Stagwell Inc.

Good morning, everyone. Welcome to the Stagwell, Inc. webcast for the third quarter of 2022. On today's webcast, Mark Penn, Chairman and Chief Executive Officer, will first provide an overview of Stagwell's third quarter, followed by a full review of the financial results from our Chief Financial Officer, Franklin Nudo. We will then take questions, which you can submit through the chat function on the video webcast portal. Before we begin our prepared remarks, I'd like to remind you the following discussion contains forward-looking statements, non-GAAP financial data. Forward-looking statements about the company, including those relating to earnings guidance, are subject to uncertainties referenced in the cautionary statements included in our earnings release and slide presentation and are further detailed in the company's SEC filings. unless otherwise stated comparisons to prior year periods and historical results discussed on this webcast will be pro forma for the combination giving full effect to historical results as if the combination had been completed on january 1st 2021 for your reference we've posted an investor presentation to our website at stagwellglobal.com We also refer you to this morning's press release and slide presentation for definitions, explanations, and reconciliations of non-GAAP financial data. And now to get started, I'd like to turn it over to our chairman and chief executive officer, Mark Penn.

Thank you, Michaela, and thank you for joining us to discuss Stagwell's third quarter 2022 results. Stagwell delivered another quarter of double digit organic growth, strong margin expansion, reduced net debt and record net new business. We continue to outgrow most of the large technology companies and are taking share from global marketing service incumbents. 3Q revenue was $664 million, a pro forma increase of 17% over the prior year with 16% organic growth. Year-to-date revenue is $1.98 billion, up 23% on both a reported and organic basis. Net revenue, which excludes pass-through costs, grew 12% to $556 million and was driven by 11% organic growth. Year-to-date, net revenue increased 16% to $1.64 billion, 17% organic growth. In addition to top line growth, third quarter margins and profitability were strong. Adjusted EBITDA increased 15% year over year to $115 million, and margins expanded 60 basis points to 20.7% of net revenue. Year to date, EBITDA is up 19% to $328 million, with margins expanding 50 basis points to 20%. We continue to manage labor costs effectively while making investments to support our rapid growth and new business generation. Our margin remains strong, even as our operating expenses include an incremental roughly $5 million in investments in Stagwell Marketing Cloud, which we'll discuss in greater length in a few minutes, and investments in technology services. Overall, our comp-to-revenue ratio remained consistent at 63%. Third quarter net new business was $86 million, our highest on record, and pitch activity has remained healthy, giving us confidence going into 2023. Our top 25 clients contributed an average of $6.1 million in net revenue per client, also a new record. Our strong growth in margins led to even more significant bottom line growth. Net income was $35 million in the third quarter and gap earnings per share were $0.08 and $0.21 on an adjusted basis. Year to date, we have generated $93 million in net income with gap earnings per share of $0.27 and $0.68 of adjusted EPS. We are on track for an estimated $0.90 per share of adjusted EPS. By any measure related to adjusted EPS, we believe our stock remains significantly undervalued in the marketplace. But I believe our story is beginning to get wider traction. In looking at Stagwell, some key facts and trends are emerging. One, Stagwell is positioned to gain share in the marketplace. Two, Stagwell has achieved far greater relative scale of the digital service layer than competitors while combining it with a full service creative offering. Three, Stagwell is effective at managing costs on both the upside and the downside. And four, Stagwell will not stand still, but will keep evolving to add significant SaaS offerings and new media platforms alongside its service business while maintaining our margin. Evidence is growing that we are gaining share in the marketplace, and this underscores the confidence we have in our capability to achieve our long-term growth scenario of 10 to 12% per year. As I reported, new business lagged in the second quarter, but after we went in force to the ConLion International Festival of Creativity, it picked up strongly and resulted in the record $86 million of net new business this quarter, which augurs well for 2023. Our creative agencies had numerous impressive wins, most notably at Anomaly and 72 and Sunny, primarily through scaled engagements in the range of $3 to $10 million in annual revenue. Anomaly secured the marquee creative pitch of this year when it was chosen to manage Bud Light's North American Creator. Other notable agency wins, including major new assignments from Dropbox, NFL, Stella, and Topgolf, and notable expansions with Microsoft, Salesforce, 3M, and General Mills. As with Bublite, we are increasingly in pitches against the big five holding companies and winning a proportionate share of them. We have eight major pitches in flight now against these competitors, and we'll have a record of over $1 billion of pitch opportunities this year as a result of our increased scale in the marketplace. Last month, we officially rebranded the Stagwell Media Network to the Brand Performance Network to reflect its integrated offering of creative media and connected commerce. As Edwig put it recently, the move means, quote, Stagwell clients and potential clients will view the network as a holistic marketing partner as opposed to a media-exclusive offering, end quote. Our digital layers, digital transformation, performance, media and data, and consumer insights and strategy continue their impressive performance. Combined, they grew net revenue 21% in the quarter on top of 38% growth in 3Q21 and have grown 30% year-to-date. Our digital transformation businesses led the network with 30% net revenue growth driven by triple-digit growth at our fully integrated digital agency, Gale, and our advocacy fundraising business, Targeted Victory. Creative Technology Code and Theory Network delivered another quarter of double digit growth and has grown 130% since 3Q 2020. Targeted Victory's growth was driven by online fundraising for political clients leading into the midterm elections next week. The fundraising season, which ramps up in late September, got off to a somewhat muted start relative to the presidential 2020 cycle. Polls show growing Republican leads and fewer hotly contested markets leading to lower engagement with low-dollar donors, especially in a persistent inflationary environment. We also saw a sizable one-time impact from Hurricane Ian, pausing our operations in Florida, a key market during the important quarter and push and well into October. At the same time, a potential runoff in Georgia could provide a boost, which would be even larger if it decides control of the Senate. We expect engagement to normalize next year as primaries kick off for what will undoubtedly be a record presidential cycle in 2024. Our performance media and data businesses increased 13% versus the prior year, driven by 60% growth in our travel media business as travel volumes returned after the pandemic, as well as strong demands for our connected TV and digital out-of-home offerings. Our third digital layer, consumer insights and strategy, also increased 13%, with continued strong demand at the Harris Poll, where Fortune 500 C-level executives are leading into larger brand strategy assignments. A critical part of the Stagwell structure is that we are organized now into discrete divisions run by dedicated and experienced leaders. While some others in the industry have let their labor costs get out of control, we have balanced productivity with labor costs so that our comp to revenue ratio has remained level this quarter. Our core services team is rapidly putting in standardized accounting and HR systems on schedule to enable lower-cost accounting services and capture synergies. We expect to be substantially done with this process by the middle of 2023. Strong free cash flow during the quarter allowed us to reduce our net debt by $125 million on our net leverage ratio to 2.7x towards our long-term goal of 2.5x. The third quarter also marked substantial progress for the Stagwell Marketing Cloud, our suite of proprietary SaaS and DAS solutions for in-house marketers. In September, we expanded upon our senior cloud leadership by welcoming Chief Technology Officer Mansoor Basha, who joins us from Accenture Supplied Intelligence Practice. At Accenture, Mansoor advised Fortune 500 companies on data transformation and applied artificial intelligence. He is leading SMC's technology roadmap, including cloud integration and development of a unified data architecture to connect the wealth of data generated across our cloud offerings. SMC is being structured around four divisions, each serving a specific type of marketer and executing against multibillion-dollar addressable markets. These include, first, the Research Data Hub, which will empower and enhance research professionals with convenient real-time tools for data analysis. We believe this is a $6 billion marketplace. The second cloud division is the context unit, which empowers and enhances communications professionals through artificial intelligence. These tools will be sold into the 55,000 PR firms in the U.S., nearly 3.5 million PR professionals worldwide. Third, the Media Studio Division will empower self-service media buyers with comprehensive capabilities to build audiences, plan to buy media across channels, and analyze the resulting campaigns on a do-it-yourself basis, which we estimate to be a nearly $20 billion market. Finally, our Specialty Media Division will empower and enhance media buyers with innovative ways to reach, engage, and monetize key consumer segments. This will take the form of new media channels across travel, sports, news, and dining. In August, we launched Around, a shared augmented reality experience for stadiums that was rolled out with the Minnesota Twins. Around is rolling out in the NFL, and we are in late stage planning with a major soccer league team as well, among numerous others. With Around, brands will soon be able to sponsor experiences and advertise to fan bases across three major sports. With more than 2,100 large-scale stadiums globally, we are just getting started. Over the coming quarters, we'll more formally be transitioning select products and businesses to the Stagwell Marketing Cloud as we execute against this roadmap. We'll be deploying these products across our own networks as well and leverage our 4,000-plus clients to bring them to the marketplace. Including the acquisitions we've made this year, we now expect the Stagwell Marketing Cloud, as we have defined it here, to generate roughly $140 million in revenue in 2023. We believe it has the opportunity to grow to a profitable $500 million run rate over the next five years. Learn more at www.stagwellmarketingcloud.com. course, the most frequently asked question is, is there a slowdown and what will you do if there is one? Frank will discuss our balance sheet, improved cash position, and reduced DAC payments. We will tread responsibly and cautiously into the next year, watching closely as we always have our expenses where they focus on maximizing cash flow. I believe we can use the next year to drive our debt ratio down further while launching the Stagwell Marketing Cloud and gaining share from competitors. Moving to our outlook, we're reaffirming our guidance for 13% to 17% net revenue growth, excluding advocacy, and $450 to $480 million of adjusted EBITDA. With additional visibility to the contribution from advocacy fundraising, we expect consolidated net revenue growth of 16% to 20% for the full year. We also expect to generate roughly $0.90 in adjusted earnings per share. As Stagwell continues to outpace rivals, I think more are coming to understand how our unique combination of talent and technology is transforming marketing and achieving high-value growth. We're gaining share with record new business wins, rapidly growing our digital services, managing and even increasing our margin, and are fast developing new offerings and high-tech products that can take us to the next level. Now here is what I call earnings the movie, a short film encapsulating the quarter, followed by Franklin Udo, our CFO, who will delve into more of the numbers.

Stagwell achieved another quarter of double-digit growth. Take a look at how the Challenger Network performed in Q3 2022. We delivered industry-leading growth and margins, including $556 million in net revenue and $115 million in adjusted EBITDA. Our growth was driven by continued strength across digital transformation, integrated media, and consumer insights. Stagwell remains the only full-service marketing network with a digital majority revenue mix. with 57% of our net revenue from digital services. New clients are joining us globally, with record new business wins setting us up for future success. And the Stagwell Marketing Cloud is accelerating with new acquisitions, new technology, new talent, and new solutions for marketers. We remain fiscally disciplined and expanded margin. We also generated strong free cash flow, reduced net debt by $125 million, returned capital to shareholders, sharpening our 2022 guidance. Q3 2022, another strong step forward. Learn more at stagwellglobal.com.

Thanks, Mark. Good morning, everyone. We're pleased to have you join us today to discuss our Q3 and 9-month results. As has been the case with our recent post-merger results, my comments today will include a limited discussion of our GAAP results, which will be supplemented with pro forma combined results as if the business combination occurred on January 1, 2021. Starting with our reported results, revenue for Q3 was $664 million versus $467 million for the same period in the prior year, or an increase of 42%. Net revenue, excluding pass-through costs, was $556 million versus $409 million in the prior period, or an increase of 36%. For the nine months, revenue was $1.98 billion versus $857 million for the same period in the prior year, or an increase of 131%. Net revenue, excluding pass-through costs, was $1.64 billion versus $749 million in the prior period, or an increase of 119%. Net income available to Stagwell Common shareholders was $10.6 million and $33.7 million for Q3 and the nine months ended, higher by $12.7 million and $13.5 million over the respective prior periods. DAP earnings per share available to Stagwell common shareholders was $0.08 and $0.27 for Q3 and the nine months ended, respectively, higher by $0.14 and $0.33 over the prior period. In Q3, the company introduced adjusted net income and adjusted EPS as additional performance measures. We believe adjusted net income and adjusted EPS are useful metrics to investors to evaluate the performance of the company more fully. Adjusted net income is defined as net income available to Stagwell common shareholders plus net income attributable to Class C shareholders, excluding amortization expense, impairment and other losses, stock-based compensation, deferred acquisition consideration adjustments, discrete tax items, and other. Adjusted EPS is defined as adjusted net income per diluted weighted share outstanding and is subject to the anti-dilution rules of U.S. GAAP. Adjusted earnings per share were 21 cents and 68 cents for Q3 and the nine months ended respectively. Moving to our balance sheet, during the quarter, the company completed the acquisitions of PEP Group Holdings, an omnichannel content creation and adaptation production company, and Apollo, a real-time artificial intelligence-powered software platform. During October, the company acquired Maroo Group Limited, a leading software experience and insights data platform company. Epicenter Experience, an enterprise software company that leverages mobile and location data to map complex consumer behavior patterns, and the remaining 80% equity interest it did not already own in Wolfgang, a creative agency combined with consultancy, strategy, and technology experience. As of September 30th, the company's deferred acquisition consideration obligations were $160 million compared with $197 million in Q2 and $222 million at year end. The company has now substantially completed its M&A activities for the year. For 2023, we expect to make approximately $60 million in cash stack payments compared to $72 million in 2022. During the quarter, we acquired approximately 2 million shares for $13.9 million under our stock repurchase program, returning capital to our shareholders. For the year, we have acquired a total of approximately 4 million shares for $28.7 million and have approximately $96 million remaining under the $125 million authorization. Net CapEx for the quarter and the nine months was $11 million and 25.5 million respectively, or approximately 1.2% of year-to-date revenue in line with our previous estimates. Moving to liquidity, as we anticipated, strong operating cash flows during the quarter reduced our net debt in the quarter by $125 million as we ended the quarter with $165 million in cash and $245 million drawn against our $500 million revolver. On September 30th, our net debt leverage ratio declined to 2.7 times, down from 3.1 times last quarter and 3.1 times a year ago, as we used a portion of our free cash flow to reduce our net debt level. We expect stronger cyclical cash flows to further reduce our net debt and leverage ratio in Q4. S&P Global recently increased our credit rating to BB- from B+, citing operating performance exceeding expectations and the anticipated material decline in leverage. This rating increase followed Moody's increase in our family credit rating to B1 from B2. The remainder of my comments will focus on a deeper discussion of the pro forma results of the company's operations for the third quarter and the nine months ended September 30th. Revenue for Q3 was $664 million versus $568 million in the prior year, or an increase of 17%. Net revenue for the quarter, excluding pass-through costs, increased 12% to $556 million from $498 million in the prior year. Ex-advocacy revenue and net revenue increased 10% and 7%, respectively. And for the nine months, revenue increased to $1.98 billion from $1.61 billion in the prior year, or an increase of 23%. Net revenue, excluding pass-through costs, increased to $1.64 billion from $1.41 billion in the prior year, or an increase of 16%. Ex-advocacy revenue and net revenue increased 19% and 14%, respectively. On an organic basis, net revenue increased by 11% and 17% for a quarter and nine months, respectively. Turning to our principal capabilities, we have grouped our business into four areas, including digital transformation, performance media and data, consumer insights and strategy, and creativity and communications. Digital transformation continued to deliver strong growth in 2022, up 28% in Q3 and 38% year-to-date on an organic basis, fueled by exceptional growth at Gale, election cycle growth at Targeted Victory, and steady client wins and expansions at Instrument and Code & Theory. Performance media and data was up 5% in Q3 and 13% year-to-date organically, driven by strong growth at Inc., our travel media business, ongoing expanding new business, as well as steady contributions from Multiview and Assembly. Consumer insights and strategy was up 11% in Q3 and 29% year-to-date on an organic basis, driven by strong growth at Harris Poll and continued contributions from NRG following very strong 2021 demand. Creativity and communications grew 5% in the quarter and 6% year-to-date organically. We experienced strong growth across the portfolio, offset by some reductions at agencies repositioning their brands. The growth was driven by strong growth at our advocacy business, SKD, Nicaragua, ahead of midterm election cycle. High growth in our experiential business team, rebounding from the pandemic. Continued demand in public relations at Allison and Hunter. Double-digit growth at Donor, combining Main Street and Modern, and steady growth at Anomaly, led by continued new business wins across the year. Turning to costs, adjusted EBITDA increased in Q3 to $115 million, or 15% from $100 million in the prior period, with an EBITDA margin of nearly 21%, higher from the prior period by approximately 60 basis points. For the nine months, adjusted EBITDA increased to $328 million, or approximately 19% growth, versus $274 million in the prior period, with an EBITDA margin of 20%, higher from the prior period by approximately 50 basis points. We continue to manage efficient compensation to revenue ratios at 63% for Q3 and just under 64% year to date while delivering approximately 25% of our incremental net revenue to EBITDA in Q3 and year to date. And finally, moving to our guidance, the company is reaffirming its guidance for 13% to 17% net revenue growth, excluding advocacy, and $450 to $480 million of adjusted EBITDA and adjusted earnings per share of 86 to 94 cents. With additional visibility into the contribution from advocacy fundraising, we expect consolidated net revenue of 16 to 20% for the full year. This reflects a more modest contribution from advocacy fundraising relative to the 2020 presidential cycle due to a decline in closely contested races, persistent inflation, and hurricane impact in large markets. That concludes our prepared remarks for this morning. We will now turn to Q&A. We're going to start with some questions from Laura Martin, Managing Director and Senior Internet and Media Analyst at Needham and Company. Laura is joining us live here at One World Trade Center, and we're delighted she could be here with us. If you have questions on the live stream, please submit them via the chat button at the top of your screen. Now let's turn to some questions.

Great. Okay. So just listening to the call, one of the things you guys said was you guys have a billion dollars of pitch opportunities, and it looks like you have $86 million in new business, which is a record from 3Q. Could you tell us how they flow through the income statement? What's the lag in time between pitches to now you get new business? When does it start flowing into the P&L market?

Sure. Look, I think just to put some context in, when I started as CEO of what was the old MDC, there was about, in a year, about 300 million of pitches. Now we expect this year, to give you context, that the combined company get about a billion dollars of pitches that we monitor, this great central marketing team that we have. We usually don't participate in about 20% of them, and then we're going to win a fair share of the 800 million remaining. You know, these pitches will take somewhere between two and six months generally to be executed depending upon their size. They will then kind of go in almost immediately from the day of award. They will make an immediate transition and then they'll ramp up over the first 30 to 60 days. But generally, you've seen the pattern where we came into this year with a $75 million new business in Q4, and you could really see that flow through into the following quarter. And you could see that our new business, as I reported in the previous call, was a little light going into Khan, and you could see, you know, we were then, I think, we're lighter coming into that, and you see coming out of this a really strong new business number. If you look at the chart, it goes like this, and boom. And I really think that at Khan, we showed the kind of scale that we have, and really our pitch opportunities have sizably increased as a result of that. And I also think there was a little pause in the marketplace where people waited a little bit, and then there seemed to be a lot of pitch activity out there continuing unabated.

So let's stay on that point. Yesterday on the Roku call, Roku's down big this morning, they said that they had seen cancellations in telecom insurance and toys in the fourth quarter ad campaigns, talking about uncertainty. So tell us, because you guys have a much broader view of both marketing services and advertising, tell us what you're seeing in the marketplace for Q4 in terms of ad campaign cancellations, pushing off, lowering. Tell us what's happening in the marketplace right now.

look we've seen some clients push off projects but nothing at a level that would have given us extraordinary concern compared to say the pandemic or when I managed other properties in 2009. I don't see anything like that right now. I see new business being quite strong. I see some push-offs or caution in the marketplace, but nothing that I could consider. Remember, the Fed's problem is that the economy that we work in is considered too hot, and they haven't tamed that yet. So maybe someday we're going to see it. Maybe next year we're going to see it. But we are right at the sweet spot of why they keep raising interest rates.

Okay, but you haven't seen slowdowns in Q4, which is not what we're hearing from. Meta, Google, Roku, Paramount, all of them have said 4Q is horrible.

A lot of this is that we're in a share-gaining position. So when you look at our digital, you look at the services that are growing, and you look at people turning to our unique combination of marketing, I don't know what those numbers would be in a roaring economy as opposed to an obvious marketplace where there's pushback. I do also think that when we did an analysis recently of the marketplace, there is more fragmentation of the digital dollar. The TikTok has come in, the Amazon and Walmart marketplace. And so, you know, there are a lot of competitors out there and there are only so many eyeballs. And part of this, I think, is fragmentation necessarily over just slow down.

Okay. Let's stay on video. You brought up TikTok, which is a digital video, and it does seem to be taking share from maybe some of the tech space and other mobile. You had a CTV. CTV was included in the quarter, 13% growth rate. That was a sector that includes CTV. Can you talk about the shift towards connected television? Can you talk about where you're seeing strengths and weakness on different channels, what big screens, small screens? Yeah.

Yeah, no, look, I think that we're seeing something of a shift. I really think the big issue here is going to be Netflix. I think that's just not going to be, you know, we've been in kind of a mixture of video and, you know, we're a very, very heavy Google shop over here. So that in fact, the increase in video, I think, is an increase in kind of our mix of service. But I think really Netflix is going to be hugely disruptive in the marketplace. And Disney too? Yeah. Disney has eyeballs, but the number of hours, again, so I always tell people Facebook came before Facebook advertising. TV came before TV advertising. Netflix and the number of hours of eyeballs are just astronomical. I think those ads will really upset the marketplace in a positive way.

Driving down CPMs?

Yes. I hope it will provide more competition. You know, our goal is to make it easier for marketers to get to their consumers on an efficient basis. So a more fragmented, competitive advertising marketplace is good for us and good for our clients.

Okay, great. So targeted victory. What the heck? What's going on over there?

Well, you know, the question is what's going on there in our nation? You know, you have to understand.

So this is political fundraising from $20 and $40 donations. Okay.

So as gas prices went up, available funds that people could allocate to fundraising went down. We think that's temporary. From our cash position, actually, it will be readjusted next year, given that it was related to an earn-out anyway. But so it won't have a really net two-year cash effect. But we don't think it has a long-term impact on the business or the nature. We think this was a short-term impact. And we think that the presidential race is going to be the largest presidential race in history. And that if anything, I think donations will come back as the Fed turns back inflation.

Okay, do you want to do something? Great. Yeah, we have some questions from investors and analysts through the chat from Mark Zagatovich at Benchmark. For the Stagwell Marketing Cloud, how would you characterize each of the four segments near versus longer monetization prospects? And which segments will require the most incremental investment over the next two to three years?

You know, there's already very substantial revenue in the media platforms. And I think you see that because we have the travel platform there, you know, in there. And so I think those show like the earliest revenue. you know, promise to generate, you know, a revenue hockey stick. And I do think the around thing, which really is a kind of, you know, you look at an AR experience at stadium, and then you realize that's really a new media platform, giving an ability for people to have a new kind of sponsorship and engagement with fans, you know, at stadiums. So I think that has a lot of revenue, a lot of immediate promise. I think that the ComTech, we've been out there in the marketplace. It's slowly snowballing. I think those products are largely built and require more sales than tech investment, you know, at this point. We recently acquired Maru. So, again, we've got substantial, you know, nearly $50 million in revenue as a starting point in the research biz. And, again, I think the technologies there are largely developed and we're moving to sales. I think the biggest commitment to refining and making the technology useful is in the media studios. I think that's where a lot of the technology commitment will be. But of course, that we hope will be the premier product, and that will take a longer time to roll out.

Perhaps staying on that topic, from Steve Call at Wells Fargo, how much revenue are you currently generating from the marketing cloud, and what's the cumulative that you expect to make?

You know, as we've defined the marketing cloud, as I said, we expect to have about $140 million in that basket. You know, in the coming year, I think we're... When you figure that Maru was just acquired, right? And so... I think that's the way I would characterize it. You know, I think that the remarkable thing and one of the big advantages we have is that because we have the client base, because we have the expertise, because we already buy $5 billion of media and therefore have the proving ground for our technologies, that I'm really able to keep, you know, we're investing $5 million of OPEX, maybe we'll invest 10 million of OPEX next year. We're able to keep the level of investments in OPEX here, you know, quite low, you know, and also, you know, we're developing this in a way and an eye towards profit. So we're not looking to make the mistakes of companies out there that put huge sums of money into things, you know, they hope to have a future. We are very cautious in the way we do this. We're getting a lot of power. You take a look on this stadium thing. We invested maybe one or two million dollars and we beat every competitor out there to the marketplace with an in-stadium experience. And there were some big competitors out there. Remember, I was chief strategy officer at Microsoft. The fact that we have an infrastructure of a service business allows us for relatively small investments to get the cloud off the ground. And that is our unique advantage compared to a lot of the startups and the other companies out there that don't have this full infrastructure or understanding of technology or ability to apply it in this way.

follow-up from Steve. Could you clarify the remark about persisting inflation as it relates to guidance? Is this related to the advocacy revenue, or are you signaling some macro reaction by advertisers?

That was related just specifically to the advocacy and to the impact of gas prices and food prices on low-dollar contributors.

A follow-up from Mark at Benchmark. Nice free cash flow results in the third quarter. How do you see the trend line in 4Q? Any puts and takes to consider?

Frank? Q4 is historically the strongest cyclical quarter for cash flow generation, and it's a combination of factors. It's, you know, the forecasted revenues, but more so it's the media dollars that, you know, customers intend to spend and production activities that take place. So, you know, if you have five Super Bowl spots, you're going to generate a lot more production dollars in the quarter that will then result in some outflows in Q1 and similar patterns for the media spend. So, you know, if history is the indicator and the trend line says that, you know, things are stable, we should see an improved Q4 over Q3.

And a follow-up from an investor on free cash flow in Q4. Will you use expected 4Q free cash flow to repay the revolver or will you carry cash on the balance sheet? If paying down the revolver, is it possible to be at zero draw by year end?

We will generally use the excess cash in the US to take down the revolver. We borrow under a couple of different arrangements. We have a daily borrowing facility, so to speak, and then we have a SOFR borrowing facility, which leads you to commit to 30-, 60-, 90-day borrowing periods. So sometimes you may find yourself, you're down to zero in your daily borrowing, but you still have a mandatory position in the 30- or 60-day, and you may have to just take the cash and hold it on your balance sheet until that next window opens up. We try to ladder that based on how we see cash flow moving through the business so that we never find ourselves with too much extra cash that we can't use to offset the interest expense by paying down the revolver. So it's a bit of a timing and it's a bit of an exercise to plan that out.

And Frank, we're also making international cash more efficient. particularly in the UK.

Yeah, we recently put together a cash pooling arrangement in the UK, which we believe now will allow us to aggregate our cash flows there and probably safely bring home to the states more cash that we can use to, again, apply against the revolver, which is generally U.S.-based.

From Jeff Van Sinderen at B. Riley, based on the caution you're seeing in the marketplace, is there reason to think that your organic growth will moderate substantially in fiscal 23 as a result of that cautionary slowing by marketing and advertisers?

Well, look, I think we've been preparing ex-advocacy for 2023 during a lot of the year in terms of structuring and restructuring kind of our units here. So we're ready for a good 2023. I think when you look at our business, the jump up in new business to a record level really says that we're going to be able to start out here quite well. I'm not going to, at this point, give you any guidance into the next year, but I'd be sitting here probably with fewer smiles on my face if we were sitting here with $20 million of new business, and I'd be saying, well, there's an obvious slowdown, and we're sitting here with a record $86 million, where I'm saying, well, obviously... As I keep emphasizing, we are gaining share. And so even if the, as long as there are pitches and as long as clients rotate from one to another, we will now get into an increasing share of pitches and have a growing opportunity to get business in the marketplace. Sure, it would be better if it turns out that the market is growing or that Powell does a soft landing. But we have a lot of cushions here in the sense that, A, we have been good managers up and down. If you look at how we did in the pandemic, we very carefully plan out and keep lots of headroom. We have a high variable cost business in terms of how things go up or go down. But most importantly here, we're gaining share against our competitors and we're more digital than our competitors. And those two factors should allow us to have a better growth curve than whatever the rest of the industry has. And if you look at the comparisons to the rest of the industry on an organic basis, we're running about double what they are. So we hope that investors will give us credit for that.

And that concludes our questions from the chat. I'll turn it back to Mark for closing comments.

Thank you. I hope you just review everything carefully that this has been another strong quarter of double-digit growth and us moving in the right direction here at Stagwell, Inc. Thank you all.