue
Revenue for the year ended December 31, 2024, was $751.9 million, compared to $728.2 million for the year ended December 31, 2023, an increase of $23.7 million.
Net Revenue
The components of the fluctuations in net revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
| Net Revenue - Components of Change | Change | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2023 | Foreign Currency | Net Acquisitions (Divestitures) | Organic | Total Change | Year Ended December 31, 2024 | Organic | Total | ||||||||
| (dollars in thousands) | |||||||||||||||
| Brand Performance Network | $627,810 | $2,220 | $2,252 | $18,948 | $23,420 | $651,230 | 3.0% | 3.7% | |||||||
| Component % change | 0.4% | 0.4% | 3.0% | 3.7% |
The increase in organic net revenue was primarily attributable to new clients and increased spending by existing clients in the consumer products and food and beverage sectors. The increase in net acquisitions (divestitures) was driven by the acquisition of Huskies.
Operating Income
Operating Income for the year ended December 31, 2024, was $41.5 million, compared to $43.2 million for the year ended December 31, 2023, representing a decrease of $1.7 million, primarily attributable to an increase in Cost of services and Office and general expenses, partially offset by an increase in Revenue.
The increase in Cost of services was primarily attributable to higher unbillable costs and staff costs, commensurate with the increase in revenue.
The increase in Office and general expenses was primarily attributable to an increase in staff costs, commensurate with the increase in revenue, partially offset by a decrease in deferred acquisition consideration.
Deferred acquisition consideration decreased $10.6 million, primarily attributable to a reduction in the fair value of the deferred acquisition consideration liabilities associated with certain Brands.
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Adjusted EBITDA decreased $2.9 million, primarily driven by an increase in Revenue, more than offset by an increase in expenses, as discussed above.
Communications Network
The components of operating results for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
| Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||||||||
| (dollars in thousands) | |||||||||||||||
| $ | % | ||||||||||||||
| Revenue | $ | 515,140 | $ | 333,707 | $ | 181,433 | 54.4 | % | |||||||
| Operating Expenses | |||||||||||||||
| Cost of services | 329,356 | 218,448 | 110,908 | 50.8 | % | ||||||||||
| Office and general expenses | 94,304 | 68,339 | 25,965 | 38.0 | % | ||||||||||
| Depreciation and amortization | 14,126 | 11,016 | 3,110 | 28.2 | % | ||||||||||
| $ | 437,786 | $ | 297,803 | $ | 139,983 | 47.0 | % | ||||||||
| Operating Income | $ | 77,354 | $ | 35,904 | $ | 41,450 | NM |
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||
| $ | % | |||||||||||||
| Net Revenue | $ | 333,795 | $ | 245,261 | $ | 88,534 | 36.1 | % | ||||||
| Billable costs | 181,345 | 88,446 | 92,899 | NM | ||||||||||
| Revenue | 515,140 | 333,707 | 181,433 | 54.4 | % | |||||||||
| Billable costs | 181,345 | 88,446 | 92,899 | NM | ||||||||||
| Staff costs | 177,629 | 159,165 | 18,464 | 11.6 | % | |||||||||
| Administrative costs | 37,057 | 33,664 | 3,393 | 10.1 | % | |||||||||
| Unbillable and other costs, net | 2,235 | 613 | 1,622 | NM | ||||||||||
| Adjusted EBITDA | 116,874 | 51,819 | 65,055 | NM | ||||||||||
| Stock-based compensation | 3,374 | 3,334 | 40 | 1.2 | % | |||||||||
| Depreciation and amortization | 14,126 | 11,016 | 3,110 | 28.2 | % | |||||||||
| Deferred acquisition consideration | 18,770 | 30 | 18,740 | NM | ||||||||||
| Other items, net | 3,250 | 1,535 | 1,715 | NM | ||||||||||
| Operating Income | $ | 77,354 | $ | 35,904 | $ | 41,450 | NM |
Revenue
Revenue for the year ended December 31, 2024 was $515.1 million, compared to $333.7 million for the year ended December 31, 2023, an increase of $181.4 million.
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Net Revenue
The components of the fluctuations in net revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
| Net Revenue - Components of Change | Change | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2023 | Foreign Currency | Net Acquisitions (Divestitures) | Organic | Total Change | Year Ended December 31, 2024 | Organic | Total | ||||||||
| (dollars in thousands) | |||||||||||||||
| Communications Network | $245,261 | $(28) | $22,177 | $66,385 | $88,534 | $333,795 | 27.1% | 36.1% | |||||||
| Component % change | —% | 9.0% | 27.1% | 36.1% |
The increase in organic net revenue was primarily attributable to new clients and increased spending in the retail and public affairs sectors. The public affairs sector gained new clients and increased spending as a result of the current political campaign year. The increase in net acquisitions (divestitures) was primarily driven by the acquisitions of PROS, Sidekick, and Consulum.
Operating Income
Operating Income for the year ended December 31, 2024, was $77.4 million, compared to $35.9 million for the year ended December 31, 2023, representing an increase of $41.5 million. The change in Operating Income was primarily attributable to an increase in Revenue, partially offset by an increase in Cost of services and Office and general expenses.
The increase in Cost of services was primarily attributable to an increase in billable costs and staff cost, commensurate with higher revenue as well as the inclusion of costs from acquired entities.
The increase in Office and general expenses was primarily attributable to an increase in deferred acquisition consideration as well as the inclusion of costs from acquired entities.
Deferred acquisition consideration increased $18.7 million, primarily attributable to an increase in the fair value of a certain obligation.
Adjusted EBITDA increased $65.1 million, primarily driven by an increase in Revenue, partially offset by an increase in expenses, as discussed above.
All Other
The components of operating results for the year ended December 31, 2024, compared to the year ended December 31, 2023 were as follows:
| Year Ended December 31, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | |||||||||||||
| (dollars in thousands) | |||||||||||||||
| $ | % | ||||||||||||||
| Revenue | $ | 38,747 | $ | 46,585 | $ | (7,838) | (16.8) | % | |||||||
| Operating Expenses | |||||||||||||||
| Cost of services | 25,588 | 32,484 | (6,896) | (21.2) | % | ||||||||||
| Office and general expenses | 29,453 | 24,648 | 4,805 | 19.5 | % | ||||||||||
| Depreciation and amortization | 12,718 | 8,390 | 4,328 | 51.6 | % | ||||||||||
| $ | 67,759 | $ | 65,522 | $ | 2,237 | 3.4 | % | ||||||||
| Operating Loss | $ | (29,012) | $ | (18,937) | $ | (10,075) | 53.2 | % |
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| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||
| $ | % | |||||||||||||
| Net Revenue | $ | 38,884 | $ | 46,585 | $ | (7,701) | (16.5) | % | ||||||
| Billable costs | (137) | — | (137) | (100.0) | % | |||||||||
| Revenue (1) | 38,747 | 46,585 | (7,838) | (16.8) | % | |||||||||
| Billable costs | (137) | — | (137) | (100.0) | % | |||||||||
| Staff costs | 34,999 | 37,416 | (2,417) | (6.5) | % | |||||||||
| Administrative costs (1) | 6,139 | 4,689 | 1,450 | 30.9 | % | |||||||||
| Unbillable and other costs, net | 13,570 | 15,087 | (1,517) | (10.1) | % | |||||||||
| Adjusted EBITDA | (15,824) | (10,607) | (5,217) | 49.2 | % | |||||||||
| Stock-based compensation | 904 | 518 | 386 | 74.5 | % | |||||||||
| Depreciation and amortization | 12,718 | 8,390 | 4,328 | 51.6 | % | |||||||||
| Deferred acquisition consideration | (1,321) | (1,752) | 431 | (24.6) | % | |||||||||
| Other items, net | 887 | 1,174 | (287) | (24.4) | % | |||||||||
| Operating Loss | $ | (29,012) | $ | (18,937) | $ | (10,075) | 53.2 | % |
(1) All Other Revenue and Administrative costs include approximately $8 million and $6 million of eliminations of intercompany services for the years ended December 31, 2024, and 2023, respectively.
Revenue
Revenue for the year ended December 31, 2024, was $38.7 million, compared to $46.6 million for the year ended December 31, 2023, a decrease of $7.8 million.
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Net Revenue
The components of the fluctuations in net revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, were as follows:
| Net Revenue - Components of Change | Change | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2023 | Foreign Currency | Net Acquisitions (Divestitures) | Organic | Total Change | Year Ended December 31, 2024 | Organic | Total | ||||||||
| (dollars in thousands) | |||||||||||||||
| All Other | $46,585 | $(984) | $(609) | $(6,108) | $(7,701) | $38,884 | (13.1)% | (16.5)% | |||||||
| Component % change | (2.1)% | (1.3)% | (13.1)% | (16.5)% |
The decrease in organic net revenue was primarily attributable to budget cuts and client losses from clients in the food and beverage, travel and transportation, consumer products, healthcare, and financial services sectors. The decrease in net acquisitions (divestitures) was primarily driven by the acquisition of Leaders, offset by the derecognition of a certain noncontrolling interest in the first quarter of 2024.
Operating Loss
Operating Loss for the year ended December 31, 2024, was $29.0 million, compared to $18.9 million for the year ended December 31, 2023, representing an increase of $10.1 million. The increase in Operating Loss was primarily attributable to a decrease in Revenue and an increase in Office and general expenses and Depreciation and amortization, partially offset by a decrease in Cost of services.
The decrease in Cost of Services was primarily attributable to lower unbillable costs and staff costs, commensurate with lower revenue.
The increase in Office and general expenses was primarily attributable to an increase in staff costs as a result of a change in the organization structure of certain Brands.
Depreciation and amortization increased $4.3 million, primarily attributable to the acceleration of amortization of certain tradenames. As a result, amortization expense of $2.8 million was recorded in the year ended December 31, 2024, representing the remaining amortization expense associated with these tradenames.
Adjusted EBITDA decreased $5.2 million, primarily driven by a decrease in Revenue, offset by a decrease in expenses, as discussed above.
Corporate
The components of operating results for the year ended December 31, 2024, compared to the year ended December 31, 2023 were as follows:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2023 | Change | ||||||||||||
| (dollars in thousands) | ||||||||||||||
| $ | % | |||||||||||||
| Staff costs | $ | 47,736 | $ | 36,938 | $ | 10,798 | 29.2 | % | ||||||
| Administrative costs | 16,402 | 11,472 | 4,930 | 43.0 | % | |||||||||
| Adjusted EBITDA | (64,138) | (48,410) | (15,728) | 32.5 | % | |||||||||
| Stock-based compensation | 13,653 | 19,638 | (5,985) | (30.5) | % | |||||||||
| Depreciation and amortization | 12,137 | 8,218 | 3,919 | 47.7 | % | |||||||||
| Impairment and other losses | 215 | — | 215 | 100.0 | % | |||||||||
| Other items, net | 4,931 | 10,007 | (5,076) | (50.7) | % | |||||||||
| Operating Loss | $ | (95,074) | $ | (86,273) | $ | (8,801) | 10.2 | % |
Operating Loss for the year ended December 31, 2024, was $95.1 million, compared to $86.3 million for the year ended December 31, 2023, representing an increase of $8.8 million. The increase in Operating Loss was primarily attributable to an increase in Staff costs, partially offset by a decrease in Stock-based compensation.
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Staff costs increased $10.8 million, primarily as a result of an increase in headcount, higher health insurance costs and a reduction in bonus expense in 2023 related to cost savings initiatives.
Stock-based compensation expense decreased $6.0 million, primarily attributable to a decrease in the fair value and number of awards.
Liquidity and Capital Resources:
The following table provides summary information about the Company’s liquidity position:
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| (dollars in thousands) | ||||||
| Net cash provided by operating activities | $ | 142,859 | $ | 81,007 | ||
| Net cash (used in) provided by investing activities | (162,472) | 155,951 | ||||
| Net cash provided by (used in) financing activities | 36,938 | (339,864) |
The Company had cash and cash equivalents of $131.3 million and $119.7 million as of December 31, 2024, and December 31, 2023, respectively. The Company expects to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months and subsequent periods. The Company has historically maintained and expanded its business using cash generated from operating activities, funds available under the Credit Agreement, and other initiatives, such as obtaining additional debt and equity financing. The Credit Agreement provides revolving commitments of up to $640.0 million and permits restricted payments for share repurchases or redemptions from certain of its stockholders in an aggregate principal amount of up to $150.0 million. As of December 31, 2024, the Company had $264.0 million of borrowings outstanding and $15.3 million of issued and undrawn letters of credit resulting in $360.7 million unused amount under the Credit Agreement.
The Company transfers certain of its trade receivable assets to third parties under certain agreements. Per the terms of these agreements, the Company surrenders control over its trade receivables upon transfer.
The trade receivables transferred to the third parties were $435.6 million, $393.9 million, and $176.5 million, during the years ended December 31, 2024, 2023, and 2022, respectively. The amount collected and due to the third parties under these arrangements was $19.5 million as of December 31, 2024, $1.8 million as of December 31, 2023, and $5.7 million as of December 31, 2022. Fees for these arrangements were recorded in Office and general expenses in the Consolidated Statements of Operations and totaled $5.8 million, $5.4 million, and $1.8 million for the years ended December 31, 2024, 2023, and 2022, respectively.
On November 6, 2024, the Board authorized an extension and a $125.0 million increase in the size of our Repurchase Program. Under the Repurchase Program, as amended, we may repurchase up to an aggregate of $375.0 million of shares of our outstanding Class A Common Stock, with any previous purchases under the Repurchase Program continuing to count against that limit. The Repurchase Program will expire on November 6, 2027.
Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices, including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified, or discontinued at any time without prior notice. Our Board will review the Repurchase Program periodically and may authorize adjustments of its terms.
During the year ended December 31, 2024, 14.8 million shares of Class A Common Stock were repurchased pursuant to the Repurchase Program at an average price of $6.31 per share, for an aggregate value, excluding fees, of $93.5 million. The repurchased shares included 4 million shares of Class A Common Stock repurchased from certain affiliates of The Goldman Sachs Group, Inc. at a price of $6.34 per share, for an aggregate purchase price of $25.4 million.
The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $169.9 million as of December 31, 2024.
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition consideration payments, purchases of noncontrolling interests, subsidiary awards, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 5.625% Notes (as defined in Note 11 of the Notes included herein) and Credit Agreement. The Company expects to make estimated cash payments in the future to satisfy obligations under our
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Tax Receivables Agreement with Stagwell Media LP and OpCo (“TRA”) (see Note 17 of the Notes included herein for additional details). The amount and timing of payments are contingent on the Company achieving certain tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (each as defined in Note 15 of the Notes included herein) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to the Company making payments under the TRA. Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months and subsequent periods. The Company’s ability to make payments will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in this Form 10-K and in the Company’s other SEC filings.
Cash Flows
Operating Activities
Cash flows provided by operating activities for the year ended December 31, 2024 were $142.9 million, primarily driven by earnings, partially offset by unfavorable working capital requirements, including the timing of media supplier payments.
Cash flows provided by operating activities for the year ended December 31, 2023 were $81.0 million, primarily driven by earnings, partially offset by unfavorable working capital requirements, including the timing of media supplier payments.
Investing Activities
Cash flows used in investing activities were $162.5 million for the year ended December 31, 2024, primarily driven by $35.1 million in capitalized software spend, $18.9 million in capital expenditures, and $103.3 million for acquisitions, net of cash acquired.
Cash flows provided by investing activities were $156.0 million for the year ended December 31, 2023, primarily driven by $229.5 million in proceeds from the sale of ConcentricLife, partially offset by $28.2 million in capitalized software spend, $14.2 million in capital expenditures, and $23.3 million in acquisitions, net of cash acquired.
Financing Activities
During the year ended December 31, 2024, cash flows provided by financing activities were $36.9 million, primarily driven by $205.0 million in net proceeds under the Credit Agreement, partially offset by shares repurchased and cancelled of $108.2 million, payments of deferred consideration of $29.8 million, and distributions to noncontrolling interests of $26.7 million.
During the year ended December 31, 2023, cash flows used in financing activities were $339.9 million, primarily driven by $41.0 million in net borrowings under the Credit Agreement, shares repurchased and cancelled of $223.8 million, payments of deferred consideration of $49.2 million, and distributions to noncontrolling interests of $25.0 million.
Total Debt
Debt, net of debt issuance costs, as of December 31, 2024, was $1,353.6 million, compared to $1,145.8 million outstanding as of December 31, 2023. See Note 11 of the Notes included herein for information regarding the Company’s 5.625% Notes, and the Credit Agreement, which provides for a $640.0 million senior secured revolving credit facility maturing on August 3, 2026.
The Company is currently in compliance with all of the terms and conditions of the Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.
If the Company loses all or a substantial portion of its lines of credit under the Credit Agreement, or if the Company uses the maximum available amount under the agreement, it will be required to seek other sources of liquidity. If the Company were unable to find these sources of liquidity, for example, through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.
Pursuant to the Credit Agreement, the Company must maintain a Total Leverage Ratio (as defined in the Credit Agreement) below an established threshold. For the period ended December 31, 2024, the Company’s calculation of this ratio,
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and the maximum permitted under the Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:
| December 31, 2024 | |
|---|---|
| Total Leverage Ratio | 2.93 |
| Maximum per covenant | 4.25 |
These ratios and measures are not based on GAAP and are not presented as alternative measures of operating performance or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.
Material Cash Requirements
The Company’s Brands enter into contractual commitments with media providers and agreements with production companies on behalf of their clients at levels that exceed the revenue from services. Some of our Brands purchase media for clients and act as an agent for a disclosed principle. These commitments are included in Accounts payable and Accrued media when the media services are delivered by the media providers. Stagwell takes precautions against default on payment for these services, including the procurement of credit insurance and has historically had a very low incidence of default. Stagwell is still exposed to the risk of significant uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic downturn.
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The following table and discussion below summarize current and long-term material cash requirements of the Company. Certain of these requirements vary in the ultimate future amount payable because they are dependent on the future results of operations of the subject subsidiaries and/or the timing of when certain rights are exercised. Management anticipates it will finance these requirements using available cash from operations, borrowings under the Credit Agreement (or any refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity.
| Payments Due by Period | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Material Cash Requirements | Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | After 5 Years | ||||||||||||||
| (dollars in thousands) | |||||||||||||||||||
| Indebtedness (1) | $ | 1,100,000 | $ | — | $ | — | $ | 1,100,000 | $ | — | |||||||||
| Operating lease obligations (2) | 360,906 | 75,646 | 118,862 | 94,246 | 72,152 | ||||||||||||||
| Interest on debt | 309,375 | 61,875 | 123,750 | 123,750 | — | ||||||||||||||
| Deferred acquisition consideration (3) | 63,675 | 34,890 | 23,913 | 4,872 | — | ||||||||||||||
| Total | $ | 1,833,956 | $ | 172,411 | $ | 266,525 | $ | 1,322,868 | $ | 72,152 |
(1) Includes the principal amount of the 5.625% Notes which are due in 2029 and does not include borrowings under the Credit Agreement.
(2) As of December 31, 2024, the Company had entered into one operating lease for which the commencement date had not yet occurred because the premises is being prepared for occupancy by the landlord. Accordingly, this one lease represents an obligation of the Company that is not reflected within the Consolidated Balance Sheets as of December 31, 2024. The aggregate future liability related to this lease was $0.1 million.
(3) Deferred acquisition consideration on the Consolidated Balance Sheets consists of deferred obligations related to contingent purchase price payments. The 63.7 million reflected in the above table is included in the Consolidated Balance Sheet as of December 31, 2024, and does not include $38.4 million expected to be paid in shares of Class A Common Stock. In addition, certain of the Company’s deferred acquisition consideration is tied to continued employment of certain personnel of the acquired subsidiaries. These arrangements are expensed over the respective vesting period (employment) period and therefore the expected, entire amount of payment is not reflected in the Consolidated Balance Sheet as of December 31, 2024 The Company estimates that the total amount to be paid related to such obligations was $52.1 million as of December 31, 2024, of which $27.7 million is expected to be paid in cash and the remaining in Company’s Class A Common Stock. The total amount of cash expected to be paid in the next twelve months related to these arrangements was $0.4 million. See Note 9 of the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding contingent deferred acquisition consideration.
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity. See Note 13 of the Notes included in Item 8 of this Form 10-K for additional information regarding noncontrolling interests and redeemable noncontrolling interests.
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the respective subsidiary (the “profits interests awards”). The awards generally provide the employee with the right, but not the obligation, to sell their profits interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, receive a profit share distribution. The profits interests awards are primarily settled in cash, with certain awards having stock-settlement provisions at the Company’s discretion. The corresponding liability associated with these profits interests awards is included as a component of Accruals and other liabilities and Other liabilities on the Consolidated Balance Sheets.
The Company enters into certain long-term non-cancellable contracts for services such as revenue or profit share arrangements, cloud-based services, or software licensing. See Note 14 of the Notes included in Item 8 of this Form 10-K for additional information regarding these material commitments.
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Critical Accounting Estimates
Stagwell has prepared the Audited Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations of the SEC for reporting financial information on Form 10-K. Preparation of the Audited Consolidated Financial Statements and related disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the accompanying financial statements and footnotes. Our significant accounting policies are discussed in Note 2 of the Notes included herein. Our critical accounting estimates are those that are considered by management to require significant judgment, use of estimates and that could have a significant impact on our financial statements. An understanding of our critical accounting estimates is necessary to analyze our financial results.
Our critical accounting estimates include our accounting for revenue recognition, business combinations, deferred acquisition consideration, goodwill and intangible assets, and income taxes. The financial statements are evaluated on an ongoing basis and estimates are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. Actual results can differ from those estimates, and it is possible that the differences could be material.
Revenue Recognition. The Company’s revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. See Note 5 of the Notes included herein for further information.
Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values.
For each acquisition, the Company undertakes a detailed review to identify other intangible assets, and a valuation is performed for all such identified assets. The Company uses several market participant measurements to determine the estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. A substantial portion of the intangible asset value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, trademarks, developed technology and other intangible assets.
Deferred Acquisition Consideration. Certain acquisitions include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent purchase price obligations for these transactions are recorded as deferred acquisition consideration liabilities on the balance sheet. Arrangements that are not contingent upon future employment are initially measured at the acquisition date fair value and are remeasured at each reporting period. Arrangements that are contingent upon future employment are expensed as earned over the respective vesting (employment) period. These liabilities are derived from the projected performance of the acquired entity. These arrangements may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period. At each reporting date, the Company models each business’ future performance, including revenue, EBITDA growth, to estimate the value of each deferred acquisition consideration liability. The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s current operating results and the impact this information will have on future results included in the calculation of the estimated liability. These adjustments are recorded in the Consolidated Statements of Operations.
Goodwill. Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a business combination which is not subject to amortization is tested for impairment, at the reporting unit level, annually as of October 1st of each year, or more frequently if indicators of potential impairment exist.
For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel.
If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired, and the quantitative impairment test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value.
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Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company generally uses a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method, and the market approach, which incorporates the exercise of significant judgement about the use of earnings multiples based on market data and comparable companies. The Company applies an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates.
The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective. The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed revenue growth rates, EBITDA margin, long-term growth rates, and appropriate discount rates based on a reporting unit’s weighted average cost of capital (“WACC”) as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit. The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations.
At each reporting period, the Company assesses whether it is more likely than not that the carrying amount of its reporting units exceed their fair value. As of October 1, 2024 (the annual impairment test date), the Company performed this assessment and determined that all reporting units (11) did not have an impairment. The Company utilized a long-term average growth rate ranging from 1.5% to 4% and a WACC ranging from 12% to 30%.
The Company believes the estimates and assumptions used in the calculations are reasonable. However, if there were an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future. As a result, to the extent that, among other factors, (i) there is underperformance in one or more reporting units, or (ii) disruptions in the macroeconomic environment, the fair value of one or more of these reporting units could fall below their carrying value, resulting in a goodwill impairment charge. The Company monitors its reporting units to determine if there is an indicator of potential impairment.
Income Taxes. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse. The Company records associated interest and penalties as a component of income tax expense. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the character of the income tax asset, tax planning strategies, changes in tax laws and other factors. The periodic assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment. A change to any of these factors could impact the estimated valuation allowance and income tax expense.
New Accounting Pronouncements
See Note 3 of the Notes included in Item 8 of this Form 10-K.