Stagwell Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 27, 2024

There are 3 speakers on the call.

Operator

Stagwell's Global Headquarters at 1 World Trade Center in New York City. And welcome to Stagwell Inc. Earnings webcast for Q4 and full year 2023. My name is Ben Allinson, and I lead the Investor Relations function here at Stagwell. With me today are Mark Penn, Stagwell's Chairman and Chief Executive Officer and Frank Lanuta, the Chief Financial Officer.

Operator

Mark will provide a business update and Frank will share a financial review. After the prepared remarks, we will open the floor for Q and A. You are welcome to submit questions through the chat function. Before we begin, I'd like to remind you that the following remarks include forward looking statements and non GAAP financial data. Forward looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risk factors addressed in our earnings release, slide presentation and the company's SEC filings.

Operator

Please refer to our website, stagwellglobal.com/investors for an investor presentation and additional resources. This morning's press release and slide deck provide definitions, explanations and reconciliations of non GAAP financial data. With that, I'd like to turn the call over to our Chairman and CEO, Mark Bennett.

Speaker 1

Thank you, Ben, and thank you to everyone joining us for our Q4 and full year earnings call. With 2023 behind us, we're ready to return in 2024, a political year to the organic growth that Stagwell showed year after year since its inception, while we strongly execute our strategy to transform marketing through the right combination of technology and talent. 2023 saw a combination of unique factors weigh on the marketing services industry. Persistent worries about a potential recession, rising interest rates and geopolitical risk resulted in significant restructuring actions, particularly at tech companies, as well as meaningful cuts across marketing budgets. Add to that a banking crisis and strikes within autos and entertainment industries.

Speaker 1

Despite all this, Stagwell grew market share with some of our largest customers, continued to win significant new business and delivered another year of strong adjusted EBITDA generation by taking prudent cost management steps. We also made significant moves with a lasting positive impact on our business. In the Q1, we successfully completed a secondary offering which helped to boost our liquidity. The equity research analyst community has taken note of increased interest in Stagwell after this offering and we now have 8 covering analysts. In the Q2, we moved to simplify our capital structure and removed an overhang by buying out Alpinvest.

Speaker 1

This transaction and other buybacks completed throughout the year successfully reduced our share count by 12%. In the Q4, we completed the sale of Concentric Life to Accenture for $245,000,000 representing a sale of 18 times EBITDA and approximately 4 to 5 times our initial investment. This sale of a company that I had never been asked about by investors or analysts is representative of the company's underlying value and produced a taxable gain of about $175,000,000 this year. We've already replaced the revenue and EBITDA given up by the transaction while only using a fraction of the proceeds. We believe that modest portfolio turnover at multiples higher than those we pay for acquisitions is a vital part of our operations moving forward.

Speaker 1

As I previously mentioned, we expect to close another profitable disposition later this year. We also moved to strengthen our services, grow our geographic footprint and invest in innovation to keep us at the forefront of digital marketing. We acquired leaders in digital technology and emerging platforms, Left Field Labs and Movers and Shakers. We made our first acquisition in Ireland in the company of Huskies. Recently, we welcomed the digital first creative collective Sidekick and our first friendly creative agency, What's Next Partners.

Speaker 1

We grew the Stagwell Marketing Cloud's capabilities and commercialization path through unique partnerships with tech leaders. We created a partnership with Google to co build Gen AI solutions and get placement out of our AI enabled products in their cloud store. And we created a partnership with Mountain, the leader in performance TV to give access to our SMC influencer and content products to Mountain clients, as well as help clients in our media business with performance marketing strategy. On the Q3 call, I said we were seeing positive signs of a turnaround in our business and expected recovery over the next two quarters. We saw this unfold partially in the Q4 as we return to sequential net revenue growth.

Speaker 1

In the quarter, Stagwell posted $655,000,000 of revenue $551,000,000 of net revenue as we started to see the challenges that have impacted our business abate. The full year, revenue was $2,530,000,000 and net revenue was $2,150,000,000 Our performance, media and data capability continued to post good results in the 4th quarter, growing net revenue by 1% 5% for the year. Strong performance among our media and buying and strategy brands is leading the group. Lowe's brands posted 7% year over year growth in the Q4, their best quarterly growth figure in the last 2 years. This strength is offset somewhat by macro driven challenges in some of our owned media businesses.

Speaker 1

Importantly, our digital transformation businesses showed meaningful signs of a rebound. Excluding advocacy, digital transformation declined 3% year over year in the 4th quarter, a significant improvement sequentially after posting a 17% decline ex advocacy in the 3rd quarter. We once again grew the size of our relationships with our biggest, most important customers, something we did consistently through 2023. In Q4, our top 100 customers representing approximately 48% of net revenue grew 13% year over year. Our international businesses also continued their momentum with growth of 3% in the quarter, led by 19% growth in the UK.

Speaker 1

We posted a very strong quarter of net new business wins over $65,000,000 For the last 12 months, we have delivered more than $270,000,000 of net new business at an all time LTM high. In the Q4, we continued to focus on effectively managing our cost structure so that we're well positioned for 2024. On staffing, we took actions in the Q4 that resulted in an incremental annualized savings of $16,000,000 For the full year, we took $98,000,000 of actions. We are seeing the results of the new business gain and cost reductions in a strong January. We also continued our efforts to consolidate our real estate footprint and back office functions, resulting in $4,000,000 of real estate savings and more than $4,000,000 of savings through our shared services program.

Speaker 1

I'm delighted to report that as of the end of 2023, we principally achieved ahead of schedule the $30,000,000 of synergies that we promised. We are now focused on achieving the $35,000,000 of incremental efficiencies that we announced earlier this year. As a result, we produced another strong quarter of profitability, delivering $95,000,000 of adjusted EBITDA, representing a 17% margin. We did this even while continuing to meaningfully invest in the Stagwell Marketing Cloud. For the full year, we delivered $360,000,000 of adjusted EBITDA, representing a 17% margin.

Speaker 1

We invested approximately $20,000,000 out operating funds on development of new technology, an investment I consider proportionate and critical to our future. Our approach to the use of capital remains the same. This year, we invested in growth through buybacks, acquisitions and internal tech development, and we did see expanded media working capital requirements that we're working to reduce. Overall deferred acquisition costs are a fraction of the past and were reduced by $60,000,000 this year and are projected to be only about $40,000,000 in total by 2025. We believe leverage will be close to 2 by the end of the year, but our principal goal is seen through the vision of the company and achieving above average industry growth.

Speaker 1

This year, we expect to deliver organic net revenue growth of 5% to 7%. We expect adjusted EBITDA to grow 11% to 25% year over year, delivering adjusted EBITDA of $400,000,000 to $450,000,000 We also expect to convert approximately 50% of our EBITDA free cash flow this year. It's important to realize that Stagwell started at 0 just 8 years ago. And the same energy we put in then is at work today in molding this company to be the next great company in marketing, going from global full service to platform self-service. That means we have at play critical strategic initiatives to generate above industry average growth and widen our margin.

Speaker 1

1st and foremost is to grow our market share is to grow our share of market by expanding our global and technology footprints. This has been evident in our new acquisitions of a steady stream of awards our agencies whose creative work at the Super Bowl far exceeds our relative size, with 5 national in game spots and more than a dozen other client campaigns for the NFL, E*TRADE, Paramount, United Airlines, Diageo, Budweiser and more. As a result, Stagwell's agencies would be invited to more RFPs with bigger accounts. Inspiration dates with Fortune 100 companies that ask, what else can Stagwell do? Are becoming nearly a weekly event.

Speaker 1

Last year, we saw a 20% increase in pitches that we were invited to totaling almost $1,200,000,000 We expect to see similar growth in 2024, our record breaking new business wins late, a strong foundation for us to return to growth this year. In the Q4, our digital transformation revenue from technology customers moved by 30%. This resulted from a combination of increased spend from existing customers and the acquisition of Left Field Labs. TMT clients are coining our agencies to transform their operations and customer touch points. Stagull is helping Qualcomm, for example, enable the future of AI for developers and across everyday devices.

Speaker 1

While next month, We Have Clear Politics will roll out a new AI overlay to their historical polling database that will help users search results in new and engaging ways. As we continue to receive new mandates with major wins at Samsung and Shopify, as well as notable account expansions with Amazon and Google. Our international expansion efforts are paying off as we saw 13% international growth in 2023. We'll continue to diversify the company's geographic footprint, which is critical to expanding our global client remit. We expect to enter 10 new markets in 2024, bringing our non affiliate footprint to 44 countries.

Speaker 1

In EMEA, net revenue grew 70% last year. And this year, we're expanding further launching the European headquarters in London at the Bluefin Building and appointing James Townsend as our first EMEA CEO. Our advocacy businesses in 2023 and on election year shrunk 22%, but posted 16% growth versus 2021, the last off cycle year. While the presidential election gets the most focus, we expect fiercely contested multi $100,000,000 down ballot races. We view this as an encouraging sign that political spend records are going to be shattered in 2024 with more than $12,000,000,000 at stake.

Speaker 1

2nd, we are rolling out more products from the Stagwell Marketing Cloud team. The group grew 31% in 2023. Harris Quest, our AI enabled research suite, signed its 100 and fiftieth enterprise customer in 2023. On Monday, we unveiled our new product, Unlock Surveys, potentially the most significant research panel launched in nearly a decade. And as opening day approaches, we are excited to share that around our immersive platform for stadiums has just been incorporated into Major League Baseball's native Ballpark app and approved for use by all Major League Baseball teams and stadiums.

Speaker 1

This is a major milestone for this emerging technology from Stagwell. 3rd, we're embarking upon an aggressive AI data and media strategy. We're building solutions that help our agencies and clients transform with the 3 E's of AI, enablement across operations, efficiency and marketing, and engagement with consumers. We have built private GPT environments for our agencies and clients to utilize advanced AI without putting their data into the public domain. We'll continue building on this approach and we've already signed a large domestic office supply retailer into our platform.

Speaker 1

On the data side, we'll develop an identity solution, the Stagwell ID Graph, which encompasses information on hundreds of millions of people globally. Built to top our existing data lake, this solution will make consumer information available to fine tune all our performance marketing campaigns across all our agencies. We expect to acquire or build the last mile of the media chain so that our offerings will go from planning, targeting, audience creation down to placement and media supply. We will move more from fee for service pricing to performance pricing. This should result in margin expansion over time and guaranteed ROI for clients as our media business continues to grow in client scale and size.

Speaker 1

Remember that more than 1 in 10 Staggl employees are engineers and that we're well positioned to apply AI to meet client needs as they remake their websites, apps, and customer interfaces to incorporate AI. We are also applying AI to our own processes with products like Prophet that write news releases, Harris Quest AI that analyzes focus groups and smart assets that help sort out content directed to where it's likely to be most effective. 4th, we will continue to streamline operations in both the back office and in our offerings. We are significantly offshoring our finance and other services and applying AI to tasks like reading and inputting the hundreds of thousands of media bills we receive each year. In addition to launching our own survey research panel, we will also consolidate production of scaled content to a central operation, reducing outside production bills by an estimated $20,000,000 to $30,000,000 over the next 18 months.

Speaker 1

All the major agencies within our group are partnering on this and we expect it to be operational by midyear. In conclusion, I want to reiterate our excitement and confidence in 2024. We believe we're set up for a return to profitable organic net revenue growth in 2024, in line with the guidance I outlined earlier, thanks to a multitude of factors. The abatement of the headwinds that weighed on the industry in 2023, combined with outstanding new business trends, continued momentum in our Marketing Cloud products and what we expect to be a record breaking political cycle, as well as our prudent steps to manage costs, strengthen our services and expand geographically. We expect to return to outperforming legacy competitors in 2020.

Speaker 1

Now I'll hand things over to Frank Laudo, our Chief Financial Officer to walk you through some of our financial results in more detail.

Speaker 2

Thank you, Mark. Good morning, everyone, and thank you for joining us to discuss our Q4 and full year results. As a reminder, if you would like to ask a question after the prepared remarks conclude, please feel free to submit them through the chat function. Our 2023 results were significantly impacted by the combination of prevailing macroeconomic conditions, multiple industry specific events and the cyclic off election year impact on our advocacy businesses. When comparing our net revenues to the most recent non election year in 2021, our net revenues on a like for like basis increased 5% for the full year.

Speaker 2

When we discussed our Q3 results a few months ago, market called for a bottom. In line with this, in the Q4, there were indications that the macroeconomic and industry specific challenges experienced throughout the year were beginning to abate. For the quarter, we reported revenue of $655,000,000 a decline of 8% as compared to the same period in the prior year. Net revenue excluding pass through costs declined 6% for the same period to 551,000,000 dollars but importantly increased sequentially from $535,000,000 in Q3. We also observed additional positive trends developing over the year.

Speaker 2

Throughout 'twenty three, we saw our largest customers invest in their relationship with our agencies. Our top 100 customers in 2023 grew to 48% of total net revenue. For the full year, this group of customers increased our year over year net revenues by 7%. This growth was more pronounced among our top 10 customers, which drove an 11% increase in our year over year net revenue. These companies are among the most recognized brands in the world, leaders in technology, business services, consumer and transportation.

Speaker 2

The growth resulted from both increased spending on existing projects as well as the addition of several new assignments. Examining the revenue by capability, the Q4 marked a turning point for both our digital transformation and consumer insights businesses after bottoming in the 3rd quarter. While headwinds have not completely dissipated for either capability, the year over year decline in net revenue was significantly smaller in the 4th quarter than it had been in the prior quarters during the year. In Q4, digital transformation delivered $133,000,000 in net revenue, a decline of 9% year over year. For the full year, net revenue was $529,000,000 representing a year over year decline of 15%.

Speaker 2

Excluding advocacy, which is in the north election cycle year, the capability declined a much smaller 3% Q4. This is a significant improvement compared to the 17% decline in revenue in the Q3. The sequential ex advocacy improvement was driven by technology customers, which began putting dollars to work with our digital transformation agencies. This gives us optimism that digital transformation will return to growth in 2024. Consumer insights and strategy reported $52,000,000 in net revenue in the Q4, a decline of 3% year over year.

Speaker 2

For the full year, net revenue declined 4% to $199,000,000 The writers and actors' guild strike had a residual impact on this capability running over into the Q4, but we were still able to post sequential improvement overall for the quarter. The decline of 3% in the 4th quarter is a meaningful improvement over the 9% decline in Q3, providing more optimism that the trend is reversing. Outside of the media and entertainment verticals, the capability performed well in 'twenty three, posting 6% growth, led by gains in automotive, consumer products and transportation. Performance Media and Data reported $75,000,000 in net revenue for the quarter, an increase of 1% over the prior period. The non recurrence of a large automotive media placement weighed on the growth during the quarter.

Speaker 2

Despite that, the full year's net revenue increased 5% to $285,000,000 Creativity and Communications delivered $235,000,000 in net revenue in the 4th quarter, a decline of 6% over the prior period. Excluding advocacy, the net revenue decline was 5% for the full year. Excuse me, for the full year, creativity and communications posted $936,000,000 in net revenue, a decline of 3%. Excluding efficacy, the decline was only 2%. The capability was impacted by several factors in the quarter, including the after effects of strikes on our auto customers and macroeconomic uncertainty weighing on some of our retail and technology customers.

Speaker 2

Stagwell Marketing Cloud Group delivered $55,000,000 in net revenue in the 4th quarter, representing a 6% decrease over the prior comparable period. $45,000,000 of this net revenue came from our Advanced Media Platforms Group and approximately $10,000,000 was derived from our software platform products. For the full year, SMCG delivered $198,000,000 in net revenue, representing a 31% increase over 2022. The suite of software products continues to be a key strategic investment priority for us. For the full year, we increased our investment in this product group by $20,000,000 over the prior year.

Speaker 2

International delivered 17% of our consolidated net revenue for 2023 and grew 13% for the full year, led by particularly strong growth of 17% in EMEA and 5% in Asia Pacific. Management has taken decisive actions in response to the persistent pressure on revenue during the year. In the Q4, we took additional steps to align our staffing costs with trending revenue, eliminating $16,000,000 of annualized salaries and bringing our full year annualized actions to 98,000,000 dollars Our headcount exiting the year was 4% lower than at the beginning of the year. Our actions have resulted in a reduction in the staff cost ratio to 64.3% in Q4 from 67% at the end of Q1, an improvement of 2 70 basis points. And we continue to monitor our staff course carefully as we transition to increasing revenues in 2024.

Speaker 2

General and administrative costs accounted for 18% of net revenue in the Q4. This is an improvement of 60 basis points versus the Q1 as we took steps to lower discretionary spending. Noteworthy specifics include real estate consolidation, which has been a significant priority for us since the merger. In 2023, we realized an additional $4,000,000 of annualized savings, bringing the total annualized savings from real estate actions to more than $7,000,000 since the merger. The implementation of our global ERP and HR systems is now nearly complete.

Speaker 2

Our focus is now shifting to consolidating our agency's finance organizations to our shared services platform. Based on actions taken throughout 2023, more than $4,000,000 of annualized savings have been realized through this initiative. And the HR team has taken further steps to reduce costs by consolidating resources where appropriate. In recruiting, the implementation of a new global applicant tracking system has reduced recruiting costs by more than $2,500,000 year over year. The totality of our actions has led to Q4 adjusted EBITDA of $95,000,000 or 17% margin on net revenue.

Speaker 2

For the full year, adjusted EBITDA was $360,000,000 also at a margin of 17%. As I mentioned previously, we've continued to make strategic investments in the Strat Wealth Marketing Cloud. Excluding the incremental $20,000,000 of investment in 20 23, our full year adjusted EBITDA margin would have been approximately 130 basis points higher or approximately 18%. During the quarter, we also sold Concentric Life, which was no longer a core strategic asset in our portfolio. Gross proceeds from the transaction were $245,000,000 Adjusting for transaction costs, we received approximately $230,000,000 in cash, resulting in a taxable gain of $175,000,000 The amount reported in our year end financial statements is lower than the taxable gain as a result of the approximately $100,000,000 of non cash goodwill relieved from the balance sheet in connection with the sale.

Speaker 2

As a result of our collective actions in the Q4, we generated consolidated net income of $46,000,000 as compared to a net loss of $43,000,000 in the prior year. For the full year, consolidated net income came to $42,000,000 versus $50,000,000 in 2022. And moving to the balance sheet. We continue to take actions to improve the strength of the long term balance sheet. Starting with deferred acquisition consideration, we reduced obligations by approximately $60,000,000 from year end 2022 to $101,000,000 at the end of 2023.

Speaker 2

Excluding the impact of our recently announced acquisitions, the year end DAC balance would have been $97,000,000 in line with what we communicated previously. We're now on track to reduce our DAC obligations to approximately $40,000,000 by the end of 2024. We also acquired 3,300,000 shares during the quarter at an average price of $5.21 per share for approximately $17,000,000 This brings our total buyback activity year to date inclusive of the Alpinest transaction announced on our Q1 call to approximately $209,000,000 representing approximately 33,000,000 shares at an average price of $6.30 Our existing buyback authorization as of year end has $139,000,000 in remaining availability. CapEx and capitalized software for the quarter was $11,000,000 bringing our full year CapEx and capitalized software to $42,000,000 which is in line with our guidelines. As a result, we ended the quarter year with cash of $120,000,000 and drawings under our revolver of $59,000,000 Our leverage ratio at year end was 2.9 times.

Speaker 2

And finally, moving to 2024 guidance, as highlighted by Mark in his remarks, we are guiding to full year 2024 as follows. Organic net revenue growth is expected to be between 5% to 7%. Organic net revenue, excluding advocacy growth, is expected to be 4% to 5%. Adjusted EBITDA is expected to be between $400,000,000 to $450,000,000 We expect to deliver approximately 50% free cash flow conversion and adjusted earnings per share is expected to be between $0.75 and $0.88 That concludes our prepared remarks for this morning. I will now turn the call back over to Ben Alanson to open the Q and A portion of the call.

Operator

Thank you, Frank. If you have any questions, please do submit them via the chat button at the top of the screen. We're going start today with a question from Steve Cahill. Steve has asked here, we've seen core creative slow at some of your peers. Was that part of the Q4 trend that resulted in growth in EBITDA coming a little bit below expectations?

Speaker 1

I think that a lot of our core creative tends to be a little bit more project oriented. So I think that it can ebb and flow more easily than some of the others. I was generally satisfied with the performance of the core creative given the overall marketplace. And I think that if you look then at a lot of stuff pushed into this year because I think we had a really strong Super Bowl presence.

Operator

Next question from Mark Zgutowicz over at Benchmark. Can you provide a bit of an update on your big tech client spending? And has visibility here improved a little bit this year?

Speaker 1

I think we're seeing big tech ease up. I think that we really saw this dramatic cutback at the beginning of last year that extended through the year. I think in the Q4, as I said, I thought it would take about 2 quarters to see recovery. I think we've had 1 tech company really where we've expanded almost 50% to 100% without even a pitch. Some of the companies that have cut back and gone into 0.

Speaker 1

So I'm not going to say that they're back to a full spend, but I think that they have considerably started to ease up and we saw that start happening in the Q4 and I expect that to continue into the Q1. Look, I think that the work that they're going to need to get AI working and coordinated with their own consumers is going to be huge here. I think you see it in companies in How much work is really going to be required in How much work is really going to be required in the digital transformation world and in that? I think it's just a matter of time before those floodgates get open. I don't think they're open yet.

Speaker 1

I'd be surprised if they didn't open up by midyear.

Operator

Maybe playing off that a question from Jason Carrara over at Craig Hallum. Can you just walk through some of the digital transformation trends we're seeing today and how that perhaps plays into guidance for the new year?

Speaker 1

AI, AI and AI. Look, I think that this is going from the year of efficiency where I think the tech companies manage to recover their bottom line very strongly by cutting back what they're doing into what is a year of competition. I think nobody owns the cloud anymore. I think nobody owns AI. I think the 2 biggest things out there now are going to see really active competition.

Speaker 1

And that means the big tech companies are going to have to invest in both their own products and in the marketing of those products and in winning over consumers.

Operator

Great. Maybe on the AI question, Jeff Ansindran of B. Riley, can you speak more about your AI initiatives for 2024 and where you expect to gain the most traction, maybe touch a little bit on margin contribution now that might shift?

Speaker 1

Look, I think ultimately the most traction will be in developing AI applications for our clients. I think you have to look at every website and say, is it doing the best job that it can do, given AI? Look at some of the things we're doing where people are going to say something like, Wow, I want to hold an office party or I want to hold an earnings call. Tell me all the things I need. So rather than having to go specify everything, AI is going to figure that out for you.

Speaker 1

It's going to transform the shopping and communication experience that people have. I think that is going to be the biggest area and our biggest area of weakness over this year, which has been the digital transformation. And by the way, digital transformation industry saw weakness across the board in a lot of the players here. I think that's going to fill up with these kinds of assignments. Obviously, we're incorporating it in our products, Prophit, Quest AI.

Speaker 1

And obviously, we are looking to simplify our own internal procedures, even down to like the reading of all the hundreds of thousands of bills that come in using AI. So it is at all levels. But I think the biggest thing is that out there, virtually every company is going to get organized now, figure out how is it going to apply AI, particularly to the last mile, how we communicate with your consumer.

Operator

Great. Just pivoting to advocacy for a second, a question about advocacy spend. Last week, a TV broadcast talked about Trump campaign using funds for legal fees versus advertising. Do you see 2024 political ad spend at risk versus product cycles?

Speaker 1

No, I think that if anything, you can be sure this is going to be an all out slugfest of the highest possible dimensions and proportions. The closer the country is, and this is a very close country, the more political spending goes to infinity, because that very last vote determines the fate of the nation literally. So I think all indications are, and our early indications are that this is going to be the strongest political cycle in history.

Operator

Maybe a question for Frank here just a little bit. How should we think about Q1 seasonality relative to a year ago as bated to the guidance?

Speaker 2

I think the overall pattern remains the same. I think the actions though that we have taken, particularly on the cost side, put us in a better position than perhaps last year entering the first which is generally the softest quarter of the year.

Operator

And maybe on the costs as well. Laura Martin and Needham says great year over year cost cutting in Q4. How much more cost cutting do you think you can achieve in 2024?

Speaker 2

I think we'll see more cost cutting. Mark talked about the $35,000,000 initiative that we have out there. So we're pursuing that. I mentioned in my script that we've nearly completed the rollout of the ERP systems and the big platform systems. Now we're going to start to move the organizations onto the shared service platform, which we expect to realize incremental savings from.

Speaker 2

So I think there is room for more savings here.

Speaker 1

But I don't think you have to look at savings just in terms of kind of standard cutbacks. I think you'll look at the kind of inventive things that we're doing to save. The application of AI internally, the creation of a new central production group, right, that will greatly reduce internal production costs. The creation of a new survey panel, we spent $50,000,000 on outside survey. So the ability to in house and produce more of those basic costs of goods is really going to, I think, be very much behind the next phase of cost reduction, as well as the kind of offshoring that we're doing for simplified tasks.

Speaker 1

If people aren't in the office, and I guess we'll be in the office a long, long way in a lower cost jurisdiction. So I think that we're going to apply all of those things to continue to drive costs down in what I believe is the cost decline in industry.

Operator

A couple more questions just to wrap it up. First from an investor, can management comment on any other non core assets that might be for sale and what would be an approximate range of value for these assets?

Speaker 1

I think we're looking at a sale that I thought might take place by the end of the year that I think is going to be later in the year, probably something about a half or a little bit more than half the size of the last disposition. I have 1 or 2 others. I do think that we're going to continue to look at our portfolio and say, look at those things that are non core and somewhere between $100,000,000 $200,000,000 a year, say maybe we can better invest at a lower multiple in the areas that are core to us and also take advantage of the fact that we have an incredible platform and we've grown some amazing companies over time here that have spectacular values that aren't fully realized in the marketplace

Operator

yet. Great. And final question, and this is on guidance. We've had it from a few people from Barton over at Rosenblatt and from Steve at Wells Fargo. Can we just talk a little bit about some of your learnings from the guidance process last year?

Operator

And I'm trying to what makes this year's guidance sufficiently derisked in your view? Well, look,

Speaker 1

I think we heard you. I think that first, many of the moves that occurred in the marketplace were unprecedented. We've been doing this for 8 years or so. And outside the pandemic, we haven't had a situation as we did where say 3 major clients cut back $50,000,000 of fees so quickly as you saw the year of efficiency come in. I think second, we have really cut costs significantly during the year, have significant additional goals for cutting costs.

Speaker 1

And I think we were coming off of that a really strong, heady 2022 that had really high levels of labor. And also this is a political year in what we expect to be a political year. And we have hedged the budgets here to really try to be prudent in the kind of projections that we're making. And finally, as I mentioned, we're informed by being able to take a peek at the numbers coming in the chain.

Operator

That's the end of the Q and A session from us. Thank you, Mark. Thank you, Frank. We hope you'll join us on the Q1 call coming up later this year. Thank you.

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Key Takeaways

  • Strong financial performance and outlook: In 2023 Stagwell delivered $2.53 billion in revenue, $360 million of adjusted EBITDA at a 17% margin, and guides 2024 organic net revenue growth of 5–7% with adjusted EBITDA of $400–450 million and ~50% free cash flow conversion.
  • Capital structure and portfolio optimization: The company completed a secondary share offering, bought out Alpinvest, reduced share count by 12% through buybacks, and sold Concentric Life for $245 million at 18x EBITDA—generating a $175 million taxable gain while replacing the revenue and EBITDA.
  • Return to revenue growth in Q4: Stagwell saw sequential net revenue growth to $551 million, with performance media and data up 1% in Q4 (+5% FY), digital transformation ex-advocacy decline improving from –17% in Q3 to –3% in Q4, and top 100 clients growing 13% year-over-year.
  • Effective cost management: Actions in 2023 delivered $98 million of annualized savings (including $16 million in Q4), $30 million of synergies achieved ahead of schedule, plus $4 million real estate and $4 million shared services savings, with a further $35 million of efficiencies targeted for 2024.
  • Investments in technology and global expansion: Stagwell grew its Marketing Cloud net revenue 31% in 2023, formed Gen AI and performance TV partnerships, acquired digital and creative agencies (e.g., Left Field Labs, Huskies, Sidekick), and achieved 13% international growth while planning entry into 10 new markets.
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Earnings Conference Call
Stagwell Q4 2023
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