Stagwell Inc Q4 FY2024 earnings call

2024 was a breakthrough year for Stagwell. It reestablished as the fastest-growing business in the industry. Digital Transformation showed strong momentum, with growth in tech customers and AI-driven initiatives. Advocacy benefited from the US election cycle, with significant growth. Stagwell posted $102 million in net new business for the third consecutive quarter over $100 million. The company invested $23 million in OpEx to grow cloud and AI-based software solutions. Throughout 2024, 11 M&A transactions were announced, including in regions like the Middle East, Europe, and Latin America. The second half outpaced the industry in net revenue growth.

In the fourth quarter, Stagwell grew revenue by 20% and net revenue by 14%. Digital Transformation saw revenue grow by 22% and net revenue by 15% year-over-year, with full-year growth of 13% to $718 million. Performance Media and Data had 12% revenue growth in Q4 and 10% full-year growth to $324 million. Creativity and Communications experienced 25% Q4 revenue growth and 14% full-year growth to $1.33 billion. Consumer Insights and Strategy had a 1% decline in Q4 revenue and a 1% full-year decrease to $190 million. Advocacy revenue in Q4 rose 80% to $127 million and 72% full-year to $363 million. Excluding Advocacy, total company revenues increased 13% year-over-year in Q4 and 7% for the full year.

Stagwell provides 2025 guidance: total net revenue growth of approximately 8%; adjusted EBITDA between $410 million and $460 million; free cash flow conversion over 45%; adjusted earnings per share from $0.75 to $0.88. Advocacy is expected to fall off by about 30%, while non-Advocacy is projected to have organic growth in the range of 5.5% to 7.5%, led by double-digit growth in Digital Transformation units.

Advocacy may face headwinds in 2025 due to the absence of a federal election cycle. Industry competition could pose challenges in retaining talent.

Q: About change in guidance philosophy and start of the year A: Mark stated that people were underestimating the growth machine, and there is strong organic growth with 5.5%-7.5% non-political organic growth expected for 2025, with January 2025 being the strongest January in the company's history Q: About Digital Transformation's strong growth A: Mark mentioned that tech companies are in a competition mode with AI emerging, and Stagwell has designers and engineers to help implement Agentic AI, with an Investor Day in early April to showcase Digital Transformation teams' work Q: About RFP activity and Stagwell's positioning A: Stagwell has been experiencing busier-than-ever RFPs, with over $1.3 billion of RFPs, a win ratio above 30%, and expects $1.5 billion of RFPs in 2025 including government contracts Q: About competitors consolidating and impact on Stagwell A: Mark said competitor mergers are of weakness, providing opportunities to attract talent, and Stagwell is an appealing place with over 200,000 people applying to work Q: About long-term margin trend A: Mark indicated that significant investments in technology are likely to continue through half of 2026, after which they will decline, and the real margin is probably about 25% higher than currently seen, with tech products having 60%-80% gross margins Q: About SMC's momentum and products for 2025 A: Mark said SMC has a complete suite of competitive products, including PRophet, an influencer marketing platform, global media monitoring, and a media suite utilizing ID graph and AI, with AR experiences at stadiums ahead of others Q: About Investor Day sneak peek A: Mark stated that the Investor Day will display the long-term growth profile, Stagwell's ability to scale and be a true competitor, and how the latest technologies are applied to clients and internally