With MDC Merger Complete, Stagwell Inc. Announces Q2 Earnings

Things are looking up for the newly named Stagwell Inc. The merger of Stagwell Marketing Group and MDC Partners is official, the stock has started trading on the Nasdaq (STGW) and Q2 earnings were announced today with double digit increases for each side of the business. "We are encouraged by the continued strength through the first half of the year and saw broad-based growth across the network. Our digital businesses saw another quarter of high double-digit growth and our creative agencies won considerable new business during the active second quarter pitch season," Penn said on the call. What the merger means All of the Stagwell and MDC agencies and networks, including 72andSunny, Anomaly, Doner, Code and Theory, Assembly, ForwardPMX and Harris Poll, will now sit under the Stagwell Inc. umbrella, though they will keep their autonomy as separate agencies and companies. MDC Shareholders Approve Merger With The Stagwell Group “I believe in both keeping the industry original brands and not smooshing things together, the way they've done at some of the other companies,” Penn told Adweek, adding that the new company will be a central point for financial leadership and a hub for multiservice capabilities. “We're going to strengthen those networks and add new members to the networks. Those are at the core of how we grow.” Penn said that combining Stagwell and MDC will allow the two to begin to market more as one company. “Now people will say, ‘Okay, this is this is a serious $2 billion platform here that has every key marketing skill you would want as a modern marketer. And that's going to enable us to reach out to bigger contracts and begin to compete against the majors,” Penn said. Stagwell strategy moving forward Penn said in the earnings call that the strategy of the newly combined company remains the same: to “reduce back office expenses while providing maximum freedom to the creative and digital agencies to hire the best talent and grow.” He said Stagwell will expand its networks, bring together all of its media companies to take advantage of the growing scale while maintaining its go-to market brands, reopen the window for mergers and acquisitions and invest in cutting-edge digital services. “We will tell the story of a new company with the best of creativity and the best of connected experiences that can transform marketing and growth to compete against the majors,” he said. In the near future, Stagwell plans to launch a refinancing of its bonds, hoping to take advantage of a stronger balance sheet, and lower rates to enhance its capital structure and save a potential $20 million of interest annually. Tempering the positive nature of the call, Penn did caution about growth as the Delta variant of Covid-19 spreads and has potential to slow down the economy, but he said since much of Stagwell’s business is in the U.S., which hasn’t seen as much disruption as overseas, the company has yet to see any effects on the business. Digital products leading the way Stagwell Inc’s roster of agencies and networks includes top creative agencies 72andSunny and Forsman & Bodenfors among others, but Stagwell is also assembling a stable of digital products to help it compete globally. Building on its digital companies, like Harris Poll, Gale and ForwardPMX, Penn said Stagwell has developed nine new digital products with more to come. They include PRophet, an AI-driven SaaS platform designed for the PR community that helps predict media interest, sentiment and spread before a story is pitched as well as a consumer and engagement platform to target audiences without relying on cookies, and an influencer brand platform. Stagwell is also sticking by creative agency Crispin Porter Bogusky. CPB has gone through many changes over the past year, including losing two of its main clients in Fruit of the Loom and Hotels.com, but Penn told Adweek that Stagwell is going to “give them all the time they need for this team to move forward,” and assured that the agency is winning new clients, though he did not disclose the companies. Stagwell Group earnings Stagwell Group, in its last individual earnings report before the merger, boasted a 29.1% increase in GAAP (generally accepted accounting principles) revenue to $209.6 million and a 39.5% increase in net revenue to $181.8 million for Q2 2021 vs. Q2 2020. Second quarter net income increased to $18.7 million, representing 285.1% growth over Q2 2020, and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 91.5% in Q2 2021 vs Q2 2020. Stagwell Group saw nearly all segments growing revenue in the double digits, with the digital marketing and content segments growing by a combined 47% year-over-year, continuing to benefit from the shift to digital accelerated by the pandemic, Frank Lanuto, CFO of Stagwell Inc., stated during the call. “The entertainment and streaming content research segment grew 84% year-over-year, as movie and television production ramped and theaters broadly reopened,” he added, also noting that corporate research grew 38% from Q2 2020 as Harris Poll saw demand rise for its enterprise advisory services. MDC Partners earnings In its final quarterly earnings before the merger, MDC delivered record Q2 revenue growth and its highest adjusted EBITDA in the company's history, according to Lanuto. “For the quarter, revenue grew 33% to $346 million, worth 31% on an organic basis,” he said. Lanuto pointed to growth across all client sectors, including healthcare, technology, consumer products and food and beverage, with the biggest year-over-year improvements being driven by organic growth with existing clients. Lodging, transportation and travel clients rebounded slower, as clients remained cautious around the global travel outlook, but Stagwell expects the travel and experiential sectors to see gradual improvement throughout the second half of the year. MDC segments posted double digit percentage revenue increases as compared to Q1 2020. The company saw growth in digital PR, creative, media, data and healthcare business. Overall, organic net revenue increased 26.9% in the second quarter and 11.2% for the first half of the year, with GAAP (generally accepted accounting principles) revenue of $345.6 million in the second quarter versus $259.7 million in the prior year period, an increase of 33.1%, and $653.2 million in the first half of the year versus $587.4 million in the prior year period, an increase of 11.2%. A revised leadership team Stagwell Inc. also introduced its leadership team for the combined company during the call. It includes Penn as chairman and CEO, Jay Leveton as president, Lanuto as CFO, Ryan Greene as COO, Beth Sidhu as chief brand and communications officer and Ryan Linder continuing to serve as chief marketing officer. The company also welcomed Stephanie Howley as chief people officer, joining from BCW Global. MDC and Stagwell Group Merger Moves Ahead, as Q1 Results Are Reported