Good morning from Stagwell's global headquarters at One World Trade Center in New York City and welcome to Stagwell Inc's Earnings Webcast for Q2 2023. My name is Ben Allanson and I lead the Investor Relations function here at Stagwell. With me today are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Frank Lanuto, the Chief Financial Officer. Mark will provide a business update and Frank will share a financial review. After the prepared remarks, we will open the floor for Q&A. You're 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. And 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. In the face of significant industry and sector headwinds, Stagwell posted sequential quarter-over-quarter improvements in revenue, EBITDA and margin. We expect to continue to improve on all metrics throughout the rest of the year as new business wins have continued to accelerate. As promised for the first time, we'll be breaking out the Stagwell Marketing Cloud Group results this quarter, which shows that our investments in that area are paying off and have great potential to enhance our value proposition as we strive for a leadership position in marketing AI. Our reputation within the industry continues to grow or being invited to record numbers of new business pitches. We delivered second quarter net revenue of $535 million, down about 3% from the prior year which had increased by 16%. This means that we continue to maintain a strong two-year stack of growth against our long-term targets as we power through this challenging economic environment. In this quarter, we continued to deliver sequentially improving net new business of $75 million, following $53 million in the first quarter and $42 million in the fourth quarter of 2022. This brings our last 12 months net new business to more than $0.25 billion, a record for Stagwell. This net new business win during these periods should stack up over the remainder of the year. Our largest clients continue to get larger as the top 25 clients showed 12% growth year-over-year with three clients topping $50 million in net revenue in the last 12 months. Even as tech and financial companies pulled back, the increase in the top client shows we are successfully reorienting the company from smaller projects to larger multifaceted relationships. Our international business or net new revenue…

Thank you, Mark. Good morning, everyone, and thank you for joining us to discuss our second quarter results. As a reminder, if you'd like to ask a question after the prepared remarks conclude, please feel free to submit them through the chat function. Reported revenue for Q2 was $632 million, decline of 6% as compared to the same period in the prior year. Net revenue excluding pass-through costs declined 3% year-over-year to $539 million. In organic terms, the decline was 5%. Excluding advocacy, organic net revenue declined 4% for the period. Results were impacted principally in the North American market as internationally net revenue grew organically at a robust 9%, led by gains in Asia-Pacific and EMEA of 17% and 8% respectively over the comparable period in the prior year. A combination of factors led to the decline in US revenue including a disruption in the tech sector within the digital transformation discipline, the actors and writers strike weighing adversely on our media and entertainment customers within research and strategy and regional banking turmoil, causing uncertainty in financial services. The decline in organic net revenues spanned across all our principal capabilities, but was felt more acutely in digital transformation where we experienced delays and commencement of projects as our tech clients restructured their workforces. Importantly, we believe these circumstances are temporary with no significant impact on the strength of our clients or the inexorable shift to digital transformation and data driven media solutions. The demand for transformative digital projects remains very strong with more than 25% of our new business in the second quarter derived from this area. We are well positioned to resume our strong revenue growth as these temporary conditions abate. From a larger trending standpoint, our stated strategy for delivering integrated services to our largest global clients…

Thank you, Frank. Just a reminder, if you have any questions, please do submit them via the chat button at the top of screen. We'll start off with just a little, a question from Mark Zgutowicz over Benchmark, talking about digital transformation. He asked, which dynamics proved more challenging in the second quarter with the -- with regards to our digital transformation organic revenue.

Well, I think what happened with digital transformation was that a lot of the tech companies had mass layoffs. And when they had mass layoffs, they frankly -- they frankly eliminated the heads of a lot of projects and so that tended to have -- create a lot of disruption. And so I think -- I think those tech companies pulled back particularly some of the large-scale business software companies, pulled back or reduced some of the projects they were doing. And also it took a number of months for there to be kind of reorganization within the companies. And at the same time, there was not during this period yet a real consideration of AI projects which are really just being formulated now as people digest the importance of this new technology.

Great. Next question, just turning to net new business. And this is from Jeff Van Sinderen at B. Riley. Considering the net new business that you're winning, which is obviously a big number this year and this quarter, what are your latest thoughts and how the P&L progression might evolve in the second half in terms of revenue growth, margins EBITDA being driven by this net new business?

Well, I think you can look at that through the -- through the implied math of guidance between -- between where we are and where we're going. I think as I've said, clearly in the script, you've seen sequential improvement on all metrics, right. In this quarter, I would expect sequential improvement in all metrics in the third quarter and then again in the fourth quarter. Marketing is generally weighted towards the back half of the year, that's not unusual. So that's the progression that I'm expecting. And as I said, you could probably do a little bit of a math yourself and figure out of what we see is remaining there.

Good. And costs -- Brett Feldman over at Goldman Sachs, you cited steps you've taken to make cost adjustments in the release. At which these steps are now fully implemented and benefiting -- benefiting run rate OpEx in 3Q and which steps remain in progress.

We have affected all of the personnel headcount reductions as of this time expect now just to start to realize the benefits of those. We don't have any material further actions to take in the back half of the year.

Great. Turning now just over to a question about advocacy actually. What is Stagwell seeing -- and this is from Barton Crockett of Rosenblatt. What is Stagwell seeing in the political ad environment? We're all reading about fundraising slowdowns in the Republican primary. Is that going to be an issue for Stagwell?

All signs so far are fairly positive about the next political season. There were a lot of fundraising slowdowns last season through this, but I have -- what we're really seeing is that things are tracking on the advocacy side somewhat ahead of what they were. And I think we're all going to see what happens here in late August. Will there be a real primary? Will this thing explode with the first primary debate? I think that's the event that we've got to kind of watch in a couple of weeks. But so far, we're seeing the kind of positive signals related to how advocacy is developing. And as I've said, once this does get going, whether it gets going towards the end of this year or beginning of next, I don't think there's any question that would be the biggest election season in history.

Great. Now onto generative AI, the topic which I think we've talked about a lot internally. From Laura Martin over at Needham. You mentioned GenAI in your press release. In what ways do you think it will drive economics for Stagwell primarily cost savings or to drive additional revenue on side?

Well, I think over the next 12 to 18 months, we really see an explosion of digital transformation projects. And I think that's going to be really quite strong for a digital transformation division. I don't think people have fully realized that generative AI means a rewriting of almost all customer interfaces. It's an entirely new and improved way to converse and kind of take actions on behalf of consumers to get them what they want to see when they want to see it. And I don't think we've even scratched the surface of that. So I think while that's going to take a little time to snowball, but that's really going to be where major marketing AI resources get put into it. It's going to be very good for digital transformation. I think that's why we initially moved with the Oracle partnership to help them and their clients begin to tackle these problems. I think obviously it's going to help us do some streamlining of processes. We're already -- we're already testing now, taking all of our invoices and reducing processing costs of invoices from $2 or $3 down to $0.20 or $0.30 each, but we're looking at how it works with how to help produce story boards and do a lot of internal work. And thirdly, we are already deploying that. As I said on our profit product, we're ready to use generative AI to help generate and refine news releases and pitches. But we're also creating, I think, a series of products related to the research industry in which focus groups are analyzed kind of on the spot, open ended are analyzed on a more efficient basis. Even data tables will be read so that the amount of really great work that analysts have to do to find conclusions and fair it out is really greatly reduced. And we think that the research process will be much more efficient and we're going to sell that to the marketplace.

Thank you. Just a reminder, if you have any additional questions, please do throw them in the chat. So to a couple of investor questions. First, is Latin America important to Stagwell future plans, what's being done to address the stronger group position in the region?

Latin America is important. I personally worked a great deal in Latin America. A few months ago, I was -- I was down in Brazil. We have a number of transactions I think underway at various stages of completion that will, I think, clearly expand our capabilities in Latin America. Having a full network, right, within Latin America is an absolute top priority. You can see in our growth rates here that we have a lot of potential growth in these international operations. I believe that we committed more resources now to growing in EMEA where I think our companies have been too fragmented. I'm looking particularly at bringing a Latin American market probably by the end of this year. I think you'll see significant developments on that. And then, I'm looking at the Mideast next as the second most important market for us to fill in more strongly.

Before we turn to a couple of questions, we have here on capital allocation a question just about the environment in general. Based on the guidance, what are the Stagwell's assumptions for tech and entertainment for the remainder of the year?

I think -- I think our assumptions are kind of modest relative to the writers' strike. We're not sure when the writers' strike is going to be over. We expect it to be over by next year and for it to end sometime this year, but I think that our -- our entertainment research company is trending very carefully, watching expenses until this -- until this strike is over. And I think in terms of tech, again, I think that we've built in modest assumptions of growing recovery on a slow basis. We've tried to be I think conservative in our outlook here figuring that the comeback will strengthen in fourth quarter, particularly as I think these companies see how much they really have to do to integrate generative AI.

Great. And then I think the last question we have here, just on capital allocation in general and I'm going to combine two of them as is they're related. Can you remind us your priority for excess cash flow from here between M&A, buying an equity and repaying amount -- amounts outstanding under the revolver? And a related question I think is what are our thoughts on buying back bonds at a significant discount?

I think that's -- it's a fair question. I think that where we have said before that we plan to use a third for new acquisitions, a third -- a third to pay for old loans and a third for various stockholder moves. Obviously this year we've departed somewhat from that as we have done more on the shareholder buyback side. And I think -- I think, as Frank said, we're taking some measures. And as I noted possibly a small disposition as well kind of to build up our cash flow. But we are a growth company, so it's critically important for us to take our cash, grow our tech products and continue to make great investments to expand the network. And so I think that -- and if that's going to be the priority, at the same time we've set a medium-term goal of getting to about two, it's possible we'll make a decision in terms of buying discount pounds but we haven't made any such decisions to-date.

Now, I think that's the last question that we have. Thank you very much for joining us today. We really appreciate it. If you have any questions, please don't hesitate to reach out to ir@stagwellglobal.com. Happy to address all of those and thank you once again for joining us.