Good morning from Stagwell’s worldwide headquarters at One World Trade Center in New York City and welcome to Stagwell Inc.’s Earnings Webcast for the First Quarter of 2023. My name is Ben Allanson and I recently joined Stagwell to lead the Investor Relations function. With me today are Mark Penn, Stagwell’s Chairman and Chief Executive Officer; and Frank Lanuto, Chief Financial Officer. Mark will provide a business update and Frank will share our financial review. After the prepared remarks, we will open the floor for Q&A. You are welcome to submit questions through the chat function. Before we begin, I’d like to remind you that the following remarks include forward-looking statements and non-GAAP financial data. Forward-looking statements about the company, including those related to earnings guidance are subject to uncertainties and risk factors addressed in our earnings release, slide presentation and the company’s SEC filings. Please refer to our website, stagwellglobal.com/investors, for an investor presentation and additional resources. This morning’s press release and slide deck provide definitions, explanations and reconciliations of non-GAAP financial data. With that, I’d like to turn the call over to our Chairman and CEO, Mark Penn.

Thank you, Ben, and thank you to everyone for joining us for our earnings call. Today is an important day for Stagwell, its future and for its investors. I can announce that Stagwell Inc. has entered into a definitive agreement, negotiated by a group of independent directors, advised by legal and advisory teams to repurchase over 23 million shares of Stagwell Inc. class A stock from AlpInvest. This move will not affect the float, but will reduce the number of shares outstanding by 8% to about 267 million and should avoid the necessity of any further secondary issuances in relation to exiting AlpInvest. In addition, as per a separate release from the Stagwell Group, the remaining investors in Stagwell Media have stepped up and are in advanced negotiations expected to go to final documentation soon to redeem any remaining Stagwell Media LP interest held by AlpInvest. I believe these actions will remove an overhang from the stock. Let me address Q1 earnings. These results are in line with management’s expectations for the quarter, especially when compared to Q1 2022, which featured an extraordinary 24% organic net revenue growth, far above the 14% average last year. This means that performance that would be growth compared to the average of last year is overshadowed by 2022 Q1. This math will work in reverse in the last two quarters, which we expect to show double-digit growth. Remember that Q1 2023 is at the bottom of the four-year political cycle, is a time of investment and building up our marketing cloud, is in the face of tech company slowdowns and is compared to our strongest previous quarter of growth. We rang up $622 million of revenue and $522 million of net revenue this quarter. Revenue, ex-advocacy, increased by 1% after a 31.5% increase last…

Thank you, Mark. Good morning, everyone. And thank you for joining us to discuss our first quarter results. As a reminder, if you would like to ask a question after the prepared remarks conclude, please feel free to submit them through the chat function. I will start by reiterating Mark’s earlier comments, that results for the first quarter were in line with our budgeted expectations and consistent with our year-end remarks that the first half of 2023 would have lighter growth. This is principally attributed to a shift in phasing of client spend and to a lesser extent the biannual cycle of our advocacy business and finally to our extraordinary growth in Q1 2022, which was uncharacteristic given our historically stronger second half performance. This latter point is evidenced by the strength of our two-year organic net revenue stack of 21%. We expect a pickup in client spending in the remaining quarters of the year and I have already begun to see signs that this is happening. With that, let me turn to the numbers. Starting with our reported results, our Q1 revenue was $622 million, a decline of 3% on the same period in the prior year. Net revenue, excluding pass-through costs, declined 0.9% year-over-year to $522 million. In organic terms, the decline was 3%. Turning to results by principal capability. Digital Transformation organic net revenue declined 9%. This was principally attributed to the expected cyclical decline in our Advocacy business. Excluding Advocacy, the organic net revenue decline was 3%. The remainder of the decline is largely attributed to the trends that Mark spoke about in his prepared remarks, namely, a holdback in spending as companies restructured their workforces. On a two-year basis our Digital Transformation capability has seen organic net revenue growth of 40% or approximately an annual…

Thank you Frank. Just a reminder, if you have any questions, please submit them via the chat button at the top of the screen. We will start with a question from Laura Martin at Needham. Could you please share your view of how generative AI like ChatGPT will impact your business moving forward?

Well, I can say -- I think you can see from the earnings report I gave that we view this as a major opportunity for us. We already have the tech companies as major clients. We have a significant engineering culture. We have released PRophet, which is a generative AI engine already in the marketplace. We are combing through every possible application that we can, from helping creative, to helping analyze research and to apply these new tools as quickly as possible across our network. I believe that our ability to utilize it will be one of our differentiating features.

Great. And as a follow-up to that, Digital Transformation -- this is also from Laura. Digital Transformation revenues were down 9% year-on-year in the first quarter of 2023 and this is your most profitable segment. Do you think of this as a blip or should we model this as a new run rate for the year?

I would see this as a blip. Number one, the 9% includes Advocacy. When you take Advocacy out, it was negative 3%. And as I reported throughout that, tech companies laid off a lot of people, usually then they have to reorganize who’s in charge of things and figure out which projects they are going forward with. We see them beginning to unfreeze now. That’s why we decided to keep our teams, because of the importance of those kinds of teams and the difficulty of rehiring them. Right through this, we see it coming back, we believe that that was -- that negative 3% was a blip that will undo itself in the later parts of the year.

Great. On a related note, a question from Jeff Van Sinderen at B Riley. As you look across your various business segments and niches within those segments, where are you seeing the most growth and what areas are you most optimistic about in the near-term? Also, what areas are you increasingly cautious about in the near-term?

Well, look, I really see that research always continues to surprise. Look, they had growth after 56% in the previous year, Harris Brand Terminal is really doing quite well. The greater uncertainty out there I think is very strong for research. I think Digital Transformation showed something of a slowdown. I think that’s from here going to show significant growth as clients turn to that and as clients want generative AI and other new features applied. I think the sweet spot of where we are seeing largescale new pitches is in our Brand Performance Network where we are combining Creativity with Media and I think that is really a standout area for us. I am always concerned about Creative on its own. That’s why our Creative companies are all getting the capability to link Creative and Media in the future. That seems to always have been the -- while of the most interesting and fascinating part of the industry in some ways, generally the smaller growers relative to that. But we believe that it’s the combination here at Stagwell that really that really provides the edge for us.

Related notes and continuing the new business trends, a question from Steve Cahall at Wells Fargo. As of today, what’s your net new business look like since you say you have added to the $212 million trailing 12 months industry, I think about $40 million I thought you referenced?

Well, I think we are $212 million in the last 12 months, we are $53 million in Q1. I don’t have the net number for April but that was -- we had $40 million additional significant client departures that I really know of in April. The full calendar hasn’t come out. But this is the strongest April that we have ever had with $40 million of new business and that’s really what gives us confidence. And we are going into Cannes which remember last year we got a lot of new business coming out of Cannes and we have also kind of even increased with something called Sport Beach our presence at Cannes this year to be a major player.

Turning a little bit to the Cloud. Obviously you announced that we are going to be breaking out different segments within Stagwell Marketing Cloud next year or next quarter. A question from Mark Zgutowicz at Benchmark. Could you explain a little bit some of the Cloud-related investments in the quarter and how should we think about the margin impact of incremental Stagwell Marketing Cloud revenue in 2023 and onwards?

Sure. I mean, I think that, we have made significant investments in putting together the Media Studio, applying generative AI, going to the next versions of PRophet. We are in the midst now of putting the Maru experience together with the Harris Brand Terminal into a unified Research offering. So we are making commitments and investments in that. I believe that, as I pointed out, that we will spend up to about $20 million refining it. On some of the products now, we ready to go to market I think and expand the marketplace. Harris Brand Terminal, PRophet, Around and so there we are not investing in engineering, but we will be investing in sales forces. I think that 2023 is going to be a year of investment. We expect significant revenue increases in 2024. Having said that, we still think there’s a 30% revenue increase within the Marketing Cloud software components themselves and double digits within the Advanced Media platforms. But I think you are really going to see the profitability out of that ramp up in 2024.

Great. And just a reminder to everyone, if you have any additional questions, please do put them into the chat function. We are just going to turn quickly to two questions from Barton Crockett from Rosenblatt. Can we -- could you talk a little bit about your approach to guidance? Why didn’t you guide more specifically for the March quarter in addition to providing a full-year outlook? Could your approach change in the future?

I don’t think we want to get into the business of quarter-by-quarter guidance. In marketing, there’s just a lot of lumpiness in quarters, clients tend to shift things around considerably. We get there by the end of the year and I think trying to refine guidance to quarter-by-quarter is a risky proposition. And I think we might have pointed out somewhat more the high comp in Q1 relative to the normal structure and I’d like to point out in general what I see is the -- as the more normal structure for this year, particularly, as tech companies come back and political ramps up in the second half of the year.

Great. And another question from Barton and this is on the share repurchase news from AlpInvest. Can you just give us a sense of how many shares this could represent and how this fits within your broader share repurchase approach? Could you also address your own holdings Mark and any change there?

Well, it’s 23 million -- 23.3 million shares reducing our share pool to 267 million. There are advanced negotiations in which Steve and I would take any remaining interest that AlpInvest has in the fund. That would not change the share increase, and obviously in no way has my share decreased and any of the proceeds of the purchase today go to AlpInvest, and if anything, holdings stay the same or might after this process increase.

Great. And I think one final question, this from Nick Zangler over at Stephens. He says, encouraging progress with around landing. Yet another client in the Cleveland Cavaliers, multiple teams from multiple leagues now in partnership. Could you talk a little bit monetization on a team-by-team basis and the term at large?

Well, I think with all tech products first you have to have an experience, then you have to have an experience people like and enjoy and use time on and then you have to monetize. As I always say, first there was TV, then there was TV advertising and that’s the phase we are in now. We have -- I think the goal is to get about $500,000 in sponsorship revenue per stadium per season. We have started with the first sponsor or two, and again, as the technology’s established, as people see that 10% or 15% or more of the fans are spending… [Abruptly Ended]