Stagwell Inc 10-K

Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Stagwell Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Stagwell Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2023, expressed an adverse opinion on the Company’s internal control over financial reporting because of material weaknesses. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue — Refer to Notes 2 and 5 to the financial statements Critical Audit Matter Description The Company’s revenue is primarily derived from the provision of marketing and communications services which includes strategy, creative and production for advertising campaigns, public relations services including strategy, editorial, crisis support or issues management, online fundraising, media training, influencer engagement and events management, media-based solutions to drive brand performance, including buying and planning, experiential marketing and application/website design and development. Each of the Company’s operating companies (referred to as Brands) generate revenue from one or more of these services. The Brands have numerous customers and contracts, under a variety of contract terms and provisions. The volume of such contracts and the diversity of the terms in such contracts introduces significant complexity in assessing the accounting under the revenue accounting standard. This complexity includes the critical judgements around defining performance obligations and the recognition of revenue when or as the customer obtains control of the promised services in an amount that reflects the consideration expected to be received in exchange for those services, including the determination of presentation as principal or agent. Given the volume and diversity of the Company’s contracts, performing audit procedures to evaluate whether revenue was appropriately recorded, required a high degree of auditor judgement and an increased extent of audit effort and is therefore considered a critical audit matter. 63 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the testing of the Company’s application of revenue accounting standard to their revenue contracts included the following, among others: • Assessed the nature and amount of revenue recorded by Brand and evaluated the overall application of the revenue accounting standard, • Selected a sample of contracts, specifically including individually material revenue contracts, across the Brands and types of contracts. Testing included consideration of the specific application of the revenue accounting standard, including the identification of the performance obligation(s), the evaluation of the methods applied in the recognition and measurement of revenue, and the verification of the timing of delivery, transaction price and performance of services related to the revenue recorded, including the determination of presentation as principal or agent • Tested the mathematical accuracy of revenue recorded for each selection based on audit evidence obtained. Goodwill — Refer to Notes 2 and 8 to the financial statements Critical Audit Matter Description The Company’s goodwill has been derived from numerous acquisitions, including but not limited to the merger with MDC Partners in August 2021. As a result, the Company has over 30 reporting units, each having similar but different revenue streams and business models. Management performed a quantitative impairment analysis for a number of reporting units to determine their fair values using the income approach and market approach. This determination of the fair value requires management to make significant estimates and assumptions. Such assumptions include forecasted business performance (both revenue and earnings before interest, taxes, depreciation and amortization (EBITDA) based on the strategic operating plan), discount rates, and market multiples. Given the volume of reporting units where a quantitative impairment analysis was performed and differences in their underlying revenue streams and business models, performing audit procedures to evaluate the reasonableness of the Company’s estimates and assumptions within the goodwill impairment assessment required a high degree of auditor judgment and an increased extent of effort and is therefore considered a critical audit matter. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the testing of the Company’s goodwill impairment assessment included the following, among others: • Assessed the amount of goodwill by reporting unit and evaluated the sensitivity of changes in the assumptions on the results of the impairment test for the reporting unit, • Based on this assessment, within certain reporting units, we ◦ Assessed the reasonableness of the Company’s forecasted revenue growth and EBITDA margin by comparing the forecasts to historical results and external economic data including peers, industry data and wider economic forecasts, ◦ Evaluated the Company’s ability to accurately forecast future revenue and EBITDA by comparing actual results to the Company's historical forecasts, ◦ Evaluated whether the forecasts were consistent with evidence obtained in other areas of the audit, ◦ With the assistance of our fair value specialists, evaluated the reasonableness of the discount rates and market multiples used by evaluating the methodology selected by the Company and by: ◦ Testing the source information underlying the determination of the market multiples and discount rates and testing the mathematical accuracy of the calculations. ◦ Developing a range of independent estimates and comparing those to the discount rate selected by the Company. ◦ Assessing the methodology applied in the discount rate calculation against market practice valuation techniques. ◦ Comparing the market multiples selected for each reporting unit to that of its guideline peer companies. /s/ Deloitte & Touche LLP New York, NY March 6, 2023 We have served as the Company’s auditor since 2020. 64 STAGWELL INC. INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS Page Financial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 63 Consolidated Statements of Operations for each of the T hree Years in the Period Ended December 31, 20 2 2 66 Consolidated Statements of Comprehensive Income ( Loss ) for each of the T hree Years in the Period Ended December 31, 202 2 67 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 68 Consolidated Statements of Cash Flows for each of the T hree Years in the Period Ended December 31, 20 2 2 69 Consolidated Statements of Shareholders’ Equity for each of the T hree Years in the Period Ended December 31, 202 2 71 Notes to Audited Consolidated Financial Statements 74 Financial Statement Schedules: Schedule II — Valuation and Qualifying Accounts for each of the T hree Years in the Period Ended December 31, 202 2 124 65 STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share amounts) Year Ended December 31, 2022 2021 2020 Revenue $ 2,687,792 $ 1,469,363 $ 888,032 Operating Expenses Cost of services 1,673,576 906,856 571,588 Office and general expenses 601,536 424,038 191,679 Depreciation and amortization 131,273 77,503 41,025 Impairment and other losses 122,179 16,240 — 2,528,564 1,424,637 804,292 Operating Income 159,228 44,726 83,740 Other income (expenses): Interest expense, net ( 76,062 ) ( 31,894 ) ( 6,223 ) Foreign exchange, net ( 2,606 ) ( 3,332 ) ( 721 ) Other, net ( 7,059 ) 50,058 544 ( 85,727 ) 14,832 ( 6,400 ) Income before income taxes and equity in earnings of non-consolidated affiliates 73,501 59,558 77,340 Income tax expense 7,580 23,398 5,937 Income before equity in earnings of non-consolidated affiliates 65,921 36,160 71,403 Equity in income (loss) of non-consolidated affiliates ( 79 ) ( 240 ) 58 Net income 65,842 35,920 71,461 Net income attributable to noncontrolling and redeemable noncontrolling interests ( 38,573 ) ( 14,884 ) ( 15,105 ) Net income attributable to Stagwell Inc. common shareholders $ 27,269 $ 21,036 $ 56,356 Income Per Common Share: Basic Net income attributable to Stagwell Inc. common shareholders $ 0.22 $ ( 0.04 ) N/A Diluted Net income attributable to Stagwell Inc. common shareholders $ 0.17 $ ( 0.04 ) N/A Weighted Average Number of Common Shares Outstanding: Basic 124,262 90,426 N/A Diluted 296,596 90,426 N/A See notes to the audited Consolidated Financial Statements . 66 STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (amounts in thousands) Year Ended December 31, 2022 2021 2020 COMPREHENSIVE INCOME Net income $ 65,842 $ 35,920 $ 71,461 Other comprehensive loss Foreign currency translation adjustment ( 37,751 ) ( 6,000 ) 2,371 Benefit plan adjustment 4,088 722 — Net unrealized loss on available for sale investment — — ( 5,156 ) Other comprehensive loss ( 33,663 ) ( 5,278 ) ( 2,785 ) Comprehensive income for the period 32,179 30,642 68,676 Comprehensive loss attributable to the noncontrolling and redeemable noncontrolling interests ( 38,573 ) ( 14,884 ) ( 15,105 ) Comprehensive income (loss) attributable to Stagwell Inc. common shareholders $ ( 6,394 ) $ 15,758 $ 53,571 See notes to the audited Consolidated Financial Statements . 67 STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands) December 31, 2022 December 31, 2021 ASSETS Current Assets Cash and cash equivalents $ 220,589 $ 184,009 Accounts receivable, net 645,846 696,937 Expenditures billable to clients 93,077 63,065 Other current assets 71,443 61,830 Total Current Assets 1,030,955 1,005,841 Fixed assets, net 98,878 97,516 Right-of-use lease assets - operating leases 273,567 311,654 Goodwill 1,566,956 1,652,723 Other intangible assets, net 907,529 958,782 Other assets 115,447 29,064 Total Assets $ 3,993,332 $ 4,055,580 LIABILITIES, RNCI, AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable $ 357,253 $ 271,769 Accrued media 240,506 237,794 Accruals and other liabilities 248,477 272,533 Advance billings 337,034 361,885 Current portion of lease liabilities - operating leases 76,349 72,255 Current portion of deferred acquisition consideration 90,183 77,946 Total Current Liabilities 1,349,802 1,294,182 Long-term debt 1,184,707 1,191,601 Long-term portion of deferred acquisition consideration 71,140 144,423 Long-term lease liabilities - operating leases 294,049 342,730 Deferred tax liabilities, net 40,109 103,093 Other liabilities 69,780 57,147 Total Liabilities 3,009,587 3,133,176 Redeemable Noncontrolling Interests 39,111 43,364 Commitments, Contingencies and Guarantees (Note 14) Shareholders' Equity Common shares - Class A & B 132 118 Common shares - Class C 2 2 Paid-in capital 491,899 382,893 Accumulated income (deficit) 29,445 ( 6,982 ) Accumulated other comprehensive loss ( 38,941 ) ( 5,278 ) Stagwell Inc. Shareholders' Equity 482,537 370,753 Noncontrolling interests 462,097 508,287 Total Shareholders' Equity 944,634 879,040 Total Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity $ 3,993,332 $ 4,055,580 See notes to the audited Consolidated Financial Statements . 68 Table of Contents STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income $ 65,842 $ 35,920 $ 71,461 Adjustments to reconcile net income to cash provided by operating activities: Stock-based compensation 33,152 75,032 — Depreciation and amortization 131,273 77,503 41,025 Impairment and other losses 122,179 16,240 — Provision for bad debt expense 7,755 2,031 6,222 Deferred income taxes ( 18,319 ) ( 3,818 ) ( 5,463 ) Adjustment to deferred acquisition consideration ( 13,405 ) 18,721 4,520 Gain on sale of asset — ( 43,440 ) — Interest from preferred investments — — ( 600 ) Transaction costs contributed by Stagwell Media LP — — 10,160 Foreign currency translation loss on foreign denominated debt — — 721 Other, net ( 5,692 ) ( 1,463 ) 1,271 Changes in working capital: Accounts receivable 37,780 ( 30,784 ) ( 26,805 ) Expenditures billable to clients ( 32,366 ) ( 35,371 ) 10,078 Other assets 1,179 3,997 ( 10,461 ) Accounts payable 98,871 ( 46,356 ) 5,606 Accrued expenses and other liabilities ( 42,808 ) 61,974 22,922 Advance billings ( 27,062 ) 76,021 7,423 Deferred acquisition related payments ( 10,793 ) ( 5,351 ) — Net cash provided by operating activities 347,586 200,856 138,080 Cash flows from investing activities: Capital expenditures ( 22,663 ) ( 8,797 ) ( 4,690 ) Current period acquisitions, net of cash acquired ( 74,234 ) 150,346 ( 14,732 ) Proceeds from sale of business, net — 37,232 — Capitalized software and other ( 19,378 ) ( 14,829 ) ( 9,599 ) Net cash (used in) provided by investing activities ( 116,275 ) 163,952 ( 29,021 ) Cash flows from financing activities: Repayment of borrowings under revolving credit facility ( 1,266,000 ) ( 719,088 ) ( 126,994 ) Proceeds from borrowings under revolving credit facility 1,255,500 516,669 167,000 Shares acquired and cancelled ( 18,729 ) ( 841 ) — Distributions to noncontrolling interests and other ( 39,197 ) — — Payment of deferred consideration ( 63,170 ) — ( 1,000 ) Contributions — — 1,554 Purchase of noncontrolling interest ( 3,600 ) ( 37,500 ) ( 1,559 ) Proceeds from issuance of the 5.625% Notes — 1,100,000 — Debt issuance costs — ( 15,053 ) ( 3,099 ) Payment of contingent consideration — — ( 500 ) Distributions — ( 233,203 ) ( 115,543 ) 69 Table of Contents STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued) (amounts in thousands) Year Ended December 31, 2022 2021 2020 Repurchase of 7.50% Senior Notes — ( 884,398 ) — Repurchase of Common Stock ( 51,540 ) — — Net cash used in financing activities ( 186,736 ) ( 273,414 ) ( 80,141 ) Effect of exchange rate changes on cash and cash equivalents ( 7,995 ) 158 ( 321 ) Net increase in cash and cash equivalents 36,580 91,552 28,597 Cash and cash equivalents at beginning of period 184,009 92,457 63,860 Cash and cash equivalents at end of period $ 220,589 $ 184,009 $ 92,457 Supplemental Cash Flow Information: Cash income taxes paid $ 46,275 $ 58,578 $ 10,714 Cash interest paid 70,935 23,528 9,287 Non-cash investing and financing activities: Acquisitions of business 1,178 425,752 23,720 Acquisitions of noncontrolling interest 1,000 170,266 — Issuance of redeemable noncontrolling interest — 27,820 — Net unrealized gain on available for sale investment — — 5,156 Establishment of a deferred tax asset related to the exchange 32,890 — — Establishment of Tax Receivables Agreement liability 28,694 — — Conversion of Class C to Class A shares 47,930 — — Finalization of Stagwell, Inc’s tax basis in Stagwell Global, LLC 119,470 — — Non-cash contributions — 12,372 93,880 Non-cash distributions to Stagwell Media LP — 13,000 — Non-cash payment of deferred acquisition consideration 989 7,080 64,345 Conversion of preferred shares — 209,947 — See notes to the audited Consolidated Financial Statements . 70 Table of Contents STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (amounts in thousands) Year Ended December 31, 2022 Common Shares - Class A & B Common Shares - Class C Paid-in Capital Accumulated Income (Deficit) Accumulated Other Comprehensive Loss Stagwell Inc. Shareholders' Equity Noncontrolling Interests Shareholders' Equity Shares Amount Shares Amount Balance at December 31, 2021 118,252 $ 118 179,970 $ 2 $ 382,893 $ ( 6,982 ) $ ( 5,278 ) $ 370,753 $ 508,287 $ 879,040 Net income — — — — — 27,269 — 27,269 30,438 57,707 Other comprehensive loss — — — — — — ( 33,663 ) ( 33,663 ) — ( 33,663 ) Distributions to noncontrolling interests — — — — — — — — ( 29,957 ) ( 29,957 ) Purchases of noncontrolling interests — — — — ( 1,000 ) — — ( 1,000 ) ( 3,600 ) ( 4,600 ) Acquisition of noncontrolling interest — — — — — — — — 2,667 2,667 Shares issued (Acquisition) 175 — — — 1,178 — — 1,178 — 1,178 Changes in redemption value of RNCI — — — — 8,711 — 8,711 — 8,711 Restricted awards granted or vested 3,940 4 — — ( 4 ) — — — — — Shares repurchased and cancelled (withheld for payroll taxes) ( 2,531 ) ( 3 ) — — ( 18,729 ) — — ( 18,732 ) — ( 18,732 ) Restricted shares forfeited ( 221 ) — — — — — — — — — Shares repurchased and cancelled (Approved plan) ( 7,194 ) ( 7 ) — — ( 51,540 ) — — ( 51,547 ) — ( 51,547 ) Stock-based compensation — — — — 34,974 — — 34,974 — 34,974 Conversion of Class C to Class A shares 19,061 19 ( 19,061 ) — 47,911 — — 47,930 ( 47,930 ) — Finalization of Stagwell, Inc’s tax basis in Stagwell Global, LLC — — — — 119,470 — — 119,470 — 119,470 Finalization of MDC acquisition accounting and associated impact on Stagwell Inc. — — — — ( 16,294 ) — — ( 16,294 ) 2,301 ( 13,993 ) Other 242 1 — — ( 6,960 ) 447 — ( 6,512 ) ( 109 ) ( 6,621 ) Balance at December 31, 2022 131,724 $ 132 160,909 $ 2 $ 491,899 $ 29,445 $ ( 38,941 ) $ 482,537 $ 462,097 $ 944,634 See notes to the audited Consolidated Financial Statements . 71 Table of Contents STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued) (amounts in thousands) Year Ended December 31, 2021 Members' capital Convertible Preference Shares Common Shares - Class A & B Common Shares - Class C Paid-in Capital Accumulated Income (Deficit) Other Comprehensive Loss Stagwell Inc. Shareholders' Equity Noncontrolling Interests Shareholders' Equity Shares Amount Shares Amount Shares Amount Balance at December 31, 2020 $ 358,756 — $ — — $ — — $ — $ — $ — $ — $ 358,756 $ 39,787 $ 398,543 Net income prior to reorganization 24,742 — — — — — — — — — 24,742 2,693 27,435 Other comprehensive loss ( 375 ) — — — — — — — — — ( 375 ) — ( 375 ) Contributions 250 — — — — — — — — — 250 — 250 Distributions, net ( 204,929 ) — — — — — — — — — ( 204,929 ) — ( 204,929 ) Distributions to noncontrolling interests — — — — — — — — — — — ( 11,936 ) ( 11,936 ) Changes in redemption value of RNCI ( 72 ) — — — — — — — — — ( 72 ) — ( 72 ) Other — — — — — — — — — — — ( 300 ) ( 300 ) Effect of reorganization ( 178,372 ) 123,849 209,980 78,794 77 179,970 2 110,555 — — 142,242 636,416 778,658 Reclass NCI to Liability — — — — — — — — — — ( 8,475 ) ( 8,475 ) Impact of PPA adjustment to noncontrolling interests — — — — 1 — — 8,845 — — 8,846 ( 1,549 ) 7,297 Net income (loss) attributable to Stagwell Inc. — — — — — — — — ( 3,706 ) — ( 3,706 ) 12,602 8,896 Other comprehensive loss — — — — — — — — — ( 5,278 ) ( 5,278 ) — ( 5,278 ) Distributions to noncontrolling interests — — — — — — — — — — — ( 16,338 ) ( 16,338 ) Changes in redemption value of RNCI — — — — — — — — ( 3,834 ) — ( 3,834 ) — ( 3,834 ) Restricted awards granted or vested — — — 1,962 2 — — ( 2 ) — — — — — Shares acquired and cancelled — — — ( 14 ) — — — ( 841 ) — — ( 841 ) — ( 841 ) Stock-based compensation — — — — — — — 70,427 — — 70,427 — 70,427 Reclass noncontrolling interests to RNCI — — — — — — — ( 25,236 ) — — ( 25,236 ) ( 2,719 ) ( 27,955 ) Purchases of noncontrolling interests — — — 4,476 5 — — ( 14,138 ) — — ( 14,133 ) ( 143,134 ) ( 157,267 ) Tax impact on step up transactions — — — — — — — 23,108 — — 23,108 — 23,108 Conversion of shares — ( 123,849 ) ( 209,980 ) 33,035 33 — — 209,947 — — — — — Other — — — — — — — 228 558 — 786 1,240 2,026 Balance at December 31, 2021 $ — — $ — 118,252 $ 118 179,970 $ 2 $ 382,893 $ ( 6,982 ) $ ( 5,278 ) $ 370,753 $ 508,287 $ 879,040 See notes to the audited Consolidated Financial Statements 72 Table of Contents STAGWELL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - (continued) (amounts in thousands) Year Ended December 31, 2020 Members' capital Convertible Preference Shares Common Shares - Class A & B Common Shares - Class C Paid-in Capital Accumulated Income (Deficit) Other Comprehensive Income Stagwell Inc. Shareholders' Equity Noncontrolling Interests Shareholders' Equity Shares Amount Shares Amount Shares Amount Balance at December 31, 2019 $ 316,960 — $ — — $ — — $ — $ — $ — $ — $ 316,960 $ 31,577 $ 348,537 Net income attributable to Stagwell Inc. 56,356 — — — — — — — — — 56,356 18,231 74,587 Other comprehensive loss ( 2,785 ) — — — — — — — — — ( 2,785 ) — ( 2,785 ) Contributions 95,434 — — — — — — — — — 95,434 — 95,434 Distributions ( 108,468 ) — — — — — — — — — ( 108,468 ) ( 7,075 ) ( 115,543 ) Changes in redemption value of RNCI ( 128 ) — — — — — — — — — ( 128 ) — ( 128 ) Other 1,387 — — — — — — — — — 1,387 ( 2,946 ) ( 1,559 ) Balance at December 31, 2020 $ 358,756 — $ — — $ — — $ — $ — $ — $ — $ 358,756 $ 39,787 $ 398,543 See notes to the audited Consolidated Financial Statements 73 STAGWELL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands, unless otherwise stated) 1. Business and Basis of Presentation Stagwell Inc. (the “Company,” “we,” or “Stagwell”), incorporated under the laws of Delaware, conducts its business through its networks and their Brands (“Brands”), which provide marketing and business solutions that realize the potential of combining data and creativity. Stagwell’s strategy is to build, grow and acquire market-leading businesses that deliver the modern suite of services that marketers need to thrive in a rapidly evolving business environment. The accompanying audited consolidated financial statements include the accounts of Stagwell and its subsidiaries. Stagwell has prepared the audited consolidated financial statements included herein in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting financial information on this Annual Report on Form 10-K (this “Form 10-K”). The preparation of financial statements in conformity with GAAP requires us to make judgments, assumptions and estimates about current and future results of operations and cash flows that affect the amounts reported and disclosed. Actual results could differ from these estimates and assumptions. On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell Media (the “Stagwell Subject Entities”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC (“Stagwell Marketing” or “SMG”) and its direct and indirect subsidiaries. On August 2, 2021, we completed the combination of MDC and the operating businesses and subsidiaries of Stagwell Media and a series related transactions (such combination and transactions, the “Transactions”). The Transactions were treated as a reverse acquisition for financial reporting purposes, with MDC treated as the legal acquirer and Stagwell Marketing treated as the accounting acquirer. The results of MDC are included within the Consolidated Statements of Operations for the period beginning on the date of the acquisition through the end of the respective period presented and the results of SMG are included for the entire period presented. See Note 4 of the Notes included herein for information in connection with the acquisition of MDC. The accompanying financial statements reflect all adjustments, consisting of normal recurring accruals, which in the opinion of management are necessary for a fair presentation, in all material respects, of the information contained therein. Intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior year financial information to conform to the current year presentation. We have revised the presentation of Current Liabilities to separately present Accrued media, which was previously included in Accruals and other liabilities, of $ 237,794 as of December 31, 2021. As a result, the accompanying Consolidated Balance Sheet has been revised to correct the immaterial classification error by decreasing the previously reported amount for Accruals and other liabilities as of December 31, 2021, by the $ 237,794 of Accrued media. The revision had no effect on our previously reported Total Current Liabilities, or on any other previously reported amounts in our Audited Consolidated Financial Statements for the year ended December 31, 2021. Recent Developments On March 1, 2023, the board of directors authorized an extension and a $ 125,000 increase in the size of the stock repurchase program (the “Repurchase Program”) to an aggregate of $ 250,000 , 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. 2. Significant Accounting Policies The Company’s significant accounting policies are summarized as follows: Principles of Consolidation . The accompanying consolidated financial statements include the accounts of Stagwell Inc. and its domestic and international controlled subsidiaries that are not considered variable interest entities, and variable interest entities for which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated in consolidation. Use of Estimates . The preparation of the audited consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities including goodwill, intangible assets, contingent deferred acquisition consideration, redeemable noncontrolling interests, deferred tax assets, right-of-use lease assets and the amounts of revenue and expenses reported during the period. These estimates are evaluated on an ongoing basis and are based on historical experience, current conditions and 74 various other assumptions believed to be reasonable under the circumstances. These estimates require the use of assumptions about future performance, which are uncertain at the time of estimation. To the extent actual results differ from the assumptions used, results of operations and cash flows could be materially affected. Fair Value . The Company applies the fair value measurement guidance for financial assets and liabilities that are required to be measured at fair value and for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis, including goodwill, right-of-use lease assets and other identifiable intangible assets. See Note 18 of the Notes included herein for additional information regarding fair value measurements. Concentration of Credit Risk . The Company provides marketing communications services to clients who operate in most industry sectors. Credit is granted to qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that it is exposed to a concentration of credit ris k. No sales to an individual client accounted for more than 7 % of revenue for the years ended December 31, 2022, 2021, and 2020. Cash and Cash Equivalents . The Company’s cash equivalents may comprise investments in overnight interest-bearing deposits, money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has a concentration of credit risk in that there are cash deposits in excess of federally insured amounts and international cash balances that may not qualify for foreign government insurance programs. To date, the Company has not experienced any losses on cash and cash equivalents. Allowance for Doubtful Accounts . Trade receivables are stated at invoiced amounts less allowances for doubtful accounts. The allowances represent estimated uncollectible receivables associated with potential customer defaults usually due to customers’ potential insolvency. The allowances include amounts for certain customers where a risk of default has been specifically identified. The assessment of the likelihood of customer defaults is based on various factors, including the length of time the receivables are past due, historical experience and existing economic conditions. Allowance for doubtful accounts was $ 10,369 and $ 5,638 at December 31, 2022 and December 31, 2021, respectively. Sale of Accounts Receivable. The Company transfers certain of its trade receivable assets to third parties under agreements to sell certain of its accounts receivables. Per the terms of these agreements, the Company surrenders control over its trade receivables upon transfer. 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 the receivables are transferred, with the proceeds being included in cash flows from operating activities in the Consolidated Statements of Cash Flows. The trade receivables transferred to the third parties under these arrangements were $ 176,497 , $ 42,097 and $ 44,172 , during the years ended December 31, 2022, 2021 and 2020, respectively. The amount collected and due to the third parties under these arrangements was $ 5,703 as of December 31, 2022. No amounts were collected and due to third parties as of December 31, 2021 and 2020. Fees for these arrangements were recorded in Office and general expenses in the Consolidated Statements of Operations and totaled $ 1,817 , $ 110 , and $ 185 for the years ended December 31, 2022, 2021 and 2020, respectively. Expenditures Billable to Clients . Expenditures billable to clients consist principally of outside vendor costs incurred on behalf of clients when providing services that have not yet been invoiced to clients. Such amounts are invoiced to clients at various times over the course of the period. Fixed Assets . Fixed assets are stated at cost, net of accumulated depreciation. Computers and furniture and fixtures are depreciated on a straight-line basis over periods of three to ten years . Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred. Accumulated depreciation was $ 59,445 and $ 35,895 at December 31, 2022 and December 31, 2021, respectively. Leases . The Company recognizes on the Consolidated Balance Sheets, at the time of lease commencement, a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments. All right-of-use lease assets are reviewed for impairment. See Note 10 of the Notes included herein for further information on leases. Impairment of Long-lived Assets . A long-lived asset or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of such asset or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is typically calculated using discounted expected future cash flows where observable fair values are not readily determinable. The discount rate applied to these cash flows is based on the Company’s weighted average cost of capital (“WACC”), risk adjusted where appropriate, or other appropriate discount rate. 75 Goodwill . Goodwill (the excess of the acquisition cost over the fair value of the net assets acquired) acquired as a result of a business combination is not amortized but rather tested for impairment, at the reporting unit level, annually as of October 1st of each year, or more frequently if indicators of potential impairment exist. For the annual impairment test, the Company has the option of assessing qualitative factors to determine whether it is more likely than not that the carrying amount of a reporting unit exceeds its fair value or performing a quantitative goodwill impairment test. Qualitative factors considered in the assessment include industry and market considerations, the competitive environment, overall financial performance, changing cost factors such as labor costs, and other factors specific to each reporting unit such as change in management or key personnel. If the Company elects to perform the qualitative assessment and concludes that it is more likely than not that the fair value of the reporting unit is more than its carrying amount, then goodwill is not considered impaired and the quantitative impairment test is not necessary. For reporting units for which the qualitative assessment concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company will perform the quantitative impairment test, which compares the fair value of the reporting unit to its carrying amount. If the fair value of the reporting unit exceeds the carrying amount of the net assets assigned to that reporting unit, goodwill is not considered impaired. However, if the fair value of the reporting unit is lower than the carrying amount of the net assets assigned to the reporting unit, an impairment charge is recognized equal to the excess of the carrying amount over the fair value. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The Company uses a combination of the income approach, which incorporates the use of the discounted cash flow (“DCF”) method, and the market approach, which incorporates the use of earnings and revenue multiples based on market data. The Company generally applies an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates. The DCF estimates incorporate expected cash flows that represent a spectrum of the amount and timing of possible cash flows of each reporting unit from a market participant perspective. The expected cash flows are developed from the Company’s long-range planning process using projections of operating results and related cash flows based on assumed long-term growth rates, demand trends and appropriate discount rates based on a reporting unit’s WACC as determined by considering the observable WACC of comparable companies and factors specific to the reporting unit. The terminal value is estimated using a constant growth method which requires an assumption about the expected long-term growth rate. The estimates are based on historical data and experience, industry projections, economic conditions, and the Company’s expectations . Definite Lived Intangible Assets . Definite lived intangible assets are subject to amortization over their useful lives. A straight-line amortization method is used over the estimated useful life which is representative of the pattern of how the economic benefits of the specific intangible asset is consumed. Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an intangible asset to estimated undiscounted future cash flows expected to be generated from use of the asset and its eventual disposition. If the total of the undiscounted future cash flows is less than the carrying amount of those assets, a quantitative assessment is performed using an income approach, which incorporates the use of the DCF method. Business Combinations. Business combinations are accounted for using the acquisition method and accordingly, the assets acquired (including identified intangible assets), the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values. For each acquisition, the Company undertakes a detailed review to identify other intangible assets and a valuation is performed for all such identified assets. The Company uses several market participant measurements to determine the estimated value. This approach includes consideration of similar and recent transactions, as well as utilizing discounted expected cash flow methodologies. A substantial portion of the intangible assets value that the Company acquires is the specialized know-how of the workforce, which is treated as part of goodwill and is not required to be valued separately. The majority of the value of the identifiable intangible assets acquired is derived from customer relationships, including the related customer contracts, as well as trademarks. Deferred Acquisition Consideration . Certain acquisitions include an initial payment at the time of closing and provide for future additional contingent purchase price payments. Contingent purchase price obligations for these transactions are recorded as deferred acquisition consideration liabilities on the Consolidated Balance Sheets, at the acquisition date fair value and are remeasured at each reporting period. These liabilities are derived from the projected performance of the acquired entity. These arrangements may be dependent on future events, such as the growth rate of the earnings of the relevant subsidiary during the contractual period. At each reporting date, the Company models each business’ future performance, including revenue growth and free cash flows, to estimate the value of each deferred acquisition consideration liability. The liability is adjusted quarterly based on changes in current information affecting each subsidiary’s current operating results and the impact this information 76 will have on future results included in the calculation of the estimated liability. These adjustments are recorded in deferred acquisition consideration expense within Office and general expenses in the Consolidated Statement 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 Office and general expenses in the Consolidated Statements of Operations. Redeemable Noncontrolling Interests . 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 may have 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 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. Control to Control Subsidiary Purchases. Transactions involving the purchase, sale or issuance of interests of a subsidiary where control is maintained are recorded as a reduction in the redeemable noncontrolling interests or noncontrolling interests, as applicable. Any difference between the purchase price and noncontrolling interest is recorded to Paid-in capital in the Consolidated Balance Sheets. In circumstances where the purchase of shares of an equity investment results in obtaining control, the existing carrying value of the investment is remeasured to the acquisition date fair value and any gain or loss is recognized in the Consolidated Statement Operations. Revenue Recognition . The Company’s revenue is recognized when control of the promised services are transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. See Note 5 of the Notes included herein for additional information. Cost of Services . Cost of services sold primarily consists of staff costs that are directly attributable to the Company’s client engagements, as well as third-party direct costs of production and delivery of services to its clients. Cost of services sold does not include depreciation, amortization, and other office and general expenses that are not directly attributable to the Company’s client engagements. Deferred Financing Costs . The Company uses the straight-line method, which approximates the effective interest method, to amortize deferred financing costs. Income Taxes. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse. The Company records associated interest and penalties as a component of income tax expense. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates on a quarterly basis all available positive and negative evidence considering factors such as the reversal of deferred income tax liabilities, taxable income in eligible carryback years, projected future taxable income, the character of the income tax asset, tax planning strategies, changes in tax laws and other factors. The periodic assessment of the net carrying value of the Company’s deferred tax assets under the applicable accounting rules requires significant management judgment. A change to any of these factors could impact the estimated valuation allowance and income tax expense. Stock-Based Compensation . 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. Certain of our awards are settled in cash (stock appreciation awards) and are recorded at fair value on the date of grant and remeasured at 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. The Company commences recording compensation expense related to awards that are based on performance conditions under the straight-line attribution method when it is probable that such performance conditions will be met. Share Buybacks . In 2022, the Company began repurchasing its own Class A common stock, par value $.001 per share (the “Class A Common Stock”), as part of a publicly announced stock repurchase plan. The Company accounts for these 77 repurchases by reducing the value of our Class A Common Stock for the par value of the shares repurchased and account for the difference between the price paid for the Class A Common Stock, excluding fees, and the par value of such stock to Paid-in capital. See Note 15 of the Notes included herein for further details of our share buyback plan . Retirement Costs . Several of the Company’s subsidiaries offer employees access to certain defined contribution retirement programs. Under the defined contribution plans, these subsidiaries, in some cases, make annual contributions to participants’ accounts which are subject to vesting. The Company’s contribution expense pursuant to these plans was approximately $ 19,000 , $ 10,000 , and $ 4,000 for the years ended December 31, 2022, 2021, and 2020, respectively. The Company also has a defined benefit pension plan. See Note 12 of the Notes included herein for additional information on the defined benefit plan. Income (Loss) per Common Share . Basic income (loss) per common share is based upon the weighted average number of common shares outstanding during each period. Diluted income (loss) per common share is based on the above, in addition, if dilutive, common share equivalents, which include stock appreciation rights, and unvested restricted stock and restricted stock units as well as shares of Class C Common Stock. In periods of net loss, all potentially issuable common shares are excluded from diluted net loss per common share because they are anti-dilutive. Foreign Currency Translation . The functional and reporting currency of the Company is the U.S. dollar. Generally, the Company’s subsidiaries use their local currency as their functional currency. Assets and liabilities are translated at the exchange rates in effect at the balance sheet date, and revenues and expenses are translated at the average exchange rates during the period presented. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive income (loss) in the Shareholders’ equity section of our Consolidated Balance Sheets. Foreign currency transaction unrealized and realized gains or losses are recognized as incurred in the Consolidated Statements of Operations in Foreign, exchange, net. Translation of intercompany transactions, which are not intended to be settled, are included in cumulative translation adjustments. 3. New Accounting Pronouncements In March 2020, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, and in January 2021 subsequently issued ASU 2021-01, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 is effective upon issuance, through December 31, 2022. The Combined Credit Agreement (as defined in Note 11 of the Notes included herein) is the Company’s only contractual arrangement that referenced LIBOR and is impacted by ASU 2020-04. On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to the Secured Overnight Financing Rate (“SOFR”). Based on the Company’s assessment, the Company has elected to apply the optional expedient and treat the contract modifications as a continuation of an existing contract. This election does not have a material effect on our results of operations or financial position. See Note 11 of the Notes included herein for more information. 4. Acquisitions 2022 Acquisitions Acquisition of Brand New Galaxy On April 19, 2022, the Company acquired Brand New Galaxy (“BNG”), for approximately $ 20,695 of cash consideration, as well as contingent consideration up to a maximum value of $ 50,000 . The contingent consideration is due upon meeting certain future earnings targets through 2024, with approximately 67 % payable in cash and 33 % payable in Stagwell Inc. Class A Common Stock. 78 The consideration has been allocated to the assets acquired and assumed liabilities of BNG based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows: Amount Cash and cash equivalents $ 2,766 Accounts receivable 10,147 Other current assets 671 Fixed assets 1,587 Identifiable intangible assets 12,740 Other assets 1,583 Accounts payable ( 4,771 ) Accruals and other liabilities ( 6,880 ) Advance billings ( 1,159 ) Other liabilities ( 3,642 ) Net assets assumed 13,042 Goodwill 24,423 Purchase price consideration $ 37,465 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of BNG. Goodwill of $ 24,423 was assigned to the Brand Performance Network reportable segment. The majority of the goodwill is non-deductible for income tax purposes. Intangible assets consist of trade names, customer relationships and developed technology. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately ten years . The following table presents the details of identifiable intangible assets acquired: Estimated Fair Value Estimated Useful Life in Years Customer relationships $ 6,150 10 Trade names 5,500 10 Developed technology 1,090 7 Total acquired intangible assets $ 12,740 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Year Ended December 31, 2022 2021 Revenue $ 2,698,018 $ 1,501,568 Net income 65,097 36,863 79 Revenue and net loss attributable to BNG, included within the year ended December 31, 2022 Consolidated Statements of Operations was $ 20,544 and $ 67 , respectively. The purchase price accounting is not yet final as the Company may still make adjustments due to changes in working capital. Acquisition of TMA Direct, Inc. On May 31, 2022, the Company acquired approximately 87 % of TMA Direct, Inc. (“TMA Direct”) for approximately $ 17,247 of cash consideration and approximately $ 457 of deferred acquisition payments. The Company was also granted an option to purchase the remaining 13 % minority interest in TMA Direct for up to approximately $ 13,330 . The consideration has been allocated to the assets acquired and assumed liabilities of TMA Direct based upon estimated fair values, with any excess purchase price allocated to goodwill. The purchase price allocation is as follows: Amount Accounts receivable $ 582 Other current assets 669 Identifiable intangible assets 13,200 Accounts payable ( 379 ) Other liabilities ( 270 ) Noncontrolling interests ( 2,667 ) Net assets assumed 11,135 Goodwill 6,569 Purchase price consideration $ 17,704 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of TMA Direct. Goodwill of $ 6,569 was assigned to the Communications Network reportable segment. The majority of the goodwill is deductible for income tax purposes. Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is ten years . The following table presents the details of identifiable intangible assets acquired: Fair Value Estimated Useful Life in Years Customer relationships $ 11,400 10 Trade names 1,800 10 Total acquired intangible assets $ 13,200 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Year Ended December 31, 2022 2021 Revenue $ 2,691,622 $ 1,481,727 Net income 67,195 39,386 Revenue and net income attributable to TMA Direct, included within the year ended December 31, 2022 Consolidated Statements of Operations was $ 7,659 and $ 889 , respectively. Acquisition of Maru Group Limited Ltd. On October 3, 2022, the Company acquired Maru Group Limited Ltd. (“Maru”) for approximately £ 23,000 (approximately $ 25,793 ) in cash consideration. 80 The consideration has been allocated to the assets acquired and assumed liabilities of Maru based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows: Amount Cash and cash equivalents $ 1,033 Accounts receivable 7,374 Other current assets 899 Fixed assets 157 Identifiable intangible assets 13,500 Other assets 1,920 Accounts payable ( 4,087 ) Accruals and other liabilities ( 9,154 ) Advance billings ( 6,462 ) Other liabilities ( 3,591 ) Net assets assumed 1,589 Goodwill 24,204 Purchase price consideration $ 25,793 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Maru and the expected growth related to new customer relationships and geographic expansion. Goodwill of $ 24,204 was assigned to the All Other reportable segment. The goodwill is partially deductible for income tax purposes. Intangible assets consist of trade names, customer relationships, and developed technology. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately eight years . The following table presents the details of identifiable intangible assets acquired: Estimated Fair Value Estimated Useful Life in Years Customer relationships $ 4,700 10 Trade names 3,500 10 Developed technology 5,300 2 - 7 Total acquired intangible assets $ 13,500 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Year Ended December 31, 2022 2021 Revenue $ 2,717,667 $ 1,512,791 Net Income 51,841 15,167 81 Revenue and net loss attributable to Maru, included within the year ended December 31, 2022 Consolidated Statements of Operations was $ 8,786 and $ 2,135 , respectively. Acquisition of Wolfgang, LLC. On October 3, 2022, the Company acquired the remaining 80 % interest that it did not already own in Wolfgang, LLC., (“Wolfgang”) for approximately $ 3,750 in cash consideration and 175 shares of Class A Common Stock with a fair value of $ 1,178 , subject to post-closing adjustments. The consideration has been allocated to the assets acquired and assumed liabilities of Wolfgang based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows: Amount Cash and cash equivalents $ 1,606 Accounts receivable 1,180 Other current assets 100 Identifiable intangible assets 1,055 Other assets 46 Current liabilities ( 278 ) Net assets assumed 3,709 Goodwill 2,451 Purchase price consideration including fair value of previously owned interest $ 6,160 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Wolfgang. Goodwill of $ 2,451 was assigned to the Integrated Agencies Network reportable segment. The majority of the goodwill is deductible for income tax purposes. Intangible assets consist of customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is five years . The following table presents the details of identifiable intangible assets acquired: Estimated Fair Value Estimated Useful Life in Years Customer relationships $ 1,055 5 Total acquired intangible assets $ 1,055 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Year Ended December 31, 2022 2021 Revenue $ 2,696,733 $ 1,474,303 Net income 67,196 36,538 82 Revenue and net loss attributable to Wolfgang, included within the year ended December 31, 2022 Consolidated Statements of Operations was $ 2,072 and $ 297 , respectively. Acquisition of Epicenter Experience LLC. On October 3, 2022, the Company acquired the assets of Epicenter Experience LLC., (“Epicenter”) for approximately $ 9,864 in cash consideration, subject to post-closing adjustments, as well as contingent consideration up to a maximum value of $ 5,000 . The contingent consideration is subject to meeting certain future earnings targets through 2024 and can be paid up to 25% in Class A Common Stock. The consideration has been allocated to the assets acquired and assumed liabilities of Epicenter based upon preliminary estimated fair values. The preliminary purchase price allocation is as follows: Amount Accounts receivable $ 901 Other current assets 45 Identifiable intangible assets 7,300 Accounts payable ( 148 ) Other current liabilities ( 650 ) Net assets assumed 7,448 Goodwill 4,416 Purchase price consideration $ 11,864 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Epicenter. Goodwill of $ 4,416 was assigned to the All Other reportable segment. The majority of the goodwill is deductible for income tax purposes. The intangible asset acquired was developed technology. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is five years . The following table presents the details of identifiable intangible assets acquired: Estimated Fair Value Estimated Useful Life in Years Developed technology $ 7,300 5 Total acquired intangible assets $ 7,300 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2021. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Year Ended December 31, 2022 2021 Revenue $ 2,690,969 $ 1,473,183 Net income 65,450 35,810 83 Revenue and net loss attributable to Epicenter, included within the year ended December 31, 2022 Consolidated Statements of Operations was $ 1,028 and $ 1,183 , respectively. Other Acquisitions On July 12, 2022, the Company acquired PEP Group Holdings B.V. (“PEP Group”), an omnichannel content creation and adaption production company for approximately $ 521 in cash consideration, subject to post-closing adjustments, as well as contingent consideration up to a maximum value of € 2,553 . The contingent consideration is subject to meeting certain future earnings targets through 2025. On July 15, 2022, the Company acquired Apollo Program II Inc. (“Apollo”), a real-time artificial intelligence-powered software-as-a-service platform, for approximately $ 2,300 in cash consideration, subject to post-closing adjustments, as well as guaranteed deferred payments of $ 1,000 and $ 1,500 on or prior to July 1, 2023 and July 1, 2024, respectively. 2021 Acquisitions Acquisition of MDC On December 21, 2020, MDC and Stagwell Media announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of the Stagwell Subject Entities. The Stagwell Subject Entities comprised Stagwell Marketing and its direct and indirect subsidiaries. On August 2, 2021 (the “Closing Date”), we completed the combination of MDC and the Stagwell Subject Entities and a series of steps and related transactions (such combination and transactions, the “Transactions”). In connection with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo Holdings LLC, and subsequently to Stagwell Global LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc. In respect of the Transactions, the acquired assets and assumed liabilities, together with acquired processes and employees, represent a business as defined in the FASB’s Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The Transactions were accounted for as a reverse acquisition using the acquisition method of accounting, pursuant to ASC Topic 805-10, Business Combinations, with MDC treated as the legal acquirer and SMG treated as the accounting acquirer. In identifying SMG as the acquiring entity for accounting purposes, MDC and SMG took into account a number of factors, including the relative voting rights and the corporate governance structure of the Company. SMG is considered the accounting acquirer since Stagwell Media controls the board of directors of the Company following the Transactions and received an indirect ownership interest in the Company’s only operating subsidiary, OpCo, of 69.55 % ownership of OpCo’s common units. However, no single factor was the sole determinant in the overall conclusion that Stagwell is the acquirer for accounting purposes; rather all factors were considered in arriving at such conclusion. Under the acquisition method of accounting, the assets and liabilities of MDC, as the accounting acquiree, were recorded at their respective fair value as of the date the Transactions were completed. On August 2, 2021, an aggregate of 179,970 shares of the Company’s Class C common stock, par value $0.00001 per share (the “Class C Common Stock”), were issued to Stagwell Media in exchange for $ 1.80 . The Class C Common Stock does not participate in the earnings of the Company. Additionally, an aggregate of 179,970 OpCo common units were issued to Stagwell Media in exchange for the equity interests of the Stagwell Subject Entities (the “Stagwell OpCo Contribution”). The fair value of the purchase consideration was $ 429,062 , consisting of approximately 80,000 shares of the Company’s Class A Common Stock, Class B common stock, par value $ 0.001 per share (the “Class B Common Stock”), and common stock equivalents based on a per share price of approximately $ 5.42 , the closing stock price on the date of the combination. ASC 805 requires the allocation of the purchase price consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree of estimation. The purchase price valuation was completed during the third quarter of 2022. 84 The purchase price allocation is as follows: Amount Cash and cash equivalents $ 130,197 Accounts receivable 398,736 Other current assets 41,291 Fixed assets 81,343 Right-of-use lease assets - operating leases 252,739 Identifiable intangible assets 810,900 Other assets 18,282 Accounts payable ( 139,590 ) Accruals and other liabilities ( 307,439 ) Advance billings ( 211,212 ) Current portion of lease liabilities ( 54,009 ) Current portion of deferred acquisition consideration ( 53,054 ) Long-term debt ( 901,736 ) Revolving credit facility ( 109,954 ) Long-term portion of deferred acquisition consideration ( 8,056 ) Long-term portion of lease liabilities ( 283,637 ) Other liabilities ( 139,026 ) Redeemable noncontrolling interests ( 25,990 ) Preferred shares ( 209,980 ) Noncontrolling interests ( 151,090 ) Net liabilities assumed ( 861,285 ) Goodwill 1,290,347 Purchase price consideration $ 429,062 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of MDC. Goodwill of $ 932,582 , $ 285,396 and $ 72,369 was assigned to the Integrated Agencies Network, the Brand Performance Network and the Communications Network reportable segments, respectively. The majority of the goodwill is non-deductible for income tax purposes. Goodwill has been updated from the previously reported amount of $ 1,299,374 as of December 31, 2021 to reflect a change in certain assets and liabilities. There has been no change that impacts the Consolidated Statement of Operations. Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately thirteen years . The following table presents the details of identifiable intangible assets acquired: Fair Value Estimated Useful Life in Years Trade Names $ 98,000 10 Customer Relationships 712,900 6 - 15 Total Acquired Intangible Assets $ 810,900 85 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Years Ended December 31, 2021 2020 Revenue $ 2,224,343 $ 2,087,025 The pro forma net loss was nominal for the years ended December 31, 2021 and 2020. Revenue attributable to MDC, included within the year ended December 31, 2021 Consolidated Statements of Operations was $ 605,448 . The net loss included within the year ended December 31, 2021 Consolidated Statements of Operations was nominal. Transaction expenses were approximately $ 15,000 for the twelve months ended December 31, 2021. Acquisition of GoodStuff Holdings Limited On December 31, 2021, the Company acquired GoodStuff Holdings Limited (“Goodstuff”) for approximately £ 21,000 (approximately $ 28,188 ) of cash consideration as well as contingent consideration up to a maximum of £ 22,000 . The cash consideration included an initial payment of £ 8,000 , an excess working capital payment of approximately £ 9,000 and approximately £ 4,000 of deferred payments. The contingent consideration is tied to employees’ service and will be recognized as deferred acquisition consideration expense through 2026. Therefore, only the cash consideration has been allocated to the assets acquired and assumed liabilities of Goodstuff based upon their fair values, with any excess purchase price allocated to goodwill. The purchase price allocation is as follows: Amount Cash and cash equivalents $ 30,985 Accounts receivable 28,685 Other current assets 3,207 Fixed assets 237 Right-of-use lease assets - operating leases 2,060 Identifiable intangible assets 14,974 Other assets 55 Accounts payable ( 6,344 ) Accruals and other liabilities ( 27,353 ) Advance billings ( 15,956 ) Current portion of lease liabilities ( 857 ) Income taxes payable ( 967 ) Long-term portion of lease liabilities ( 3,744 ) Other liabilities ( 1,204 ) Net assets assumed 23,778 Goodwill 4,410 Purchase price consideration $ 28,188 The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Goodstuff. Goodwill of $ 4,410 was assigned to the Brand Performance Network reportable segment. The majority of the goodwill is non-deductible for income tax purposes. Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is approximately ten years. The following table presents the details of identifiable intangible assets acquired: 86 Fair Value Estimated Useful Life in Years Trade Names $ 1,349 15 Customer Relationships 13,625 10 Total Acquired Intangible Assets $ 14,974 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time. Years Ended December 31, 2021 2020 Revenue $ 1,488,532 $ 902,577 Net Income 38,719 72,715 2022 Purchases of Noncontrolling Interests On April 1, 2022, the Company acquired the remaining interest in Hello Design, LLC (“Hello Design”) that it did not already own for an aggregate purchase price of $ 4,600 , comprised of a closing cash payment of $ 3,600 and a contingent deferred acquisition payment of $ 1,000 . The contingent deferred payment was based on the financial results of the underlying business through the end of 2022 with the payment due in 2023. 2021 Purchases of Noncontrolling Interests On October 1, 2021, the Company entered into an agreement to purchase the approximate 27 % remaining interest of Targeted Victory it did not already own, stipulating the purchase of 13.3 % on October 1, 2021 and the remaining 13.3 % on July 31, 2023, with the option for the seller to delay the second purchase until July 31, 2025. The purchase price of $ 73,898 was comprised of a contingent deferred acquisition payment and redeemable noncontrolling interest with estimated present values at the acquisition date of $ 46,618 and $ 27,280 , respectively. The contingent deferred payment and redeemable noncontrolling interest were based on the financial results of the underlying business through July 2023 and July 2025, respectively. In addition, at the option of the Company, up to 50 % of the total purchase price can be paid in shares of Class A Common Stock and in no event may the purchase price exceed $ 135,000 . On December 1, 2021, the Company acquired the approximate 27 % remaining interest of Concentric it did not already own for an aggregate purchase price of $ 8,058 , comprised of a closing cash payment of $ 1,581 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $ 6,477 . The contingent deferred payments were based on the financial results of the underlying business through 2022 with final payment due in 2023. On December 31, 2021, the Company acquired the approximate 49 % remaining interest of Instrument it did not already own for an aggregate purchase price of $ 157,072 , comprised of a closing payment of $ 37,500 in cash and $ 37,500 in shares of Class A Common Stock and deferred acquisition payments with an estimated present value at the acquisition date of $ 82,072 , with approximately 40% to be paid in shares of Class A Common Stock. The deferred payments are not contingent and will be paid in 2023 and 2024. 2021 Disposition On September 15, 2021, the Company sold Reputation Defender to a strategic buyer for approximately $ 40,000 resulting in a gain of approximately $ 43,000 . The gain was recognized within Other, net within the Consolidated Statements of Operations. 2020 Acquisitions On February 14, 2020, the Company acquired Sloane & Company (“Sloane”) for approximately $ 24,400 of total consideration. Total consideration included a cash payment of $ 19,600 and contingent deferred acquisition consideration of $ 4,800 . On August 14, 2020, the Company acquired Kettle Solutions, LLC (“Kettle”) for approximately $ 5,400 of total consideration. Total consideration included a cash payment of $ 4,900 , plus an additional $ 500 due upon the finalization of Kettle’s working capital accounts, as outlined in the purchase agreement. The purchase agreement also offers the previous owners of Kettle an additional $ 11,900 in deferred consideration. 87 On October 30, 2020, the Company acquired TrueLogic Software, LLC, Ramenu S.A., and Polar Bear Development S.R.L. (collectively referred to as “Truelogic”), for approximately $ 17,300 of total consideration. Total consideration included a cash payment of $ 8,900 , the acquisition date fair value of the contingent deferred acquisition consideration of $ 7,900 , and an additional $ 500 due upon the finalization of Truelogic’s working capital accounts, as outlined in the purchase agreement. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of each acquisition: 2020 Sloane Kettle Truelogic Total Cash, cash equivalents and restricted cash $ — $ 49 $ 90 $ 139 Accounts receivable and other current assets 2,768 2,732 2,958 8,458 Other noncurrent assets — 172 10 182 Intangible assets 5,900 1,930 9,500 17,330 Property and equipment 72 58 50 180 Right-of-use lease assets – operating leases — 533 201 734 Accounts payable and other current liabilities ( 469 ) ( 552 ) ( 1,063 ) ( 2,084 ) Advanced billings ( 130 ) ( 310 ) ( 429 ) ( 869 ) Operating lease liabilities — ( 533 ) ( 201 ) ( 734 ) Goodwill 16,275 1,323 6,184 23,782 Total net assets acquired $ 24,416 $ 5,402 $ 17,300 $ 47,118 Goodwill recognized on the Sloane, Kettle and Truelogic acquisitions is fully-deductible for income tax purposes. The following table reports the fair value of intangible assets acquired, including the corresponding weighted average amortization periods, as of the date of each acquisition: 2020 Weighted Average Amortization Period Sloane Kettle Truelogic Total Customer relationships 10 years $ 4,600 $ 1,600 $ 9,100 $ 15,300 Trade names 11 years 1,300 330 400 2,030 Total $ 5,900 $ 1,930 $ 9,500 $ 17,330 The following table summarizes the total revenue and net income included in the Consolidated Statements of Operations for the year ended December 31, 2020 from the date of each acquisition: Year Ended December 31, 2020 Revenue $ 22,381 Net Income 2,685 Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the 2020 acquisitions as if they had occurred as of January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily 88 indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time: Year Ended December 31, 2020 Revenue $ 911,203 Net Income 75,767 5. Revenue The Company’s revenue recognition policies are established in accordance with ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. The Stagwell network provides an extensive range of services to our clients, offering a variety of marketing and communication capabilities including strategy, creative and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast), public relations services including strategy, editorial, crisis support or issues management, online fundraising, media training, influencer engagement and events management. We also provide media-based solutions to drive brand performance, including buying and planning across a range of platforms (out-of-home, paid search, social media, lead generation, programmatic, television broadcast), experiential marketing and application/website design and development. The primary source of the Company’s revenue is from Brand arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the terms of the client contract. In all circumstances, revenue is only recognized when collection is reasonably assured. Certain of the Company’s contractual arrangements have more than one performance obligation. For such arrangements, revenue is allocated to each performance obligation based on its relative stand-alone selling price. Stand-alone selling prices are determined based on the prices charged to clients or using expected cost plus margin. The determination of our performance obligations is specific to the services included within each contract. Based on a client’s requirements within the contract, and how these services are provided, multiple services could represent separate performance obligations or be combined and considered one performance obligation. Contracts that contain services that can be provided on a stand-alone basis, that are not significantly integrated or interdependent, and that do not significantly modify or customize each other, are typically considered separate performance obligations. Typically, these services are creative (or strategy), production, experiential marketing, media planning and media buying. Certain of the Company’s contracts consist of a single performance obligation. In these instances, the Company does not consider the underlying activities as separate or distinct performance obligations because its services are highly interrelated, and the integration of the various components is essential to the overall promise to the Company’s customer. Typically, these services are public relations, and application/website design and development. In other instances, the Company is engaged to provide marketing services, such online fundraising and brand performance media solutions, that include a variety of distinct activities performed throughout the contract term that are substantially the same and that are satisfied over time, and therefore the Company considers these to be one performance obligation. We typically satisfy our performance obligations over time, as services are performed. Fees for services are typically recognized using input methods (direct labor hours, materials and third-party costs) that correspond with efforts incurred to date in relation to total estimated efforts to complete the contract. To a lesser extent, revenue is recognized using output measures, such as impressions or ongoing reporting. For client contracts when the Company has a stand-ready obligation to perform services, the Company recognizes revenue ratably using a time-based measure. In addition, for client contracts where the Company is providing online subscription-based hosted services, it recognizes revenue ratably over the contract term. Point in time recognition primarily relates to certain commission-based contracts, which are recognized upon the placement of advertisements in various media when the Company has no further performance obligation. Revenue is recognized net of sales and other taxes due to be collected and remitted to governmental authorities. The Company’s contracts typically provide for termination by either party within 30 to 90 days. Although payment terms vary by client, they are typically within 30 to 60 days. In addition, the Company generally has the right to payment for all services provided through the end of the contract or termination date. Within each contract, we identify whether the Company is principal or agent at the service level. In arrangements where the Company has substantive control over the service before transferring it to the client, and is primarily responsible for integrating the services into the final deliverables, we act as principal. In these arrangements, revenue is recorded at the gross amount billed. Accordingly, for these contracts the Company has included reimbursed expenses in revenue. In other arrangements 89 where a third-party supplier, rather than the Company, is primarily responsible for the integration of services into the final deliverables, and thus the Company is solely arranging for the third-party supplier to provide these services to our client, we generally act as agent and record revenue equal to the net amount retained, when the fee or commission is earned. The role of Stagwell’s Brands under a production services agreement is to facilitate a client’s purchasing of production capabilities from a third-party production company in accordance with the client’s strategy and guidelines. The obligation of Stagwell’s Brands under media buying services is to negotiate and purchase advertising media from a third-party media vendor on behalf of a client to execute its media plan. Typically, we do not obtain control prior to transferring these services to our clients; therefore, we primarily act as agent for production and media buying services. A small portion of the Company’s contractual arrangements with clients include performance incentive provisions, which allow the Company to earn additional revenues as a result of its performance relative to both quantitative and qualitative goals. Incentive compensation is primarily estimated using the most likely amount method and is included in revenue up to the amount that is not expected to result in a reversal of a significant amount of cumulative revenue recognized. We recognize revenue related to performance incentives as we satisfy the performance obligation to which the performance incentives are related. Disaggregated Revenue Data The Company provides a broad range of services to a large base of clients across the full spectrum of verticals globally. The primary source of revenue is from Brand arrangements in the form of fees for services performed, commissions, and from performance incentives or bonuses. Certain clients may engage with the Company in various geographic locations, across multiple disciplines, and through multiple Brands. Representation of a client rarely means that Stagwell handles marketing communications for all Brands or product lines of the client in every geographical location. The Company’s Brands often cooperate with one another through referrals and the sharing of both services and expertise, which enables Stagwell to service clients’ varied marketing needs by crafting custom integrated solutions. Additionally, the Company maintains separate, independent operating companies to enable it to effectively manage potential conflicts of interest by representing competing clients across the Stagwell network. The following table presents revenue disaggregated by our principal capabilities for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, Principal Capabilities Reportable Segment 2022 2021 2020 Digital Transformation All Segments $ 784,667 $ 400,857 $ 374,689 Creativity and Communications Integrated Agencies Network, Brand Performance Network, Communications Network 1,221,855 561,538 152,499 Performance Media and Data Brand Performance Network 456,640 341,730 253,011 Consumer Insights and Strategy Integrated Agencies Network 224,630 165,238 107,833 $ 2,687,792 $ 1,469,363 $ 888,032 Stagwell has historically largely focused where the Company was founded in North America, the largest market for its services in the world. The Company has expanded its global footprint to support clients in international markets. Stagwell’s Brands are located in the United States and United Kingdom, and more than 32 other countries around the world. In the past, some clients have responded to weakening economic conditions with reductions to their marketing budgets, which included discretionary components that are easier to reduce in the short term than other operating expenses. The following table presents revenue disaggregated by geography for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, Geographical Location Reportable Segment 2022 2021 2020 United States All $ 2,218,681 $ 1,219,816 $ 804,418 United Kingdom All 181,764 105,961 41,489 Other All 287,347 143,586 42,125 $ 2,687,792 $ 1,469,363 $ 888,032 90 Contract Assets and Liabilities Contract assets consist of fees and reimbursable outside vendor costs incurred on behalf of clients when providing advertising, marketing and corporate communications services that have not yet been invoiced to clients. Unbilled service fees were $ 116,381 and $ 116,558 at December 31, 2022 and December 31, 2021, respectively, and are included as a component of Accounts receivable, net on the Consolidated Balance Sheets. Outside vendor costs incurred on behalf of clients which have yet to be invoiced were $ 93,077 and $ 63,065 at December 31, 2022 and December 31, 2021, respectively, and are included on the Consolidated Balance Sheets as Expenditures billable to clients. Such amounts are invoiced to clients at various times over the course of providing services. Contract liabilities represent advanced billings to customers for fees and reimbursements of third-party costs, whether we act as principal or agent. Such fees and reimbursements of third-party costs are classified as Advance billings on the Company’s Consolidated Balance Sheets. In arrangements in which we are acting as an agent, the recognition related to the contract liability is presented on a net basis within the Consolidated Statements of Operations. Advance billings at December 31, 2022 and December 31, 2021 were $ 337,034 and $ 361,885 , respectively. The decrease in Advance billings of $ 24,851 for the year ended December 31, 2022 was primarily driven by $ 345,277 of revenues recognized that were included in the Advance billings balances as of December 31, 2021 and reductions due to the incurrence of third-party costs, partially offset by the acquisition of certain contract liabilities (as detailed below) and cash payments received or due in advance of satisfying our performance obligations. In 2022, the Company acquired $ 3,195 in contract assets and $ 7,620 in contract liabilities in connection with the acquisitions of BNG, Wolfgang, and Maru. See Note 4 of the Notes included herein for additional information related to these acquisitions. Changes in the contract asset and liability balances during the year ended December 31, 2022 were not materially impacted by write offs, impairment losses or any other factors outside of the above acquisitions. Unsatisfied Performance Obligations The majority of our contracts are for periods of one year or less. For those contracts with a term of more than one year, we had approximately $ 52,613 of unsatisfied performance obligations as of December 31, 2022 of which we expect to recognize approximately 82 % in 2023, 16 % in 2024 and 2 % in 2025. 91 6. Income (Loss) Per Share The following table sets forth the computations of basic and diluted income per common share for the year ended December 31, 2022: Year Ended December 31, 2022 Income Per Share - Basic Numerator: Net income $ 65,842 Net income attributable to Class C shareholders ( 24,452 ) Net income attributable to other equity interest holders ( 14,121 ) Net income attributable to noncontrolling and redeemable noncontrolling interests ( 38,573 ) Net income attributable to Stagwell Inc. common shareholders $ 27,269 Denominator: Weighted Average number of common shares outstanding 124,262 Income Per Share - Basic $ 0.22 Income Per Share - Diluted Numerator: Net income attributable to Stagwell Inc. common shareholders $ 27,269 Net income attributable to Class C shareholders 24,452 $ 51,721 Denominator: Basic - Weighted Average number of common shares outstanding 124,262 Dilutive shares: Stock appreciation rights 1,896 Restricted share and restricted unit awards 4,467 Class C shares 165,971 Diluted - Weighted average number of common shares outstanding 296,596 Income Per Share - Diluted $ 0.17 Restricted stock awards of 2,292 as of December 31, 2022 are excluded from the computation of diluted income per common share because the performance contingency necessary for vesting had not been met as of the reporting date. 92 The following table sets forth the computations of basic and diluted loss per common share for the year ended December 31, 2021: Year Ended December 31, 2021 Numerator: Net loss attributable to Stagwell Inc. common shareholders $ ( 3,706 ) Denominator: Weighted average number of common shares outstanding 90,426 Loss Per Share - Basic & Diluted $ ( 0.04 ) Anti-dilutive: Class C shares 179,970 Stock Appreciation Rights and Restricted Awards 9,509 On September 23, 2021, the Company provided notices of conversion to each holder of record of each share of the Company’s Series 6 and Series 8 Preferred Stock. Pursuant to the notices, the 50,000 issued and outstanding shares of Series 6 Preferred Stock were converted into 12,087 shares of Class A Common Stock, in the aggregate, on October 7, 2021, and the 73,849 issued and outstanding shares of Series 8 Preferred Stock were converted into 20,949 shares of Class A Common Stock, in the aggregate, on November 8, 2021. SMG’s equity structure, prior to the combination with MDC, was a non-unitized single member limited liability company, resulting in all components of equity attributable to the member being reported within Members’ Capital. Given that SMG was a non-unitized single member limited liability company, net income (loss) prior to the combination is not applicable for purposes of calculating earnings per share. Therefore, the net income (loss) in the table above includes the income or loss for the period beginning on the acquisition date through the end of the respective reporting period and as such will not reconcile to the respective amounts presented within the Consolidated Statements of Operations. 7. Fixed Assets The following is a summary of the Company’s fixed assets as of December 31: 2022 2021 Cost Accumulated Depreciation Net Book Value Cost Accumulated Depreciation Net Book Value Computers, furniture and fixtures $ 56,788 $ ( 27,689 ) $ 29,099 $ 41,839 $ ( 18,136 ) $ 23,703 Leasehold improvements 101,535 ( 31,756 ) 69,779 91,572 ( 17,759 ) 73,813 $ 158,323 $ ( 59,445 ) $ 98,878 $ 133,411 $ ( 35,895 ) $ 97,516 The table above has been revised to reclassify previously reported gross capitalized software and accumulated amortization of $ 29,844 and $ 8,757 , respectively, as of December 31, 2021 that should have been classified within intangible assets rather than fixed assets to more closely align these net assets with the category of assets they represent. Depreciation expense for the years ended December 31, 2022, 2021, and 2020 was $ 26,510 , $ 15,416 and $ 7,026 , respectively. 93 8. Goodwill and Intangible Assets As of December 31, goodwill was as follows: Integrated Agencies Network Brand Performance Network Communications Network All Other Total Balance at December 31, 2019 $ 88,094 $ 177,073 $ 33,258 $ 26,760 $ 325,185 Acquired goodwill 7,070 235 16,275 195 23,775 Foreign currency translation — 3,331 — ( 566 ) 2,765 Balance at December 31, 2020 $ 95,164 $ 180,639 $ 49,533 $ 26,389 $ 351,725 Acquired goodwill 1,058,411 178,994 66,244 — 1,303,649 Disposition — — — ( 935 ) ( 935 ) Foreign currency translation ( 502 ) ( 1,020 ) — ( 194 ) ( 1,716 ) Balance at December 31, 2021 $ 1,153,073 $ 358,613 $ 115,777 $ 25,260 $ 1,652,723 Acquired goodwill (1) 3,330 26,176 6,569 29,387 65,462 Impairment ( 49,840 ) ( 49,314 ) — ( 17,560 ) ( 116,714 ) Transfer of goodwill between segments (2) ( 111,065 ) 111,065 — — — Foreign currency translation ( 11,422 ) ( 13,467 ) ( 753 ) — ( 25,642 ) Other (3) ( 15,682 ) 685 6,124 — ( 8,873 ) Balance at December 31, 2022 $ 968,394 $ 433,758 $ 127,717 $ 37,087 $ 1,566,956 (1) For the year ended December 31, 2022, the Company’s acquisitions resulted in goodwill of $ 65,462 . See Note 4 of the Notes included herein for information related to the acquisitions. (2) 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. Specifically, Forsman & Bodenfors, Observatory, Crispin Porter Bogusky, Bruce Mau and Vitro Brands, previously within the Integrated Agencies Network, are now within the Brand Performance Network. See Note 20 of the Notes included herein for additional information related to these changes. (3) Other represents adjustments associated with the finalization of purchase price accounting for acquisitions occurring in 2021. The Company recognized an impairment and other losses charge of $ 122,179 for the year ended December 31, 2022, primarily related to the impairment of goodwill totaling $ 116,714 . The goodwill impairment was to write-down the carrying value in excess of the fair value at eight reporting units, two in the Integrated Agencies Network, five in the Brand Performance Network and one within the All Other category. The charge was recorded within Impairment and other losses on the Consolidated Statements of Operations. 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 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 certain reporting units with a carrying value in excess of their fair value resulting in an impairment of $ 116,714 in 2022. The difference in carrying value and 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, as well as current financial forecasts below the previous forecast. In its assessment, the Company uses a combination of the income approach, which incorporates the use of the discounted cash flow method, and the market approach, which incorporates the use of earnings and revenue multiples based on market data. The Company generally applies an equal weighting to the income and market approaches for the impairment test. The income approach and the market approach both require the exercise of significant judgment, including judgment about the amount and timing of expected future cash flows, assumed terminal value and appropriate discount rates. There was $ 116,714 of accumulated goodwill impairment charges as of December 31, 2022. 94 The gross and net amounts of intangible assets other than goodwill as of December 31, are as follows: Intangible Assets 2022 2021 Customer relationships – gross $ 875,160 $ 875,541 Accumulated amortization ( 150,655 ) ( 92,746 ) Customer relationships – net $ 724,505 $ 782,795 Trade names – gross $ 197,037 $ 190,162 Accumulated amortization ( 53,150 ) ( 36,775 ) Trade names – net $ 143,887 $ 153,387 Developed technology and other intangible assets – gross $ 63,565 $ 37,550 Accumulated amortization ( 24,428 ) ( 14,950 ) Developed technology and other intangible assets – net $ 39,137 $ 22,600 Total intangible assets $ 1,135,762 $ 1,103,253 Accumulated amortization ( 228,233 ) ( 144,471 ) Total intangible assets – net $ 907,529 $ 958,782 The table above has been revised to reclassify previously reported gross capitalized software and accumulated amortization of $ 29,844 and $ 8,757 , respectively, as of December 31, 2021 that should have been classified within intangible assets rather than fixed assets to more closely align these net assets with the category of assets they represent. For the year ended December 31, 2022, the Company recognized an impairment charge of $ 1,400 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. For the year ended December 31, 2021, the Company recognized an impairment charge of $ 16,187 to reduce the carrying values of intangible assets within the Integrated Agencies Network and Brand Performance Network reportable segments in connection with the abandonment of certain trade names as part of the rebranding of certain Brands. These charges were recorded as Impairment and other losses on the Consolidated Statements of Operations. The weighted average amortization period for customer relationships is fourteen years , trade names is twelve years , and developed technology and other intangible assets is three years . In total, the weighted average amortization period is thirteen years . Amortization expense related to amortizable intangible assets for the years ended December 31, 2022, 2021, and 2020 was $ 103,060 , $ 61,054 , and $ 33,999 , respectively. The estimated amortization expense for the five succeeding years is as follows: Year Amortization 2023 $ 101,734 2024 96,245 2025 95,380 2026 84,089 2027 82,007 Thereafter 448,074 9. Deferred Acquisition Consideration Deferred acquisition consideration on the Consolidated Balance Sheets consists of deferred obligations related to contingent and fixed purchase price payments, and contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each reporting period within Office and general expenses on the Consolidated Statements of Operations. 95 The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 Beginning balance $ 222,369 $ 17,847 Payments ( 73,963 ) ( 12,431 ) Adjustments to deferred acquisition consideration (1) (12,779) 18,721 Additions (2) 26,594 198,937 Currency translation adjustment ( 759 ) — Other ( 139 ) ( 705 ) Ending balance (3) $ 161,323 $ 222,369 (1) Adjustment to deferred acquisition consideration contains fair value changes from the Company’s initial estimates of deferred acquisition payments. Adjustments to deferred acquisition consideration are recorded within Office and general expenses on the Consolidated Statements of Operations. (2) In 2021, approximately $ 61,000 of additions represent deferred acquisition consideration acquired in connection with the acquisition of MDC. Approximately $ 136,000 of additions represent deferred acquisition consideration acquired in connection with the purchases of noncontrolling interests. See Note 4 of the Notes included herein for additional information related to the purchases of Concentric, Targeted Victory, and Instrument. In 2022, approximately $ 24,000 of additions represent deferred acquisition consideration acquired in connection with the acquisitions of BNG, Apollo, PEP Group and Epicenter. See Note 4 of the Notes included herein for additional information related to these acquisitions. (3) As of December 31, 2022, approximately, $ 51,000 of the deferred acquisition consideration is expected to be settled in the Company’s Class A Common Stock. 10. Leases The Company leases office space in North America, Europe, Asia, South America, Africa, and Australia. This space is primarily used for office and administrative purposes by the Company’s employees in performing professional services. These leases are classified as operating leases and expire between years 2023 through 2034. The Company’s finance leases are immaterial. The Company’s leasing policies are established in accordance with ASC 842, and accordingly, the Company recognizes on the balance sheet at the time of lease commencement a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments. Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. All right-of-use lease assets are reviewed for impairment. As the Company’s implicit rate in its leases is not readily determinable, in determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement date. Lease payments included in the measurement of the lease liability are comprised of non-cancellable lease payments, payments based upon an index or rate, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Lease costs are recognized in the Consolidated Statements of Operations over the lease term on a straight-line basis. Leasehold improvements are depreciated on a straight-line basis over the lesser of the term of the related lease or the estimated useful life of the asset. Some of the Company’s leases contain variable lease payments, including payments based upon an index or rate. Variable lease payments based upon an index or rate are initially measured using the index or rate in effect at the lease commencement date and are included within the lease liabilities. Lease liabilities are not remeasured as a result of changes in the index or rate, rather changes in these types of payments are recognized in the period in which the obligation for those payments is incurred. In addition, some of our leases contain variable payments for utilities, insurance, real estate tax, repairs and maintenance, and other variable operating expenses. Such amounts are not included in the measurement of the lease liability and are recognized in the period when the facts and circumstances which the variable lease payments are based upon occur. Some of the Company’s leases include options to extend or renew the leases through 2044. The renewal and extension options are not included in the lease term as the Company is not reasonably certain that it will exercise its option. 96 From time to time, the Company enters into sublease arrangements with unrelated third parties. These leases are classified as operating leases and expire between years 2023 through 2032. Sublease income is recognized over the lease term on a straight-line basis. Currently, the Company subleases office space in North America and Europe. As of December 31, 2022, the Company has entered into two operating leases for which the commencement date has not yet occurred primarily because of the premises being prepared for occupancy by the landlord. Accordingly, these two leases represent an obligation of the Company that is not reflected within the Consolidated Balance Sheets as of December 31, 2022. The aggregate future liability related to these leases is approximately $ 3,266 . The discount rate used for leases accounted for under ASC 842 is the Company’s collateralized credit adjusted borrowing rate. The following table presents lease costs and other quantitative information for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 2021 2020 Lease Cost: Operating lease cost $ 75,190 $ 46,019 $ 25,507 Variable lease cost 18,575 10,685 3,843 Sublease rental income ( 14,446 ) ( 7,367 ) ( 3,777 ) Total lease cost $ 79,319 $ 49,337 $ 25,573 Additional information: Cash paid for amounts included in the measurement of lease liabilities for operating leases Operating cash flows $ 91,300 $ 53,360 $ 20,942 Right-of-use lease assets obtained in exchange for operating lease liabilities and other non-cash adjustments $ 27,761 $ 373,179 $ 2,952 As of December 31, 2022, the weighted average remaining lease term (in years) and weighted average discount rate were 6.4 and 4.5 %, respectively. Operating lease expense is included in office and general expenses in the Consolidated Statements of Operations. The Company’s lease expense for leases with a term of 12 months or less is immaterial. In the year ended December 31, 2022, the Company recorded a charge of $ 2,582 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. As a result of subleasing or abandoning the space, the Company evaluated the facts and circumstances related to the use of the assets which indicated that they may not be recoverable. Using the sublease income to develop expected future cash flows, it was determined that the fair value of the assets were less than their carrying value. This impairment charge is included in Impairment and other losses within the Consolidated Statements of Operations. The following table presents minimum future rental payments under the Company’s leases at December 31, 2022 and their reconciliation to the corresponding lease liabilities: Maturity Analysis 2023 $ 91,084 2024 77,438 2025 59,848 2026 44,589 2027 40,163 Thereafter 119,119 Total 432,241 Less: Present value discount ( 61,843 ) Lease liability $ 370,398 97 11. Debt As of December 31, 2022 and December 31, 2021, the Company’s indebtedness was comprised as follows: December 31, 2022 December 31, 2021 Revolving credit facility $ 100,000 $ 110,165 5.625 % Notes 1,100,000 1,100,000 Debt issuance costs ( 15,293 ) ( 18,564 ) Total long-term debt $ 1,184,707 $ 1,191,601 Interest expense related to long-term debt included in Interest expense, net on the Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020 was $ 73,788 , $ 29,594 , and $ 5,472 , respectively. The amortization of debt issuance costs included in Interest expense, net on the Consolidated Statements of Operations for the years ended December 31, 2022, 2021, and 2020 $ 2,358 , $ 2,693 , and $ 831 , respectively. Revolving Credit Agreement On November 18, 2019, the Company entered into a debt agreement (“JPM Syndicated Facility”) with a syndicate of banks led by JPMorgan Chase Bank, N.A (“JPM”). The JPM Syndicated Facility consisted of a five-year revolving credit facility of $ 265,000 (“JPM Revolver”) with the right to be increased by an additional $ 150,000 . On March 18, 2020, the Company increased the commitments on the JPM Revolver by $ 60,000 to $ 325,000 . On August 2, 2021, in connection with the closing of the acquisition of MDC, the Company entered into an amended and restated credit agreement (as further amended on April 28, 2022 and December 14, 2022, the “Combined Credit Agreement”) with a syndicate of banks led by JPM to increase commitments on the existing JPM Revolver. The Combined Credit Agreement consists of a $ 500,000 senior secured revolving credit facility with a five-year maturity. The Combined Credit Agreement contains sub-limits for revolving loans denominated in pounds and euros not to exceed U.S. dollar equivalent of $ 50,000 in pounds and $ 50,000 in euros and $ 100,000 in the aggregate. Additionally, the Combined Credit Agreement contains a $ 15,000 sub-limit for letters of credits denominated in pounds or euros. It also includes an accordion feature under which the Company may request, subject to lender approval and certain conditions, to increase the amount of the commitments to an aggregate amount not to exceed $ 650,000 . On April 28, 2022, the Company amended the Combined Credit Agreement. Among other things, this amendment replaced any references to LIBOR with references to SOFR. Borrowings pursuant to the Combined Credit Agreement, as amended, bear interest at a rate equal to, at the Company’s option, (i) the greatest of (a) the prime rate of interest in effect on such day, (b) the federal funds effective rate plus 0.50 % and (c) SOFR plus 1 % in each case, plus the applicable margin (calculated based on the Company’s Total Leverage Ratio, as defined in the Combined Credit Agreement) at that time. Additionally, the Combined Credit Agreement was amended to remove certain pre-commencement notice provisions for certain acquisitions under $ 50,000 in the aggregate, increased the amount permitted for certain investments allowed under the Combined Credit Agreement, and, subject to certain conditions, to allow for the repurchase of Stagwell Inc. stock in an amount not to exceed $ 100,000 in any fiscal year. All other substantive terms of the Combined Credit Agreement remain unchanged. Prior to April 28, 2022, borrowings under the Combined Credit Agreement bore interest at a rate equal to, at the Company’s option, (i) the greatest of (a) the prime rate of interest announced from time to time by JPM, (b) the federal funds effective rate from time to time plus 0.50 % and (c) the LIBOR rate plus 1 %, in each case, plus the applicable margin (calculated based on the Company’s total leverage ratio) at that time or (ii) the LIBOR rate plus the applicable margin (calculated based on the Company’s total leverage ratio) at that time. The Company transfers certain of its trade receivable assets to third parties under sales agreements. On December 14, 2022, the Company amended its Combined Credit Agreement to allow for the sale of accounts receivable with JPM. Refer to Note 2 of the Notes included herein for further detail of this agreement. All other substantive terms of the Combined Credit Agreement remained unchanged. Advances under the Combined Credit Agreement may be prepaid in whole or in part from time to time without penalty or premium. The Combined Credit Agreement commitment may be reduced by the Company from time to time. Principal amounts outstanding under the Combined Credit Agreement are due and payable in full at maturity within five years of the date of the Combined Credit Agreement. If an event of default occurs under the Combined Credit Agreement or any future secured indebtedness, the holders of such secured indebtedness will have a prior right to our assets securing such indebtedness, to the exclusion of the holders of the 98 5.625 % Notes (as defined below), even if we are in default with respect to the 5.625 % Notes. In that event, our assets securing such indebtedness would first be used to repay in full all indebtedness and other obligations secured by them (including all amounts outstanding under the Combined Credit Agreement), resulting in all or a portion of our assets being unavailable to satisfy the claims of the holders of the 5.625 % Notes and other unsecured indebtedness. The Combined Credit Agreement contains a number of financial and nonfinancial covenants and is guaranteed by substantially all of our present and future subsidiaries, subject to customary exceptions. The Company was in compliance with all covenants at December 31, 2022. A portion of the Combined Credit Agreement in an amount not to exceed $ 50,000 is available for the issuance of standby letters of credit. At December 31, 2022 and December 31, 2021, the Company had issued undrawn outstanding letters of credit of $ 25,305 and $ 24,332 , respectively. Senior Notes In August 2021, the Company issued $ 1,100,000 aggregate principal amount of 5.625 % senior notes (“ 5.625 % Notes”). A portion of the proceeds from the issuance of the 5.625 % Notes was used to redeem $ 870,300 aggregate principal amount of the outstanding 7.50 % Senior Notes due 2024 (the “Existing Notes”) for a price of $ 904,200 . This price is equal to 101.625 % of the outstanding principal amount of the Existing Notes being redeemed, plus, accrued, and unpaid interest on the principal amount of such Existing Notes. The Company did not recognize a gain or loss on redemption. The 5.625 % Notes are due August 15, 2029 and bear interest of 5.625 % to be paid on February 15 and August 15 of each year, commencing on February 15, 2022. The 5.625 % Notes are guaranteed on a senior unsecured basis by substantially all of the Company’s subsidiaries. The 5.625 % Notes rank (i) equally in right of payment with all of the Company’s or any guarantor’s existing and future unsubordinated indebtedness, (ii) senior in right of payment to the Company’s or any guarantor’s existing and future subordinated indebtedness, (iii) effectively subordinated to any of the Company’s or any guarantor’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness, including the Combined Credit Agreement, and (iv) structurally subordinated to all existing and future liabilities of the Company’s subsidiaries that are not guarantors. Our obligations under the 5.625 % Notes are unsecured and are effectively junior to our secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. Borrowings under the Combined Credit Agreement are secured by substantially all of the assets of the Company, and any existing and future subsidiary guarantors, including all of the capital stock of each restricted subsidiary. The Company may, at its option, redeem the 5.625 % Notes in whole at any time or in part from time to time, on and after August 15, 2024 at a redemption price of 102.813 % of the principal amount thereof if redeemed during the twelve-month period beginning on August 15, 2024, at a redemption price of 101.406 % of the principal amount thereof if redeemed during the twelve-month period beginning on August 15, 2025 and at a redemption price of 100 % of the principal amount thereof if redeemed on August 15, 2026 and thereafter. Prior to August 15, 2024, the Company may, at its option, redeem some or all of the 5.625 % Notes at a price equal to 100 % of the principal amount of the 5.625 % Notes plus a “make whole” premium and accrued and unpaid interest. The Company may also redeem, at its option, prior to August 15, 2024, up to 40 % of the 5.625 % Notes with the net proceeds from one or more equity offerings at a redemption price of 105.625 % of the principal amount thereof. If the Company experiences certain kinds of changes of control (as defined in the indenture), holders of the 5.625 % Notes may require the Company to repurchase any 5.625 % Notes held by them at a price equal to 101 % of the principal amount of the 5.625 % Notes plus accrued and unpaid interest. In addition, if the Company sells assets under certain circumstances, it must offer to repurchase the 5.625 % Notes at a price equal to 100 % of the principal amount of the 5.625 % Notes plus accrued and unpaid interest. The indenture includes covenants that, among other things, restrict the Company’s ability and the ability of its restricted subsidiaries (as defined in the indenture) to incur or guarantee additional indebtedness; pay dividends on or redeem or repurchase the capital stock of the Company; make certain types of investments; create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries; sell assets; enter into transactions with affiliates; create liens; enter into sale and leaseback transactions; and consolidate or merge with or into, or sell substantially all of the Company’s assets to, another person. These covenants are subject to a number of important limitations and exceptions. The 5.625 % Notes are also subject to customary events of default, including cross-payment default and cross-acceleration provisions. The Company was in compliance with all covenants at December 31, 2022. 99 12. Employee Benefit Plan A subsidiary of the Company, sponsors a defined benefit plan with benefits based on each employee’s years of service and compensation. The benefits under the defined benefit pension plan are frozen. Net Periodic Pension Cost and Pension Benefit Obligation Net periodic pension benefit consists of the following components for the years ended December 31: Pension Benefits 2022 2021 Interest cost on benefit obligation $ 1,104 $ 441 Expected return on plan assets ( 1,659 ) ( 697 ) Net periodic benefit income $ ( 555 ) $ ( 256 ) Settlement gain ( 198 ) — Total periodic benefit income $ ( 753 ) $ ( 256 ) The above components are included within Other, net on the Consolidated Statements of Operations. The following weighted average assumptions were used to determine net periodic costs at December 31: Pension Benefits 2022 2021 Discount rate 2.82 % 2.62 % Expected return on plan assets 6.50 % 6.50 % Rate of compensation increase N/A N/A The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. Other changes in plan assets and benefit obligation recognized in Other comprehensive income (loss) consist of the following components for the years ended December 31: Pension Benefits 2022 2021 Current year actuarial gain $ ( 4,088 ) $ ( 722 ) Total recognized in other comprehensive (income) ( 4,088 ) ( 722 ) Total recognized in net periodic benefit income and other comprehensive loss $ ( 4,841 ) $ ( 978 ) 100 The following table summarizes the change in benefit obligation and fair values of plan assets for the years ended December 31: Pension Benefits 2022 2021 Change in benefit obligation: Benefit obligation, beginning balance (1) $ 40,005 $ 41,206 Interest cost 1,104 441 Actuarial gains ( 10,930 ) ( 1,091 ) Benefits paid ( 2,135 ) ( 551 ) Benefit obligation, ending balance 28,044 40,005 Change in plan assets: Fair value of plan assets, beginning balance (1) 26,355 26,578 Actual loss on plan assets ( 4,985 ) 328 Benefits paid ( 2,135 ) ( 551 ) Fair value of plan assets, ending balance 19,235 26,355 Funded status $ 8,809 $ 13,650 (1) Benefit obligation assumed in connection with the acquisition of MDC. Beginning balance is as of July 31, 2021. Amounts recognized in the Consolidated Balance Sheets at December 31 consist of the following: Pension Benefits 2022 2021 Non-current liability $ 8,809 $ 13,650 Net amount recognized $ 8,809 $ 13,650 Amounts recognized in Accumulated other comprehensive loss before income taxes consists of the following components for the years ended December 31: Pension Benefits 2022 2021 Accumulated net actuarial gains $ 4,810 $ 722 Amount recognized $ 4,810 $ 722 In 2023, the Company estimates that it will recognize $ 66 in amortization of net actuarial gains from Accumulated other comprehensive loss, net into net periodic cost related to the pension plan. The following weighted average assumptions were used to determine benefit obligations as of December 31: Pension Benefits 2022 2021 Discount rate 5.47 % 2.82 % Rate of compensation increase N/A N/A The discount rate assumptions at December 31, 2022 and 2021 were determined independently. The discount rate was derived from the effective interest rate of a hypothetical portfolio of high-quality bonds, whose cash flows match the expected future benefit payments from the plan as of the measurement date. 101 Fair Value of Plan Assets and Investment Strategy The fair value of the plan assets as of December 31, is as follows: 2022 Level 1 Level 2 Level 3 Asset Category: Receivables $ 15 $ 15 $ — $ — Money market fund – Short-term investments 804 804 — — Mutual funds 18,416 18,416 — — Total $ 19,235 $ 19,235 $ — $ — 2021 Level 1 Level 2 Level 3 Asset Category: Money market fund – Short-term investments $ 937 $ 937 $ — $ — Mutual funds 25,418 25,418 — — Total $ 26,355 $ 26,355 $ — $ — See Note 18 of the Notes included herein for additional information regarding the fair value hierarchy. The pension plan’s weighted average asset allocation for the years ended December 31, 2022 and 2021 were as follows: Target Allocation Actual Allocation 2022 2022 2021 Asset Category: Equity securities 65.0 % 67.4 % 69.1 % Debt securities 30.0 % 28.4 % 27.3 % Cash/cash equivalents and Short-term investments 5.0 % 4.2 % 3.6 % Total 100.0 % 100.0 % 100.0 % The goals of the pension plan investment program are to fully fund the obligation to pay retirement benefits in accordance with the plan documents and to provide returns that, along with appropriate funding from the Company, maintain an asset/liability ratio that is in compliance with all applicable laws and regulations and assures timely payment of retirement benefits. Equity securities primarily include investments in large-cap and mid-cap companies located in the United States. Debt securities are diversified across different asset types with bonds issued in the United States as well as outside the United States. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the preceding tables. Cash Flows The pension plan contributions are deposited into a trust, and the pension plan benefit payments are made from trust assets. During 2022 and 2021, the Company did not make any contributions to the pension plan. The Company estimates that it will make approximately $ 787 in contributions to the pension plan in 2023. Fluctuations in actual market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefit costs and contributions in future periods. 102 The following estimated benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years ending December 31: Period Amount 2023 $ 1,794 2024 2,014 2025 1,932 2026 1,958 2027 1,903 Thereafter 10,022 13. Noncontrolling and Redeemable Noncontrolling Interests Noncontrolling Interests When acquiring less than 100% ownership of an entity, the Company may enter into agreements that give the Company an option to purchase, or require the Company to purchase, the incremental ownership interests under certain circumstances. Where the option to purchase the incremental ownership is within the Company’s control, the amounts are recorded as Noncontrolling interests within Shareholder’s Equity in the Consolidated Balance Sheets. Where the incremental purchase may be required of the Company, the amounts are recorded as Redeemable noncontrolling interests in mezzanine equity in the Consolidated Balance Sheets at their estimated acquisition date redemption value and adjusted at each reporting period for changes to their estimated redemption value through Retained earnings (but not less than their initial redemption value), except for foreign currency translation adjustments. Changes in the Company’s ownership interests in its less than 100% owned subsidiaries during the years ended December 31, 2022, 2021, and 2020 were as follows: Year Ended December 31, 2022 2021 2020 Net income attributable to Stagwell Inc. common shareholders $ 27,269 $ 21,036 $ 56,356 Transfers from the noncontrolling interest: Change in Stagwell Inc. Paid-in capital for purchase of redeemable noncontrolling interests and noncontrolling interests ( 1,000 ) ( 26,538 ) — Change in Stagwell Inc. Paid-in-Capital for conversion of Class C to Class A shares 47,911 — — Net transfers from noncontrolling interests 46,911 ( 26,538 ) — Change from net income (loss) attributable to Stagwell Inc. and transfers to noncontrolling interests $ 74,180 $ ( 5,502 ) $ 56,356 The following table presents net income attributable to noncontrolling interests between holders of Class C Common Stock and other equity interest holders for the years ended December 31, 2022, 2021, and 2020: Year Ended December 31, 2022 2021 2020 Net income attributable to Class C shareholders $ 24,452 $ 6,126 $ — Net income attributable to other equity interest holders 5,986 9,170 18,231 Net income attributable to noncontrolling interests $ 30,438 $ 15,296 $ 18,231 103 The following table presents noncontrolling interests between holders of Class C Common Stock and other equity interest holders as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 Noncontrolling interest of Class C shareholders $ 428,406 $ 475,373 Noncontrolling interest of other equity interest holders 33,691 32,914 NCI attributable to noncontrolling interests $ 462,097 $ 508,287 The table above has been revised to reclassify approximately $45,422 from previously reported non-controlling interests to additional paid-in capital that should have been recognized as a result of the exchange of Paired Units for shares of the Company’s Class A common stock in February 2022. Redeemable Noncontrolling Interests The following table presents changes in redeemable noncontrolling interests: December 31, 2022 December 31, 2021 Beginning balance $ 43,364 $ 604 Redemptions ( 4,222 ) ( 15,231 ) Acquisitions (1) — 53,270 Changes in redemption value ( 8,711 ) 3,834 Net income (loss) attributable to redeemable noncontrolling interests 8,135 ( 412 ) Other 545 1,299 Ending balance $ 39,111 $ 43,364 (1) In 2021, approximately $ 26,000 represents redeemable noncontrolling interests acquired in connection with the acquisition of MDC. Approximately $ 27,000 represents redeemable noncontrolling interests acquired in connection with the purchase of the noncontrolling interest of Targeted Victory. See Note 4 of the Notes included herein for additional information related to the purchase of Targeted Victory. The noncontrolling shareholders’ ability to exercise any such option right is subject to the satisfaction of certain conditions, including conditions requiring notice in advance of exercise and specific employment termination conditions. In addition, these rights cannot be exercised prior to specified staggered exercise dates. The exercise of these rights at their earliest contractual date would result in obligations of the Company to fund the related amounts during 2022 to 2027. It is not determinable, at this time, if or when the owners of these rights will exercise all or a portion of these rights. The redeemable noncontrolling interest of $ 39,111 as of December 31, 2022, consists of $ 35,206 , assuming that the subsidiaries perform over the relevant periods at their current profit levels, and $ 3,905 upon termination of such owner’s employment with the applicable subsidiary or death. These adjustments will not impact the calculation of earnings (loss) per share if the redemption values are less than the estimated fair values. There is no related impact on the Company’s income per share calculations. 14. Commitments, Contingencies, and Guarantees Legal Proceedings. The Company’s operating entities are involved in legal proceedings of various types. While any litigation contains an element of uncertainty, the Company has no reason to believe that the outcome of such proceedings or claims will have a material adverse effect on the financial condition or results of operations of the Company. Guarantees . Generally, the Company has indemnified the purchasers of certain assets in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification guarantees typically extend for a number of years. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying audited consolidated financial statements with respect to these indemnification guarantees. The Company continues to monitor the conditions that are subject to guarantees and indemnifications to identify whether it is probable that a loss has occurred and would recognize any such losses under any guarantees or indemnifications in the period when those losses are probable and estimable. Commitments. At December 31, 2022, the Company had $ 25,305 of undrawn letters of credit outstanding. The Company entered into two operating leases for which the commencement date has not yet occurred as of December 31, 2022. See Note 10 of the Notes included herein for additional information. 104 In the ordinary course of business, the Company may enter into long-term, non-cancellable contracts with partner associations that include revenue or profit-sharing commitments related to the provision of its services. These contracts may also include provisions that require the partner associations to meet certain performance targets prior to any obligation to the Company. As of December 31, 2022, the Company estimates its future minimum commitments under these non-cancellable agreements to be: $ 5,893 , $ 1,804 , $ 1,304 , $ 1,066 , and $ 44 for 2023, 2024, 2025, 2026, and 2027, respectively. 15. Share Capital On March 23, 2022, the board of directors authorized the Repurchase Program under which we may repurchase up to $ 125,000 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 Securities Exchange Act of 1934, 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. As of December 31, 2022, there were 7,194 shares of Class A Common Stock repurchased under the Repurchase Program at an aggregate value, excluding fees, of $ 51,547 . 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 $ 73,309 as of December 31, 2022. On March 1, 2023, the Board authorized an extension and a $ 125,000 increase in the size of the Repurchase Program to an aggregate of $ 250,000 , 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. The authorized and outstanding share capital of the Company is below. Class A Common Stock There are 1,000,000 shares of Class A Common Stock, authorized, of which 131,720 shares were issued and outstanding as of December 31, 2022. Each share of Class A Common Stock carries one vote and entitles its holder to dividends equal to or greater than each share of Class B Common Stock. Class B Common Stock There are 5 shares of Class B Common Stock authorized, of which 4 shares were issued and outstanding as of December 31, 2022. Each share of Class B Common Stock carries twenty votes and is convertible at any time at the option of the holder into one share of Class A Common Stock. Class C Common Stock There are 250,000 shares of Class C Common Stock authorized, of which 160,909 shares were issued and outstanding as of December 31, 2022. Each share of Class C Common Stock carries one vote and does not represent an economic interest in the Company. Each share of Class C Common Stock is paired with a corresponding common unit of OpCo (each such paired share of Class C Common Stock and common unit of OpCo, a “Paired Unit”). Each holder of Paired Units may, at its option, exchange such Paired Units for shares of Class A Common Stock on a one-to-one basis (i.e., one Paired Unit for one share of Class A Common Stock). In 2021, an aggregate of 179,970 Paired Units were issued to Stagwell Media in exchange for the equity interests of the Stagwell Subject Entities. In the year ended December 31, 2022, holders of Paired Units exchanged 19,061 Paired Units for the same number of shares of Class A Common Stock. Of these 19,061 Paired Units, approximately 5,000 triggered an employee tax withholding obligation of $ 14,900 . The Company repurchased approximately 2,000 of the 5,000 shares of Class A Common Stock issued to the employees to satisfy its employee tax withholding obligation. Shares-based Awards As of December 31, 2022 and 2021, of the total number of shares authorized, 12,858 and 2,839 , respectively, remain available to be issued for future awards. The following tables summarize share-based activity of awards authorized under our employee stock incentive plans and awards (such as inducement awards) and other share-based commitments that have met the requirements to be issued separate from shareholder-approved stock incentive plans. 105 The following table summarizes information about performance-based and time-based restricted stock and restricted stock unit awards: Performance-Based Awards Time-Based Awards Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Balance at December 31, 2020 — $ — — $ — Shares acquired concurrent with acquisition — — 3,326 5.42 Granted 1,048 8.68 12,659 5.51 Vested — — ( 282 ) 5.42 Forfeited — — ( 4 ) 5.42 Balance at December 31, 2021 1,048 $ 8.68 15,699 $ 5.49 Granted 1,372 7.03 5,075 7.38 Vested — — ( 14,182 ) 5.45 Forfeited ( 34 ) 7.79 ( 323 ) 6.20 Balance at December 31, 2022 2,386 $ 7.74 6,269 $ 7.07 The vesting of the performance-based awards is contingent primarily upon the Company meeting certain cumulative revenue and earnings targets, primarily ranging over two to three years, and continued employment through the vesting date. The term of the time-based awards is generally three years with vesting generally one to three years. The vesting period of the time-based and performance-based awards is generally commensurate with the requisite service period. The total fair value of restricted stock and restricted stock unit awards, which vested during the years ended December 31, 2022 and 2021, was $ 77,332 and $ 1,527 , respectively. At December 31, 2022, the weighted average remaining contractual life for time-based and performance-based awards was 0.65 and 1.86 years, respectively. At December 2021, the weighted average remaining contractual life for time-based and performance-based awards was 0.37 and 2.37 years, respectively. At December 31, 2022 and 2021, the unrecognized compensation expense for time-based awards was $ 16,449 and $ 15,376 , respectively, and will be recognized over a weighted average period of 0.65 years and 0.37 years, respectively. At December 31, 2022 and 2021, the unrecognized compensation expense for performance-based awards was $ 12,781 and $ 8,221 , respectively, and will be recognized over a weighted average period of 1.86 and 2.37 years, respectively. The following table summarizes information about stock appreciation rights (“SAR”) awards: SAR Awards Shares Weighted Average Grant Date Fair Value Weighted Average Exercise Price Balance at December 31, 2020 — $ — $ — Shares acquired concurrent with acquisition 3,379 2.94 2.95 Granted 1,598 2.39 8.13 Forfeited ( 84 ) 1.35 6.60 Balance at December 31, 2021 4,893 $ 2.79 $ 4.58 Granted — — — Forfeited — — — Exercised ( 48 ) 3.66 6.00 Balance at December 31, 2022 4,845 $ 2.78 $ 4.57 We use the Black-Scholes option-pricing model to estimate the fair value of SAR awards. The grant date fair value of the SARs granted in 2021 ranged from $ 2.20 to $ 3.66 . SARs granted in 2021 vest in 1 to 3 years. The vesting period of these awards is generally commensurate with the requisite service period. The assumptions used to value these awards were as follows: expected life ranging from 2.8 to 4 years, risk free interest rate of approximately 1.0 %, expected volatility ranging from of 35.5 % to 38.1 %, and dividend yield of 0.0 %. The term of these awards is 5 years. 106 Certain of the Company’s SAR awards are settled in cash. These awards are liability classified and remeasured at each reporting period. As of December 31, 2022, the assumptions for the Black-Scholes model for these awards were as follows: expected life ranging from 2 to 3 years, risk free interest rate of approximately 4 %, expected volatility ranging from of 37.0 % to 41.4 %, and dividend yield of 0.0 %. The remaining term of these awards as of December 31, 2022, is approximately 4 years. For the years ended December 31, 2022 and 2021, the number of SAR awards that vested were 1,943 and 1,950 , respectively. As of December 31, 2022 and 2021, 3,845 and 1,950 SAR awards had vested and were exercisable, respectively. The aggregate intrinsic value of the SAR awards outstanding as of December 31, 2022 and 2021 was $ 11,063 and $ 19,677 respectively. At December 31, 2022 and 2021, the weighted average remaining contractual life for the SAR awards was 1.45 years and 1.15 years, respectively. At December 31, 2022 and 2021, the unrecognized compensation expense for these awards was $ 1,175 and $ 4,639 , respectively, to be recognized over a weighted average period of 1.45 and 1.15 years, respectively. For the years ended December 31, 2022 and 2021, the total recognized in stock-based compensation related to all stock compensation awards was $ 36,663 and $ 75,032 , respectively. The related income tax benefit for the years ended December 31, 2022 and 2021 was $ 4,106 and $ 5,289 , respectively. Subsidiary Awards Certain of the Company’s subsidiaries grant awards to their employees providing them with an equity interest in the respective subsidiary (the “profits interests awards”). The profits interests awards generally provide the employee the right, but not the obligation, to sell its profits interest in the subsidiary to the Company based on a performance-based formula and, in certain cases, receive a profit share distribution. The profits interests awards are settled in cash and the corresponding liability was $ 20,961 and $ 36,418 at December 31, 2022 and 2021, respectively and is included as a component of Accruals and other liabilities and Other liabilities on the Consolidated Balance Sheets. The change in the profits interest liabilities for the years ended December 31, 2022 and 2021 was a decrease of $ 4,179 and an increase of $ 536 , respectively and was recorded as stock-based compensation in Office and general expenses within the Statements of Operations. 16. Changes in Accumulated Other Comprehensive Income (Loss) The changes in accumulated other comprehensive income (loss) for the years ended December 31 were: Defined Benefit Pension Foreign Currency Translation Total Balance December 31, 2020 $ — $ — $ — Other comprehensive loss before reclassifications — ( 6,000 ) ( 6,000 ) Amounts reclassified from accumulated other comprehensive income 722 — 722 Other comprehensive loss 722 ( 6,000 ) ( 5,278 ) Balance December 31, 2021 722 ( 6,000 ) ( 5,278 ) Other comprehensive loss before reclassifications 4,088 (37,751) ( 33,663 ) Other comprehensive loss 4,088 ( 37,751 ) ( 33,663 ) Balance December 31, 2022 $ 4,810 $ ( 43,751 ) $ ( 38,941 ) 17. Income Taxes The components of the Company’s income before income taxes and equity in earnings of non-consolidated affiliates by taxing jurisdiction for the years ended December 31, were: 2022 2021 2020 Income (Loss): U.S. $ 29,597 $ 38,717 $ 95,939 Non-U.S. 43,904 20,841 ( 18,599 ) $ 73,501 $ 59,558 $ 77,340 107 The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were: 2022 2021 2020 Current tax provision U.S. federal $ 3,913 $ 7,259 $ 5,812 U.S. state and local 5,588 7,459 3,242 Non-U.S. 16,398 12,498 2,346 25,899 27,216 11,400 Deferred tax provision (benefit): U.S. federal ( 8,049 ) ( 143 ) ( 1,951 ) U.S. state and local ( 6,439 ) ( 2,521 ) 389 Non-U.S. ( 3,831 ) ( 1,154 ) ( 3,901 ) ( 18,319 ) ( 3,818 ) ( 5,463 ) Income tax expense $ 7,580 $ 23,398 $ 5,937 A reconciliation of income tax expense (benefit) using the U.S. federal income tax rate compared with actual income tax expense for the years ended December 31, is as follows: 2022 2021 2020 Income before income taxes, equity in non-consolidated affiliates and noncontrolling interest $ 73,501 $ 59,558 $ 77,340 Statutory income tax rate 21.0 % 21.0 % 21.0 % Tax expense using U.S. statutory income tax rate $ 15,435 $ 12,507 $ 16,241 Impact of disregarded entity structure ( 3,355 ) ( 6,954 ) ( 16,049 ) Foreign, net 2,111 5,995 752 State taxes, net ( 850 ) 4,327 1,980 Stock compensation ( 1,342 ) 4,009 — Valuation allowance 2,760 ( 15 ) 1,286 Revaluation of TRA step up ( 6,952 ) — — Return to provision adjustments ( 16,159 ) — — Goodwill impairments 14,645 — — Other, net 1,287 3,529 1,727 Income tax expense $ 7,580 $ 23,398 $ 5,937 Effective income tax rate 10.3 % 39.3 % 7.7 % Prior to merger, the Company was a limited liability company classified as a disregarded entity for U.S. federal income tax purposes, and as such was not subject to taxes from a U.S. federal income tax perspective. After the merger, the Company is a corporation with an investment in a limited liability company classified as a partnership for U.S. federal income tax purposes, and as such a portion of the consolidated income is not subject to taxes from a U.S. federal income tax perspective. The tax rate of 21.0 % has been used to capture the U.S. federal taxes of the Company and the corporations owned by the Company and recorded in the Consolidated Statements of Operations and Comprehensive Income. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions relating to delaying certain payroll tax payments, refundable payroll tax credits, net operating loss carryback periods, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision. In August 2022, the United States enacted to the Inflation Reduction Act of 2022 (“IRA”), which creates a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion. We do not expect an increase in our tax liability from this new book minimum tax in 2023. Income taxes receivable were $ 15,191 and $ 790 at December 31, 2022 and 2021, respectively, and were included in other current assets on the balance sheet. Income taxes payable were $ 6,850 and $ 24,643 at December 31, 2022 and 2021, respectively, and were included in accrued and other liabilities on the balance sheet. 108 The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as follows: 2022 2021 2020 Deferred tax assets: Net operating losses $ 38,871 $ 33,112 $ 10,229 Tax credits 7,104 6,644 583 Operating lease liability 52,442 48,173 4,141 Interest deductions 29,530 30,760 — Accruals and other liabilities 2,794 3,720 — TRA and related step-up, net of amortization 32,890 — — Other 14,557 15,160 3,344 Gross deferred tax asset 178,188 137,569 18,297 Less: valuation allowance ( 12,223 ) ( 5,825 ) ( 5,551 ) Net deferred tax assets $ 165,965 $ 131,744 $ 12,746 Deferred tax liabilities: Right-of-use lease asset - operating leases 40,012 37,001 3,577 Property and equipment, net 6,839 4,212 463 Goodwill and intangibles 90,599 83,607 21,959 Residual basis differences — 102,297 — Other 940 6,854 2,639 Total deferred tax liabilities 138,390 233,971 28,638 Net deferred tax asset (liability) $ 27,575 $ ( 102,227 ) $ ( 15,892 ) Deferred tax assets $ 67,684 $ 866 $ 158 Deferred tax liabilities ( 40,109 ) ( 103,093 ) ( 16,050 ) $ 27,575 $ ( 102,227 ) $ ( 15,892 ) The preliminary deferred tax liability for the Company’s residual basis difference in OpCo of $ 102,297 reflected in the table above as of December 31, 2021 was adjusted to zero as of December 31, 2022 to reflect the finalization of the Company’s book and tax basis in OpCo. This deferred tax liability had a balance of $ 119,470 as of September 30, 2022 that should have been zero. In addition, a deferred tax liability of $ 16,700 , and the associated reduction to additional paid-in-capital was not recorded when the exchanges of Paired Units for Class A Common Stock occurred in February 2022. The correction has been reflected as of December 31, 2022. Tax Receivables Agreement In connection with the closing of the Transaction, we entered into the Tax Receivables Agreement (“TRA”) with OpCo and Stagwell Media, pursuant to which we are required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (defined in Note 11) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the TRA. The Company accounts for amounts payable under the TRA in accordance with ASC 450-Contingencies. We will evaluate the likelihood that we will realize the benefit represented by the deferred tax asset and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we will reduce the carrying amount of the deferred tax asset with a valuation allowance and a corresponding reduction to the TRA liability. The amounts to be recorded for both the deferred tax assets and the liability under the TRA will be estimated at the time of any purchase or exchange as a reduction to shareholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income or loss. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income or loss. In the first quarter of 2022, the Company had its first exchange of Paired Units for shares of Class A Common Stock and recorded its initial TRA liability. Further exchanges have been made in the subsequent quarters. As of December 31, 2022 the 109 Company has recorded a TRA liability of $ 28,694 and a deferred tax asset, net of amortization of $ 32,890 in connection with the exchanges of the Paired Units and the projected obligations under the TRA. Stagwell Inc. itself has net operating loss carryforwards of $ 57,553 relating to U.S. states which expire years 2024 through 2042. Stagwell Inc. also had indefinite net operating loss carryforwards which consist of $ 44,048 relating to U.S. federal, and $ 140,608 relating to states. Stagwell Inc. also has foreign tax credit and general business carryovers of $ 7,104 which expire between 2024 and 2031. Stagwell Inc.’s consolidated corporate subsidiaries also have net operating loss carryforwards which expire in years 2022 through 2044. These definite lived net operating loss carryforwards consist of $ 18,730 relating to U.S. federal, $ 21,403 relating to states and $ 20,099 relating to non-U.S. The corporate subsidiaries also have indefinite net operating loss carryforwards which consist of $ 10,555 relating to U.S. federal, and $ 15,363 relating to non-U.S. The majority of the consolidated corporate subsidiaries’ U.S. tax attributes are subject to an annual limitation as a result of historic acquisitions which constituted a change of ownership as defined under Internal Revenue Code 382. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates all positive and negative evidence and considers factors such as the reversal of taxable temporary differences, taxable income in eligible carryback years, future taxable income, and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense. The Company maintained a valuation allowance of $ 12,223 as of December 31, 2022 relating to both U.S. and foreign deferred tax assets, and $ 5,825 as of December 31, 2021 relating to U.S. and foreign deferred tax assets. The Company is permanently reinvested with respect to its foreign earnings in certain jurisdictions, and no deferred taxes have been recorded related to such earnings as the determination of the amount is not practicable. The Company currently does not intend to distribute previously taxed income. Upon distribution in the future, the Company may incur state and foreign withholding taxes on such income, the amount of which is not practicable to compute. As of December 31, 2022 and 2021, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $ 2,159 and $ 1,120 , respectively. It is the Company’s policy to classify interest and penalties arising in connection with unrecognized tax benefits as a component of income tax expense. As of December 31, 2022 and 2021, accrued penalties and interest included in unrecognized tax benefits were approximately $ 23 and $ 82 , respectively. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate. 2022 2021 A reconciliation of the change in unrecognized tax benefits is as follows: Unrecognized tax benefit - Beginning Balance $ 1,038 $ — Current year positions — — Prior period positions 1,850 1,038 Settlements ( 477 ) — Lapse of statute of limitations ( 275 ) — Unrecognized tax benefits - Ending Balance $ 2,136 $ 1,038 It is reasonably possible that the amount of unrecognized tax benefits could decrease by a range of $ 104 to $ 286 in the next twelve months as a result of expiration of certain statute of limitations. The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The statute of limitations for tax years prior to 2019 are closed for U.S. federal purposes. The statute of limitations for tax years prior to 2016 have also expired in non-U.S. jurisdictions. 18. Fair Value Measurements A fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The hierarchy for observable and unobservable inputs used to measure fair value into three broad levels are described below: 110 • Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. • Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. • Level 3 - Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. Financial Instruments that are not Measured at Fair Value on a Recurring Basis The following table presents certain information for our financial liability that is not measured at fair value on a recurring basis at December 31: December 31, 2022 December 31, 2021 Carrying Amount Fair Value Carrying Amount Fair Value 5.625% Notes $ 1,100,000 $ 902,000 $ 1,100,000 $ 1,120,900 The fair value of this instrument is based on quoted market prices in markets that are not active. Therefore, this debt is classified as Level 2 within the fair value hierarchy. Financial Instruments Measured at Fair Value on a Recurring Basis Contingent deferred acquisition consideration (Level 3 fair value measurement) is initially recorded at the acquisition date fair value and adjusted at each reporting period. The estimated liability is determined in accordance with models of each business’ future performance, including revenue growth and free cash flows. These models are dependent upon significant assumptions, such as the growth rate of the earnings of the relevant subsidiary during the contractual period and the discount rate. These growth rates are consistent with the Company’s long-term forecasts. As of December 31, 2022, the discount rate used to measure these liabilities ranged from 5.2 % to 5.4 %. As these estimates require the use of assumptions about future performance, which are uncertain at the time of estimation, the fair value measurements presented on the Consolidated Balance Sheets are subject to material uncertainty. See Note 9 of the Notes included herein for additional information regarding contingent deferred acquisition consideration. At December 31, 2022 and December 31, 2021, the carrying amount of the Company’s financial instruments, including cash, cash equivalents, accounts receivable and accounts payable, approximated fair value because of their short-term maturity. Non-financial Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis Certain non-financial assets are measured at fair value on a nonrecurring basis, primarily goodwill, intangible assets (Level 3 fair value measurements) and right-of-use lease assets (Level 2 fair value measurement). Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment. See Note 10 of the Notes included herein for additional information regarding the impairment of right-of-use lease assets and Note 8 of the Notes included herein for additional information regarding the impairment of goodwill and intangible assets. 111 19. Related Party Transactions In the ordinary course of business, the Company enters into transactions with related parties, including its affiliates. The transactions may range in the nature and value of services underlying the arrangements. The following table presents significant related party transactions where a third party receives services from the Company: Total Transaction Value Revenues Due From Related Party Year Ended December 31, December 31, 2022 December 31, 2021 Services 2022 2021 2020 Technological and production services (1) $ 227 $ 91 $ 60 $ 50 $ 42 $ 10 Marketing services (2) Ongoing arrangement (7) 3,387 243 522 493 88 Polling services (3) 1,481 718 436 — 380 70 Marketing and website development services (4) 6,204 7,185 9,647 — 488 979 Marketing and advertising services (5) 3,576 1,930 950 — 1,506 506 Marketing and advertising services (8) Ongoing arrangement (7) 1,418 299 — 1,072 153 Marketing services (8) 603 418 — — 30 — Marketing services (8) Ongoing arrangement (7) 5,564 4,814 — 3,476 4,033 Polling services (6) 3,450 2,365 — — — — Total $ 23,076 $ 16,449 $ 572 $ 7,487 $ 5,839 (1) Client was founded by the Company’s Chief Executive Officer. (2) Family member of one of the Brands’ partners holds an executive leadership position in the client. (3) Family members of certain of the Company’s executives hold key leadership positions in the client (4) Client has significant interest in the Company. (5) Brands’ partners and executives either hold a key leadership position in or are on the board of directors of the client. (6) Founder of the client has significant interest in the Company. (7) This arrangement was entered into for an indefinite term and is invoiced as services are provided. (8) A member of the Company’s board of directors holds an executive leadership position or are in the board of directors of the client. The following table presents significant related party transactions in which the Company receives services from a third party: Total Transaction Value Expenses Due to Related Party Year Ended December 31, December 31, 2022 December 31, 2021 Services 2022 2021 2020 Data management services (1) Ongoing arrangement (4) $ 2,138 $ 1,473 $ 8,009 $ 1,295 $ 623 Sales and management services (2) Ongoing arrangement (4) 2,006 788 — 1,416 442 Marketing services (3) $ 40 40 — — 40 — Marketing services (5) 365 181 — — — — Total $ 4,365 $ 2,261 $ 8,009 $ 2,751 $ 1,065 112 (1) Family member of one of the Brand’s partners holds an executive leadership position in the third party. (2) Chief Executive Officer of the Brand is a shareholder of the affiliate providing the services. (3) A family member of the Company’s President holds a key leadership position in the client. (4) This arrangement was entered into for an indefinite term and is invoiced as services are provided. (5) A member of the Company’s board of directors holds an executive leadership position or are on the board of directors of the client. In 2019, a Brand of the Company, entered into a loan agreement with a third party who holds a minority interest in the Brand. The loan receivable of $ 3,611 and $ 3,784 due from the third party is included within Other current assets in the Company’s Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021, respectively. The Company recognized $ 464 , $ 307 , and $ 249 for the years ended December 31, 2022, 2021, and 2020, respectively, of interest income within Interest expense, net on its Consolidated Statements of Operations. The Company made loans to three employees of a subsidiary each in the amount of approximately $ 889 , together with interest on the unpaid principal balance at a fixed interest rate equal to 3.5 % per annum, compounding quarterly. The cash from the loan was used by the employees to purchase the noncontrolling interest of 13.3% in TMA Direct. Prior Period Transactions In October 2020, a Brand entered into an arrangement to provide marketing services to a client in which one of the Brand’s partners holds a key leadership position. During the years ended December 31, 2021 and 2020, the Company recognized $ 5,146 and $ 4,866 , respectively, in revenue related to this transaction. As of December 31, 2022 and 2021, there were no balances due from the client related to this arrangement. This transaction was fully recognized in 2021. During the years ended December 31, 2021 and 2020, Stagwell Media made additional non-cash investments in the Company of $ 12,400 , and $ 93,900 respectively. Additionally, during the years ended December 31, 2021 and 2020, the Company made cash investments of $ 1,600 and $ 1,500 , respectively. In March 2021, the Company made a non-cash distribution to Stagwell Media of $ 13,000 . Additionally, the Company made cash distributions to Stagwell Media of $ 191,900 and $ 108,500 for the years ended December 31, 2021 and 2020, respectively. 20. Segment Information The Company determines an operating segment if a component (i) engages in business activities from which it earns revenues and incurs expenses, (ii) has discrete financial information, and is (iii) regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Mark Penn, Chief Executive Officer and Chairman, to make decisions regarding resource allocation for the segment and assess its performance. Once operating segments are identified, the Company performs an analysis to determine if aggregation of operating segments is applicable. This determination is based upon a quantitative analysis of the expected and historic average long-term profitability for each operating segment, together with a qualitative assessment to determine if operating segments have similar operating characteristics. The CODM uses Adjusted EBITDA (defined below) as a key metric, to evaluate the operating and financial performance of a segment, identify trends affecting the segments, develop projections and make strategic business decisions. Adjusted EBITDA is defined as Net income excluding non-operating income or expense to achieve operating income, plus depreciation and amortization, stock-based compensation, deferred acquisition consideration adjustments, and other items. Other items include restructuring costs, acquisition-related expenses, and non-recurring items. 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 Brand Performance Network. The Company has three reportable segments as follows: “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 as those described throughout the Notes included herein. • The Integrated Agencies Network includes five operating segments: the Anomaly Alliance, Constellation, the Doner Partner Network, Code and Theory, and National Research Group. The operating segments offer an array of complementary services spanning our core capabilities of Digital Transformation, Performance Media & Data, Consumer Insights & Strategy, and Creativity & Communications. The Brands included in the operating segments that comprise the Integrated Agencies Network reportable segment are as follows: Anomaly Alliance (Anomaly, Concentric, Hunter, Mono, YML and Scout (Brands), Constellation (72andSunny, Colle McVoy, Instrument, 113 Redscout, Hello Design, Team Enterprises, and Harris Insights), the Doner Partner Network (Doner, KWT Global, Harris X, Veritas, Doner North, Northstar, which is currently sunsetting, and Yamamoto (Brands)), Code and Theory and National Research Group. These operating segments share similar characteristics related to (i) the nature of their services; (ii) the type of clients and the methods used to provide services; and (iii) the extent to which they may be impacted by global economic and geopolitical risks. In addition, these operating segments may occasionally compete with each other for new business or have business move between them. • The Brand Performance Network (“BPN”), previously referred to as the “Media Network” reportable segment, is comprised of a single operating segment. BPN includes a unified media and data management structure with omnichannel media placement, creative media consulting, influencer and business-to-business marketing capabilities. Our Brands in this segment aim to provide scaled creative performance through developing and executing sophisticated omnichannel campaign strategies leveraging significant amounts of consumer data. BPN’s Brands provide media solutions such as audience analysis, media planning, and buying across a range of digital and traditional platforms (out-of-home, paid search, social media, lead generation, programmatic, television, broadcast, among others) and includes multichannel Brands Assembly, Brand New Galaxy, Crispin Porter Bogusky, Forsman & Bodenfors, Bruce Mau Design, Goodstuff, MMI Agency, digital creative & transformation consultancy Gale, B2B specialist Multiview, Observatory, Vitro, CX specialists Kenna, and travel media experts Ink. • The Communications Network reportable segment is comprised of a single operating segment, our specialist network that provides advocacy, strategic corporate communications, investor relations, public relations, online fundraising and other services to both corporations and political and advocacy organizations and consists of our Allison & Partners SKDK (including Sloane & Company), and Targeted Victory brands. • All Other consists of the Company’s digital innovation group and Stagwell Marketing Cloud, including Maru and Epicenter, and products such as PRophet, ARound and Reputation Defender (which was sold in September 2021). • Corporate consists of corporate office expenses incurred in connection with the strategic resources provided to the operating segments, as well as certain other centrally managed expenses that are not fully allocated to the operating segments. These office and general expenses include (i) salaries and related expenses for corporate office employees, including employees dedicated to supporting the operating segments, (ii) occupancy expenses relating to properties occupied by all corporate office employees, (iii) other office and general expenses including professional fees for the financial statement audits and other public company costs, and (iv) certain other professional fees managed by the corporate office. Additional expenses managed by the corporate office that are directly related to the operating segments are allocated to the appropriate reportable segment and the All Other category. 114 Year Ended December 31, 2022 2021 2020 Revenue: Integrated Agencies Network $ 1,479,802 $ 770,056 $ 221,595 Brand Performance Network 757,208 424,632 262,362 Communications Network 430,820 248,832 382,815 All Other 19,962 25,843 21,260 Total Revenue $ 2,687,792 $ 1,469,363 $ 888,032 Adjusted EBITDA: Integrated Agencies Network $ 293,643 $ 163,596 $ 42,332 Brand Performance Network 115,835 65,942 27,697 Communications Network 85,684 45,527 78,562 All Other ( 933 ) ( 769 ) ( 1,893 ) Corporate ( 43,111 ) ( 20,644 ) ( 3,530 ) Total Adjusted EBITDA $ 451,118 $ 253,652 $ 143,168 Depreciation and amortization $ ( 131,273 ) $ ( 77,503 ) $ ( 41,025 ) Impairment and other losses ( 122,179 ) ( 16,240 ) — Stock-based compensation ( 33,152 ) ( 75,032 ) — Deferred acquisition consideration 13,405 ( 18,721 ) ( 4,497 ) Other items, net ( 18,691 ) ( 21,430 ) ( 13,906 ) Total Operating Income $ 159,228 $ 44,726 $ 83,740 115 Year Ended December 31, 2022 2021 2020 Other Income (expenses): Interest expense, net $ ( 76,062 ) $ ( 31,894 ) $ ( 6,223 ) Foreign exchange, net ( 2,606 ) ( 3,332 ) ( 721 ) 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 Income tax expense 7,580 23,398 5,937 Income before equity in earnings of non-consolidated affiliates 65,921 36,160 71,403 Equity in income (loss) of non-consolidated affiliates ( 79 ) ( 240 ) 58 Net income 65,842 35,920 71,461 Net income attributable to noncontrolling and redeemable noncontrolling interests ( 38,573 ) ( 14,884 ) ( 15,105 ) Net income attributable to Stagwell Inc. common shareholders $ 27,269 $ 21,036 $ 56,356 Depreciation and amortization: Integrated Agencies Network $ 74,609 $ 37,646 $ 9,360 Brand Performance Network 33,674 26,031 20,117 Communications Network 10,831 7,553 5,903 All Other 5,234 2,498 3,681 Corporate 6,925 3,775 1,964 Total depreciation and amortization $ 131,273 $ 77,503 $ 41,025 Stock-based compensation: Integrated Agencies Network $ 13,774 $ 47,190 $ — Brand Performance Network 5,830 5,251 — Communications Network 1,797 15,928 — All Other 41 39 — Corporate 11,710 6,624 — Total stock-based compensation $ 33,152 $ 75,032 $ — The Company recognized a severance charge of approximately $ 10,600 in 2022, the majority of which was at the Brand Performance Network. The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and therefore, total segment assets have not been disclosed. See Note 5 of the Notes included herein for a summary of the Company’s revenue by geographic region for the years ended December 31, 2022, 2021, and 2020. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not Applicable.