Stagwell Inc Q3 FY2024 earnings call

Mark Penn noted a strong quarter with growth in all 5 principal capabilities. New larger contracts are coming online, with strong growth in digital transformation due to AI projects and the Stagwell Marketing Cloud gaining traction. There's a strong advocacy season peaking in Q4. New business momentum continued with a net new business figure of $101 million, and LTM new business at $345 million. The Code and Theory Network won Ad Age's 2024 Business Transformation Agency of the Year award. The Stagwell Marketing Cloud's BERA.ai and Wonder Cave products showed growth. Acquisitions of Consulum and LEADERS were made. The region's revenue grew 128% year-over-year in Q3. Plans include launching the Stagwell ID Graph and the Machine AI-based content development platform.

Stagwell achieved $711 million in revenue for the third quarter, representing a 15% increase. All 5 principal capabilities saw growth. Digital transformation grew to $163 million, a 25% improvement. Advocacy revenue grew 85%. The Stagwell Marketing Cloud had revenue of $74 million, a 30% year-over-year increase. Consumer insights and strategy reported $47 million in revenue, a 7% increase. Performance media and data delivered $80 million in revenue, a 9% increase. Creativity and communications generated $334 million in revenue, an 11% increase.

Stagwell is reaffirming full-year guidance. Organic net revenue growth is expected to be between 5% to 7%. Organic net revenue excluding advocacy growth is projected to be 4% to 5%. Adjusted EBITDA is expected to be between $400 million to $450 million. Approximately 50% free cash flow conversion is expected, and adjusted earnings per share is expected to be between $0.75 and $0.88.

Forward-looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risk factors addressed in the earnings release, slide presentation, and the company's SEC filings.

Q: DT improved nicely in the quarter. Can you help maybe to unpack some of the improvement there? And do you view this as kind of a sustainable inflection point moving forward?

A: Mark Penn said it's a sustainable inflection point as AI work is arriving, starting with tech clients and spreading, with many years of digital transformation to come.

Q: SMC has seen consistent acceleration across 2024. Can you maybe talk a little bit about what some of the key solutions resonating with clients today are? And what may be some of the levers that we might have to sort of drive greater monetization across the SMC suite over the coming years?

A: Mark Penn mentioned advanced media platforms, augmented reality experiences, BERA product, LEADERS platform, Wonder Cave platform as key solutions, and that the SMC is in nascent phase with potential for growth over years.

Q: About the GenAI road map. Over the next 3 years, say, do you think that GenAI innovations will lower cost more or drive revenue upside?

A: Mark Penn said GenAI will drive revenue, helping in digital transformation areas like building AI interfaces to consumers, with internal uses like production also benefiting but primarily driving revenue.

Q: Vision for government services part of the business over the next 3 to 5 years?

A: Mark Penn said about 10%-15% of business should be government related, aiming to grow from 0 to that, taking 2-3 years to win major contracts with the right infrastructure.

Q: Recent new business wins and revenue ramp?

A: Mark Penn said some tech wins start in late 2024/early 2025, with some starting before end of year and others waiting on decisions for next year.

Q: How have CMOs' priorities shifted and most important capability to win new business?

A: Mark Penn said CMOs see Stagwell as a credible alternative, with no single silver bullet, but strong skills in creative, media, and digital transformation across verticals.

Q: Growth algorithm of Stagwell?

A: Mark Penn said digital services will grow faster, creative services at lower single-digit rates, media and research in between