Challenger agency group Stagwell reported a 19.6% increase in organic revenue over the last six months, despite the worsening economic situation in the US and UK.
Speaking to The Drum, chief executive and chairman Mark Penn says: ”We continue to show industry-leading growth and strong margins. Confidence is high.”
In the second quarter of 2022, Stagwell’s financial results reveal it saw organic growth of 16%, and 19.6% over the first half overall – equating to $1.08bn in organic net revenue.
The same figures also showed that Stagwell’s labor costs came to almost $700m for the first half of the year, an increase on the same period last year. The group put aside $330.6m for wages in the fourth quarter of 2021, but that figure rose to $340.6m in the first quarter of 2022, and $349m in the second quarter – an increase of almost 5.3%. In comparison, Publicis’s staff costs in the same period rose 1.8%.
Penn says the figures were merely a sign of the company’s growth, and not a threat to its bottom line. ”We have added several thousand people over the last year because we’ve been growing. You don’t really focus on the headcount, but on the total labor bill and productivity, and we have really had excellent productivity.”
Other major agency groups, notably S4 Capital, have struggled with staff costs in recent months. But Penn says Stagwell’s labor bills are rising in line with its overall growth. ”Our comp-to-revenue ratio has been going down, not up. We were at 65%, we’re now between 62-63%. So as a proportion of our net revenue, we have been managing the relative ratio of labor costs quite well ... unlike some of the other companies out there.”
The company’s operating margins also stayed firm at 20% of net revenue. Chief financial officer Frank Lanuto adds: “Our balance sheet is in a good position and should benefit as we head into the seasonally strong back half of the year when we expect cash flow to increase significantly.“
It has, however, held guidance issued to investors earlier in the year. Penn expects its margins will hold, but not increase beyond 22%, while it expects to bring in an EBITDA (earnings before interest, tax, depreciation and amortization) of $450-480m. Penn argues it’s a sign of confidence, rather than caution.
”The guidance itself is spectacular. Why keep giving yourself a higher mountain when you’re already climbing Mount Everest? If I had said a couple of years ago that this company was going to make $400m-$450m EBITDA people would have looked at me like I was from outer space. Now we’re confidently getting over $200m in the first half of the year, and we have the holiday season and the advocacy season [US congressional midterms] to come.
”It’s very strong guidance – 20% growth. That would put us above any of the majors significantly and I think it should be read as a strong, real reaffirmation of a very strong year.”
He’s also confident that the US and UK economies will still provide enough demand to Stagwell’s agencies to make good on those growth predictions – despite the alarming predictions from the Bank of England of 13% inflation and a recession in the fourth quarter.
”You always have to be concerned with economic uncertainty, but it’s just not what we’re seeing right now. Right now we’re in a speeding car and some people, the Fed and the Bank of England, are trying to hit the brakes. Are you going to go from 90 miles an hour to 60 or down to zero?"
And the pipeline for new business remains strong, he adds.
”The evidence, at least right now, is that we’re in a strong travel and entertainment season. I think we’re going into a relatively strong consumer fourth quarter. And we’ve seen a lot of companies unlock RFPs in the last two weeks.”
Stagwell has made two agency acquisitions in the last six months, including SaaS specialist Apollo and Ukrainian content creation company Pep Group. Penn says they’re not the last moves they’ll be making in the market this year. ”We’ve got the acquisition window open. We’re focusing on broadening out our geographic footprint and expanding our technology capabilities,” he says.
In particular, it’s looking to build up its arsenal ahead of a new platform launch in 2023. ”We’re making sure we have all the tools that we need to launch the Stagwell Marketing Cloud next year,” he says.
