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SI

Stagwell Inc (STGW)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $789M (+20% YoY) and net revenue $630M (+14% YoY); adjusted EBITDA was $123M with a 20% margin on net revenue, and adjusted EPS was $0.24 .
  • Digital Transformation revenue grew 22% YoY; Advocacy revenue rose 80% YoY to $127M, and Stagwell Marketing Cloud revenue increased 24% YoY to $81M, underpinning the quarter’s strength .
  • 2025 guidance introduced: total net revenue growth ~8%, adjusted EBITDA $410–$460M, adjusted EPS $0.75–$0.88, and free cash flow conversion >45% .
  • Net new business was $102M in Q4 and $382M LTM—eighth consecutive quarterly record; management highlighted large wins (Starbucks, Target, Visa) and robust RFP pipeline as catalysts into 2025 .
  • Street consensus from S&P Global was unavailable at run time; update pending. Without consensus, we cannot formally flag beats/misses relative to estimates at this time (S&P Global data unavailable).

What Went Well and What Went Wrong

What Went Well

  • Cost discipline drove margin expansion: comp-to-revenue ratio fell to a record 57.5% and adjusted EBITDA margin improved ~230 bps YoY to 19.6% on net revenue (20% in the press release framing) .
  • Capability momentum: Digital Transformation (+22% revenue) and SMC (+24% revenue) saw accelerating AI-led project demand; Performance Media & Data grew 12% .
  • New business strength sustained: “$102M net new business in Q4” and “$382M LTM” with marquee wins; CEO: “we are winning ever-larger mandates… average top customer now a $25M relationship” .

What Went Wrong

  • Advocacy tailwind set to normalize: management expects advocacy to decline ~30% in 2025 given the absence of a federal election cycle, tempering year-over-year growth comps .
  • Continued OpEx investment in cloud/AI compressed near-term margins; CFO noted $23M Q4 cloud investment and indicated margins would have been ~23.2% without it .
  • Consensus benchmarking not available (S&P Global rate-limit); lack of immediate Street comparisons reduces clarity on beat/miss vs estimates (S&P Global data unavailable).

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$671 $711 $789
Net Revenue ($USD Millions)$554 $580 $630
GAAP Diluted EPS ($USD)$(0.03) $0.03 $0.03
Adjusted EPS ($USD)$0.14 $0.22 $0.24
Adjusted EBITDA ($USD Millions)$86 $111 $123
Adjusted EBITDA Margin (%) on Net Rev16% 19% 20%
Operating Income ($USD Millions)$21.9 $41.8 $43.5
Net Income attributable to STGW common shareholders ($USD Millions)$(3.0) $3.3 $3.2
Vs S&P Global Street ConsensusN/A (unavailable)N/A (unavailable)N/A (unavailable)

Segment breakdown (Q4 2024):

SegmentNet Revenue ($USD Millions)Adjusted EBITDA ($USD Millions)
Integrated Agencies Network$334.4 $73.0
Brand Performance Network$174.6 $30.6
Communications Network$107.7 $41.2
All Other$12.9 $(4.2)
Corporate— $(17.3)
Total$629.6 $123.2

KPIs (Q4 2024):

KPIValue
Net new business (Q4)$102M
LTM net new business$382M
Comp-to-revenue ratio57.5%
Advocacy revenue (Q4)$127M
SMC revenue (Q4)$81M
Digital Transformation revenue (Q4)$182M
Performance Media & Data revenue (Q4)$89M
Creativity & Communications revenue (Q4)$387M
Net leverage ratio (LTM Adj. EBITDA basis)3.0x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Organic Net Revenue GrowthFY 20245%–7% N/AN/A
Organic Net Revenue ex. AdvocacyFY 20244%–5% N/AN/A
Total Net Revenue GrowthFY 2025N/A~8% New metric (shift from organic to total)
Adjusted EBITDA ($M)FY 2024 → FY 2025$400–$450 $410–$460 Raised
Adjusted EPS ($)FY 2024 → FY 2025$0.75–$0.88 $0.75–$0.88 Maintained
Free Cash Flow Conversion (%)FY 2024 → FY 2025~50% >45% Lower threshold
Advocacy contribution (qualitative)FY 2025N/AAdvocacy down ~30%; non-advocacy organic +5.5% to +7.5% Mix shift commentary

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
AI/Technology initiativesBuilding SMC and AI deployments; record net new business; platform build ongoing Digital Transformation back to double-digit growth; Adobe partnership; AI-led rethinking of consumer engagement Accelerating AI projects; ContextLens launch; beta-testing Adobe Firefly; “The Machine” AI content platform; central tech stack (ID graph) Accelerating investment and adoption
Advocacy/political cycleAdvocacy +42% noted; energized political season ahead Political season breaking records; strength building into H2 Advocacy +80% in Q4; normalization expected in 2025 (~30% decline) Peak in Q4; normalizing in FY25
New business/RFP pipelineRecord $113M in Q2; LTM $324M $101M in Q3; LTM $345M; large wins (Adobe, United, Microsoft) $102M in Q4; LTM $382M; wins with Starbucks, Target, Visa; ~$1.3B RFPs; >30% win ratio Sustained strength, larger mandates
Margin/cost disciplineComp ratio improving; EBITDA margin 16% Margin 19%; incremental improvements Comp-to-revenue 57.5% (record); EBITDA margin ~19.6% reported; ~23.2% excluding cloud investments Improving underlying margins
Geographic expansion/M&AMENA strategy emerging Continued geographic scaling Middle East and APAC push; ADK Global intent; UNICEPTA acquisition; 11 transactions in 2024 Expanding footprint
Government contracts——Positioned to compete for large HHS/government contracts; expect 10–15% addition over time Emerging opportunity

Management Commentary

  • CEO: “2024 was a breakthrough year… fastest growing in the industry… accelerated rapidly in Digital Transformation… strategic investments to expand capabilities and geographical reach” .
  • CFO: “Double-digit revenue growth in 4 of our 5 principal capabilities… adjusted EBITDA $123M, 20% margin on net revenue… comp-to-revenue ratio down to 57.5%, a company record” .
  • CEO on AI: “This is the year where companies begin to recognize what AI can do and build applications around it… our digital transformation agencies are ready to do just that” .
  • CEO on investments: technology investments likely continue through this year and half of next, then decline; “real margin is probably about 25% greater than you’re seeing today… tech products… tend to have 60%–80% gross margins” .
  • CEO on competitive dynamics: Omnicom/IPG consolidation seen as opportunity to attract talent and clients seeking nimble, digitally-based creative .

Q&A Highlights

  • Growth composition: Advocacy expected to decline ~30% in 2025; non-advocacy organic growth targeted at +5.5%–7.5% led by double-digit Digital Transformation, supporting ~8% total net revenue growth .
  • Margin trajectory: Significant cloud/AI investment depresses near-term margins; without Q4 cloud investment, EBITDA margin would have been ~23.2%; investments expected to taper over ~18 months .
  • Pipeline and scale: ~$1.3B of RFPs in 2024, >30% win ratio; positioned to win large government contracts historically awarded to larger peers .
  • Talent and client mix: Market consolidation viewed as a talent inflow opportunity; tech companies represent 4 of top 5 clients; winning larger mandates (Starbucks, Target, Visa) .

Estimates Context

  • S&P Global consensus (EPS, revenue, EBITDA) for Q4 2024 was unavailable at run-time, preventing formal beat/miss assessment vs Street (S&P Global data unavailable).
  • Reported actuals: Revenue $789M, net revenue $630M, adjusted EBITDA $123M, GAAP EPS $0.03, adjusted EPS $0.24 .
  • Once consensus is accessible, we expect revisions to focus on: 2025 mix shift (advocacy normalization), non-advocacy organic growth trajectory (+5.5%–7.5%), and the margin uplift timing as cloud/AI investments taper .

Key Takeaways for Investors

  • Q4 confirms multi-engine growth (Digital Transformation, SMC, Performance Media & Data, Creativity & Communications) with strong advocacy tailwind; underlying non-advocacy growth expected to remain solid in 2025 .
  • Margin quality improving beneath the surface as comp ratio hits record levels; near-term margin headwind from cloud/AI investment is transitory per management .
  • Record LTM net new business ($382M) and larger mandate wins point to durable topline momentum and scaling economics .
  • Geographic/M&A expansion (MENA, APAC, UNICEPTA) broadens addressable market and enhances AI/data capabilities in SMC—an important differentiator vs legacy holding companies .
  • 2025 guidance implies balanced growth despite advocacy normalization; the Investor Day (April 2) and AI product launches (“The Machine”, ID graph) are likely narrative catalysts .
  • Watch the government contract pipeline and win rates—management sees this as incremental growth and scale opportunity .
  • Near-term trading could be sensitive to confirmation of Street beats/misses once consensus is available and to visibility on margin ramp as investments taper (S&P Global data unavailable); medium-term thesis hinges on AI-led transformation, scaling new business, and disciplined cost control .