Stagwell reported an organic net revenue decline of 7% in the third quarter versus a year earlier and a decline of 6% for the first nine months. Net revenue for Q3 was $535 million, down 5% and net revenue for the first nine months was $1.6 billion, down 3%.
The company again downgraded full-year guidance, now indicating it expects an organic net revenue decline of about 4%, versus previous guidance of between flat and 2% when it reported Q2 results. Earlier guidance had been between 7% to 10% growth with double-digit growth expected in the last two quarters of the year.
Net revenue in the third quarter from outside the U.S. increased 25%. The U.S. market, which accounts for most of the company’s business was down organically nearly 10% in the third quarter. Modest growth is expected to return in the fourth quarter.
“Stagwell achieved over $100 million of [pre-tax earnings] in Q3 and is on course to return to growth over the next two quarters as new business continues to flow in and the tech industry pauses and auto and entertainment strikes which have impacted this sector are ebbing,” stated Mark Penn, Chairman and CEO, Stagwell. “We are already growing in key areas like media and international and made adjustments to again achieve a 19% margin on net revenue.”
Penn added, “We have trimmed our costs, implemented new systems, reordered our portfolio, and are ready for a strong 2024 as the political cycle kicks in again and as we introduce our cutting-edge AI products within the Stagwell Marketing Cloud.”
He added that the sale of health care agency ConcentricLife, which closed this week for $245 million, “both improves our balance sheet and readies the company for further growth and expansion through prudent investment.” Penn also noted that the firm expects to sell another large asset—he described it as about half the size of ConcentricLife—by the end of the year. < /p>
Contributing to what he said would be a “big year” in 2024 for the company, Penn told analysts on an earning call that the firm had back-to-back quarters (second and third) where new business wins accounted for than $100 million in annualized revenue, most of which should begin kicking in early next year. Losses so far this year amount to about $7 million.
Penn also pointed to other problems easing by the end of this year, including the entertainment and auto strikes and a tech sector that is beginning to rebound. He added that next year he believes that big tech companies will start to aggressively compete with each other as they bring new offerings to market, which should translate to significantly more spending on marketing.
Penn also said that the firm’s digital transformation offerings, a big drag on results this year are poised for a dramatic rebound as companies are now starting to reissue RFPs for projects that had been delayed amid general market macroeconomic concerns.
The company will also benefit from anticipated record political spending next year, which some have predicted will reach $12 billion.
Some strict cost cutting will enable the firm to hit its 19% profit margin target this year, including staff reductions that will save $82 million in annualized savings this year. The firm’s head count will be 7% lower at year’s end than it was at the start of 2023, CFO Frank Lanuto said.
The company continues to consolidate real estate holdings in many markets including New York and London, and in Singapore where many of its APAC businesses are now housed.
The firm is also expanding a program where many of it agencies are sharing back-office services.
Stagwell shares were down 5% in early trading following the release of the Q3 results.
This story has been updated with remarks from a Stagwell earnings call Thursday morning with analysts and investors.