NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, 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 condensed consolidated financial statements include the accounts of Stagwell and its subsidiaries. Stagwell has prepared the unaudited condensed consolidated interim 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 interim financial information on Form 10-Q. Accordingly, the financial statements have been condensed and do not include certain information and disclosures pursuant to these rules. 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. The consolidated results for interim periods are not necessarily indicative of results for the full year and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).
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, we completed the previously announced combination of MDC and the operating businesses and subsidiaries of Stagwell Media and a series 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 treated as the accounting acquirer. The results of MDC are included within the Unaudited Condensed 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 3 of the Notes included herein for information in connection with the acquisition of MDC.
We continue to monitor the impact on our operations from worldwide events such as the COVID-19 pandemic and evolving strains of COVID-19, as well as the military conflict between Russia and Ukraine, which we do not expect to have a material adverse effect on our operations. Our judgments, assumptions and estimates about the potential effects of such events are reflected in the financial statements. The use of different judgements, assumptions or estimates could have a material impact on our condensed consolidated financial statements.
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.
We have revised the presentation of Current Liabilities to separately present Accrued media, which was previously included in Accruals and other liabilities, of $237,794 as of December 31, 2021. As a result, the accompanying Condensed Consolidated Balance Sheet has been revised to correct this immaterial classification error by decreasing the previously reported amount for Accruals and other liabilities as of December 31, 2021 by the $237,794 of Accrued media. This revision had no effect on our previously reported Total Current Liabilities, or on any other previously reported amounts in our consolidated financial statements for the year ended December 31, 2021.
Recent Developments
On July 12, 2022, the Company acquired PEP Group Holdings B.V. (“PEP Group”), an omnichannel content creation and adaption production company for approximately $766, subject to post-closing adjustments, as well as contingent consideration up to a maximum value of $2,679. The contingent consideration is based on meeting certain future earnings targets through 2025. Stagwell expects the acquisition of PEP Group will bolster its media and content production capabilities across its global network.
On July 15, 2022, the Company acquired Apollo Program II Inc. (“Apollo”), a real-time artificial intelligence-powered software-as-a-service platform, for approximately $2,300, subject to post-closing adjustments, as well as fixed deferred
payments of $1,000 and $1,500 on or prior to July 1, 2023 and July 1, 2024, respectively. Stagwell expects Apollo will be integrated with Stagwell’s data and insights unification tool, Consumer Understand and Engagement.
2. New Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“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 Combined Credit Agreement (as defined in Note 8 of the Notes included herein) is the Company’s only contractual arrangement that referenced LIBOR and is impacted by ASU 2020-04. On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to the Secured Overnight Financing Rate (“SOFR”). Based on the Company’s assessment, the Company has elected to apply the optional expedient and treat the contract modifications as a continuation of an existing contract. This election does not have a material effect on our results of operations or financial position. See Note 8 of the Notes included herein for information.
3. Acquisitions
2022 Acquisitions
Acquisition of Brand New Galaxy
On April 19, 2022, the Company acquired Brand New Galaxy (“BNG”), for approximately $20,695 of cash consideration, as well as contingent consideration up to a maximum value of $50,000. The contingent consideration is due upon meeting certain future earnings targets through 2024, with approximately 67% payable in cash and 33% payable in Class A Common Stock.
The consideration has been allocated to the assets acquired and assumed liabilities of BNG based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| Cash and cash equivalents | | $ | 2,771 | |
| Accounts receivable | | 7,638 | |
| Other current assets | | 1,634 | |
| Fixed assets | | 2,338 | |
| Intangible assets | | 12,410 | |
| Other assets | | 1,416 | |
| Accounts payable | | (6,855) | |
| Accruals and other liabilities | | (4,896) | |
| Advance billings | | (1,095) | |
| Other liabilities | | (3,448) | |
| Net assets assumed | | 11,913 | |
| Goodwill | | 25,552 | |
| Purchase price consideration | | $ | 37,465 | |
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 BNG. Goodwill of $25,552 was assigned to the Media Network reportable segment. 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 | | Estimated Useful Life in Years |
| Trade Names | | $ | 5,930 | | | 10 |
| Customer Relationships | | 5,390 | | | 11 |
| Other | | 1,090 | | | 7 |
| Total Acquired Intangible Assets | | $ | 12,410 | | | |
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, 2021. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue | | $ | 675,414 | | | $ | 217,590 | | | $ | 1,326,042 | | | $ | 405,071 | |
| Net Income | | 24,520 | | | 19,202 | | | 57,396 | | | 23,464 | |
Acquisition of TMA Direct, Inc.
On May 31, 2022, the Company acquired approximately 87% of TMA Direct, Inc. (“TMA Direct”) for approximately $19,431 of cash consideration and approximately $482 of deferred acquisition payments. The Company was also granted an option to purchase the remaining 13% minority interest in TMA for up to approximately $13,330. The consideration has been allocated to the assets acquired and assumed liabilities of TMA Direct based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The estimated fair values assigned to identifiable assets acquired and liabilities assumed are based on the information that was available as of the acquisition date. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. Therefore, the estimates of fair value are subject to change and could be significant. The Company expects to complete the allocation of purchase price as soon as practicable, but no later than one year after the acquisition date. The preliminary purchase price allocation is as follows:
| | | | | | | | |
| | Amount |
| Accounts receivable | | $ | 582 | |
| Other current assets | | 54 | |
| Intangible assets | | 9,290 | |
| Other assets | | 2,800 | |
| Accounts payable | | (379) | |
| Other liabilities | | (270) | |
| Noncontrolling interests | | (2,667) | |
| Net assets assumed | | 9,410 | |
| Goodwill | | 10,503 | |
| Purchase price consideration | | $ | 19,913 | |
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 TMA Direct. Goodwill of $10,503 was assigned to the Communications Network reportable segment. The majority of the goodwill is 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 | | Estimated Useful Life in Years |
| Trade Names | | $ | 6,283 | | | 10 |
| Customer Relationships | | 3,007 | | | 10 |
| Total Acquired Intangible Assets | | $ | 9,290 | | | |
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, 2021. 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Revenue | | $ | 674,737 | | | $ | 212,378 | | | $ | 1,319,646 | | | $ | 398,671 | |
| Net Income | | 25,153 | | | 19,391 | | | 59,494 | | | 26,029 | |
2021 Acquisitions
Acquisition of MDC
On December 21, 2020, MDC and Stagwell Media announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of the Stagwell Subject Entities. The Stagwell Subject Entities comprised Stagwell Marketing 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, and subsequently to Stagwell Global 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 FASB’s 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 Topic 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 shares of the Company’s Class C Common Stock were issued to Stagwell Media in exchange for $1.80 (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 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 $429,062, consisting of approximately 80,000 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 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:
| | | | | | | | |
| | Amount |
| Cash and cash equivalents | | $ | 130,153 | |
| Accounts receivable | | 413,839 | |
| Other current assets | | 44,198 | |
| Fixed assets | | 80,047 | |
| Right-of-use lease assets - operating leases | | 252,739 | |
| Intangible assets | | 810,900 | |
| Other assets | | 18,418 | |
| Accounts payable | | (171,019) | |
| Accruals and other liabilities | | (307,281) | |
| Advance billings | | (211,403) | |
| Current portion of lease liabilities | | (48,517) | |
| Current portion of deferred acquisition consideration | | (53,054) | |
| Long-term debt | | (901,736) | |
| Revolving credit facility | | (109,954) | |
| Long-term portion of deferred acquisition consideration | | (8,056) | |
| Long-term portion of lease liabilities | | (289,128) | |
| Other liabilities | | (132,394) | |
| Redeemable noncontrolling interests | | (25,990) | |
| Preferred shares | | (209,980) | |
| Noncontrolling interests | | (151,090) | |
| Net liabilities assumed | | (869,308) | |
| Goodwill | | 1,298,370 | |
| Purchase price consideration | | $ | 429,062 | |
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 $1,058,365, $173,633 and $66,372 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 reduced from the previously reported amount of $1,300,360 to reflect a change in certain assets and liabilities. 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.
| | | | | | | | | | | | | | |
| | Estimated Fair Value | | Estimated Useful Life in Years |
| Trade Names | | $ | 98,000 | | | 10 |
| Customer Relationships | | 712,900 | | | 6-15 |
| Total Acquired Intangible Assets | | $ | 810,900 | | | |
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, 2021. 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.
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| Revenue | | $ | 555,165 | | | $ | 1,043,992 | |
| Net Income | | 32,996 | | | 47,100 | |
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 will be recognized as deferred acquisition consideration 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:
| | | | | | | | |
| | Amount |
| Cash and cash equivalents | | $ | 30,985 | |
| Accounts receivable | | 28,685 | |
| Other current assets | | 3,207 | |
| Fixed assets | | 237 | |
| Right-of-use lease assets - operating leases | | 2,060 | |
| Intangible assets | | 14,974 | |
| Other assets | | 55 | |
| Accounts payable | | (6,344) | |
| Accruals and other liabilities | | (27,353) | |
| Advance billings | | (15,956) | |
| Current portion of lease liabilities | | (857) | |
| Income taxes payable | | (967) | |
| Long-term portion of lease liabilities | | (3,744) | |
| Other liabilities | | (1,204) | |
| Net assets assumed | | 23,778 | |
| Goodwill | | 4,275 | |
| Purchase price consideration | | $ | 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 reportable segment. 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 | | Estimated Useful Life in Years |
| Trade Names | | $ | 1,349 | | | 15 |
| Customer Relationships | | 13,625 | | | 10 |
| Total Acquired Intangible Assets | | $ | 14,974 | | | |
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, 2021. 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.
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
| Revenue | | $ | 215,358 | | | $ | 400,786 | |
| Net Income | | 20,426 | | | 25,537 | |
2022 Purchases of Noncontrolling Interests
On April 1, 2022, the Company acquired the remaining interest in Hello Design, LLC (“Hello Design”) that it did not already own for an aggregate purchase price of $4,600, comprised of a closing cash payment of $3,600 and a contingent deferred acquisition payment of $1,000. The contingent deferred payment will be based on the financial results of the underlying business through 2022 with the payment due in 2023.
2021 Purchases of Noncontrolling Interests
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 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.
4. 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.
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. Typically, 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 three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Principal Capabilities | Reportable Segment | | 2022 | | 2021 | | 2022 | | 2021 |
| Digital Transformation | All Segments | | $ | 197,915 | | | $ | 70,261 | | | $ | 408,724 | | | $ | 132,698 | |
| Creativity and Communications | Integrated Agencies Network, Media Network, Communications Network | | 307,402 | | | 27,986 | | | 586,644 | | | 52,656 | |
| Performance Media and Data | Media Network | | 114,260 | | | 71,439 | | | 214,036 | | | 134,047 | |
| Consumer Insights and Strategy | Integrated Agencies Network | | 53,336 | | | 39,874 | | | 106,412 | | | 71,401 | |
| | | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
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 three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| Geographical Location | Reportable Segment | | 2022 | | 2021 | | 2022 | | 2021 |
| United States | All | | $ | 559,635 | | | $ | 183,358 | | | $ | 1,096,866 | | | $ | 350,105 | |
| United Kingdom | All | | 43,363 | | | 12,070 | | | 83,176 | | | 16,775 | |
| Other | All | | 69,915 | | | 14,132 | | | 135,774 | | | 23,922 | |
| | | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
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 $166,879 and $116,558 at June 30, 2022 and December 31, 2021, respectively, and are included as a component of Accounts receivable on the Unaudited Condensed Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $43,583 and $63,065 at June 30, 2022 and December 31, 2021, respectively, and are included on the Unaudited Condensed Consolidated Balance Sheets as Expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services.
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 Unaudited Condensed 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 Unaudited Condensed Consolidated Statements of Operations. Advance billings at June 30, 2022 and December 31, 2021 were $316,654 and $361,885, respectively. The decrease in the Advance billings balance of $45,231 for the six months ended June 30, 2022 was primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $312,171 of revenues recognized that were included in the Advance billings balances as of December 31, 2021 and reductions due to the incurrence of third-party costs.
Changes in the contract asset and liability balances during the six months ended June 30, 2022 were not materially impacted by write offs, impairment losses or any other factors.
Unsatisfied Performance Obligations
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 $41,103 of unsatisfied performance obligations as of June 30, 2022 of which we expect to recognize approximately 48% in the remaining quarters of 2022, 40% in 2023 and 12% in 2024.
Net income
5. Earnings Per Share
The following table sets forth the computations of basic and diluted income per common share:
| | | | | | | | | | | |
| | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| Earnings Per Share - Basic | | | |
| Numerator: | | | |
| Net income | $ | 24,519 | | | $ | 58,141 | |
| Net income attributable to Class C shareholders | (14,020) | | | (31,741) | |
Net loss attributable to other equity interest holders | (36) | | | (3,262) | |
| Net income attributable to noncontrolling and redeemable noncontrolling interests | (14,056) | | | (35,003) | |
| Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 23,138 | |
| | | |
| Denominator: | | | |
| Basic - Weighted Average number of common shares outstanding | 126,425 | | | 124,367 | |
| | | |
| Earnings Per Share - Basic | $ | 0.08 | | | $ | 0.19 | |
| | | |
| Earnings Per Share - Diluted | | | |
| Numerator: | | | |
| Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 23,138 | |
| Net income attributable to Class C shareholders | 14,020 | | | 31,741 | |
| $ | 24,483 | | | $ | 54,879 | |
| | | |
| Denominator: | | | |
| Basic - Weighted Average number of common shares outstanding | 126,425 | | | 124,367 | |
| Dilutive shares: | | | |
| Stock appreciation rights | 1,966 | | | 1,941 | |
| Restricted share and restricted unit awards | 3,212 | | | 4,959 | |
| Class C shares | 164,811 | | | 167,576 | |
| Diluted - Weighted average number of common shares outstanding | 296,414 | | | 298,843 | |
| Earnings Per Share - Diluted | $ | 0.08 | | | $ | 0.18 | |
| | | |
| | | |
| | | |
The combination of MDC and SMG, completed on August 2, 2021, was treated as a reverse acquisition for financial reporting purposes. SMG was treated as the accounting acquirer and MDC as 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-Q 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 earnings per share calculation in the table above includes only the three and six months ended June 30, 2022 and does not include the corresponding prior year period.
Restricted stock awards of 1,005 as of June 30, 2022 are excluded from the computation of diluted income (loss) per common share because the performance contingency necessary for vesting had not been met as of the reporting date.
6. Deferred Acquisition Consideration
Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and 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 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 balance sheets as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| June 30,
2022 | | December 31, 2021 |
| Beginning balance of contingent payments | $ | 222,369 | | | $ | 17,847 | |
| Payments | (59,538) | | | (12,431) | |
Adjustment to deferred acquisition consideration (1) | 16,014 | | | 18,721 | |
Additions (2) | 19,348 | | | 198,937 | |
| CTA | (696) | | | — | |
| Other | (983) | | | (705) | |
| Ending balance of contingent payments | $ | 196,514 | | | $ | 222,369 | |
| | | |
| | | |
(1) Adjustment to deferred acquisition consideration contains fair value changes from the Company’s initial estimates of deferred acquisition payments. Adjustment to deferred acquisition consideration is recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations.
(2) In 2021, approximately $61,000 of additions 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 3 of the Notes included herein for additional information related to the purchases of Concentric, Targeted Victory, and Instrument. As of June 30, 2022, approximately $17,000 of additions represent deferred acquisition consideration acquired in connection with the acquisition of BNG. See Note 3 of the Notes included herein for additional information related to the purchase of BNG.
7. Leases
The Company leases office space in North America, Europe, Asia, South America, Africa 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 available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of non-cancellable 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 Unaudited Condensed 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 2032. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America, Europe and Australia.
As of June 30, 2022, the Company has entered into one operating lease 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. Accordingly, this one lease represents an obligation of the Company that is not reflected within the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022. The aggregate future liability related to these leases is approximately $367.
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 three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended June 30, | | Six Months
Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Lease Cost: | | | | | | | |
| Operating lease cost | $ | 20,947 | | $ | 6,238 | | $ | 34,963 | | $ | 11,743 |
| Variable lease cost | 4,044 | | 884 | | 9,204 | | 1,937 |
| Sublease rental income | (4,216) | | (972) | | (7,492) | | (1,931) |
| Total lease cost | $ | 20,775 | | $ | 6,150 | | $ | 36,675 | | $ | 11,749 |
| Additional information: | | | | | | | |
| Cash paid for amounts included in the measurement of lease liabilities for operating leases | | | | | | | |
| Operating cash flows | $ | 24,352 | | $ | 7,763 | | $ | 47,133 | | $ | 13,364 |
| | | | | | | |
| Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments | $ | 8,527 | | $ | — | | $ | 22,689 | | $ | — |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
As of June 30, 2022, the weighted average remaining lease term (in years) and weighted average discount rate were 6.6 and 4.3%, respectively.
Operating lease expense is included in office and general expenses in the Unaudited Condensed 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 June 30, 2022 and their reconciliation to the corresponding lease liabilities:
| | | | | |
| | Maturity Analysis |
| Remaining 2022 | $ | 40,873 | |
| 2023 | 88,144 | |
| 2024 | 75,167 | |
| 2025 | 58,646 | |
| 2026 | 43,455 | |
| 2027 and thereafter | 157,574 | |
| Total | 463,859 | |
| Less: Present value discount | (67,397) | |
| Lease liability | $ | 396,462 | |
8. Debt
As of June 30, 2022 and December 31, 2021, the Company’s indebtedness was comprised as follows:
| | | | | | | | | | | |
| June 30,
2022 | | December 31, 2021 |
Revolving credit facility | $ | 298,000 | | | $ | 110,165 | |
5.625% Notes | 1,100,000 | | | 1,100,000 | |
| Debt issuance costs | (16,440) | | | (18,564) | |
| Total long-term debt | $ | 1,381,560 | | | $ | 1,191,601 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Interest expense related to long-term debt included in Interest expense, net on the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 was $17,659 and $35,945, respectively, and for the three and six months ended June 30, 2021 was $1,467 and $3,091, respectively.
The amortization of debt issuance costs included in Interest expense, net on the Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 was $605 and $1,211, respectively, and for the three and six months ended June 30, 2021 was $330 and $469, 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.
On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to SOFR. Borrowings pursuant to the Combined Credit Agreement, as amended, bear interest at a rate equal to, at the Company’s option, (i) the greatest of (a) the prime rate of interest in effect on such day, (b) the federal funds effective rate plus 0.50% and (c) SOFR plus 1% in each case, plus the applicable margin (calculated based on the Company’s Total Leverage Ratio, as defined in the Combined Credit Agreement) at that time. Additionally, the Combined Credit Agreement was amended to remove certain pre-commencement notice provisions for certain acquisitions under $50,000 in the aggregate, increased the amount permitted for certain investments allowed under the Combined Credit Agreement, and, subject to certain conditions, to allow for the repurchase of Stagwell Inc. stock in an amount not to exceed $100,000 in any fiscal year. All other substantive terms of the Credit Agreement remain unchanged.
Prior to April 28, 2022, borrowings under the Combined Credit Agreement bore 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.
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 June 30, 2022.
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 June 30, 2022 and December 31, 2021, the Company had issued undrawn outstanding letters of credit of $24,404 and $24,332, respectively.
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.
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 June 30, 2022.
Interest Rate Swap
The Company had an interest rate swap that matured in April 2022. The fair value of the swap was $77 as of December 31, 2021.
9. 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 Unaudited Condensed 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 its less than 100% owned subsidiaries during the three and six months ended June 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
| Transfers from the noncontrolling interest: | | | | | | | |
| Change in Stagwell Inc. Paid-in capital for purchase of noncontrolling interests | (1,000) | | | — | | | (1,000) | | | — | |
| Net transfers from noncontrolling interests | (1,000) | | | — | | | (1,000) | | | — | |
| Change from net income attributable to Stagwell Inc. and transfers to noncontrolling interests | $ | 9,463 | | | $ | 17,345 | | | $ | 22,138 | | | $ | 21,710 | |
The following table presents net income attributable to noncontrolling interests between holders of Class C shares and other equity interest holders for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | |
| Three Months
Ended June 30, | Six Months
Ended June 30, |
| 2022 | | 2021 | 2022 | | 2021 |
Net income attributable to Class C shareholders | $ | 14,020 | | | $ | — | | $ | 31,741 | | | $ | — | |
Net income attributable to other equity interest holders | 980 | | | 1,470 | | 1,796 | | | 2,623 | |
Net income attributable to noncontrolling interests | $ | 15,000 | | | $ | 1,470 | | $ | 33,537 | | | $ | 2,623 | |
The following table presents noncontrolling interests between holders of Class C shares and other equity interest holders as of June 30, 2022 and December 31, 2021:
| | | | | | | | | | | |
| June 30,
2022 | | December 31, 2021 |
| Noncontrolling interest of Class C shareholders | $ | 483,626 | | | $ | 475,373 | |
| Noncontrolling interest of other equity interest holders | 29,459 | | | 32,914 | |
| NCI attributable to noncontrolling interests | $ | 513,085 | | | $ | 508,287 | |
Redeemable Noncontrolling Interests
The following table presents changes in redeemable noncontrolling interests:
| | | | | | | | | | | |
| June 30,
2022 | | December 31, 2021 |
| Beginning Balance | $ | 43,364 | | | $ | 604 | |
| Redemptions | (1,523) | | | (15,231) | |
Acquisitions (1) | — | | | 53,270 | |
| Changes in redemption value | 5,888 | | | 3,834 | |
| | | |
| Net income (loss) attributable to redeemable noncontrolling interests | 1,466 | | | (412) | |
| Other | 502 | | | 1,299 | |
| Ending Balance | $ | 49,697 | | | $ | 43,364 | |
(1) As of December 31, 2021, 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 3 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 2022 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 $49,697 as of June 30, 2022, consists of $46,041, assuming that the subsidiaries perform over the relevant periods at their current profit levels, and $3,656 upon termination of such owner’s employment with the applicable subsidiary or death.
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.
10. 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 adverse effect on the financial condition or results of operations of the Company.
Deferred Acquisition Consideration and Options to Purchase. See Notes 6 and 9 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 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 June 30, 2022, the Company had $24,404 of undrawn letters of credit.
The Company entered into one operating leases for which the commencement date has not yet occurred as of June 30, 2022. See Note 7 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 June 30, 2022, the Company estimates its future minimum commitments under these non-cancellable agreements to be: $5,725, $7,198, $2,140, $1,341, $1,134, and $88 for the remainder of 2022, 2023, 2024, 2025, 2026, and 2027, respectively.
11. Share Capital
On March 23, 2022, the board of directors authorized a stock repurchase program (the “Repurchase Program”) under which we may repurchase up to $125,000 of shares of our outstanding Class A common stock. The Repurchase Program will expire on March 23, 2025.
Under the Repurchase Program, share repurchases may be made at our discretion from time to time in open market transactions at prevailing market prices (including through trading plans that may be adopted in accordance with Rule 10b5-1 of the Exchange Act), in privately negotiated transactions, or through other means. The timing and number of shares repurchased under the Repurchase Program will depend on a variety of factors, including the performance of our stock price, general market and economic conditions, regulatory requirements, the availability of funds, and other considerations we deem relevant. The Repurchase Program may be suspended, modified or discontinued at any time without prior notice. Our board of directors will review the Repurchase Program periodically and may authorize adjustments of its terms.
When repurchasing shares, we reduce the value of our Class A Common Stock for the par value of the shares repurchased and account for the difference between the price paid for the Class A Common Stock, excluding fees, and the par value of such stock recorded to Paid-in capital.
As of June 30, 2022, there were 1,981 shares of Class A Common Stock repurchased under the Repurchase Program at an aggregate value, excluding fees, of $14,841. These were purchased at an average share price of $7.49 per share. The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $110,119 as of June 30, 2022.
The authorized and outstanding share capital of the Company is below.
Class A Common Stock (“Class A Shares”)
There are 1,000,000 shares of Class A Shares authorized. There were 131,834 Class A Shares issued and outstanding as of June 30, 2022. The Class A Shares carry 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 shares of Class B Shares authorized. There were 4 of Class B Shares issued and outstanding as of June 30, 2022. The Class B Shares carry twenty votes each, with a par value of $0.001, 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 shares of Class C Shares authorized. There were 164,427 Class C Shares issued and outstanding as of June 30, 2022. The Class C Shares do not participate in the earnings of the Company and have a par value of $.00001. In 2021, an aggregate of 179,970 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 OpCo common unit, is convertible at any time, at the option of the holder, into one Class A Share. In the six months ended June 30, 2022, holders of Class C Shares and OpCo Units (the “Paired Units”) exchanged 15,543 Paired Units for the same number of Class A Shares. Approximately 5,000 Paired Units exchanged into an equal number of Class A Shares triggered an employee tax withholding obligation of $14,900. The Company repurchased approximately 2,000 of the 5,000 Class A Shares issued to the employees to satisfy their employee tax withholding obligation.
12. 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 June 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | June 30, 2022 | | December 31, 2021 |
| | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| | | | | | | |
| 5.625% Notes | 1,100,000 | | | 880,000 | | | 1,100,000 | | | 1,120,900 | |
| | | | | | | |
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.
Financial Instruments Measured at Fair Value on a Recurring Basis
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 June 30, 2022, the discount rate used to measure these liabilities ranged from 3.0% to 6.4%.
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 Unaudited Condensed Consolidated Balance Sheets are subject to material uncertainty.
See Note 6 of the Notes included herein for additional information regarding contingent deferred acquisition consideration.
At June 30, 2022 and December 31, 2021, 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 in the three and six months ended June 30, 2022 and 2021.
13. Supplemental Information
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, receive a profit share distribution. The profits interests awards are settled in cash and the corresponding liability at fair value was $30,379 at June 30, 2022 (Level 3 fair value model), and included as a component of Accruals and other liabilities and Other liabilities on the Unaudited Condensed Consolidated Balance Sheets.
Stock-based Compensation
Total stock-based compensation recognized for the six months ended June 30, 2022 was $21,152, primarily attributable to $16,572 recognized for stock-based compensation associated with grants of Class A Common Stock and $4,009 recognized for profits interest awards. In the six months ended June 30, 2022, the Company granted approximately 4,488 share based awards.
14. Income Taxes
Our tax provision for interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in interim periods.
The Company had an income tax expense for the three months ended June 30, 2022 of $5,421 (on a pre-tax income of $30,130 resulting in an effective tax rate of 18.0%) compared to income tax expense of $3,348 (on pre-tax income of $22,010 resulting in an effective tax rate of 15.2%) for the three months ended June 30, 2021.
The difference in the effective tax rate of 18.0% in the three months ended June 30, 2022 as compared to 15.2% in the three months ended June 30, 2021 was primarily attributable to the larger portion of income subject to entity level tax in 2022 as a result of the merger, offset by the impact of increased tax rates recorded in June 30, 2021.
The Company had an income tax expense for the six months ended June 30, 2022 of $8,610 (on a pre-tax income of $65,911 resulting in an effective tax rate of 13.1%) compared to income tax expense of $4,021 (on pre-tax income of $27,282 resulting in an effective tax rate of 14.7%) for the six months ended June 30, 2021.
The difference in the effective tax rate of 13.1% in the six months ended June 30, 2022 as compared to 14.7% in the six months ended June 30, 2021 was primarily related to deductions for share based compensation vesting in 2022.
Tax Receivables Agreement
In connection with the closing of the Transactions, we entered into the Tax Receivables Agreement (“TRA”) 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 exchanges of Paired Units (defined in Note 11) 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 TRA.
The Company accounts for amounts payable under the TRA in accordance with ASC 450—Contingencies. We will evaluate the likelihood that we will realize the benefit represented by the deferred tax asset and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we will reduce the carrying amount of the deferred tax asset with a valuation allowance and a corresponding reduction to the TRA liability. The amounts to be recorded for both the deferred tax assets and the liability under the TRA will be estimated at the time of any purchase or exchange as a reduction to shareholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income or loss. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income or loss.
In the first quarter of 2022, the Company had its first exchange of Paired Units for shares of our Class A Common Stock and recorded its initial TRA liability. As of June 30, 2022, the Company had a TRA liability of $21,385 and has recognized deferred tax benefits of $25,159 as a reduction to the net deferred tax liability on its unaudited condensed consolidated balance sheets in connection with the exchanges of the Paired Units and the projected obligations under the TRA.
15. 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. The following table presents significant related party transactions where a third party receives services from the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Transaction Value | | Revenues | | Due From
Related Party |
| | | | | Three Months
Ended June 30, | | Six Months
Ended June 30, | | June 30,
2022 | | December 31, 2021 |
| Services | | | | | 2022 | | 2021 | | 2022 | | 2021 | | |
Technological (1) | | | | Ongoing arrangement (6) | | $ | 10 | | | $ | 15 | | | $ | 19 | | | $ | 30 | | | $ | 26 | | | $ | 137 | |
Marketing Services (2) | | | | Ongoing arrangement (6) | | $ | 297 | | | $ | 66 | | | $ | 483 | | | $ | 92 | | | $ | 488 | | | $ | 88 | |
Polling Services (3) | | | | $825 | | $ | 508 | | | $ | 104 | | | $ | 578 | | | $ | 119 | | | $ | 140 | | | $ | — | |
Marketing and Website Development Services (4) | | | | $4,984 | | $ | 1,673 | | | $ | — | | | $ | 2,923 | | | $ | — | | | $ | 1,923 | | | $ | 502 | |
Marketing and Advertising Services (5) | | | | Ongoing arrangement (6) | | $ | 2,809 | | | $ | 1,644 | | | $ | 5,367 | | | $ | 1,663 | | | $ | 6,216 | | | 4,577 | |
Polling Services (7) | | | | $3,200 | | $ | 711 | | | $ | — | | | $ | 953 | | | $ | — | | | $ | — | | | $ | — | |
(1) Client was founded by the Company’s Chief Executive Officer
(2) Family member of one of the Brands’ partners holds an executive leadership position in the client
(3) Family members of the Brands’ executives hold key leadership positions in the client
(4) Client has significant interest in the Company
(5) Brands’ partners and executives either hold a key leadership position in or are on the Board of Directors of the client
(6) This arrangement was entered into for an indefinite term and is invoiced as services are provided
(7) Founder of the client has significant interest in the Company
The following table presents significant related party transactions in which the Company receives services from a third party:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total Transaction Value | | Expenses | | Due to Related Party |
| | | | | Three Months
Ended June 30, | | Six Months
Ended June 30, | | June 30,
2022 | | December 31, 2021 |
| Services | | | | | 2022 | | 2021 | | 2022 | | 2021 | | |
Data Management Services (1) | | | | Ongoing arrangement (4) | | $ | 445 | | | $ | 387 | | | $ | 814 | | | $ | 756 | | | $ | 1,062 | | | $ | 623 | |
Sales and Management Services (2) | | | | Ongoing arrangement (4) | | $ | 566 | | | $ | 90 | | | $ | 739 | | | $ | 177 | | | $ | 1,170 | | | $ | 442 | |
Marketing Services (3) | | | | $120 | | $ | 40 | | | $ | — | | | $ | 40 | | | $ | — | | | $ | 40 | | | $ | — | |
(1) Family member of one of the Brand’s partners holds an executive leadership position in the third party
(2) Chief Executive Officer of the Brand is a shareholder of the affiliate providing the services
(3 ) Family member of the Company’s President holds a key leadership position in the client
(4) This arrangement was entered into for an indefinite term and is invoiced as services are provided
In 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 $3,801 and $3,784 due from the third party is included within Other current assets in the Company’s Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively. The Company recognized $77 and $154 for the three and six months ended June 30, 2022, respectively, and $76 and $151 for the three and six months ended June 30, 2021, respectively, of interest income within interest expense, net on its Unaudited Condensed Consolidated Statements of Operations.
During the three and six months ended June 30, 2021, Stagwell Media made additional non-cash investments in the Company of $1,900 and $12,100, respectively. In March 2021, the Company made a non-cash distribution to Stagwell Media of $13,000. Additionally, the Company made cash distributions to Stagwell Media of $11,200 and $26,200 for the three and six months ended June 30, 2021, respectively.
16. 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.
Due to changes in the Company’s internal management and reporting structure in the second quarter of 2022, reportable segment results for periods presented prior to the second quarter of 2022 have been recast to reflect the reclassification of certain reporting units (brands) between operating segments. The changes in reportable segments were that the Forsman & Bodenfors, Observatory, Crispin Porter Bogusky, Bruce Mau and Vitro brands, previously within the Integrated Agencies Network, are now within the Stagwell Media Network.
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 Unaudited Condensed Consolidated Financial Statements included herein.
•The Integrated Agencies Network includes five operating segments: the Anomaly Alliance, Constellation, the Doner Partner Network, Code and Theory, and National Research Group. The operating segments offer an array of
complementary services spanning our core capabilities of Digital Transformation, Performance Media & Data, Consumer Insights & Strategy, and Creativity & Communications. The brands 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 (brands), Constellation (72andSunny, Colle McVoy, Instrument, Redscout, Hello Design, Team Enterprises, and Harris Insights), the Doner Partner Network (Doner, KWT Global, Harris X, Veritas, Doner North, Northstar, which is currently sunsetting, and Yamamoto (brands)), Code and Theory and National Research Group.
These 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 Stagwell Media Network (“SMN”) reportable segment is comprised of a single operating segment. SMN includes a unified media and data management structure with omnichannel media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Brands 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 Brands 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 brands Assembly, Brand New Galaxy, Crispin Porter Bogusky, Forsman & Bodenfors, Bruce Mau Design, Goodstuff, MMI Agency, digital creative & transformation consultancy Gale, B2B specialist Multiview, Observatory, Vitro, 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 brands.
•All Other consists of the Company’s digital innovation group, Stagwell Marketing Cloud products such as PRophet and Reputation Defender (which was sold in September 2021).
•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.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months
Ended June 30, | | Six Months
Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Revenue: | (Dollars in Thousands) |
| Integrated Agencies Network | $ | 378,168 | | | $ | 81,639 | | | $ | 728,639 | | | $ | 150,587 | |
| Media Network | 194,296 | | | 70,560 | | | 392,083 | | | 134,283 | |
| Communications Network | 97,770 | | | 47,738 | | | 189,305 | | | 90,446 | |
| All Other | 2,679 | | | 9,623 | | | 5,789 | | | 15,486 | |
| Total Revenue | $ | 672,913 | | | $ | 209,560 | | | $ | 1,315,816 | | | $ | 390,802 | |
| | | | | | | |
| Adjusted EBITDA: | | | | | | | |
| Integrated Agencies Network | $ | 70,307 | | | $ | 19,755 | | | $ | 139,696 | | | $ | 34,251 | |
| Media Network | 33,699 | | | 9,129 | | | 64,947 | | | 12,821 | |
| Communications Network | 17,231 | | | 9,962 | | | 33,168 | | | 17,936 | |
| All Other | (485) | | | 298 | | | (609) | | | (1,313) | |
| Corporate | (9,433) | | | (426) | | | (24,471) | | | (1,135) | |
| Total Adjusted EBITDA | $ | 111,319 | | | $ | 38,718 | | | $ | 212,731 | | | $ | 62,560 | |
| | | | | | | |
| Depreciation and amortization | $ | (32,231) | | | $ | (10,381) | | | $ | (63,435) | | | $ | (21,331) | |
| Impairment and other losses | (2,266) | | | — | | | (2,823) | | | — | |
| Stock-based compensation | (13,131) | | | — | | | (21,152) | | | — | |
| Deferred acquisition consideration | (13,472) | | | (2,098) | | | (15,369) | | | (6,034) | |
| Other items, net | (1,887) | | | (1,808) | | | (6,960) | | | (4,749) | |
Total Operating Income | $ | 48,332 | | | $ | 24,431 | | | $ | 102,992 | | | $ | 30,446 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months
Ended June 30, | | Six Months
Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (Dollars in Thousands) |
| Other Income (expenses): | | | | | | | |
| Interest expense, net | $ | (18,151) | | | $ | (1,935) | | | $ | (36,880) | | | $ | (3,286) | |
| Foreign exchange, net | 70 | | | (385) | | | (236) | | | (1,062) | |
| Other, net | (121) | | | (101) | | | 35 | | | 1,184 | |
| Income before income taxes and equity in earnings of non-consolidated affiliates | 30,130 | | | 22,010 | | | 65,911 | | | 27,282 | |
| Income tax expense | 5,421 | | | 3,348 | | | 8,610 | | | 4,021 | |
| Income before equity in earnings of non-consolidated affiliates | 24,709 | | | 18,662 | | | 57,301 | | | 23,261 | |
| Equity in income (loss) of non-consolidated affiliates | (190) | | | (3) | | | 840 | | | 1 | |
| Net income | 24,519 | | | 18,659 | | | 58,141 | | | 23,262 | |
| Net income attributable to noncontrolling and redeemable noncontrolling interests | (14,056) | | | (1,314) | | | (35,003) | | | (1,552) | |
| Net income attributable to Stagwell Inc. common shareholders | $ | 10,463 | | | $ | 17,345 | | | $ | 23,138 | | | $ | 21,710 | |
| | | | | | | |
| Depreciation and amortization: | | | | | | | |
| Integrated Agencies Network | $ | 18,010 | | | $ | 2,691 | | | $ | 36,890 | | | $ | 5,293 | |
| Media Network | 8,643 | | | 5,313 | | | 16,839 | | | 10,572 | |
| Communications Network | 2,524 | | | 1,395 | | | 5,064 | | | 2,977 | |
| All Other | 750 | | | 496 | | | 1,251 | | | 1,518 | |
| Corporate | 2,304 | | | 486 | | | 3,391 | | | 971 | |
| Total | $ | 32,231 | | | $ | 10,381 | | | $ | 63,435 | | | $ | 21,331 | |
| | | | | | | |
| Stock-based compensation | | | | | | | |
| Integrated Agencies Network | $ | 4,663 | | | $ | — | | | $ | 9,736 | | | $ | — | |
| Media Network | 4,969 | | | — | | | 6,229 | | | — | |
| Communications Network | 649 | | | — | | | 406 | | | — | |
| All Other | — | | | — | | | 8 | | | — | |
| Corporate | 2,850 | | | — | | | 4,773 | | | — | |
| Total | $ | 13,131 | | | $ | — | | | $ | 21,152 | | | $ | — | |
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 4 of the Notes included herein for a summary of the Company’s revenue by geographic region for the three and six months ended June 30, 2022 and 2021.