Stagwell Inc.

Good morning from Stagwell's offices in Florida. Welcome to Stagwell Inc.' 's fourth quarter and full year 2024 earnings webcast. My name is Ben Allenson, 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 Lenuto, the chief financial officer. Mark will provide a business update, and Frank will share a financial review. After the prepared remarks, we will open the floor for Q&A. You're 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. Please refer to our website, stagwellglobal.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. And with that, I'd like to turn the call over to our Chairman and CEO, Mark Penn.

Thank you, Ben, and thank you for everyone joining us for our earnings call. 2024 was a breakthrough year for Stagwell. We reestablished 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 result? Stagwell's 2024 work sets the stage for another period of best-in-class growth in 2025 and beyond. 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%. 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. 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 Stagro. For the full year, Stagwell 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 and improvement of 120 BIPs versus 2023. Stagwell's return to industry-leading growth was due to five breakthroughs. First, we saw a rebound followed by an acceleration in our digital transformation businesses. We saw growth of 12% among our tech customers within digital transformation in the fourth quarter, led by code and theory's unique blend of engineering expertise and creative ability. Ahead of Election Day, Code & Theory launched Context Lens in collaboration with RealClearPolitics, a 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, a generative AI-powered campaign for Google Pixel, which used Gemini and Imagine to respond to fan suggestions. The interactive adventure was Google Pixel's highest-performing Instagram post. This is just a taste of what we can do with AI for brands. As I discussed with Elon Musk at CES in early January 2025, this is the year where companies begin to recognize what AI can do and build applications around it. And our digital transformation agencies are ready to do just that. Second. Results were strengthened by the culmination of the US 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 contributions and supported over 100 candidates and political groups. SKDK created, printed, and sent over 86.7 million pieces of mail, wrote over 3,000 scripts, and produced nearly 1,000 ads and 100 film shoots. WonderCave, our best-in-class AI-powered text messaging platform, supported over 500 political and advocacy organizations, sending more than 4 billion text messages to support organizations fundraising voter contact and get-out-the-vote efforts. 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 in advocacy. We anticipate an uptick in public affairs and issue advocacy campaigns this year and remain very optimistic looking ahead to the midterms seasons in 2026 and a 2028 presidential cycle, which should break all records with primaries on both sides. Third, our new business momentum continued as we posted $102 million in net new business. The third consecutive quarter with net new business figures in excess of $100 million. This brings our trailing 12-month figure to $382 million, yet another record for the company. This year end figure is $111 million larger than in 2023, $169 million larger than in 2022. The results in the fourth quarter were led by high profile wins with Starbucks, Stellantis, and Target. And we've seen this momentum continue into the new year with recently announced wins with MassMutual and work breaking just today with Visa. These wins show that we are winning ever larger mandates with the world's leading companies. Our average top customer is now a $25 million relationship. The thesis of Stagwell is that as we scale, we will climb the ladder up to larger and larger assignments. And that is exactly what is happening now. 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 company's tech company. Fourth, Stagwell 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 Stagwell Marketing Cloud to approximately $70 million. These investments are beginning to pay off as the Stagwell Marketing Cloud delivered 24% revenue growth in the fourth quarter, the third consecutive quarter of double-digit growth. And so our long-term margin is considerably understated by these OpEx investments. We also made strong progress in our Stagwell ID 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. Both are scheduled for summer launch. Finally, Stagwell 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 Consulum, a highly regarded public affairs agency, And of leaders in Israeli social agency, we saw more than 150% growth in net revenue in the region in 2024, as we've grown our headcount to more than 500 people there. We continue to push in the region and close the year strongly by announcing our intent to acquire Create Group, a deal that should close before the end of the first quarter. We also augmented our presence in Europe with the acquisitions of Sidekick, a UK digital and experiential agency, and WNP, a best-in-class French creative agency. In Latin America, we added a foothold with PROSE, a Brazilian PR and social agency. And early in 2025, we announced our agreement to acquire ADK Global, which will give us offices in 10 Asian markets. It increases our headcount in the region to over 2,000. From a capability standpoint, we added to our multicultural and experiential expertise with the addition of Team Epiphany while strengthening SMC's suite of SaaS products through the acquisitions of Unicepta, an AI-enabled social listening and media monitoring company, and Baradot AI, an AI-based brand tracking product. We believe that Stagwell's M&A machine is underappreciated by the investment community. Over the last nine years, Stagwell has grown from an idea to more than $2.8 billion revenue company, and it is there today because of the investment platform we have built, combined with the incredible organic growth opportunities afforded by the expanding network that 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% was more than 400 basis points stronger than our nearest competitor, while organic net revenue growth of 9% was almost 300 basis strongest. Stagwell is uniquely positioned heading into 2025 to take advantage of a rapidly changing industry landscape. No one else has our Goldilocks 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 2025 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 $0.75 to $0.88. 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 still a relative teenager on the way up the ladder of scale. We'll 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 5.5% to 7.5% range, led by double-digit growth of our digital transformation units. Putting all of this together, when you look at 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. Before Frank Lanuto, our chief financial officer, walks through some of our financial results in more detail, I wanted to share with you a short video with you that shows just how transformational 2024 was for Stagwell. The video combines scenes from some of our best work enhanced with AI and driven by Adobe's innovative new AI-based Firefly video tool that we are beta testing. The video showcases Stagwell's outstanding client work, new innovations and incredible wins from across the network. Let's roll.

2024 was a breakthrough year for Stagwell. The Challenger Network delivered industry leading growth for the quarter with $630 million in net revenue. $123 million in 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 in adjusted EBITDA. We achieved $382 million in net new business, another company record. Our breakthrough growth was driven by... I'm back. ...best-in-class client work, and winning multi-year assignments... strategic global expansion, strong performance in digital and the Stagwell Marketing Cloud, and an historic year for advocacy. We are the Goldilocks Company. The right mix of collaboration and scale. In 2025, we will drive another year of transformational growth.