Stagwell Inc. (NASDAQ:STGW) Q4 2023 Earnings Call Transcript

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. In EMEA net revenue grew 70% last year and this year we are expanding further, launching the European headquarters in London at the Blue Fin Building and appointing James Townsend as our first EMEA CEO. Our advocacy businesses in 2023, a non-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-hundred million dollar 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 billion at stake. Second, 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 150th 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.

This is a major milestone for this emerging technology from Stagwell. Third, we’re embarking upon an aggressive AI data and media strategy. We are building solutions that help our agencies and clients transform with the three E’s of AI, Enable them across operations, Efficiency in 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. 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, and 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. Remember that more than 1 in 10 Stagwell 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 profit 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.

Fourth, we will continue to streamline operations, 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 million to $30 million over the next 18 months. All the major agencies within our group are partnering on this and we expect it to be operational by mid-year. 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 2024. Now, I’ll hand things over to Frank Lanuto, our Chief Financial Officer, to walk you through some of our financial results in more detail.

Frank Lanuto: Thank you, Mark. Good morning, everyone, and thank you for joining us to discuss our fourth-quarter 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. When we discussed our Q3 results a few months ago, Mark had called for a bottom, in line with this in the fourth quarter, 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 million, 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 million, but importantly increased sequentially from $535 million in Q3. We’ve also observed additional positive trends developing over the year. Throughout ’23, 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 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.