Stagwell 2021
Annual Report
StagwellGlobal.com
Stagwell is the
challenger network built
to transform marketing.
Certain statements contained herein are “forward-looking statements” within the meaning of applicable securities laws and regulations. Generally, these state-
ments can be identified by the use of words such as “aim,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,”
“plan,” “potential,” “project,” “should,” “will,” “would” and similar expressions intended to identify forward--looking statements, although not all forward0looking
statements contain these identifying words. These statements are based upon information available to Stagwell Inc. (the “Company”) as of the date hereof, and
the Company’s actual results or performance could differ materially from the performance or results stated or implied by such forward-looking statements due
to risks and uncertainties associated with its business. These risks and uncertainties include, but are not limited to, the risks detailed in the Company’s filings
with the Securities and Exchange Commission, including the “Risk Factors” section of its Annual Report on Form 10-K for the year ended December 31, 2021. We
assume no obligation to update any of these forward-looking statements, except as may be required by law.
We deliver scaled creative performance for
the world’s most ambitious brands, connecting
culture-moving creativity with leading-edge
technology to harmonize the art and science of
marketing. Led by entrepreneurs, our 10,000+
specialists in 34+ countries are unified under a
single purpose: to drive effectiveness and
improve business results for their clients.
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2021 was a
breakthrough year
for Stagwell
“Stagwell was built to meet the
needs of a digital-first economy.”
Mark Penn, Chairman and CEO
~$2B in Revenue
Digital Business Up 29% Ex-Advocacy
51% of Net Revenue from Digital Capabilities
+245% Stock Price
Pro forma combined figures giving effect to the business combination as if it had been consummated on January 1, 2021
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Digital Innovation
We harmonize the new disciplines
of marketing by building connected
experiences across platforms to
fuel growth.
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Global Expansion
Fueled by our Affiliate Program
with 50+ partners across Latin
America, the Middle East, Africa,
Asia-Pacific, and Eastern Europe
and investments in market leaders
Instrument and Goodstuff.
Goodstuff founders sell agency to US
‘challenger group’ Stagwell
Campaign
Founded in 2002, Instrument is one of
Stagwell’s fastest-growing agencies
MediaPost
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Collaboration
not Consolidation
We create transformative outcomes
for blue-chip clients and integrated
opportunities for our global talent, an-
chored from our hub in New York City.
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Stagwell
Marketing Cloud
We are building a proprietary
suite of SaaS and DaaS products
supporting business transformation
for in-house marketers.
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Dear Investors,
2022 is a brave new world for brands. The role of a brand in society is changing – and doing so amidst
unprecedented geopolitical forces. In a digital economy, every screen is a canvas, every experience
a data collection point, and every platform a new place for brand interaction. Web3 promises to only
accelerate that reality. Simultaneously, consumers – and marketers – are living through unprecedented
upheaval in the world: once-in-a-lifetime domestic inflation, an enduring pandemic, the first land-
war in Europe in seventy years, and the specter of nuclear conflict. Brand leadership in times of chaos
is an invaluable competitive advantage – but only if brands have the partners they need to help their
organizations to evolve. Brands need more from their marketing partners than savvy ad men; they need
partners in transformation. Stagwell stands as the challenger network built to transform marketing,
aligned with the best talent + technology to drive results.
An investment in Stagwell is an investment in the future of marketing.
In 2021, we achieved aggressive growth targets and expanded mindfully, scaling our services across key
regions while doubling down on our investments in core digital tools which provide industry-leading
digital media, engineering, product design, and digital experience capabilities. Alongside our market
facing evolutions, our corporate leaders steered financial and operational transformation, developing
a platform predicated on disciplined capital deployment and organic growth, not frenetic investment
financed by diluting shareholders. Among the things we accomplished: the refinancing of our bonds,
conversion of our preference shares, and reduction of our net leverage. Consequently, Stagwell received
credit upgrades from both major rating agencies. And we strove to provide investors with increased
transparency and certainty around future M&A liabilities by ending all material legacy uncapped
earnouts.
Today, three factors are propelling the network as we punch up to transform marketing: our uniquely
high concentration of digital capabilities, which aligns us with the fastest-growing segments of the
market; our investments and acquisitions supporting digital and global growth; and our focus on
flexibility, integration, and collaboration, which we believe is resonating with larger clients and leading
to more impactful wins throughout the network. Additionally, our growing emphasis on the Stagwell
Marketing Cloud – SaaS and DaaS business transformation tools – adds differentiation to our core
growth drivers.
“
2021 was a transformative year for Stagwell,
building on the success of our August combination.
”
Our results demonstrate that the combination is working faster than expected – and quickly separating
us from the legacy advertising giants who have long dominated our industry.
Market developments over the past two years underscore why newer entrants are the future of global
marketing services delivery. Digital acceleration has blunted the competitive edge of legacy giants
born in the era of television. We believe the splintering of media across platforms and emerging digital
ecosystems means marketers require consolidated media partners with proven global performance
marketing expertise.
The old answers for marketers are no longer viable. Siloed and competitive agencies protecting
their own P&Ls at the expense of integrated, client-centric approaches are poor solutions for today’s
businesses. Tactical digital execution absent a holistic strategy for digital growth should be a relic of the
turn-of-the-millennium. Creativity sacrificed to produce mass, lowest-common-denominator marketing
will simply not break through. And disconnected technology systems managing unique elements of the
marketing stack are ill-suited to support scaled enterprise growth.
Brands deserve a digital-first alternative marketing network that drives business growth by connecting
culture-moving creativity with leading-edge technology. Stagwell exists to lead that transformation,
harmonizing the art and science of modern marketing. Today, I’m proud to share our vision for the
future, our goals for 2022, and our outlook on marketing services.
TRANSFORMING FOR THE FUTURE OF MARKETING SERVICES
Modern culture demands higher levels of creativity while the growth of the digital world means that
marketing is no longer an “ad” but a series of connected experiences providing value for consumers.
Consumers today expect complex, seamless, and integrated ecosystems that span existing platforms
and some of the newer canvasses of brand storytelling enabled by emerging technology.
They also expect more from brands today than ads that do nothing but push salesy product messaging.
Elevated creative strategy that transforms brands from pure sellers to deliverers of compelling
experiences is a competitive edge in a world saturated by brand marketing. Or, as Stagwell creative
agency Anomaly and client partner Expedia simply put it in their 2022 Super Bowl campaign:
stuff < experiences. Anomaly helped elevate Expedia in the crowded field of Super Bowl advertisers with
a campaign that offered viewers the chance to “travel the ads” that aired during the game. We believe a
new breed of digital-first creativity will drive results in the next chapter of marketing services shaped by
Web3. This is prime territory for a challenger whose foundations are digital expertise and
culture-moving creativity.
NRG’s ‘For Meta or Worse’ report on Web3
Expedia’s Super Bowl campaign created by Anomaly
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Our playbook for harmonizing the new disciplines of marketing into seamless, integrated solutions rests
on four pillars: digital execution to digital transformation, taking global performance media to a new
level, collaboration as the key to integrated global solutions, product innovation to fuel growth.
DIGITAL EXECUTION TO DIGITAL TRANSFORMATION
Life is lived online today – across a range of channels, platforms and devices. Brands must become
digital-first to deliver value across every consumer interaction. From customer acquisition to retention,
digital experiences fuel growth today and even more so in the future.
Stagwell exists to meet the needs of a digital-first economy. We believe digital is a strategy, not a tactic,
and use this philosophy to help our clients rethink their business (products & services), reprioritize their
marketing (touchpoints & communications) and remake their organization (connect the enterprise) to
drive growth. We seek to deliver connected brand experiences (and data collection).
In 2021, our digital capabilities grew rapidly as clients allocated more of their budgets to transforming
their marketing businesses, digital platforms, and applications, turning to Stagwell for design and
engineering excellence at scale.
When EV challenger Polestar needed a partner to transform its North America digital customer
experience ahead of a new vehicle launch, it turned to digital design and strategy shop YML to build
an experience as impressive and exhilarating as the car itself. Their efforts drove a +190% sign-up in test
drives for Polestar. We also continue to work on Polestar’s global brand effort, with creative collective
Forsman & Bodenfors leading brand development.
Polestar work from Forsman & Bodensfors and YML
Code and Theory embarked on an effort to transform Amazon’s ad unit ahead of a global brand
campaign. Code and Theory helped Amazon Advertising communicate how its immersive universe of
touchpoints can help brands, marketers, and businesses of every scale. The global effort, which spans
digital video, out-of-home, audio, social, and display, is helping establish Amazon as a powerful new
player in the advertising solution space.
Amazon Ad’s digital transformation and brand positioning work brought to life by Code and Theory
At Instrument, the team worked with Google TV to create an intuitive, content-first digital experience
that helps you answer the question, “what should I watch?”. With the explosion of choice in streaming
content, Instrument improved the user experience to help consumers easily navigate through the
fragmented ecosystem of siloed apps and experiences, and spend more time watching.
As we advance, we expect connectivity will be the feature of winning brands as consumers seek
seamless experiences online, offline, and in exciting new virtual worlds. This trend is fueling new
economies, rooted in pandemic trends and accelerated by the worldwide experiment with remote
engagement. Frontiers like AR/VR, NFTs, and ever-more complex AI and machine learning capabilities
we expect will shape this chapter of marketing’s transformation. Mixed reality in particular can be
a building block for creative effectiveness, opening new modes of shared brand experiences and
storytelling. Visions of the lone consumer ensconced in VR headgear, lost in a contained experience,
are outdated. We are stepping into the future of an interconnected ecosystem of online and offline
interaction which is best powered by shared, digital experiences.
No matter what happens, engineering at scale is a requirement. With 1,200+ engineers, we can build
and scale work for clients around the world. Our engineering heft also fuels original IP: Anomaly in
2021 collaborated with our agency YML and BabyMed founder Dr. Amos Grunebaum to conceive and
create Obie, a fertility and pregnancy app that helps couples identify barriers to pregnancy and manage
their fertility journeys. Another such example is the work our team at 72andSunny created and built for
Tinder. 72andSunny leveraged a high-impact creative idea, combined with an integrated digital-first
campaign to launch Swipe Night – a powerful, in-app experience that drove user engagement and
social buzz.
Against the backdrop of these exciting transformations are new data and privacy conundrums.
The death of third-party cookies and the clamor for a consistent, industry-wide replacement is an
opportunity for a data-led leader to help devise sustainable solutions that work for brands, agencies,
and consumers.
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We see growth opportunities emerging in global e-commerce, enterprise data, omnichannel
performance marketing, and the convergence of social commerce, influencer marketing and the
Creator Economy. We see an imperative to transition to connected commerce, ensuring real-time
response, inventory management, scaled data, and consistent brand-to-consumer relationships.
TAKING GLOBAL PERFORMANCE MEDIA TO A NEW LEVEL
Today, we believe there is an artificial divide between performance marketing and brand marketing,
a function of the industry’s (rightful) prizing of first-party data solutions. We believe sacrificing brand
marketing for a myopic focus on performance positions a brand for irrelevance down the road, sorely
lacking in the nuts and bolts of customer pipeline development. Every brand interaction must drive
the right audience toward the desired response in today’s market. We call this approach “scaling
creative performance.”
“
We believe all marketing should be held to the same
metrics-minded standards as performance marketing,
but fueled by culture-moving creativity.
”
We launched the Stagwell Media Network to lead clients through this transition. We put scaled content
at the center of Stagwell Media Network, rather than on an island, to enable content and media to
perform together at scale. Our global media capabilities coupled with first-party data and integrated
systems enable fast, efficient, and impactful content in any market.
The combination of digital marketing agency ForwardPMX with our global Assembly brand created
a scaled, omnichannel powerhouse with cutting-edge data and technology and the ability to scale
beyond media for more holistic marketing solutions. Assembly now generates more than 75% of its
revenue from digital channels. Its digital-first offering resonates powerfully with larger clients looking to
consolidate media partnerships as the landscape becomes increasingly complex. In under 12 months,
Assembly has won multiple $10 million contracts with Fortune 500 companies, proving the Assembly
thesis is what clients want today.
Assembly’s emphasis on client and agency impact is best seen in its work on Nike’s Move to Zero global
initiative. The agency worked to design an innovative, industry-first campaign that fused compelling
content and eco-focused media partners worldwide to ensure the campaign investment drove directly
towards the desired sustainability impact, including trees planted, carbon offsetting, and donations to
environmental organizations.
Reimagined MilkPEP interactive campaign brought to life by GALE
As the Media Network continues to scale to service larger accounts, Stagwell plans to ramp up pursuing
commercial and strategic deals with the largest global advertising platforms and media providers. This
is crucial in arming our agencies with early access to ad platform innovations, exclusive access to
premium inventory for our clients, and enhanced training only provided to the largest media buyers.
Consumers no longer engage via media silos, attracted to platform experiences exemplified in Fortnite,
Roblox, and Decentraland. The Stagwell Media Network helps arm our teams with the technology
to efficiently optimize across platforms while maintaining our focus on the creativity that powers
compelling platform storytelling.
COLLABORATION AS THE KEY TO INTEGRATED GLOBAL SOLUTIONS
Often, our clients’ organizations silo marketing, data, and tech ownership. We believe this fragmentation
is a signficant inhibitor to their growth. Our ambition is to build the most collaborative marketing
services company in the world to help our clients transform into more creative, connected, and effective
marketers. We build integrated teams for complex multinational clients that simplify, streamline, and
connect data, creativity, and technology services to deliver meaningful business results. We do this by
empowering collaboration and embracing the collision of diverse thinking to solve complex problems.
We believe the workforce of the future convenes a mosaic of diverse talent across borders to activate
with agility and purpose against client directives.
The power of scaled creative performance is also seen in GALE’s work for MilkPEP, which represents and
serves America’s milk processors. In 2021, GALE helped MilkPep by re-positioning milk as a performance
drink through an integrated marketing campaign including media and creative targeted at tweens,
teens, and parents, shifting sentiment and driving volume increases in the process.
In 2021 we completed the alignment of Stagwell’s network structure to facilitate integrated solutions
and put in place incentives to drive collaboration in service of central results. This approach has driven
eight account wins worth more than $10 million in annual revenue in 2021, with several other wins of the
magnitude in the first quarter of 2022.
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Additionally, a pan-Stagwell team including Sloane & Co., KWT, TEAM Enterprises, and GALE worked
collaboratively with Hertz across a range of communications and marketing initiatives, helping evolve the
business and paint a vision for the future of mobility.
Our approach doesn’t smash disparate agency brands together under a corporate umbrella as is the
playbook for most global marketing networks. Instead, we seek to empower individual agency cultures to
drive unique value for clients while focusing on the organizational structures necessary to power fast and
furious collaboration. We can now activate against global client needs with agility, tapping local
experts for campaign-making insights and leveraging global media expertise and reach to scale our
transformational work.
Global scale is crucial to activating the power of our integrated approach. We pursued aggressive global
expansion in 2021, leveraging our Global Affiliate Program, which aligns partners in key growth regions and
tests our partnership’s strength before pursuing an acquisition. Now numbering over 50 partners across
Latin America, the Middle East, Africa, Asia-Pacific, and Eastern Europe, the program proves an effective
testing ground for M&A, illustrated in Brand New Galaxy’s path from affiliate to Stagwell agency. As we
grow, we are launching international hubs, most recently in Singapore and Brazil.
PRODUCT INNOVATION TO FUEL GROWTH
The rapid pace of digital transformation sometimes means clients need tools to solve business problems
that do not yet exist. Stagwell’s fusion of marketing expertise and engineering heft is carving a powerful
competitive niche. Stagwell builds digital products that power our people and add value to our clients’
businesses. Our proprietary technology has streamlined influencer marketing, democratized first-party
data, and helped communications leaders predict earned performance.
Enter the Stagwell Marketing Cloud: our product suite of SaaS and DaaS solutions supporting business
transformation for in-house marketers. While our peers viewed the in-housing trend as an extant threat to
market share, Stagwell viewed it as an opportunity to establish a flexible revenue stream with high-growth
potential. The SMC includes products spanning influencer marketing, audience segmentation, public
relations, immersive experiences, and brand insights by levering A.I., M.L., and AR.
The SMC is fueled by an annual internal competition for network creators to pitch new product ideas that
modernize their businesses, respond to industry trends and anticipate future client needs.
Three highlights from 2021:
• PRophet, our A.I.-powered tool to help public relations professionals predict their earned media efforts’
is experiencing fast growth in its second year. The team has added critical partnerships with Podchaser
and PeakMetrics to expand the database of media targets available on the platform and enhance its
efficacy with advanced media monitoring and intelligence tools. New subscription models promise to
expand PRophet’s reach beyond enterprise clients.
• Koalifyed, our end-to-end influencer management tool, which our teams are leveraging blockchain
and bot-sniffing detection to empower clients like P&G with certainty that their growing influencer
programs protect brand safety. With a mobile app now in the market, Koalifyed is well-positioned to
grow with the swelling Creator Economy.
•
The latest product in the Stagwell Marketing Cloud, ARound, is shaping an exciting new frontier of
shared augmented-reality experiences for live retail and events, illustrating the power of mixed-reality
to forge compelling shared brand experiences linking real life to the metaverse. Launched at CES 2022,
Cue Health integrated launch campaign led by Doner, KWT Global and
MMI
Tinder’s Swipe Night campaign, created by 72andSunny
For example, Doner, KWT Global and MMI came together to win at home-testing challenger Cue Health
and produced one of the most effective Super Bowl spots of the year. Elsewhere, Stagwell agencies
Wolfgang, Observatory, GALE, and Allison+Partners, are collaborating to drive awareness and reposition
product offerings for Wells Enterprises, the largest privately held, family-owned ice cream manufacturer
in the United States. The client articulated the importance of Stagwell’s partnership, saying: “Through
this process, Stagwell has been an invaluable partner in helping steer transformation, behind a refined
strategic framework and integrated creative campaigns that strike to the heart of Wells’ brands.”
Hertz communications and brand reimagination led by Sloane & Co.,
KWT Global TEAM Enterprises and GALE
Blue Bunny’s “We Make Fun” campaign by Observatory, part of an inte-
grated Wells team including Wolfgang, GALE and Allison+Partners
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ARound’s first client work will go live in summer 2022.
Stagwell Marketing Cloud’s augmented reality technology, ARound
Our global network, innovative client base, and 1,200+ engineers empower us to build and scale
products in real-time. That is a powerful advantage in today’s marketplace; while most startups require
tens of millions of dollars and high-risk tolerance, Stagwell can incubate successful products for a
fraction of the capital, time and expense.
GIVING STAGWELL NEW DIGS
Momentum is strong as 2022 gets underway, driven by several new business assignments each totaling
over $10M in spend and a series of steps we’ve taken at the Corporate level to expand and enhance
our focus on digital transformation and innovation. We have also seen significant scope increases for
existing clients such as Nike and Salesforce.
We are also expanding the network with strategic investments that bolster our digital capabilities and
scale our service set worldwide. At the end of 2021 we acquired Goodstuff Communications, the UK’s
second-largest media agency, and Instrument, Stagwell’s digital innovation shop. And in 2022 already,
we acquired one of Europe’s leading connected commerce networks, Brand New Galaxy, and Dyversity
Communications, a Canadian multicultural marketing leader.
Our roadmap for the remainder of 2022 centers around four key areas: Digital Growth, Integrated
Services, Global Expansion, and Strategic Value.
1. Digital – We intend to continue to invest in our core digital businesses, leverage our competitive
advantage in engineering and technology talent, and to incubate new path-breaking digital
marketing products within the Stagwell Marketing Cloud.
2.
Integrated – We intend to go to market as Stagwell to pitch – and win – more scaled integrated
assignments, leveraging our newly aligned networks’ combined disciplines and collaborative
frameworks. At the same time, our Corporate team continues to centralize back-office services into
network-wide functions in IT, HR, Real Estate, and other global operations, streamlining costs and
adding value for our network teams.
3. Global – We intend to continue to make intelligent acquisitions and grow our global footprint
through the Global Affiliate Network, now in its second year. We will also bolster our presence in key
regions, as we have with the launch of Stagwell APAC in Singapore and Stagwell LATAM in Brazil.
We will focus, too, on the continued development of our global media capabilities – a key connective
service powering positive results in global pitches.
4. Strategic - We intend to pursue growth through organic and inorganic opportunities, expand
central client services, round out our investment arm, and bolster global shared services.
We are closely tracking geopolitical developments and their impact on our business. As reiterated
on our FY 2021 earnings call, Stagwell had limited exposure in Russia and Ukraine at the offset of
the conflict. We have since shuttered an under 10-person office in the region and ended our affiliate
partnerships in Russia.
STAGWELL IS JUST GETTING STARTED
When I started this journey to create a digital challenger network in 2015 with Steve Ballmer’s
investment, I knew our first step to securing Stagwell’s long-term success would be positioning the
right assets to grow with the trajectory of the digital economy. Because of our dogged focus on digital
acceleration, Stagwell is gaining fast on our legacy competitors and newer upstarts alike in 2021 growth
and 2022 outlook.
Our digital capabilities, paired with our unique focus on the Stagwell Marketing Cloud, form a clear
roadmap to continued growth. We could not have foreseen how quickly the pandemic would accelerate
digital transformation or the rapid investment in Web3. However, with our alignment of pioneering
talent + technology at the forefront of digital marketing services, we believe we are best suited in the
market to help global brands grow alongside these frontiers.
Importantly, we have seen a significant shift in the understanding and appreciation for the Stagwell
story in the industry, which has led to a notable improvement in client retention – allowing our more
significant wins to drive real growth. We strongly believe the steps we have taken to align Stagwell’s
operations to support this transformation have created a lasting platform for growth and
shareholder value.
We have the teams and people in place to chase our simple but critical mission: transform marketing. I
look forward to sharing more updates on our progress.
Mark Penn
Chairman & CEO, Stagwell
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 001-13718
Stagwell Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
One World Trade Center, Floor 65
New York, New York
(Address of principal executive offices)
86-1390679
(IRS Employer Identification No.)
10007
(Zip Code)
(646) 429-1800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, par value $0.001 per share
Trading Symbol(s) Name of each exchange on which registered
STGW
NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ☒ No ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated Filer
Non-accelerated Filer
Emerging growth company
Accelerated Filer
Smaller reporting company
☐
☐
☐
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the shares of all classes of voting and non-voting Common Stock of the registrant held by non-
affiliates as of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, was
approximately $355.8 million, computed upon the basis of the closing sales price $5.85 of the Class A Common Stock on that
date.
The number of common shares outstanding as of February 28, 2022 was 132,000,818 shares of Class A Common Stock, 3,946
shares of Class B Common Stock, and 164,814,910 shares of Class C Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement relating to the 2022 Annual General Meeting of Stockholders are incorporated by
reference in Part III of this Annual Report on Form 10-K where indicated.
Table of Contents
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Signatures
STAGWELL INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, and Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
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EXPLANATORY NOTE
On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had
entered into an agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell
Media (the “Stagwell Subject Entities”) (the “Transaction Agreement”). The Stagwell Subject Entities comprised Stagwell
Marketing Group LLC (“Stagwell Marketing” or “SMG”) and its direct and indirect subsidiaries.
On August 2, 2021 (the “Closing Date”), we completed the combination of MDC and the Stagwell Subject Entities and a
series of steps and related transactions (such combination and transactions, the “Transactions”). In connection with the
Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned
subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo Holdings
LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries
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to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and
changed its name to Stagwell Inc.
The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer
and Stagwell Marketing treated as the accounting acquirer. As a result of the Transactions and the change in our business and
operations, under applicable accounting principles, the historical financial results of Stagwell Marketing prior to August 2, 2021
are considered our historical financial results. Accordingly, historical information presented in this Annual Report on Form 10-K
(this “Form 10-K”) for events occurring or periods ending before August 2, 2021 does not reflect the impact of the Transactions
or the financial results of MDC and may not be comparable with historical information for events occurring or periods ending on
or after August 2, 2021.
References in this Form 10-K to “Stagwell,” “we,” “us,” “our” and the “Company” refer (i) with respect to events occurring
or periods ending before August 2, 2021, to Stagwell Marketing Group LLC and its direct and indirect subsidiaries and (ii) with
respect to events occurring or periods ending on or after August 2, 2021, to Stagwell Inc. and its direct and indirect subsidiaries.
All dollar amounts are stated in U.S. dollars unless otherwise stated.
Forward-Looking Statements
This document contains forward-looking statements. within the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
the Private Securities Litigation Reform Act of 1995, as amended. The Company’s representatives may also make forward-
looking statements orally or in writing from time to time. Statements in this document that are not historical facts, including,
statements about the Company’s beliefs and expectations, future financial performance and future prospects, business and
economic trends, potential acquisitions, and estimates of amounts for redeemable noncontrolling interests and deferred acquisition
consideration, constitute forward-looking statements. Forward-looking statements, which are generally denoted by words such
as “estimate,” “project,” “target,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “could,” “should,”
“would,” “may,” “foresee,” “plan,” “will,” “guidance,” “look,” “opportunity,” “outlook,” “future,” “possible,” “assume,”
“forecast,” “focus,” “continue” or the negative of such terms or other variations thereof and terms of similar substance used in
connection with any discussion of current plans, estimates and projections are subject to change based on a number of factors,
including those outlined in this section.
Forward-looking statements in this document are based on certain key expectations and assumptions made by the Company.
Although the management of the Company believes that the expectations and assumptions on which such forward-looking
statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company
can give no assurance that they will prove to be correct. The material assumptions upon which such forward-looking statements
are based include, among others, assumptions with respect to general business, economic and market conditions, the competitive
environment, anticipated and unanticipated tax consequences and anticipated and unanticipated costs. These forward-looking
statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including
those outlined in this section. These forward-looking statements are subject to various risks and uncertainties, many of which are
outside the Company’s control. Therefore, you should not place undue reliance on such statements. Forward-looking statements
speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of
new information or future events, if any.
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results
to differ materially from those contained in any forward-looking statements. Such risk factors include, but are not limited to, the
following:
•
•
•
risks associated with international, national and regional unfavorable economic conditions that could affect the Company
or its clients;
the effects of the outbreak of the novel coronavirus pandemic (“COVID-19”, including the measures to reduce its spread,
and the impact on the economy and demand for the Company’s services, which may precipitate or exacerbate other risks
and uncertainties;
an inability to realize expected benefits of the combination of the Company’s business with the business of MDC;
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•
•
•
•
•
•
•
•
•
•
•
•
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•
adverse tax consequences in connection with the Transactions for the Company, its operations and its shareholders, that
may differ from the expectations of the Company, including that future changes in tax law, potential increases to
corporate tax rates in the United States and disagreements with the tax authorities on the Company’s determination of
value and computations of its attributes may result in increased tax costs;
the occurrence of material Canadian federal income tax (including material “emigration tax”) as a result of the
Transactions;
the Company’s ability to attract new clients and retain existing clients;
the impact of a reduction in client spending and changes in client advertising, marketing and corporate communications
requirements;
financial failure of the Company’s clients;
the Company’s ability to retain and attract key employees;
the Company’s ability to compete in the markets in which it operates;
the Company’s ability to achieve its cost saving initiatives;
the Company’s implementation of strategic initiatives;
the Company’s ability to remain in compliance with its debt agreements and the Company’s ability to finance its
contingent payment obligations when due and payable, including but not limited to those relating to redeemable
noncontrolling interests and deferred acquisition consideration;
the Company’s ability to manage its growth effectively, including the successful completion and integration of
acquisitions which complement and expand the Company’s business capabilities;
the Company’s material weaknesses in internal control over financial reporting and its ability to establish and maintain
an effective system of internal control over financial reporting;
the Company’s ability to protect client data from security incidents or cyberattacks;
economic disruptions resulting from war and other geopolitical tensions (such as the ongoing military conflict between
Russia and Ukraine), terrorist activities and natural disasters;
stock price volatility; and
foreign currency fluctuations.
Investors should carefully consider these risk factors, the additional risk factors outlined under the caption “Risk Factors” in
this Annual Report on Form 10-K, and the Company’s other filings with the Securities and Exchange Commission (the “SEC”)
which are accessible on the SEC’s website at www.sec.gov.
SUPPLEMENTARY FINANCIAL INFORMATION
The Company reports its financial results in accordance with accounting principles generally accepted in the United States
(“GAAP”). However, the Company has included certain non-GAAP financial measures and ratios, which it believes, provide
useful information to both management and readers of this report in measuring the financial performance and financial condition
of the Company. These measures do not have a standardized meaning prescribed by GAAP and, therefore, may not be comparable
to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other
titled measures determined in accordance with GAAP.
Item 1. Business
About Us
Stagwell Inc. is the challenger network built to transform marketing. Stagwell delivers scaled creative performance for some
of the world’s most ambitious brands, connecting creativity with leading-edge technology to harmonize the art and science of
marketing. Led by entrepreneurs, we employ more than 10,000 people in 34+ countries across the globe who drive effectiveness
and improve business results for our more than 4,000 blue-chip customers. In addition, our affiliate network adds coverage in 31
additional countries.
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Founded in 2015, Stagwell offers the capabilities marketers need in the digital age: Digital Transformation, Performance
Media & Data, Consumer Insights & Strategy, and Creativity & Communications. Our global scale allows us to compete for
many of the largest marketing contracts available, including multi-regional contracts with annual fees of more than $10 million.
In addition, our proprietary Stagwell Marketing Cloud provides solutions for in-house marketers spanning influencer marketing,
brand insights, communications technology and augmented reality. Stagwell provides a suite of marketing services that serve
marketers’ needs as well as well tech-driven solutions for in-house marketers.
Stagwell has grown through a combination of organic growth and investment. Beginning with a single company in 2015,
Stagwell focused on the fastest-growing area of marketing: digital services. Between 2015 and 2021, we acquired companies
including digital transformation and digital media groups like Code and Theory and ForwardPMX. In 2019, Stagwell Media made
a $100 million investment into MDC, the parent company of creative powerhouses including 72andSunny, Anomaly, Forsman &
Bodenfors and Doner. Recognizing the potential of those companies, Stagwell’s reorganization and careful management of the
portfolio turned the group around. In August 2021, Stagwell Media completed the Transactions with MDC to become Stagwell
Inc.
The result is an innovative, digital-first challenger network built for the modern marketer. As the marketing landscape
transforms – accelerated by the COVID-19 pandemic – Stagwell is well placed to help brands transform their digital platforms,
content, and data and targeting strategies with integrated services that deliver the right experience to the right person at the right
time.
Stagwell’s unified corporate team is the foundation of a powerful value creation platform focused on scaling our portfolio of
marketing services firms, which we refer to as Agencies, and driving continual network evolution. We plan to invest in our core
digital platforms, develop a suite of digital products we call the Stagwell Marketing Cloud, expand our technology leadership
through investment and innovation, and further develop and integrate our Global Affiliate Network to deliver value for our clients,
employees, and shareholders.
Our Market
Industry Trends
The digital revolution has changed where and how brands relate to consumers and created an entirely new, highly complex
content and commerce ecosystem. Historically, marketing was characterized by television and brand advertising targeted to broad
audiences: everyone saw the same advertisement at the same time. Over the last 15 years, digital innovation has created new,
personalized ways to reach targeted consumers and spurred a fundamental shift in the marketing services landscape. Growth now
comes primarily from digital marketing, helping brands meet customers across the entire digital ecosystem.
Four key trends describe the industry today:
First, online advertising now accounts for more than half of global advertising spend with the shift further accelerating as the
COVID-19 pandemic continued and digital channels dominated content and commerce amidst evolving lockdowns. We expect
the move of consumers online will be a lasting shift, and online now means virtually everywhere: websites, mobile, social media,
television and even billboards and in-person experiences now deliver digital advertising.
Second, advertising is commerce. Digital platforms provide ways for brands to reach consumers directly through e-
commerce. Platforms as diverse as TikTok and LinkedIn have created new ways for brands to interact with their customers.
Brands can sell their products directly on their sites, via digital platforms such as Amazon or through interactive experiences
enabled by social media like TikTok or connected TV. Digital platforms also allow advocacy groups and political campaigns to
reach constituents to mobilize support or raise funds online.
Third, data is everywhere. Platform and channel growth has created an explosion of addressable data that can be used to
better understand consumer desires, habits, and needs in real-time, allowing the delivery of content that consumers want, when
they want it, and where they want it. New sources of online data include web, mobile, email, social, and connected TV and the
data spans behavioral, transactional, demographic, psychographic and geographic categories.
Finally, marketing technology is transforming the industry. Software-as-a-service (“SaaS”) and data-as-a-service (“DaaS”)
products are increasing the efficiency of marketing campaigns and in-house marketing operations, utilizing cutting edge
technologies such as artificial intelligence (“AI”) and automation and engaging consumers in new ways with emerging
technologies such as augmented reality (“AR”) and virtual reality (“VR”).
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Competitive Landscape
Stagwell operates in a highly competitive and fragmented industry. Stagwell’s Agencies compete for business and talent with
the operating subsidiaries of large global holding companies such as Omnicom Group Inc., Interpublic Group of Companies, Inc.,
WPP plc, Publicis Groupe SA, Dentsu Inc. and Havas SA, as well as with numerous independent agencies that operate in multiple
markets. Our Agencies also face competition from consultancies, like Accenture and Deloitte, tech platforms, media companies
and other services firms that offer related services. Stagwell’s Agencies must compete with these other companies to maintain
and grow existing client relationships and to obtain new clients and assignments. Individual products within the Stagwell
Marketing Cloud also typically compete with offerings that may be provided within broader service offerings at large global
holding companies or provided on a standalone basis by technology startups or other industry participants.
During the decades when marketing was dominated by television, the marketing services industry experienced significant
consolidation as legacy advertising holding companies built substantial portfolios of often overlapping creative, communications,
PR, and media businesses to achieve financial efficiencies by centralizing administrative operations. These holding companies
grew significant in size and market share.
The rapid rise of digital channels, convergence of advertising and commerce, explosion in addressable data and marketing
technology created a paradigm shift in the industry. While legacy models still accounted for a significant share of the market in
2021, we believe they are largely underexposed to the digital areas of the market experiencing the highest levels of client demand
growth. In recent years, a number of large consulting firms with information technology implementation backgrounds have
entered the marketing services market and, collectively, achieved significant market share. However, we believe these firms’ lack
of creative and media expertise limits their long-term growth potential as true challengers to the legacy marketing holding
companies.
With a combination of talent and technology, we believe that Stagwell is well positioned to take advantage of the continued
transformation sweeping the marketing universe, and to disrupt the marketing services landscape. Stagwell was born digital and
now has a global network of entrepreneurial companies that deliver the right combination of creativity and technology for the
modern, digital marketer through a model that emphasizes flexibility and integration.
Our Offering
Principal Capabilities
Stagwell’s Agencies provide differentiated, digital-first marketing and related services to a diverse client base across many
industries.
Our principal capabilities fall into four categories: 1) Digital Transformation, 2) Performance Media & Data, 3) Consumer
Insights & Strategy, and 4) Creativity & Communications. Taken together, these capabilities provide an integrated suite of
marketing services for our blue-chip customer base.
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Digital Transformation. We design and build digital platforms and experiences that support the delivery of content,
commerce, services and sales. We create websites, mobile applications, back-end systems, content and data management systems,
and other digital environments enabling clients to engage with consumers across the digital ecosystem. We design and implement
technology and data strategies to support needed digital services for our clients. We also implement technology and strategies for
utilizing digital channels to mobilize and raise funds from proponents and constituents to support political candidates, non-profit
groups and issue organizations in the public arena. Lastly, we develop proprietary, in-house software and related technology
products, including cookie-less data platforms for advanced audience targeting and activation, software tools for e-commerce
applications and innovative applications of text messaging for consumer engagement, which we license to clients using
subscription-based SaaS and DaaS models.
Performance Media & Data. We develop omnichannel media strategies and provide coordinated execution for the
placement of advertisements across the media funnel including digital channels, performance marketing and analog placements
globally. Unlike legacy holding companies that own large amounts of television inventory and therefore must sell it, we take a
media-agnostic approach leveraging digital technologies and media in addition to analog advertising. Our services include media
buying and planning, ranging across the platforms a modern marketer needs to engage consumers.
Consumer Insights & Strategy. We perform large-scale online surveys, specialized research, and data analytics across the
consumer journey to provide strategic insights and guidance that informs business content, product, communications and media
strategies for many of the world’s largest companies, including numerous Fortune 100 clients. We have differentiated
specialization in brand tracking, theatrical and streaming content and strategy, and technology product design and marketing, and
we believe our Agencies are at the forefront of innovation in the field.
Creativity & Communications. We develop holistic, creativity-based content strategies and campaigns from concept to
execution through to optimization. These services include strategy development, advertising creation, live events, cross platform
engagement, and social media content. We also provide strategic communications, public relations and public affairs services
including media relations, thought leadership, social media, executive positioning and visibility.
We group our Agencies into these principal capability categories based on the source of most of their revenue. We also
classify Digital Transformation, Performance Media & Data, and Consumer Insights & Strategy as “Digital” though Agencies
categorized as Creativity & Communications generate a significant portion of revenue from creativity and content delivered on
digital channels and some, such as Anomaly, do meaningful amounts of digital work that fluctuates as a percentage of revenue.
We believe our concentration of digital capabilities today provides a competitive advantage in the marketplace and positions us
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to benefit from continued digital disruption in the marketing services industry. We plan to continue to invest in our core digital
platforms as well as emerging technologies to effectively support marketing transformation for our clients.
Network Structure & Reportable Segments
Stagwell maintains a 100% ownership position in substantially all of its Agencies, and the remainder are majority owned
with management of the Agencies owning the remaining equity. Stagwell generally has rights to increase ownership of non-
wholly owned subsidiaries to 100% over a defined period of time.
The Company organizes its Agencies into three reportable segments: “Integrated Agencies Network,” “Media Network” and
the “Communications Network.” In addition, the Company combines and discloses operating segments that do not meet the
aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.”
The reportable segments are:
• The Integrated Agencies Network includes four integrated operating segments: the Anomaly Alliance, Constellation,
the Code and Theory Network, and the Doner Partner Network. These operating networks are organized for go-to-market
and collaboration incentive purposes and to facilitate integrated and flexible offerings for our clients. Each integrated
network consists of agencies that offer an array of complementary services spanning our core capabilities of Digital
Transformation, Performance Media & Data, Consumer Insights & Strategy, and Creativity & Communications. The
Agencies included in the operating segments that comprise the Integrated Agencies Network reportable segment are as
follows: Anomaly Alliance (Anomaly, Concentric, Hunter, Mono, YML and Scout agencies), the Code and Theory
Network (Code and Theory, Forsman & Bodenfors, National Research Group, Observatory, Hello Design and Colle
McVoy agencies), Constellation (72andSunny, Crispin Porter Bogusky, Instrument, Team Enterprises, Harris and
Redscout agencies) and the Doner Partner Network (Doner, KWT Global, Bruce Mau Design, Vitro, Harris X, Northstar,
Veritas and Yamamoto agencies).
These integrated network operating segments share similar characteristics related to (i) the nature of their services; (ii)
the type of clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global
economic and geopolitical risks. In addition, these operating segments may occasionally compete with each other for
new business or have business move between them.
• The Media Network reportable segment is comprised of a single operating segment, our specialist network branded the
Stagwell Media Network (“SMN”). SMN serves as a unified media and data management structure with omni-channel
media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Agencies
in this segment aim to provide scaled creative performance through developing and executing sophisticated omnichannel
campaign strategies leveraging significant amounts of consumer data. SMN’s Agencies combine media buying and
planning across a range of digital and traditional platforms (out-of-home, paid search, social media, lead generation,
programmatic, television, broadcast, among others) and includes multichannel agencies Assembly, Goodstuff, MMI
Agency, and Grason, digital creative & transformation consultancy GALE, B2B specialist Multiview, multi-lingual
content agency Locaria, CX specialists Kenna, and travel media experts Ink.
• The Communications Network reportable segment is comprised of a single operating segment, our specialist network
that provides advocacy, strategic corporate communications, investor relations, public relations, online fundraising and
other services to both corporations and political and advocacy organizations and consists of our Allison & Partners
SKDK (including Sloane & Company), and Targeted Victory Agencies.
• All Other consists of the Company’s digital innovation group, Reputation Defender (which was sold in September 2021)
and Stagwell Marketing Cloud products such as PRophet.
• Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the
operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating
segments. These office and general expenses include (i) salaries and related expenses for corporate office employees,
including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties
occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the
financial statement audits and other public company costs, and (iv) certain other professional fees managed by the
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corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments
are allocated to the appropriate reportable segment and the All Other category.
Go-To-Market Strategy
Our global go-to-market strategy is key to our objective of providing our clients with a balanced combination of leading-
edge technology and creative talent. We go to market in three main ways: as individual Agencies, as networks where collaboration
across services is needed and as Stagwell Global when we create multi-region, Stagwell-wide teams.
Unlike legacy holding companies who have focused on achieving cost synergies by consolidating agencies within their
networks, Stagwell focuses on collaboration. We believe it is important for our Agencies to maintain their individual identities to
attract the highest quality talent within their capabilities of expertise. Maintaining strong Agency identities within our integrated
Agencies and specialist networks provides a structure supporting both individual and joint go-to-market approaches. Maintaining
separate Agencies with flexibility to integrate also enables effective management of potential conflicts of interest. Go-to-market
collaboration typically occurs on larger engagements requiring services across multiple capabilities or geographies.
To further support collaboration, Stagwell provides financial incentives for Agencies to collaborate with one another through
referrals and the sharing of both services and expertise. Network and Agency leaders have components of incentive compensation
that are based on Stagwell’s overall performance and the overall performance of their integrated or specialist networks to
incentivize go-to-market collaboration.
In addition to our owned Agencies, we maintain a network of go-to-market alliances with like-minded independent Agencies,
tech companies and marketing services firms in key markets around the world. These partners, which we refer to as Global
Affiliates, enable us to increase our local-market reach and qualify for business opportunities that require enhanced capabilities
in specific local markets without taking on additional costs. Launched in early 2021, by December 2021 the Global Affiliate
Network had achieved its goal of growing to include more than 50 affiliates.
Our distinct Agency structure enables us to work with multiple clients within the same business sector, and many of our
largest clients are served by multiple Agencies or Agencies in our portfolio. The Agencies’ work is supported by a centralized
marketing and new business team that fosters collaboration, sources new business opportunities and communicates across
industries to drive awareness of our offerings. Additionally, a centralized corporate innovation team develops and invests in
proprietary digital marketing products that are distributed by Agencies across the network, further enhancing the value proposition
Stagwell Agencies are able to offer clients.
Our Strategy
The key components of the Stagwell strategy are Digital, Integrated, Global, and Strategic (“DIGS”). We believe the DIGS
model gives us a sustainable, long-term path to significant growth and supports our primary objectives which are sustaining strong
levels of organic growth, increasing our digital revenue mix, increasing international scale, expanding the average client
relationship size, and maintaining strong margins and free cash flow. We believe pursuing these objectives will position us to
increase value for our shareholders.
Our strategy is focused around six specific initiatives: 1) Investing in Digital Capabilities, 2) Expanding Addressable
Markets, 3) Effective Integration at Scale, 4) Strategic Value Creation Platform, 5) Maintaining a Highly Variable Cost Structure,
and 6) Efficient Capital Allocation.
Investing in Digital Capabilities
Our digital businesses serve the areas where we expect the fastest growth in the marketing space and position us to lead the
wave of transformation in the industry. By investing in our core digital platforms and introducing proprietary SaaS and DaaS
marketing technology (“martech”) products, we aim to increase the digital proportion of our net revenue. We aim to expand our
digital capabilities in three main ways:
•
•
First, we intend to continue to invest in our leading digital Agencies like Code and Theory, Instrument and YML. This
planned investment includes funding new capabilities and supporting cross-selling via our integrated Agencies network,
which has already seen success in 2021.
Second, we intend to pursue complementary acquisition opportunities to bolster our existing assets in areas such as
digital transformation and digital media buying. We have built a successful track record of “bolt-on” acquisitions such
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as TrueLogic Software, LLC, Ramenu S.A. and Polar Bear Development S.R.L. (together, “TrueLogic”), a Latin
America engineering shop, and Kettle Solutions, LLC (“Kettle”), a content and digital design firm.
• Third, we are investing in the Stagwell Marketing Cloud, a suite of technology products in development or early-stage
commercialization spanning influencer marketing, audience segmentation, public relations, immersive experiences and
brand insights. These products are licensed to our clients using subscription-based SaaS and DaaS models and distributed
by Agencies across our network. We believe the Stagwell Marketing Cloud positions us to serve in-house marketing
departments and create recurring, high-value revenue streams in the future.
Expanding Addressable Markets
We are focused on expanding our addressable markets through investments that increase our global footprint as well as
adding emerging marketing technologies in areas expected to have strong secular growth. We believe increasing our geographic
presence and breadth of capabilities will allow us to significantly grow our average client relationship size over time.
•
International Markets: Our strategy for growing our international operations is focused on expanding our media
buying, content creation and digital capabilities in new markets, which will improve our qualifications for large multi-
regional contracts with the largest global marketers. For example, in December 2021 we acquired Goodstuff, a leading
independent media buying agency in the United Kingdom, substantially improving the breadth of our media buying
capabilities in that market and throughout Europe. We also maintain a network of Global Affiliates that helps us embed
local talent into global and local engagements without committing investment capital—enabling us to think globally and
act locally simultaneously and deliver creative, performance, media and technology capabilities at the scale required to
serve the world’s largest marketers. We believe our Global Affiliates will be a valuable source for acquisitions, providing
us the ability to explore strategic fit with our networks prior to making a formal investment. As of December 31, 2021,
we had over 50 Global Affiliate partners in our network.
• Emerging Marketing Technologies: In addition to the advertising and marketing services market, we believe our
investments in the Stagwell Marketing Cloud will position us to address new, rapidly expanding market opportunities,
including marketing data, campaign martech, the metaverse, and AR and VR applications. For example, in January 2021
we launched ARound, which creates augmented reality experiences for live events.
Effective Integration at Scale
We expect to drive significant long-term operating efficiencies from the Transactions through initiatives being rolled out over
the 36 months following the completion of the Transactions. We expect synergies will come from implementation of shared
services across the Company, elimination of redundancies in the Stagwell Media Network, scaling operational resources in lower
cost markets, and third-party spend recapture, among other cost-saving initiatives.
Within our client-facing integrated and specialist networks we see further opportunity to achieve operating efficiencies by
increasing our non-U.S. based engineering footprint. We are focused on scaling our development capabilities in lower cost
markets, specifically Latin America, India, and Southeast Asia. Our engineering talent is primarily focused on building and
designing digital platforms, applications, tools, and experiences for our clients and are typically more highly concentrated in our
Agencies categorized within our Digital Transformation primary capability. We believe we already have a substantial engineering
presence globally – more than 1,150 engineers total – and have developed the necessary skills to support hiring, training and
managing large teams outside the United States. We believe these markets offer a significant supply of quality technical talent to
meet increasing client demand for high-speed delivery of digital transformation and production services.
Stagwell Value Creation Platform
We believe our engaged, unified corporate team provides a growth platform for value creation through both revenue and cost
synergies for our existing Agencies and prospective investments. We are led by a management team with deep industry expertise
and a track record of growing and managing marketing services businesses. The Stagwell platform provides a foundation to
support efficient, accretive scaling of our global network and our high-growth digital transformation and digital media
capabilities. Our corporate objective is to accelerate the growth and improve the profitability of our Agencies, and we believe
agencies see strategic value in being part of the Stagwell network.
Our value creation platform has three layers: Client Services, Growth Investment and Shared Services.
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Our Client Services layer aims to facilitate revenue growth through go-to-market support. Our Global Solutions team
provides a single point of contact for key clients, coordinating our go-to-market strategies for large, multi-regional contracts or
business opportunities requiring cross-agency, cross-capability or cross-market services. Our Global Growth team provides
prospecting and new business services to our agencies, working in partnership with our Brand team which supports messaging
and communications efforts. At the network level, the Stagwell Media Network provides a corporate structure to cost-effectively
coordinate our global media placement capabilities, while our Global Affiliate Network positions our agencies to pitch for and
win opportunities requiring capabilities in specific local markets.
Our Growth Investment layer is designed to drive continual network evolution and bolsters competitive advantages in key
markets, capabilities, and emerging technologies and consists of two teams: centralized investment and innovation. Our centra l
investment team, which has a strong track record of accretive investments, provides expertise in sourcing, negotiating and
structuring investments in close partnership with our Agency leadership, to drive efficient scaling of our networks and accelerate
growth. In addition to our investment team, a centralized innovation team provides development capabilities for The Stagwell
Marketing Cloud and bespoke client needs.
Our Shared Services layer provides unified back-office systems via Stagwell CORE (“CORE”), the Company’s newly
formed platform that focuses on transitioning away from disparate teams, processes and systems and establishing a standardized
platform. CORE provides centralized services across back office operational functions, including information technology (“IT”),
accounts payable and receivable, real estate, enterprise-level contract administration, and accounting services. With a focus on
driving shareholder value by optimizing cost structures and facilitating efficient integration of acquired businesses, CORE’s
services are highly standardized with an emphasis on scalability to support Stagwell’s growth.
Maintaining a Highly Variable Cost Structure
We are focused on maintaining a business model that has attractive cash flow, revenue growth and margin expansion and
plan to maintain a highly variable cost structure that allows us to be nimble. We aim to focus our investments on people-based
businesses that operate with a high percentage of variable costs. Our at-will employment structure positions us to respond rapidly
to changing market conditions in order to maintain margins. We also strive to diligently deploy low capital investment strategies.
For example, we believe our Global Affiliate Network strategy for expanding international capabilities positions us to maintain a
high level of flexibility through macroeconomic cycles.
Our management team has successfully demonstrated an ability to efficiently operate, manage and grow a profitable portfolio
of diverse advertising businesses through periods of dramatic changes in consumer behavior, technological advancement and
economic cycles. The team has a successful track record of investing, acquisition execution and integration as well as recruiting
and retaining the key talent that drives our operating businesses.
Efficient Capital Allocation
We are focused on delivering continued strong organic growth and free cash flow to support efficient capital allocation that
generates value for our shareholders. Our primary use of capital is expected to be funding diligently structured, highly accretive
investment in businesses we believe will support sustainable future growth by increasing the breadth and depth of our capabilities.
We also expect more modest capital allocation towards minimizing shareholder dilution, reducing leverage in order to provide
increased financial flexibility, and funding development of proprietary technology and products for the Stagwell Marketing Cloud.
Our Clients
Stagwell serves a large base of clients across the full spectrum of industry verticals. In many cases, we serve the same clients
in various geographic locations, across multiple disciplines, and through multiple Agencies. Representation of a client rarely
means that Stagwell handles marketing communications for all brands or product lines of the client in every geographical location.
During 2021 and 2020 the Company did not have a client that accounted for 7% or more of revenues. In addition, Stagwell’s ten
largest clients (measured by revenue generated) accounted for approximately 17% and 35% of revenue for the twelve months
ended December 31, 2021 and 2020, respectively. Historically, client concentration increases during election years due to the
cyclical nature of our advocacy Agencies which are Targeted Victory and SKDK (including Sloane & Company).
Stagwell’s agencies have written contracts with many of their clients. As is customary in the industry, these contracts
generally provide for termination by either party on relatively short notice. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Executive Overview” for a further discussion of Stagwell’s arrangements with
its clients.
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Sources of Revenue
Stagwell provides a broad range of services to a large base of clients across a wide spectrum of verticals globally. Stagwell
has historically largely focused in North America where the Company was founded, as well as the United Kingdom, but has
expanded its global footprint to support clients globally and has a presence in 34+ countries, and an additional 31 countries
through our Global Affiliate Network. The primary source of revenue is from agency arrangements in the form of fees for services
performed, commissions, and from performance incentives or bonuses. Stagwell’s Agencies have written contracts with many of
their clients. As is customary in the industry, these contracts generally provide for termination by either party on relatively short
notice. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview”
for a further discussion of Stagwell’s arrangements with its clients.
Seasonality
Historically, we have typically generated the highest quarterly revenue during the fourth quarter in each year due to consumer
marketing increases from the back-to-school and holiday seasons. In addition, we have typically seen an increase in revenue in
the third and fourth quarters during even years because our advocacy business has higher revenue during the biannual U.S.
election cycle.
Human Capital
As of December 31, 2021, we employed approximately 9,100 full-time employees and approximately 1,100 contractors. The
following table provides a breakdown of full-time employees and contractors across Stagwell’s three reportable segments, the All
Other category, and Corporate:
Segment
Integrated Agencies
Network
Media Network
Communications Network
All Other
Corporate
Total
Total
6,250
2,800
950
50
150
10,200
Because of the personal service nature of the marketing and communications business, our talent is of critical importance to
our success. Human capital management strategies are developed by senior management, including the management teams of our
Agencies, and are overseen at the corporate level.
Our human capital management priorities include providing competitive benefits & compensation, attracting and retaining
talent, supporting learning & development across the network, promoting Diversity & Inclusion, increasing employee
engagement, and ensuring workplace safety with specific initiatives around COVID-19. At the corporate level, centralized human
capital management processes include development of human resources governance and policy, executive compensation for
senior leaders, benefits programs, and succession planning focusing on the performance, development and retention of key senior
executives.
Benefits & Compensation
Stagwell provides a full range of competitive benefits including medical, dental, vision, employer-funded HSAs, commuter
assistance, 401k and more, offered to full-time employees and their dependents, inclusive of domestic and/or same-sex partners.
We offer flexible paid time off as well as accommodations for civic duties, bereavement, and leaves of absence. Stagwell
participates in industry-wide salary surveys and utilizes AI-powered compensation software to obtain real-time compensation
survey data and analytics and ensure all compensation decisions are data-driven. In addition, we have various stock ownership
programs for eligible Stagwell employees.
Attracting & Retaining Talent
Hiring and retaining transformative talent is key to Stagwell’s mission. We supplement agency-led recruiting with central
recruiting support. Leveraging our scale, we have developed a broad database of global talent that further enhances our recruiting
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activities. In addition to utilizing central resources and technology, agency-level recruiting activities include partnerships with
colleges/universities, internship programs, referral programs and diversity, equity and inclusion specific pipelining programs.
Stagwell’s internal transfer policy also enables employees to explore new positions with other Agencies at the Company to support
retention of talent within the broader network.
Learning & Development
At the corporate level, Stagwell invests in both our senior leadership and up-and-coming leaders through a professional
development partnership with a globally recognized leadership development organization. The program is designed to align
individual growth with organizational strategy to help achieve success across both. Furthermore, Stagwell provides eligible
employees with an annual, flexible professional development budget to utilize if they want to explore more opportunities within
their field, acquire new skills, and enhance their contributions to their department and the organization. In addition, each Agency
maintains its own policies and development programs suitable to its workforce and leadership goals.
Diversity & Inclusion
We believe the cultures of Stagwell’s individual Agencies are what sets working at Stagwell apart; however, the connective
tissue that unites us is our vision for our Agencies and people to work collaboratively across disciplines in an inclusive
environment.
Stagwell supports its Agencies through access to high-quality education, resources and technology, which they can use to
bring inclusion to life based on their organization’s needs. In addition to providing annual harassment prevention and ethics
training globally, we actively collect data modeled after equal employment opportunity classifications with the goal of ensuring
our employee demographics better reflect the diversity of the communities in which our workforce operates and is hired from
and to identify areas for improvement through corporate engagement and initiatives. In addition, Stagwell aims to continue to
grow successful partnerships with diverse vendors, suppliers, contractors, and consultants.
We believe doubling down on creating an inclusive environment, from building internal and external partnerships, fostering
the collaboration amongst our agencies, to trying out ideas and programs from our teams and agencies, will attract and retain a
diverse workforce and that the diversity of thought creates impact for our clients globally.
Employee Engagement
Regular communication is a commitment at Stagwell. We have quarterly global Town Halls to ensure staff are engaged with
and organizational goals are shared. And, although in-person events have been limited by the COVID-19 pandemic, our
Workplace Experience team hosts a variety of wellness programs at our New York City “HUB” locations at the World Trade
Center and, as practicable, in other offices around the world. Our global CEO sends out regular emails to all staff with key updates
ranging from new business wins to client work. In addition, the Hive intranet serves as a resource portal for all Stagwell
employees.
Significant Factors Affecting our Business and Results of Operations
The most significant factors affecting our business and results of operations include national, regional, and local economic
conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our
ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. We believe the
two most significant factors are (i) our clients’ desire to change marketing communication firms and (ii) the digital and data-
driven products that our Agencies offer. A client may choose to change marketing communication firms for several reasons, such
as a change in leadership where new management wants to retain an agency that it may have previously worked with. In addition,
if the client is merged or acquired by another company, the marketing communication firm is often changed. Clients also change
firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.
Regulatory Environment
The marketing and communications services that our agencies provide are subject to laws and regulations in all of the
jurisdictions in which we operate. These include laws and regulations that affect the form and content of marketing and
communications activities that we produce for our clients and, for our digital services, laws and regulations concerning user
privacy, use of personal information, data protection and online tracking technologies. We are also subject to laws and regulations
that govern whether and how we can receive, transfer or process data that we use in our operations, including data shared between
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countries in which we operate. Our international operations are also subject to broad anti-corruption laws. While these laws and
regulations could impact our operations, we believe compliance in the normal course of the Company’s business has not
significantly impacted the services we provide or had a material effect on our business, results of operations or financial position.
Additional information regarding the impact of laws and regulations on our business is included in Item 1A. Risk Factors.
Available Information
Stagwell Inc. is the successor SEC registrant to MDC Partners Inc. Stagwell Inc.’s Internet website address is
www.stagwellglobal.com. The Company’s Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K, and any amendments to those reports filed or furnished pursuant to the Exchange Act, will be made available free of
charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished
to, the SEC. From time to time, the Company uses its website as a channel of distribution of material company information,
including webcasts of earnings calls and other investor events and notifications of news or announcements regarding its financial
performance, including SEC filings, investor events, press releases and earnings releases. The information found on, or otherwise
accessible through, the Company’s website is not incorporated into, and does not form a part of, this Form 10-K.
Item 1A. Risk Factors
You should carefully consider the risk factors set forth below, as well as the other information contained in this Form 10-K,
including our consolidated financial statements and related notes. This Form 10-K contains forward-looking statements that
involve risks and uncertainties. Any of the following risks could materially and adversely affect our business, results of operations,
financial condition, cash flows, projected results and future prospects. Additional risks and uncertainties not currently known to
us or those we currently view to be immaterial may also materially and adversely affect our business, results of operations,
financial condition, cash flows, projected results and future prospects. These risks are not exclusive and additional risks to which
we are subject include the factors listed under “Note About Forward-Looking Statements” and the risks described in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.
Risk Factor Summary
Some of the factors that could materially and adversely affect our business, financial condition, results of operations and cash
flows include, but are not limited to, the following:
•
•
•
our business and results of operations have been adversely affected and could in the future be materially adversely
affected by the COVID-19 pandemic;
as a marketing services company, our revenues are highly susceptible to declines as a result of unfavorable economic
conditions and future economic conditions could adversely impact our financial condition and results;
our business depends on generating and maintaining ongoing, profitable client demand for our services and solutions,
and a significant reduction in such demand could materially affect our results of operations;
•
our business could be adversely affected if we fail to retain our existing clients;
• we face significant competition, and a failure to compete successfully in the markets we serve could harm our business;
• maintaining and enhancing our and our Agencies’ brand and reputation is critical to our business prospects, and harm to
our or our Agencies’ brand and reputation may limit our ability to acquire new clients, retain existing clients and attract
and retain qualified personnel;
•
•
•
our existing client relationships could impair our ability to generate new business or attract and retain qualified
personnel;
if we are unable to adapt and expand our services and solutions in response to ongoing changes in technology and
offerings by new entrants, our results of operations and ability to grow could be impaired;
if we do not successfully manage and develop our relationships with our Global Affiliate partners or if we fail to
anticipate and establish new alliances in new technologies, our results of operations could be adversely affected;
• we are making investments in new product offerings and technologies and may increase such investments in the future.
These new ventures are inherently risky, and we may never realize any expected benefits from them;
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•
as a global business, we are substantially dependent on operations outside the United States, and any failure to manage
the risks presented by our international operations could have a material adverse effect on our business, results of
operations, financial condition and prospects;
• we are exposed to the risk of client defaults, and in an economic downturn, the risk of a material loss related to such
client defaults could significantly increase;
•
•
if we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of
customer service, or adequately address competitive challenges;
natural disasters, terrorist attacks, war, civil disturbances and infrastructure breakdowns could disrupt our business and
harm our results of operations;
• we are consolidating our real estate footprint and may incur significant costs in doing so;
•
seasonal fluctuations in marketing, research, communications and advertising activity could have a negative impact on
our revenue, cash flow and operating results;
• we may not realize the benefits we expect from past acquisitions, including the Transactions;
• we have allocated significant management time and resources to, and expect to incur non-recurring costs for, our ongoing
integration efforts in connection with the Transactions;
•
•
•
•
In the future, we may acquire other companies in pursuit of growth, which may divert our management’s attention, result
in dilution to our shareholders and consume resources that are necessary to sustain our business;
our business is highly dependent on the services of Mark Penn, our CEO and Chairman;
if we are unable to keep our supply of skills and resources in balance with client demand around the world and attract
and retain professionals with strong leadership skills, our business, the utilization rate of our professionals and our results
of operations may be materially adversely affected;
some of our Agencies rely upon signatory service companies to employ union performers in commercials, and any
inability to produce advertisements with union performers could impair our ability to serve our advertising clients and
compete;
• we face legal, reputational and financial risks from any failure to protect client data from security incidents or
cyberattacks;
• we are subject to laws and regulations in the United States and other countries in which we operate, including export
restrictions, economic sanctions, the FCPA, and similar anti-corruption laws. Compliance with these laws requires
significant resources, and non-compliance may result in civil or criminal penalties and other remedial measures;
•
our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our
ability to react to changes in the economy or in our industry, expose us to interest rate risk to the extent of our variable
rate debt, and prevent us from meeting our obligations under our indebtedness;
• we may be unable to service all our indebtedness;
• we may need additional capital in the future, which may not be available to us. The raising of any additional capital may
dilute holders’ ownership percentage in our stock;
our results of operations are subject to currency fluctuation risks;
our goodwill, intangible assets and right-of-use assets may become impaired;
•
•
• we have identified material weaknesses in our internal control over financial reporting, and if we continue to fail to
maintain an effective system of internal control over financial reporting, we may not be able to accurately report our
financial results or prevent fraud. As a result, investors could lose confidence in our financial and other public reporting,
which would harm our business;
•
•
our stock price may be volatile;
if our operating and financial performance in any given period does not meet any guidance that we provide to the public,
the market price for our Class A Common Stock, par value $0.001 per share, (the “Class A Common Stock”), may
decline; and
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• we are a “controlled company” within the meaning of the applicable rules of Nasdaq and, as a result, qualify for
exemptions from certain corporate governance requirements. Our stockholders will not have the same protections
afforded to stockholders of companies that are not controlled companies, and the interests of our controlling stockholder
may differ from the interests of other stockholders.
Risks Related to Our Business and Industry
Our business and results of operations have been adversely affected and could in the future be materially adversely affected
by the COVID-19 pandemic.
The COVID-19 pandemic has had, and may continue to have, an adverse effect on our business and results of operations. As
part of efforts to contain the spread of COVID-19, governmental authorities have imposed various restrictions, such as travel
bans, stay-at-home orders and quarantines, social distancing measures and temporary business closures. Although these health
and safety precautions have been loosened in many cases, the impact of new COVID-19 variants that may emerge cannot be
predicted at this time. COVID-19 and the actions taken by governments, businesses and individuals in response to the pandemic
have resulted in, and may continue to result in, a substantial curtailment of business activities, weakened economic conditions,
and significant economic uncertainty.
Many of our existing clients and other marketers have responded to weak economic and financial conditions by reducing
their marketing budgets, thereby decreasing the market and demand for our services and heightening the challenges associated
with attracting new clients. This has adversely impacted and may continue to adversely impact our business and results of
operations.
In addition, although we have observed an increase in the portion of marketing spend directed toward digital channels and
services during the COVID-19 pandemic, this digital shift may not continue at the pace we anticipate or at all, and our emphasis
on providing digital-first marketing solutions may not align with long-term client demand. This outcome could impair our ability
to generate demand for our services, attract and retain clients, compete with more traditional marketing services firms, and grow,
which could have an adverse effect on our business, results of operations, financial condition and prospects.
We have also faced, and may continue to face, increased operational challenges in connection with measures to support and
protect employee health and safety, including limiting employee travel, closing offices, and implementing work-from-home
policies for employees. In particular, our remote work arrangements, coupled with stay-at-home orders and quarantines, have
posed new challenges for our employees and our information technology (“IT”) systems, and extended periods of remote work
arrangements could strain our business continuity plans and introduce operational risk, including but not limited to cybersecurity
and IT systems management risks.
The effects of the COVID-19 pandemic may also limit the resources afforded to or delay the implementation of our strategic
initiatives and make it more difficult to develop and market innovative services. If our strategic initiatives are delayed or otherwise
modified, such initiatives may not achieve some or all of the expected benefits, which could adversely impact our competitive
position, business, results of operations and financial condition. The impact of the COVID-19 pandemic has also exacerbated and
may continue to exacerbate other risks discussed herein, any of which could have a material effect on us.
As a marketing services company, our revenues are highly susceptible to declines as a result of unfavorable economic
conditions and future economic conditions could adversely impact our financial condition and results.
Advertising, marketing and communications expenditures are sensitive to global, national and regional macroeconomic
conditions including those caused by the COVID-19 pandemic, as well as specific budgeting levels and buying patterns. Adverse
developments including heightened economic uncertainty could reduce the demand for our services and pose a risk that clients
may reduce, postpone or cancel spending on advertising, marketing and corporate communications projects, including economic
uncertainty created by the military conflict in Ukraine and resulting economic sanctions against Russia. In the past, some clients
have responded to weakening economic conditions with reductions to their marketing budgets, which include discretionary
components that are easier to reduce in the short term than other operating expenses. This pattern may recur in the future and
could have a material adverse effect on our revenue, results of operations, cash flows and financial position.
Turmoil in the credit markets or a contraction in the availability of credit would make it more difficult for businesses to meet
their capital requirements and could lead clients to change their financial relationship with their vendors, including us, which
could negatively affect our working capital. In such circumstances, we may need to obtain additional financing to fund our day-
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to-day working capital requirements, which may not be available on favorable terms, or at all. Even if we take action to respond
to adverse economic conditions, reductions in revenue and disruptions in the credit markets by aligning our cost structure and
more efficiently managing our working capital, such actions may not be effective.
Our business depends on generating and maintaining ongoing, profitable client demand for our services and solutions, and a
significant reduction in such demand could materially affect our results of operations.
Our revenue and profitability depend on the demand for our services and favorable margins, which could be negatively
affected by numerous factors, many of which are beyond our control and unrelated to our work product. To increase our revenues
and achieve favorable margins, we will need to attract additional clients or generate demand for additional services and products
from existing clients, and such demand will depend on factors including clients’ and potential clients’ requirements, pre-existing
vendor relationships, financial condition, strategic plans, internal resources and satisfaction with our work product and services,
as well as broader economic conditions, competition and the quality of our brands’ employees, services and reputation and the
breadth of our services. As described above, volatile, negative or uncertain global economic and political conditions, including
in connection with the COVID-19 pandemic, have adversely affected, and could in the future adversely affect, client demand for
our services and solutions. In addition, developments in the markets we serve, which may be rapid, could shift demand to services
and solutions where we are less competitive, or might require significant investment by us to upgrade, enhance or expand our
services and solutions to meet that demand. Companies in the markets we serve sometimes seek to achieve economies of scale
and other synergies by combining with or acquiring other companies. If one of our current clients merges or consolidates with a
company that relies on another provider for its marketing and related services, we may lose work from that client or lose the
opportunity to gain additional work if we are not successful in generating new opportunities from the merger or consolidation.
To the extent that we are unable generate sufficient and profitable new business from new and existing clients, our ability to grow
our business, increase our revenues and achieve favorable margins will be limited, which could have a material adverse effect on
our business, results of operations, financial condition and prospects.
Our business could be adversely affected if we fail to retain our existing clients.
Our clients may terminate or reduce the scope of their relationships with us on short notice. As a services business, our ability
to attract and retain clients is an important aspect of our competitiveness, and client loss, including due to competitors, as a
consequence of client consolidation, insolvency or a reduction in marketing budgets due to recessionary economic conditions, or
a shift in client spending could have a material adverse effect on our business, results of operations, financial condition and
prospects. Many companies, including companies with which we have long-standing relationships, put their advertising and
marketing communications business up for competitive review from time to time, and we have lost client accounts in the past as
a result of such reviews. Our clients may choose to terminate their contracts, or reduce their relationships with us, on a relatively
short time frame and for any reason, including as a result of such competitive reviews, external factors such as economic
conditions or their own financial distress, competition from other marketing services providers or clients’ dissatisfaction with our
services, reputation or personnel.
A relatively small number of clients contributes a significant portion of our revenue, which magnifies this risk. In the
aggregate, our top ten clients based on revenue accounted for approximately 17% of our revenue for the year ended December
31, 2021, and historically, client concentration has increased during election years due to the cyclical nature of our advocacy
Agencies. A substantial decline in a large client’s advertising and marketing spending, or the loss of a significant part of their
business, could have a material adverse effect upon our business and results of operations.
In addition, many of our contracts are less than twelve months in duration, and often contain termination provisions requiring
only limited notice. If a client is dissatisfied with our services and we are unable to effectively respond to its needs, the client
might terminate existing contracts, or reduce or eliminate spending on the services and solutions we provide. Additionally, a client
could choose not to retain our Agencies for additional stages of a project, try to renegotiate the terms of its contract or cancel or
delay additional planned work. When contracts are terminated or not renewed, we lose the anticipated revenues, and it may take
significant time to replace the lost revenues or we may be unsuccessful in our attempt to recover such revenues. Consequently,
our results of operations in subsequent periods could be materially lower than expected. The specific business or financial
condition of a client, changes in management and changes in a client’s strategy are also factors that can result in terminations,
cancellations or delays, and in pressure to reduce costs.
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A significant reduction in spending on our services by our largest clients, or the loss of several of our largest clients, could
have a material adverse effect on our business, results of operations and financial position.
We face significant competition, and a failure to compete successfully in the markets we serve could harm our business.
The advertising and marketing services business is highly competitive and constantly changing. We compete on the basis of
many factors, including the quality (and clients’ perceptions of the quality) of our work, our ability to protect the confidentiality
of clients’ and their customers’ data, our relationships with key client personnel, our expertise in particular niche areas or
disciplines and our ability to provide integrated services at the scale clients require. Our Agencies compete with a diverse and
growing set of marketing services firms and consultancies to maintain existing client relationships and to win new business. Our
competitors include not only other large multinational advertising and marketing communications companies, but also smaller
entities that operate in local or regional markets as well as new forms of market participants. We are smaller than many of our
larger industry competitors, and an agency’s ability to serve clients, particularly large international clients, on a broad geographic
basis and across a range of services and technologies is an important competitive consideration. Our smaller size could impair
our ability to compete for business, particularly with respect to significant business from large, global enterprises that require
integrated global marketing solutions across geographies. We also compete with smaller advertising and marketing
communications businesses, and because an agency’s principal asset is often its people, barriers to entry are minimal, and
relatively small agencies are, on occasion, able to take all or some portion of a client’s business from a larger competitor. We may
also face greater competition due to consolidation of companies in our industry, including through strategic mergers or acquisition.
Consolidation activity may result in new competitors with greater scale, a broader footprint, or offerings that are more attractive
than ours. This competition could have a negative effect on our ability to compete for new work and skilled professionals.
Competitive challenges also arise from rapidly evolving and new technologies in the marketing and advertising space, which
create opportunities for new and existing competitors and a need for continued significant investment in tools, technologies and
process improvements. As data-driven marketing solutions become increasingly core to the success of our Agencies, any failure
to keep up with rapidly changing technologies and standards in this space could harm our competitive position.
In addition, our competitors may compete for client engagements by significantly discounting their services, whether as a
short-term effort to win business, in exchange for a client’s promise to purchase other goods and services from the competitor,
either concurrently or in the future, or as a result of developing and implementing methodologies that result in superior
productivity and price reductions without adversely affecting their profit margins. Price competition could force us to choose
between lowering our prices (and suffering reduced operating margins) or losing a client’s business. Any of these negative effects
could significantly impair our results of operations and financial condition.
Our future financial performance is largely dependent upon our ability to compete successfully in the markets we serve. If
we are unable to compete successfully, we could lose market share and clients to competitors or be forced to accept engagements
with unfavorable economic terms, which could have a material adverse effect on our business, results of operations, financial
condition and prospects.
Maintaining and enhancing our Agencies’ brands and reputations is critical to our business prospects, and harm to our
Agencies’ brands and reputations may limit our ability to acquire new clients, retain existing clients and attract and retain
qualified personnel.
We believe our and our Agencies’ brand names and reputations are important corporate assets that help distinguish our
services from those of our competitors and also contribute to our efforts to recruit and retain talented employees. However, our
or our Agencies’ corporate reputations are potentially susceptible to material damage by events such as disputes with clients,
information technology security breaches or service outages, or other delivery failures. Similarly, our or our Agencies’ reputation
could be damaged by actions or statements of current or former clients, employees, competitors, vendors, as well as members of
the investment community and the media. Such negative attention could adversely affect our business, and damage to our
reputations could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for new
engagements or cause existing clients to terminate their relationships with us, resulting in a loss of business, and could adversely
affect our recruitment and employee retention efforts. Damage to our or our Agencies’ reputations could also reduce the value
and effectiveness of the Stagwell brand name (or our Agencies’ brand names) and could reduce investor confidence in us, which
could have a material adverse effect on the trading price of our Class A Common Stock.
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Our existing client relationships could impair our ability to generate new business or attract and retain qualified personnel.
As a marketing services company, we are susceptible to risks related to the clients we serve. Our ability to acquire new clients
and retain existing clients is limited by clients’ perceptions of, or policies concerning, conflicts of interest arising from our other
client relationships. For example, some companies maintain conflicts of interest policies that prohibit engaging marketing services
firms that work with their competitors, and in some circumstances such policies have caused, and may in the future cause our
Agencies to lose opportunities with potential clients or to lose existing clients. In addition, although we believe that our portfolio
of Agencies may limit some risks in this regard, some of such policies may apply not just to a particular Agency but to an entire
marketing services group. If we are unable to maintain multiple Agencies to manage multiple client relationships and avoid
potential conflicts of interests, our business, results of operations and financial position may be adversely affected.
In addition, we are subject to reputational risks relating to the clients we serve. In some cases, our Agencies may provide
services to clients that are subject to significant controversy and negative press coverage and commentary, including controversy
over which we have no control and which may arise at any time. As a service provider to such clients, we may receive negative
attention focused on such client relationships, which could damage our or our Agencies’ reputation. Our association with
controversial clients and related reputational harm could also impair our ability to attract new clients or retain existing clients and
could also harm our ability to attract and retain qualified personnel. Any of these consequences could have a material adverse
effect on our business, results of operations, financial condition and prospects.
If we are unable to adapt and expand our services and solutions in response to ongoing changes in technology and offerings
by new entrants, our results of operations and ability to grow could be impaired.
Our success depends in part upon our ability to continue to develop and implement services and solutions that anticipate and
respond to rapid and continuing changes in marketing technology, consumer habits and industry developments, as well as
offerings by new entrants, to serve the evolving needs of our clients. Current areas of significant change include search engine
optimization, bots, search engine marketing, social media and influencer and affiliate marketing, email marketing, AR and VR
applications, customer relationship and programmatic advertising, which involve the use of mobility-based software platforms,
cloud computing, SaaS, and DaaS solutions, artificial intelligence, machine learning and the processing and analyzing of large
amounts of data. Technological developments such as these may materially affect the cost and use of technology by our clients
and demand for our services, and if we do not sufficiently invest in new technology and industry developments, or if we do not
make the right strategic investments to respond to these developments and successfully drive innovation, our services and
solutions, our ability to generate demand for our services, attract and retain clients, and our ability to develop and achieve a
competitive advantage and continue to grow could be negatively affected.
In addition, we operate in a quickly evolving environment in which there currently are, and we expect will continue to be,
numerous new technology entrants. New services or technologies offered by competitors or new entrants may make our offerings,
such as the Stagwell Marketing Cloud and other DaaS and SaaS martech products, less differentiated or less competitive, when
compared to other alternatives, which may adversely affect our ability to attract and retain clients. Any of these consequences
could have a material adverse effect on our business, results of operations, financial condition and prospects.
If we do not successfully manage and develop our relationships with our Global Affiliate partners or if we fail to anticipate
and establish new alliances in new technologies, our results of operations could be adversely affected.
Our growth strategy has included partnering with independent marketing services agencies, which we refer to as Global
Affiliates, in certain jurisdictions, rather than operating in those markets independently. A portion of our revenue is derived from
client engagements that involve services by our Global Affiliates, and we believe our Global Affiliates program is a critical
element of our strategy to compete with large incumbent marketing services companies and provide scaled global marketing
services to our clients. If we are unable to maintain our relationships with current Global Affiliates partners and identify new and
emerging partners to expand our Global Affiliates network of alliance partners, we may not be able to provide the kinds of scaled
global services that we believe clients require or compete effectively in the market. Our strategy of leveraging our Global
Affiliates partners could fail, and the business that we conduct through such partnerships could decrease or fail to grow, for a
variety of reasons, including operational difficulties and cultural differences that impair our ability to leverage such partnerships
effectively, lack of control over Global Affiliates’ work product and services or clients’ unwillingness to entrust their marketing
efforts to numerous entities that are not part of the same marketing group.
In addition, our Global Affiliates partnerships involve significant risks that are outside of our control. We are not represented
on the management teams, boards of directors or other governing bodies of our Global Affiliates, and therefore do not participate
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in the day-to-day management of such entities. Because we do not control our Global Affiliates, they may take actions with which
we or our clients disagree, which could expose us to reputational damage or impair our ability to attract and retain clients and
generate demand for our services and solutions. Additionally, our Global Affiliates are generally not prohibited from competing
with us or forming closer or preferred arrangements with our competitors and may expand their own offerings and geographic
presence, which could lead them to compete with us in various markets around the world. Our business, financial condition,
results of operations and prospects could be adversely affected by such competition.
If we do not obtain the expected benefits from our Global Affiliates program for any reason, we may be less competitive,
and our ability to offer attractive solutions to our clients may be negatively affected, which could have a material adverse effect
on our business, results of operations, financial condition and prospects.
We are making investments in new product offerings and technologies and may increase such investments in the future. These
new ventures are inherently risky, and we may never realize any expected benefits from them.
We have made investments to develop new marketing services products and technologies, including the Stagwell Marketing
Cloud and other marketing data, campaign martech, AR and VR applications, and we intend to continue investing significant
resources in developing and/or acquiring new technologies, tools, features, services, products and offerings. If we do not spend
our development budget efficiently or effectively on commercially successful and innovative technologies, or if we encounter
significant technical or other challenges with respect to the development of our anticipated product offerings, we may not realize
the expected benefits of our strategy. Our new initiatives also have a high degree of risk, as each involves development of new
software platforms or other product offerings, unproven business strategies and technologies with which we may have limited
prior development or operating experience. Because such offerings and technologies are new, they may involve additional claims
and liabilities (including, but not limited to, intellectual property claims), expenses, regulatory challenges, and other risks that we
do not currently anticipate.
There can be no assurance that client demand for new products, including the Stagwell Marketing Cloud and other marketing
data, campaign martech, AR and VR martech applications, will exist or be sustained at the levels that we anticipate, or that any
of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or
liabilities associated with these new investments. It is also possible that products and offerings developed by others will render
our products and offerings noncompetitive or obsolete. Further, our development efforts with respect to new products, offerings
and technologies could distract management from current operations, and will divert capital and other resources from our more
established products, offerings and technologies. Even if we are successful in developing new products, offerings or technologies,
regulatory authorities may subject us to new rules or restrictions in response to our innovations that could increase our expenses
or prevent us from successfully commercializing new products, offerings or technologies. If we do not realize the expected
benefits of our investments, our business, financial condition, results of operations and prospects may be harmed.
As a global business, we are substantially dependent on operations outside the United States, and any failure to manage the
risks presented by our international operations could have a material adverse effect on our business, results of operations,
financial condition and prospects.
We are a global business, with Agencies operating in 65+ countries. Operations outside the United States represent a
significant portion of our revenues and represented approximately 17% of our revenues in 2021. The operational and financial
performance of our international businesses are affected by global and regional economic conditions, competition for new
business and staff, political conditions, differing regulatory environments and other issues associated with extensive international
operations. Conducting our business internationally, particularly in developing markets in which we have limited experience,
subjects us to risks that we do not face to the same degree in the United States. These risks include, among others:
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operational and compliance challenges caused by distance, language, and cultural differences, including, in some
markets, longer billing collection cycles;
the resources required to adapt our operations to local practices, laws, and regulations and any changes in such practices,
laws, and regulations;
laws and regulations that may be more restrictive than those in the United States, including commercial laws that can be
undeveloped, vague, inconsistently enforced, retroactively applied or frequently changed, laws governing competition,
pricing, payment methods, Internet activities, real estate tenancy laws, tax and social security laws, employment and
labor laws, email messaging, privacy, location services, collection, use, processing, or sharing of personal information,
ownership of intellectual property, and other activities important to our business;
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competition with companies or other services that understand local markets better than we do or that have pre-existing
relationships with potential clients in those markets;
differing levels of social acceptance of our brand, products, and offerings;
differing levels of local demand for our digital marketing services or the prevalence of e-commerce;
exposure to business cultures in which improper business practices may be prevalent;
difficulties in managing, growing, and staffing international operations, including in countries in which foreign
employees may become part of labor unions, employee representative bodies, or collective bargaining agreements, and
challenges relating to work stoppages or slowdowns;
fluctuations in currency exchange rates;
adverse tax consequences, including the complexities of foreign value added tax systems, and restrictions on the
repatriation of earnings;
increased financial accounting and reporting burdens, and complexities associated with implementing and maintaining
adequate internal controls;
difficulties in implementing and maintaining the financial systems and processes needed to enable compliance across
multiple jurisdictions;
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import and export restrictions, changes in trade regulation and economic sanctions compliance;
• war, geopolitical tensions and other political, social, and economic instability abroad, such as the ongoing military
conflict between Russia and Ukraine, terrorist attacks and security concerns;
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public health concerns or emergencies, such as the current COVID-19 pandemic and other highly communicable diseases
or viruses, outbreaks of which have from time to time occurred in various parts of the world in which we operate; and
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reduced or varied protection for intellectual property rights in some markets.
These risks could adversely affect our international operations, which could in turn adversely affect our business, financial
condition, results of operations and financial condition. In addition, in developing countries or regions, we may face further risks,
such as slower receipt of payments, nationalization, social and economic instability, currency repatriation restrictions and
undeveloped or inconsistently enforced commercial laws. For example, we are in the process of winding down our limited
operations in Russia, and we are evaluating the effect on our business and operations of the ongoing military conflict between
Russia and Ukraine and economic sanctions related thereto. These risks may limit our ability to grow our business and effectively
manage our operations in those countries.
We are exposed to the risk of client defaults, and in an economic downturn, the risk of a material loss related to such client
defaults could significantly increase.
Certain of our Agencies often enter into contractual commitments with media providers and production companies and incur
expenses on behalf of our clients for productions and in order to secure a variety of media time and space, in exchange for which
they receive a fee. The difference between the gross production costs and media purchases and the revenue earned by us can be
significant, and primarily affects our levels of accounts receivable, expenditures billable to clients, accounts payable and accrued
liabilities.
While we take precautions against default on payment for these services (such as credit analysis, advance billing of clients,
and in some cases acting as an agent for a disclosed principal), such precautions may fail to mitigate our exposure to clients’
credit risk, and we may experience significant uncollectible receivables from our clients. In addition, in periods of severe
economic downturn, our methods of managing the risk of payment default may be less available or unavailable and the risk of a
material loss could significantly increase. Such a loss could have a material adverse effect on our results of operations, cash flows
and financial position.
Recovery of client financing and timely collection of client balances also depends upon our ability to complete our contractual
commitments and bill and collect our contracted revenues. We are generally paid in arrears for our services, and if we are unable
to meet our contractual requirements, we may experience delays in collection of and/or be unable to collect our client balances,
and if this occurs, our results of operations and cash flows could be adversely affected.
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If we are unable to collect our receivables or unbilled services, our business, results of operations, financial condition and
cash flows could be materially and adversely affected.
If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of customer
service, or adequately address competitive challenges.
We have experienced significant growth in recent periods, including as a result of the Transactions, and we intend to continue
to expand our business in the future. This growth has placed, and any future growth may continue to place, a significant strain on
our management, operational and financial infrastructure. Our management will also be required to maintain and expand our
relationships with clients, Global Affiliates partners and other third parties and attract new clients, as well as to manage multiple
geographic locations.
In addition, our current and planned operations, personnel, systems and procedures might be inadequate to support our future
growth and may require us to make additional unanticipated investment in our infrastructure, including additional costs for the
expansion of our employee base and our global operations and partnerships as well as marketing and branding costs. Our success
and ability to further scale our business will depend, in part, on our ability to manage these changes in a cost-effective and efficient
manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business
strategies or respond to competitive pressures. This could also result in declines in quality or customer satisfaction, increased
costs, difficulties in introducing new marketing services or product offerings or other operational difficulties. Any failure to
effectively manage growth could adversely affect our business and reputation.
Natural disasters, terrorist attacks, war civil disturbances and infrastructure breakdowns could disrupt our business and harm
our results of operations.
Our corporate headquarters is located in New York City, which has experienced terrorist attacks, civil disturbance, natural
disasters and extreme weather events including hurricanes, floods and fires, and critical resources shortages and infrastructure
disruptions, such as localized extended outages of critical utilities or transportation systems. If any such natural disaster or other
disturbance or interruption, such as terrorist attacks or war, were to occur, such event could prevent us from using all or a
significant portion of our headquarters or other facilities, damaged critical infrastructure or otherwise disrupt our operations,
which could make it difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time and
could require us to make capital expenditures even though we may not have sufficient available resources at such time.
Additionally, the proceeds available from our insurance policies may be insufficient to cover any such capital expenditures or
other related costs, and our insurance coverage and available resources may not be adequate to cover our losses in any particular
case. Any of these occurrences could significantly disrupt our and our Agencies’ ability to deliver solutions and services and
operate our and their businesses and could, in consequence, have a material adverse effect on our business, results of operations
and financial condition.
In addition, our key technology systems may also be damaged or disrupted as a result of technical disruptions such as
electricity or infrastructure breakdowns, including damage to telecommunications cables, computer glitches, power failures and
electronic viruses or human-caused events such as protests, riots, labor unrest, terrorist attacks, war and private or state-sponsored
cyberattacks. Such events, or any natural or weather-related disaster, could lead to the disruption of information systems and
telecommunication services for sustained periods. Any significant failure, damage or destruction of our equipment or systems, or
any major disruptions to basic infrastructure such as power and telecommunications systems in the areas in which we operate,
could impede our ability to provide solutions to our clients and thus adversely affect their businesses, have a negative impact on
our reputation and may cause us to incur substantial additional expenses to repair or replace damaged equipment, internet server
connections or information technology systems. Damage or destruction that interrupts our provision of services could adversely
affect our reputation, our relationships with our clients, our ability to administer and supervise our business or it may cause us to
incur substantial additional expenditure to repair or replace damaged equipment or sites. Even if our operations are unaffected or
recover quickly from any such events, if our clients cannot timely resume their own operations due to a catastrophic event, they
may reduce or cancel their use of our services and products, which may adversely affect our results of operations. Any of these
events, their consequences or the costs related to mitigation or remediation could have a material adverse effect on our business,
results of operations, financial condition and prospects.
Our insurance coverage may not be sufficient to guarantee costs of repairing the damage caused by such disruptive events
and such events may not be covered under our policies. Prolonged disruption of our services and solutions, even if due to events
beyond our control, could also entitle our clients to terminate their contracts with us or result in other brand and reputational
damages, which would have a material adverse effect on our business, results of operations, financial condition and prospects.
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We are consolidating our real estate footprint and may incur significant costs in doing so.
In 2020, we consolidated the real estate occupancy of our advertising and marketing agencies in New York City, in order to
lower our leasing costs and improve collaboration among our Agencies. In connection with this consolidation, many of our
properties have been or will be subleased or abandoned, and we are exploring opportunities for real estate consolidation in other
markets. We may not be able to sublease the vacated office spaces on expected terms or at all. If we fail to sublet the leased offices
we vacate on the terms we anticipate, we may be required to pay additional rent or may become involved in costly litigation with
our commercial landlords, and we may incur additional charges related to the sublease or abandonment of our leases, any of
which consequences could have a material adverse effect on our cash flows, financial condition and results of operations.
Seasonal fluctuations in marketing, research, communications and advertising activity could have a negative impact on our
revenue, cash flow and operating results.
Our revenue, cash flow, operating results and other key operating and performance metrics vary from quarter to quarter due
to the seasonal nature of our clients’ spending on the services we provide. For example, clients tend to devote more of their
advertising budgets to the fourth calendar quarter to coincide with consumer holiday spending, and we typically generate our
highest quarterly revenue during the fourth quarter in each year. Political advertising and related activity have also historically
caused our revenue to increase during election cycles, which is most pronounced in even years, in particular during the third and
fourth quarters of such years, and decrease during other periods. If our growth rate declines or seasonal spending becomes more
pronounced, seasonality could have a more significant impact on our revenue, cash flow and operating results from period to
period.
Risks Related to Strategic Transactions
We may not realize the benefits we expect from past acquisitions, including the Transactions.
We may be unable to realize the benefits we expect from our past strategic transactions, including the Transactions, for a
variety of reasons, including due to our failure to effectively integrate newly acquired businesses into our operations, because of
errors in our forecasting or for numerous other reasons, including factors that we do not control, such as the reactions of existing
and potential clients, employees, regulators and investors.
Our ongoing integration efforts following the Transactions are subject to significant risks and uncertainties, including with
respect to our ability to realize our anticipated synergies and cost savings, our ability to retain and attract executives, employees
and clients, the diversion of management’s attention from other business concerns, and undisclosed, unknown or potential legal
liabilities of the acquired company. Our failure to address these risks or other problems encountered in connection with the
Transactions and any past or future acquisitions and other strategic transactions could cause us to fail to realize their anticipated
benefits, incur unanticipated liabilities and harm our business generally.
Even if we are able to integrate the combined businesses successfully, this integration may not result in the realization of the
full benefits of the growth and other opportunities, or the synergies and cost savings, that we currently expect from the
Transactions within the anticipated time frame, or at all. Furthermore, the anticipated benefits or value of our acquisitions and
other strategic transactions, including the Transactions, may not be achievable, particularly as the achievement of the benefits are
in many important respects subject to factors that we do not and cannot control, including the reaction of third parties with whom
we do business and the reactions of investors. As a result of the Transactions, we have significantly more revenue, expenses,
assets and employees than prior to the Transactions, and we assumed certain liabilities and other obligations of the pre-merger
entities. The Company may not successfully or cost-effectively integrate the combined businesses.
We have allocated significant management time and resources to, and expect to incur non-recurring costs for, our ongoing
integration efforts in connection with the Transactions.
We and our management have allocated and continue to allocate time and resources to our ongoing integration efforts
following the Transactions, including related and incidental activities. Integration of the legacy SMG and MDC businesses has
been and is expected to continue to be complex, costly and time-consuming, requires significant management attention and
resources, may disrupt our business, and may ultimately be unsuccessful. Risks and difficulties of integration include, among
others, the diversion of management attention to integration matters, increased difficulty retaining existing clients and obtaining
new customers, difficulties attracting and retaining employees and the added strain on our executives of managing the expanded
operations of a significantly larger company, any of which could adversely impact the effectiveness of our management team, the
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effectiveness of our integration efforts and the future performance of our combined company, which could harm our business,
prospects, results of operations and financial condition.
In addition, we have incurred or expect to incur a number of non-recurring costs associated with our integration efforts,
including costs associated with our pursuit of synergies and cost efficiencies following the Transactions. While we expect the
benefits of such efforts to offset these costs over time, this net benefit may not be achieved in the short term or at all, and the
actual costs we incur in connection with our integration efforts could exceed our estimates. These combined factors could
adversely affect our business, results of operations and financial condition.
In the future, we may acquire other companies in pursuit of growth, which may divert our management’s attention, result in
dilution to our shareholders and consume resources that are necessary to sustain our business.
Our business strategy includes engaging in strategic mergers, acquisitions and investments to bolster our capabilities or
expand our reach in particular areas. Through the acquisitions we pursue, we may seek opportunities to add to or enhance the
services and solutions we provide, to enter new industries or expand our client base, or to strengthen our global presence and
scale of operations. Negotiating these transactions can be time consuming, difficult and expensive, and our ability to complete
these transactions may be subject to conditions or approvals that are beyond our control, including anti-takeover and antitrust
laws in various jurisdictions. Consequently, these transactions, even if undertaken and announced, may not close. An acquisition,
investment or new business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may
encounter difficulties assimilating or integrating the businesses, technologies, services, products, personnel or operations of
acquired companies, particularly if the key personnel of the acquired company choose not to work for us, the acquired company’s
technology is not easily compatible with ours or we have difficulty retaining the clients of any acquired business due to changes
in management or otherwise. In addition, we may not accurately forecast the financial impact of an acquisition transaction,
including accounting charges.
Mergers or acquisitions may also disrupt our business, divert our resources and require significant management attention that
would otherwise be available for the development of our business. Moreover, the anticipated benefits of any merger, acquisition,
investment or similar partnership may not be realized or we may be exposed to unknown liabilities, including litigation against
the companies we may acquire, for example from failure to identify all of the significant risks or liabilities associated with the
target business. For one or more of those transactions, we may:
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issue additional equity securities that would dilute our shareholders;
use cash that we may need in the future to operate our business;
incur debt that may place burdensome restrictions on our operations or cash flows;
incur large charges or substantial liabilities; or
become subject to adverse tax consequences, substantial depreciation or amortization expenses, impairment of goodwill
and/or purchased long-lived assets, restructuring charges, deferred compensation or other acquisition-related accounting
charges.
Any of these risks could materially and adversely affect our business, financial condition, results of operations and prospects.
Risks Related to Our Employees and Human Resources
Our business is highly dependent on the services of Mark Penn, our CEO and Chairman.
We depend on the continued services and performance of our key personnel, including our CEO and Chairman, Mark Penn.
Although we have entered into an employment agreement with Mr. Penn, the agreement has no specific duration and constitutes
at-will employment. The loss of key personnel, including Mr. Penn, could disrupt our operations and have an adverse effect on
our business.
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If we are unable to keep our supply of skills and resources in balance with client demand around the world and attract and
retain professionals with strong leadership skills, our business, the utilization rate of our professionals and our results of
operations may be materially adversely affected.
Employees, including creative, research and data acquisition, analytics and data science, media, technology development,
content development, account and practice group specialists, and their skills and relationships with clients, are among our most
important assets. Our success is dependent, in large part, on our ability to keep our supply of marketing services skills and
capabilities in balance with client demand around the world and our ability to attract and retain personnel with the knowledge
and skills to lead our business globally. We must hire or reskill, retain and motivate appropriate numbers of talented people with
diverse skills in order to serve clients across the globe, respond quickly to rapid and ongoing changes in demand, technology,
industry and the macroeconomic environment, and continuously innovate to grow our business. For example, if we are unable to
hire or retrain our employees to keep pace with the rapid and continuous changes in technology and the industries we serve, we
may not be able to innovate and deliver new services and solutions to fulfill client demand. There is competition for scarce talent
with market-leading skills and capabilities in new technologies, and our competitors have directly targeted our employees with
these highly sought-after skills and will likely continue to do so. As a result, we may be unable to cost-effectively hire and retain
employees with these market-leading skills, which may cause us to incur increased costs, or be unable to fulfill client demand for
our services and solutions.
We are particularly dependent on retaining management and leadership of our Agencies with critical capabilities.
Management succession at our Agencies is very important to the ongoing results of our company because, as in any service
business, the success of a particular Agency depends in part upon the leadership of key executives and management. If we are
unable to manage management succession at the Agency level, our ability to innovate, generate new business opportunities and
effectively lead large and complex client relationships and marketing services projects could be jeopardized. We depend on
identifying, developing and retaining top talent to innovate and lead our businesses. This includes developing talent and leadership
capabilities in emerging markets, where the depth of skilled employees may be limited. Our ability to expand in our key markets
depends, in large part, on our ability to attract, develop, retain and integrate both leaders for the local business and people with
critical capabilities.
Similarly, our profitability depends on our ability to effectively source and staff people with the right mix of skills and
experience to perform services for our clients, including our ability to transition employees to new assignments on a timely basis.
The costs associated with recruiting and training employees are significant. If we are unable to effectively deploy our employees
globally and remotely on a timely basis to fulfill the needs of our clients, our profitability could suffer.
At certain times and in certain geographies, we have found and may continue to find it difficult to hire and retain a sufficient
number of employees with the skills or backgrounds to meet current and/or future demand in a cost-effective manner. In these
cases, we might need to redeploy existing personnel or increase our reliance on subcontractors to fill our labor needs, and if not
done effectively, our profitability could be negatively impacted. Additionally, as demand for our services and solutions increases,
we may be unable to hire and retain people with the skills necessary to meet demand, and we have in the past experienced and
may continue to experience wage inflation and other increases to compensation expense, which puts upward pressure on our costs
and may adversely affect our profitability if we are unable to recover these increased costs. If we are not successful in these
initiatives, our business, results of operations, financial condition and prospects could be adversely affected.
Some of our Agencies rely upon signatory service companies to employ union performers in commercials, and any inability
to produce advertisements with union performers could impair our ability to serve our advertising clients and compete.
Some of our creative services Agencies have not entered into the Screen Actors Guild - American Federation of Television
and Radio Artists (“SAG-AFTRA”) Commercials Contract, an industry contract form for commercial advertising, and instead
have generally contracted with signatory service companies, which are parties to the SAG-AFTRA Commercials Contract, to
employ SAG-AFTRA union performers appearing in television, new media, and other commercials produced by those Agencies.
SAG-AFTRA has recently persuaded the principal signatory service companies to change the way such signatory service
companies do business. These changes may make it more cumbersome and expensive for advertising agencies which have not
entered into the SAG-AFTRA Commercials Contract to produce advertisements using SAG-AFTRA members, and in some cases
may preclude the use of SAG-AFTRA members in the production of commercials by certain of our Agencies. Because SAG-
AFTRA members comprise a significant proportion of performing talent available for commercials, any inability of our Agencies
to produce commercials using union performers could materially limit such Agencies’ access to qualified performing talent,
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reduce the amount of business conducted by such Agencies and impair their ability to compete with agencies that are able to
employ union performers, which could in turn have a material adverse effect on our business, results of operations, financial
position and results of operations.
Risks Related to Data Privacy and Cybersecurity
We face legal, reputational and financial risks from any failure to protect client data from security incidents or cyberattacks.
We and our third-party service providers, such as our cloud service providers that store, transmit and process data, rely on
information technologies and infrastructure, which we use to manage our business, including digital storage of client marketing
and advertising information and developing new business opportunities. Increased cybersecurity threats and attacks, such as
security breaches, are becoming more sophisticated and pose a risk to our systems and networks. In addition, undiscovered
vulnerabilities in our products or services could expose us or our clients to hackers or other unscrupulous third parties who
develop and deploy viruses and other malicious software programs that could attack our products, services and business.
We are dependent on information technology networks and systems to securely process, transmit and store electronic
information and to communicate among our locations around the world and with our people, clients, Global Affiliates partners
and vendors. As the breadth and complexity of this infrastructure continues to grow, including as a result of the increasing reliance
on, and use of, mobile technologies, social media and cloud-based services, the risk of security incidents and cyberattacks
(including state-sponsored cyberattacks) has increased. In 2020 and 2021, the overwhelming majority of our workforce
temporarily transitioned to working from home during the COVID-19 pandemic. The increase in the number of our employees
working from home may increase our risk of cybersecurity incidents and any breakdown or breach in our systems or data-
protection policies, or those of our third-party service providers, could adversely affect our reputation or business. Such incidents
could lead to shutdowns or disruptions of or damage to our systems and those of our clients, Global Affiliates partners and
vendors, and unauthorized disclosure of sensitive or confidential information, including personal data and proprietary business
information. Also, given the unpredictability of the timing, nature and scope of such cybersecurity threats and attacks, we may
be unable to anticipate attempted security breaches and, in turn, implement adequate preventative measures. Our systems and
processes to protect against, detect, prevent, respond to and mitigate cybersecurity incidents and our organizational training for
employees to develop an understanding of cybersecurity risks and threats may be unable to prevent material security breaches,
theft, modification or loss of data, employee malfeasance (including improper use of social media) and additional known and
unknown threats. Furthermore, mitigating the risk of future cybersecurity threats or attacks could result in additional operating
and capital costs in systems technology, personnel, monitoring and other investments. We have experienced, and may again
experience, data security incidents resulting from unauthorized access to our and our service providers’ systems and unauthorized
acquisition of our data and our clients’ data, including inadvertent disclosure, misconfiguration of systems, phishing ransomware
or malware attacks. In addition, certain of our clients may experience breaches of systems and cloud-based services enabled by
or provided by us.
In providing services and solutions to clients, we often manage, utilize and store sensitive or confidential client or other data,
including personal data and proprietary information, and we expect these activities to increase, including through the use of
artificial intelligence, bots and cloud-based analytics. Security breaches, improper use of our systems and other types of
unauthorized access to our systems, data, and information by employees and others may pose a risk that data may be exposed to
unauthorized persons or to the public. We have access to sensitive data, personal data, and information that is subject to various
data privacy laws and regulations, which have obligations that are triggered in the event of a breach. Unauthorized disclosure of,
denial of access to, or other incidents involving sensitive or confidential client, vendor, Global Affiliates partner or our own data,
whether through systems failure, employee negligence, fraud, misappropriation, or cybersecurity, ransomware or malware attacks,
or other intentional or unintentional acts, could damage our reputation and our competitive positioning in the marketplace, disrupt
our or our clients’ business, cause us to lose clients and result in significant financial exposure and legal liability. Similarly,
unauthorized access to or through, denial of access to, or other incidents involving, our software and IT supply chain or SaaS
providers, our service providers’ information systems or those we develop for our clients, whether by our employees or third
parties, including a cyberattack by computer programmers, hackers, members of organized crime and/or state-sponsored
organizations, who continuously develop and deploy viruses, ransomware, malware or other malicious software programs or
social engineering attacks, could result in negative publicity, significant remediation costs, legal liability, damage to our reputation
and government sanctions and could have a material adverse effect on our results of operations. Cybersecurity threats are
constantly expanding and evolving, becoming increasingly sophisticated and complex, increasing the difficulty of detecting and
defending against them and maintaining effective security measures and protocols.
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We are subject to extensive data privacy laws and regulations.
In addition, laws and regulations related to consumer privacy, use of personal information and digital tracking technologies
have been proposed or enacted in the United States and certain international markets (including the European Union’s General
Data Protection Regulation, or “GDPR,” the proposed updated European Union “ePrivacy Regulation” and the California
Consumer Privacy Act, or “CCPA”). Further in the United States, both Congress and state legislatures, along with federal
regulatory authorities, have continued to increase their attention on advertising and the collection and use of data, including
personal data. At the federal level, while to date there has not been any successful efforts in enacting data privacy legislation, if
successfully introduced, it would create additional regulatory and compliance obligations, legal risk exposure, and could
significantly impact our business activities. At the state level, in California the California Privacy Rights Act, or “CPRA,” was
voted into law by ballot measure in November 2020, which will take effect on January 1, 2023. The CPRA significantly modifies
the CCPA, including by imposing additional data privacy and protection obligations on covered companies and expanding
consumer rights with respect to certain sensitive personal data. It will also create a new California data protection agency
specifically tasked to enforce the law, which will likely result in increased regulatory scrutiny of covered businesses in the areas
of data protection and security. Also, Virginia has adopted a new state data protection act referred to as the Virginia Consumer
Data Protection Act, which is set to take effect on January 1, 2023. Further, Colorado has adopted a new state data protection act
titled the Colorado Privacy Act, which is set to take effect on July 1, 2023. Similar laws have been proposed in other states, and
if passed, the Company could still be subject to such laws regardless of whether the Company has operations or a physical
presence in the applicable state. We face increasing costs of compliance in an uncertain regulatory environment and any failure
or perceived failure to comply with these legal requirements could result in regulatory penalties or other legal ability. Also, any
such laws may also have potentially conflicting requirements that would make compliance challenging, as well as potentially
resulting in further uncertainty and requiring the Company to incur additional costs and expenses in an effort to comply.
Furthermore, these laws and regulations may impact the efficacy and profitability of certain digital marketing and analytics
services we provide to clients, making it difficult to achieve our clients’ goals. These and other related factors could affect our
business and reduce demand for certain of our services, which could have a material adverse effect on our results of operations
and financial position.
Compliance with data privacy laws requires ongoing investment in systems, policies and personnel and will continue to
impact our business in the future by increasing legal, operational and compliance costs. While we have taken steps to comply
with data privacy laws, we cannot guarantee that our efforts will meet the evolving standards imposed by governmental and
regulatory agencies, including data protection authorities. In the event that we are found or suspected to have violated data privacy
laws, we may be subject to additional potential private consumer, business partner or securities litigation, regulatory inquiries,
governmental investigations and proceedings and we may incur damage to our reputation. Any such developments may subject
us to material fines and other monetary penalties and damages, divert management’s time and attention, and lead to enhanced
regulatory oversight, all of which could have a material adverse effect on our business and results of operations.
Risks Related to Litigation and Regulation
Litigation or legal proceedings could expose us to significant liabilities and have a negative impact on our reputation or
business.
From time to time, we have been and may in the future be party to various claims and litigation proceedings. We evaluate
these claims and litigation proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount
of potential losses. Based on these assessments and estimates, we establish reserves, as appropriate. These assessments and
estimates are based on the information available to management at the time and involve a significant amount of management
judgment. Although we are not currently party to any litigation that we consider material, actual outcomes or losses may differ
materially from our assessments and estimates.
We and certain of our Agencies produce software and e-commerce tools for clients, including the Stagwell Marketing Cloud
and other martech products, and such types of software and e-commerce product offerings have become increasingly subject to
litigation based on allegations of patent infringement or other violations of intellectual property rights. As we expand these product
offerings, the possibility of an intellectual property claim against us grows.
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In addition, securities class action lawsuits and derivative lawsuits are often brought against public companies that have
entered into acquisition, merger or other business combination agreements. We have been and may in the future be the target of
securities and shareholder litigation.
Any such claims or other claims against us, with or without merit, could result in costly litigation and divert management
from day-to-day operations and resources from our business. We cannot be certain that we would be successful in defending
against any such claims. Any litigation to which we are a party may result in an onerous or unfavorable judgment that may not
be reversed on appeal, or we may decide to settle lawsuits on similarly unfavorable terms. If we are not successful in defending
such claims, we could be required to rebrand, redesign or stop offering these products or services, pay monetary damages or fines,
enter into royalty or licensing arrangements, satisfy indemnification obligations that we have with some of our clients or make
changes to our business practices, any of which could have an adverse effect on our business, reputation, results of operations,
financial condition and prospects.
Even when these claims are not meritorious, the defense of these claims may divert our management’s attention and may
result in significant expenses. The results of litigation and other legal proceedings are inherently uncertain, and adverse judgments
or settlements in some of these legal disputes may result in adverse monetary damages, penalties or injunctive relief against us,
which could have a material adverse effect on our financial position, cash flows or results of operations. Any claims or litigation,
even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or to obtain
adequate insurance in the future.
Furthermore, while we maintain insurance for certain potential liabilities, such insurance does not cover all types and amounts
of potential liabilities and is subject to various exclusions as well as caps on amounts recoverable. Even if we believe a claim is
covered by insurance, insurers may dispute our entitlement to recovery for a variety of potential reasons, which may affect the
timing and, if the insurers prevail, the amount of our recovery.
We are subject to industry regulations and other legal or reputational risks that could restrict our activities or negatively impact
our performance or financial condition.
Our industry is subject to government regulation and other governmental action, both in the United States and internationally.
We and our clients are subject to specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements
applicable to advertising for certain products. Governmental entities, self-regulatory bodies and consumer groups may also
challenge advertising through legislation, regulation, judicial actions or otherwise, for example on the grounds that the advertising
is false and deceptive or injurious to public welfare. Moreover, there has recently been an expansion of specific rules, prohibitions,
media restrictions, labeling disclosures, and warning requirements with respect to advertising for certain products. Any regulatory
or judicial action that affects our ability to meet our clients' needs or reduces client spending on our services could have a material
adverse effect on our business, results of operations, financial position and prospects.
Existing and proposed laws and regulations, in particular in the European Union and the United States, concerning user
privacy, use of personal information and online tracking technologies could also affect the efficacy and profitability of internet-
based, digital and targeted marketing. We are subject to laws and regulations that govern whether and how we can transfer, process
or receive certain data that we use in our operations. For example, federal laws and regulations governing privacy and security of
consumer information generally apply to our clients and/or to us as a service provider. These laws and regulations include, but
are not limited to, the federal Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and regulations implementing its
information safeguarding requirements, the Junk Fax Prevention Act of 2005, the Controlling the Assault of Non-Solicited
Pornography and Marketing Act of 2003, the Telephone Consumer Protection Act, the Do-Not-Call-Implementation Act,
applicable Federal Communications Commission telemarketing rules (including the declaratory ruling affirming the blocking of
unwanted robocalls), the Federal Trade Commission Privacy Rule, Safeguards Rule, Consumer Report Information Disposal
Rule, Telemarketing Sales Rule, Risk-Based Pricing Rule, Red Flags Rule, and the CCPA. Laws of foreign jurisdictions, such as
Canada's Anti-Spam Law and Personal Information Protection and Electronic Documents Act, and the GDPR similarly apply to
our collection, processing, storage, use, and transmission of protected data. The European Union, for example, has recently
tightened its rules on the transferability of data to the United States. Collection, processing, and storage of biometric identifiers
has come under increasing regulation and is the subject of class action litigation. The costs of compliance with these laws and
regulations may increase in the future as a result of the implementation of new laws or regulations, such as the GDPR and the
CCPA, or changes in interpretations of current ones, such as the interpretation of existing consumer protection laws as imposing
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restrictions on the online collection, storage and use of personal data. See “—Risks Related to Data Privacy and Cybersecurity—
We are subject to extensive data privacy laws and regulations.” Any failure on our part to comply with these legal requirements,
or their application in an unanticipated manner, could harm our business and result in penalties or significant legal liability. The
imposition of restrictions on certain technologies by private market participants in response to privacy concerns could also have
a negative impact on our digital business. If we are unable to transfer data between countries and regions in which we operate, or
if we are prohibited from sharing data among our products and services, it could affect the manner in which we provide our
services or adversely affect our financial results.
Legislators, agencies and other governmental entities, as well as consumer groups, may also continue to initiate proposals to
ban the advertising of specific products, such as alcohol, tobacco or marijuana products, and to impose taxes on or deny deductions
for advertising, which, if successful, may hinder our ability to accomplish our clients’ goals and have an adverse effect on
advertising expenditures and, consequently, on our revenues. Governmental action, including judicial rulings, on the relative
responsibilities of clients and their marketing agencies for the content of their marketing can also impact our operations. We could
also suffer reputational risk as a result of governmental or legal action or from undertaking work that may be challenged by
consumer groups or considered controversial.
We are subject to laws and regulations in the United States and other countries in which we operate, including export
restrictions, economic sanctions, the FCPA, and similar anti-corruption laws. Compliance with these laws requires significant
resources, and non-compliance may result in civil or criminal penalties and other remedial measures.
We are subject to many laws and regulations that restrict our international operations, including laws that prohibit activities
involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject
to U.S. sanctions. The U.S. Office of Foreign Assets Control (“OFAC”), and other international bodies have imposed sanctions
that prohibit us from engaging in trade or financial transactions with certain countries, businesses, organizations and individuals.
For example, in February 2022, following Russia’s invasion of Ukraine, the United States and other countries announced
economic sanctions against Russia, and the United States and other countries could impose wider sanctions and take other actions
should the conflict further escalate. While we maintain limited operations in Russia, it is difficult to anticipate the effect such
sanctions may have on us, and compliance with any further sanctions imposed or actions taken by the United States or other
countries, as well as the effect of current or further economic sanctions (and any retaliatory responses thereto) may otherwise
have an adverse effect on our operations.
We are also subject to the Foreign Corrupt Practices Act (“FCPA”), and anti-bribery and anti-corruption laws in other
countries. The FCPA prohibits U.S. businesses and their representatives from offering to pay, paying, promising to pay or
authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign
official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business. The FCPA
also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to
maintain books and records, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the corporation, including international subsidiaries, if any, and to devise and maintain a system of internal accounting controls
sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial
statements. Globally, other countries have enacted anti-bribery and anti-corruption laws similar to the FCPA, such as the Anti-
Graft and Corrupt Practices Act in the Philippines and the U.K. Bribery Act 2010, all of which prohibit companies and their
intermediaries from bribing government officials for the purpose of obtaining or keeping business or otherwise obtaining
favorable treatment. We operate in many parts of the world that have experienced government corruption to some degree, and, in
certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices, although adherence
to local customs and practices is generally not a defense under U.S. and other anti-bribery laws.
Our compliance program contains controls and procedures designed to ensure our compliance with the FCPA, OFAC and
other sanctions, and laws and regulations. The continuing implementation and ongoing development and monitoring of our
compliance program is time consuming and expensive and could result in the discovery of compliance issues or violations by us
or our employees, independent contractors, subcontractors or agents of which we were previously unaware. In addition, due to
uncertainties and complexities in the regulatory environment and dynamic developments in the scope of such regulations
(including with respect to economic sanctions imposed by the United States and other jurisdictions against Russia), we cannot be
sure that regulators will interpret laws and regulations the same way we do, or that we will be in full compliance with applicable
laws and regulations.
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Any violations of these or other laws, regulations and procedures by our employees, independent contractors, subcontractors
and agents, including third parties we associate with or companies we acquire, could expose us to administrative, civil or criminal
penalties, fines or business restrictions, which could have a material adverse effect on our results of operations and financial
condition and would adversely affect our reputation and the market for shares of our Class A Common Stock.
Risks Related to Intellectual Property
Our business operations could suffer if we fail to adequately protect and enforce our intellectual property and other proprietary
rights.
We rely on trademark, patent, copyright, trade secret and other intellectual property laws, as well as contractual provisions
such as confidentiality clauses, to establish and protect our intellectual property and other proprietary rights, including in our
brands (and the trademark rights thereto) and our proprietary technologies. These laws are subject to change at any time and
certain agreements may not be fully enforceable, which could restrict our ability to protect our intellectual property rights. Such
means may also afford only limited protection of our intellectual property and may not: (i) prevent others from independently
developing products or services similar to, or duplicative of, ours; (ii) prevent our competitors from gaining access to our
proprietary information and technologies; or (iii) permit us to gain or maintain a competitive advantage. We cannot be sure that
the actions we have taken to establish and protect our trademarks and other intellectual property rights will adequately protect us,
and if our existing intellectual property rights are rendered invalid or unenforceable, or narrowed in scope, the intellectual property
protections afforded our brands, products and services would be impaired. Such impairment could impede our ability to market
our products and services, negatively affect our competitive position, and harm our business and operating results. Even if we
successfully maintain our intellectual property rights, we may be unable to enforce those rights against third parties.
We also rely on patents to protect our products, services and designs. We have applied for, and expect to continue to apply
for, additional patent protection for proprietary aspects of existing and proposed processes, services and products. Our patent
applications may not result in issued patents, and any patents issued as a result of our patent applications may not be of sufficient
scope or strength to provide us with any meaningful protection or commercial advantage. Additionally, we seek to maintain the
confidentiality of certain trade secrets and other proprietary information to preserve our position in the market. We employ various
methods to protect such intellectual property, such as entering into confidentiality agreements with certain third parties and our
employees, and controlling access to, and distribution of, our proprietary information. However, our efforts may not be effective
in controlling access to our proprietary information, and we may not have adequate remedies for the misappropriation of such
information. Furthermore, even if we successfully maintain the confidentiality of our trade secrets and other proprietary
information, competitors may independently develop products or technologies that are substantially equivalent or superior to our
own.
As we expand our service offerings and the geographic scope of our sales and marketing, we may face additional intellectual
property challenges. Certain foreign countries do not protect intellectual property rights as fully as they are protected in the United
States and, accordingly, intellectual property protection may be limited or unavailable in some foreign countries where we choose
to do business. It may therefore be more difficult for us to successfully challenge the use of our intellectual property rights by
other parties in these countries, which could diminish the value of our brands, products or services and cause our competitive
position and growth to suffer. Filing, prosecuting and defending our intellectual property in all countries throughout the world
may be prohibitively expensive. The lack of adequate legal protections of intellectual property or failure of legal remedies for
related actions in jurisdictions outside of the United States could have an adverse effect on our business, results of operations,
and financial condition.
If we infringe, misappropriate or otherwise violate the intellectual property rights of third parties or are subject to an
intellectual property infringement or misappropriation claim, our ability to grow our business may be severely limited and our
business could be adversely affected.
We may in the future be the subject of patent or other litigation. Our products and services, including products and services
that we may develop in the future, may infringe, or third parties may claim that they infringe, intellectual property rights covered
by patents or patent applications under which we do not hold licenses or other rights. Third parties may own or control these
patents and patent applications in the United States and abroad. These third parties could bring claims against us that would cause
us to incur substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages. Further, if a
patent infringement or other intellectual property-related lawsuit were brought against us, we could be forced to stop or delay
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production or sales of the product that is the subject of the suit. From time to time, we may receive letters from third parties
drawing our attention to their patent rights. While we take steps to ensure that we do not infringe upon, misappropriate or
otherwise violate the rights of others, there may be other more pertinent rights of which we are currently unaware. The defense
and prosecution of intellectual property lawsuits could result in substantial expense to us and significant diversion of effort by
our technical and management personnel. An adverse determination of any litigation or interference proceeding to which we may
become a party could subject us to significant liabilities. As a result of patent infringement claims, or in order to avoid potential
claims, we may choose or be required to seek a license from the third party and be required to pay significant license fees, royalties
or both. Licenses may not be available on commercially reasonable terms, or at all, in which event our business would be
materially and adversely affected. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in
our competitors gaining access to the same intellectual property. Ultimately, if we are unable to obtain such licenses, we could be
forced to cease some aspect of our business operations, which could harm our business significantly.
Our products and services use open source software, and any failure to comply with the terms of one or more applicable open
source licenses could adversely affect our business, subject us to litigation, and create potential liability.
Some of our solutions use software made available under open source licenses, and we expect to continue to incorporate
open source software in our solutions in the future. Open source software is typically freely available, development costs and
speed up the development process, it may also present certain risks, that may be greater than those associated with the use of
third-party commercial software. For example, open source software is generally provided without any warranties or other
contractual protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. We
cannot guarantee we comply with all obligations under these licenses. If the owner of the copyright in the relevant open source
software were to allege that we had not complied with the conditions of one or more open source licenses, we could be required
to incur significant expenses defending against such allegations, may be subject to the payment of damages, enjoined from further
use of the software, required to comply with conditions of the license (which may include releasing the source code of our
proprietary software to third parties without charge), or forced to devote additional resources to re-engineer all or a portion of our
solutions to avoid using the open source software. Any of these events could create liability for us, damage our reputation, and
have an adverse effect on our revenue, and operations.
Risks Related to Our Capital Structure and Financing
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our
ability to react to changes in the economy or in our industry, expose us to interest rate risk to the extent of our variable rate
debt, and prevent us from meeting our obligations under our indebtedness.
We are highly leveraged. As of December 31, 2021, we had $1.2 billion of total consolidated indebtedness outstanding. Our
outstanding credit agreement and notes are guaranteed by substantially all of our material domestic subsidiaries, and our
outstanding credit agreement is secured by substantially all of the assets and stock of such subsidiaries. If we cannot make
scheduled payments on our debt, we will be in default and, as a result, our debt holders could declare all outstanding principal
and interest to be due and payable; the lenders under our outstanding credit agreement could terminate their commitments to loan
us money and foreclose against the assets securing our borrowings; and we could be forced into bankruptcy or liquidation, which
could adversely affect our business, results of operations, financial condition and prospects.
Our high degree of leverage could have important consequences for us, including:
•
•
•
requiring us to utilize a substantial portion of our cash flows from operations to make payments on our indebtedness,
reducing the availability of our cash flows to fund working capital, capital expenditures, development activity, and other
general corporate purposes;
increasing our vulnerability to adverse economic, industry, or competitive developments;
exposing us to the risk of increased interest rates because substantially all of our borrowings, other than the $1,100,000
aggregate principal amount of 5.625% senior notes due 2029 (the “5.625% Notes”), are at variable rates of interest;
• making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with
the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in
an event of default under the agreements governing our indebtedness;
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•
•
•
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt
service requirements, acquisitions, and general corporate or other purposes; and
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a
competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able
to take advantage of opportunities that our leverage prevents us from exploiting.
Our outstanding credit agreement is floating rate debt. If interest rates increase, our debt service obligations on such
indebtedness will increase even though the amount borrowed remained the same, and our net income and cash flows, including
cash available for servicing our indebtedness, will correspondingly decrease. In addition, interest on our outstanding credit
agreement is calculated based on LIBOR. On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”) announced that
it will no longer require banks to submit rates for the calculation of LIBOR after 2021, and the transition period has been
subsequently extended through June 2023. In the meantime, actions by the FCA, other regulators, or law enforcement agencies
may result in changes to the method by which LIBOR is calculated. At this time, it is not possible to predict the effect of any such
changes or any other reforms to LIBOR that may be enacted in the U.K. or elsewhere.
We may also elect to enter into swaps to reduce our exposure to floating interest rates, but we may not maintain interest rate
swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate
risk.
In addition, we may be able to incur substantial additional indebtedness in the future. As of December 31, 2021, we had $390
million of availability under our revolving credit agreement. In addition, we will be permitted to add, under such credit agreement,
incremental facilities, subject to certain conditions being satisfied. Although the agreements governing our indebtedness contain
restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications
and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these
restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute
indebtedness as defined under our debt instruments. To the extent new debt is added to our current debt levels, the substantial
leverage risks described above would increase.
We may be unable to service all our indebtedness.
Our ability to make scheduled payments on and to refinance all our indebtedness depends on and is subject to our financial
and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other
factors beyond our control, including the availability of financing in the banking and capital markets. Our business may not
generate sufficient cash flow from operations, and future borrowings may not be available to us in an amount sufficient to enable
us to service all our debt, to refinance all our debt or to fund our other liquidity needs.
If we are unable to meet all our debt service obligations or to fund our other liquidity needs, we will need to restructure or
refinance all or a portion of our debt, which could cause us to default on our debt obligations and impair our liquidity. Any
refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that
could further restrict our business operations.
Moreover, in the event of a default, the holders or lenders of our indebtedness could elect to declare all the funds borrowed
to be due and payable, together with accrued and unpaid interest. The lenders under our outstanding credit agreement could also
elect to terminate their commitments thereunder, cease making further loans, and institute foreclosure proceedings against their
collateral, and we could be forced into bankruptcy or liquidation.
We may need additional capital in the future, which may not be available to us. The raising of any additional capital may
dilute holders’ ownership percentage in our stock.
As of December 31, 2021, we had unrestricted cash and cash equivalents totaling $184 million and a borrowing capacity
under our credit facility of $500 million, with $390 million of unused capacity available. We intend to continue to make
investments to support our business growth and may require additional funds if our capital is insufficient to pursue business
opportunities and respond to business challenges. Accordingly, we may need to engage in equity, equity-linked or debt financings
to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our
existing stockholders could suffer dilution, and any new equity securities we issue could have rights, preferences, and privileges
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superior to those of holders of our Class A Common Stock. Any debt financing secured by us in the future could involve restrictive
covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult
for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not
be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing
on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be
significantly limited.
In addition, because credit ratings are an important factor influencing our ability to access capital and the terms of any new
indebtedness, including covenants and interest rates, we could be adversely affected if our credit ratings were downgraded or if
they were significantly weaker than those of our competitors. Additionally, credit ratings may not reflect the potential effect of
risks relating to the structure or marketing of our debt. Any credit rating initially assigned to our debt that is subsequently lowered
or withdrawn for any reason could harm our ability to raise additional capital at acceptable cost and as a result adversely affect
our business, results of operations, financial condition and prospects. Our clients and vendors may also consider our credit profile
when considering whether to contract with us or negotiating contract terms, and if they were to change the terms on which they
deal with us, it could have a further adverse effect on our business, prospects, results of operations and financial condition.
If our available liquidity is insufficient, our financial condition could be adversely affected and we may be unable to fund
contingent deferred acquisition liabilities, and any put options if exercised.
We maintain our credit agreement, together with cash flow from operations and proceeds from our recent notes financing, to
fund our working capital needs and to fund the exercise of put option obligations and contingent deferred acquisition payments.
If credit were unavailable or insufficient under our credit agreement, our liquidity could be adversely affected, and our ability to
fund our working capital needs and any contingent obligations with respect to put options or contingent deferred acquisition
payments could be adversely affected. We have made acquisitions for which we have deferred payment of a portion of the
purchase price, with the deferred acquisition consideration generally payable based on achievement of certain thresholds of future
earnings of the acquired company. In addition, a noncontrolling equityholder in an acquired business often has the right to require
the us to purchase all or part of such holder’s interest, either at specified dates or upon the termination of such holder’s
employment with the subsidiary or death (put rights). Payments we are required to make in respect of deferred acquisition
consideration and noncontrolling equityholder put rights may be significantly higher than the amounts we estimate because the
actual obligation adjusts based on the performance of the acquired businesses over time. If available liquidity is insufficient, we
may be unable to fund contingent deferred acquisition payments.
Our Up-C structure places significant limitations on our cash flow because our principal asset is our interest in OpCo, and,
accordingly, we depend on distributions from OpCo to pay our taxes and expenses, including payments under the Tax
Receivables Agreement.
As part of our umbrella partnership-C corporation (“Up-C”) structure, we are a holding company and our principal asset is
our ownership of common units of our operating subsidiary, Stagwell Global LLC (“OpCo”). This structure is designed to enable
us to obtain certain tax benefits, and 85% of such tax benefits are payable to Stagwell Media under our Tax Receivables Agreement
with Stagwell Media and OpCo. However, we have no independent means of generating revenue or cash flow, and our ability to
pay taxes and operating expenses, and to service our liabilities, is dependent upon the financial results and cash flows of OpCo
and its subsidiaries, along with the distributions we receive from OpCo. OpCo intends to make payments to us out of available
funds, and subject to limitations imposed under the agreements governing our indebtedness, and there can be no assurance that
OpCo and its subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual
restrictions will permit such distributions. Moreover, because of our Up-C structure, this financing arrangement can give rise to
U.S. corporate income tax liabilities for us in respect of the formation of OpCo, and subsequently as OpCo makes cash
distributions to us to the extent they are subject to certain technical regulations regarding disguised sales, subject to certain
exceptions including for distributions of operating cash flows and leveraged distributions. In such an event, we would depend on
further cash distributions from OpCo in order to enable us to pay such tax liabilities.
We also incur expenses related to our operations, which may be significant. We intend, as OpCo’s sole manager, to cause
OpCo to make cash distributions to the owners of OpCo membership interests so that we receive (i) an amount sufficient to allow
us to fund all of our tax obligations in respect of taxable income allocated to us and (ii) distributions to cover our operating
expenses, including any obligations to make payments under the Tax Receivables Agreement. When OpCo makes distributions,
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Stagwell Media and the other members of OpCo besides us are and will be entitled to receive proportionate distributions based
on their economic interests in OpCo’s common units at the time of such distributions. OpCo’s ability to make such distributions
may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract
or agreement to which OpCo is then a party, or any applicable law, or that would have the effect of rendering OpCo insolvent or
exceed the amounts that OpCo is permitted to distribute under the agreements governing our indebtedness. If we do not have
sufficient funds to pay tax or other liabilities or to fund our operations, we may have to borrow funds, which could materially
adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such indebtedness. To
the extent that we are unable to make payments under the Tax Receivables Agreement for any reason, such payments generally
will be deferred and will accrue interest until paid, but nonpayment for a specified period may constitute a material breach of a
material obligation under the Tax Receivables Agreement and therefore accelerate payments due under the Tax Receivables
Agreement. Any inability to pay tax or other liabilities or to fund our operations could have a material adverse effect on our
business, results of operations, financial condition and prospects.
Our Tax Receivables Agreement with Stagwell Media requires us to make cash payments to Stagwell Media in respect of
certain tax benefits to which we may become entitled, and we expect that the payments we are required to make to be
substantial, may be required to be made prior to the time that we recognize any associated tax benefits and may make our
company a less attractive target to potential acquirers.
In connection with the closing of the Transactions, we entered into the Tax Receivables Agreement with OpCo and Stagwell
Media, pursuant to which we are required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state
and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize,
as a result of (i) increases in the tax basis of OpCo’s assets resulting from redemptions or exchanges by the other holders of
OpCo’s common units, together with a corresponding number of shares of our Class C Common Stock, par value $0.00001 per
share (the “Class C Common Stock”), for shares of our Class A Common Stock or cash, as applicable, and (ii) certain other tax
benefits related to us making payments under the Tax Receivables Agreement. We expect the amount of the cash payments that
we are required to make under the Tax Receivables Agreement to be significant. Any payments made to Stagwell Media under
the Tax Receivables Agreement will generally reduce the amount of overall cash flow that may have otherwise been available to
us.
The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivables Agreement,
varies depending on a number of factors, including, but not limited to, the timing of any future redemptions or exchanges, the
price of our Class A Common Stock at the time of such redemptions or exchanges, the extent to which redemptions or exchanges
are taxable, the amount and timing of the taxable income that we generate in the future, the timing and amount of any earlier
payments we make under the Tax Receivables Agreement itself, the tax rates then applicable and the portion of our payments
under the Tax Receivables Agreement constituting imputed interest. We expect that, as a result of the increases in the tax basis of
OpCo’s tangible and intangible assets attributable to the redeemed or exchanged OpCo common units, the payments that we may
make to Stagwell Media could be substantial. The amounts we may be required to pay under the Tax Receivables Agreement will
be calculated based in part on the market value of our Class A Common Stock at the time of redemption or exchange and the
prevailing federal tax rates applicable to us over the life of the Tax Receivables Agreement (as well as the assumed combined
state and local tax rate), and will generally be dependent on our ability to generate sufficient future taxable income to realize all
of these tax savings.
Under its amended and restated operating agreement, subject to availability of funds and limitations imposed under the
agreements governing our indebtedness, OpCo is generally required from time to time to make distributions in cash to us in
amounts that are intended to be sufficient to cover the taxes on our allocable share of the taxable income of OpCo, and OpCo is
also required to make pro rata distributions at such time to the other holders of its common units, including Stagwell Media,
without taking into account the tax savings realized by us that result in our obligations under the Tax Receivables Agreement.
There is no guarantee that the amounts or timing of such distributions will be sufficient to cover payments required under the Tax
Receivables Agreement, including in the event payments under the Tax Receivables Agreement are due prior to the time that we
realize the associated tax benefits. In particular, the Tax Receivables Agreement provides that in the case of a change in control,
a material breach of our obligations under the Tax Receivables Agreement, or if, at any time, we elect an early termination of the
Tax Receivables Agreement, then the Tax Receivables Agreement will terminate and our obligations under the Tax Receivables
Agreement would accelerate and become due and payable. In such a case, we would be required to make an immediate cash
payment to Stagwell Media in an amount equal to the present value of all future payments (calculated using a discount rate equal
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to SOFR plus 100 basis points) under the Tax Receivables Agreement, which payment would be based on certain assumptions,
including that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax
Receivables Agreement and that Stagwell Media had exchanged any remaining outstanding common units of OpCo, together
with shares of our Class C Common Stock, for shares of our Class A Common Stock.
In addition, the distributions we receive from OpCo may at some times exceed our tax liabilities and our obligations to make
payments under the Tax Receivables Agreement. In the event excess cash is distributed to us, our board of directors (our “Board”)
will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment
obligations under the Tax Receivables Agreement and the payment of other expenses. We have no obligation to distribute such
cash (or other available cash other than any declared dividend) to our stockholders. No adjustments to the redemption or exchange
ratio of common units of OpCo, together with shares of our Class C Common Stock, for shares of our Class A Common Stock or
cash, as applicable, will be made as a result of either any cash distribution we receive from OpCo or any cash that we retain and
do not distribute to our stockholders. To the extent that we do not utilize any excess cash to fund our other expenditures, the other
members of OpCo would benefit from any value attributable to such cash balances as a result of their ownership of shares of our
Class A Common Stock following a redemption or exchange of their common units of OpCo and shares of our Class C Common
Stock. Additionally, no adjustments to the redemption or exchange ratio of common units of OpCo and shares of our Class C
Common Stock for shares of our Class A Common Stock or cash will be made in the event that we incur liabilities or expenses
but do not receive cash distributions from OpCo in sufficient amount to fund such liabilities or expenses.
Risks Related to Accounting and Tax Issues
Our results of operations are subject to currency fluctuation risks.
Although our financial results are reported in U.S. dollars, a portion of our revenues and operating costs is denominated in
currencies other than the U.S. dollar, and the functional currency of our foreign operations is generally their respective local
currency. As a result, fluctuations in the exchange rate between the U.S. dollar and other currencies, particularly the Canadian
dollar, the Euro and the British Pound, may affect our financial results and competitive position. Because our consolidated
financial statements are presented in U.S. dollars, we must translate revenues and expenses, as well as assets and liabilities, into
U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S.
dollar against other currencies will affect our revenues, operating income and the value of balance-sheet items, including
intercompany payables and receivables, that are denominated in other currencies. These changes could cause our revenue and net
income in U.S. dollars to be higher or lower than our results in local currency when compared against other periods.
In addition, certain of our expenses are incurred in currencies other than those in which we bill for the related services. An
increase in the value of certain currencies, such as those listed above, could increase costs for delivery of services overseas by
increasing labor and other costs that are denominated in local currency. Our contractual provisions or cost management efforts
may not be able to offset their impact, and our currency hedging activities, which are designed to partially offset this impact, may
not be successful. This could result in a decrease in the profitability of our contracts that are denominated in such currencies.
Our goodwill, intangible assets and right-of-use assets may become impaired.
We have recorded a significant amount of goodwill and intangible assets in our consolidated financial statements resulting
from our acquisition activities. We test, at least annually, the carrying value of goodwill for impairment. The estimates and
assumptions about future results of operations and cash flows made in connection with the impairment testing could differ from
future actual results of operations and cash flows. Although we have concluded in 2021 that our goodwill is not impaired, future
events could cause us to conclude that the intangible asset values associated with a given operation may become impaired. If we
conclude that any intangible asset and goodwill values are impaired, any resulting non-cash impairment charge could have a
material adverse effect on our business, results of operations and financial condition.
We have identified material weaknesses in our internal control over financial reporting, and if we continue to fail to maintain
an effective system of internal control over financial reporting, we may not be able to accurately report our financial results
or prevent fraud. As a result, investors could lose confidence in our financial and other public reporting, which would harm
our business.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, is designed to prevent fraud. In connection with the preparation of our consolidated
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financial statements as of December 31, 2021 and 2020 and for the years then ended, we identified material weaknesses in our
internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified:
We did not effectively select and develop certain information technology (“IT”) general controls related to access and change
management controls that led to deficiencies in the design and operation of control activities, including segregation of duties
deficiencies. We also had deficiencies in the design and operation of account reconciliations. These deficiencies and a lack of
sufficient resources contributed to the potential for there to have been material errors in our financial statements and therefore
resulted in the following additional material weaknesses:
• Risk Assessment—control deficiencies constituting material weaknesses, either individually or in the aggregate, relating
to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve
these objectives, and (iii) identifying and assessing changes in the business that could impact the system of internal
controls;
• Control Activities—control deficiencies constituting material weaknesses, either individually or in the aggregate,
relating to: (i) addressing relevant risks, (ii) providing evidence of performance, (iii) providing appropriate segregation
of duties, or (iv) operation at a level of precision to identify all potentially material errors;
•
Information and Communication—control deficiencies constituting material weaknesses, either individually or in the
aggregate, relating to communicating accurate information internally and externally, including providing information
pursuant to objectives, responsibilities, and functions of internal control; and
• Monitoring—control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to
monitoring activities to ascertain whether the components of internal control are present and functioning.
These material weaknesses have not been remediated as of the date of this Form 10-K. Any failure to remediate such material
weaknesses or to implement required new or improved controls, or difficulties encountered in their implementation, could cause
us to fail to meet our reporting obligations.
In addition, as a result of the merger between MDC and SMG on August 2, 2021, and the acquisition of GoodStuff Holdings
Limited (“GoodStuff”) on December 31, 2021, management excluded from its assessment of internal control over financial
reporting as of December 31, 2021, the internal control over financial reporting of SMG and GoodStuff, which together
constituted 44% of total assets (excluding goodwill, intangible and right of use assets) and 59% of total revenue as of and for the
year ended December 31, 2021. We are aware that SMG had previously identified and disclosed the following material
weaknesses:
•
•
•
SMG did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and
accounting knowledge, experience and training commensurate with its accounting and reporting requirements;
SMG did not establish effective controls in response to the risks of material misstatement, including designing and
maintaining formal accounting policies, procedures and controls over journal entries, significant accounts and
disclosures, in order to achieve complete and accurate financial accounting, reporting and disclosures;
SMG did not design and maintain effective controls over information technology (“IT”) general controls for information
systems that are relevant to the preparation of its financial statements. Specifically, SMG did not design and maintain:
(i) program change management controls for the financial systems to ensure that information technology program and
data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and
implemented appropriately; (ii) appropriate user access controls to ensure appropriate segregation of duties and that
adequately restrict user and privileged access to financial applications, programs and data to appropriate SMG personnel;
(iii) computer operations controls to ensure critical data interfaces between systems are appropriately identified and
monitored, and data backups are authorized and restorations monitored; and (iv) testing and approval controls for
program development to ensure that new software development is aligned with business and IT requirements; and
•
SMG did not establish a sufficient risk assessment process to identify risks of material misstatement due to fraud and/or
error and implement controls against such risks.
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In addition, any testing by us, as and when required, conducted in accordance with Section 404 of the Sarbanes-Oxley Act
(“Section 404”), or any subsequent testing by our independent registered public accounting firm, as and when required, may
reveal further deficiencies in our internal control over financial reporting that are deemed to be significant deficiencies or material
weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further
attention or improvement. Inferior internal controls could also cause investors to lose confidence in the accuracy and completeness
of our reported financial information, which could negatively affect the market price of our Class A Common Stock.
If our judgments or estimates relating to our critical accounting policies are based on assumptions that change or prove to be
incorrect, our results of operations could fall below expectations of securities analysts and investors, resulting in a decline in
our stock price.
The preparation of our financial statements in conformity with GAAP requires management to make judgments, estimates,
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our
estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as
provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the
results of which form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount
of revenue and expenses that are not readily apparent from other sources. Our results of operations may be adversely affected if
our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of
operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our Class
A Common Stock. Significant judgments, estimates, and assumptions used in preparing our consolidated financial statements
include, or may in the future include, those related to revenue recognition, business combinations, deferred acquisition
consideration, noncontrolling and redeemable noncontrolling interests, goodwill and intangible assets, right-of-use lease assets,
and income taxes.
We may be subject to adverse tax consequences, such as those related to changes in tax laws or tax rates or their interpretations,
and the related application of judgment in determining our global provision for income taxes, deferred tax assets or liabilities
or other tax.
We and OpCo are subject to tax in multiple tax jurisdictions. Significant judgment is required in determining our global
provision for income taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. While we
believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that
jurisdictional tax authorities may take a contrary view, which may have a significant impact on our global provision for income
taxes. Additionally, as a pass-through entity for U.S. tax purposes, OpCo is required to make periodic distributions to (i) us, to
enable us to pay taxes allocable to our investment in OpCo, and (ii) the holders of OpCo’s common units and corresponding
shares of our Class C Common Stock. If our or OpCo’s effective tax rate were to increase, such obligations to make tax
distributions will correspondingly increase. See “—Risks Related to Our Capital Structure and Financing—Our Up-C structure
places significant limitations on our cash flow because our principal asset is our interest in OpCo, and, accordingly, we depend
on distributions from OpCo to pay our taxes and expenses, including payments under the Tax Receivables Agreement.”
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.
For example, the United States recently enacted significant tax reform, and certain provisions of the new law may adversely affect
us. In addition, the Biden administration has proposed several corporate tax increases, including raising the U.S. corporate income
tax rate and greater taxation of international income, which, if enacted, could adversely affect our tax liability, and governmental
tax authorities are increasingly scrutinizing the tax positions of companies. Many countries in the European Union, as well as a
number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively
considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business. If
the U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, as well as OpCo’s obligations
to make tax distributions, and our business, financial condition or results of operations may be adversely impacted.
We may face material adverse tax consequences resulting from the Transactions in Canada, the United States or other
jurisdictions.
In connection with the completion of the Transactions, MDC completed a redomiciliation from the federal jurisdiction of
Canada to the State of Delaware (the “Redomiciliation”). We believe that the Redomiciliation qualifies as a “reorganization”
under section 368(a) of the Internal Revenue Code (the “Code”) and treated, for U.S. federal income tax purposes, as if MDC (i)
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transferred all of its assets and liabilities to a new U.S. corporation (“New MDC”) in exchange for all of such new corporation’s
outstanding stock and (ii) then distributed the stock of New MDC that it received in the transaction to its shareholders in
liquidation of MDC. Additionally, we believe the Transactions should be treated for tax purposes as a deemed transfer by New
MDC of its assets to OpCo and an assumption of New MDC’s liabilities by OpCo in a transaction intended to qualify as a
contribution to OpCo in exchange for OpCo’s common units or preferred units under section 721 of the Code, and that Stagwell
Media’s contribution of its businesses to OpCo is similarly subject to section 721 of the Code.
We may face material adverse U.S. tax consequences as a result of the Transactions, and the Internal Revenue Service may
not agree with or may otherwise challenge our position on the tax treatment of the Transactions or of internal restructuring
transactions undertaken prior to, after, or in connection with the Transactions, which could result in higher U.S. federal tax costs
than we anticipate, including a reduction in the net operating loss carryforwards of certain of our subsidiaries. We have not applied
for a ruling related to the Transactions and do not intend to do so. Any adverse tax consequences resulting from the Transactions
or our operations as a combined company could have an adverse effect on our business, results of operations, financial condition
and cash flows. Moreover, U.S. tax laws significantly limit our ability to redomicile outside of the United States.
In addition, as a result of the Redomiciliation, we incurred a significant Canadian corporate tax liability which is estimated
and included in Accruals and other liabilities in our consolidated financial statements. However, such amount is only an estimate
and the actual amount of Canadian corporate tax liability may be significantly higher than our estimate. For purposes of the
Canadian Tax Act, MDC’s taxation year was deemed to have ended immediately prior to it ceasing to be a resident of Canada as
a result of the Redomiciliation. Immediately prior to the time of this deemed year end, MDC was deemed to have disposed of
each of its properties for proceeds of disposition equal to the fair market value of such properties at that time and was deemed to
have reacquired such properties for a cost amount equal to that fair market value. MDC was subject to income tax under Part I of
the Canadian Tax Act on any income and net taxable capital gains which arise as a result of this deemed disposition (after the
utilization of any available capital losses or non-capital losses) and was also subject to “emigration tax” under Part XIV of the
Canadian Tax Act on the amount by which the fair market value, immediately before MDC’s deemed year end, of all of its
properties exceeded the total of certain of its liabilities and the paid-up capital, determined for purposes of that emigration tax, of
all the issued and outstanding shares of MDC immediately before such deemed year end.
The quantum of Canadian federal income tax payable by MDC as a result of the Redomiciliation depends upon a number of
considerations including the fair market value of its properties, the amount of its liabilities, the Canada-U.S. dollar exchange rate,
MDC’s shareholder composition, as well as certain Canadian tax attributes, accounts and balances of the Company, each as of
the effective time of the Redomiciliation. We have not applied to the Canadian federal tax authorities for a tax ruling relating to
the Redomiciliation and do not intend to do so, and the Canadian federal tax authorities may not agree with or may otherwise
challenge our position on the tax treatment of the Redomiciliation, which could result in higher Canadian corporate tax liabilities
than we anticipate. Any such adverse tax consequences could adversely affect our business, results of operation, financial
condition and cash flows.
Risks Related to Ownership of Our Class A Common Stock and Our Status as a Public Company
Our stock price may be volatile.
The trading price of our Class A Common Stock may fluctuate substantially and may be lower than its current price. This
may be especially true for companies like ours with a small public float. If an active market for our securities develops and
continues, the trading price of our securities could be volatile and subject to wide fluctuations. The trading price of our securities
depends on many factors, including those described elsewhere in this “Risk Factors” section, many of which are beyond our
control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your
investment in our securities since you might be unable to sell them at or above the price you paid for them. Any of the factors
listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices
significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and
may experience a further decline.
Factors affecting the trading price of our securities may include (but are not limited to):
• market conditions in the broader stock market in general, including the economic effects of the ongoing military conflict
between Russia and Ukraine and economic sanctions and other government responses thereto, or in our industry in
particular;
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•
•
•
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•
•
actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies
perceived to be similar to us;
changes in the market’s expectations about our operating results;
the public’s reaction to our press releases, other public announcements and filings with the Securities and Exchange
Commission;
rumors and speculation in the press or investment community or on social media about us, our clients or companies
perceived to be similar to us;
actual or anticipated developments in our business, competitors’ businesses or the competitive landscape generally;
the operating results failing to meet the expectation of securities analysts or investors in a particular period;
our operating results failing to meet the guidance we may issue from time to time;
changes in financial estimates and recommendations by securities analysts concerning us or the market in general;
the timing of the achievement of objectives under our business plan and the timing and amount of costs we incur in
connection therewith;
short selling of our Class A Common Stock or related derivative securities;
actions by hedge funds, short term investors, activist stockholders or stockholder representative organizations;
operating and stock price performance of other companies that investors deem comparable to ours;
changes in laws and regulations affecting our business;
commencement of, or involvement in, litigation or investigations involving us;
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
the volume of our Class A Common Stock available for public sale;
any major change in our Board or management;
sales of substantial amounts of our Class A Common Stock by our directors, officers or significant stockholders or the
perception that such sales could occur;
the extent to which retail and other individual investors (as distinguished from institutional investors), invest in our Class
A Common Stock;
sudden increases in the demand for our Class A Common Stock, including as a result of any “short squeezes”;
speculative trading that is not primarily motivated by our announcements or the condition of our business;
general economic and political conditions such as recessions, interest rates, “trade wars,” pandemics (such as COVID-
19) and acts of war or terrorism; and
•
other risk factors described in this “Risk Factors” section.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating
performance. The stock market in general and Nasdaq in particular have experienced significant price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading
prices and valuations of these stocks, and of our Class A Common Stock, may not be predictable. A loss of investor confidence
in the market for the stocks of other companies which investors perceive to be similar to ours could depress our stock price
regardless of our business, prospects, financial condition or results of operations. Broad market and industry factors, including,
most recently, the impact of the COVID-19 pandemic, and any other global pandemics, as well as general economic, political
and market conditions such as recessions or interest rate changes, may seriously affect the market price of our Class A Common
Stock, regardless of our actual operating performance. In addition, the trading price of our Class A Common Stock may be
adversely affected by third parties trying to drive down or drive up the market price. Short sellers and others, some of whom post
anonymously on social media, may be positioned to profit if our stock declines or otherwise exhibits volatility, and their activities
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can negatively affect our stock price and increase the volatility of our stock price. These broad market and industry factors could
seriously harm the market price of our Common Stock, regardless of our operating performance. A decline in the market price of
our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in
the future.
In addition, in the past, following periods of volatility in the overall market and the market prices of particular companies’
securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted
against us, could result in substantial costs and a diversion of our management’s attention and resources. Any adverse
determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require that we
make significant payments.
If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the
market price for our Class A Common Stock may decline.
We have in the past provided, and may from time to time provide, guidance regarding our future performance that represents
our management’s estimates as of the date such guidance is provided. Any such guidance is based upon a number of assumptions
with respect to future business decisions (some of which may change) and estimates that, while presented with numerical
specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies (many of
which are beyond our control, including those related to the COVID-19 pandemic). Guidance is necessarily speculative in nature,
and it can be expected that some or all of the assumptions that inform such guidance will not materialize or will vary significantly
from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date such
guidance is provided. Actual results may vary from such guidance and the variations may be material. Investors should also
recognize that the reliability of any forecasted financial data diminishes the farther in the future that the data is forecast. In light
of the foregoing, investors should not place undue reliance on our financial guidance and should carefully consider any guidance
we may publish in context. In addition, if, in the future, our operating or financial results for a particular period do not meet any
guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price
of our Class A Common Stock may decline. In addition, even though we have issued public guidance in the past, we are not
obligated to and may determine not to continue to do so in the future.
A significant portion of our Class A Common Stock is restricted from immediate resale but may be sold into the market in the
future, which could negatively affect the market price of our Class A Common Stock.
As of February 28, 2021, Stagwell Media beneficially owned approximately 65% of our outstanding shares of Class A
Common Stock on an as-converted basis. Although the shares held by Stagwell Media are subject to securities law restrictions
on sales by affiliates, we, Stagwell Media and certain other parties are party to a registration rights agreement pursuant to which,
among other things and subject to certain restrictions, we are required to file with the Securities and Exchange Commission a
registration statement registering for resale the shares of our Class A Common Stock that are held by, or are issuable upon
exchange of units of OpCo (in combination with corresponding shares of our Class C Common Stock) held by, such parties, and
to conduct certain underwritten offerings upon the request of holders of registrable securities, including direct and indirect
transferees of such holders. In addition, we are party to a securities purchase agreement pursuant to which we are required to
register for resale the shares of Class A Common Stock issued upon the conversion of our previously outstanding Series 8
convertible preferred stock.
As such, sales of a substantial number of shares of Class A Common Stock in the public market could occur at any time.
These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the
market price of Class A Common Stock.
We are a “controlled company” within the meaning of the applicable rules of Nasdaq and, as a result, qualify for exemptions
from certain corporate governance requirements. Our stockholders will not have the same protections afforded to stockholders
of companies that are not controlled companies, and the interests of our controlling stockholder may differ from the interests
of other stockholders.
Our CEO and Chairman, Mark Penn, beneficially owns or controls approximately 65% of the voting power of our Common
Stock. As a result, we are a “controlled company” within the meaning of the Nasdaq rules, and as a result, we qualify for
exemptions from certain corporate governance requirements. Under these rules, a company of which more than 50% of the voting
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power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect
not to comply with certain corporate governance requirements, including the requirements to have: (a) a majority of independent
directors on the board; (b) a nominating committee comprised solely of independent directors; (c) compensation of executive
officers determined by a majority of the independent directors or a compensation committee comprised solely of independent
directors; and (d) director nominees selected, or recommended for the selection by the board, either by a majority of the
independent directors or a nominating committee comprised solely of independent directors. Although as of the date of this
prospectus, we do not utilize any of these exemptions, we may elect to utilize one or more of these exemptions for so long as we
remain a “controlled company.” As a result, our stockholders may not have the same protections afforded to stockholders of
companies that are subject to all of the Nasdaq corporate governance requirements.
In addition, this concentration of ownership and voting power allows Mr. Penn to control our decisions, including matters
requiring approval by our stockholders (such as, subject to certain limitations, the election of directors and the approval of mergers
or other extraordinary transactions), regardless of whether or not other stockholders believe that the transaction is in their own
best interests. Such concentration of voting power could also have the effect of delaying, deterring or precluding a change of
control or other business combination that might otherwise be beneficial to our stockholders, could deprive our stockholders of
an opportunity to receive a premium for their Class A Common Stock as part of a sale of our company and might ultimately affect
the market price of our Class A Common Stock.
Securities or industry analysts may not publish or cease publishing research or reports about us, our business, our market, or
publish negative opinions about our company or the price of our Class A Common Stock, which could cause the price and
trading volume of our Class A Common Stock to decline.
The trading market for our Class A Common Stock will be influenced by the research and reports that industry or securities
analysts may publish about us, our business and operations, our market or our competitors. Securities and industry analysts do
not currently publish research on us. If no securities or industry analysts commence coverage of us, our stock price and trading
volume would likely be negatively impacted. In addition, we have no control over equity research analysts or the content of their
reports, and if any of the analysts who may choose to cover us make negative recommendations regarding our stock or issue other
unfavorable commentary or research. or provide more favorable relative recommendations about our competitors, the price of
our Class A Common Stock would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to
decline.
There is no guarantee that an active and liquid public market for our securities will be sustained.
A liquid trading market for our Class A Common Stock may not be sustained. In the absence of a liquid public trading market:
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•
you may not be able to liquidate your investment in shares of our Class A Common Stock;
you may not be able to resell your shares of our Class A Common Stock at or above the price you paid for them;
the market price of shares of our Class A Common Stock may experience significant price volatility; and
there may be less efficiency in carrying out your purchase and sale orders.
Additionally, if our Class A Common Stock becomes delisted from Nasdaq for any reason, and is quoted on the OTC Bulletin
Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and
price of our Class A Common Stock may be more limited than if we were quoted or listed on Nasdaq or another national securities
exchange. You may be unable to sell your shares of Class A Common Stock unless a market can be sustained.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment
will depend on appreciation in the price of the Class A Common Stock.
We do not intend to declare and pay dividends on our common stock for the foreseeable future. We currently intend to invest
future earnings, if any, to fund growth, to develop business, for working capital needs and for general corporate purposes. In
addition, certain provisions of Delaware law and our outstanding indebtedness impose requirements that may restrict our ability
to pay cash dividends on our common stock. Therefore, you are not likely to receive any cash dividends on shares of our Class A
Common Stock for the foreseeable future, and the success of an investment in the shares of our Class A Common Stock will
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depend upon any future appreciation in their market price. The market price of shares of our Class A Common Stock may never
appreciate and may decrease.
We may issue additional shares of our Class A Common Stock or other equity securities without your approval, which would
dilute your ownership interests and may depress the market price of your shares.
We may issue additional shares of our Class A Common Stock or other equity securities of equal or senior rank in the future
in connection with, among other things, future acquisitions, repayment of outstanding indebtedness or under our equity incentive
plans, without stockholder approval, in a number of circumstances. Our issuance of additional shares of our Class A Common
Stock or other equity securities of equal or senior rank could have the following effects:
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your proportionate ownership interest in us will decrease;
the relative voting strength of each previously outstanding share of Common Stock may be diminished; or
the market price of our stock may decline.
Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us
and diminish the value of our Class A Common Stock.
In addition to protections afforded under the DGCL, or certificate of incorporation and bylaws contain provisions that could
have the effect of delaying or preventing changes in control or changes in management or to our Board. These provisions include,
among other things:
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director
candidates; and
the ability of our Board to issue shares of preferred stock in one or more series and, with respect to each such series, to
fix the number of shares constituting such series and the designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of the shares of such series, without stockholder approval, which could be used to
significantly dilute the ownership of a hostile acquirer.
These provisions in our certificate of incorporation and our bylaws, as well as provisions of Delaware law, may discourage,
delay or prevent a transaction involving a change in our control that is in the best interest of our minority stockholders. Even in
the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our Class
A Common Stock if they are viewed as discouraging future takeover attempts. These provisions could also make it more difficult
for stockholders to nominate directors for election to our Board and take other corporate actions and may also discourage
acquisition proposals, or delay or prevent a change in control, which could depress the trading price of our Class A Common
Stock.
Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum
for certain types of actions and proceedings that may be initiated by stockholders and designates the United States federal
district courts as the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act,
which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us or with our directors,
officers or employees and may discourage stockholders from bringing such claims.
Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware
will be the exclusive forum for:
•
•
•
any derivative action or proceeding brought on behalf of our company;
any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer
or other employee or stockholder of our company to us or our stockholders;
any action or proceeding asserting a claim arising pursuant to any provision of the DGCL (or any successor provision
thereto) or as to which the DGCL (or any successor provision thereto) confers jurisdiction on the Court of Chancery of
the State of Delaware;
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•
•
•
any action or proceeding asserting a claim against us or any current or former director, officer or other employee of our
company arising pursuant to any provision of the DGCL, our certificate of incorporation, or our bylaws (as each may be
amended from time to time);
any action asserting a claim governed by the internal affairs doctrine; or
any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
For the avoidance of doubt, the foregoing provisions of our certificate of incorporation will not apply to any action or
proceeding asserting a claim under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act. Section
22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or
liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have
jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or
contrary rulings by different courts, among other considerations, our certificate of incorporation provides that, unless we consent
in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for
resolving any complaint asserting a cause of action arising under the Securities Act of 1933. Although investors cannot waive
compliance with the federal securities laws and the rules and regulations thereunder, any person or entity purchasing or otherwise
acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our
certificate of incorporation described in the preceding sentences.
These provisions of our certificate of incorporation could limit the ability of our stockholders to obtain a favorable judicial
forum for certain disputes with us or with our directors, officers or other employees, which may discourage such lawsuits against
us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our current bylaws
inapplicable to, or unenforceable in respect of, one or more of the types of actions or proceedings listed above, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial
condition and results of operations. While the Delaware courts have determined that such choice of forum provisions are facially
valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum
provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability
to attract and retain qualified board members and officers.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the
listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations. Compliance with these
rules and regulations has increased our legal and financial compliance costs, made some activities more difficult, time-consuming
or costly and increased demand on our systems and resources. The Exchange Act requires, among other things, that we file annual,
quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and
procedures and internal controls over financial reporting. Maintaining our disclosure controls and procedures and internal controls
over financial reporting in accordance with this standard requires significant resources and management oversight. As a result,
management’s attention may be diverted from other business concerns, which could harm our business and results of operations.
Although we have already hired additional employees to comply with these requirements, we may need to hire more employees
in the future, which will increase our costs and expenses.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
See Note 10 of the Notes to the Audited Consolidated Financial Statements (the “Notes”) included herein included in this
Annual Report for a discussion of the Company’s lease commitments and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for a discussion of the impact of occupancy costs on the Company’s operating expenses.
The Company maintains office space in many cities in North America, Europe, Asia, South America, and Australia. This
space is primarily used for office and administrative purposes by the Company’s employees in performing professional services.
This office space is in suitable and well-maintained condition for Stagwell’s current operations. All of the Company’s materially
important office space is leased from third parties with varying expiration dates. Certain of these leases are subject to rent reviews
or contain various escalation clauses and certain of our leases require our payment of various operating expenses, which may also
be subject to escalation. In addition, leases related to the Company’s non-U.S. businesses are denominated in currencies other
than U.S. dollars and are therefore subject to changes in foreign exchange rates.
The table below provides a brief description of all locations in which office space is maintained and the related reportable
segment.
Reportable Segment
Integrated Agencies Network
Office Locations
California, New York, Netherlands, UK, Australia, Singapore, Brazil, Denver, Portland,
Canada, China, Berlin, Bangalore, Atlanta, Indianapolis, Minneapolis, Connecticut,
Michigan, Cleveland, Pennsylvania, Chicago, Philippines, Argentina, Sweden and
Florida
Media Network
California, New York, Texas, Paris, Tokyo, China, Florida, Amsterdam, UK, Canada,
India, Virginia and Utah
Communications Network
Washington D.C., New York, China, Japan, Singapore, Thailand, Arizona, California,
Atlanta, Massachusetts, Portland, Seattle, Canada, Germany, UK, India, Korea, Russia,
Maryland, South Carolina and Arlington
All Other
Toronto
Corporate
New York, Washington D.C., California, Tampa and Washington
Item 3. Legal Proceedings
In the ordinary course of business, we are involved in various legal proceedings. We do not currently expect that these
proceedings will have a material adverse effect on our results of operations, cash flows or financial position.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
Our Class A Common Stock is traded on the Nasdaq Global Select Market, under the symbol “STGW.” There is no
established public trading market for our Class B common stock, par value $0.001 per share (the “Class B Common Stock”), or
Class C Common Stock. As of February 28, 2022, the approximate number of registered holders of our Class A Common Stock,
Class B Common Stock, and Class C Common Stock, including those whose shares are held in a nominee name, was 89, 35, and
2, respectively.
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Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings
and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made
at the discretion of our Board, subject to applicable laws, and will depend on a number of factors, including our financial
condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that
the Board may deem relevant.
Unregistered Sales of Equity Securities
In the three months ended December 31, 2021 the Company issued 4,840,653 shares of Class A Common Stock in
transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended. Of these, 365,000 shares
were issued to executives of the Company as inducement for employment and 4,475,653 shares were issued to executives of a
majority-owned subsidiary of the Company as part of the consideration for purchase by the Company of the remaining interest
in the subsidiary. The Company received no cash proceeds and no commissions were paid to any person in connection with the
issuance of the shares.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
For the three months ended December 31, 2021, the Company made no open market purchases of its Class A Common Stock,
Class B Common Stock, or C Common Stock. Pursuant to its Combined Credit Agreement and the indenture governing it 5.625%
Notes (each as defined in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), the
Company is currently limited as to the dollar value of shares it may repurchase in the open market.
For the three months ended December 31, 2021, the Company’s employees surrendered shares of Class A Common Stock in
connection with the required tax withholding resulting from the vesting of restricted stock. The Company paid these withholding
taxes on behalf of the related employees. These shares of Class A Common Stock were subsequently retired and no longer
remained outstanding as of December 31, 2021. The following table details those shares withheld during the fourth quarter of
2021:
Period
Total Number of
Shares
Purchased
Average Price
Paid Per Share
3.07
—
—
3.07
2,339 $
—
—
2,339 $
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program
Maximum
Number of
Shares That May
Yet Be Purchased
Under the
Program
—
—
—
—
—
—
—
—
10/1/2021 - 10/31/2021
11/1/2021 - 11/30/2021
12/1/2021 - 12/31/2021
Total
Item 6. Selected Financial Data
Not Applicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis are based on and should be read in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this Form 10-K. The following discussion and analysis contains forward-
looking statements and should be read in conjunction with the disclosures and information contained and referenced under the
captions “Forward-Looking Statements” and “Risk Factors” in this Form 10-K. The following discussion and analysis also
includes a discussion of certain non-GAAP financial measures. A description of the non-GAAP measures discussed in this section
and reconciliations to the comparable GAAP measures are below.
In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer (i) with respect to events occurring or
periods ending before August 2, 2021, to Stagwell Marketing Group LLC and its direct and indirect subsidiaries and (ii) with
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respect to events occurring or periods ending on or after August 2, 2021, to Stagwell Inc. and its direct and indirect subsidiaries.
References to a “fiscal year” mean the Company’s year commencing on January 1 of that year and ending December 31 of that
year (e.g., fiscal 2021 means the period beginning January 1, 2021, and ending December 31, 2021).
Business Combination
Executive Summary
On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had
entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of
Stagwell Media (the “Stagwell Subject Entities”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC
(“Stagwell Marketing” or “SMG”) and its direct and indirect subsidiaries.
On August 2, 2021 (the “Closing Date”), we completed the previously announced combination of MDC and the Stagwell
Subject Entities and a series of steps and related transactions (such combination transactions, the “Transactions”). In connection
with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly
owned subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo
Holdings LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect
subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded
company and changed its name to Stagwell Inc.
The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer
and Stagwell Marketing treated as the accounting acquirer. As a result of the Transactions and the change in our business and
operations, under applicable accounting principles, the historical financial results of Stagwell Marketing prior to August 2, 2021
are considered our historical financial results. Accordingly, historical information presented in this Form 10-K for events
occurring or periods ending before August 2, 2021 does not reflect the impact of the Transactions and may not be comparable
with historical information for events occurring or periods ending on or after August 2, 2021, which do not include the financial
results of MDC. See Note 4 of the Notes included herein for additional information in connection with the Transaction.
Overview
Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential
of combining data and creativity. Stagwell’s strategy is to build, grow and acquire market-leading businesses that deliver the
modern suite of services that marketers need to thrive in a rapidly evolving business environment. Stagwell’s differentiation lies
in its creative roots and proven entrepreneurial leaders, which together with innovations in technology and data, bring
transformational marketing, activation, communications and strategic consulting services to clients. Stagwell leverages its range
of services in an integrated manner, offering strategic, creative and innovative solutions that are technologically forward and
media-agnostic. The Company’s work is designed to challenge the industry status quo, realize outsized returns on investment,
and drive transformative growth and business performance for its clients and stakeholders.
Stagwell manages its business by monitoring several financial and non-financial performance indicators. The key indicators
that we focus on are revenue, operating expenses, capital expenditures and the non-GAAP measures described below. Revenue
growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth by line
of business, (iii) growth from existing clients and the addition of new clients, (iv) growth by principal capability, (v) growth from
currency changes, and (vi) growth from acquisitions. In addition to monitoring the foregoing financial indicators, the Company
assesses and monitors several non-financial performance indicators relating to the business performance of our networks. These
indicators may include a network’s recent new client win/loss record; the depth and scope of a pipeline of potential new client
account activity; the overall quality of the services provided to clients; and the relative strength of the network’s next generation
team that is in place as part of a potential succession plan to succeed the current senior executive team.
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While a recovery from the COVID-19 pandemic appears to be underway, we expect economic conditions will continue to be
volatile as long as COVID-19 remains a public health threat. We will continue to monitor the worldwide public health threat,
government actions to combat COVID-19 and the impact or potential impact that such developments may have on the overall
economy, our clients and our operations. If the impact of the pandemic continues to go beyond expectations, we believe we are
well positioned through the actions implemented at the onset of the pandemic to successfully work through the effects of COVID-
19 on our business. The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and
estimates in the preparation of our financial statements. The judgments, assumptions and estimates will be updated and could
result in different results in the future depending on the severity, duration and continued impact of the COVID-19 pandemic.
Recent Developments
On March 11, 2022, the Company and Mark Penn, Chief Executive Officer of the Company, entered into (i) a Second
Amended and Restated Employment Agreement (the “Second A&R Employment Agreement”) and (ii) an Amended and Restated
Stock Appreciation Rights Agreement (the “A&R SARs Agreement”). The Second A&R Employment Agreement and the A&R
SARs Agreement provide that, with respect to the December 14, 2021 award to Mr. Penn of 1,500,000 stock appreciation rights
(“SARs”) in respect of the Company’s Class A common stock with a base price equal to $8.27 under the Company’s 2016 Stock
Incentive Plan (the “Plan”), (i) the SARs will be settled only in cash upon any exercise, and (ii) the SARs will be considered to
have been granted outside of the Plan and are not subject to stockholder approval.
Significant Factors Affecting our Business and Results of Operations
The most significant factors affecting our business and results of operations include national, regional, and local economic
conditions, our clients’ profitability, mergers and acquisitions of our clients, changes in top management of our clients and our
ability to retain and attract key employees. New business wins and client losses occur due to a variety of factors. The two most
significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products
that our Brands offer. A client may choose to change marketing communication firms for several reasons, such as a change in
leadership where new management wants to retain an agency that it may have previously worked with. In addition, if the client
is merged or acquired by another company, the marketing communication firm is often changed. Clients also change firms as a
result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.
Seasonality
Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year, In addition, client
concentration increases during election years due to the cyclical nature of our advocacy Brands. The highest volumes of retail
related consumer marketing increase with the back-to-school season through the end of the holiday season.
Non-GAAP Measures
The Company reports its financial results in accordance with accounting principles generally accepted in the United States
(“GAAP”). In addition, the Company has included non-GAAP financial measures and ratios, which management uses to operate
the business, which it believes provide useful supplemental information to both management and readers of this report in making
period-to-period comparisons in measuring the financial performance and financial condition of the Company. These measures
do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures
determined in accordance with GAAP. The non-GAAP measures included are “organic revenue growth or decline” and “Adjusted
EBITDA.”
“Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting
both the foreign exchange and acquisition (disposition) components from total revenue growth. The acquisition (disposition)
component is calculated by aggregating prior period revenue for any acquired businesses, less the prior period revenue of any
businesses that were disposed of during the current period. The organic revenue growth (decline) component reflects the constant
currency impact of (a) the change in revenue of the brands that the Company has held throughout each of the comparable periods
presented, and (b) “Net acquisitions, (divestitures).” Net acquisitions, (divestitures) consists of (i) for acquisitions during the
current year, the revenue effect from such acquisition as if the acquisition had been owned during the equivalent period in the
prior year and (ii) for acquisitions during the previous year, the revenue effect from such acquisitions as if they had been owned
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during that entire year (or the same prior year period as the current reportable period), taking into account their respective pre-
acquisition revenues for the applicable periods, and (iii) for dispositions, the revenue effect from such disposition as if they had
been disposed of during the equivalent period in the prior year.
Adjusted EBITDA is defined as Net income (loss) attributable to Stagwell Inc. common shareholders excluding non-
operating income or expense to achieve operating income (loss), plus depreciation and amortization, stock-based compensation,
deferred acquisition consideration adjustments, and other items. Other items include restructuring costs, acquisition-related
expenses, and non-recurring items.
All amounts are in dollars unless otherwise stated. Amounts reported in millions herein are computed based on the amounts
in thousands. As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts
due to rounding.
The percentage changes included in the tables herein that are not considered meaningful are presented as “NM.”
Segments
The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues
and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker
(“CODM”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the
segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if
aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and
historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if
operating segments have similar operating characteristics.
The CODM uses Adjusted EBITDA as a key metric, to evaluate the operating and financial performance of a segment,
identify trends affecting the segments, develop projections and make strategic business decisions.
The Company has three reportable segments as follows: “Integrated Agencies Network,” “Media Network” and the
“Communications Network.” In addition, the Company combines and discloses operating segments that do not meet the
aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All
segments follow the same basis of presentation and accounting policies. See Note 2 of the Notes included herein for the
Company’s significant accounting policies.
In addition, Stagwell reports its corporate office expenses incurred in connection with the strategic resources provided to the
networks, as well as certain other centrally managed expenses that are not fully allocated to the operating segments as Corporate.
Corporate provides client and business development support to the networks as well as certain strategic resources, including
accounting, administrative, financial, real estate, human resource and legal functions.
The following discussion focuses on the operating performance of the Company for the twelve months ended December 31,
2021 and 2020 and the financial condition of the Company as of December 31, 2021.
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Results of Operations:
Revenue
Integrated Agencies Network
Media Network
Communications Network
All Other
Total Revenue
Operating Income
Other Income (Expenses)
Interest expense, net
Foreign exchange, net
Gain on sale of business and other, net
Income before income taxes and equity in earnings of non-consolidated
affiliates
Income tax expense
Income before equity in earnings of non-consolidated affiliates
Equity in (income) losses of non-consolidated affiliates
Net income
Net income attributable to noncontrolling and redeemable
noncontrolling interests
Net income attributable to Stagwell Inc. common shareholders
Reconciliation to Adjusted EBITDA
Net income attributable to Stagwell Inc. common shareholders
Non-operating items
Operating income
Depreciation and amortization
Impairment and other losses
Stock-based compensation
Deferred acquisition consideration
Total other items, net
Adjusted EBITDA
Twelve Months Ended
December 31,
2021
2020
(Dollars in Thousands)
$
819,758 $
374,930
248,832
25,843
$ 1,469,363 $
229,646
254,311
382,815
21,260
888,032
$
44,726 $
83,740
(31,894)
(3,332)
50,058
59,558
23,398
36,160
(240)
35,920
(14,884)
21,036 $
21,036 $
23,690
44,726
77,503
16,240
75,032
18,721
21,430
253,652 $
(6,223)
(721)
544
77,340
5,937
71,403
58
71,461
(15,105)
56,356
56,356
27,384
83,740
41,025
—
—
4,497
13,906
143,168
$
$
$
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TWELVE MONTHS ENDED DECEMBER 31, 2021 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31,
2020
Consolidated Results of Operations
The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months
ended December 31, 2020 were as follows:
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
Revenue:
Operating Expenses:
Cost of services sold
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating income
$ 1,469,363 $
888,032 $
906,856
424,038
77,503
16,240
$ 1,424,637 $
44,726 $
$
571,588
191,679
41,025
—
804,292 $
83,740 $
$
581,331
335,268
232,359
36,478
16,240
620,345
(39,014)
%
65.5 %
58.7 %
NM
88.9 %
100.0 %
77.1 %
(46.6)%
Net Revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment and other losses
Other items, net
Operating Income (1)
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
$ 1,268,937 $
200,426
1,469,363
633,230 $
254,802
888,032
200,426
790,121
144,294
80,870
253,652
75,032
77,503
18,721
16,240
21,430
44,726 $
254,802
359,679
83,295
47,088
143,168
—
41,025
4,497
—
13,906
83,740 $
$
$
635,707
(54,376)
581,331
(54,376)
430,442
60,999
33,782
110,484
75,032
36,478
14,224
16,240
7,524
(39,014)
%
NM
(21.3)%
65.5 %
(21.3)%
NM
73.2 %
71.7 %
77.2 %
100.0 %
88.9 %
NM
100.0 %
54.1 %
(46.6)%
(1) See the Results of Operations section above for a reconciliation of Operating Income to Net Income
attributable to Stagwell Inc. common shareholders.
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Revenue
Revenue for the twelve months ended December 31, 2021 was $1,469.4 million compared to $888.0 million for the twelve
months ended December 31, 2020, an increase of $581.3 million.
Net Revenue
The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve
months ended December 31, 2020 were as follows:
Net Revenue - Components of
Change
Foreign
Currency
Net
Acquisitions
(Divestitures)
Organic
Total
Change
Twelve
Months
Ended
December
31, 2020
Change
Organic
Total
Twelve
Months
Ended
December
31, 2021
Integrated Agencies
Network
$ 220,502
$
3,172
$
Media Network
233,189
3,993
Communications
Network
All Other
158,279
21,260
202
561
$ 633,230 $
7,928 $
Component % change
1.3%
(Dollars in Thousands)
$ 510,723
$ 128,084
112,630
55,712
7,771
(23,527)
379,467
52,925
31,096
$ 731,225
345,819
58.1 %
NM
23.9 %
48.3 %
166,050
(14.9)%
4.9 %
(5,826)
9,848
4,583
25,843
457,662 $ 170,117 $ 635,707 $ 1,268,937
72.3%
26.9%
46.3 %
26.9 %
21.6 %
NM
For the twelve months ended December 31, 2021, organic net revenue increased $170.1 million, or 26.9%, primarily
attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.
The geographic mix in net revenues for the twelve months ended December 31, 2021 and 2020 was as follows:
2020
2021
(Dollars in Thousands)
United States
United
Kingdom
Other
Total
$ 1,039,934 $
101,900
127,103
$ 1,268,937 $
550,274
55,915
27,041
633,230
Operating Income
Operating income for the twelve months ended December 31, 2021 was $44.7 million compared to $83.7 million for the
twelve months ended December 31, 2020, representing a decrease of $39.0 million, primarily driven by the increase in revenue,
more than offset by higher operating expenses. The twelve months ended December 31, 2021 was impacted by an increase in
stock-based compensation expense and amortization expense in connection with the merger as well as an impairment and other
loss of $16.2 million in connection with a write-down of trade names no longer in use.
Adjusted EBITDA
Adjusted EBITDA for the twelve months ended December 31, 2021 was $253.7 million, compared to $143.2 million for the
twelve months ended December 31, 2020, representing an increase of $110.5 million, principally resulting from the acquisition
of MDC.
Gain on Sale of Business and Other, net
Gain on sale of business and other, net, for the twelve months ended December 31, 2021 was income of $50.1 million,
compared to $0.5 million for the twelve months ended December 31, 2020, primarily due to a gain of approximately $43.0 million
in connection with the sale of Reputation Defender in the third quarter of 2021.
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Foreign Exchange Transaction Loss
The foreign exchange loss for the twelve months ended December 31, 2021 was $3.3 million compared to a loss of $0.7
million for the twelve months ended December 31, 2020.
Interest Expense, Net
Interest expense, net, for the twelve months ended December 31, 2021 was $31.9 million compared to $6.2 million for the
twelve months ended December 31, 2020, representing an increase of $25.7 million, primarily driven by a higher level of debt in
connection with the acquisition of MDC.
Income Tax Expense
The Company had an income tax expense for the twelve months ended December 31, 2021 of $23.4 million (on a pre-tax
income of $59.6 million resulting in an effective tax rate of 39.3%) compared to income tax expense of $5.9 million (on pre-tax
income of $77.3 million resulting in an effective tax rate of 7.7%) for the twelve months ended December 31, 2020.
The difference in the effective tax rate of 39.3% in the twelve months ended December 31, 2021 as compared to 7.7% in the
same period in 2020 primarily results from a larger portion of income being subject to entity level tax as a result of the merger
and non-deductible stock compensation in 2021.
Noncontrolling and Redeemable Noncontrolling Interests
The effect of noncontrolling and redeemable noncontrolling interests for the twelve months ended December 31, 2021 was
$14.9 million compared to $15.1 million for the twelve months ended December 31, 2020.
Net Income Attributable to Stagwell Inc. Common Shareholders
As a result of the foregoing, net income attributable to Stagwell Inc. common shareholders for the twelve months ended
December 31, 2021 was $21.0 million compared to net income attributable to Stagwell Inc. common shareholders of $56.4 million
for the twelve months ended December 31, 2020.
Integrated Agencies Network
The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months
ended December 31, 2020 were as follows:
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
Revenue
Operating expenses
Cost of services sold
Office and general expenses
Depreciation and
amortization
Impairment and other losses
Operating income
$
819,758 $
229,646 $
537,642
184,085
40,087
1,394
763,208 $
56,550 $
134,513
56,592
9,616
—
200,721 $
28,925 $
$
$
$
590,112
403,129
127,493
30,471
1,394
562,487
27,625
%
NM
NM
NM
NM
100.0 %
NM
95.5 %
52
Table of Contents
Net Revenue
Billable costs
Revenue
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
$
$ 731,225 $ 220,502 $ 510,723
79,389
590,112
88,533
819,758
9,144
229,646
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment
Other items, net
Operating Income
$
88,533
440,670
68,531
55,256
166,768
47,584
40,087
18,457
1,394
2,696
56,550 $
9,144
119,184
23,827
35,131
42,360
—
9,616
2,240
—
1,579
28,925 $
79,389
321,486
44,704
20,125
124,408
47,584
30,471
16,217
1,394
1,117
27,625
%
NM
NM
NM
NM
NM
NM
57.3%
NM
100.0%
NM
NM
100.0%
70.7%
95.5%
Revenue
Revenue for the twelve months ended December 31, 2021 was $819.8 million compared to $229.6 million for the twelve
months ended December 31, 2020, an increase of $590.1 million.
Net Revenue
The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve
months ended December 31, 2020 were as follows:
Net Revenue - Components of Change
Change
Twelve
Months
Ended
December
31, 2020
Foreign
Currency
Net
Acquisitions
(Divestitures)
Organic
Total
Change
(Dollars in Thousands)
Twelve
Months
Ended
December
31, 2021
Organic
Total
Integrated Agencies
Network
Component % change
$ 220,502 $
3,172
$
379,467 $ 128,084
$ 510,723 $ 731,225
58.1 %
NM
1.4 %
NM
58.1 %
The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the
recovery from the COVID-19 pandemic. The increase in net acquisition (divestitures) was driven by the acquisition of MDC.
The increase in expenses was driven by the impact from the acquisition of MDC. Stock-based compensation expense
increased, driven by awards issued to SMG employees in connection with the merger, depreciation and amortization grew due to
the recognition of amortizable intangible assets in connection with the acquisition of MDC.
Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses
as detailed above.
53
Table of Contents
Media Network
The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months
ended December 31, 2020 were as follows:
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
$ 374,930 $ 254,311 $ 120,619
$
188,045
132,669
23,590
14,846
149,354
79,751
19,861
—
38,691
52,918
3,729
14,846
$ 359,150 $ 248,966 $ 110,184
10,435
$
15,780 $
5,345 $
%
47.4 %
25.9 %
66.4 %
18.8 %
100.0 %
44.3 %
NM
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
$
$ 345,819 $ 233,189 $ 112,630
7,989
120,619
29,111
374,930
21,122
254,311
Revenue
Operating expenses
Cost of services sold
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating income
Net Revenue
Billable costs
Revenue
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Impairment
Other items, net
Operating Income
$
29,111
208,997
49,359
24,693
62,770
4,857
23,590
184
14,846
3,513
15,780 $
21,122
143,749
39,239
22,532
27,669
—
19,861
—
—
2,463
5,345 $
7,989
65,248
10,120
2,161
35,101
4,857
3,729
184
14,846
1,050
10,435
54
%
48.3%
37.8%
47.4%
37.8%
45.4%
25.8%
9.6%
NM
100.0%
18.8%
100.0%
100.0%
42.6%
NM
Table of Contents
Revenue
Revenue for the twelve months ended December 31, 2021 was $374.9 million compared to $254.3 million for the twelve
months ended December 31, 2020, an increase of $120.6 million.
Net Revenue
The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve
months ended December 31, 2020 were as follows:
Net Revenue - Components of Change
Twelve Months
Ended
December 31,
2020
Foreign
Currency
Net
Acquisitions
(Divestitures)
Organic
Total
Change
233,189 $
3,993
$
52,925
(Dollars in Thousands)
$ 55,712
$112,630
$
48.3 %
1.7 %
22.7 %
23.9 %
Change
Organic
Total
Twelve Months
Ended
December 31,
2021
345,819
23.9 %
48.3 %
Media Network
$
Component % change
The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the
recovery from the COVID-19 pandemic. The increase in net acquisition (divestitures) was driven by the acquisition of MDC.
The increase in expenses was driven by the impact from the acquisition of MDC. Stock-based compensation expense
increased, driven by awards issued to SMG employees in connection with the merger and an impairment loss of $14.8 million
was recognized in connection with a write-down of trade names no longer in use.
Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses
as detailed above.
Communications Network
The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months
ended December 31, 2020 were as follows:
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
$
$
248,832 $
382,815 $
(133,983)
Revenue
Operating expenses
Cost of services sold
Office and general expenses
Depreciation and
amortization
Operating income
$
$
167,303
52,106
7,553
226,962 $
21,870 $
281,040
25,815
5,903
312,758 $
70,057 $
(113,737)
26,291
1,650
(85,796)
(48,187)
%
(35.0)%
(40.5)%
NM
28.0 %
(27.4)%
(68.8)%
55
Table of Contents
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
Net Revenue
Billable costs
Revenue
$
166,050 $
82,782
248,832
158,279 $
224,536
382,815
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Deferred acquisition consideration
Other items, net
Operating Income
$
82,782
104,173
16,106
244
45,527
15,928
7,553
80
96
21,870 $
224,536
69,493
10,416
(192)
78,562
—
5,903
2,257
345
70,057 $
$
7,771
(141,754)
(133,983)
(141,754)
34,680
5,690
436
(33,035)
15,928
1,650
(2,177)
(249)
(48,187)
%
4.9 %
(63.1)%
(35.0)%
(63.1)%
49.9 %
54.6 %
NM
(42.0)%
100.0 %
28.0 %
(96.5)%
(72.2)%
(68.8)%
Revenue
Revenue for the twelve months ended December 31, 2021 was $248.8 million compared to $382.8 million for the twelve
months ended December 31, 2020, a decrease of $134.0 million.
Net Revenue
The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve
months ended December 31, 2020 were as follows:
Twelve
Months Ended
December 31,
2020
Net Revenue - Components of Change
Foreign
Currency
Net
Acquisitions
(Divestitures)
Organic
Total
Change
Change
Organic
Total
Twelve
Months Ended
December 31,
2021
Communications
$
Network
Component % change
158,279 $
$
202
0.1 %
(Dollars in Thousands)
$ (23,527) $ 7,771
(14.9)%
$
4.9 %
31,096
19.6 %
166,050
(14.9)%
4.9 %
The decrease in organic net revenue was attributable to lower advocacy business compared to the prior year period that
included higher levels of business in connection with the 2020 elections. The increase in net acquisition (divestitures) was driven
by the acquisition of MDC.
The decrease in operating income was primarily due to higher expenses in connection with the acquisition of MDC, including
stock-based compensation expense for awards issued to SMG employees in connection with the merger.
The decrease in Adjusted EBITDA was due to higher expenses as discussed above.
56
Table of Contents
All Other
The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months
ended December 31, 2020 were as follows:
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
Revenue
Operating expenses
Cost of services sold
Office and general expenses
Depreciation and
amortization
Operating loss
Net Revenue
Billable costs
Revenue
$
$
$
Billable costs
Staff costs
Administrative costs
Unbillable and other costs, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Other items, net
Operating Loss
$
$
25,843 $
21,260 $
13,866
12,785
2,498
29,149 $
(3,306) $
6,681
16,473
3,681
26,835 $
(5,575) $
$
4,583
7,185
(3,688)
(1,183)
2,314
2,269
%
21.6 %
NM
(22.4)%
(32.1)%
8.6 %
(40.7)%
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
25,843 $
—
25,843
—
16,454
9,481
677
(769)
39
2,498
—
(3,306) $
21,260 $
—
21,260
—
20,830
12,732
(10,409)
(1,893)
—
3,681
1
(5,575) $
$
4,583
—
4,583
—
(4,376)
(3,251)
11,086
1,124
39
(1,183)
(1)
2,269
%
21.6 %
— %
21.6 %
— %
(21.0)%
(25.5)%
NM
59.4 %
100.0 %
(32.1)%
(100.0)%
(40.7)%
Revenue
Revenue for the twelve months ended December 31, 2021 was $25.8 million compared to $21.3 million for the twelve months
ended December 31, 2020, an increase of $4.6 million.
57
Table of Contents
Net Revenue
The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve
months ended December 31, 2020 were as follows:
Twelve
Months Ended
December 31,
2020
Net Revenue - Components of Change
Foreign
Currency
Net
Acquisitions
(Divestitures)
Organic
Total
Change
Change
Organic
Total
Twelve
Months Ended
December 31,
2021
All Other
$
Component % change
21,260 $
$
561
2.6 %
(Dollars in Thousands)
9,848
46.3 %
(5,826) $
(27.4)%
$ 4,583
$
21.6 %
25,843
46.3 %
21.6 %
The increase in organic net revenue was attributable to higher levels of business at the central innovations group.
The decrease related to net acquisitions (divestitures) was attributable to the sale of Reputation Defender in the third quarter
of 2021.
The increase in revenue was more than offset by higher expenses resulting in an operating loss in both periods.
Corporate
The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended
December 31, 2020 were as follows:
2021
Twelve Months Ended December 31,
Change
2020
(Dollars in Thousands)
19,827 $
817
—
(20,644)
6,624
3,775
15,125
(46,168) $
6,423 $
(2,919)
26
(3,530)
—
1,964
9,518
(15,012) $
$
13,404
3,736
(26)
(17,114)
6,624
1,811
5,607
(31,156)
%
NM
NM
(100.0)%
NM
100.0 %
92.2 %
58.9 %
NM
$
Staff costs
Administrative costs
Other, net
Adjusted EBITDA
Stock-based compensation
Depreciation and amortization
Other items, net
Operating Loss
$
Operating expenses increased primarily in connection with the acquisition of MDC, including professional fees associated
with the transaction.
Liquidity and Capital Resources:
Liquidity
The following table provides summary information about the Company’s liquidity position:
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
58
December 31,
December 31,
2020
2021
(Dollars in Thousands)
200,856 $
163,952 $
(273,414) $
138,080
(29,021)
(80,141)
$
$
$
Table of Contents
We continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such
developments may have on our liquidity. If the impact of the pandemic is beyond our expectation, the Company believes it is
well positioned through the actions implemented at the beginning of the pandemic to successfully work through the effects of
COVID-19 for the foreseeable future.
The Company had cash and cash equivalents of $184.0 million and $92.5 million as of December 31, 2021 and 2020,
respectively. The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the next twelve
months. The Company has historically been able to maintain and expand its business using cash generated from operating
activities, funds available under its revolving credit agreement, and other initiatives, such as obtaining additional debt and equity
financing. At December 31, 2021, the Company had $110.2 million of borrowings outstanding, $24.3 million of outstanding and
undrawn letters of credit resulting in $365.5 million available under its $500.0 million revolving credit agreement.
The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, purchases
of noncontrolling interests, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under
the Company’s 5.625% Notes (as defined below). Based on the current outlook, the Company believes future cash flows from
operations, together with the Company’s existing cash balance and the availability of funds under the Company’s revolving credit
agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months. The Company’s ability
to make scheduled deferred acquisition payments, to make principal and interest payments, to refinance indebtedness or to fund
planned capital expenditures will depend on future performance, which is subject to general economic conditions, the competitive
environment and other factors, including those described in this Form 10-K and in the Company’s other SEC filings.
Cash Flows
Operating Activities
Cash flows provided by operating activities for the twelve months ended December 31, 2021 were $200.9 million, primarily
reflecting earnings and favorable working capital requirements.
Cash flows provided by operating activities for the twelve months ended December 31, 2020 were $138.1 million, primarily
reflecting earnings and favorable working capital requirements.
Investing Activities
During the twelve months ended December 31, 2021, cash flows provided by investing activities were $164.0 million, which
was primarily driven by $150.3 million of MDC cash in connection with the combination, $37.2 million from the sale of
Reputation Defender, partially offset by capital expenditures of $22.6 million.
During the twelve months ended December 31, 2020, cash flows used in investing activities were $29.0 million, which
primarily consisted of $12.1 million of capital expenditures and $14.7 million for acquisitions.
Financing Activities
During the twelve months ended December 31, 2021, cash flows used in financing activities were $273.4 million, which
primarily consisted of $884.4 million for the repurchase of the 7.50% Notes, $202.4 million in net repayments under the revolving
credit agreement, $0.0 million in distributions to minority interest holders, as well as distributions of $233.2 million to Stagwell
Media, offset by receipt of $1.1 billion from the issuance of the 5.625% Notes.
During the twelve months ended December 31, 2020, cash flows used in financing activities was $80.1 million, primarily
driven by $40.0 million in net borrowings under the revolving credit agreement and $0.0 million in distributions to minority
interest holders.
Total Debt
Debt, net of debt issuance costs, as of December 31, 2021 was $1,191.6 million as compared to $198.0 million outstanding
at December 31, 2020. The increase of $993.6 million in debt was primarily a result of the Company’s issuance of the $1.1 billion
aggregate principal amount of its 5.625% senior notes due 2029 (the “5.625% Notes”) in August 2021. See Note 11 of the Notes
included herein for information regarding the 5.625% Notes and the $500.0 million revolving credit agreement.
59
Table of Contents
The Company is currently in compliance with the terms and conditions of its revolving credit agreement, and management
believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next
twelve months.
If the Company loses all or a substantial portion of its lines of credit under its revolving credit agreement, or if the Company
uses the maximum available amount under the agreement, it will be required to seek other sources of liquidity. If the Company
were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the
Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable
noncontrolling interests would be adversely affected.
Pursuant to the revolving credit agreement, the Company must comply with its total leverage ratio covenant, as such term is
specifically defined in the agreement. For the period ended December 31, 2021, the Company’s calculation of each of these
covenants, and the specific requirements under the revolving credit agreement, respectively, were calculated based on the trailing
twelve months as follows:
Total Leverage Ratio
Maximum per covenant
December 31, 2021
3.04
4.75
These ratios and measures are not based on GAAP and are not presented as alternative measures of operating performance
or liquidity. Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time
charges, and other items, as defined in the Credit Agreement. They are presented here to demonstrate compliance with the
covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.
Material Cash Requirements
The Company’s Agencies enter into contractual commitments with media providers and agreements with production
companies on behalf of its clients at levels that exceed the revenue from services. Some of our agencies purchase media for clients
and act as an agent for a disclosed principal. These commitments are included in Accounts payable and Accruals and other
liabilities when the media services are delivered by the media providers. Stagwell takes precautions against default on payment
for these services and has historically had a very low incidence of default. Stagwell is still exposed to the risk of significant
uncollectible receivables from our clients. The risk of a material loss could significantly increase in periods of severe economic
downturn.
The following table summarizes current and long-term requirements as of December 31, 2021. Management anticipates that
the obligations outstanding at December 31, 2021 will be repaid with new financing, equity offerings, asset sales and/or cash
flow from operations:
Payments Due by Period
Material Cash Requirements
Total
Indebtedness (1)
Operating lease obligations
Interest on debt
Deferred acquisition consideration
Total
$ 1,100,000 $
477,439
495,000
222,369
$ 2,294,808 $
Less than
1 Year
1 – 3 Years 3 – 5 Years
After
5 Years
(Dollars in Thousands)
— $
— $
152,966
87,311
123,750
61,875
144,423
77,946
421,139 $
227,132 $
— $ 1,100,000
143,398
185,625
—
217,514 $ 1,429,023
93,764
123,750
—
(1)
Indebtedness includes no borrowings under the revolving credit agreement, which is due in 2026.
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed
purchase price payments. See Note 9 of the Notes included herein for additional information regarding contingent deferred
acquisition consideration.
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Table of Contents
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an
option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where
the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in
mezzanine equity. See Note 13 of the Notes included herein for additional information regarding noncontrolling and redeemable
noncontrolling interests.
The Company intends to finance the cash portion of these contingent payment obligations using available cash from
operations, borrowings under the revolving credit agreement (and refinancings thereof), and, if necessary, through the incurrence
of additional debt and/or issuance of additional equity. The ultimate amount payable in the future relating to these transactions
will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights
are exercised.
Guarantees
Generally, the Company has indemnified the purchasers of certain of its assets in the event that a third party asserts a claim
against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically
extend for a number of years. Historically, the Company has not made any significant indemnification payments under such
agreements and no amounts has been accrued in the accompanying consolidated financial statements with respect to these
indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications
to identify whether it is probable that a loss has occurred, and would recognize any such losses under any guarantees or
indemnifications in the period when those losses are probable and estimable.
Critical Accounting Estimates
Stagwell has prepared the consolidated financial statements in accordance with accounting principles generally accepted in
the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”) for reporting financial information on Form 10-K. Preparation of the consolidated financial statements and related
disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the
accompanying financial statements and footnotes. Our significant accounting policies are discussed in Note 2 of the Notes
included herein. Our critical accounting policies are those that are considered by management to require significant judgment,
use of estimates and that could have a significant impact on our financial statements. An understanding of our critical accounting
policies is necessary to analyze our financial results.
Our critical accounting policies include our accounting for revenue recognition, business combinations, deferred acquisition
consideration, redeemable noncontrolling interests, goodwill and intangible assets, income taxes and stock-based compensation.
The financial statements are evaluated on an ongoing basis and estimates are based on historical experience, current conditions
and various other assumptions believed to be reasonable under the circumstances. Actual results can differ from those estimates,
and it is possible that the differences could be material.
Revenue Recognition. The Company’s revenue is recognized when control of the promised goods or services is transferred
to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. See
Note 5 of the Notes included herein for further information.
Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets
acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business
are recorded at their acquisition date fair values.
For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is
performed for all such identified assets. The Company uses several market participant measurements to determine the estimated
value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow
methodologies. A substantial portion of the intangible assets value that the Company acquires is the specialized know-how of the
workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the
identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as
trade names and trademarks.
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Table of Contents
Deferred Acquisition Consideration. Certain acquisitions include an initial payment at the time of closing and provide for
future additional contingent purchase price payments. Contingent purchase price obligations for these transactions are recorded
as deferred acquisition consideration liabilities on the balance sheet, at the acquisition date fair value and are remeasured at each
reporting period. These liabilities are derived from the projected performance of the acquired entity. These arrangements may be
dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period. At
each reporting date, the Company models each business’ future performance, including revenue growth and free cash flows, to
estimate the value of each deferred acquisition consideration liability. The liability is adjusted quarterly based on changes in
current information affecting each subsidiary’s current operating results and the impact this information will have on future results
included in the calculation of the estimated liability. These adjustments are recorded in the results of operations. In instances
where such contingent payments require the sellers’ continuous employment with the Company after the transaction, they are
recorded as compensation expense in the Audited Consolidated Statements of Operations.
Redeemable Noncontrolling Interests. Many of the Company’s acquisitions include contractual arrangements where the
noncontrolling shareholders have an option to purchase, or may require the Company to purchase, such noncontrolling
shareholders’ incremental ownership interests under certain circumstances. The Company typically has similar call options under
the same contractual terms. The amount of consideration under these contractual arrangements is not a fixed amount, but rather
is dependent upon various valuation formulas, such as the average earnings of the relevant subsidiary through the date of exercise
or the growth rate of the earnings of the relevant subsidiary during that period. In the event that an incremental purchase may be
required by the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity on the Audited
Consolidated Balance Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value
through Retained earnings or Paid-in capital (when at an accumulated deficit) in the Audited Consolidated Balance Sheets (but
not less than their initial redemption value), except for foreign currency translation adjustments. These adjustments will not impact
the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values.
Goodwill. Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a
business combination which is not subject to amortization is tested for impairment, at the reporting unit level, annually as of
October 1st of each year, or more frequently if indicators of potential impairment exist.
For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more
likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment
test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment,
overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as
change in management or key personnel.
If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value
of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the quantitative impairment
test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair
value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not
performed, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its
carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting
unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the
net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the
fair value.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company uses
a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method, and the market
approach, which incorporates the use of earnings and revenue multiples based on market data. The Company generally applies
an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach
both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows,
assumed terminal value and appropriate discount rates.
The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash
flows of each reporting unit from a market participant perspective. The expected cash flows are developed from the Company’s
long-range planning process using projections of operating results and related cash flows based on assumed long-term growth
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rates, demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the
observable WACC of comparable companies and factors specific to the reporting unit. The terminal value is estimated using a
constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on
historical data and experience, industry projections, economic conditions, and the Company’s expectations.
For the 2021 annual goodwill impairment test, the Company had approximately 35 reporting units, all of which were subject
to the qualitative assessment, except four reporting units that were subject to the quantitative goodwill impairment test. For the
reporting units under a qualitative assessment, we concluded that it is more likely than not that their fair value is in excess of the
carrying value. The reporting units subject to the quantitative impairment test had a fair value in excess of their carrying amount
(“headroom”) above 10%. The Company utilized a long-term growth rate of 3% and a WACC ranging from 13% to 25%. The
Company performed a sensitivity analysis which included a 1% increase in the WACC, which would not result in an impairment.
The Company believes the estimates and assumptions used in the calculations are reasonable. However, if there was an
adverse change in the facts and circumstances, then an impairment charge may be necessary in the future. Should the fair value
of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market
declines, changes in the discount rate, or other conditions, charges for impairment may be necessary. The Company monitors its
reporting units to determine if there is an indicator of potential impairment.
Income Taxes. We account for income taxes using the asset and liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
and laws expected to be in effect when the differences are expected to reverse. The Company records associated interest and
penalties as a component of income tax expense. The Company records a valuation allowance against deferred income tax assets
when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal
of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the character of
the income tax asset, tax planning strategies, changes in tax laws and other factors. The periodic assessment of the net carrying
value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment. A
change to any of these factors could impact the estimated valuation allowance and income tax expense.
Stock-Based Compensation. Under the fair value method, compensation cost is measured at fair value at the date of grant
and is expensed over the service period, generally the award’s vesting period. The Company uses its historical volatility derived
over the expected term of the award to determine the volatility factor used in determining the fair value of the award. The
Company recognizes forfeitures as they occur.
Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of
grant. The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option pricing
model or other acceptable method and is recorded in Operating income over the service period, in this case the award’s vesting
period.
The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during
each accounting period. The Company commences recording compensation expense related to awards that are based on
performance conditions under the straight-line attribution method when it is probable that such performance conditions will be
met.
New Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts
with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by
addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and other items. ASU
2021-08 is effective January 1, 2023; however, the Company has early adopted the standard and retrospectively applied it to the
financial statements herein.
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In March 2020, the FASB issued ASU 2020-04, and in January 2021 subsequently issued ASU 2021-01, Facilitation of the
Effects of Reference Rate Reform on Financial Reporting, to provide optional expedients and exceptions for applying GAAP to
contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04
is effective upon issuance, through December 31, 2022. The Company is evaluating the impact of the adoption of this guidance
on the Company’s financial statements and disclosures.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk related to interest rates, foreign currencies and impairment risk.
Debt Instruments: At December 31, 2021, the Company’s debt obligations consisted of amounts outstanding under its
revolving credit agreement and the 5.625% Notes. The 5.625% Notes bear a fixed 5.625% interest rate. The revolving credit
agreement bears interest at variable rates based upon the U.S. bank prime rate, U.S. base rate, LIBOR or its replacement SOFR,
EURIBOR, and SONIA depending on the duration of the borrowing product. The Company’s ability to obtain the required bank
syndication commitments depends in part on conditions in the bank market at the time of syndication. Given that there were
$110.2 million in borrowings under the revolving credit agreement, as of December 31, 2021, a 1.0% increase or decrease in the
weighted average interest rate, which was 0.88% at December 31, 2021, would have had an interest impact of approximately $0.4
million.
Foreign Exchange: While the Company primarily conducts business in markets that use the U.S. dollar, the Canadian dollar,
the Euro and the British Pound, its non-U.S. operations transact business in numerous different currencies. The Company’s results
of operations are subject to risk from the translation to the U.S. dollar of the revenue and expenses of its non-U.S. operations.
The effects of currency exchange rate fluctuations on the translation of the Company’s results of operations are discussed in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 2 of the Notes included
herein. For the most part, revenues and expenses incurred related to the non-U.S. operations are denominated in their functional
currency. This minimizes the impact that fluctuations in exchange rates will have on profit margins. Translation of intercompany
debt, which is not intended to be repaid, is included in cumulative translation adjustments. Translation of current intercompany
balances are included in net income (loss). The Company generally does not enter into foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
Impairment Risk: At December 31, 2021, the Company did not have any impairment of goodwill. The Company reviews
goodwill for impairment annually as of October 1st of each year or more frequently if indicators of potential impairment exis t.
See the Significant Accounting Policies in Note 2 of the Notes included herein for information related to impairment testing and
the risk of potential impairment charges in future periods.
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Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Stagwell Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Stagwell Inc. and subsidiaries (the “Company”) as of
December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), shareholders’
equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes and schedules listed
in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting
principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting
as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 17, 2022, expressed an adverse
opinion on the Company’s internal control over financial reporting because of material weaknesses.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Revenue — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company’s revenue is primarily derived from the provision of marketing and communications services which includes
strategy, creative and production for advertising campaigns, public relations services including strategy, editorial, crisis support
or issues management, media training, influencer engagement and events management, media buying and planning, experiential
marketing and application/website design and development. Each of the Company’s operating companies (referred to as Brands)
generate revenue from one or more of these services. The Brands have numerous customers and contracts, under a variety of
contract terms and provisions. The volume of such contracts and the diversity of the terms in such contracts introduces significant
complexity in assessing the accounting under the revenue accounting standard. This complexity includes the critical judgements
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around defining performance obligations and the recognition of revenue when or as the customer obtains control of the promised
services in an amount that reflects the consideration expected to be received in exchange for those services.
Given the volume and diversity of the Company’s contracts, performing audit procedures to evaluate whether revenue was
appropriately recorded, required a high degree of auditor judgement and an increased extent of audit effort and is therefore
considered a critical audit matter.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the testing of the Company’s application of revenue accounting standard to their revenue contracts
included the following, among others:
• Assessed the nature and amount of revenue recorded by Brand and evaluated the overall application of the revenue
accounting standard,
•
Selected a sample of contracts, specifically including individually material revenue contracts, across the Brands and
types of contracts. Testing included consideration of the specific application of the revenue accounting standard,
including the identification of the performance obligation(s), the evaluation of the methods applied in the recognition
and measurement of revenue, and the verification of the timing of delivery, transaction price and performance of services
related to the revenue recorded.
• Tested the mathematical accuracy of revenue recorded for each selection based on audit evidence obtained.
Intangible Assets – Acquisitions and Dispositions — Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
Stagwell Inc. was formed on August 2, 2021 as the result of a merger between Stagwell Marketing Group, LLC (a private
company, “legacy SMG”) and MDC Partners, Inc. (an existing public operating company listed on the NASDAQ, “legacy
MDC”). Upon consummation of the merger (“Transaction”), Stagwell has become the issuer through a reverse merger by taking
control of MDC, and was renamed Stagwell Inc. The acquisition consideration totaled $426 million.
The Acquisition was accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based on their respective fair values, including customer relationship assets of $713 million and
tradenames of $98 million.
The fair value determination of the acquired customer relationship and tradename intangible assets required management to make
significant estimates and assumptions related to the forecasts of future cash flows and the selection of the customer attrition rates,
discount rates, and royalty rates. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value
specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future cash flows and the selection of the customer attrition rates, discount rates,
and royalty rates for the customer relationships and tradename intangible assets acquired included the following, among others:
• We evaluated the sensitivity of changes in the assumptions on the fair value of the customer relationship and tradename
intangible assets.
• We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to
historical results and industry market data.
• We evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit.
• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) customer attrition rates, (2)
discount rates, and (3) royalty rates by:
◦ We assessed the reasonableness of management’s selection of customer attrition rates by comparing the revenue
lost from customer attrition to historical data.
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◦ Testing the source information underlying the determination of the customer attrition rates, discount rates, and
royalty rates, and testing the mathematical accuracy of the calculations.
◦ Developing a range of independent estimates and comparing those to the discount rates and royalty rates
selected by management.
/s/ Deloitte & Touche LLP
New York, NY
March 17, 2022
We have served as the Company’s auditor since 2020.
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STAGWELL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Statements of Operations for each of the Two Years in the Period Ended December 31, 2021
Consolidated Statements of Comprehensive Income (Loss) for each of the Two Years in the Period Ended December
31, 2021
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Cash Flows for each of the Two Years in the Period Ended December 31, 2021
Consolidated Statements of Shareholders’ Equity for each of the Two Years in the Period Ended December 31, 2021
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts for each of the Two Years in the Period Ended December 31, 2021
Page
65
69
70
71
72
74
76
118
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Item 1. Financial Statements
STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands of United States dollars, except per share amounts)
Twelve Months Ended
December 31,
2020
888,032
2021
$ 1,469,363 $
906,856
424,038
77,503
16,240
1,424,637
44,726
571,588
191,679
41,025
—
804,292
83,740
(6,223)
(721)
544
(6,400)
77,340
5,937
71,403
58
71,461
(15,105)
56,356
N/A
N/A
N/A
N/A
(31,894)
(3,332)
50,058
14,832
59,558
23,398
36,160
(240)
35,920
(14,884)
21,036 $
(0.04)
(0.04)
Revenue
Operating Expenses
Cost of services
Office and general expenses
Depreciation and amortization
Impairment and other losses
Operating income
Other Income (expenses):
Interest expense, net
Foreign exchange, net
Gain on sale of business and other, net
Income before income taxes and equity in earnings of non-consolidated
affiliates
Income tax expense
Income before equity in earnings of non-consolidated affiliates
Equity in (income) losses of non-consolidated affiliates
Net income
Net income attributable to noncontrolling and redeemable noncontrolling
interests
Net income attributable to Stagwell Inc. common shareholders
Loss Per Common Share:
Basic
Net loss attributable to Stagwell Inc. common shareholders
Diluted
Net loss attributable to Stagwell Inc. common shareholders
Weighted Average Number of Common Shares Outstanding:
$
$
$
Basic
Diluted
90,426,215
90,426,215
See notes to the Audited Consolidated Financial Statements.
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Table of Contents
STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(thousands of United States dollars)
COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss)
Foreign currency translation adjustment
Benefit plan adjustment
Net unrealized loss on available for sale investment
Other comprehensive income (loss)
Comprehensive income for the period
Comprehensive income attributable to the noncontrolling interests
Comprehensive income attributable to Stagwell Inc.
Twelve Months Ended
December 31,
2021
2020
$
35,920 $
71,461
(6,000)
722
—
(5,278)
30,642
(14,884)
15,758 $
2,371
—
(5,156)
(2,785)
68,676
(15,105)
53,571
$
See notes to the Audited Consolidated Financial Statements.
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STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands of United States dollars, except share amounts)
December 31,
2021
December 31,
2020
$
$
$
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Expenditures billable to clients
Other current assets
Total Current Assets
Fixed assets, net
Right-of-use assets - operating leases
Goodwill
Other intangible assets, net
Other assets
Total Assets
LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable
Accruals and other liabilities
Advance billings
Current portion of lease liabilities - operating leases
Current portion of deferred acquisition consideration
Total Current Liabilities
Long-term debt
Long-term portion of deferred acquisition consideration
Long-term lease liabilities - operating leases
Deferred tax liabilities, net
Other liabilities
Total Liabilities
Redeemable Noncontrolling Interests
Commitments, Contingencies and Guarantees (Note 14)
Shareholders' Equity:
Members' capital
Common shares - Class A & B
Common shares - Class C
Paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Stagwell Inc. Shareholders' Equity
Noncontrolling interests
Total Shareholders' Equity
Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity
$
184,009 $
696,937
63,065
61,830
1,005,841
118,603
311,654
1,652,723
937,695
29,064
4,055,580 $
271,769 $
510,327
361,885
72,255
77,946
1,294,182
1,191,601
144,423
342,730
103,093
57,147
3,133,176
43,364
—
118
2
382,893
(6,982)
(5,278)
370,753
508,287
879,040
4,055,580 $
92,457
225,733
11,063
36,433
365,686
35,614
57,752
351,725
186,035
17,043
1,013,855
147,826
90,557
66,418
19,579
12,579
336,959
198,024
5,268
52,606
16,050
5,801
614,708
604
358,756
—
—
—
—
—
358,756
39,787
398,543
1,013,855
See notes to the Audited Consolidated Financial Statements.
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Table of Contents
STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of United States dollars)
Cash flows from operating activities:
Net income
$
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Stock-based compensation
Depreciation and amortization
Impairment and other losses
Provision for bad debt
Deferred income taxes
Adjustment to deferred acquisition consideration
Interest from preferred investments
Equity in losses of unconsolidated affiliates, net of dividends received
Transaction costs contributed by Stagwell Media LP
Foreign currency translation loss on foreign denominated debt
Other
Gain on sale of business
Changes in working capital:
Accounts receivable
Expenditures billable to clients
Other assets
Accounts payable
Accruals and other liabilities
Advance billings
Deferred acquisition related payments
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Proceeds from sale of business, net
Acquisitions, net of cash acquired
Other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Repayment of borrowings under revolving credit facility and term loan
Proceeds from borrowings under revolving credit facility
Shares acquired and cancelled
Payment of deferred consideration and other
Contributions
Proceeds from issuance of the 5.625% Notes
Purchase of noncontrolling interest
Debt issuance costs
Payment of contingent consideration
72
Twelve Months Ended
December 31,
2021
2020
35,920 $
71,461
75,032
77,503
16,240
2,031
(3,818)
18,721
—
—
—
—
(1,463)
(43,440)
(30,784)
(35,371)
3,997
(46,356)
61,974
76,021
(5,351)
200,856
(22,626)
37,232
150,346
(1,000)
163,952
(719,088)
516,669
(841)
—
—
1,100,000
(37,500)
(15,053)
—
—
41,025
—
6,222
(5,463)
4,520
(600)
(58)
10,160
721
1,329
—
(26,805)
10,078
(10,461)
5,606
22,922
7,423
—
138,080
(12,099)
—
(14,732)
(2,190)
(29,021)
(126,994)
167,000
—
(1,000)
1,554
—
(1,559)
(3,099)
(500)
Table of Contents
STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(thousands of United States dollars)
Distributions
Repurchase of 7.50% Senior Notes
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures:
Cash income taxes paid
Cash interest paid
Non-cash investing and financing activities:
Acquisitions of business
Acquisitions of noncontrolling interest
Issuance of redeemable noncontrolling interest
Net unrealized gain on available for sale investment
Non-cash contributions
Non-cash distributions to Stagwell Media LP
Non-cash payment of deferred acquisition consideration
Conversion of preferred shares
Twelve Months Ended
December 31,
2021
(233,203)
(884,398)
(273,414)
158
91,552
92,457
184,009 $
2020
(115,543)
—
(80,141)
(321)
28,597
63,860
92,457
58,578 $
23,528
10,714
9,287
425,752 $
170,266
27,280
—
12,372
13,000
7,080
209,947
23,720
—
—
5,156
93,880
—
64,345
—
$
$
$
See notes to the Audited Consolidated Financial Statements.
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STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(thousands of United States dollars, except share amounts)
Twelve Months Ended
December 31, 2021
Paid-in
Capital
Accumulated
Deficit
Members'
capital
Convertible Preference
Shares
Common Shares -
Class A & B
Common Shares -
Class C
Shares
Shares
Shares
— $
—
—
—
—
—
—
—
Amount
—
—
—
—
—
—
—
—
358,756
24,742
(375)
250
(204,929)
—
(72)
—
— $
—
—
—
—
—
—
—
(178,372) 123,849,000 209,980 78,793,502
—
—
Amount
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
77 179,970,051
—
1
Amount
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2 110,555
—
—
8,845
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 1,961,588
—
(14,423)
—
—
—
—
—
—
—
—
— 4,475,653
—
—
—
—
— (123,849,000) (209,980) 33,035,446
—
—
—
— 118,251,766 $
—
—
— $
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
5
—
—
—
33
—
—
118 179,970,051 $
—
—
—
—
—
—
—
—
(2)
—
(841)
—
70,427
—
(25,236)
—
(14,138)
—
—
23,108
— 209,947
—
228
2 $ 382,893 $
Balance at December
31, 2020
$
Net income prior to
reorginization
Other comprehensive
loss
Contributions
Distributions, net
Distributions to
noncontrolling interests
Changes in redemption
value of RNCI
Other
Effect of reorganization
Reclass NCI to Liability
Impact of PPA
adjustment to
noncontrolling interests
Net income (loss)
attributable to Stagwell
Inc.
Other comprehensive
loss
Distributions to
noncontrolling interests
Changes in redemption
value of RNCI
Grants of restricted
awards
Shares acquired and
cancelled
Stock-based
compensation
Reclass noncontrolling
interests to RNCI
Purchases of
noncontrolling interests
Tax impact on step up
transactions
Conversion of shares
Other
Balance at December
31, 2021
$
Other
Comprehensive
Loss
Stagwell Inc.
Shareholders'
Equity
Noncontrolling
Interests
Shareholders'
Equity
— $
—
—
—
—
—
—
—
—
—
—
(3,706)
—
—
(3,834)
—
—
—
—
—
—
—
558
(6,982) $
— $
—
—
—
—
—
—
—
—
—
—
—
(5,278)
—
—
—
—
—
—
—
—
—
—
(5,278) $
358,756 $
24,742
(375)
250
(204,929)
—
(72)
—
142,242
—
8,846
(3,706)
(5,278)
—
(3,834)
—
(841)
70,427
(25,236)
(14,133)
23,108
—
786
370,753 $
39,787 $
2,693
—
—
—
(11,936)
—
(300)
636,416
(8,475)
(1,549)
12,602
—
(16,338)
—
—
—
—
(2,719)
(143,134)
—
—
1,240
508,287 $
398,543
27,435
(375)
250
(204,929)
(11,936)
(72)
(300)
778,658
(8,475)
7,297
8,896
(5,278)
(16,338)
(3,834)
—
(841)
70,427
(27,955)
(157,267)
23,108
—
2,026
879,040
See notes to the Audited Consolidated Financial Statements
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STAGWELL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued)
(thousands of United States dollars, except share amounts)
Members'
capital
Convertible
Preference Shares
Common Shares -
Class C
Common Shares -
Class A & B
Shares Amount Shares Amount Shares Amount
— $ — $
—
—
—
—
—
—
—
—
—
—
—
—
— $ — $
— $ —
—
—
—
—
—
—
—
—
—
—
—
—
— $ —
— $ —
—
—
—
—
—
—
—
—
—
—
—
—
— $ —
316,960
56,356
(2,785)
95,434
(108,468)
(128)
1,387
358,756
Balance at December 31, 2019
$
Net income attributable to
Stagwell Inc.
Other comprehensive loss
Contributions
Distributions
Changes in redemption value of
RNCI
Other
Balance at December 31, 2020
$
Twelve Months Ended
December 31, 2020
Paid-in
Capital
Accumulated
Deficit
Other
Comprehensive
Income
Stagwell Inc.
Shareholders'
Equity
Noncontrolling
Interests
Shareholders'
Equity
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
— $
316,960 $
56,356
(2,785)
95,434
(108,468)
(128)
1,387
358,756 $
31,577 $
18,231
—
—
(7,075)
—
(2,946)
39,787 $
348,537
74,587
(2,785)
95,434
(115,543)
(128)
(1,559)
398,543
See notes to the Audited Consolidated Financial Statements
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STAGWELL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(thousands of United States dollars, except per share amounts, unless otherwise stated)
1. Business and Basis of Presentation
Stagwell Inc. (the “Company” or “Stagwell”), incorporated under the laws of Delaware, conducts its business through its
networks and their Brands (“Brands”), which provide marketing and business solutions that realize the potential of combining
data and creativity. Stagwell’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of
services that marketers need to thrive in a rapidly evolving business environment.
The accompanying consolidated financial statements include the accounts of Stagwell and its subsidiaries. Stagwell has
prepared the audited consolidated financial statements included herein in accordance with accounting principles generally
accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”) for reporting financial information on this Annual Report on Form 10-K (this “Form 10-K”). The preparation of
financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates about current and future
results of operations and cash flows that affect the amounts reported and disclosed. Actual results could differ from these estimates
and assumptions.
On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had
entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of
Stagwell Media (the “Stagwell Subject Entities”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC
(“Stagwell Marketing”) and its direct and indirect subsidiaries.
On August 2, 2021, we completed the previously announced combination of MDC Partners Inc. (“MDC”) and the operating
businesses and subsidiaries of Stagwell Media LP. (“Stagwell Media”) and a series of related transactions (such combination and
transactions, the “Transactions”). The Transactions were treated as a reverse acquisition for financial reporting purposes, with
MDC treated as the legal acquirer and Stagwell Marketing Group LLC (“Stagwell Marketing or SMG”) treated as the accounting
acquirer. The results of MDC are included within the Audited Consolidated Statements of Operations for the period beginning on
the date of the acquisition through the end of the respective period presented and the results of SMG are included for the entire
period presented. See Note 4 of the Notes to the Consolidated Financial Statements (the “Notes” included herein for information
in connection with the acquisition of MDC.
The Company continues to monitor the worldwide public health threat and government actions to combat COVID-19 and
the impact such developments may have on the overall economy, our clients and operations. The impact of the pandemic and the
corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of the financial statements.
The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the
continued impact of the COVID-19 pandemic.
The accompanying financial statements reflect all adjustments, consisting of normally recurring accruals, which in the
opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein.
Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the
prior year financial information to conform to the current year presentation.
Recent Developments
On March 11, 2022, the Company and Mark Penn, Chief Executive Officer of the Company, entered into (i) a Second
Amended and Restated Employment Agreement (the “Second A&R Employment Agreement”) and (ii) an Amended and Restated
Stock Appreciation Rights Agreement (the “A&R SARs Agreement”). The Second A&R Employment Agreement and the A&R
SARs Agreement provide that, with respect to the December 14, 2021 award to Mr. Penn of 1,500,000 stock appreciation rights
(“SARs”) in respect of the Company’s Class A common stock with a base price equal to $8.27 under the Company’s 2016 Stock
Incentive Plan (the “Plan”), (i) the SARs will be settled only in cash upon any exercise, and (ii) the SARs will be considered to
have been granted outside of the Plan and are not subject to stockholder approval.
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2. Significant Accounting Policies
The Company’s significant accounting policies are summarized as follows:
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Stagwell Inc. and
its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities
for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of the consolidated financial statements in conformity with GAAP requires management
to make judgments, estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and
liabilities including goodwill, intangible assets, contingent deferred acquisition consideration, redeemable noncontrolling
interests, deferred tax assets, right-of-use lease assets and the amounts of revenue and expenses reported during the period. These
estimates are evaluated on an ongoing basis and are based on historical experience, current conditions and various other
assumptions believed to be reasonable under the circumstances. These estimates require the use of assumptions about future
performance, which are uncertain at the time of estimation. To the extent actual results differ from the assumptions used, results
of operations and cash flows could be materially affected.
Fair Value. The Company applies the fair value measurement guidance for financial assets and liabilities that are required to
be measured at fair value and for non-financial assets and liabilities that are not required to be measured at fair value on a recurring
basis, including goodwill, right-of-use lease assets and other identifiable intangible assets. See Note 18 of the Notes included
herein for additional information regarding fair value measurements.
Concentration of Credit Risk. The Company provides marketing communications services to clients who operate in most
industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the
Company’s client base, the Company does not believe that it is exposed to a concentration of credit risk. No sales to an individual
client accounted for more than 7% of revenue for the twelve months ended December 31, 2021 and 2020.
Cash and Cash Equivalents. The Company’s cash equivalents are primarily comprised of investments in overnight interest-
bearing deposits, money market instruments and other short-term investments with original maturity dates of three months or less
at the time of purchase. The Company has a concentration of credit risk in that there are cash deposits in excess of federally
insured amounts and international cash balances that may not qualify for foreign government insurance programs. To date, the
Company has not experienced any losses on cash and cash equivalents.
Allowance for Doubtful Accounts. Trade receivables are stated at invoiced amounts less allowances for doubtful accounts.
The allowances represent estimated uncollectible receivables associated with potential customer defaults usually due to
customers’ potential insolvency. The allowances include amounts for certain customers where a risk of default has been
specifically identified. The assessment of the likelihood of customer defaults is based on various factors, including the length of
time the receivables are past due, historical experience and existing economic conditions. Allowance for doubtful accounts was
$5,638 and $5,109 at December 31, 2021 and 2020, respectively.
Expenditures Billable to Clients. Expenditures billable to clients consist principally of outside vendor costs incurred on behalf
of clients when providing services that have not yet been invoiced to clients. Such amounts are invoiced to clients at various times
over the course of the period.
Fixed Assets. Fixed assets are stated at cost, net of accumulated depreciation. Computers, furniture and fixtures, and
capitalized software are depreciated on a straight-line basis over periods of three to ten years. Leasehold improvements are
depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. Repairs
and maintenance costs are expensed as incurred. Accumulated depreciation was $44,652 and $28,364 at December 31, 2021 and
2020 respectively.
Leases. Effective January 1, 2019, the Company adopted Accounting Standards Codification, Leases (“ASC 842”). The
Company recognizes on the balance sheet at the time of lease commencement a right-of-use lease asset and a lease liability,
initially measured at the present value of the lease payments. All right-of-use lease assets are reviewed for impairment. With the
adoption of ASC 842, the Company elected to apply the package of practical expedients: (i) whether a contract is or contains a
lease, (ii) the classification of existing leases, and (iii) whether previously capitalized costs continue to qualify as initial indirect
costs. Additionally, the Company elected the practical expedient to not separate non-lease components from lease components
for all operating leases. See Note 10 of the Notes included herein for further information on leases.
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Impairment of Long-lived Assets. A long-lived asset or asset group is tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the
sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to th e
carrying amount of such asset or asset group. If this comparison indicates that there is an impairment, the amount of the
impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily
determinable. The discount rate applied to these cash flows is based on the Company’s weighted average cost of capital
(“WACC”), risk adjusted where appropriate, or other appropriate discount rate.
Goodwill. Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a
business combination which is not subject to amortization is tested for impairment, at the reporting unit level, annually as of
October 1st of each year, or more frequently if indicators of potential impairment exist.
For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more
likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment
test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment,
overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as
change in management or key personnel.
If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value
of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the quantitative impairment
test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair
value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not
performed, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its
carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting
unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the
net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the
fair value.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company uses
a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method, and the market
approach, which incorporates the use of earnings and revenue multiples based on market data. The Company generally applies
an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach
both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows,
assumed terminal value and appropriate discount rates.
The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash
flows of each reporting unit from a market participant perspective. The expected cash flows are developed from the Company’s
long-range planning process using projections of operating results and related cash flows based on assumed long-term growth
rates, demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the
observable WACC of comparable companies and factors specific to the reporting unit. The terminal value is estimated using a
constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on
historical data and experience, industry projections, economic conditions, and the Company’s expectations.
Definite Lived Intangible Assets. Definite lived intangible assets are subject to amortization over their useful lives. A straight-
line amortization method is used over the estimated useful life which is representative of the pattern of how the economic benefits
of the specific intangible asset is consumed. Intangible assets that are subject to amortization are reviewed for potential
impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. The Company uses an
income approach, which incorporates the use of the discounted cash flow (“DCF”) method.
Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets
acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business
are recorded at their acquisition date fair values.
For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is
performed for all such identified assets. The Company uses several market participant measurements to determine the estimated
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value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow
methodologies. A substantial portion of the intangible assets value that the Company acquires is the specialized know-how of the
workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the
identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as
trade names and trademarks.
Deferred Acquisition Consideration. Certain acquisitions include an initial payment at the time of closing and provide for
future additional contingent purchase price payments. Contingent purchase price obligations for these transactions are recorded
as deferred acquisition consideration liabilities on the balance sheet, at the acquisition date fair value and are remeasured at each
reporting period. These liabilities are derived from the projected performance of the acquired entity. These arrangements may be
dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period. At
each reporting date, the Company models each business’ future performance, including revenue growth and free cash flows, to
estimate the value of each deferred acquisition consideration liability. The liability is adjusted quarterly based on changes in
current information affecting each subsidiary’s current operating results and the impact this information will have on future results
included in the calculation of the estimated liability. These adjustments are recorded in the results of operations. In instances
where such contingent payments require the sellers’ continuous employment with the Company after the transaction, they are
recorded as compensation expense in the Audited Consolidated Statements of Operations.
Redeemable Noncontrolling Interests. Many of the Company’s acquisitions include contractual arrangements where the
noncontrolling shareholders have an option to purchase, or may require the Company to purchase, such noncontrolling
shareholders’ incremental ownership interests under certain circumstances. The Company has similar call options under the same
contractual terms. The amount of consideration under these contractual arrangements is not a fixed amount, but rather is dependent
upon various valuation formulas, such as the average earnings of the relevant subsidiary through the date of exercise or the growth
rate of the earnings of the relevant subsidiary during that period. In the event that an incremental purchase may be required by
the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity on the Audited Consolidated
Balance Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value through Retained
earnings or Paid-in capital (when at an accumulated deficit) in the Audited Consolidated Balance Sheets (but not less than their
initial redemption value), except for foreign currency translation adjustments. These adjustments will not impact the calculation
of earnings (loss) per share if the redemption values are less than the estimated fair values.
Control to Control Subsidiary Purchases. Transactions involving the purchase, sale or issuance of interests of a subsidiary
where control is maintained are recorded as a reduction in the redeemable noncontrolling interests or noncontrolling interests, as
applicable. Any difference between the purchase price and noncontrolling interest is recorded to Paid-in capital in the Audited
Consolidated Balance Sheets. In circumstances where the purchase of shares of an equity investment results in obtaining control,
the existing carrying value of the investment is remeasured to the acquisition date fair value and any gain or loss is recognized in
the results of operations.
Revenue Recognition. The Company’s revenue is recognized when control of the promised services are transferred to our
clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. See Note
5 of the Notes included herein for additional information.
Cost of Services. Cost of services sold primarily consists of staff costs that are directly attributable to the Company’s client
engagements, as well as third-party direct costs of production and delivery of services to its clients. Cost of services sold does
not include depreciation, amortization, and other office and general expenses that are not directly attributable to the Company’s
client engagements.
Deferred Financing Costs. The Company uses the effective interest method to amortize deferred financing costs and any
original issue premium or discount, if applicable. The Company also uses the straight-line method, which approximates the
effective interest method, to amortize the deferred financing costs.
Income Taxes. We account for income taxes using the asset and liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
and laws expected to be in effect when the differences are expected to reverse. The Company records associated interest and
penalties as a component of income tax expense. The Company records a valuation allowance against deferred income tax assets
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when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal
of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the character of
the income tax asset, tax planning strategies, changes in tax laws and other factors. The periodic assessment of the net carrying
value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment. A
change to any of these factors could impact the estimated valuation allowance and income tax expense.
Stock-Based Compensation. Under the fair value method, compensation cost is measured at fair value at the date of grant
and is expensed over the service period, generally the award’s vesting period. The Company uses its historical volatility derived
over the expected term of the award to determine the volatility factor used in determining the fair value of the award. The
Company recognizes forfeitures as they occur.
Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of
grant. The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option pricing-
model or other acceptable method and is recorded in Operating income (loss) over the service period, in this case the award’s
vesting period.
The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during
each accounting period. The Company commences recording compensation expense related to awards that are based on
performance conditions under the straight-line attribution method when it is probable that such performance conditions will be
met.
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the
respective subsidiary (“profits interests awards”). The profits interests awards are substantive equity, settled in cash and accounted
for under ASC 718, Share Based Payments. The profits interests awards represent a liability that is remeasured at fair value at
each reporting period.
Retirement Costs. Several of the Company’s subsidiaries offer employees access to certain defined contribution retirement
programs. Under the defined contribution plans, these subsidiaries, in some cases, make annual contributions to participants’
accounts which are subject to vesting. The Company’s contribution expense pursuant to these plans was $9,797 and $3,949 for
the twelve months ended December 31, 2021 and 2020, respectively. The Company also has a defined benefit pension plan. See
Note 12 of the Notes included herein for additional information on the defined benefit plan.
Income (Loss) per Common Share. Basic income (loss) per common share is based upon the weighted average number of
common shares outstanding during each period. Diluted income (loss) per common share is based on the above, in addition, if
dilutive, common share equivalents, which include outstanding options, stock appreciation rights, and unvested restricted stock
units. In periods of net loss, all potentially issuable common shares are excluded from diluted net loss per common share because
they are anti-dilutive.
Foreign Currency Translation. The functional and reporting currency of the Company is the U.S. dollar. Generally, the
Company’s subsidiaries use their local currency as their functional currency. Accordingly, the currency impacts of the translation
of the Consolidated Balance Sheets of the Company and its non-U.S. dollar based subsidiaries to U.S. dollar statements are
included as cumulative translation adjustments in Accumulated other comprehensive income (loss). Translation of intercompany
debt, which is not intended to be repaid, is included in cumulative translation adjustments. Cumulative translation adjustments
are not included in Net income (loss) unless they are actually realized through a sale or upon complete, or substantially complete,
liquidation of the Company’s net investment in the foreign operation. Translation of current intercompany balances are included
in Net income (loss). The balance sheets of non-U.S. dollar based subsidiaries are translated at the period end rate. The
Consolidated Statements of Operations of the Company and its non-U.S. dollar based subsidiaries are translated at average
exchange rates for the period.
Gains and losses arising from the Company’s foreign currency transactions are reflected in Foreign exchange, net on the
Consolidated Statements of Operations.
3. New Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts
with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by
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addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and other items. ASU
2021-08 is effective January 1, 2023; however, the Company has early adopted the standard and retrospectively applied it to the
financial statements herein.
In March 2020, the FASB issued ASU 2020-04, and in January subsequently issued ASU 2021-01, Facilitation of the Effects
of Reference Rate Reform on Financial Reporting, to provide optional expedients and exceptions for applying GAAP to contracts,
hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective
upon issuance, through December 31, 2022. The Company is evaluating the impact of the adoption of this guidance on the
Company's financial statements and disclosures.
4. Acquisitions and Dispositions
2021 Acquisitions
Acquisition of MDC Partners Inc.
On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had
entered into the a transaction agreement, providing for the combination of MDC with the operating businesses and subsidiaries
of Stagwell Media (the “Stagwell Subject Entities”) (the “Transaction Agreement”). The Stagwell Subject Entities comprised
Stagwell Marketing Group LLC (“Stagwell Marketing or SMG”) and its direct and indirect subsidiaries.
On August 2, 2021 (the “Closing Date”), we completed the combination of MDC and the Stagwell Subject Entities and a
series of steps and related transactions (such combination and transactions, the “Transactions”). In connection with the
Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned
subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo Holdings
LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries
to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and
changed its name to Stagwell Inc.
In respect of the Transactions, the acquired assets and assumed liabilities, together with acquired processes and employees,
represent a business as defined in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) 805, Business Combinations (“ASC 805”). The Transactions were accounted for as a reverse acquisition using the
acquisition method of accounting, pursuant to ASC 805-10, Business Combinations, with MDC treated as the legal acquirer and
SMG treated as the accounting acquirer. In identifying SMG as the acquiring entity for accounting purposes, MDC and SMG
took into account a number of factors, including the relative voting rights and the corporate governance structure of the Company.
SMG is considered the accounting acquirer since Stagwell Media controls the board of directors of the Company following the
Transactions and received an indirect ownership interest in the Company’s only operating subsidiary, OpCo, of 69.55% ownership
of OpCo’s common units. However, no single factor was the sole determinant in the overall conclusion that Stagwell is the
acquirer for accounting purposes; rather all factors were considered in arriving at such conclusion. Under the acquisition method
of accounting, the assets and liabilities of MDC, as the accounting acquiree, were recorded at their respective fair value as of the
date the Transactions were completed.
On August 2, 2021, an aggregate of 179,970,051 shares of the Company’s Class C Common Stock were issued to Stagwell
Media in exchange for $1.8 (the “Stagwell New MDC Contribution”). The Class C Common Stock does not participate in the
earnings of the Company. Additionally, an aggregate of 179,970,051 OpCo common units were issued to Stagwell Media in
exchange for the equity interests of the Stagwell Subject Entities (the “Stagwell OpCo Contribution”).
The fair value of the purchase consideration is $425,752, consisting of approximately 80,000,000 shares of the Company’s
Class A and B Common Stock and Common Stock equivalents based on a per share price of approximately $5.42, the closing
stock price on the date of the combination.
ASC 805 requires the allocation of the purchase price consideration to the fair value of the identified assets acquired and
liabilities assumed upon consummation of a business combination. For this purpose, fair value shall be determined in accordance
with the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). Fair value is defined
in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
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market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree
of estimation.
The total purchase price to acquire MDC has been allocated to the assets acquired and assumed liabilities based upon
preliminary estimated fair values, with any excess purchase price allocated to goodwill. The fair value of the acquired assets and
assumed liabilities as of the date of acquisition are based on preliminary estimates assisted, in part, by a third-party valuation
expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected
to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result
in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those
differences would alter the understanding of the impact of this transaction on the consolidated financial position and results of
operations of the Company.
The preliminary purchase price allocation is as follows:
$
Cash and cash equivalents
Accounts receivable
Other current assets
Fixed Assets
Right-of-use lease assets - operating leases
Intangible assets
Other assets
Accounts payable
Accruals and other liabilities
Advance billings
Current portion of lease liabilities
Current portion of deferred acquisition consideration
Long-term debt
Revolving credit facility
Long-term portion of deferred acquisition consideration
Long-term portion of lease liabilities
Other liabilities
Redeemable noncontrolling interests
Preferred shares
Noncontrolling interests
Net liabilities assumed
Goodwill
Purchase price consideration
$
Amount
130,153
413,839
41,736
80,047
253,629
810,900
16,818
(170,361)
(309,081)
(211,403)
(48,517)
(53,054)
(901,736)
(109,954)
(8,056)
(289,128)
(132,394)
(25,990)
(209,980)
(151,090)
(873,622)
1,299,374
425,752
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is
primarily attributed to the assembled workforce of MDC. Goodwill of $1,058,411, $174,719 and $66,244 was assigned to the
Integrated Agencies Network, the Media Network and the Communications Network reportable segments, respectively. The
majority of the goodwill is non-deductible for income tax purposes. Goodwill has been updated from the previously reported
amount of $1,270,081 to reflect a change in certain assets and liabilities, primarily the remeasurement of leases. There has been
no change that impacts the Consolidated Statement of Operations.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-
line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is thirteen
years. The following table presents the details of identifiable intangible assets acquired.
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Estimated
Fair Value
Trade Names
Customer Relationships
Total Acquired Intangible Assets
$
$
98,000
712,900
810,900
Estimated
Useful Life
in Years
10
6-20
MDC operating results are included in the Consolidated Statements of Operations from the date of the acquisition through
December 31, 2021 with revenue of $605,448 and a nominal net loss.
Transaction expenses were approximately $15,000 for the twelve months ended December 31, 2021.
Pro Forma Financial Information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of
January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily indicative of the
results of operations that actually would have been achieved had the acquisitions been consummated as of that time.
Twelve Months
Ended December 31,
2021
Twelve Months
Ended December 31,
2020
Revenue
$
2,224,343 $
2,087,025
The proforma net loss was nominal for the twelve months ended December 31, 2021 and 2020.
Acquisition of Goodstuff Holdings Limited
On December 31, 2021, the Company acquired GoodStuff Holdings Limited (“Goodstuff”) for approximately £21,000
(approximately $28,053) of cash consideration as well as contingent consideration up to a maximum of £22,000. The cash
consideration included an initial payment of £8,000, an excess working capital payment of approximately £9,000 and
approximately £4,000 of deferred payments. The contingent consideration is tied to employees’ service and therefore will be
recognized as compensation expense through 2026. Therefore, only the cash consideration has been allocated to the assets
acquired and assumed liabilities of Goodstuff based upon preliminary estimated fair values, with any excess purchase price
allocated to goodwill. The preliminary purchase price allocation is as follows:
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Cash and cash equivalents
Accounts receivable
Other current assets
Fixed Assets
Right-of-use lease assets - operating leases
Intangible assets
Other assets
Accounts payable
Accruals and other liabilities
Advance billings
Current portion of lease liabilities
Income taxes payable
Long-term portion of lease liabilities
Other liabilities
Net assets assumed
Goodwill
Purchase price consideration
Amount
30,985
28,685
3,207
237
2,060
14,974
55
(6,344)
(27,353)
(15,956)
(857)
(967)
(3,744)
(1,204)
23,778
4,275
28,053
$
$
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is
primarily attributed to the assembled workforce of Goodstuff. Goodwill of $4,275 was assigned to the Media Network. The
majority of the goodwill is non-deductible for income tax purposes.
Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-
line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is ten
years. The following table presents the details of identifiable intangible assets acquired.
Estimated
Fair Value
Trade Names
Customer Relationships
Total Acquired Intangible Assets
$
$
1,349
13,625
14,974
Estimated
Useful Life
in Years
15
10
Pro Forma Financial Information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of
January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily indicative of the
results of operations that actually would have been achieved had the acquisitions been consummated as of that time.
Twelve Months
Ended December
31, 2021
Twelve Months
Ended December
31, 2020
Revenue
Net Income
$
1,488,532 $
38,719
902,577
72,715
Purchases of noncontrolling interests
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On October 1, 2021, the Company entered into an agreement to purchase the approximate 27% remaining interest of Targeted
Victory it did not already own, stipulating the purchase of 13.3% on October 1, 2021 and the remaining 13.3% on July 31, 2023,
with the option for the seller to delay the second purchase until July 31, 2025. The purchase price of $73,898, was comprised of
a contingent deferred acquisition payment and redeemable noncontrolling interest with estimated present values at the acquisition
date of $46,618 and $27,280, respectively. The contingent deferred payment and redeemable noncontrolling interest were based
on the financial results of the underlying business through 2025. In addition, at the option of the Company, up to 50% of the total
purchase price can be paid in shares of Class A Common Stock and in no event may the purchase price exceed $135,000.
On December 1, 2021, the Company acquired the approximate 27% remaining interest of Concentric it did not already own
for an aggregate purchase price of $8,058, comprised of a closing cash payment of $1,581 in 2022 and contingent deferred
acquisition payments with an estimated present value at the acquisition date of $6,477. The contingent deferred payments were
based on the financial results of the underlying business through 2022 with final payment due in 2023.
On December 31, 2021, the Company acquired the approximate 49% remaining interest of Instrument it did not already own
for an aggregate purchase price of $157,072, comprised of a closing payment of $37,500 in cash and $37,500 in shares of Class
A Common Stock and deferred acquisition payments with an estimated present value at the acquisition date of $82,072. The
deferred payments are not contingent and will be paid in 2023 and 2024.
2020 Acquisitions
On February 14, 2020, the Company acquired Sloane & Company (“Sloane”) from an affiliate of Stagwell for approximately
$24,400 of total consideration. Total consideration included a cash payment of $18,900 made by Stagwell Media (Non-
consolidated related party) which was accounted for as a non-cash contribution for the purposes of the Company’s Consolidated
Statement of Cash Flows and Statement of Changes in Equity, the acquisition date fair value of the contingent deferred acquisition
consideration of $4,800, and $700 of cash paid by the Company. Sloane is an industry-leading strategic communications firm,
based out of New York. Sloane will extend SKDK’s current suite of services and allow for the expansion into the capital markets
and special situations verticals.
On August 14, 2020, the Company acquired Kettle Solutions, LLC (“Kettle”) for approximately $5,400 of total consideration.
Total consideration included a cash payment of $4,900, plus an additional $500 due upon the finalization of Kettle’s working
capital accounts, as outlined in the purchase agreement. The purchase agreement also offers the previous owners of Kettle an
additional $11,900 in deferred consideration, and is dependent on Kettle reaching contractually defined operating goals in 2020,
2021, 2022 and 2023. Kettle is an industry recognized web design and content creation firm that assists its customers in developing
and executing marketing campaigns, based out of New York.
On October 30, 2020, the Company acquired Truelogic Software, LLC, Ramenu S.A., and Polar Bear Development S.R.L.
(collectively referred to as “Truelogic”), for approximately $17,300 of total consideration. Total consideration included a cash
payment of $8,900, the acquisition date fair value of the contingent deferred acquisition consideration of $7,900, and an additional
$500 due upon the finalization of Truelogic’s working capital accounts, as outlined in the purchase agreement. Truelogic is a
software development firm based in Buenos Aires that assists customers in sourcing top South American engineering talent and
developing small-scale software projects. Truelogic is included in the Company’s Code and Theory Brand, which is part of its
Integrated Agencies Reportable segment.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of each
acquisition (in thousands):
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$
Cash, cash equivalents and restricted cash
Accounts receivable and other current assets
Other noncurrent assets
Intangible assets
Property and equipment
Right-of-use lease assets – operating leases
Accounts payable and other current liabilities
Advanced billings
Operating lease liabilities
Goodwill
Total net assets acquired
$
Sloane
Kettle
Truelogic
Total
2020
— $
2,768
—
5,900
72
—
(469)
(130)
—
16,275
24,416 $
49 $
2,732
172
1,930
58
533
(552)
(310)
(533)
1,323
5,402 $
90 $
2,958
10
9,500
50
201
(1,063)
(429)
(201)
6,184
17,300 $
139
8,458
182
17,330
180
734
(2,084)
(869)
(734)
23,782
47,118
Goodwill recognized on the Sloane, Kettle and Truelogic acquisitions is fully-deductible for income tax purposes.
The following table reports the fair value of intangible assets acquired, including the corresponding weighted average
amortization periods, as of the date of each acquisition (in thousands, except years):
2020
Weighted Average
Amortization
Period
10 years
11 years
Sloane
Kettle
Truelogic
Total
$
$
4,600 $
1,300
5,900 $
1,600 $
330
1,930 $
9,100 $
400
9,500 $
15,300
2,030
17,330
Customer relationships
Trade names and trademarks
Total
The following table summarizes the total revenue and net income included in the Consolidated Statements of Operations and
Comprehensive Income (Loss) for the twelve months ended December 31, 2020 from the date of each acquisition (in thousands):
Twelve Months Ended
December 31, 2020
Revenue
$
Net Income
22,381
2,685
Pro Forma Financial Information (unaudited)
The unaudited pro forma information for the periods set forth below gives effect to the 2020 acquisitions as if they had
occurred as of January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily
indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that
time (in thousands):
Twelve Months Ended
December 31, 2020
Revenue
$
Net Income
911,203
75,767
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2021 Disposition
On September 15, 2021, the Company sold Reputation Defender to a strategic buyer for approximately $40,000 resulting in
a gain of approximately $43,000. The gain is recognized within the All Other category in Gain on sale of business and other, net
within the Audited Consolidated Statements of Operations.
5. Revenue
The Company’s revenue recognition policies are established in accordance with ASC 606, and accordingly, revenue is
recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration
we expect to be entitled to in exchange for those goods or services.
The Stagwell network provides an extensive range of services to our clients, offering a variety of marketing and
communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms
(print, digital, social media, television broadcast), public relations services including strategy, editorial, crisis support or issues
management, media training, influencer engagement and events management. We also provide media buying and planning across
a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast), experiential
marketing and application/website design and development.
The primary source of the Company’s revenue is from agency arrangements in the form of fees for services performed,
commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances,
revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more
than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative
stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost
plus margin.
The determination of our performance obligations is specific to the services included within each contract. Based on a client’s
requirements within the contract, and how these services are provided, multiple services could represent separate performance
obligations or be combined and considered one performance obligation. Contracts that contain services that are not significantly
integrated or interdependent, and that do not significantly modify or customize each other, are considered separate performance
obligations. Typically, we consider media planning, media buying, creative (or strategy), production and experiential marketing
services to be separate performance obligations if included in the same contract as each of these services can be provided on a
stand-alone basis, and do not significantly modify or customize each other. Public relations services and application/website
design and development are typically each considered one performance obligation as there is a significant integration of these
services into a combined output.
Certain of the Company’s contracts consist of a single performance obligation. In these instances, the Company does not
consider the underlying activities as separate or distinct performance obligations because its services are highly interrelated, and
the integration of the various components is essential to the overall promise to the Company’s customer. In certain of the
Company’s client contracts, the performance obligation is a stand-ready obligation because the Company provides a constant
level of similar services over the term of the contract.
We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically
recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date
in relation to total estimated efforts to complete the contract. To a lesser extent, revenue is recognized using output measures,
such as impressions or ongoing reporting. For client contracts when the Company has a stand-ready obligation to perform services
on an ongoing basis over the life of the contract, where the scope of these arrangements includes an undefined number of broad
activities and there are no significant gaps in performing the services, the Company recognizes revenue ratably using a time-
based measure. In addition, for client contracts where the Company is providing online subscription-based hosted services, it
recognizes revenue ratably over the contract term. Point in time recognition primarily relates to certain commission-based
contracts, which are recognized upon the placement of advertisements in various media when the Company has no further
performance obligation.
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Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The
Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by
client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services
provided through the end of the contract or termination date.
Within each contract, we identify whether the Company is principal or agent at the performance obligation level. In
arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily
responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded
at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other
arrangements where a third-party supplier, rather than the Company, is primarily responsible for the integration of services into
the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client,
we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of
Stagwell’s agencies under a production services agreement is to facilitate a client’s purchasing of production capabilities from a
third-party production company in accordance with the client’s strategy and guidelines. The obligation of Stagwell’s agencies
under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client
to execute its media plan. We do not obtain control prior to transferring these services to our clients; therefore, we primarily act
as agent for production and media buying services.
A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which
allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals.
Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount
that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related
to performance incentives as we satisfy the performance obligation to which the performance incentives are related.
Disaggregated Revenue Data
The Company provides a broad range of services to a large base of clients across the full spectrum of verticals globally. The
primary source of revenue is from agency arrangements in the form of fees for services performed, commissions, and from
performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple
disciplines, and through multiple Brands. Representation of a client rarely means that Stagwell handles marketing
communications for all Brands or product lines of the client in every geographical location. The Company’s Brands often
cooperate with one another through referrals and the sharing of both services and expertise, which enables Stagwell to service
clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate,
independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing
clients across the Stagwell network.
The following table presents revenue disaggregated by our principal capabilities for the twelve months ended December 31,
2021 and 2020:
Principal Capabilities
Reportable Segment
Digital Transformation
All Segments
Creativity and Communications
Performance Media and Data
Integrated Agencies Network,
Communications Network, Other
Media Network, Other
Consumer Insights and Strategy
Integrated Agencies Network, Other
Twelve Months Ended
December 31,
$
2021
400,857 $
561,538
341,730
165,238
$ 1,469,363 $
2020
374,689
152,499
253,011
107,833
888,032
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Stagwell has historically largely focused where the Company was founded in North America, the largest market for its
services in the world. The Company has expanded its global footprint to support clients looking for help to grow their businesses
in new markets. Stagwell’s Brands are located in the United States and United Kingdom, and more than thirty other countries
around the world. In the past, some clients have responded to weakening economic conditions with reductions to their marketing
budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses.
The following table presents revenue disaggregated by geography for the twelve months ended December 31, 2021 and
2020:
Geographical Location Reportable Segment
United States
United Kingdom
Other
All
All
All
Twelve Months Ended
December 31,
2021
$ 1,219,816 $
105,961
143,586
$ 1,469,363 $
2020
804,418
41,489
42,125
888,032
Contract Assets and Liabilities
Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing
advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees
were $116,558 and $30,570 at December 31, 2021 and 2020, respectively, and are included as a component of Accounts receivable
on the Audited Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced
were $63,065 and $11,063 at December 31, 2021 and 2020, respectively, and are included on the Consolidated Balance Sheets as
Expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services.
Additions to contract assets of $99,853 were added during the period as a result of the acquisition of MDC.
Contract liabilities consist of fees received from or billed to clients in excess of fees recognized. Such fees are classified as
Advance billings presented on the Company’s Consolidated Balance Sheets. In arrangements in which we are acting as an agent,
the recognition related to the contract liability is presented on a net basis within the Consolidated Statements of Operations.
Advance billings at December 31, 2021 and 2020 were $361,885 and $66,418, respectively. The increase in the Advance billings
balance of $295,467 for the twelve months ended December 31, 2021 was primarily driven by the acquisition of MDC,
representing a 211,403 increase, and by cash payments received or due in advance of satisfying our performance obligations,
partially offset by $64,446 recognized that were included in the Advance billings balances as of December 31, 2020 and reductions
due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the twelve months ended December 31, 2021 were not materially
impacted by write offs, impairment losses or any other factors.
The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we
had approximately $22,812 of unsatisfied performance obligations as of December 31, 2021, of which we expect to recognize
approximately 93% in 2022 and 7% in 2023.
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6. Income (Loss) Per Common Share
The following table sets forth the computations of basic and diluted income (loss) per common share:
Numerator:
Net loss attributable to Stagwell Inc. common shareholders
Denominator:
Weighted average number of common shares outstanding
Earnings Per Share - Basic & Diluted
Anti-dilutive:
Class C shares
Stock Appreciation Rights and Restricted Awards
Twelve Months
Ended
December 31,
2021
$
$
(3,706)
90,426,215
(0.04)
179,970,051
9,508,668
On September 23, 2021, the Company provided notices of conversion to each holder of record of each of the Company’s
Series 6 and Series 8 Preferred Shares. Pursuant to the notices, the 50,000,000 issued and outstanding Series 6 Preferred Shares
were converted into 12,086,700 Class A Common Shares, in the aggregate, on October 7, 2021, and the 73,849,000 issued and
outstanding Series 8 Preferred Shares were converted into 20,948,746 Class A Common Shares, in the aggregate, on November
8, 2021.
The combination of MDC and SMG was completed on August 2, 2021, which was treated as a reverse acquisition for
financial reporting purposes. SMG was treated as the accounting acquirer and MDC was the accounting acquiree. Therefore,
under applicable accounting principles, the historical financial results of SMG prior to August 2, 2021 are considered our
historical financial results. Accordingly, historical information presented in this Form 10-K for events occurring or periods ending
before August 2, 2021 does not reflect the impact of the Transactions or the financial results of MDC and may not be comparable
with historical information for events occurring or periods ending on or after August 2, 2021.
SMG’s equity structure, prior to the combination with MDC, was a non-unitized single member limited liability company,
resulting in all components of equity attributable to the member being reported within Members' Capital. Given that SMG was a
non-unitized single member limited liability company, net income (loss) prior to the combination is not applicable for purposes
of calculating earnings per share. Therefore, the net income (loss) in the table above includes the income or loss for the period
beginning on the acquisition date through the end of the respective reporting period and as such will not reconcile to the respective
amounts presented within the Consolidated Statements of Operations.
7. Fixed Assets
The following is a summary of the Company’s fixed assets as of December 31:
Computers, furniture and
fixtures
Leasehold improvements
Capitalized Software
2021
Accumulated
Depreciation
Cost
Net Book
Value
Cost
2020
Accumulated
Depreciation
Net Book
Value
$
41,839 $
(18,136) $
23,703 $
21,373 $
(13,210) $
8,163
91,572
29,844
163,255 $
(17,759)
(8,757)
(44,652) $
73,813
21,087
118,603 $
22,689
19,916
63,978 $
(10,667)
(4,487)
(28,364) $
$
12,022
15,429
35,614
Depreciation expense for the twelve months ended December 31, 2021 and 2020 was $19,696 and $10,144, respectively.
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8. Goodwill and Intangible Assets
As of December 31, goodwill was as follows:
Balance at December 31,
2019
Acquired goodwill
Foreign currency translation
Balance at December 31,
2020
Acquired goodwill
Disposition
Foreign currency translation
Balance at December 31,
2021
$
$
$
Integrated
Agencies
Network
88,094 $
7,070
—
95,164 $
1,058,411
—
(502)
1,153,073 $
Media
Network
Communicatio
n Network
All Other
Corporate
177,073 $
235
3,331
180,639 $
178,994
—
(1,020)
358,613 $
33,258 $
16,275
—
49,533 $
66,244
—
—
115,777 $
26,760 $
195
(566)
26,389 $
—
(935)
(194)
25,260 $
— $
—
— $
—
—
—
— $
Total
325,185
23,775
2,765
351,725
1,303,649
(935)
(1,716)
1,652,723
For the twelve months ended December 31, 2021 and 2020, no impairment loss was recognized.
There were no accumulated goodwill impairment charges as of December 31, 2021 and 2020.
The gross and net amounts of intangible assets other than goodwill as of December 31,
Intangible Assets
2021
2020
Customer relationships – gross
Less accumulated amortization
Customer relationships – net
Trademarks – gross
Less accumulated amortization
Trademarks – net
Noncompete – gross
Less accumulated amortization
Noncompete – net
Other intangible assets – gross
Less accumulated amortization
Other intangible assets – net
$
$
$
$
$
$
$
$
875,541 $
(92,746)
782,795 $
190,162 $
(36,775)
153,387 $
3,989 $
(3,386)
603 $
3,717 $
(2,807)
910 $
154,510
(56,299)
98,211
118,647
(32,431)
86,216
4,005
(2,980)
1,025
2,893
(2,310)
583
Total intangible assets
Less accumulated amortization
Total intangible assets – net
$ 1,073,409 $
(135,714)
937,695 $
$
280,055
(94,020)
186,035
For the twelve months ended December 31, 2021, the Company recognized an impairment charge of $16,187 to reduce the
carrying values of intangible assets within the Integrated Agencies Network and Media Network reportable segments in
connection with the abandonment of certain trade names as part of the rebranding of certain Brands. For the twelve months ended
December 31, 2020, no impairment loss was recognized.
The weighted average amortization period for customer relationships is eight years, trademarks is eleven years, noncompete
is four years, and other intangible assets is two years. In total, the weighted average amortization period is ten years. Amortization
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expense related to amortizable intangible assets for the twelve months ended December 31, 2021 and 2020 was $56,774
and $30,881, respectively.
The estimated amortization expense for the five succeeding years is as follows:
Year
2022
2023
2024
2025
2026
Thereafte
r
Amortizatio
n
92,616
$
88,118
84,880
82,722
80,466
508,893
9. Deferred Acquisition Consideration
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed
purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific
personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each
reporting period through operating income. The Company accounts for certain retention payments through operating income as
compensation expense over the required retention period.
The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a
recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the Audited Consolidated
Balance Sheets as of December 31, 2021 and 2020:
December 31,
2021
2020
Beginning balance of contingent payments
Payments
Adjustment to deferred acquisition
consideration (1)
Additions (2)
Other
Ending balance of contingent payments
$
$
17,847 $
(12,431)
18,721
198,937
(705)
222,369 $
65,792
(66,235)
2,520
15,717
53
17,847
(1) Adjustment to deferred acquisition consideration contains fair value changes from the Company’s initial estimates of deferred
acquisition payments. Redemption value adjustments are recorded within Office and general expenses on the Audited
Consolidated Statements of Operations.
(2) Approximately $61,000 of additions in 2021 represent deferred acquisition consideration acquired in connection with the
acquisition of MDC. Approximately $136,000 of additions represent deferred acquisition consideration acquired in connection
with the purchases of noncontrolling interests. See Note 4 of the Notes included herein for additional information related to the
purchases of Concentric, Targeted Victory, and Instrument.
10. Leases
The Company leases office space in North America, Europe, Asia, South America, and Australia. This space is primarily
used for office and administrative purposes by the Company’s employees in performing professional services. These leases are
classified as operating leases and expire between years 2022 through 2034. The Company’s finance leases are immaterial.
The Company’s leasing policies are established in accordance with ASC 842, and accordingly, the Company recognizes on
the balance sheet at the time of lease commencement a right-of-use lease asset and a lease liability, initially measured at the
present value of the lease payments. Right-of-use lease assets represent the Company’s right to use an underlying asset for the
lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All right-of-
use lease assets are reviewed for impairment. As the Company’s implicit rate in its leases is not readily determinable, in
determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information
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available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of
noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is
reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain
the lease will not be terminated early.
Lease costs are recognized in the Consolidated Statements of Operations over the lease term on a straight-line basis.
Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated
useful life of the asset.
Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate. Variable
lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement
date and are included within the lease liabilities. Lease liabilities are not remeasured as a result of changes in the index or rate,
rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred. In
addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other
variable operating expenses. Such amounts are not included in the measurement of the lease liability and are recognized in the
period when the facts and circumstances which the variable lease payments are based upon occur.
Some of the Company’s leases include options to extend or renew the leases through 2044. The renewal and extension options
are not included in the lease term as the Company is not reasonably certain that it will exercise its option.
From time to time, the Company enters into sublease arrangements with unrelated third parties. These leases are classified
as operating leases and expire between years 2022 through 2027. Sublease income is recognized over the lease term on a straight-
line basis. Currently, the Company subleases office space in North America, Asia, Europe and Australia.
As of December 31, 2021, the Company has entered into eleven operating leases for which the commencement date has not
yet occurred, primarily because the premises are in the process of being prepared for occupancy by the landlord or the space is
being renewed. Accordingly, these eleven leases represent an obligation of the Company that is not reflected within the Audited
Consolidated Balance Sheets as of December 31, 2021. The aggregate future liability related to these leases is approximately
$19,069.
The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing
rate.
The following table presents lease costs and other quantitative information for the twelve months ended December 31, 2021
and 2020:
Lease Cost:
Operating lease cost
Variable lease cost
Sublease rental income
Total lease cost
Additional information:
Cash paid for amounts included in the measurement of
lease liabilities for operating leases
Operating cash flows
Twelve Months Ended
December 31,
2021
2020
$
46,019
$
25,507
10,685
(7,367)
$
49,337
3,843
(3,777)
25,573
$
$
53,360
$
20,942
Right-of-use lease assets obtained in exchange for
operating lease liabilities and other non-cash adjustments $ 373,179
Weighted average remaining lease term (in years) -
Operating leases
Weighted average discount rate - Operating leases
6.76
4.0 %
$
2,952
4.42
4.0 %
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Operating lease expense is included in office and general expenses in the Consolidated Statements of Operations. The
Company’s lease expense for leases with a term of 12 months or less is immaterial.
The following table presents minimum future rental payments under the Company’s leases at December 31, 2021 and their
reconciliation to the corresponding lease liabilities:
Maturity Analysis
$
2022
2023
2024
2025
2026
2027 and thereafter
Total
Less: Present value discount
Lease liability
$
86,291
83,638
69,328
53,770
39,994
143,398
476,419
(61,434)
414,985
11. Debt
As of December 31, 2021 and 2020, the Company’s indebtedness was comprised as follows:
December
31, 2021
December
31, 2020
Revolving credit facility(1)
Term debt
5.625% Notes
Debt issuance costs
Total debt
Less: Current maturities of long-term debt
Long-term debt
$
110,165 $
—
1,100,000
(18,564)
$ 1,191,601 $
—
$ 1,191,601 $
201,636
994
—
(3,612)
199,018
(994)
198,024
(1) Included in the repayment of the revolving credit facility are the repayments related to the acquired MDC credit facility of
$109,954.
Interest expense related to long-term debt included in Interest expense, net on the Consolidated Statements of Operations for
the twelve months ended December 31, 2021 and 2020 was $29,594 and $5,472, respectively.
The amortization of debt issuance costs included in Interest expense, net on the Consolidated Statements of Operations for
the twelve months ended December 31, 2021 and 2020 was $2,693 and $831, respectively.
Revolving Credit Agreement
On November 18, 2019, the Company entered into a debt agreement (“JPM Syndicated Facility”) with a syndicate of banks
led by JPMorgan Chase Bank, N.A (“JPM”). The JPM Syndicated Facility consisted of a five-year revolving credit facility of
$265,000 (“JPM Revolver”) with the right to be increased by an additional $150,000. On March 18, 2020, the Company increased
the commitments on the JPM Revolver by $60,000 to $325,000.
On August 2, 2021, in connection with the closing of the acquisition of MDC, the Company entered into an amended and
restated credit agreement (the “Combined Credit Agreement”) with a syndicate of banks led by JPM to increase commitments on
the existing JPM Revolver. The Combined Credit Agreement consists of a $500,000 senior secured revolving credit facility with
a five-year maturity.
The Combined Credit Agreement contains sub-limits for revolving loans and letters of credit of $50,000 for loans
denominated in pounds sterling or euros. It also includes an accordion feature under which the Company may request, subject to
lender approval and certain conditions, to increase the amount of the commitments to an aggregate amount not to exceed
$650,000.
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Borrowings under the Combined Credit Agreement bear interest at a rate equal to, at the Company’s option, (i) the greatest
of (a) the prime rate of interest announced from time to time by JPM, (b) the federal funds effective rate from time to time plus
0.50% and (c) the LIBOR rate plus 1%, in each case, plus the applicable margin (calculated based on the Company’s total leverage
ratio) at that time or (ii) the LIBOR rate plus the applicable margin (calculated based on the Company’s total leverage ratio) at
that time. The Company is also required to pay an unused revolver fee to the lenders under the Combined Credit Agreement in
respect of the unused commitments thereunder ranging from 0.15% to 0.30% of unused commitments depending on the total
leverage ratio, as well as customary letter of credit fees.
Advances under the Combined Credit Agreement may be prepaid in whole or in part from time to time without penalty or
premium. The Combined Credit Agreement commitment may be reduced by the Company from time to time. Principal amounts
outstanding under the Combined Credit Agreement are due and payable in full at maturity within five years of the date of the
Combined Credit Agreement.
If an event of default occurs under the Combined Credit Agreement or any future secured indebtedness, the holders of such
secured indebtedness will have a prior right to our assets securing such indebtedness, to the exclusion of the holders of the 5.625%
Notes (as defined below), even if we are in default with respect to the 5.625% Notes. In that event, our assets securing such
indebtedness would first be used to repay in full all indebtedness and other obligations secured by them (including all amounts
outstanding under the Combined Credit Agreement), resulting in all or a portion of our assets being unavailable to satisfy the
claims of the holders of the 5.625% Notes and other unsecured indebtedness.
The Combined Credit Agreement contains a number of financial and nonfinancial covenants and is guaranteed by
substantially all of our present and future subsidiaries, subject to customary exceptions.
The Company was in compliance with all covenants at December 31, 2021.
A portion of the Combined Credit Agreement in an amount not to exceed $50,000 is available for the issuance of standby
letters of credit. At December 31, 2021 and 2020, the Company had issued undrawn outstanding letters of credit of $24,332 and
$5,500, respectively.
Term Loan
On November 13, 2020, the Company, JPM as administrative agent, and a group of lenders entered into a term loan agreement
that provided the Company with a delayed draw term loan in an aggregate principal amount of $90,000 (“DD Term Loan A”)
with a maturity date of November 13, 2023.
In connection with the acquisition of MDC, the Company drew down on the full amount of the DD Term Loan A, repaid the
amount with the Combined Credit Agreement, and terminated the agreement.
Line of Credit
On August 2, 2021, the Company entered into an unsecured uncommitted line of credit in the aggregate amount of $30,000
with JPM (the “Line of Credit”) to meet certain short-term working capital needs. The Line of Credit expired on August 20, 2021.
Senior Notes
In August 2021, the Company issued $1,100,000 aggregate principal amount of 5.625% senior notes (“5.625% Notes”). A
portion of the proceeds from the issuance of the 5.625% Notes was used to redeem $870,300 aggregate principal amount of the
outstanding 7.50% Senior Notes due 2024 (the “Existing Notes”) for a price of $904,200. This price is equal to 101.625% of the
outstanding principal amount of the Existing Notes being redeemed, plus, accrued, and unpaid interest on the principal amount
of such Existing Notes. The Company did not recognize a gain or loss on redemption.
The 5.625% Notes are due August 15, 2029 and bear interest of 5.625% to be paid on February 15 and August 15 of each
year, commencing on February 15, 2022.
The 5.625% Notes are guaranteed on a senior unsecured basis by substantially all of the Company’s subsidiaries. The 5.625%
Notes rank (i) equally in right of payment with all of the Company’s or any guarantor’s existing and future unsubordinated
indebtedness, (ii) senior in right of payment to the Company’s or any guarantor’s existing and future subordinated indebtedness,
(iii) effectively subordinated to any of the Company’s or any guarantor’s existing and future secured indebtedness to the extent
of the collateral securing such indebtedness, including the Combined Credit Agreement, and (iv) structurally subordinated to all
existing and future liabilities of the Company’s subsidiaries that are not guarantors.
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Our obligations under the 5.625% Notes are unsecured and are effectively junior to our secured indebtedness to the extent of
the value of the collateral securing such secured indebtedness. Borrowings under the Combined Credit Agreement are secured by
substantially all of the assets of the Company, and any existing and future subsidiary guarantors, including all of the capital stock
of each restricted subsidiary.
The Company may, at its option, redeem the 5.625% Notes in whole at any time or in part from time to time, on and after
August 15, 2024 at a redemption price of 102.813% of the principal amount thereof if redeemed during the twelve-month period
beginning on August 15, 2024, at a redemption price of 101.406% of the principal amount thereof if redeemed during the twelve-
month period beginning on August 15, 2025 and at a redemption price of 100% of the principal amount thereof if redeemed on
August 15, 2026 and thereafter. Prior to August 15, 2024, the Company may, at its option, redeem some or all of the 5.625%
Notes at a price equal to 100% of the principal amount of the 5.625% Notes plus a “make whole” premium and accrued and
unpaid interest. The Company may also redeem, at its option, prior to August 15, 2024, up to 40% of the 5.625% Notes with the
net proceeds from one or more equity offerings at a redemption price of 105.625% of the principal amount thereof.
If the Company experiences certain kinds of changes of control (as defined in the indenture), holders of the 5.625% Notes
may require the Company to repurchase any 5.625% Notes held by them at a price equal to 101% of the principal amount of the
5.625% Notes plus accrued and unpaid interest. In addition, if the Company sells assets under certain circumstances, it must offer
to repurchase the 5.625% Notes at a price equal to 100% of the principal amount of the 5.625% Notes plus accrued and unpaid
interest.
The indenture includes covenants that, among other things, restrict the Company’s ability and the ability of its restricted
subsidiaries (as defined in the indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase
the capital stock of the Company; make certain types of investments; create restrictions on the payment of dividends or other
amounts from the Company’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale
and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to, another
person. These covenants are subject to a number of important limitations and exceptions. The 5.625% Notes are also subject to
customary events of default, including cross-payment default and cross-acceleration provisions. The Company was in compliance
with all covenants at December 31, 2021.
Interest Rate Swap
The Company also owns an interest rate swap maturing April 2022 with Bank of America to convert $10,469 of its variable
rate debt as of December 31, 2021 to a fixed rate of 2.7%. The fair value of the swap was $77 and $416 and is included in Accruals
and other liabilities on the Audited Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively.
12. Employee Benefit Plan
A subsidiary of the Company, sponsors a defined benefit plan with benefits based on each employee’s years of service and
compensation. The benefits under the defined benefit pension plan are frozen.
Net Periodic Pension Cost and Pension Benefit Obligation
Net periodic pension cost consists of the following components for the years ended December 31:
Pension
Benefits
2021
Interest cost on benefit obligation
Expected return on plan assets
Net periodic benefit cost
$
441
(697)
(256)
The above costs are included within Other, net on the Audited Consolidated Statements of Operations.
The following weighted average assumptions were used to determine net periodic costs at December 31:
Pension
Benefits
2021
2.62 %
6.50 %
Discount rate
Expected return on plan assets
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The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of
the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes.
Other changes in plan assets and benefit obligation recognized in Other comprehensive income (loss) consist of the following
components for the year ended December 31:
Current year actuarial gain
Total recognized in other comprehensive (income)
Total recognized in net periodic benefit cost and other comprehensive loss $
$
(722)
(722)
(978)
The following table summarizes the change in benefit obligation and fair values of plan assets for the year ended December
31:
Pension
Benefits
2021
Change in benefit obligation:
Benefit obligation, Beginning balance (1)
Interest Cost
Actuarial gains
Benefits paid
Benefit obligation, Ending balance
Change in plan assets:
Fair value of plan assets, Beginning balance (1)
Actual return on plan assets
Benefits paid
Fair value of plan assets, Ending balance
Funded status
$
$
Pension
Benefits
2021
41,206
441
(1,091)
(551)
40,005
26,578
328
(551)
26,355
13,650
(1) Benefit obligation assumed in connection with the acquisition of MDC. Beginning balance is as of July 31, 2021.
Amounts recognized on the balance sheet at December 31 consist of the following:
Pension
Benefits
2021
Non-current liability
$
Net amount recognized $
13,650
13,650
Amounts recognized in Accumulated Other Comprehensive Loss before income taxes consists of the following components
for the year ended December 31:
Pension
Benefits
2021
Accumulated net actuarial gains
Amount recognized
$
$
722
722
In 2022, the Company estimates that it will not recognize any amortization of net actuarial losses from accumulated other
comprehensive loss, net into net periodic cost related to the pension plan.
The following weighted average assumptions were used to determine benefit obligations as of December 31:
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Discount rate
Pension
Benefits
2021
2.82 %
The discount rate assumptions at December 31, 2021 was determined independently. The discount rate was derived from the
effective interest rate of a hypothetical portfolio of high-quality bonds, whose cash flows match the expected future benefit
payments from the plan as of the measurement date.
Fair Value of Plan Assets and Investment Strategy
The fair value of the plan assets as of December 31, is as follows:
Asset Category:
Money market fund – Short-term investments $
Mutual funds
Total
$
December
31, 2021
Level 1
Level 2
Level 3
937 $
25,418
26,355 $
937 $
25,418
26,355 $
— $
—
— $
—
—
—
The pension plans weighted-average asset allocation for the year ended December 31, 2021 is as follows:
Asset Category:
Equity securities
Debt securities
Cash/cash equivalents and Short-term investments
Target
Allocation
2021
Actual
Allocation
2021
65.0 %
30.0 %
5.0 %
100.0 %
69.1 %
27.3 %
3.6 %
100.0 %
The goals of the pension plan investment program are to fully fund the obligation to pay retirement benefits in accordance
with the plan documents and to provide returns that, along with appropriate funding from the Company, maintain an asset/liability
ratio that is in compliance with all applicable laws and regulations and assures timely payment of retirement benefits.
Equity securities primarily include investments in large-cap and mid-cap companies located in the United States. Debt
securities are diversified across different asset types with bonds issued in the United States as well as outside the United States.
Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur
in the near term and that such changes could materially affect the amounts reported in the preceding tables.
Cash Flows
The pension plan contributions are deposited into a trust, and the pension plan benefit payments are made from trust assets.
During 2021, the Company did not make any contributions to the pension plan. The Company does not expect that it will make
any contributions to the pension plan in 2022. Fluctuations in actual market returns as well as changes in general interest rates
will result in changes in the market value of plan assets and may result in increased or decreased retirement benefit costs and
contributions in future periods.
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The following estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid in
the years ending December 31:
Period
2022
2023
2024
2025
2026
Thereafte
r
Amount
$
1,698
1,933
2,167
2,111
2,087
10,721
13. Noncontrolling and Redeemable Noncontrolling Interests
Noncontrolling Interests
When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an
option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where
the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as noncontrolling
interests in the equity section of the Company’s Audited Consolidated Balance Sheets. Where the incremental purchase may be
required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity at their estimated
acquisition date redemption value and adjusted at each reporting period for changes to their estimated redemption value through
Retained earnings (but not less than their initial redemption value), except for foreign currency translation adjustments.
Changes in the Company’s ownership interests in our less than 100% owned subsidiaries during the twelve months ended
December 31, 2021 and 2020 were as follows:
Net income attributable to Stagwell Inc. common shareholders $
Transfers from the noncontrolling interest:
Decrease in Stagwell Inc. Paid-in capital for purchase of RNCI
and noncontrolling interests
Net transfers from noncontrolling interests
Change from net income (loss) attributable to Stagwell Inc. and
transfers to noncontrolling interests
$
$
Twelve Months Ended
December 31,
2021
2020
21,036 $
56,356
(26,538)
(26,538) $
(5,502) $
—
—
56,356
The following table presents net income attributable to noncontrolling interests between holders of Class C shares and other
equity interest holders for the twelve months ended December 31, 2021 and 2020:
Net income attribitable of Class C shareholders
Net income attribitable of other equity interest holders
Net income attributable to noncontrolling interests
Twelve Months Ended
December 31,
2021
2020
$
$
6,126 $
9,170
15,296 $
—
18,231
18,231
The following table presents noncontrolling interests between holders of Class C shares and other equity interest holders as
of December 31, 2021 and 2020:
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Noncontrolling interest of Class C shareholders
Noncontrolling interest of other equity interest holders
NCI attributable to noncontrolling interests
December 31,
2021
2020
$
$
475,373 $
32,914
508,287 $
—
39,787
39,787
Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
December 31,
2021
2020
Beginning Balance
Redemptions
Acquisitions (1)
Changes in redemption value
Net loss attributable to redeemable noncontrolling interests
Other
$
Ending Balance
$
604 $
(15,231)
53,270
3,834
(412)
1,299
43,364 $
3,602
—
—
128
(3,126)
—
604
(1) Approximately $26,000 represents redeemable noncontrolling interests acquired in connection with the acquisition of
MDC. Approximately $27,000 represents redeemable noncontrolling interests acquired in connection with the purchase of the
noncontrolling interest of Targeted Victory. See Note 4 of the Notes included herein for additional information related to the
purchase of Targeted Victory.
The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions,
including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these
rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date
would result in obligations of the Company to fund the related amounts during 2021 to 2025. It is not determinable, at this time,
if or when the owners of these rights will exercise all or a portion of these rights.
The redeemable noncontrolling interest of $43,364 as of December 31, 2021, consists of $41,324, assuming that the
subsidiaries perform over the relevant periods at their current profit levels, $2,040 upon termination of such owner’s employment
with the applicable subsidiary or death, and $0 representing the initial redemption value (required floor) recorded for certain
acquisitions in excess of the amount the Company would have to pay should the Company acquire the remaining ownership
interests for such subsidiaries.
These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the
estimated fair values. There is no related impact on the Company’s income per share calculations.
14. Commitments, Contingencies, and Guarantees
Legal Proceedings. The Company’s operating entities are involved in legal proceedings of various types. While any litigation
contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will
have a material effect on the financial condition or results of operations of the Company cash flows.
Deferred Acquisition Consideration and Options to Purchase. See Notes 9 and 13 of the Notes included herein for
information regarding potential payments associated with deferred acquisition consideration and the acquisition of noncontrolling
shareholders’ ownership interest in subsidiaries.
Guarantees. Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a
claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically
extend for a number of years. Historically, the Company has not made any significant indemnification payments under such
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agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these
indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications
to identify whether it is probable that a loss has occurred and would recognize any such losses under any guarantees or
indemnifications in the period when those losses are probable and estimable.
Commitments. At December 31, 2021, the Company had $24,332 of undrawn letters of credit. See Note 11 of the Notes
included herein for additional information.
The Company entered into operating leases for which the commencement date has not yet occurred as of December 31, 2021.
See Note 10 of the Notes included herein for additional information.
In the ordinary course of business, the Company may enter into long-term, non-cancellable contracts with partner associations
that include revenue or profit-sharing commitments related to the provision of its services. These contracts may also include
provisions that require the partner associations to meet certain performance targets prior to any obligation to the Company. As of
December 31, 2021, the Company estimates its future minimum commitments under these non-cancellable agreements to be:
$11,304, $5,945, and $2,003 in 2022, 2023, and 2024, respectively.
15. Share Capital
The authorized and outstanding share capital of the Company is below.
Class A Common Stock (“Class A Shares”)
There are 1,000,000,000 shares of Class A Common Stock authorized. There were 118,247,820 Class A Shares issued and
outstanding as of December 31, 2021. The Class A Shares are an unlimited number of subordinate voting shares, carrying one
vote each, with a par value of $0.001,entitled to dividends equal to or greater than Class B Shares, and convertible at the option
of the holder into one Class B Share for each Class A Share after the occurrence of certain events related to an offer to purchase
all Class B shares.
Class B Common Stock (“Class B Shares”)
There are 5,000 shares of Class B Common Stock authorized. There were 3,946 of Class B Shares issued and outstanding as
of December 31, 2021. The Class B Shares are an unlimited number of voting shares, carrying twenty votes each, with a par value
of $0.00, convertible at any time at the option of the holder into one Class A share for each Class B share.
Class C Common Stock (“Class C Shares”)
There are 250,000,000 shares of Class C Common Stock authorized. There were 179,970.051 Class C Shares issued and
outstanding as of December 31, 2021. The Class C shares do not participate in the earnings of the Company. In addition, an
aggregate of 179,970,051 OpCo common units were issued to Stagwell Media in exchange for the equity interests of the Stagwell
Subject Entities. Each Class C Share, together with the related Class C unit in OpCo, is convertible at any time, at the option of
the holder, into one Class A Share. In February 2022, holders of Class C Common Stock and OpCo Units (the "Paired Units")
exchanged 15,155,141 Paired Units for the same number of shares of Class A Common Stock.
Convertible Preferred Stock (“Preferred Shares”)
The Company had 50,000,000 Series 6 Preferred Shares (par value $0.001 per share) outstanding held by Stagwell Agency
Holdings LLC and 73,849,000 Series 8 Preferred Shares (par value $0.001 per share) held by affiliates of The Goldman Sachs
Group, Inc. (“Goldman”). The terms of the Preferred Shares provided the Company the option to convert the Preferred Shares to
Class A Common Shares if Class A Common Shares traded above 125% of the $5.00 per share conversion price for 30 consecutive
trading days.
The Company entered into an agreement with Goldman on August 4, 2021 to redeem $30,000 in liquidation value of the
Series 8 Preferred Shares for $25,000, resulting in the redemption of 21,151,000 shares.
On September 23, 2021, the Company provided notices of conversion to each holder of record of each of the Company’s
Series 6 and Series 8 Preferred Shares. Pursuant to the notices, the 50,000,000 issued and outstanding Series 6 Preferred Shares
were converted into 12,086,700 Class A Common Shares, in the aggregate, on October 7, 2021, and the 73,849,000 issued and
outstanding Series 8 Preferred Shares were converted into 20,948,746 Class A Common Shares, in the aggregate, on November
8, 2021.
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Shares-based Awards
As of December 31, 2021, of the total number of shares authorized, 2,838,628 remain available to be issued for future awards.
The following tables summarize share-based activity of awards authorized under our employee stock incentive plans and
awards (such as inducement awards) and other share-based commitments that have met the requirements to be issued separate
from shareholder-approved stock incentive plans.
The following table summarizes information about financial performance-based and time-based restricted stock and
restricted stock unit awards:
Performance-Based Awards
Time-Based Awards
Balance at December 31, 2020
Shares acquired concurrent with acquisition
Granted
Vested
Forfeited
Balance at December 31, 2021
Weighted
Average
Grant Date
Fair Value
Shares
—
—
— $
3,326,021
8.68 12,658,713
(281,743)
(3,889)
8.68 15,699,102 $
—
—
Weighted
Average
Grant Date
Fair Value
—
5.42
5.51
5.42
5.42
5.49
Shares
— $
—
1,048,000
—
—
1,048,000 $
The vesting of the performance-based awards is contingent upon the Company meeting cumulative earnings targets over
three years and continued employment through the vesting date. The term of the time-based awards is generally three years with
vesting up to generally three years. The vesting period of the time-based and performance-based awards is generally
commensurate with the requisite service period.
The total fair value of restricted stock and restricted stock unit awards, which vested during the twelve months ended
December 31, 2021, was $1,527. At December 31, 2021, the weighted average remaining contractual life for time-based and
performance-based awards was 0.37 and 2.37 years, respectively.
At December 31, 2021, the unrecognized compensation expense for performance-based awards was $8,221 to be recognized
over a weighted average period of 2.37 years. At December 31, 2021, the unrecognized compensation expense for time-based
awards was $15,376 to be recognized over a weighted average period of 0.37 years.
The following table summarizes information about stock appreciation rights (“SAR”) awards:
Balance at December 31, 2020
Shares acquired concurrent with acquisition
Granted
Forfeited
Balance at December 31, 2021
SAR Awards
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Exercise
Price
—
2.95
8.13
6.60
4.58
— $
2.94
2.39
1.35
2.79 $
Shares
— $
3,378,634
1,597,945
(83,800)
4,892,779 $
We use the Black-Scholes option-pricing model to estimate the fair value of the SAR awards. The grant date fair values of
the options granted in 2021 ranged from $2.20 to $3.66. The assumptions for the model were as follows: expected life ranging
from 2.8 to 4 years, risk free interest rate of approximately 1.0%, expected volatility ranging from of 35.5% to 38.1%, and
dividend yield of 0.0%. Options granted in 2021 vest in 1 to 3 years. The term of these awards is 5 years. The vesting period of
these awards is generally commensurate with the requisite service period.
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As of December 31, 2021, 1,950,000 SAR awards vested and were exercisable. The aggregate intrinsic value of the SAR
awards outstanding as of December 31, 2021 was $19,677. At December 31, 2021, the weighted average remaining contractual
life for the SAR awards was 1.15 years.
At December 31, 2021, the unrecognized compensation expense for these awards was $4,639 to be recognized over a
weighted average period of 1.15 years.
For the twelve months ended December 31, 2021, $75,032 was recognized in stock compensation related to all stock
compensation awards. The related income tax benefit for the twelve months ended December 31, 2021 was $5,289.
Subsidiary Awards
Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the
respective subsidiary (the “profits interests awards”). The awards generally provide the employee the right, but not the obligation,
to sell its profits interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, pay a
profit share distribution. The profits interests awards are settled in cash and the corresponding liability at fair value was $36,418
at December 31, 2021 (Level 3 fair value model), and included as a component of Accruals and other liabilities and Other
liabilities on the Audited Consolidated Balance Sheets.
16. Changes in Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) for the twelve months ended December 31 were:
Balance December 31, 2020
Other comprehensive loss before
reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive loss
Balance December 31, 2021
$
Defined
Benefit
Pension
—
—
722
722
722 $
Foreign
Currency
Translation
—
(6,000)
—
(6,000)
(6,000) $
Total
—
(6,000)
722
(5,278)
(5,278)
Prior to the merger with MDC, total equity was reported as Members' Equity.
17. Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES
Act includes provisions relating to delaying certain payroll tax payments, refundable payroll tax credits, net operating loss
carryback periods, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods
for qualified improvement property. The tax law changes in the CARES Act did not have a material impact on the Company’s
income tax provision.
The components of the Company’s income before income taxes and equity in earnings of non-consolidated affiliates by
taxing jurisdiction for the years ended December 31, were:
Income (Loss):
U.S.
Non-U.S.
2021
2020
$
$
38,717 $
20,841
59,558 $
95,939
(18,599)
77,340
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The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:
Current tax provision
U.S. federal
U.S. state and local
Non-U.S.
$
Deferred tax provision (benefit):
U.S. federal
U.S. state and local
Non-U.S.
Income tax expense
$
2021
2020
7,259 $
7,459
12,498
27,216
(143)
(2,521)
(1,154)
(3,818)
23,398 $
5,812
3,242
2,346
11,400
(1,951)
389
(3,901)
(5,463)
5,937
A reconciliation of income tax expense (benefit) using the U.S. federal income tax rate compared with actual income tax
expense for the years ended December 31, is as follows:
Income before income taxes, equity in non-consolidated affiliates and
noncontrolling interest
Statutory income tax rate
Tax expense using U.S. statutory income tax rate
Impact of disregarded entity structure
Foreign, net
State taxes, net
Stock compensation
Changes in tax rates
Valuation allowance
Other, net
Income tax expense
Effective income tax rate
2021
2020
$
59,558
$
77,340
$
21.0 %
$
12,507
(6,954)
1,055
4,359
4,009
4,908
(15)
3,529
$
23,398
$
21.0 %
16,241
(16,049)
752
1,980
—
—
1,286
1,727
5,937
39.3 %
7.7 %
Income tax expense for the twelve months ended December 31, 2021 was $23,398 (associated with a pre-tax income of
$59,558) compared to an income tax expense of $5,937 (associated with pre-tax income of $77,340) for the twelve months ended
December 31, 2020.
Prior to merger on August 2, 2021, the Company was a limited liability company classified as a disregarded entity for U.S.
federal income tax purposes, and as such was not subject to taxes from a U.S. federal income tax perspective. After the merger
on August 2, 2021, the Company is a corporation with an investment in a limited liability company classified as a partnership for
U.S. federal income tax purposes, and as such a portion of the consolidated income is not subject to taxes from a U.S. federal
income tax perspective. The tax rate of 21% has been used to capture the U.S. federal taxes of the Company and the corporations
owned by the Company and recorded in the Consolidated Statements of Operations and Comprehensive Income.
The significant drivers of the effective tax rate for 2021 relate to the segmentation of the income between the portion subject
to entity level tax and the portion of income reported directly by the non-controlling interests, state income taxes, and non-
deductible stock based compensation.
The significant drivers of the effective tax rate for 2020 relate to the segmentation of income between the portion subject to
entity level tax and the portion of income reported directly by the Member, state income taxes, as well as valuation allowances
established during the period.
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Income taxes receivable were $790 and $0 at December 31, 2021 and 2020, respectively, and were included in other current
assets on the balance sheet. Income taxes payable were $24,643 and $4,244 at December 31, 2021 and 2020, respectively, and
were included in accrued and other liabilities on the balance sheet. It is the Company’s policy to classify interest and penalties
arising in connection with unrecognized tax benefits as a component of income tax expense.
The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as
follows:
Deferred tax assets:
Net operating losses
Tax credits
Operating lease liability
Interest deductions
Accruals and other liabilities
Other
Gross deferred tax asset
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right of use asset - operating
leases
Property and equipment, net
Goodwill and intangibles
Residual basis differences
Other
Total deferred tax liabilities
Net deferred tax liability
Deferred tax assets
Deferred tax liabilities
2021
2020
$
$
$
$
$
33,112 $
6,644
48,173
30,760
3,720
15,160
137,569
(5,825)
131,744 $
37,001
4,212
83,607
102,297
6,854
233,971
(102,227) $
866 $
(103,093)
(102,227) $
10,229
583
4,141
—
—
3,344
18,297
(5,551)
12,746
3,577
463
21,959
—
2,639
28,638
(15,892)
158
(16,050)
(15,892)
Stagwell Inc. itself has net operating loss carryforwards of $133,859 which expire years 2031 through 2041. These definite
lived net operating loss carryforwards consist of $17,862 relating to U.S federal, and $115,997 relating to U.S. states. Stagwell
Inc. also had indefinite net operating loss carryforwards of $119,415 which consist of $37,367 relating to U.S. federal, and
$82,048 relating to U.S. states. Stagwell Inc. also has foreign tax credit and general business carryovers of $6,644 which expire
between 2024 and 2031.
Stagwell Inc.’s consolidated corporate subsidiaries also have net operating loss carryforwards of $49,026 which expire in
years 2022 through 2044. These definite lived net operating loss carryforwards consist of $17,411 relating to U.S. federal, $28,879
relating to U.S. states and $2,736 relating to non-U.S. The corporate subsidiaries also have indefinite net operating loss
carryforwards of $21,639. These indefinite loss carryforwards consist of $8,840 relating to U.S. federal, and $12,799 relating to
non-U.S. The majority of the consolidated corporate subsidiaries' U.S. tax attributes are subject to an annual limitation as a result
of historic acquisitions which constituted a change of ownership as defined under Internal Revenue Code 382.
The Company records a valuation allowance against deferred income tax assets when management believes it is more likely
than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates all positive and
negative evidence and considers factors such as the reversal of taxable temporary differences, taxable income in eligible carryback
years, future taxable income, and tax planning strategies. A change to these factors could impact the estimated valuation allowance
and income tax expense.
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The Company maintained a valuation allowance of $5,825 as of December 31, 2021 relating to both U.S. and foreign deferred
tax assets, and $5,551 as of December 31, 2020 relating to U.S. and foreign deferred tax assets.
The Company is permanently reinvested with respect to its foreign earnings in certain jurisdictions, and no deferred taxes
have been recorded related to such earnings as the determination of the amount is not practicable. The Company currently does
not intend to distribute previously taxed income. Upon distribution in the future, the Company may incur state and foreign
withholding taxes on such income, the amount of which is not practicable to compute.
As of December 31, 2021 and 2020, the Company recorded a liability for unrecognized tax benefits as well as applicable
penalties and interest in the amount of $1,120 and $0, respectively. As of December 31, 2021 and 2020, accrued penalties and
interest included in unrecognized tax benefits were approximately $82 and $0, respectively. If these unrecognized tax benefits
were to be recognized, it would affect the Company’s effective tax rate.
A reconciliation of the change in unrecognized tax benefits is as
follows:
Unrecognized tax benefit - Beginning Balance
Current year positions
Prior period positions
Settlements
Lapse of statute of limitations
Unrecognized tax benefits - Ending Balance
2021
2020
$
$
— $
—
1,038
—
—
1,038 $
—
—
—
—
—
—
It is reasonably possible that the amount of unrecognized tax benefits could decrease by a range of $300 to $400 in the next
twelve months as a result of expiration of certain statute of limitations.
The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign
jurisdictions. The statute of limitations for tax years prior to 2018 are closed for U.S. federal purposes. The statute of limitations
for tax years prior to 2011 have also expired in non-U.S. jurisdictions.
18. Fair Value Measurements
A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the
asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize
the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.
The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below:
• Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
The fair value hierarchy gives the highest priority to Level 1 inputs.
• Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
• Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the
lowest priority to Level 3 inputs.
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
The following table presents certain information for our financial liability that is not measured at fair value on a recurring
basis at December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
Carrying
Amount
Fair Value
5.625% Notes
$ 1,100,000 $ 1,120,900 $
Carrying
Amount
Fair Value
—
— $
Our long-term debt includes fixed rate debt. The fair value of this instrument is based on quoted market prices in markets
that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy.
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Financial Instruments Measured at Fair Value on a Recurring Basis
The following table presents certain information for our financial instruments that are measured at fair value on a recurring
basis at December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
Interest Rate Swap
Call Options
Preferred Shares
$
77 $
—
—
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
416
360
12,033
416 $
360
12,033
77 $
—
—
The interest rate swap and call options are classified as Level 3 within the fair value hierarchy.
As of December 31, 2020, the Company owned preferred shares in a company called Finn Partners. The preferred shares had
a cost basis of $10,000, accrued non-cash dividends, on a cost basis, at a rate of 6% annually. The shares were redeemable to cash
in the amount of the cost-plus accrued interest at any time after February 28, 2021 or upon a liquidation event and were also
convertible to common shares of Finn Partners at any time until February 28, 2021 using a conversion ratio of 1% per $1,000 of
preferred shares held including accrued dividends. The conversion feature was not bifurcated and was clearly and closely related
to the host instrument, preferred shares. Management determined that the preferred shares were a debt-like financial instrument
and should be accounted for as available-for-sale securities at their fair value at each reporting period. These preferred shares
were considered to be a Level 3 fair value measurement since they utilize unobservable inputs for which there is little or no
market data and which require the Company to develop its own assumptions.
On March 11, 2021, the Company transferred all of its ownership in the preferred shares. The Company recognized a gain
of $1,200 within Gain on sale of business and other, net on the Audited Consolidated Statements of Operations for the twelve
months ended December 31, 2021 related to this transaction.
Contingent deferred acquisition consideration (Level 3 fair value measurement) is recorded at the acquisition date fair value
and adjusted at each reporting period. The estimated liability is determined in accordance with models of each business' future
performance, including revenue growth and free cash flows. These models are dependent upon significant assumptions, such as
the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate. These growth rates
are consistent with the Company’s long-term forecasts. As of December 31, 2021, the discount rate used to measure these
liabilities ranged from 3.5% to 7.2%.
As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation,
the fair value measurements presented on the Audited Consolidated Balance Sheets are subject to material uncertainty.
See Note 9 of the Notes included herein for additional information regarding contingent deferred acquisition consideration.
At December 31, 2021 and 2020, the carrying amount of the Company’s financial instruments, including cash, cash
equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity.
Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill, intangible assets (Level
3 fair value measurement) and right-of-use lease assets (Level 2 fair value measurement). Accordingly, these assets are not
measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment. The
Company did not recognize an impairment of goodwill or right-of-use lease assets in the twelve months ended December 31,
2021 and 2020. The Company did recognize an impairment for intangible assets (Level 3 fair value measurement) of $16,187 in
the twelve months ended December 31, 2021 and did not recognize an impairment for intangible assets in the twelve months
ended December 31, 2020. See Note 8 of the Notes included herein for further detail.
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19. Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, including its affiliates. The
transactions may range in the nature and value of services underlying the arrangements. Below are the related party transactions
that are significant in nature:
In August 2016, a Brand of the Company entered into an arrangement to provide technology development services to a client
in which several of Brand’s partners hold key leadership positions. Under the arrangement, the Brand is expected to receive from
the client approximately $1,844, which is expected to be fully recognized as of December 31, 2022. During the twelve months
ended December 31, 2021 and 2020, the Company recognized $950 and $1, respectively, in revenue related to this transaction.
As of December 31, 2021 and 2020, $506 and $134, respectively, was due from the client.
In December 2018, a Brand entered into a continuous arrangement to provide marketing services to a client in which a family
member of one of the Brand’s partners holds an executive leadership position. During the twelve months ended December 31,
2021 and 2020, the Company recognized $243 and $522, respectively, in revenue related to this transaction. As of December 31,
2021 and 2020, $88 and $109, respectively, was due from the client.
In December 2018, a Brand entered into a continuous arrangement with a third party in which the third party appointed the
Brand as the manager of proprietary data to be used in the Brand’s ordinary course of business. A family member of one of the
Brand’s partners holds an executive leadership position in this entity. Under the arrangement, the Brand is expected to pay the
affiliate based upon the success of their services with no minimum or maximum spend. During the twelve months ended
December 31, 2021 and 2020, the Company incurred $1,473 and $8,009, respectively, in expenses related to this transaction. As
of December 31, 2021 and 2020, $569 and $3,020, respectively, was due to the vendor.
In 2019, the Company entered into an arrangement to provide polling services to a client in which a family member of one
of the Company’s Chief Executive Officer holds a key leadership position. Under the arrangement, the Company will receive
from the client approximately $772 which is expected to be fully recognized as of December 2022. During the twelve months
ended December 31, 2021 and 2020, the Company recognized revenue of $436 and $0, respectively, related to this arrangement.
As of December 31, 2021 and 2020, $70 and $0 was due from the client, respectively.
In March 2019, a Brand of the Company, entered into a loan agreement with a third party who holds a minority interest in
the Brand. The loan receivable of $3,784 and $3,391 due from the third party is included within Other current assets in the
Company’s Audited Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively. The Company recognized
$307 and $249 of interest income within Interest expense, net on its Audited Consolidated Statements of Operations for the twelve
months ended December 31, 2021 and 2020, respectively.
In October 2020, a Brand entered into a continuous arrangement to provide marketing services to a client in which one of
the Brand’s partners holds a key leadership position. During the twelve months ended December 31, 2021 and 2020, the Company
recognized $5,146 and $4,866, respectively, in revenue related to this transaction. As of December 31, 2021 and 2020, $0 and
$7,125, respectively, was due from the client related to this arrangement.
In 2021, a Brand entered into an arrangement to provide marketing and website development services to a client that has a
significant interest in the Company. The arrangement was for the Brand to provide marketing program campaign creative services.
Under the arrangement, the Brand is expected to receive from the Stagwell affiliate approximately $944 which will be fully
recognized in January 2022. The Company recorded $430 of related party revenue for the twelve months ended December 31,
2021. As of December 31, 2021, $238 was due from the related party.
In 2021, a Brand entered into an arrangement to provide marketing and website development services to a client that has a
significant interest in the Company. The arrangement was for the Brand to provide strategic communications support. Under the
arrangement, the Brand is expected to receive from the Stagwell affiliate approximately $320 which has been fully recognized in
December 2021. The Company recorded $207 of related party revenue for the twelve months ended December 31, 2021. As of
December 31, 2021, $0 was due from the related party.
In 2021, a Brand entered into an arrangement to provide marketing and website development services to a client that has a
significant interest in the Company. Under the arrangement, the Brand is expected to receive from the Stagwell affiliate
approximately $3,396 which will be fully recognized in April 2022. During the twelve months ended December 31, 2021, the
Company recognized $3,132 in revenue related to this transaction. As of December 31, 2021, $3,132 was due from the client.
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In 2021, a Brand entered into an arrangement to obtain sales and management services from an affiliate for which the CEO
of the Brand is a shareholder of the affiliate. Under the arrangement, the Brand has incurred $788 of related party expense for the
twelve months ended December 31, 2021. As of December 31, 2021, $23 was due to the related party.
In June 2021, a Brand entered into a continuous arrangement to provide marketing services to a client in which all of the
Brand’s partners have an ownership interest. During the twelve months ended December 31, 2021, the Company recognized
$4,814 in revenue related to this transaction. As of December 31, 2021, $4,033 was due from the client.
The Stagwell Group LLC, the registered investment advisor of Stagwell Media, engaged certain of its Brands to provide
services for the Stagwell Group for interagency customers. The Company recorded $0 and $900 of related party revenue for the
twelve months ended December 31, 2021 and 2020, respectively.
Stagwell Media made noncash investments in the Company of $12,400 and $93,900 during the twelve months ended
December 31, 2021 and 2020, respectively. Additionally, during the twelve months ended December 31, 2021 and 2020, the
Company made cash investments of $1,600 and $1,500.
On March 11, 2021, Stagwell Media received a Noncash distribution of $13,000 for the transfer of the Company’s ownership
in the Finn Partners Preferred shares.
Additionally, the Company made cash distributions to Stagwell Media of $191,900 and $108,500 during the twelve months
ended December 31, 2021 and 2020, respectively.
20. Segment Information
The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues
and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker
(“CODM”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the
segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if
aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and
historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if
operating segments have similar operating characteristics.
The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of
a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA
is defined as Net income excluding non-operating income or expense to achieve operating income, plus depreciation and
amortization, stock-based compensation, deferred acquisition consideration adjustments, and other items. Other items include
restructuring costs, acquisition-related expenses, and non-recurring items.
The Company has three reportable segments as follows: “Integrated Agencies Network,” “Media Network” and the
“Communications Network.” In addition, the Company combines and discloses operating segments that do not meet the
aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All
segments follow the same basis of presentation and accounting policies as those described throughout the Notes to the Audited
Consolidated Financial Statements included herein.
• The Integrated Agencies Network includes four integrated operating segments: the Anomaly Alliance, Constellation,
the Code and Theory Network, and the Doner Partner Network. These operating networks are organized for go-to-market
and collaboration incentive purposes and to facilitate integrated and flexible offerings for our clients. Each integrated
network consists of agencies that offer an array of complementary services spanning our core capabilities of Digital
Transformation, Performance Media & Data, Consumer Insights & Strategy, and Creativity & Communications. The
Agencies included in the operating segments that comprise the Integrated Agencies Network reportable segment are as
follows: Anomaly Alliance (Anomaly, Concentric, Hunter, Mono, YML and Scout agencies), the Code & Theory
Network (Code and Theory, Forsman & Bodenfors, National Research Group, Observatory, Hello Design and Colle
McVoy agencies), Constellation (72andSunny, Crispin Porter Bogusky, Instrument, Team Enterprises, Harris and
Redscout agencies) and the Doner Partner Network (Doner, KWT Global, Bruce Mau Design, Vitro, Harris X, Northstar,
Veritas and Yamamoto agencies).
These integrated network operating segments share similar characteristics related to (i) the nature of their services; (ii)
the type of clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global
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economic and geopolitical risks. In addition, these operating segments may occasionally compete with each other for
new business or have business move between them.
• The Media Network reportable segment is comprised of a single operating segment, our specialist network branded the
Stagwell Media Network (“SMN”). SMN serves as a unified media and data management structure with omni-channel
media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Agencies
in this segment aim to provide scaled creative performance through developing and executing sophisticated omnichannel
campaign strategies leveraging significant amounts of consumer data. SMN’s Agencies combine media buying and
planning across a range of digital and traditional platforms (out-of-home, paid search, social media, lead generation,
programmatic, television, broadcast, among others) and includes multichannel agencies Assembly, Goodstuff, MMI
Agency, digital creative & transformation consultancy GALE, B2B specialist Multiview, CX specialists Kenna, and
travel media experts Ink.
• The Communications Network reportable segment is comprised of a single operating segment, our specialist network
that provides advocacy, strategic corporate communications, investor relations, public relations, online fundraising and
other services to both corporations and political and advocacy organizations and consists of our Allison & Partners
SKDK (including Sloane & Company), and Targeted Victory Agencies.
• All Other consists of the Company’s digital innovation group, Reputation Defender (which was sold in September 2021)
and Stagwell Marketing Cloud products such as PRophet.
• Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the
operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating
segments. These office and general expenses include (i) salaries and related expenses for corporate office employees,
including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties
occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the
financial statement audits and other public company costs, and (iv) certain other professional fees managed by the
corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments
are allocated to the appropriate reportable segment and the All Other category.
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Revenue:
Integrated Agencies Network
Media Network
Communications Network
All Other
Total Revenue
Adjusted EBITDA:
Integrated Agencies Network
Media Network
Communications Network
All Other
Corporate
Total Adjusted EBITDA
Depreciation and amortization
Impairment and other losses
Stock-based compensation
Deferred acquisition consideration
Other items, net
Twelve Months Ended
December 31,
2020
2021
(Dollars in Thousands)
$
819,758 $
374,930
248,832
25,843
$ 1,469,363 $
229,646
254,311
382,815
21,260
888,032
$
$
$
166,768 $
62,770
45,527
(769)
(20,644)
253,652 $
(77,503) $
(16,240)
(75,032)
(18,721)
(21,430)
44,726 $
42,360
27,669
78,562
(1,893)
(3,530)
143,168
(41,025)
—
—
(4,497)
(13,906)
83,740
Total Operating Income
$
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Other Income (expenses):
Interest expense, net
Foreign exchange, net
Gain on sale of business and other, net
Income before income taxes and equity in earnings of
non-consolidated affiliates
Income tax expense
Income before equity in earnings of non-consolidated
affiliates
Equity in (income) losses of non-consolidated
affiliates
Net income
Net income attributable to noncontrolling and
redeemable noncontrolling interests
Net income attributable to Stagwell Inc. common
shareholders
Depreciation and amortization:
Integrated Agencies Network
Media Network
Communications Network
All Other
Corporate
Total
Stock-based compensation:
Integrated Agencies Network
Media Network
Communications Network
All Other
Corporate
Total
Twelve Months Ended
December 31,
2020
2021
(Dollars in Thousands)
(31,894) $
(3,332)
50,058
59,558
23,398
36,160
(240)
35,920
(14,884)
(6,223)
(721)
544
77,340
5,937
71,403
58
71,461
(15,105)
21,036 $
56,356
40,087 $
23,590
7,553
2,498
3,775
77,503 $
47,584 $
4,857
15,928
39
6,624
75,032 $
9,616
19,861
5,903
3,681
1,964
41,025
—
—
—
—
—
—
$
$
$
$
$
$
The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and
therefore, total segment assets have not been disclosed.
See Note 5 of the Notes included herein for a summary of the Company’s revenue by geographic region for the twelve months
ended December 31, 2021 and 2020.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be included in our SEC
reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and
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forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer
(“CEO”), who is our principal executive officer, and Chief Financial Officer (“CFO”), who is our principal financial officer, as
appropriate, to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any
system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the
controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance
of achieving their control objectives. However, our disclosure controls and procedures are designed to provide reasonable
assurances of achieving our control objectives.
We conducted an evaluation, under the supervision and with the participation of our management, including our CEO, CFO
and management Disclosure Committee, of the effectiveness of our disclosure controls and procedures as of the end of the period
covered by this report pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, and in light of
the material weaknesses identified in our internal control over financial reporting, our CEO and CFO concluded that, as of
December 31, 2021, our disclosure controls and procedures were not effective at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records
that accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our
transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that our receipts
and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness for future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, under the supervision of and with the participation of the CEO and CFO, assessed the effectiveness of our
internal control over financial reporting and disclosure controls and procedures as of December 31, 2021. In making this
assessment, management used the updated criteria set forth in 2013 by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control—Integrated Framework.
Based on our assessment under the COSO framework, management believes that, as of December 31, 2021, our internal
control over financial reporting was not effective, as described below. A material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of
the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material
weaknesses have been identified:
We did not effectively select and develop certain information technology (“IT”) general controls related to access and change
management controls that led to deficiencies in the design and operation of control activities, including segregation of duties
deficiencies. We also had deficiencies in the design and operation of account reconciliations. These deficiencies and a lack of
sufficient resources contributed to the potential for there to have been material errors in our financial statements and therefore
resulted in the following additional material weaknesses:
• Risk Assessment—control deficiencies constituting material weaknesses, either individually or in the aggregate, relating
to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve
these objectives, and (iii) identifying and assessing changes in the business that could impact the system of internal
controls;
• Control Activities—control deficiencies constituting material weaknesses, either individually or in the aggregate,
relating to: (i) addressing relevant risks, (ii) providing evidence of performance, (iii) providing appropriate segregation
of duties, or (iv) operation at a level of precision to identify all potentially material errors;
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•
Information and Communication—control deficiencies constituting material weaknesses, either individually or in the
aggregate, relating to communicating accurate information internally and externally, including providing information
pursuant to objectives, responsibilities, and functions of internal control; and
• Monitoring—control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to
monitoring activities to ascertain whether the components of internal control are present and functioning.
As a result of the merger between MDC and SMG on August 2, 2021, and the acquisition of GoodStuff Holdings Limited
(“GoodStuff”) on December 31, 2021, management excluded from its assessment t internal control over financial reporting as of
December 31, 2021, the internal control over financial reporting of SMG and GoodStuff, which together constituted 44% of total
assets (excluding goodwill, intangible and right of use assets) and 59% of total revenue as of and for the year ended December
31, 2021.
In addition, the effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in this Item
9A.
Changes in Internal Control Over Financial Reporting
There have been no changes to our internal control over financial reporting, other than the material weaknesses noted above,
that occurred during the quarter ended December 31, 2021.
As described above in Management’s Report on Internal Control Over Financial Reporting, we excluded from our assessment
the internal control over financial reporting of Legacy SMG. We are aware that Legacy SMG had previously identified and
disclosed the following material weaknesses:
• Legacy SMG did not maintain a sufficient complement of personnel with an appropriate degree of internal controls and
accounting knowledge, experience and training commensurate with its accounting and reporting requirements;
• Legacy SMG did not establish effective controls in response to the risks of material misstatement, including designing
and maintaining formal accounting policies, procedures and controls over journal entries, significant accounts and
disclosures, in order to achieve complete and accurate financial accounting, reporting and disclosures;
• Legacy SMG did not design and maintain effective controls over information technology (“IT”) general controls for
information systems that are relevant to the preparation of its financial statements. Specifically, SMG did not design and
maintain: (i) program change management controls for the financial systems to ensure that information technology
program and data changes affecting financial IT applications and underlying accounting records are identified, tested,
authorized and implemented appropriately; (ii) appropriate user access controls to ensure appropriate segregation of
duties and that adequately restrict user and privileged access to financial applications, programs and data to appropriate
SMG personnel; (iii) computer operations controls to ensure critical data interfaces between systems are appropriately
identified and monitored, and data backups are authorized and restorations monitored; and (iv) testing and approval
controls for program development to ensure that new software development is aligned with business and IT
requirements; and
• Legacy SMG did not establish a sufficient risk assessment process to identify risks of material misstatement due to fraud
and/or error and implement controls against such risks.
Remediation Efforts to Address Material Weaknesses
We are evaluating what remedial actions will be necessary to remediate the material weaknesses in our internal control over
financial reporting. We intend to develop and execute a remediation plan and to continue evaluating our internal control over
financial reporting during 2022.
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Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of Stagwell Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Stagwell Inc. and subsidiaries (the “Company”) as of December
31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effect of the material weaknesses
identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal
control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated
Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021,
of the Company and our report dated March 17, 2022, expressed an unqualified opinion on those financial statements.
As described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, as a result of the
merger between MDC Partners, Inc. (“Legacy MDC”) and Stagwell Marketing Group, LLC (“Legacy SMG”) on August 2, 2021,
and the acquisition of Goodstuff Holdings, Limited (“GoodStuff”) on December 31, 2021, management excluded from its
assessment the internal control over financial reporting of Legacy SMG and GoodStuff which together constituted 44% of total
assets (excluding goodwill, intangible and right of use assets) and 59% of total revenue as of and for the year ended December
31, 2021. Accordingly, our audit did not include the internal control over financial reporting at Legacy SMG and GoodStuff.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's
assessment:
The Company did not effectively select and develop certain information technology (“IT”) general controls related to access and
change management controls that led to deficiencies in the design and operation of control activities, including segregation of
duties deficiencies. The Company also had deficiencies in the design and operation of account reconciliations. These deficiencies
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and a lack of sufficient resources contributed to the potential for there to have been material errors in the Company's financial
statements. Therefore, such deficiencies resulted in the following material weaknesses:
Risk Assessment - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i)
identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives,
and (iii) identifying and assessing changes in the business that could impact the system of internal controls.
Control Activities - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to: (i)
addressing relevant risks, (ii) providing evidence of performance, (iii) providing appropriate segregation of duties, and (iv)
operation at a level of precision to identify all potentially material errors.
Information and Communication - control deficiencies constituting material weaknesses, either individually or in the aggregate,
relating to communicating accurate information internally and externally, including providing information pursuant to objectives,
responsibilities, and functions of internal control.
Monitoring - control deficiencies constituting material weaknesses, either individually or in the aggregate, relating to monitoring
activities to ascertain whether the components of internal control are present and functioning.
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the
consolidated financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect
our report on such financial statements.
/s/ Deloitte & Touche LLP
New York, NY
March 17, 2022
Item 9B. Other Information
Omitted.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item, and not set forth below, will be included in the Company’s Proxy Statement for the
2022 Annual General Meeting of Stockholders (the “2022 Proxy Statement”), to be filed with the SEC no later than 120 days
after December 31, 2021. and is incorporated herein by reference.
Executive Officers of Stagwell Inc.
The executive officers of Stagwell Inc. as of March 17, 2022 are:
Name
Mark Penn
Jay Leveton
Frank Lanuto
Ryan Greene
Peter McElligott
Vincenzo DiMaggio
____________
Office
Age
68 Chairman of the Board, Chief Executive Officer
45 President
59 Chief Financial Officer
44 Chief Operating Officer
37 General Counsel
47 Senior Vice President, Chief Accounting Officer
There is no family relationship among any of the executive officers or directors.
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Mr. Penn joined MDC in March 2019 and currently serves as Chairman of the Board and Chief Executive Officer. Mr. Penn
has also been the Managing Partner and President of The Stagwell Group, a private equity fund that invests in digital marketing
services companies, since its formation in 2015. Previously, Mr. Penn served as Microsoft’s Executive Vice President and Chief
Strategy Officer and held Chief Executive Officer position in multiple strategic public relation firms.
Mr. Leveton joined the Company in August 2021 as President. Prior to joining Stagwell Inc., Mr. Leveton served as a Partner
of The Stagwell Group, where he was responsible for sourcing, integrating and scaling Stagwell’s portfolio of companies, since
July 2015. Previously, Mr. Leveton served as the Executive Vice President, Worldwide at Burson-Marsteller, a global public
relations firm, from November 2010 to July 2015. Mr. Leveton has more than 20 years of leadership experience in marketing
communications services and extensive experience in high-level political and corporate market research.
Mr. Lanuto joined MDC in June 2019 as Chief Financial Officer. Prior to joining Stagwell Inc., Mr. Lanuto served as Vice
President, Corporate Controller at Movado Group, Inc. since August 2015. Before Movado Group, he spent over 17 years
overseeing global financial functions and operations activities in the advertising, marketing and media services industries.
Mr. Greene joined the Company in August 2021 as Chief Operating Officer. Prior to joining Stagwell Inc., Mr. Greene served
as Chief Financial Officer of Stagwell Marketing Group since September 2015. Previously, Mr. Greene served as a Financial
Management Consultant at MorganFranklin Consulting from October 2013 to September 2015, where he serviced clients across
a variety of industries, including advertising technology, healthcare, financial services, and defense contractors, in connection
with initial public offerings, mergers and acquisitions and business process reengineering. Prior to MorganFranklin, Mr. Greene
worked in various financial leadership roles for several agencies of Omnicom Group Inc., including CLS Strategies and C2
Creative. Earlier in his career, Mr. Greene held corporate finance and operations roles with Ernst & Young LLP, B|Com3 (acquired
by Publicis Groupe), and Arthur Andersen, where he was employed in the Technology, Media and Telecom group.
Mr. McElligott joined Stagwell Inc. in March 2021 and became our General Counsel in February 2022. Prior to joining
Stagwell Inc., Mr. McElligott served as General Counsel of RapidSOS, Inc. from October 2019 to March 2021 and General
Counsel of Spruce Holdings Inc. from January 2017 to October 2019. Previously, Mr. McElligott held positions as senior legal
counsel at Citrix Systems Inc., a member of the corporate strategy team at Microsoft, and with a Washington, D.C. based law
firm. Mr. McElligott started his legal career as a clerk for Judge James Loken on the 8th Circuit Court of Appeals.
Mr. DiMaggio joined MDC in 2018 as Chief Accounting Officer. Prior to joining Stagwell Inc., he served as the Senior Vice
President, Global Controller & Chief Accounting Officer at Endeavor, from 2017 to 2018. Prior thereto, he worked at Viacom
Inc. from 2012 to 2017 as Senior Vice President, Deputy Controller and at the New York Times Company from 1999 to 2012
ultimately serving as its Vice President, Assistant Corporate Controller.
Code of Conduct
The Company has adopted a Code of Conduct, which applies to all directors, officers (including the Company’s Chief
Executive Officer and Chief Financial Officer) and employees of the Company and its subsidiaries. The Company’s policy is to
not permit any waiver of the Code of Conduct for any director or executive officer, except in extremely limited circumstances.
Any waiver of this Code of Conduct for directors or officers of the Company must be approved by the Board. Amendments to
and waivers of the Code of Conduct will be publicly disclosed as required by applicable laws, rules and regulations. The Code of
Conduct is available free of charge on the Company’s website at https://www.stagwellglobal.com, or by writing to Stagwell Inc.,
One World Trade Center, Floor 65, New York, New York 10007, Attention: Investor Relations. The Company intends to satisfy
the disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers from, certain provisions of the
Code of Conduct that apply to its principal executive officer, principal financial officer and principal accounting officer by posting
such information on its website, at the address and location specified above.
Item 11. Executive Compensation
The information required by this item will be included in the 2022 Proxy Statement to be filed with the SEC no later than
120 days after December 31, 2021 and is incorporated herein by reference.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in the 2022 Proxy Statement to be filed with the SEC no later than
120 days after December 31, 2021 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item will be included in the 2022 Proxy Statement to be filed with the SEC no later than
120 days after December 31, 2021 and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be included in the 2022 Proxy Statement to be filed with the SEC no later than
120 days after December 31, 2021 and is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statement Schedules
The Financial Statements and Schedules listed in the accompanying Index to the Consolidated Financial Statements in Item
8 are filed as part of this report. Schedules not included in the Index have been omitted because they are not applicable.
Schedule II — 1 of 2
STAGWELL INC. & SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Two Years Ended December 31,
(Dollars in Thousands)
Column A
Description
Column B
Balance at
Beginning of
Period
Column C
Charged to
Costs and
Expenses
Column D
Removal of
Uncollectible
Receivables
Column E
Translation
Adjustments
Increase
(Decrease)
Column F
Balance at the
End of Period
Valuation accounts deducted from assets
to which they apply – allowance for
doubtful accounts:
December 31, 2021
December 31, 2020
$
5,109 $
2,777
2,037 $
6,222
(1,482) $
(3,907)
(26) $
17
Schedule II — 2 of 2
5,638
5,109
STAGWELL INC. & SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Two Years Ended December 31,
(Dollars in Thousands)
Column A
Description
Valuation accounts deducted from assets
to which they apply – valuation
allowance for deferred income taxes:
December 31, 2021
December 31, 2020
Column B
Balance at
Beginning of
Period
Column C
Charged to
Costs and
Expenses
Column D
Other
Column E
Translation
Adjustments
Increase
(Decrease)
Column F
Balance at the
End of Period
$
5,551 $
2,945
(15) $
2,606
289 $
—
— $
—
5,825
5,551
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(b) Exhibits
The exhibits listed on the accompanying Exhibits Index are filed as a part of this report.
Item 16. Form 10-K Summary
None.
119
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EXHIBIT INDEX
Exhibit No.
2.1
Description
Transaction Agreement, dated as of December 21, 2020, by and among Stagwell Media LP and MDC Partners
Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on December 22, 2020).
2.2
2.3
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.4.1
10.4.2
10.4.3
10.5
10.5.1
10.6
10.7
10.8
10.9
10.10†
10.10.1†
Amendment No. 1 to the Transaction Agreement, dated as of June 4, 2021 (incorporated by reference to Exhibit
2.1 to the Company’s Form 8-K filed on June 7, 2021).
Amendment No. 2 to the Transaction Agreement, dated as of July 8, 2021 (incorporated by reference to Exhibit
2.1 to the Company’s Form 8-K filed on July 9, 2021).
Second Amended and Restated Certificate of Incorporation of Stagwell Inc., as amended.*
Amended and Restated Bylaws of Stagwell Inc. (incorporated by reference to Exhibit 3.2 to the Company’s
Form 8-K filed on August 2, 2021).
Indenture, dated as of August 20, 2021, among Stagwell Global LLC (f/k/a Midas OpCo Holdings LLC), the
Note Guarantors party thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on August 20, 2021).
Form of 5.625% Senior Note due 2029 (included in Exhibit 4.1).
Description of Securities*
Amended and Restated Limited Liability Company Agreement of Stagwell Global LLC (f/k/a Midas OpCo
Holdings LLC) dated as of August 2, 2021.*
Amended and Restated Credit Agreement, dated August 2, 2021, by and among Stagwell Global LLC (f/k/a
Midas OpCo Holdings LLC), Maxxcom LLC, Stagwell Marketing Group LLC, and the other Borrowers party
thereto, and JP Morgan Chase Bank, as Administrative Agent, and the other Agents and Lenders party thereto
(incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on August 2, 2021).
Amendment No. 1 to Amended and Restated Credit Agreement, dated as of December 17, 2021.*
Securities Purchase Agreement, by and between MDC Partners Inc. and Broad Street Principal Investments,
L.L.C., dated as of February 14, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed on February 15, 2017).
Goldman Letter Agreement, dated as of April 21, 2021, by and among MDC Partners Inc., Broad Street
Principal Investments, L.L.C., Stonebridge 2017, L.P. and Stonebridge 2017 Offshore, L.P. (incorporated by
reference to Exhibit 10.1 to the Company’s Amendment No. 2 to Registration Statement on Form S-4 filed on
April 21, 2021).
Goldman Letter Agreement, dated as of July 8, 2021, by and among MDC Partners Inc., Broad Street Principal
Investments, L.L.C., Stonebridge 2017, L.P. and Stonebridge 2017 Offshore, L.P. (incorporated by reference to
Exhibit 2.2 to the Company’s Form 8-K filed on July 9, 2021).
Amendment to Securities Purchase Agreement, dated August 4, 2021, by and between Stagwell Inc. and Broad
Street Principal Investments, L.L.C. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed on August 4, 2021).
Securities Purchase Agreement, by and between MDC Partners Inc. and Stagwell Agency Holdings LLC, dated
as of March 14, 2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on March
15, 2019).
Amendment to Securities Purchase Agreement, dated August 4, 2021, by and between Stagwell Inc. and
Stagwell Agency Holdings LLC (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed
on August 4, 2021).
Registration Rights Agreement, dated August 2, 2021, by and among the Company and the Stagwell Parties (as
defined therein) (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 2,
2021).
Tax Receivable Agreement, dated August 2, 2021, by and among the Company, Midas OpCo Holdings LLC
and Stagwell Media LP (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on August
2, 2021).
Information Rights Letter Agreement, dated August 2, 2021, by and among the Company, Stagwell Media LP,
Stagwell Group LLC and Stagwell Agency Holdings LLC (incorporated by reference to Exhibit 10.3 to the
Company’s Form 8-K filed on August 2, 2021).
OpCo Letter Agreement, dated August 4, 2021, by and among Stagwell Inc., Broad Street Principal
Investments, L.L.C., Stonebridge 2017, L.P. and Stonebridge 2017 Offshore, L.P. (incorporated by reference to
Exhibit 10.2 to the Company’s Form 8-K filed on August 4, 2021).
Second Amended and Restated Employment Agreement Amendment, dated as of March 11, 2022, by and
between the Company and Mark Penn.*
Stock Appreciation Rights Agreement by and between the Company and Mark Penn, dated as of April 5, 2019
(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-K/A filed April 29, 2020).
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10.10.2†
10.11†
10.11.1†
10.11.2†
10.11.3†
10.12†
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
21
23
24
31.1
31.2
32.1
32.2
101
104
Amended and Restated Stock Appreciation Rights Agreement by and between the Company and Mark Penn,
dated as of March 11, 2022.*
Employment Agreement dated as of May 6, 2019, by and between the Company and Frank Lanuto
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 8, 2019).
Employment Agreement Amendment, dated as of September 8, 2021, by and between the Company and Frank
Lanuto (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 8, 2021).
Stock Appreciation Rights Agreement by and between the Company and Frank Lanuto, dated as of June 12,
2019 (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-K/A filed April 29, 2020).
Stock Appreciation Rights Agreement by and between the Company and Frank Lanuto, dated as of June 12,
2019 (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K/A filed April 29, 2020).
Employment Agreement, dated as of September 12, 2021, by and between the Company and Jay Leveton
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 16, 2021).
Employment Agreement, dated as of September 12, 2021, by and between the Company and Ryan Greene
(incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on September 16, 2021).
Employment Agreement between the Company and Vincenzo DiMaggio, dated as of May 8, 2018 (incorporated
by reference to Exhibit 10.8 to the Company's 10-K filed on March 18, 2019).
MDC Partners Inc. 2011 Stock Incentive Plan, as approved and adopted by the shareholders of the Company
on June 1, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 1, 2011).
MDC Partners Inc. Amended and Restated 2016 Stock Incentive Plan (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K filed on June 30, 2020).
Form of Financial Performance-Based Restricted Stock Agreement (2019) (incorporated by reference to Exhibit
10.1 to the Company's Form 10-Q filed on November 6, 2019).
Form of Financial Performance-Based Restricted Stock Grant Agreement (2021) (incorporated by reference
to Exhibit 10.14 to the Company's Form 10-Q filed on November 9, 2021).
Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit 10.17 to
the Company’s Form 10-K filed March 16, 2021).
Stagwell Inc. Non-Employee Director Compensation Policy.*
Subsidiaries of Registrant*
Consent of Independent Registered Public Accounting Firm Deloitte & Touche LLP*
Power of Attorney (included on the signature pages to this Form 10-K)*
Certification by Chief Executive Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities
Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification by Chief Financial Officer pursuant to Rules 13a - 14(a) and 15d - 14(a) under the Securities
Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification by Chief Executive Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*
Certification by Chief Financial Officer pursuant to 18 USC. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
Interactive Data File, for the period ended December 31, 2021. The instance document does not appear in the
interactive data file because its XBRL tags are embedded within the inline XBRL document.*
Cover Page Interactive Data File. The cover page XBRL tags are embedded within the inline XBRL document
and are included in Exhibit 101.*
* Filed electronically herewith.
† Indicates management contract or compensatory plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
STAGWELL INC.
/s/ Frank Lanuto
Frank Lanuto
Chief Financial Officer and Authorized Signatory
March 17, 2022
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Frank Lanuto and Vincenzo DiMaggio, jointly and severally, his or her attorney-in-fact, with the power of substitution, for him
or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
STAGWELL INC.
/s/ Mark Penn
Mark Penn
Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
March 17, 2022
/s/ Frank Lanuto
Frank Lanuto
Chief Financial Officer (Principal Financial Officer)
March 17, 2022
/s/ Vincenzo DiMaggio
Vincenzo DiMaggio
Chief Accounting Officer (Principal Accounting Officer)
March 17, 2022
/s/ Charlene Barshefsky
Ambassador Charlene Barshefsky
Director
March 17, 2022
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/s/ Bradley Gross
Bradley Gross
Director
March 17, 2022
/s/ Wade Oosterman
Wade Oosterman
Director
March 17, 2022
/s/ Desirée Rogers
Desirée Rogers
Director
March 17, 2022
/s/ Eli Samaha
Eli Samaha
Director
March 17, 2022
/s/ Irwin D. Simon
Irwin D. Simon
Lead Independent Director
March 17, 2022
/s/ Rodney Slater
Secretary Rodney Slater
Director
March 17, 2022
/s/ Brandt Vaughan
Brandt Vaughan
Director
March 17, 2022
123
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Mark J. Penn
Chairman and Chief Executive Officer
Stagwell Inc.
Mark J. Penn
Chairman and Chief Executive Officer
Irwin D. Simon
Lead Independent Director
Chairman and CEO, Tilray Brands, Inc.
Jay Leveton
President
Ambassador Charlene Barshefsky
Director
Chair, Parkside Global Advisors
Bradley J. Gross
Director
Partner and Managing Director,
Goldman Sachs
Wade Oosterman
Director
Vice Chairman, Bell Canada
Desirée Rogers
Director
CEO, Black Opal, LLC
Eli Samaha
Director
Managing Partner, Madison Avenue
Partners, LP
Secretary Rodney Slater
Director
Partner, Squire Patton Boggs
Brandt Vaughan
Director
Chief Operating Officer and
Chief Investment Officer, Ballmer Group
Frank Lanuto
Chief Financial Officer
Ryan Greene
Chief Operating Officer
Peter McElligott
General Counsel
Vincenzo DiMaggio
SVP, Chief Accounting Officer
TRANSFER AGENT
American Stock Transfer & Trust LLC
6201 15th Ave.
Brooklyn NY 11219
800-937-5449
INVESTOR RELATIONS
For Investor Relations information, contact Michaela
Pewarski, Vice President, Investor Relations, at
ir@stagwellglobal.com or 646-429-1800.
STOCK EXCHANGE LISTING
The Class A common stock of the Company is listed
on NASDAQ under the trading symbol “STGW”.