Q4 2024 Stagwell Inc Earnings Call
Spangles offices in Florida, welcome to Stag, well Inc's fourth quarter and full year 2024 earnings webcast. My name is Ben Alison and I lead the Investor relations function here at stag well.
Speaker Change: With me today are Mark Penn Stag, Rawls, Chairman and Chief Executive Officer, and Frank Linda.
Frank Linda: <unk> financial officer.
Frank Linda: Mark will provide a business update and Frank will share our financial review.
Frank Linda: After the prepared remarks, we will open the floor for Q&A, you're welcome to submit questions through the chat function.
Frank Linda: Before we begin I'd like to remind you that the Fuller remarks include forward looking statements and non-GAAP financial data.
Frank Linda: Looking statements about the company, including those related to earnings guidance also dipped to one certainties and risk factors addressed in our earnings release slide presentation, and the Companys SEC filings.
Frank Linda: Please refer to our website staggered global Dot com forward slash 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.
Bob: I'd like to turn the call over to our chairman and CEO Bob <unk>.
Speaker Change: Thank you Ben and thank you for everyone joining us for our earnings call.
Speaker Change: 2024, it was a breakthrough year for stag well we.
Speaker Change: <unk> ourselves as the fastest growing business in the industry accelerated rapidly in digital transformation and worked diligently in an unprecedented U S election cycle and made strategic investments to expand our capabilities and geographical reach the.
Speaker Change: The result.
Speaker Change: <unk> 2024 work sets the stage for another period of best in class growth in 2025 and beyond.
Speaker Change: Q4 marked the continuation of the improving trends we saw throughout the year during the quarter. We grew revenue by 20% net revenue by 14%.
Speaker Change: These results were driven by continued strong momentum in digital transformation, which grew revenue by 22% net revenue by 15% year over year and by performance media and data, which grew revenue by 12% and net revenue by 16% year over year.
Speaker Change: Adjusted EBITDA for the fourth quarter was $123 million as we continue to invest in growing our cloud and AI based software solutions. We also made strong progress in managing our cost structure, bringing our comp to revenue ratio down to 57, 5% a record low for stag Roe.
Speaker Change: For the full year, Sag well posted revenue of $2 84 billion growth of 12% over the prior year net revenue of $2 3 billion growth of 7% and adjusted EBITDA of $411 million, representing an 18% margin an improvement of 120 bps versus 2023.
Speaker Change: <unk> returned to industry, leading growth was due to five breakthroughs first we saw a rebound followed by an acceleration in our digital transformation businesses.
Speaker Change: We saw growth of 12% among our tech customers within digital transformation in the fourth quarter led by code and theories unique blend of engineering expertise and creative ability.
Speaker Change: Election day coat in theory launched context lens in collaboration with real clear politics.
Speaker Change: Cutting edge anticipatory generative AI tool that offers relevant visual polling data for deeper insight into political trends and Leftfield labs created best phones Forever AI Road trip degenerative AI powered campaign for Google pixel, which <unk> Gemini and imagine to respond to fans suggestions.
Speaker Change: Interactive adventure with Google pixel highest performing Instagram post. This is just a taste of what we can do with AI for brands as I discussed with you on musk at CES in early January 2025. This is the year where companies begin to recognize what AI can do and bill.
Speaker Change: Applications around it and our digital transformation agencies are ready to do just that second results were strengthened by the culmination of the U S election cycle with an unprecedented political AD spend our advocacy businesses grew 80% in the fourth quarter targeted victory raised $400 million in low dollar.
Speaker Change: Contributions and support it over 100 candidates and political groups SK Dk created printed and sent over $86 7 million pieces of mail rode over 3000 scripts and produced nearly a thousand ads in 100 film shoots.
Speaker Change: <unk>, our best in class power text messaging platform supported over 500, political and advocacy organization, sending more than 4 billion text messages to support organizations fundraising voter contact and get out the vote efforts.
Speaker Change: While advocacy will experience headwinds in 2025 due to the lack of a federal election cycle, we still expect it to be a solid year and advocacy, we anticipate an uptick in public affairs in issue advocacy campaigns. This year and remain very optimistic looking ahead to the bid terms.
Speaker Change: In 2026, and 2028 presidential cycle, which should break all records with primaries on both sides third our new business momentum continued as we posted $102 million and net new business the third consecutive quarter with net new business figures in excess of $100 million. This brings our.
Speaker Change: Trailing 12 month figure to $382 million yet another record for the company. This year and figure is 111 million larger than in 2020 369 million larger than 100 <unk>.
Speaker Change: 2022.
Speaker Change: The results in the fourth quarter were led by high profile wins with Starbucks to Lantus and target and we've seen this momentum continue into the new year with recently announced wins with mass mutual and work breaking just today with visa. These wins show that we are winning ever larger mandates with the world's leading companies.
Speaker Change: Our average top customer is now a 25 million dollar relationship.
Speaker Change: The thesis of stag well is that as we scale, we will climb the ladder up to larger and larger assignments and that is exactly what is happening now.
Speaker Change: Our number one client scales to over $80 million of work a year and tech companies are four out of five of our top clients underscoring that we are truly a tech companies tech companies.
Speaker Change: Stag will made significant investments to enhance our tools to help marketers in the fourth quarter, we invested $23 million in opex to grow our cloud and AI based software solutions. This brings our full year investment in the established marketing cloud to approximately $70 million. These investments are begin.
Speaker Change: To pay off as described what marketing cloud delivered 24% revenue growth in the fourth quarter.
Speaker Change: Third consecutive quarter of double digit growth and so our long term margin is considerably understated by these opex investments.
Speaker Change: We also made strong progress in our stack well I'd graph to centralize our data and information to better target consumers and we are on the cusp of launching the machine a fully integrated AI based content development platform built in conjunction with Adobe votes are scheduled for summer launch.
Speaker Change: Finally, stag will was also aggressive in M&A throughout 2024 announcing 11 transactions. Our biggest move was our push in the middle East a region in which we see a number of opportunities led by the acquisition of console them a highly regarded public affairs agency and of leaders in Israeli Social agency.
Speaker Change: More than 150% growth in net revenue in the region in 2024, as we've grown our head count to more than 500 people there.
Speaker Change: We continue to push in the region and closed the year strongly by announcing our intent to acquire create group of deals that should close before the end of the first quarter. We also augmented our presence in Europe with the acquisitions of sidekick.
Speaker Change: A UK digital and experiential agency and W and P. A best in class French Creative agency in Latin America, we added a foothold with pros a resilient PR and social agency in early in 2025, we announced our agreement to acquire <unk> Global which will give us offices in 10 Asia.
Speaker Change: It increases our head count in the region to over 2004.
Speaker Change: From a capability standpoint, we added to our multicultural experiential expertise with the addition to the team of Tiffany while strengthening the SMC suite of SaaS products through the acquisitions of <unk> and AI enabled social listening and video monitoring company and Barrett Dot AI and AI based brand tracking product.
Speaker Change: We believe that stag wealth M&A machine is underappreciated by the investment community over the last nine years Douglas growing from an idea to more than $2 8 billion revenue company and it is it is there today because of the investment platform. We have built combined with incredible organic growth opportunities afforded by the expanding network.
Speaker Change: These acquisitions are placed into the result of these five breakthroughs was a second half that comfortably outstripped the industry. Our second half total net revenue growth of 11% with more than 400 basis points stronger than our nearest competitor while organic net revenue growth of 9% was almost 300 basis.
Speaker Change: <unk> is uniquely positioned heading into 2025 to take advantage of a rapidly changing industry landscape no one else has or goldilocks, Brent blend of industry, leading capabilities geographical scale and meaningful size. We're excited for what the new year will bring and we're confident in issuing 2020.
Speaker Change: Five guidance of total net revenue growth of approximately 8% adjusted EBITDA of $410 million to $460 million free cash flow conversion of over 45% adjusted earnings per share of <unk>, 75% to 88%.
Speaker Change: I think it's important to look not just at organic growth, but our total growth as we are aggressively adding new geographies and we are.
Speaker Change: Still a relative teenager on the on the way up the ladder of scale, we will guide to total growth from now on but to avoid any confusion as we make this transition we expect next year advocacy to fall off by about 30%, but non advocacy to grow organically in the five and a half to seven 5% range.
Speaker Change: Led by double digit growth of our digital transformation units.
Speaker Change: Putting all of this together.
Speaker Change: When you look at the the dike.
The decline of the political cycle, and our continued organic growth and our new acquisitions, we expect to achieve 8% total growth in 2025 and understanding the components of total growth is the key to understanding our path to unlimited future growth and scale.
Speaker Change: Before Frank <unk>, our Chief Financial Officer walks through some of our financial results in more detail I wanted to share with you short video with you that shows just how transformational 2024. It was for <unk>. The video combined teams from some of our best work enhanced with AI and driven by Adobe's innovative new AI based.
Speaker Change: Firefly video tool that we are beta testing the.
Speaker Change: The video showcases stag was outstanding client work, new innovations and incredible wins from across the network, let's roll.
Speaker Change: 2024 was a breakthrough year for stag well.
Speaker Change: The challenger network delivered industry, leading growth for the quarter was $630 million in net revenue.
Speaker Change: $123 million and adjusted EBITDA and for the year with double digit expansion and $2 8 billion in revenue $2 3 billion in net revenue and $411 million and adjusted EBITDA, We achieved $382 million and net new business Another company record.
Speaker Change: Breakthrough growth was driven by that.
Speaker Change: Best in class client work.
Speaker Change: And winning multiyear assignment.
Speaker Change: Strategic global expansion.
Speaker Change: Strong performance in digital and the stag well marketing cloud.
Speaker Change: And historic year for advocacy.
Speaker Change: We are the Goldilocks company.
Speaker Change: Okay.
Speaker Change: The right mix of collaboration and scale matters.
Speaker Change: In 2025, we will drive another year of transformational growth.
Speaker Change: You bet.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: 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 prepared remarks conclude please feel free to submit them through the chat function.
Speaker Change: Stag will delivered strong fourth quarter financial results capping a breakthrough year for the company.
Speaker Change: For the quarter, we reported revenue of $789 million, an increase of 20% as compared to the same period in the prior year.
Speaker Change: Net revenue of $630 million, an increase of 14% over the prior period.
Speaker Change: For the full year revenue grew 12% to $2 84 billion and net revenue grew 7% to $2 3 billion.
Speaker Change: In the fourth quarter digital transformation revenue grew 22% to $182 million led by strong performances in our advocacy businesses as well as growth of 12% among tech customers.
Speaker Change: We have seen an uptick in the number of AI projects that our digital transformation agencies have been selected for indicating that we are at the beginning of a new wave of AI driven digital transformation work.
For the full year digital transformation, 13% to $718 million.
Speaker Change: Several marketing cloud posted $81 million in revenue in the fourth quarter, an increase of 24% over the prior year.
Speaker Change: Driven by significant growth in Wonder case, our advocacy focused text messaging platform as well as strength, among our retail communications and technology customers.
Speaker Change: For the full year, SMC grew 19% to $280 million in revenue.
Speaker Change: Performance media and data reported $89 million in revenue in the fourth quarter with growth accelerating to 12% over the prior period.
Speaker Change: The growth was driven by continued strength in the consumer products healthcare and business services sectors.
Speaker Change: The strength in technology, which began in the third quarter continued in Q4 sectors revenue grew more than 60%.
Speaker Change: For the full year revenue grew to $324 million a year over year increase of 10%.
Speaker Change: Creativity and communications delivered $387 million of revenue in the fourth quarter, an increase of 25% over the prior period. The results were driven by significant new business wins in the retail technology and automotive sectors organic growth with our existing customers.
Speaker Change: And by strength in our advocacy businesses.
Speaker Change: For the full year revenue grew to $1 33 billion, an increase of 14% over the prior year.
Speaker Change: And consumer insights strategy reported $50 million of revenue in the fourth quarter, a decrease of 1% as compared to the prior year.
Speaker Change: For the full year revenue was $190 million, a decrease of 1% over the prior year.
Speaker Change: Results in the fourth quarter and for the full year were bolstered by a record breaking political season.
Speaker Change: Because see revenue in the fourth quarter rose to $127 million, an increase of 80% year over year and 46% over the prior political cycle.
Speaker Change: For the full year advocacy revenue increased 72% to $363 million, an increase of 18% over the prior political cycle.
Speaker Change: And excluding advocacy total company revenues increased 13% year over year in the fourth quarter and 7% for the full year.
Speaker Change: Moving to operating expenses, we continue to improve margins through effective cost management.
Speaker Change: Personnel cost excluding incentives our single largest expense declined in the fourth quarter to 57, 5% of net revenue or 320 basis points lower versus the prior period.
Speaker Change: We also made further progress on our cost savings initiatives in the fourth quarter and throughout 'twenty four.
Speaker Change: In the fourth quarter, we identified an action of approximately $6 million in annualized real estate savings through the consolidation of legacy office space into a regional hub model.
Speaker Change: This brings our 24 annualized real estate synergies to more than $10 billion.
Speaker Change: We also identified in actions more than $4 million. In addition, additional annualized savings through the centralization of software and technology costs.
Speaker Change: As a result that will delivered $123 million and adjusted EBIT in the fourth quarter with a margin of 19, 6% on net revenue an improvement of approximately 230 basis points over the prior period.
Speaker Change: Excluding our cloud investment of $23 million this quarter, our fourth quarter adjusted EBITDA margin would've been approximately 23, 2%.
Speaker Change: For the full year adjusted EBITDA came in at $411 million, representing a margin of 18% on net revenue an improvement of 120 basis points over the prior year.
Speaker Change: Again, adjusting for our cloud investment our full year margin would've been approximately 21%.
Speaker Change: Now moving to the balance sheet, we continue to focus on capital allocation to maintain a strong financial position.
Speaker Change: Our debt balance ticked up in the fourth quarter as we added a number of larger acquisitions at $102 million. The DAC balance is in line with the year end 2023 balanced, but it's approximately still $60 million less than that of year end 2022.
Speaker Change: Throughout 2024, we announced 11 acquisitions and continue to focus on keeping our debt balance at prudent levels through appropriate structuring of transactions.
Speaker Change: We also reduced NCI balances by approximately $10 million year over year down to $22 million.
Speaker Change: And during the quarter, we acquired approximately 1 million shares at an average price of $6 61 per share for approximately $7 million.
Speaker Change: This brings our full year repurchases to $14 8 million shares at an average price of $6 31 or approximately $93 million.
Speaker Change: Our buyback authorization as of year end still had $170 million in remaining availability.
Speaker Change: Capex and capitalized software for the quarter was $18 million, which is broadly in line with our targets.
Speaker Change: Cash flows from operations for the full year improved $63 million relative to 2023, driven principally by improvements in our working capital management.
Speaker Change: As a result, we ended the year with $131 million cash and drawings under our revolver of $264 million, resulting in a leverage ratio of three times.
Speaker Change: Finally, as Mark noted we are issuing full year 2025 guidance as follows.
Speaker Change: Total net revenue growth is expected to be approximately 8% adjusted.
Speaker Change: Adjusted EBITDA is expected to be between $410 billion to $460 million.
Speaker Change: We expect to deliver in excess of 45% free cash flow conversion and adjusted earnings per share is expected to be between 75 and 88 cents.
Speaker Change: That concludes our prepared remarks for this morning, I will now turn the call back over to Ben to open the Q&A portion of the call.
Ben: Thank you Frank.
Speaker Change: If you do have any questions. Please submit them via the chat button at the top of the screen, we're going to start with sort of the question. We have received from a number of investors that this is about a change in guidance philosophy and moving to total net revenue growth. Perhaps you can just go a little bit more into why that changes come about as well as talk a little bit about this stuff well.
Ben: I think I realize that people were.
Ben: Grossly underestimated in kind of the growth machine that we have built here.
Ben: As we grow and we continue to scale up in the industry, we're very efficient at deploying capital.
Lower levels than theirs.
Ben: There has been accretive to our business model as opposed to what you see in the industry, where they do the opposite but you have to combine that with the organic growth that youll see is led by digital transformation and you'll see we have a very strong picture of five five to seven 5% nonpolitical organic growth for next year, because we're really firing on all cylinders.
Ben: We are we are bringing in new scaled accounts at a much higher level than ever before we are doing expanding our network into new regions that are providing new opportunities. We are beginning to get past. The first round of government contracts that will add another 10% to 15%.
Ben: To this business. So I think people have to look at the totality of it I think that they were missing that still going to be ready to figure out how organic growth is working but we earn a very strong organic growth mode. I had a peak of January and January is the strongest January that we've had in the history of the company.
Ben: Good stuff.
Ben: Let's say, it's 10, a little bit to digital transformation a number of questions. We receive from analysts about digital transformation. One said after two consecutive quarters now really really nice strong growth in digital transformation.
Ben: Could you just maybe talk about any changes that we've seen over the course of the last six months in particular, which has led to this were really strong rebound in acceleration in the cases that absolutely and I think that I've been very clear.
Ben: We thought that the tech companies went into efficiency mode and now they are in competition mode and with AI is breaking on the scene and clients are going to have to adapt to AI and we are set up with this combination of designers and engineers in particular to help companies implement.
Ben: The agenda.
Ben: Hi.
Speaker Change: Really kind of be critical to the connection that companies have with consumers.
Speaker Change: Redoing all of the websites now to be AI base to really understand how the layer of information and data.
Speaker Change: We have about two will influence how both advertisements and web construct and the things that you see when you are gone or into our website. We will change based on knowing who you are the wonderful world of AI here is Rio you can't just build chips you can't have just centralized application.
Speaker Change: Every company needs a set of personalized.
Speaker Change: Well driven AI applications, we're going to be coming out with some really super interesting ones I hope people will come to an investor day that we've said we've set up in early April which will display I think some of those incredible things that are being built by the digital transformation teams of Stateline.
Speaker Change: Fantastic.
Speaker Change: Let's talk a little bit a question from Jason prior at Craig Hallum Here, how would you characterize the volume of RFP activity today versus what you saw maybe last year may how will we stockpiles positioning.
Speaker Change: In such a way to open we take advantage of potentially upticks in RFP or changing environments in the Austin market.
Speaker Change: We continue to have busier than ever flows of Rfps.
Speaker Change: We did over $1 3 billion of Rfps with generally.
Speaker Change: We generally don't participate in about 20% of those that were apps and our win ratio has been above 30%. We're clearly growing share out of these rfps, we expect to do about $1 5 billion of Rfps in 2025.
Speaker Change: Not counting the various government once we've now put in experts government contracts. We are the right scale and size now to begin to compete for those major contracts.
Speaker Change: For recruiting for HHS for for this major contracts, which are hundreds and hundreds of millions of dollars, which previously have done only to our competitors.
Speaker Change: Good stuff.
Speaker Change: Little bit about.
Speaker Change: About everything that's going on in the industry at the moment, obviously that was reported at the beginning of December about a potential merger between two of the largest players in the industry, Laura Martin asking as Youll competitors consolidate is that good for Stockwell Baptist Stag well in 2025 and beyond maybe some thoughts that you might have on that but I don't think people need another marketing.
Speaker Change: Behemoth out there.
Speaker Change: I don't see that the industrial logic of the Omnicom IPG merger suggests that it is a merger of strength.
Speaker Change: It's a merger fundamentally.
Speaker Change: Weakness for companies that got too big.
Speaker Change: Two big <unk>.
Speaker Change: Feeling with too many legacy assets theyre going to dump thousands and thousands of people back on the marketplace. They provide us with opportunities to pick up first great talent, who who don't want to be in a ship that's getting rid of $750 million of people, but want to be on something like stack, well, where they see the future oriented growth built on the latest.
Speaker Change: Hi, <unk>.
Speaker Change: Technology, where an exciting place to be over 200000 people applying to work for our company right now so I think that from that position and I think also clients as you can see when you look at our wins from Starbucks to visa target you can see that people want a more nimble digitally based but high level creative shop.
Speaker Change: But we really offer is the combination of highest level of creativity and technology as opposed to the idea that somehow.
Speaker Change: Faceless meaningless computer combined into a huge behemoth will really be the answer that's why I set up coming out of W. P. P Y I set up stag level in the first place because the market needed an alternative like <unk>.
Speaker Change: Good stuff.
McVeigh: Maybe a question just about the margin here additional camera Mcveigh of Morgan Stanley.
McVeigh: Obviously, we talk a lot about our investments in products and things, but where do we see a long term margin trending over time and when do you kind of expect us to get that potentially look I think youre going to see these significant investments.
McVeigh: Technology, probably continue through definitely through this year probably to half of <unk>.
McVeigh: Next year, and then I think youre going to see them significantly decline I think we're building the basics internally.
McVeigh: The machine. We are we are now dedicating more and more salespeople to the products across communications, which is now complete suite research, which is now a complete suite and the media pieces that we were in the verge of putting together. So I think youre going to see that for about a year and a half and then I think youre going to see that.
McVeigh: Wine and you really have to look at what our real margin. If it is is probably about 25% greater than youre seeing today and remember that as we take off on the on the on the tech products themselves. They tend to have $60 to 80% gross margins embedded in them as well.
McVeigh: Two more questions before we add before we wrap up just a little bit of an S&P a couple of questions coming through from a number of people could you just maybe talk about the strong momentum we began seeing that over the second half of 2024. What are you excited about with the products and heading into 2005 I really excited in the communications sector now we have really a complete suite.
McVeigh: The products, it's very competitive where profit, which as you know.
McVeigh: Earned which is the AI basis, we havent Influencer marketing platform and now we have global media monitoring which has tremendous value.
McVeigh: The value both for the rest of the agencies and offerings that started well and for the cloud I think than research with the addition of bearer. We now have a complete suite of research products and I think on the media thing. We're now putting together a suite that will first I think drive internally.
McVeigh: Very competitive product against Google assist on data and media, where we'll really have the latest in terms of how you apply it and I'd graph and how you use AI to really manage thousands of pieces of content and to vary and test them. So I think this is coming together its coming together incredibly well I think from start we felt it.
McVeigh: It's important to have a central Tech group to do services first to get 4000 clients, but really continue to invest in this technology I think youre going to see again in Investor Day, where these things are going and let me just mention our AI AR.
McVeigh: Our experienced stadiums with sponsors like.
McVeigh: Like Uber and others is way ahead of anybody else.
McVeigh: On the Investor Day question. This is our last question for the day, obviously, we're going to be holding this on April 2nd it'll be a virtual investor day.
McVeigh: A question from an Investor can you give us a little bit of a sneak peak is maybe something we might be able to see at the investor day coming up in about a month's time.
McVeigh: Okay.
McVeigh: I think I think the main thing for investors is you have to ask yourself okay.
McVeigh: This is a company with a long term growth profile I started at nine years ago within the system.
McVeigh: Sitting here with nearly $3 billion in revenue.
McVeigh: B can we scale up and be a true competitor in the industry and industry that wants better creative that once more nimble adaptation.
McVeigh: AI and wants to get rid of the old fashion models. The answer those two questions. Yes at Investor Day, I think youre going to have to say why aren't more people invested in Chicago, and then third you're going to get a peek at how we are applying the latest technologies, both to clients and internally to offer better more streamlined services.
McVeigh: I think it's going to be exciting I think that we're really showing that the <unk>.
McVeigh: <unk> of what we said, which is we would be the challenge our holding company that is the goldilocks size.
McVeigh: Not too big not too small just right for major clients around the world is coming to fruition.
McVeigh: Well with that that's the end of our Q&A session for today. Thank you so much for attending.
McVeigh: We hope you will be able to join US on April 2nd for our virtual Investor Day. Please keep an eye over the next couple of days for an invite for that as well as additional information about the day. Thank you very much.