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By

Barbara Laidlaw
Partner, Global Risk, Reputation + Public Affairs
Allison+Partners

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When an organization begins to expand globally, it often faces a new set of challenges that could mean adjusting current strategies that have yielded success on the domestic front. Economic, regulatory and operational factors are just some of the many considerations nascent global businesses must address to succeed on the international stage.

A less tangible but imperative concern is the organization’s reputation and how it will scale along with other elements of the business. Reputation takes years to build and only minutes to tarnish, making it one of the most precarious factors at play during expansion. Therefore, before pursuing an ambitious global footprint, businesses should consider how reputation management coexists with the following:

• Cultural & regional differences: Global expansion will require the ability to adjust some aspects of how a business operates to meet the standard of wherever the expansion takes place. Consider how different factors, such as language barriers, lifestyle, cultural history, education and politics, impact business objectives from employees’ and customers’ perspectives. By developing a strong understanding of these components and how they may factor into the business’s reputation, an organization will be positioned well to avoid pitfalls and preempt potential damage from related issues.
• Regulatory & political issues: Establishing an intimate understanding of how relevant political issues may affect the business is critical to avoid becoming trapped in them. Tapping into the expertise of third-party consultants and internal personnel within the region are just two ways a company can ensure it operates with the correct understanding of the political landscape. Strict regulatory compliance is another area in which businesses should invest resources to insulate themselves from running afoul of regulations or laws they may not have considered otherwise.
• Social impact & ESG: As organizations expand globally, they will inevitably increase their global footprint and their environmental and societal one. Depending on the nature of the business, there could be additional social considerations to account for, such as human rights or political turmoil. Today, enterprises prioritize their societal impact more than ever. To continue to thrive, global organizations must navigate the complexities that come with the recent rise in investor and consumer activism.
• Core values: As is true with any period of growth within an organization, maintaining core values is one of the most prominent challenges a business must contend with. This is only magnified when the company begins to expand globally. Upholding core values is essential to brand reputation and should be a priority item when considering further expansion. Emphasizing the importance of quality onboarding procedures, internal initiatives and other team-focused programs are ways a business can maintain its values as it grows.
• Communications infrastructure: Ultimately, scaling communications capacity and capabilities to match company growth will provide a business with the fundamental infrastructure it needs to preempt potentially damaging issues and effectively react to them when they occur. Through regular assessments of an organization’s communications capabilities, the business can proactively address weak spots and build on areas of strength, resulting in a more robust global communications program that underpins every core function of the business itself.

Navigating the reputational complexities of a global business is a challenge. While organizations should always remain prepared to tackle known sources of risk to their reputation, there will always be unpredictable events or incidents that present additional risks. Environmental disasters, wars, political turmoil, supply chain challenges and regulatory issues are just some of the many hurdles businesses need to contend with and overcome regularly.

Ultimately, the most effective way to mitigate the potential fallout from known and unknown risks is to continually ensure the organization is operationally resilient and maintains a robust communications infrastructure that it can leverage before, during and after an adverse event.

Barbara Laidlaw brings 25 years of experience developing and running programs that help companies prepare, protect and defend their brand reputations through global and national events, recalls, litigation, data breaches, regulatory issues and labor disputes.

Originally released on

Originally released on

Originally released on

Originally released on

Originally released on

FEATURING

Record first quarter financial results driven by high-growth digital transformation, consumer insights & strategy, and large client wins in media

• GAAP Revenue grew 254.7% in 1Q and 31.5% on a Pro Forma basis

• Pro-Forma Organic Net Revenue grew 23.6% in 1Q

• Net Income of $33.6M in 1Q or Diluted EPS of $0.10 per share

• Net Income attributable to Stagwell of $12.7M in 1Q

• Adjusted EBITDA of $101.4M in 1Q representing a 19.3% margin on Net Revenue

• Record first quarter Net New Business of $54M

• 56% of 1Q Net Revenue came from high-growth digital services

• Reaffirms 2022 full-year outlook

New York, NY, May 6, 2022 (NASDAQ: STGW) – Stagwell Inc. (“Stagwell”) today announced financial results for the three months ended March 31, 2022.

FIRST QUARTER HIGHLIGHTS:

• Revenue of $642.9 million, an increase of 254.7% versus the prior year period.
• Pro Forma GAAP revenue growth of 31.5% versus the prior year period and 30.2% ex-Advocacy.
• First quarter net revenue of $526.6 million, an increase of 233.2% versus the prior period.
• Pro Forma net revenue growth of 22.8% versus the prior year period and 22.3% ex-Advocacy.
• Pro Forma organic net revenue growth of 23.6% versus the prior year period and 23.2% ex-Advocacy.
• First quarter net income of $33.6 million versus $4.6 million in the prior year period.
• First quarter net income attributable to Stagwell Inc. common shareholders of $12.7 million versus $4.4 million in the prior year period.
• First quarter adjusted EBITDA of $101.4 million, an increase of 325.4% versus the prior year period.
• Pro Forma adjusted EBITDA growth of 33.8% versus the prior period and 32.4% ex-Advocacy.
• First quarter Adjusted EBITDA Margin of 19.3% of net revenue.
• Net New Business wins totaled $54 million in the quarter.

“While the GDP may be contracting, Stagwell is growing strongly. The merger has spurred revenue synergies immediately apparent in the big wins, significant industry awards, and integration of talent and technology across our network,” said Mark Penn, Chairman and Chief Executive Officer of Stagwell. “We grew first quarter net revenue 24% versus the prior year, more than double the pace of legacy holding companies, and grew Adjusted EBITDA at an even faster rate of 34% year-over-year. We also made a key e-commerce acquisition in April with Brand New Galaxy, which connects to our media and digital transformation offerings and provides increased scale in Europe. Our record quarter continues to build on our post-combination track record of delivering growth, free-cash-flow, and growing profitability.”

Frank Lanuto, Chief Financial Officer, commented: “The Company reported strong first quarter results with GAAP revenue of $643 million, net revenue of $527 million and Adjusted EBITDA of $101 million. Organic pro forma net revenue increased 24% over the prior period quarter and also increased sequentially in a typically smaller seasonal quarter. Adjusted EBITDA margin expanded 160 bps year-over-year on a Pro Forma basis to 19.3% of net revenue as the Company began to see the benefits of expected cost synergies.”

Financial Outlook

2022 financial guidance is as follows:

• Pro Forma Organic Net Revenue growth of 18% – 22%

• Pro Forma Organic Net Revenue growth ex-Advocacy of 13% – 17%

• Adjusted EBITDA of $450 million – $480 million, excluding the contribution from 2022 acquisitions

• Pro Forma Free Cash Flow growth of approximately 30%

• Guidance assumes no impact from foreign exchange, acquisitions or dispositions.

Conference Call

Management will host a video webcast and conference call on Friday, May 6, 2022, at 8:30 a.m. (ET) to discuss results for Stagwell Inc. for the three months ended March 31, 2022.  The video webcast will be accessible at https://stagwellq12022earnings.open-exchange.net/. An investor presentation has been posted on our website at www.stagwellglobal.com and may be referred to during the conference call.

A recording of the conference call will be accessible one hour after the call and available for ninety days at www.stagwellglobal.com.

Stagwell Inc.

Stagwell is the challenger network built to transform marketing. We deliver 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, our 10,000+ specialists in 34+ countries are unified under a single purpose: to drive effectiveness and improve business results for their clients. Join us at www.stagwellglobal.com.

Basis of Presentation

The acquisition of MDC Partners (MDC) by Stagwell Marketing Group (SMG) was completed on August 2, 2021. The results of MDC are included within the Statements of Operations for the period beginning on the date of the acquisition through the end of the respective period presented and the results of SMG are included for the entirety of all periods presented.

Non-GAAP Financial Measures

In addition to its reported results, Stagwell Inc. has included in this earnings release certain financial results that the Securities and Exchange Commission (SEC) defines as “non-GAAP Financial Measures.”  Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company’s results. Such non-GAAP financial measures include the following:

Pro Forma Results: The Pro Forma amounts presented for each period were prepared by combining the historical standalone statements of operations for each of legacy MDC and SMG. The unaudited pro forma results are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or consolidated financial condition would have been had the combination actually occurred on the date indicated, nor do they purport to project the future consolidated results of operations or consolidated financial condition for any future period or as of any future date. The Company has excluded a quantitative reconciliation of adjusted Pro Forma EBITDA to net income under the “unreasonable efforts” exception in Item 10(e)(1)(i)(B) of Regulation S-K.

(1) Organic Revenue: “Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition) component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant currency impact of (a) the change in revenue of the partner firms that the Company has held throughout each of the comparable periods presented, and (b) “non-GAAP acquisitions (dispositions), net”. Non-GAAP acquisitions (dispositions), net consists of (i) for acquisitions during the current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned during that entire year (or same period as the current reportable period), taking into account their respective pre-acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had been disposed of during the equivalent period in the prior year.

(2) Net New Business: Estimate of annualized revenue for new wins less annualized revenue for losses incurred in the period.

(3) Adjusted EBITDA: defined as Net income excluding non-operating income or expense to achieve operating income, plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, and other items. Other items include restructuring costs, acquisition-related expenses, and non-recurring items.

(4) Free Cash Flow:  defined as Adjusted EBITDA less capital expenditures, change in net working capital, cash taxes, interest, and distributions to minority interests, but excludes contingent M&A payments.

(5) Financial Guidance:  The Company provides guidance on a non-GAAP basis as it cannot predict certain elements which are included in reported GAAP results.

Included in this earnings release are tables reconciling reported Stagwell Inc. results to arrive at certain of these non-GAAP financial measures.

This press release contains forward-looking statements. Statements in this press release that are not historical facts, including without limitation the information under the heading “Financial Outlook” and statements about the Company’s beliefs and expectations, earnings (loss) guidance, recent business and economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition consideration, constitute forward-looking statements. Words such as “estimates”, “expects”, “contemplates”, “will”, “anticipates”, “projects”, “plans”, “intends”, “believes”, “forecasts”, “may”, “should”, and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined in this section.  Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events, if any.

Some of the factors that could materially and adversely affect our business, financial condition, results of operations and cash flows include, but are not limited to, the following:

• risks associated with international, national and regional unfavorable economic conditions that could affect the Company or its clients;
• the effects of the coronavirus pandemic (“COVID-19”), and the impact on the economy and demand for the Company’s services, which may precipitate or exacerbate other risks and uncertainties;
• an inability to realize expected benefits of the combination of the Company’s business with the business of MDC (the “Business Combination” and, together with the related transactions, the “Transactions”);
• adverse tax consequences in connection with the Transactions for the Company, its operations and its shareholders, that may differ from the expectations of the Company, including that future changes in tax law, potential increases to corporate tax rates in the United States and disagreements with the tax authorities on the Company’s determination of value and computations of its attributes may result in increased tax costs;
• the occurrence of material Canadian federal income tax (including material “emigration tax”) as a result of the Transactions;
• the Company’s ability to attract new clients and retain existing clients;
• the impact of a reduction in client spending and changes in client advertising, marketing and corporate communications requirements;
• financial failure of the Company’s clients;
• the Company’s ability to retain and attract key employees;
• the Company’s ability to compete in the markets in which it operates;
• the Company’s ability to achieve its cost saving initiatives;
• the Company’s implementation of strategic initiatives;
• the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its contingent payment obligations when due and payable, including but not limited to those relating to redeemable noncontrolling interests and deferred acquisition consideration;
• the Company’s ability to manage its growth effectively, including the successful completion and integration of acquisitions which complement and expand the Company’s business capabilities;
• the Company’s material weaknesses in internal control over financial reporting and its ability to establish and maintain an effective system of internal control over financial reporting;
• the Company’s ability to protect client data from security incidents or cyberattacks;
• economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflict between Russia and Ukraine), terrorist activities and natural disasters;
• stock price volatility; and
• foreign currency fluctuations.

Investors should carefully consider these risk factors, other risk factors described herein, and the additional risk factors outlined in more detail in our 2021 Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 17, 2022, and accessible on the SEC’s website at www.sec.gov, under the caption “Risk Factors,” and in the Company’s other SEC filings.

By

Stagwell Insights

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Today’s businesses have more reputational capital than ever before. When reputation is managed, it has the potential to add business value and mitigate risks. Stagwell annually produces the Reputation Quotient, the industry’s leading barometer of American corporate reputation, in partnership with Axios and The Harris Poll to uncover insights which brands are gaining or losing reputational capital – and the expectations of a new generation of reputation-minded consumers.  

The Axios Harris Poll 100 is a trusted ranking of the reputations of the companies most on the minds of Americans using a framework Harris has used since 1999. Download the 22nd Annual Reputation Quotient Study report to view the full rankings and gain additional insights about performance year over year. 

Register to receive our 2022 research – set to release in late May – using this form. Reach out to hello@stagwellglobal.com if you have questions. 

Methodology:  

The Axios Harris Poll 100 is based on a survey of 42,935 Americans in a nationally representative sample. The two-step process starts fresh each year by surveying the public’s top-of-mind awareness of companies that either excel or falter in society. These 100 “most visible companies” are then rated by a second group of Americans across the seven key dimensions of reputation to determine the ranking. If a company is not on the list, it did not reach a critical level of visibility to be measured. 

By

Ray Day
Stagwell Vice-Chair 

CONTACT

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“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffet 

Today, corporate reputation means more than mastery of the marketplace. Reputation is a measure of what all stakeholders – including consumers, employees, shareholders, and more – think about a company.  

Contrary to “brand” – which measures a company’s products & services, typically among specific consumer segments, a reputation is earned not created.  

Reputation is comprised of your company’s performance + its behavior in the marketplace, reflected through its internal and external marketing communications. When reputation is curated, it has the potential to build business value and can help mitigate risks. Companies with excellent reputations are more likely to garner positive outcomes, such as advocacy, community expansion and purchase intent.

Today’s corporations and CEOs have greater permission from the public to address complex social issues – within bounds. Reputation today is evolving today to reflect more than just a product or service set, but a businesses’ commitment to serve society.  

In recent years, geopolitical, economic, and social developments have created a society in transition and turmoil. Consumers have more expectations of corporations in this environment – not least because of declining trust and expectations in institutional actors such as governments and municipalities. As measured by Stagwell’s 2021 Reputation Quotient, brands across nearly every business sector experienced a reputational boost during the height of the pandemic as consumers looked to the private sector for solutions where public officials were failing to create them:  

CEOs, and in a limited capacity other star of the C-Suite such as CMOs, are rapidly gaining reputational capital within the market and with consumers. They influence sales, perceived product/service quality, and signal the strength of an organization’s culture. As CEO reputation extends outward, when to exert influence in society becomes more calculated and more important. Americans say CEOs most affect reputation, ethics, and financial success for today’s organizations. CEOs also have a growing public awareness and influence on consumer sales; half of Americans report changing buying habits due to the actions of a CEO. 

More traditional C-suite players like Jamie Dimon at Goldman Sachs leverage influence in quieter, more sustained ways – Dimon’s annual letter is a bellwether for the future of global financial markets, with wide-ranging through leadership implications for businesses within and beyond the financial services category.  

With that reputational capital comes the burden of leadership: the public believes CEOs should stand on issues where they have credibility, not where they don’t have a voice or authority. Ultimately, core values should be the navigator of social issues. Alienation is a risk in a highly polarized society, but so too is the risk of stakeholders who perceive CEOs as indifferent or in conflict with the company’s principles. This is especially true among younger and Black Americans. While standing down is expedient, a generational and cultural divide is growing that will make decisions more difficult and polarizing.  

Corporate and CEO reputation is changing quickly. Stagwell is a leader in global reputation tracking and management; learn more about the Reputation Quotient, an annual collaboration between Stagwell, Axios, and The Harris Poll tracking the most visible companies in America. Register to receive our 2022 research when it releases in May.

CONTACT

Mark Penn

FEATURING

Welcome to the second edition of Hitting the Mark – a monthly analysis of developments at the intersection of business, marketing, and politics meant for the modern C-Suite. This month’s topic? Inflation. 

Inflation is in many ways the most pernicious of economic problems because it affects so many people at the same time. Inflation is at its highest rate since the early 1980s, and, as I wrote recently in the New York Times, “Many Americans under 60 have relatively little experience with anything but comparatively low fuel costs, negligible interest rates, and stable prices. Virtually overnight these assumptions have been shaken.” Consumers are already changing their behavior, becoming more cautious and pessimistic about the state of the economy. All of those COVID savings are being eaten up through the mystery of runaway higher prices.

Most marketers have some real choices in how to respond to inflation and the goal is to be on the side of the consumer during these more difficult economic times.

Of course, the easiest solution is simply to raise prices. It’s no longer 10 cents for a pack of gum; one bellwether of higher prices is the cost of treats like chocolate and spearmint. In 1974 a pack of 7 sticks of gum cost 15 cents. That probably does not even cover the sales tax on a package of gum today. Chocolate is a luxury and luxuries have the most elastic pricing, so they generally have the most room to simply pass on cost increases, so don’t expect to pay the same at the Godiva store.

Other companies have tried hard to conceal price increases by simply reducing the quantity. Cereal companies are famous during inflationary times for simply taking an ounce or two out of those cereal boxes. Consumers can easily miss this shrinkage but go too far and expect a backlash.

Perhaps the best way to get on the side of consumers during this time is to offer bigger units at lower prices. This is why Sam’s Club and Costco generally do better during these times, as their business model is all about delivering more value for less.

Inflation is of course great for products that are perceived as keeping pace with inflation. No product is known for holding its value more than gold – expect the airwaves to be filled with ads that sell gold as the one true hedge against rising prices.

Fast food prices and their consumers are super sensitive to inflation. As the McDonald’s dollar menu inches up from $1, to $2, to $2, its competitors have done a great job advertising $5 fill-up boxes that are brimming with food. These “inflation busters” become the perfect partners to penny-pinched consumers. While prices for organic groceries soar, families know they can rely on these restaurants to remain affordable.

What does this mean for marketing? 

Growth slows during inflationary times, so marketing will also be more about fighting for market share than selling new products to first-time consumers. This means that effective competitive marketing will be a lot more useful for brands. Especially when consumers are motivated by cost-saving, nothing can be quite as powerful as reminding them of the superior value of your business versus competitors.

It’s important to remember that value is not always the same as cost. I once ran advertising on behalf of Microsoft against Linux. Linux was difficult to compete against because the company was giving away some of its software for free. We created the concept of the “total cost of ownership” and showed that the free offering, over time, would be more costly than paying Microsoft. This campaign labeled “Get the Facts” was a huge success.

Focus is important during inflationary times. The consumer is once again king, and behaving somewhat like a taxpayer, skeptical of companies who are focused on giving their money away for causes because they feel like they are being called upon to finance these programs out of pocket when they buy goods and services. Companies with a heavy focus on social programs should evaluate whether they will now be seen as out of step with the needs of consumers. While helping soup kitchens might still be a popular idea during inflationary times, funding the opera might raise eyebrows, and throwing a huge fashion show might alienate consumers at this time.

Now is the time to stop simply watching inflation worsen and pick the right strategy for your company, whether it is reducing package sizes, creating affordable bundles, raising costs, or digging into competitive advertising to fight for market share. As for me? I have to go load some gold bars into my car…

Up next in our Hitting the Mark column? The pandemic, inflation, the Russia-Ukraine conflict, political crises – all these issues raise the importance (and trickiness) of “brand leadership” in our modern era. As we noted in Stagwell’s 2021 research on brand reputation, those perceived as delivering solutions to the pandemic received a major reputational boost over the past few years. Today, a majority of voters are not confident in either the Biden administration (55%) or the Federal Reserve’s (56%) ability to fight inflation. Brands won’t deliver the silver bullet to America’s inflation woes but adapting strategy to give consumers a lifeline amid economic stress can go a long way towards building reputational capital.

Stagwell’s 2022 Reputation Quotient, our annual ranking of the 100 most visible companies in America, is set to release in late May. I look forward to sharing an updated picture of the state of corporate reputation and brand leadership then.

Mark Penn