And we can see the benefits, 14% growth just beginning, frankly, because they used to get very small pitches because their services were fragmented. Now it’s almost like a shopping mall. You can see advertising, research, media, a set of coordinated services, and they’re getting more than million-dollar opportunities. So while the European marketplace may not be a high-grower, our ability to grow market share in Europe, I think having put together our agencies and having added a structure with James Townsend, a CEO, having brought in a whole marketing team, I think we have very good prospects. And that’s what we’re going to do region by region until we have a complete functioning scale global network here.
Ben Allanson: Great. We’ll just have a question on net new business first and then we’ll shift the advocacy number of questions on that topic. But Laura Martin over at Needham, she goes, $66 million of net new business wins in Q1, very impressive, up to 284.5 [ph] for the training 12 months. What do you think is the normalized revenue growth like in the mid-single digits or high-single digits currently?
Mark Penn: Well, look, I think that we’ll see a little bit of what the Fed does today with our economy. But I think we’re building back to our targets, right. We are getting to 10% year-over-year growth. We know that we have 15% in 2022, 2023 for a number of factors was not the year we had planned, but a lot of those factors were exciting to us. They were in a period of recession. There were media slowdowns. There were strikes across the border and in other industries there were tech products. We’re striving to get back to those numbers. And I think this is a big transition year. By the end of the year, we’ll have an expanded global network. We have our Stagwell Marketing Cloud products, at least to the Research. I think about the Prophet.
We’ll have our Media and in our ID graph that will extend our capabilities. I think, into Deeper Media Services that will also open up. We got more revenue opportunities. Digital Transformation will be in the sector of AI. So to me, this is a transition year back to that kind of growth that we believe is the long-term target that the firm is capable of.
Ben Allanson: Thank you. A couple of questions on this, first up from Steve Cahall of Wells Fargo, did Advocacy out for your expectations on the revenue — net revenue and adjusted EBITDA side in Q1, we obviously did adjusted guidance today, but does that strengthen our Advocacy as well as the new business talent discussed, give you some more confidence in terms of your guidance?
Frank Lanuto: I think the strength of advocacy obviously gives us — it’s one of the elements that could give us certain confidence. I think advocacy was a little stronger than expected, particularly since there were no real primaries on each side. And so when you see that kind of strength in advocacy and you look at it well, 2028, they’ll probably be — I thought at 2024 will be the record, but now I realize it will to 2028 because there will be a matter who wins, open presences on both sides, and it will be double primary. So I think the building strength of this given the fact that there are no primary, essentially shows that this is going to be a record year. You can see it forming people are really going to intensively focus on those rates, particularly once the conventions get kicked off.
And even though there’s a little bit of a lull now, advocacy is the comp people are planning on an incredible rates and I think the services we provide will continue to diversify in the year.
Ben Allanson: Just sort of following up on efficacy another question from Laura, she’s asking, there’s obviously some press speculation that some legal fees we might capitalize media spend and focus from the top campaign. Do you think that those legal structures might lowly be spending and advocacy revenue in ’24 versus expectations? And how many might that impact all businesses?
Mark Penn: We don’t do fundraising for the [indiscernible] campaign. So it’s not our focus is really on house and senate races and super packs that are not directly that can make. So, that factor would come into us as you know, really either way. Look, I think Americas poised for very big rate. And people — there used to be kind of no tradition of people getting involved and active. It used to be about only 1% that we contribute. Now, it hits around 10% to 12%. And I think you’re going to see really strong participation. And those factors are not going to [indiscernible].
Ben Allanson: Great. One question on growth rates, and then we’re going to talk about AI a little bit, but a question from Cameron McVeigh from Morgan Stanley. Can you discuss what drove some of the — and this may be for Frank as well? What drove some of the divergence in growth rates between gross and net revenue in the quarter? And how much of an impact might performance needed to do that?
Frank Lanuto: It’s less about Performance Media. We have now acquired a number of companies that have more — that recognize more GAAP revenue versus net revenue when you look at kind of we acquired Team Epiphany, Left Field Labs, some of these new companies are more oriented. Some of the digital online fundraising also generates higher levels of GAAP revenue. So I think those two or three factors for this divergence. We showed that — we talked about the GAAP revenue because after it is evidence of economic activity. We’re looking at how we’re going to make money in fact that those kinds of revenues changed are part of showing kind of the building secrets of events here. I think it’s going to be quite favorable to Stagwell through the year.
Ben Allanson: Great. Shifting gears, AI. A question from Jeff Van Sinderen. So two parts. One, can you talk about latest customer projects in evolving AI? And then the other part of it is, it needs to be more of how we’re using AI in our shared services platform and internally and efficiently?
Mark Penn: Sure. We have about 300 to 400 people internally. Well, just to go back to see — remember that we have the Stagwell market cloud and we have a central innovation group. And that, that was one of the key principles in building Stagwell. And as Frank pointed out, our EBITDA would be another $14 million higher if we were not investing heavily in AI and other tech products, as a central innovation function. We’ve got 300 to 400 employees who are signed on to the central kind of AI experimental. Right now, we’re actually completing our survey of what everybody is looking for AI. Obviously, on the word side, people are looking for lots of the ability to summarize information and the ability to help the right things more clearly.
And I think there’s a lot of interest in text to video, give me a picture of a dog its now kind of thing. And I think on the client end, clients want to make sure that before they dive into AI, they can be safe and secure, and that’s why we are working on safety security first. And then I want to understand, we’re seeing applications where shopping box will make it is far easier due to safe ends like I’m having an office party tell me, what to buy. The whole ability for you to look through data sets and say, “Hey, can you bring up all the polling on the presidential approval for the last five years. These are unprecedented ways in which people can interact with technology and get — other response that would have taken hours and hours. And so we think there’s going to be an enormous amount of work in redoing virtually every website to be AI-enabled in order to provide that kind of confidence.
That’s where I think we’re focusing a lot of our work with clients is exactly there. How does AI change your brand, if you’re going to effectively interact with the brand’s AI as much as you’re going to see advertisements that becomes the absolute critical part of how you market and establish our brand image. And that’s why particularly benefits of us as we’re used to really engineering and designing the last mile, that connection between the company and the customer. And if you’re going to see that work explode.
Ben Allanson: Great. Just one final question on us, I think this one’s for Frank. Between your appetite to grow your media business and digital capabilities internationally at potential divestitures, DAC what should we expect in terms of deleveraging by the end of 2024 I mean 3 times is that what dealing with [ph]…
Frank Lanuto: Yes, we’re at 3 times now. We expect to be somewhere in the mid-2s by the end of the year, I would say. And that comes from the stronger cash flows that we’ll experience in the back half of the year. It steadily ramps up Q3 and then Q4 really drives a lot of cash and that will drive down the leverage ratio, right?
Ben Allanson: Well, that brings us to a close day on our first quarter earnings call. Thank you very much for joining us. And I hope you’ll be able to join us in a few months’ time for our second quarter.
