Stagwell Inc. (NASDAQ: STGW) is the challenger network built to transform marketing. The company delivers scaled creative performance for the world's most ambitious brands, connecting culture-moving creativity with leading-edge technology to harmonize the art and science of marketing. Led by entrepreneurs, Stagwell's 13,000+ specialists in 34+ countries are unified under a single purpose: to drive effectiveness and improve business results for their clients.
Business Overview
Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell's strategy is to build, grow, and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. Stagwell's differentiation lies in its creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring transformational marketing, activation, communications, and strategic consulting services to clients.
Stagwell leverages its range of services in an integrated manner, offering strategic, creative, and innovative solutions that are technologically forward and media-agnostic. The company's strategy is intended to challenge the industry status quo, realize returns on investment, and drive transformative growth and business performance for its clients and stakeholders.
Financials
In the first quarter of 2024, Stagwell delivered impressive financial results, showcasing its ability to navigate industry headwinds and capitalize on emerging opportunities. The company reported revenue of $670 million, representing an 8% increase compared to the same period in the prior year. This growth was driven by strong performance across several of Stagwell's key capabilities, including Performance Media and Data, which grew 13% in revenue and 12% in net revenue, and Advocacy, which saw an 80% revenue growth and a 54% net revenue increase.
Stagwell's net revenue, which excludes billable costs, increased 2% year-over-year to $532 million. The company's top 100 customers, now representing 50% of its total net revenue, grew 25% in the first quarter, highlighting the strength of its relationships with its largest and most impactful clients.
Geographically, Stagwell saw a return to growth in its largest market, the United States, with total revenue growth of 9% year-over-year. The company's international businesses also continued their momentum, with revenue growth of 7% in the quarter, led by a 14% increase in the EMEA region.
Profitability and Cost Management
Stagwell's focus on cost management and operational efficiency has paid off, with the company delivering $90 million in adjusted EBITDA in the first quarter, a 25% increase compared to the same period in the prior year. This impressive margin improvement of 320 basis points was driven by a 2% reduction in labor costs and a laser-focus on managing general and administrative (G&A) expenses, which remained flat year-over-year despite the growth in net revenue.
The company's adjusted EBITDA margin of 17% in the first quarter was bolstered by strong performance in its Performance Media and Data and Creativity and Communications capabilities, which grew adjusted EBITDA by 212% and 42%, respectively. Stagwell's disciplined approach to cost management has enabled it to maintain its investment in the Stagwell Marketing Cloud, its suite of AI-enabled SaaS solutions for modern marketers.
Net New Business and M&A Activity
Stagwell's net new business performance in the first quarter was exceptional, with the company delivering $66 million in net new business, a record for the first quarter. This brings the company's last 12-month net new business figure to $284 million, another company record and a testament to Stagwell's ability to win larger, global pitches. The average size of the company's wins increased 13% year-over-year, further demonstrating its growing reputation and capabilities.
Stagwell's M&A program remained active in the first quarter, with the company making several strategic acquisitions to expand its global footprint and enhance its digital and AI capabilities. These include the acquisitions of Sidekick in the UK, What's Next Partners in France, and PROS in Brazil, which significantly expanded the company's presence in Western Europe and Latin America.
Outlook
Stagwell is confident in its ability to deliver strong financial performance in 2024, reiterating its full-year guidance. The company expects organic net revenue growth to be between 5% and 7%, with organic net revenue growth, excluding advocacy, to be between 4% and 5%. Adjusted EBITDA is expected to be in the range of $400 million to $450 million, and the company anticipates delivering approximately 50% free cash flow conversion and adjusted earnings per share between $0.75 and $0.88.
The company's optimism is driven by several factors, including the abatement of industry headwinds, strong new business trends, the record-breaking political cycle, and its continued investments in digital innovation, including its Stagwell Marketing Cloud and AI-powered solutions.
Risks and Challenges
While Stagwell has demonstrated its ability to navigate industry challenges, the company faces several risks and uncertainties that could impact its future performance. These include macroeconomic conditions, client spending patterns, the ability to retain and attract key talent, and the successful integration and performance of its acquired businesses.
Additionally, Stagwell's ambitious global expansion plans and investments in technology and innovation carry inherent risks, and the company must continue to execute its strategy effectively to realize the full benefits of these initiatives.
Conclusion
Stagwell's impressive first-quarter results and its confident outlook for the year ahead underscore the company's ability to transform marketing through data-driven innovation. By leveraging its integrated service offerings, global footprint, and cutting-edge technology, Stagwell is well-positioned to capitalize on the evolving needs of its clients and drive sustainable growth in the years to come.
The company's focus on cost management, operational efficiency, and strategic M&A has strengthened its financial position, enabling it to invest in the development of industry-leading solutions like the Stagwell Marketing Cloud. As Stagwell continues to push the boundaries of what's possible in marketing, investors can look forward to the company's ongoing transformation and its potential to deliver long-term value.