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Item 7. Management’s Discussion and Analysis

2023-03-06 compared with 2022-03-17 · 328 added, 236 removed, 273 unchanged (67% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis are based on and should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Form 10-K.

The following discussion and analysis are based on and should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this Form 10-K.

The following discussion and analysis contains forward-looking statements and should be read in conjunction with the disclosures and information contained and referenced under the captions “Forward-Looking Statements” and “Risk Factors” in this Form 10-K.

The following discussion and analysis also includes a discussion of certain non-GAAP financial measures.

A description of the non-GAAP measures discussed in this section and reconciliations to the comparable GAAP measures are below.

A description of the non-GAAP financial measures discussed in this section and reconciliations to the comparable GAAP measures are below.

In this section, the terms “Stagwell,” “we,” “us,” “our” and the “Company” refer (i) with respect to events occurring or periods ending before August 2, 2021, to Stagwell Marketing Group LLC and its direct and indirect subsidiaries and (ii) with respect to events occurring or periods ending on or after August 2, 2021, to Stagwell Inc.

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Executive Summary

Business Combination

On December 21, 2020, MDC Partners Inc.

(“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell Media (the “Stagwell Subject Entities”).

The Stagwell Subject Entities comprised Stagwell Marketing Group LLC (“Stagwell Marketing” or “SMG”) and its direct and indirect subsidiaries.

On August 2, 2021 (the “Closing Date”), we completed the previously announced combination of MDC and the Stagwell Subject Entities and a series of steps and related transactions (such combination transactions, the “Transactions”).

In connection with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo Holdings LLC (“OpCo”);

(ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo;

and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc.

The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer and Stagwell Marketing treated as the accounting acquirer.

As a result of the Transactions and the change in our business and operations, under applicable accounting principles, the historical financial results of Stagwell Marketing prior to August 2, 2021 are considered our historical financial results.

Accordingly, historical information presented in this Form 10-K for events occurring or periods ending before August 2, 2021 does not reflect the impact of the Transactions and may not be comparable with historical information for events occurring or periods ending on or after August 2, 2021, which do not include the financial results of MDC.

See Note 4 of the Notes included herein for additional information in connection with the Transaction.

Stagwell conducts its business through its networks, which provide marketing and business solutions that realize the potential of combining data and creativity.

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Stagwell manages its business by monitoring several financial and non-financial performance indicators.

The key indicators that we focus on are revenue, operating expenses, capital expenditures and the non-GAAP measures described below.

Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth by line of business, (iii) growth from existing clients and the addition of new clients, (iv) growth by principal capability, (v) growth from currency changes, and (vi) growth from acquisitions.

The key indicators that we focus on are revenue, operating expenses, capital expenditures and the non-GAAP financial measures described below.

Revenue growth is analyzed by reviewing a mix of measurements, including (i) growth by major geographic location, (ii) growth from existing clients and the addition of new clients, (iii) growth by principal capability, (iv) growth from currency changes, and (v) growth from acquisitions.

In addition to monitoring the foregoing financial indicators, the Company assesses and monitors several non-financial performance indicators relating to the business performance of our networks.

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and the relative strength of the network’s next generation team that is in place as part of a potential succession plan to succeed the current senior executive team.

While a recovery from the COVID-19 pandemic appears to be underway, we expect economic conditions will continue to be volatile as long as COVID-19 remains a public health threat.

We will continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact or potential impact that such developments may have on the overall economy, our clients and our operations.

If the impact of the pandemic continues to go beyond expectations, we believe we are well positioned through the actions implemented at the onset of the pandemic to successfully work through the effects of COVID-19 on our business.

The impact of the pandemic and the corresponding actions are reflected in our judgments, assumptions and estimates in the preparation of our financial statements.

The judgments, assumptions and estimates will be updated and could result in different results in the future depending on the severity, duration and continued impact of the COVID-19 pandemic.

Business Combination

On December 21, 2020, MDC and Stagwell Media LP announced that they had entered into the Transaction Agreement, providing for the combination of MDC with 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 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 OpCo;

(ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo;

and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc.

The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer and Stagwell Marketing treated as the accounting acquirer.

See Note 4 of the Notes included herein for additional information regarding the Transactions.

Recent Developments

On March 11, 2022, the Company and Mark Penn, Chief Executive Officer of the Company, entered into (i) a Second Amended and Restated Employment Agreement (the “Second A&R Employment Agreement”) and (ii) an Amended and Restated Stock Appreciation Rights Agreement (the “A&R SARs Agreement”).

The Second A&R Employment Agreement and the A&R SARs Agreement provide that, with respect to the December 14, 2021 award to Mr.

Penn of 1,500,000 stock appreciation rights (“SARs”) in respect of the Company’s Class A common stock with a base price equal to $8.27 under the Company’s 2016 Stock Incentive Plan (the “Plan”), (i) the SARs will be settled only in cash upon any exercise, and (ii) the SARs will be considered to have been granted outside of the Plan and are not subject to stockholder approval.

On March 1, 2023, the Board authorized an extension and a $125.0 million increase in the size of the Repurchase Program to an aggregate of $250.0 million, with any previous purchases under the Repurchase Program continuing to count against that limit.

The Repurchase Program, as amended, will expire on March 1, 2026.

Significant Factors Affecting our Business and Results of Operations

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The two most significant factors are (i) our clients’ desire to change marketing communication firms, and (ii) the digital and data-driven products that our Brands offer.

A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain an agency that it may have previously worked with.

In addition, if the client is merged or acquired by another company, the marketing communication firm is often changed.

A client may choose to change marketing communication firms for several reasons, such as a change in leadership where new management wants to retain a Brand that it may have previously worked with.

In addition, if

the client is merged or acquired by another company, the marketing communication firm is often changed.

Clients also change firms as a result of the firm’s failure to meet marketing performance targets or other expectations in client service delivery.

Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year, In addition, client concentration increases during election years due to the cyclical nature of our advocacy Brands.

Historically, we typically generate the highest quarterly revenue during the fourth quarter in each year.

In addition, client concentration increases during election years due to the cyclical nature of our advocacy Brands.

The highest volumes of retail related consumer marketing increase with the back-to-school season through the end of the holiday season.

Non-GAAP Measures

Non-GAAP Financial Measures

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”).

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These measures do not have a standardized meaning prescribed by GAAP and should not be construed as an alternative to other titled measures determined in accordance with GAAP.

The non-GAAP measures included are “organic revenue growth or decline” and “Adjusted EBITDA.”

The non-GAAP financial measures included are “organic revenue growth or decline,” “Adjusted EBITDA,” and “Adjusted Diluted EPS.”

“Organic revenue growth” and “organic revenue decline” refer to the positive or negative results, respectively, of subtracting both the foreign exchange and acquisition (disposition) components from total revenue growth.

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Other items include restructuring costs, acquisition-related expenses, and non-recurring items.

Adjusted Diluted EPS is defined as (i) Net income (loss) attributable to Stagwell Inc.

common shareholders, plus net income attributable to Class C shareholders, excluding the impact of amortization expense, impairment and other losses, stock-based compensation, deferred acquisition consideration adjustments, discrete tax items, and other items, based on total consolidated amounts, then allocated to Stagwell Inc.

common shareholders and Class C shareholders, based on their respective income allocation percentage using a normalized effective income tax rate divided by (ii) (a) the weighted average number of common shares outstanding plus (b) the weighted average number of shares of Class C Common Stock outstanding.

Other items includes restructuring costs, acquisition-related expenses, and non-recurring items.

The diluted weighted average shares outstanding include shares of Class C Common Stock as if converted to shares of Class A Common Stock to calculate Adjusted Diluted EPS.

All amounts are in dollars unless otherwise stated.

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As a result, the sum of the components, and related calculations, reported in millions may not equal the total amounts due to rounding.

The percentage changes included in the tables herein that are not considered meaningful are presented as “NM.”

The percentage changes included in the tables in Item 7 herein that are not considered meaningful are presented as “NM.”

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.

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The CODM uses Adjusted EBITDA as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions.

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 Brand Performance 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.

“Integrated Agencies Network,” “Brand Performance Network” and the “Communications Network.” In addition, the Company combines and discloses operating segments that do not meet the aggregation criteria as “All Other.” The Company also reports corporate expenses, as further detailed below, as “Corporate.” All segments follow the same basis of presentation and accounting policies.

See Note 2 of the Notes included herein for the Company’s significant accounting policies.

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Corporate provides client and business development support to the networks as well as certain strategic resources, including accounting, administrative, financial, real estate, human resource and legal functions.

The following discussion focuses on the operating performance of the Company for the twelve months ended December 31, 2021 and 2020 and the financial condition of the Company as of December 31, 2021.

The following discussion focuses on the operating performance of the Company for the years ended December 31, 2022 and 2021 and the financial condition of the Company as of December 31, 2022.

For similar operating and financial data and discussion of the Company’s year ended December 31, 2021 results compared to the Company’s year ended December 31, 2020 results, refer to Part II.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K that was filed with the SEC on March 17, 2022, including the sections entitled “Result of Operations — Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020” and “Liquidity — Cash Flows”.

Results of Operations:

Twelve Months Ended December 31,

Year Ended December 31,

2022 2021 2020

(dollars in thousands)

Integrated Agencies Network $ 1,479,802 $ 770,056 $ 221,595

Media Network 374,930 254,311

Brand Performance Network 757,208 424,632 262,362

Communications Network 430,820 248,832 382,815

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Foreign exchange, net (2,606) (3,332) (721)

Gain on sale of business and other, net 50,058 544

Other, net (7,059) 50,058 544

Income before income taxes and equity in earnings of non-consolidated affiliates 73,501 59,558 77,340

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Income before equity in earnings of non-consolidated affiliates 65,921 36,160 71,403

Equity in (income) losses of non-consolidated affiliates (240) 58

Equity in income (loss) of non-consolidated affiliates (79) (240) 58

Net income 65,842 35,920 71,461

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Non-operating items (1)

131,959 23,690 27,384

Operating income 159,228 44,726 83,740

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Deferred acquisition consideration (13,405) 18,721 4,497

Total other items, net 21,430 13,906

Other items, net 18,691 21,430 13,906

Adjusted EBITDA $ 451,118 $ 253,652 $ 143,168

TWELVE MONTHS ENDED DECEMBER 31, 2021 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 2020

(1) Non-operating items includes items within the Statements of Operations, below Operating Income, and above Net income attributable to Stagwell Inc.

common shareholders.

YEAR ENDED DECEMBER 31, 2022 COMPARED TO YEAR ENDED DECEMBER 31, 2021

Consolidated Results of Operations

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

The components of operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Year Ended December 31,

2022 2021 Change

(dollars in thousands)

$ 1,469,363 $ 888,032 $ 581,331 65.5 %

Revenue $ 2,687,792 $ 1,469,363 $ 1,218,429 82.9 %

Operating Expenses

Cost of services sold 906,856 571,588 335,268 58.7 %

Office and general expenses 424,038 191,679 232,359 NM

Cost of services 1,673,576 906,856 766,720 84.5 %

Office and general expenses 601,536 424,038 177,498 41.9 %

Depreciation and amortization 131,273 77,503 53,770 69.4 %

Impairment and other losses 16,240 — 16,240 100.0 %

Impairment and other losses 122,179 16,240 105,939 NM

$ 2,528,564 $ 1,424,637 $ 1,103,927 77.5 %

Operating income $ 44,726 $ 83,740 $ (39,014) (46.6) %

Twelve Months Ended December 31,

Operating income $ 159,228 $ 44,726 $ 114,502 NM

Year Ended December 31,

2022 2021 Change

(dollars in thousands)

Net Revenue $ 1,268,937 $ 633,230 $ 635,707 NM

Billable costs 200,426 254,802 (54,376) (21.3) %

Net Revenue $ 2,222,153 $ 1,268,937 $ 953,216 75.1 %

Billable costs 465,639 200,426 265,213 NM

Revenue 2,687,792 1,469,363 1,218,429 82.9 %

Billable costs 200,426 254,802 (54,376) (21.3) %

Staff costs 790,121 359,679 430,442 NM

Billable costs 465,639 200,426 265,213 NM

Staff costs 1,392,535 790,121 602,414 76.2 %

Administrative costs 256,755 144,294 112,461 77.9 %

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Deferred acquisition consideration (13,405) 18,721 (32,126) NM

Impairment and other losses 16,240 — 16,240 100.0 %

Impairment and other losses 122,179 16,240 105,939 NM

Other items, net 18,691 21,430 (2,739) (12.8) %

Operating Income (1)

$ 44,726 $ 83,740 $ (39,014) (46.6) %

$ 159,228 $ 44,726 $ 114,502 NM

(1) See the Results of Operations section above for a reconciliation of Operating Income to Net Income attributable to Stagwell Inc.

common shareholders.

Revenue for the twelve months ended December 31, 2021 was $1,469.4 million compared to $888.0 million for the twelve months ended December 31, 2020, an increase of $581.3 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Revenue for the year ended December 31, 2022 was $2,687.8 million compared to $1,469.4 million for the year ended December 31, 2021, an increase of $1,218.4 million.

The components of the fluctuations in net revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

Year Ended December 31, 2021 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Year Ended December 31, 2022 Organic Total

(dollars in thousands)

Integrated Agencies Network $ 220,502 $ 3,172 $ 379,467 $ 128,084 $ 510,723 $ 731,225 58.1 % NM

Media Network 233,189 3,993 52,925 55,712 112,630 345,819 23.9 % 48.3 %

Integrated Agencies Network $ 683,563 $ (4,467) $ 458,712 $ 109,560 $ 563,805 $ 1,247,368 16.0 % 82.5 %

Brand Performance Network 393,481 (9,542) 188,168 95,775 274,401 667,882 24.3 % 69.7 %

Communications Network 166,050 (484) 51,460 69,915 120,891 286,941 42.1 % 72.8 %

All Other 25,843 (835) (4,616) (430) (5,881) 19,962 (1.7) % (22.8) %

$ 633,230 $ 7,928 $ 457,662 $ 170,117 $ 635,707 $ 1,268,937 26.9 % NM

$ 1,268,937 $ (15,328) $ 693,724 $ 274,820 $ 953,216 $ 2,222,153 21.7 % 75.1 %

Component % change (1.2)% 54.7% 21.7% 75.1%

For the twelve months ended December 31, 2021, organic net revenue increased $170.1 million, or 26.9%, primarily attributable to higher spending by clients in connection with the recovery from the COVID-19 pandemic.

The geographic mix in net revenues for the twelve months ended December 31, 2021 and 2020 was as follows:

For the year ended December 31, 2022, organic net revenue increased $274.8 million, or 21.7%.

The organic revenue growth was primarily attributable to increased spending by existing clients and business with new clients, as well as higher public relations business due to advocacy services, as these are typically higher during election years.

The increase in net acquisitions (divestitures) was primarily driven by the acquisition of MDC.

The geographic mix in net revenues for the years ended December 31, 2022 and 2021 was as follows:

Year Ended December 31,

(dollars in thousands)

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Total $ 2,222,153 $ 1,268,937

Impairment and Other Losses

The Company recognized an impairment and other losses charge of $122.2 million for the year ended December 31, 2022, primarily related to the impairment of goodwill, right-of-use leases assets and intangible assets.

The Company recognized a charge of $116.7 million of goodwill impairment to write-down the carrying value in excess of the fair value of eight reporting units, two within the Integrated Agencies Network, five within the Brand Performance Network and one within the All Other category.

The expense was recorded within Impairment and other losses on the Consolidated Statements of Operations.

The Company recognized a charge of $2.6 million to reduce the carrying value of three of its right-of-use lease assets and related leasehold improvements.

These right-of-use lease assets related to agencies within the Integrated Agencies Network and the Brand Performance Network.

This impairment charge is included in Impairment and other losses within the Consolidated Statements of Operations.

The Company recognized a charge of $1.4 million to reduce the carrying values of intangible assets within the Integrated Agencies Network and Brand Performance Network reportable segments primarily in connection with the abandonment of certain trade names as part of the integration of certain entities.

The impairment charge was recorded within Impairment and other losses on the Consolidated Statements of Operations

During the year ended December 31, 2021, the Company recognized an impairment and other loss of $16.2 million in connection with a write-down of trade names no longer in use.

Operating Income

Operating income for the twelve months ended December 31, 2021 was $44.7 million compared to $83.7 million for the twelve months ended December 31, 2020, representing a decrease of $39.0 million, primarily driven by the increase in revenue, more than offset by higher operating expenses.

The twelve months ended December 31, 2021 was impacted by an increase in stock-based compensation expense and amortization expense in connection with the merger as well as an impairment and other loss of $16.2 million in connection with a write-down of trade names no longer in use.

Adjusted EBITDA

Adjusted EBITDA for the twelve months ended December 31, 2021 was $253.7 million, compared to $143.2 million for the twelve months ended December 31, 2020, representing an increase of $110.5 million, principally resulting from the acquisition of MDC.

Gain on Sale of Business and Other, net

Gain on sale of business and other, net, for the twelve months ended December 31, 2021 was income of $50.1 million, compared to $0.5 million for the twelve months ended December 31, 2020, primarily due to a gain of approximately $43.0 million in connection with the sale of Reputation Defender in the third quarter of 2021.

Foreign Exchange Transaction Loss

The foreign exchange loss for the twelve months ended December 31, 2021 was $3.3 million compared to a loss of $0.7 million for the twelve months ended December 31, 2020.

Operating income for the year ended December 31, 2022 was $159.2 million compared to $44.7 million for the year ended December 31, 2021, representing an increase of $114.5 million.

Operating income for the year ended December 31, 2022 was impacted primarily by an increase in revenue and expenses from existing operations and due to the acquisition of MDC.

Stock-based compensation expense decreased, primarily driven by awards issued to employees in the third quarter of 2021, in connection with the acquisition of MDC, that fully vested in the third quarter of 2021 and the first quarter of 2022, partially offset by awards issued in 2022.

Deferred acquisition consideration decreased primarily due to a decline in fair value associated with a Brand in which the deferred acquisition consideration liability originated in the fourth quarter of 2021 from the purchase of the remaining interest we did not already own.

Depreciation and amortization increased primarily due to the recognition of depreciable fixed assets and amortizable intangible assets in connection with the acquisitions of MDC and GoodStuff Holdings Limited (“Goodstuff”).

Impairment and other losses increased primarily due to the impairment of goodwill, intangible assets and right-of-use lease assets in 2022.

Other, net, for the year ended December 31, 2022 was expense of $7.1 million, compared to income of $50.1 million for the year ended December 31, 2021 a decrease of $57.1 million, primarily due to a gain of approximately $43.0 million in connection with the sale of Reputation Defender in the third quarter of 2021.

Foreign Exchange Transaction Gain (Loss)

The foreign exchange loss for the year ended December 31, 2022 was $2.6 million compared to a loss of $3.3 million for the year ended December 31, 2021.

Interest Expense, Net

Interest expense, net, for the twelve months ended December 31, 2021 was $31.9 million compared to $6.2 million for the twelve months ended December 31, 2020, representing an increase of $25.7 million, primarily driven by a higher level of debt in connection with the acquisition of MDC.

Interest expense, net, for the year ended December 31, 2022 was $76.1 million compared to $31.9 million for the year ended December 31, 2021, an increase of $44.2 million, primarily driven by a higher level of debt due to the issuance of $1,100.0 million aggregate principal amount of 5.625% senior notes due 2029 (“5.625% Notes”) in August 2021.

Income Tax Expense

The Company had an income tax expense for the twelve months ended December 31, 2021 of $23.4 million (on a pre-tax income of $59.6 million resulting in an effective tax rate of 39.3%) compared to income tax expense of $5.9 million (on pre-tax income of $77.3 million resulting in an effective tax rate of 7.7%) for the twelve months ended December 31, 2020.

The difference in the effective tax rate of 39.3% in the twelve months ended December 31, 2021 as compared to 7.7% in the same period in 2020 primarily results from a larger portion of income being subject to entity level tax as a result of the merger and non-deductible stock compensation in 2021.

The Company had an income tax expense for the year ended December 31, 2022 of $7.6 million (on a pre-tax income of $73.5 million resulting in an effective tax rate of 10.3%) compared to income tax expense of $23.4 million (on pre-tax income of $59.6 million resulting in an effective tax rate of 39.3%) for the year ended December 31, 2021.

The difference in the effective tax rate of 10.3% in the year ended December 31, 2022 as compared to 39.3% in the year ended December 31, 2021 was primarily related to share-based compensation, revaluation of the TRA step up, and return to provision adjustments in the year ended December 31, 2022 and a change in ownership of OpCo, offset in part by the impact of non-deductible goodwill impairments in the year ended December 31, 2022.

Noncontrolling and Redeemable Noncontrolling Interests

The effect of noncontrolling and redeemable noncontrolling interests for the twelve months ended December 31, 2021 was $14.9 million compared to $15.1 million for the twelve months ended December 31, 2020.

Net Income Attributable to Stagwell Inc.

The effect of noncontrolling and redeemable noncontrolling interests for the year ended December 31, 2022 was $38.6 million compared to $14.9 million for the year ended December 31, 2021.

The increase is primarily related to noncontrolling interest income associated with holders of Class C Common Stock.

Net Income (Loss) Attributable to Stagwell Inc.

Common Shareholders

As a result of the foregoing, net income attributable to Stagwell Inc.

common shareholders for the twelve months ended December 31, 2021 was $21.0 million compared to net income attributable to Stagwell Inc.

common shareholders of $56.4 million for the twelve months ended December 31, 2020.

common shareholders for the year ended December 31, 2022 was $27.3 million compared to net income attributable to Stagwell Inc.

common shareholders of $21.0 million for the year ended December 31, 2021.

Earnings Per Share

Diluted EPS and Adjusted Diluted EPS for the year ended December 31, 2022 was as follows:

Reported (GAAP) Adjustments (1)

(dollars in thousands, except per share amounts)

Net income attributable to Stagwell Inc.

common shareholders $ 27,269 $ 95,147 $ 122,416

Net income attributable to Class C shareholders 24,452 120,655 145,107

Net income attributable to Stagwell Inc.

and Class C and adjusted net income $ 51,721 $ 215,802 $ 267,523

Weighted average number of common shares outstanding 130,625 — 130,625

Weighted average number of common Class C shares outstanding 165,971 — 165,971

Weighted average number of shares outstanding 296,596 — 296,596

Diluted EPS and Adjusted Diluted EPS $ 0.17 $ 0.90

Adjustments to Net Income (1)

Pre-Tax Tax Net

(dollars in thousands)

Amortization $ 104,763 $ (20,953) $ 83,810

Impairment and other losses 122,179 (1,093) 121,086

Stock-based compensation 33,152 (6,630) 26,522

Deferred acquisition consideration (13,405) 2,681 (10,724)

Other items, net 18,691 (3,738) 14,953

Tax adjustments 7,482 (27,327) (19,845)

$ 272,862 $ (57,060) $ 215,802

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2022 was $451.1 million, compared to $253.7 million for the year ended December 31, 2021, representing an increase of $197.5 million, primarily driven by the increase in revenue from existing operations and the acquisitions of MDC and Goodstuff, partially offset by higher operating expenses.

Integrated Agencies Network

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

The components of operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Year Ended December 31,

2022 2021 Change

(dollars in thousands)

Revenue $ 819,758 $ 229,646 $ 590,112 NM

Revenue $ 1,479,802 $ 770,056 $ 709,746 92.2 %

Operating Expenses

Cost of services sold 537,642 134,513 403,129 NM

Office and general expenses 184,085 56,592 127,493 NM

Depreciation and amortization 40,087 9,616 30,471 NM

Impairment and other losses 1,394 — 1,394 100.0 %

$ 763,208 $ 200,721 $ 562,487 NM

Operating income $ 56,550 $ 28,925 $ 27,625 95.5 %

Twelve Months Ended December 31,

Cost of services 951,003 506,195 444,808 87.9 %

Office and general expenses 262,560 167,993 94,567 56.3 %

Depreciation and amortization 74,609 37,646 36,963 98.2 %

Impairment and other losses 52,360 1,394 50,966 NM

$ 1,340,532 $ 713,228 $ 627,304 88.0 %

Operating income $ 139,270 $ 56,828 $ 82,442 NM

Year Ended December 31,

2022 2021 Change

(dollars in thousands)

Net Revenue $ 731,225 $ 220,502 $ 510,723 NM

Net Revenue $ 1,247,368 $ 683,563 $ 563,805 82.5 %

Billable costs 232,434 86,493 145,941 NM

Revenue 819,758 229,646 590,112 NM

Revenue 1,479,802 770,056 709,746 92.2 %

Billable costs 232,434 86,493 145,941 NM

Staff costs 440,670 119,184 321,486 NM

Administrative costs 68,531 23,827 44,704 NM

Staff costs 771,324 405,589 365,735 90.2 %

Administrative costs 112,285 59,479 52,806 88.8 %

Unbillable and other costs, net 70,116 54,899 15,217 27.7 %

Adjusted EBITDA 166,768 42,360 124,408 NM

Adjusted EBITDA 293,643 163,596 130,047 79.5 %

Stock-based compensation 13,774 47,190 (33,416) (70.8) %

Depreciation and amortization 40,087 9,616 30,471 NM

Deferred acquisition consideration 18,457 2,240 16,217 NM

Impairment 1,394 — 1,394 100.0%

Other items, net 2,696 1,579 1,117 70.7%

Operating Income $ 56,550 $ 28,925 $ 27,625 95.5%

Revenue for the twelve months ended December 31, 2021 was $819.8 million compared to $229.6 million for the twelve months ended December 31, 2020, an increase of $590.1 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Depreciation and amortization 74,609 37,646 36,963 98.2 %

Deferred acquisition consideration 9,157 18,457 (9,300) (50.4) %

Impairment and other losses 52,360 1,394 50,966 NM

Other items, net 4,473 2,081 2,392 NM

Operating Income $ 139,270 $ 56,828 $ 82,442 NM

Revenue for the year ended December 31, 2022 was $1,479.8 million compared to $770.1 million for the year ended December 31, 2021, an increase of $709.7 million.

The components of the fluctuations in net revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

Year Ended December 31, 2021 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Year Ended December 31, 2022 Organic Total

(dollars in thousands)

Integrated Agencies Network $ 220,502 $ 3,172 $ 379,467 $ 128,084 $ 510,723 $ 731,225 58.1 % NM

Component % change 1.4 % NM 58.1 %

The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic.

The increase in net acquisition (divestitures) was driven by the acquisition of MDC.

The increase in expenses was driven by the impact from the acquisition of MDC.

Stock-based compensation expense increased, driven by awards issued to SMG employees in connection with the merger, depreciation and amortization grew due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.

Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses as detailed above.

Media Network

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

Integrated Agencies Network $ 683,563 $ (4,467) $ 458,712 $ 109,560 $ 563,805 $ 1,247,368 16.0 % 82.5 %

Component % change (0.7)% 67.1% 16.0% 82.5%

The growth in organic net revenue was primarily attributable to increased spending by existing and new clients, primarily driven by creative, digital transformation and consumer insights services.

The increase in net acquisitions (divestitures) was primarily driven by the acquisition of MDC.

Operating Income

The increase in expenses was primarily driven by higher costs associated with providing services as well as the acquisition of MDC.

Stock-based compensation expense decreased, primarily driven by awards issued to employees in the third quarter of 2021 in connection with the acquisition of MDC that fully vested in the third quarter of 2021 and the first quarter of 2022 as well as a net decrease in the value of profits interests awards in 2022.

Depreciation and amortization grew due to the recognition of depreciable fixed assets and amortizable intangible assets primarily in connection with the acquisition of MDC.

Deferred acquisition consideration decreased primarily due to the earn-out periods for certain of our Brands ending in the second quarter of 2022 and thus the final payments being made to those Brands at that time.

Impairment and other losses for the year ended December 31, 2022 of $52.4 million relates to the impairment of goodwill, an intangible asset, and right-of-use lease assets in 2022.

Operating income and Adjusted EBITDA were higher driven by the increase in revenues, partially offset by higher expenses as detailed above.

Brand Performance Network

The components of operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Year Ended December 31,

2022 2021 Change

2 unchanged sentences

Operating Expenses

Cost of services sold 188,045 149,354 38,691 25.9 %

Cost of services 439,814 219,492 220,322 NM

Office and general expenses 217,254 148,761 68,493 46.0 %

Depreciation and amortization 33,674 26,031 7,643 29.4 %

Impairment and other losses 14,846 — 14,846 100.0 %

Impairment and other losses 50,778 14,846 35,932 NM

$ 741,520 $ 409,130 $ 332,390 81.2 %

Operating income $ 15,780 $ 5,345 $ 10,435 NM

Twelve Months Ended December 31,

Operating income $ 15,688 $ 15,502 $ 186 1.2 %

Year Ended December 31,

2022 2021 Change

1 unchanged sentence

Net Revenue $ 667,882 $ 393,481 $ 274,401 69.7 %

Billable costs 29,111 21,122 7,989 37.8%

Billable costs 89,326 31,151 58,175 NM

Revenue 757,208 424,632 332,576 78.3 %

Billable costs 29,111 21,122 7,989 37.8%

Billable costs 89,326 31,151 58,175 NM

Staff costs 412,982 244,078 168,904 69.2 %

1 unchanged sentence

Unbillable and other costs, net 48,212 25,050 23,162 92.5 %

Adjusted EBITDA 62,770 27,669 35,101 NM

Adjusted EBITDA 115,835 65,942 49,893 75.7 %

Stock-based compensation 5,830 5,251 579 11.0 %

Depreciation and amortization 33,674 26,031 7,643 29.4 %

Deferred acquisition consideration 184 — 184 100.0%

Impairment 14,846 — 14,846 100.0%

Deferred acquisition consideration 1,736 184 1,552 NM

Impairment and other losses 50,778 14,846 35,932 NM

Other items, net 8,129 4,128 4,001 96.9 %

Operating Income $ 15,780 $ 5,345 $ 10,435 NM

Revenue for the twelve months ended December 31, 2021 was $374.9 million compared to $254.3 million for the twelve months ended December 31, 2020, an increase of $120.6 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Operating Income $ 15,688 $ 15,502 $ 186 1.2 %

Revenue for the year ended December 31, 2022 was $757.2 million compared to $424.6 million for the year ended December 31, 2021, an increase of $332.6 million.

The components of the fluctuations in net revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

Year Ended December 31, 2021 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Year Ended December 31, 2022 Organic Total

(dollars in thousands)

Media Network $ 233,189 $ 3,993 $ 52,925 $ 55,712 $ 112,630 $ 345,819 23.9 % 48.3 %

Brand Performance Network $ 393,481 $ (9,542) $ 188,168 $ 95,775 $ 274,401 $ 667,882 24.3 % 69.7 %

Component % change (2.4)% 47.8% 24.3% 69.7%

The increase in organic net revenue was primarily attributable to increased spending by clients in connection with the recovery from the COVID-19 pandemic.

The increase in net acquisition (divestitures) was driven by the acquisition of MDC.

The increase in expenses was driven by the impact from the acquisition of MDC.

Stock-based compensation expense increased, driven by awards issued to SMG employees in connection with the merger and an impairment loss of $14.8 million was recognized in connection with a write-down of trade names no longer in use.

Operating income and Adjusted EBITDA were higher driven by an increase in revenues, partially offset by higher expenses as detailed above.

The increase in organic net revenue was primarily attributable to new clients and increased spending by existing clients.

The increase in net acquisitions (divestitures) was primarily driven by the acquisitions of MDC and Goodstuff.

Operating Income

The increase in expenses was primarily driven by an increase in the costs associated with providing services as well as the impact of the acquisitions of MDC and Goodstuff.

Depreciation and amortization expense increased primarily due to the recognition of depreciable fixed assets and amortizable intangible assets in connection with the acquisitions of MDC and Goodstuff.

Impairment and other losses for the year ended December 31, 2022 of $50.8 million, relates to the impairment of goodwill, intangible assets, and one right-of-use lease asset.

Impairment and other losses of $14.8 million for the year ended December 31, 2021 relates to the write-down of certain trade names no longer in use.

Deferred acquisition consideration increased primarily due to the acquisition of Goodstuff in the fourth quarter of 2021, partially offset by a decrease in the fair value of deferred acquisition consideration for the year ended 2022.

Operating income and Adjusted EBITDA were driven by an increase in revenues, partially offset by higher expenses as detailed above.

Communications Network

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

The components of operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Year Ended December 31,

2022 2021 Change

2 unchanged sentences

Operating Expenses

Cost of services sold 167,303 281,040 (113,737) (40.5) %

Office and general expenses 52,106 25,815 26,291 NM

Cost of services 272,752 167,303 105,449 63.0 %

Office and general expenses 50,638 52,106 (1,468) (2.8) %

Depreciation and amortization 10,831 7,553 3,278 43.4 %

$ 334,221 $ 226,962 $ 107,259 47.3 %

Operating income $ 21,870 $ 70,057 $ (48,187) (68.8) %

Twelve Months Ended December 31,

Operating income $ 96,599 $ 21,870 $ 74,729 NM

Year Ended December 31,

2022 2021 Change

6 unchanged sentences

Administrative costs 31,721 16,106 15,615 97.0 %

Unbillable and other costs, net 244 (192) 436 NM

Unbillable and other costs, net 427 244 183 75.0 %

Adjusted EBITDA 85,684 45,527 40,157 88.2 %

1 unchanged sentence

Depreciation and amortization 10,831 7,553 3,278 43.4 %

Deferred acquisition consideration 80 2,257 (2,177) (96.5) %

Other items, net 96 345 (249) (72.2) %

Operating Income $ 21,870 $ 70,057 $ (48,187) (68.8) %

Revenue for the twelve months ended December 31, 2021 was $248.8 million compared to $382.8 million for the twelve months ended December 31, 2020, a decrease of $134.0 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Deferred acquisition consideration (24,298) 80 (24,378) NM

Other items, net 755 96 659 NM

Operating Income $ 96,599 $ 21,870 $ 74,729 NM

Revenue for the year ended December 31, 2022 was $430.8 million compared to $248.8 million for the year ended December 31, 2021, an increase of $182.0 million.

The components of the fluctuations in net revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

Year Ended December 31, 2021 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Year Ended December 31, 2022 Organic Total

(dollars in thousands)

1 unchanged sentence

Component % change (0.3)% 31.0% 42.1% 72.8%

The decrease in organic net revenue was attributable to lower advocacy business compared to the prior year period that included higher levels of business in connection with the 2020 elections.

The increase in net acquisition (divestitures) was driven by the acquisition of MDC.

The decrease in operating income was primarily due to higher expenses in connection with the acquisition of MDC, including stock-based compensation expense for awards issued to SMG employees in connection with the merger.

The decrease in Adjusted EBITDA was due to higher expenses as discussed above.

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

The increase in organic net revenue was primarily attributable to increased spending by existing and new clients, primarily driven by higher public relations as well as advocacy services, as these are higher during election years.

The increase in net acquisitions (divestitures) was driven by the acquisition of MDC.

Operating Income

The increase in expenses was primarily driven by an increase in the costs associated with providing services as well as the impact of the acquisition of MDC.

Deferred acquisition consideration decreased primarily due to the reduction in fair value associated with the deferred acquisition consideration assumed in connection with the purchase of a portion of the remaining interest in one of our Brands in the fourth quarter of 2021.

Stock-based compensation expense decreased primarily due to awards issued to employees in the third quarter of 2021 in connection with the acquisition of MDC that fully vested in the third quarter of 2021 and the first quarter of 2022, partially offset by awards issued to employees in 2022.

Depreciation and amortization increased primarily due to the recognition of amortizable intangible assets in connection with the acquisition of MDC.

Operating income and Adjusted EBITDA were driven by an increase in revenues, partially offset by higher expenses as detailed above.

The components of operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Year Ended December 31,

2022 2021 Change

2 unchanged sentences

Operating Expenses

Cost of services sold 13,866 6,681 7,185 NM

Cost of services 10,007 13,866 (3,859) (27.8) %

Office and general expenses 10,951 12,785 (1,834) (14.3) %

Depreciation and amortization 2,498 3,681 (1,183) (32.1) %

Depreciation and amortization 5,234 2,498 2,736 NM

Impairment and other losses 19,041 — 19,041 100.0 %

$ 45,233 $ 29,149 $ 16,084 55.2 %

Operating loss $ (3,306) $ (5,575) $ 2,269 (40.7) %

Twelve Months Ended December 31,

Operating loss $ (25,271) $ (3,306) $ (21,965) NM

Year Ended December 31,

2022 2021 Change

1 unchanged sentence

Net Revenue $ 19,962 $ 25,843 $ (5,881) (22.8) %

Billable costs — — — — %

Revenue 19,962 25,843 (5,881) (22.8) %

Billable costs — — — — %

Staff costs 14,011 16,454 (2,443) (14.8) %

3 unchanged sentences

Stock-based compensation 41 39 2 5.1 %

Depreciation and amortization 2,498 3,681 (1,183) (32.1) %

Depreciation and amortization 5,234 2,498 2,736 NM

Impairment and other losses 19,041 — 19,041 100.0 %

Other items, net 22 — 22 100.0 %

Operating Loss $ (3,306) $ (5,575) $ 2,269 (40.7) %

Revenue for the twelve months ended December 31, 2021 was $25.8 million compared to $21.3 million for the twelve months ended December 31, 2020, an increase of $4.6 million.

The components of the fluctuations in net revenue for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Operating Loss $ (25,271) $ (3,306) $ (21,965) NM

Revenue for the year ended December 31, 2022 was $20.0 million compared to $25.8 million for the year ended December 31, 2021, a decrease of $5.9 million.

The components of the fluctuations in net revenue for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Net Revenue - Components of Change Change

Twelve Months Ended December 31, 2020 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Twelve Months Ended December 31, 2021 Organic Total

Year Ended December 31, 2021 Foreign Currency Net Acquisitions (Divestitures) Organic Total Change Year Ended December 31, 2022 Organic Total

(dollars in thousands)

1 unchanged sentence

Component % change (3.2)% (17.9)% (1.7)% (22.8)%

The increase in organic net revenue was attributable to higher levels of business at the central innovations group.

The decrease related to net acquisitions (divestitures) was attributable to the sale of Reputation Defender in the third quarter of 2021.

The increase in revenue was more than offset by higher expenses resulting in an operating loss in both periods.

The components of operating results for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020 were as follows:

Twelve Months Ended December 31,

Organic net revenue remained relatively flat.

The decrease related to net acquisitions (divestitures) was primarily attributable to the sale of Reputation Defender in 2021.

Operating Loss

The increase in operating loss was primarily driven by a decrease in revenues and an increase in impairment and other losses due to the impairment of goodwill.

The decrease in Adjusted EBITDA was primarily driven by a decrease in revenue.

The components of operating results for the year ended December 31, 2022 compared to the year ended December 31, 2021 were as follows:

Year Ended December 31,

2022 2021 Change

(dollars in thousands)

Staff costs $ 19,827 $ 6,423 $ 13,404 NM

Staff costs $ 25,109 $ 19,827 $ 5,282 26.6 %

Administrative costs 18,002 817 17,185 NM

Other, net — 26 (26) (100.0) %

Adjusted EBITDA (43,111) (20,644) (22,467) NM

2 unchanged sentences

Other items, net 5,312 15,125 (9,813) (64.9) %

Operating Loss $ (46,168) $ (15,012) $ (31,156) NM

Operating expenses increased primarily in connection with the acquisition of MDC, including professional fees associated with the transaction.

Operating Loss $ (67,058) $ (46,168) $ (20,890) 45.2 %

Operating expenses increased primarily in connection with the acquisition of MDC.

In addition, stock-based compensation expense increased, primarily driven by awards issued to employees in the first quarter of 2022.

Other items, net decreased primarily due to professional fees associated with the acquisition of MDC in 2021.

Liquidity and Capital Resources:

The following table provides summary information about the Company’s liquidity position:

December 31, 2021 December 31, 2020

Year Ended December 31,

(dollars in thousands)

Net cash provided by operating activities $ 347,586 $ 200,856

Net cash provided by (used in) investing activities $ 163,952 $ (29,021)

Net cash (used in) provided by investing activities (116,275) 163,952

Net cash used in financing activities (186,736) (273,414)

We continue to monitor the worldwide public health threat, government actions to combat COVID-19 and the impact such developments may have on our liquidity.

If the impact of the pandemic is beyond our expectation, the Company believes it is well positioned through the actions implemented at the beginning of the pandemic to successfully work through the effects of COVID-19 for the foreseeable future.

The Company had cash and cash equivalents of $184.0 million and $92.5 million as of December 31, 2021 and 2020, respectively.

The Company intends to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months.

The Company has historically been able to maintain and expand its business using cash generated from operating activities, funds available under its revolving credit agreement, and other initiatives, such as obtaining additional debt and equity financing.

At December 31, 2021, the Company had $110.2 million of borrowings outstanding, $24.3 million of outstanding and undrawn letters of credit resulting in $365.5 million available under its $500.0 million revolving credit agreement.

The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition payments, purchases of noncontrolling interests, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 5.625% Notes (as defined below).

Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and the availability of funds under the Company’s revolving credit agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months.

The Company’s ability to make scheduled deferred acquisition payments, to make principal and interest payments, to refinance indebtedness or to fund planned capital expenditures will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in this Form 10-K and in the Company’s other SEC filings.

The Company had cash and cash equivalents of $220.6 million and $184.0 million as of December 31, 2022 and December 31, 2021, respectively.

The Company expects to maintain sufficient cash and/or available borrowings to fund operations for the next twelve months and subsequent periods.

The Company has historically maintained and expanded its business using cash generated from operating activities, funds available under its revolving credit agreement, and other initiatives, such as obtaining additional debt and equity financing.

On December 31, 2022, the Company had $100.0 million of borrowings outstanding, $25.3 million of outstanding and undrawn letters of credit resulting in $374.7 million available under its $500.0 million Combined Credit Agreement (as defined and discussed in Note 11 of the Notes to the Audited Consolidated Financial Statements included herein).

The Company enters into agreements with third parties to accelerate the collection of certain accounts receivable by transferring ownership of those receivables to the third parties.

Accordingly, the Company accounts for the transfers as sales of trade receivables by recognizing an increase to cash and a decrease to accounts receivable when proceeds from the transactions are received, with the proceeds being included in Cash flows from operating activities in the Consolidated Statements of Cash Flows.

The amount transferred to the third parties under these arrangements was $176.5 million, $42.1 million and $44.2 million during the years ended December 31, 2022, 2021 and 2020, respectively.

The amount collected and due to the third parties under the arrangements was $5.7 million as of December 31, 2022.

No amounts were collected and due to third parties during the years ended December 31, 2021 and 2020.

Fees for the arrangements were recorded in Office and general expenses in the Consolidated Statements of Operations and totaled $1.8 million, $0.1 million, and $0.2 million for the years ended December 31, 2022, 2021 and 2020.

The fees are almost entirely offset by reduced interest expense from lower borrowings driven by the acceleration of cash collections.

On March 23, 2022, the Board authorized the Repurchase Program under which we may repurchase up to $125.0 million of shares of our outstanding Class A Common Stock.

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.

See Note 1 of the Notes included herein for information regarding amendments to the Repurchase Program.

As of December 31, 2022, there were 7.2 million shares of Class A Common Stock repurchased under the Repurchase Program at an aggregate value, excluding fees, of $51.5 million.

These were purchased at an average share price of $7.17 per share.

The remaining value of shares of Class A Common Stock permitted to be repurchased under the Repurchase Program was $73.3 million as of December 31, 2022.

The Repurchase Program, as amended, will expire on March 1, 2026.

The Company’s obligations extending beyond twelve months primarily consist of deferred acquisition consideration payments, purchases of noncontrolling interests, subsidiary awards, capital expenditures, scheduled lease obligation payments, and interest payments on borrowings under the Company’s 5.625% Notes and Combined Credit Agreement.

The Company expects to make estimated cash payments in the future to satisfy obligations under the Tax Receivables Agreement (“TRA”) (see Note 17 of the Notes included herein for additional details).

The amount and timing of payments are contingent on the Company achieving certain 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 (each as defined in Note 15 of

the Notes included herein) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to the Company making payments under the TRA.

Based on the current outlook, the Company believes future cash flows from operations, together with the Company’s existing cash balance and availability of funds under the Combined Credit Agreement, will be sufficient to meet the Company’s anticipated cash needs for the next twelve months and subsequent periods.

The Company’s ability to make scheduled deferred acquisition consideration payments, to make principal and interest payments, to refinance indebtedness or to fund planned capital expenditures or other obligations will depend on future performance, which is subject to general economic conditions, the competitive environment and other factors, including those described in this Form 10-K and in the Company’s other SEC filings.

Operating Activities

Cash flows provided by operating activities for the twelve months ended December 31, 2021 were $200.9 million, primarily reflecting earnings and favorable working capital requirements.

Cash flows provided by operating activities for the twelve months ended December 31, 2020 were $138.1 million, primarily reflecting earnings and favorable working capital requirements.

Cash flows provided by operating activities for the year ended December 31, 2022 were $347.6 million, primarily driven by earnings as well as favorable working capital requirements.

Cash flows provided by operating activities for the year ended December 31, 2021 were $200.9 million, primarily driven by earnings and favorable working capital requirements.

Investing Activities

During the twelve months ended December 31, 2021, cash flows provided by investing activities were $164.0 million, which was primarily driven by $150.3 million of MDC cash in connection with the combination, $37.2 million from the sale of Reputation Defender, partially offset by capital expenditures of $22.6 million.

During the twelve months ended December 31, 2020, cash flows used in investing activities were $29.0 million, which primarily consisted of $12.1 million of capital expenditures and $14.7 million for acquisitions.

Cash flows used in investing activities were $116.3 million for the year ended December 31, 2022, primarily driven by $74.2 million in acquisitions and $22.7 million in capital expenditures.

Cash flows provided by investing activities were $164.0 million for the year ended December 31, 2021, primarily driven by the addition of $150.3 million of cash in connection with the acquisition of MDC, and $37.2 million from the sale of Reputation Defender, partially offset by capital expenditures of $8.8 million.

Financing Activities

During the twelve months ended December 31, 2021, cash flows used in financing activities were $273.4 million, which primarily consisted of $884.4 million for the repurchase of the 7.50% Notes, $202.4 million in net repayments under the revolving credit agreement, $0.0 million in distributions to minority interest holders, as well as distributions of $233.2 million to Stagwell Media, offset by receipt of $1.1 billion from the issuance of the 5.625% Notes.

During the twelve months ended December 31, 2020, cash flows used in financing activities was $80.1 million, primarily driven by $40.0 million in net borrowings under the revolving credit agreement and $0.0 million in distributions to minority interest holders.

During the year ended December 31, 2022, cash flows used in financing activities were $186.7 million, primarily driven by $63.2 million of deferred acquisition consideration payments, $39.2 million of distributions to noncontrolling interests, $51.5 million in stock repurchases under the Repurchase Program, and $18.7 million related to shares acquired and cancelled in connection with the vesting of stock awards.

During the year ended December 31, 2021, cash flows used in financing activities were $273.4 million, which primarily consisted of $884.4 million for the repurchase of the Company’s 7.50% Senior Notes due 2024, $202.4 million in net payments under the Company’s previous revolving credit agreement, and distributions of $233.2 million to Stagwell Media, offset by receipt of $1.1 billion from the issuance of the 5.625% Notes.

Debt, net of debt issuance costs, as of December 31, 2022 was $1,184.7 million as compared to $1,191.6 million outstanding at December 31, 2021.

The increase of $993.6 million in debt was primarily a result of the Company’s issuance of the $1.1 billion aggregate principal amount of its 5.625% senior notes due 2029 (the “5.625% Notes”) in August 2021.

See Note 11 of the Notes included herein for information regarding the 5.625% Notes and the $500.0 million revolving credit agreement.

The Company is currently in compliance with the terms and conditions of its revolving credit agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.

If the Company loses all or a substantial portion of its lines of credit under its revolving credit agreement, or if the Company uses the maximum available amount under the agreement, it will be required to seek other sources of liquidity.

If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets,

the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.

Pursuant to the revolving credit agreement, the Company must comply with its total leverage ratio covenant, as such term is specifically defined in the agreement.

For the period ended December 31, 2021, the Company’s calculation of each of these covenants, and the specific requirements under the revolving credit agreement, respectively, were calculated based on the trailing twelve months as follows:

See Note 11 to the Audited Consolidated Financial Statements included herein for information regarding the Company’s 5.625% Notes, and the Combined Credit Agreement, which provides for a $500.0 million senior secured revolving credit facility with a five-year maturity.

The Company is currently in compliance with all of the terms and conditions of the Combined Credit Agreement, and management believes, based on its current financial projections, that the Company will be in compliance with its covenants over the next twelve months.

If the Company loses all or a substantial portion of its lines of credit under the Combined Credit Agreement, or if the Company uses the maximum available amount under the agreement, it will be required to seek other sources of liquidity.

If the Company were unable to find these sources of liquidity, for example through an equity offering or access to the capital markets, the Company’s ability to fund its working capital needs and any contingent obligations with respect to acquisitions and redeemable noncontrolling interests would be adversely affected.

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”).

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 $50.0 million in the aggregate, to increase 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 $100.0 million in any fiscal year.

All other substantive terms of the Combined Credit Agreement remain unchanged.

On December 14, 2022, the Company amended the Combined Credit Agreement to allow for the sale of accounts receivable summarized above and in Note 2 of the Notes included herein.

All other substantive terms of the Combined Credit Agreement remained unchanged.

Pursuant to the Combined Credit Agreement, the Company must maintain a Total Leverage Ratio (as defined in the Combined Credit Agreement) below a threshold established in the Combined Credit Agreement.

For the period ended December 31, 2022, the Company’s calculation of each of this ratio, and the maximum permitted under the Combined Credit Agreement, respectively, were calculated based on the trailing twelve months as follows:

December 31, 2022

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These ratios and measures are not based on GAAP and are not presented as alternative measures of operating performance or liquidity.

Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Credit Agreement.

They are presented here to demonstrate compliance with the covenants in the Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.

Some of these ratios and measures include, among other things, pro forma adjustments for acquisitions, one-time charges, and other items, as defined in the Combined Credit Agreement.

They are presented here to demonstrate compliance with the covenants in the Combined Credit Agreement, as non-compliance with such covenants could have a material adverse effect on the Company.

Material Cash Requirements

The Company’s Agencies enter into contractual commitments with media providers and agreements with production companies on behalf of its clients at levels that exceed the revenue from services.

Some of our agencies purchase media for clients and act as an agent for a disclosed principal.

These commitments are included in Accounts payable and Accruals and other liabilities when the media services are delivered by the media providers.

The Company’s Brands enter into contractual commitments with media providers and agreements with production companies on behalf of its clients at levels that exceed the revenue from services.

Some of our Brands purchase media for clients and act as an agent for a disclosed principal.

These commitments are included in Accounts payable and Accrued media when the media services are delivered by the media providers.

Stagwell takes precautions against default on payment for these services and has historically had a very low incidence of default.

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Total $ 2,126,689 $ 243,142 $ 327,973 $ 212,705 $ 1,342,869

(1) Indebtedness includes no borrowings under the revolving credit agreement, which is due in 2026.

(1) Includes the principal amount of the 5.625% Notes which are due in 2029 and does not include borrowings under the Combined Credit Agreement.

Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments.

See Note 9 of the Notes included herein for additional information regarding contingent deferred acquisition consideration.

As of December 31, 2022, approximately, $51.0 million of the deferred acquisition consideration is expected to be settled in shares of Class A Common Stock.

When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances.

Where the incremental purchase may be required of the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine equity.

See Note 13 of the Notes included herein for additional information regarding noncontrolling and redeemable noncontrolling interests.

The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the revolving credit agreement (and refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity.

See Note 13 of the Notes included herein for additional information regarding noncontrolling interests and redeemable noncontrolling interests.

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 interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, receive a profit share distribution.

The Company intends to finance the cash portion of these contingent payment obligations using available cash from operations, borrowings under the Combined Credit Agreement (or any refinancings thereof), and, if necessary, through the incurrence of additional debt and/or issuance of additional equity.

The ultimate amount payable in the future relating to these transactions will vary because it is dependent on the future results of operations of the subject businesses and the timing of when these rights are exercised.

Generally, the Company has indemnified the purchasers of certain of its assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company.

These types of indemnification guarantees typically extend for a number of years.

Historically, the Company has not made any significant indemnification payments under such agreements and no amounts has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable.

Critical Accounting Estimates

Stagwell has prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting financial information on Form 10-K.

Preparation of the consolidated financial statements and related disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the accompanying financial statements and footnotes.

Stagwell has prepared the Audited Consolidated Financial Statements in accordance with GAAP and pursuant to the rules and regulations of the SEC for reporting financial information on Form 10-K.

Preparation of the Audited Consolidated Financial Statements and related disclosures requires us to make judgments, assumptions and estimates that affect the amounts reported and disclosed in the accompanying financial statements and footnotes.

Our significant accounting policies are discussed in Note 2 of the Notes included herein.

Our critical accounting policies are those that are considered by management to require significant judgment, use of estimates and that could have a significant impact on our financial statements.

An understanding of our critical accounting policies is necessary to analyze our financial results.

Our critical accounting policies include our accounting for revenue recognition, business combinations, deferred acquisition consideration, redeemable noncontrolling interests, goodwill and intangible assets, income taxes and stock-based compensation.

Our critical accounting estimates are those that are considered by management to require significant judgment, use of estimates and that could have a significant impact on our financial statements.

An understanding of our critical accounting estimates is necessary to analyze our financial results.

Our critical accounting estimates include our accounting for revenue recognition, business combinations, deferred acquisition consideration, redeemable noncontrolling interests, goodwill and intangible assets, income taxes and stock-based compensation.

The financial statements are evaluated on an ongoing basis and estimates are based on historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances.

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This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies.

A substantial portion of the intangible assets value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately.

The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trade names and trademarks.

A substantial portion of the intangible asset value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately.

The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, trademarks, developed technology and other intangible assets.

Deferred Acquisition Consideration .

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The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s current operating results and the impact this information will have on future results included in the calculation of the estimated liability.

These adjustments are recorded in the results of operations.

In instances where such contingent payments require the sellers’ continuous employment with the Company after the transaction, they are recorded as compensation expense in the Audited Consolidated Statements of Operations.

These adjustments are recorded in the Consolidated Statements of Operations.

Redeemable Noncontrolling Interests .

Many of the Company’s acquisitions include contractual arrangements where the noncontrolling shareholders have an option to purchase, or may require the Company to purchase, such noncontrolling shareholders’ incremental ownership interests under certain circumstances.

The Company typically has similar call options under the same contractual terms.

Many of the Company’s acquisitions include contractual arrangements where the noncontrolling shareholders may require the Company to purchase such noncontrolling shareholders’ incremental ownership interests under certain circumstances.

The Company has similar call options under the same contractual terms.

The amount of consideration under these contractual arrangements is not a fixed amount, but rather is dependent upon various valuation formulas, such as the average earnings of the relevant subsidiary through the date of exercise or the growth rate of the earnings of the relevant subsidiary during that period.

In the event that an incremental purchase may be required by the Company, the amounts are recorded as redeemable noncontrolling interests in mezzanine

equity on the Audited Consolidated Balance Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value through Retained earnings or Paid-in capital (when at an accumulated deficit) in the Audited Consolidated Balance Sheets (but not less than their initial redemption value), except for foreign currency translation adjustments.

In the event that an incremental purchase may be required by the Company, the amounts are recorded in Redeemable Noncontrolling Interests in mezzanine equity on the Consolidated Balance Sheets at their acquisition date fair value and adjusted for changes to their estimated redemption value through Retained earnings or Paid-in capital (when at an accumulated deficit) in the Consolidated Balance Sheets (but not less than their initial redemption value),

except for foreign currency translation adjustments.

These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values.

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If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the quantitative impairment test is not necessary.

For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount and for reporting units for which the qualitative assessment is not performed, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount.

For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount.

If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired.

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The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective.

The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed long-term growth rates, demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit.

The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed long-term growth rates, demand trends and appropriate discount rates based on a reporting unit’s weighted average cost of capital (“WACC”) as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit.

The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate.

The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations.

For the 2021 annual goodwill impairment test, the Company had approximately 35 reporting units, all of which were subject to the qualitative assessment, except four reporting units that were subject to the quantitative goodwill impairment test.

For the reporting units under a qualitative assessment, we concluded that it is more likely than not that their fair value is in excess of the carrying value.

The reporting units subject to the quantitative impairment test had a fair value in excess of their carrying amount (“headroom”) above 10%.

The Company utilized a long-term growth rate of 3% and a WACC ranging from 13% to 25%.

The Company performed a sensitivity analysis which included a 1% increase in the WACC, which would not result in an impairment.

At each reporting period, the Company assesses whether it is more likely than not that the carrying amount of its reporting units exceed their fair value.

As of October 1, 2022 (the annual impairment test date) and December 31, 2022, the Company performed this assessment and determined that certain reporting units’ carrying values exceeded their fair value.

As of October 1, 2022, the Company performed a quantitative impairment test for all reporting units (37) and as of December 31, 2022, the Company performed a quantitative impairment test for certain reporting units that were determined to be more likely than not impaired.

As a result of these tests, management concluded there to be 8 reporting units with a carrying value in excess of their fair value resulting in an impairment of $116.7 million in 2022.

The difference in carrying value versus fair value was primarily due to a combination of changes in fair value measures such as an increase in interest rates and decrease in market multiples of comparable public companies and financial forecasts below previous forecasts.

The Company utilized a long-term average growth rate ranging from 1% to 4% and a WACC ranging from 11.50% to 20.00%.

Of the remaining reporting units, approximately 50% have fair values that are substantially in excess of the carrying amounts.

For the other reporting units, we performed a sensitivity analysis using the latest impairment assessment performed, which included an approximate 2% increase in the WACC (with the exception of one reporting unit where we utilized 1%), and concluded that this would not result in an impairment.

Based on our December 31, 2022 assessment, the fair value of two reporting units, with goodwill of approximately $13 million, exceeded their carrying value by less than 20%.

The Company believes the estimates and assumptions used in the calculations are reasonable.

However, if there was an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future.

Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, or other conditions, charges for impairment may be necessary.

However, if there were an adverse change in the facts and circumstances, then an impairment charge may be necessary in the future.

As a result, to the extent that, among other factors, (i) there is underperformance in one or more reporting units, (ii) a potential recession further disrupts the economic environment or (iii) interest rates continue to rise in response to persistent inflation, the fair value of one or more of these reporting units could fall below their carrying value, resulting in a goodwill impairment charge.

The Company monitors its reporting units to determine if there is an indicator of potential impairment.

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The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized.

Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the

character of the income tax asset, tax planning strategies, changes in tax laws and other factors.

The periodic assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment.

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Stock-Based Compensation .

Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the service period, generally the award’s vesting period.

The Company uses its historical volatility derived over the expected term of the award to determine the volatility factor used in determining the fair value of the award.

Compensation cost is measured at fair value at the date of grant and is expensed over the service period, generally the award’s vesting period.

The Company recognizes forfeitures as they occur.

Stock-based awards that are settled in cash or equity at the option of the Company are recorded at fair value on the date of grant.

The fair value measurement of the compensation cost for these awards is based on using the Black-Scholes option pricing model or other acceptable method and is recorded in Operating income over the service period, in this case the award’s vesting period.

Certain of our awards are settled in cash (stock appreciation awards) and are recorded at fair value on the date of grant and remeasured as each reporting period.

The measurement of the compensation cost for these awards is based on using the Black-Scholes option pricing model and is recorded in Operating income over the service period, in this case the award’s vesting period.

The assumption for expected volatility is based on the historical volatility of a peer group of market participants as the Company has limited historical volatility.

The Company has adopted the straight-line attribution method for determining the compensation cost to be recorded during each accounting period.

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New Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the recognition of an acquired contract liability and other items.

ASU 2021-08 is effective January 1, 2023;

however, the Company has early adopted the standard and retrospectively applied it to the financial statements herein.

In March 2020, the FASB issued ASU 2020-04, and in January 2021 subsequently issued ASU 2021-01, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

In March 2020, the Financial Accounting Standards Board 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 Company is evaluating the impact of the adoption of this guidance on the Company’s financial statements and disclosures.

The Combined Credit Agreement 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 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis