Stagwell Inc.

Good morning and welcome to Stagwell's fourth quarter and full year 2025 earnings webcast. My name is Ben Altson and I lead investor relations here at Stagwell. With me today are Mark Penn, Stagwell's founder, chairman and chief executive officer, and Ryan Green, Stagwell's chief financial officer. Mark will provide a business update before Ryan shares a financial review. After the prepared remarks, we will open the floor for Q&A. Please submit questions through the chat function. Before we begin, I'd like to remind you that the following remarks include forward-looking statements and non-GAAP financial data. Forward-looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risk factors addressed in our earnings release, slide presentation, and the company's SEC filings. Please refer to our website, stagwellglobal.com forward slash investors, for an investor presentation and additional resources. This morning's press release and slide deck provide definitions, explanations, and reconciliations of non-GAAP financial data. With that, I'd like to turn the call over to our chairman, founder, and CEO, Mark Bennett.

Thank you, Ben. With accelerating ex-advocacy growth, record net new business, expanding margins, firm cost controls, and doubled free cash flow, our 2025 results show that what we are doing is working and why we are a compelling investment built for these new times. Consequently, Stagwell has announced a strong accelerated buyback, not based as others are on managing chaos, but as part of a plan for accelerated organic growth. We take market share, expand in advocacy and sports markets, and deploy advanced AI applications. Skywill posted 6% growth in 2025, driven by 13% growth in digital transformation and 6% growth in marketing services. Organic growth in those segments was 9% and 5% respectively, showing our ability to take share is growing. Our two-year organic net revenue growth stock in the fourth quarter exceeded 10%, a sequential improvement of 250 basis points and a 10.1 gain over 10%. year over year. This shows how much momentum we have in the business entering 2026. We expect to see approximately 10% net revenue growth in 2026, principally organic in nature as political increases, new business rises, AI products come to market, and we focus on client retention. Organic growth has been strengthening quarter over quarter, and we are expecting rising organic growth over the next two years because one, With industry consolidation and chaos, we're seeing increased opportunities to win new, larger wins. Two, our e-commerce and media areas, which were flat this year, will grow by high single digits in 2026, giving a string of new wins at GAAP. Three, we have for the first time major government contract opportunities with us advancing to the final rounds. We're entering a political super cycle in which $20 billion or more will be poured into politics. Five, we will improve our client retention on smaller end of the scale through new processes. Six, our years of investing in a great technology team are paying off to create whole new lines of AI-based businesses. And seven, we are well positioned in sports, another growth area with the launch of the Sport Beach business and the award of 72 & Sunny as the top sports and entertainment agency in our industry. We slowed down planned acquisitions in 2025 to pivot towards AI application development, deploying capital there instead, and that pivot is paying off. Our marketing plan segment exceeded $105 million of revenue and grew 34% organically for the full year, including more than 41% organic growth in the fourth quarter. Products like our Quest and Barrow Research Tools, which grew 58% in 2025, and Unicepta, which grew 168% organically in the fourth quarter, are gaining market traction. These kinds of subscription revenues typically carry high premiums in the marketplace, and we expect continued high levels of growth in 2026, aided by the new large-scale products we are rolling out, including our new agentic targeting system, agentic sales agents, and marketing operations operating system. Our big customer relationships are expanding. Our top 25 customers grew 20% year over year and have an average relationship of $28 million and now represent 29% of our revenue. Our top 100 grew 16%. We were once again more than 10% of the Super Bowl ads while being only 1% of the industry. And our agencies like 72 and Sunny and Code & Theory have again been ranked at the top of the industry while Anomaly is winning high praise for its Starbucks rebranding. Premium content creation is and will remain in high demand. LTM net new business grew 25% to $476 million, another company record with wins at Starbucks, Target, and NASCAR. I can say with some confidence that our Q1 2026 net new business is shaping up to be the strongest in the history of the firm bolstered by a recent $40 million win with an existing client. We expect our media segment to return to high single-digit organic growth with the surge at Gale and the deployment of our new media technology products. Last week, Assembly announced the launch of Stagwell Search+, the industry's first agentic platform for AI search. SEO is being replaced by GEO, and we are ahead of the curve. Today, we're announcing a partnership with Apple Oven that will incorporate Apple Oven's advanced mobile advertising platform into Stagwell's media offering, providing clients with enhanced measurement and reporting tools for more effective mobile campaigns. At the same time, we're making major efficiency gains across the business. Adjusted EBITDA for 2025 was $422 million, beating last year, despite roughly $50 million of $50 million in EBITDA dropping off from the biannual rotation of campaign-related work. Ex-advocacy adjusted EBITDA surged 16% to $377 million, a new company record, and more than 10% higher than the previous best. Improved EBITDA led to a 5% increase in adjusted EBS to 83 cents, ahead of consensus and the midpoint of our guidance. It is also a 46% improvement over our last non-political year in 2023. These efficiency improvements will continue in 2026. We expect adjusted EBITDA to improve by nearly 20% as the $51 million of cost savings we actioned in 2025 flow through and advocacy returns aggressively. Further cost reductions are in the works as we wrap up the $80 to $100 million of savings we announced in April. We are instituting significant changes in how we operate across all parts of the company, from AI ingestion of bills and bank reconciliations to utilizing AI for production, content management, and research analysis. Our Goldilocks size is a great advantage in that we are big enough for scale clients while being nimble enough to deploy technology quickly and train people how to use it. In 2024, we set a goal of improving our free cash generation. We achieved this goal, more than doubling our free cash flow in 2025 to $187 million. We believe 2026 will push us to between 50% and 60% free cash flow conversion, given our new systems, improved payment terms, and better collections. We plan to hold our costs constant in 2026 and expect it to drop in 2027 and 2028 back to about 1% of net revenue. Our surveys show that businesses of all types are investing in AI applications, and we're positioning ourselves to be a leader in those marketing applications and services needed to manage them. Our Stagwell agentic targeting system powered in partnership by Palantir, which I call the holy grail of marketing, is leading the way. A video is available on our site explaining the product in full. In a short period of time, we have signed two proofs of concept tests and won $5 million full deployment. This is just the beginning. and an SMB version is underway as well. In January, we launched our Marketing Operations Operating System, or MOOSE as I call it, the machine at CES. This offers clients a new way to run their marketing tech stock independent of using any hold code or application. It's like Windows, only for marketing. We've already signed up two major customers and the feedback we're receiving is excellent. Now that the products are ready, we are adding the sales teams needed to move them to the market. We also launched an array of additional products in the fourth quarter, including newvoices.ai, a groundbreaking end-to-end AI sales agent. Go to the website, try it. And AgentCloud, a unified platform that brings together leading AI tools and purpose-built marketing assistance. And we are in the process of launching products in media production, information analysis, and in synthetic research personas. 2026 is shaping up to be a strong year for Stagwell. As usual, it will start off slower, and build in the third and fourth quarters when the marketing and political seasons take off. This year, we expect to deliver total net revenue growth of eight to 12%, adjusted EBITDA of 475 to 525 million, adjusted EPS of 98 cents to $1.12 per share, and free cash flow conversion of 50 to 60%. Let me close on a word about our public stock valuation. Every investor meeting I have begins with, why is your stock so low given your results? The answer is we're not being valued for the track record and assets we have. We started 10 years ago with a single employee. Despite a record of growth, cost reductions, tech adoptions, and significant free cash flow generation, we traded less than six times forward adjusted EBITDA and five times forward earnings, roughly 50% below typical valuation levels and based on 2027 metrics, we're valued even lower. The bucket we've been put in, mature companies with huge overblown legacy practices, simply doesn't represent at all the growing challenger and even disruptor status that we have built for the modern marketer, offering leading edge AI applications combined with a great advocacy and sports practices. We believe that the Stagwell difference is being seen by the marketing industry. Five of our six top clients are tech companies with growing marketing needs. Our top 25 clients grew 20% in overall relationships. We expect a record new business in the first quarter based on what has been won and booked so far this year. As we scale and round out our offerings, we are poised to increase our share by qualifying as one of only four competitors for most pitches while still only a fraction of their size. The most valuable parts of our business, creative and digital transformation, are already achieving high single-digit organic growth media will follow soon. In addition to undervaluing our core marketing assets, there's nearly $1.2 billion of value we believe investors are ignoring altogether. First, our advocacy business is in a strong secular growth industry as we enter a three-year political super cycle. We believe this business should be valued at $600 million or more based on its cash flows. Our marketing cloud, which exceeded $110 million in annual run rate in Q4, is growing organically at more than 30%, and even started to make EBITDA in Q4, should be valued at $600 million alone based on comparables. And daily, we are launching our AI applications and bundling them with services as well to create a new, super sticky model with clients on the cutting edge of marketing. Given this, the board has approved a $350 million expansion of our buyback authorization. With our improved free cash flow generation, we intend to use the $400 million of capacity we now have aggressively as long as our stock is undervalued. In the last few years, we've taken our share countdown from 296 million shares to approximately 253 million today. We will accelerate this process in 2026, meaning you can expect upside to our earnings and cash flow numbers per share. 2026 is shaping up to be transformational for Stagwell, and we expect to be the fastest-growing marketing service business this year, allaying the groundwork for new businesses and AI that will aim to beat hundreds of millions of dollars of new revenue over the next few years. Thank you, and I'd like to now hand it over to our CFO, Ryan Green, for a review of our financials.

Thank you, Mark. Good morning and thank you for joining us. Today we will walk you through our financial results for the fourth quarter and full year 2025 and how our performance this year has laid a strong foundation for 2026 and beyond. Given 2025 was a non-election year with an expected pullback in advocacy revenue, I will reference results excluding advocacy to reflect the underlying operating performance. Starting with the fourth quarter, revenue increased by 2.4% year-over-year to $807 million, and net revenue increased by 3.4% to $651 million. Both represent quarter records for Stagwell, with growth concentrated in integrated creative, performance media, and technology-enabled marketing. On an ex-advocacy basis, net revenue was $609 million, an increase of 8.1% year-over-year, or 4% organically. All five segments delivered net revenue growth on both a total and organic basis. Marketing services and digital transformation continued to perform well despite strong year-over-year comparisons. Media and commerce delivered 10.2% total net revenue growth. The marketing cloud grew 111.2% or 41.2% organically, reflecting increased adoption of its product suite. And the communication segment adjusted for advocacy returned to growth. Strong top-line performance supported by ongoing efficiency initiatives drove adjusted EBITDA to $129 million, representing a margin of 19.9%. On an ex-advocacy basis, adjusted EBITDA was $114 million with an 18.7% margin, representing approximately 180 basis point expansion versus the fourth quarter of 2024. Turning to the full year, revenue exceeded $2.9 billion and net revenue exceeded $2.4 billion, representing growth of 5.7% versus 2024. Growth was led by digital transformation at 13.3%, marketing services at 6%, and the marketing cloud, which grew 230%, or 34.3% organically. Net new business, expanding relationships with our largest clients, and the multi-year nature of recent wins support a path to accelerating top-line growth as we enter 2026. Higher labor management, together with the early benefits of automation and workflow standardization, drove continued margin improvement throughout the year. As a result, adjusted EBITDA for the full year was $422 million, representing a margin of 17.4%. Excluding advocacy, adjusted EBITDA increased 15.9% to $377 million, with a margin of 16.5%. At our investor day last year, we outlined $80 to $100 million of cost actions to be fully implemented by the end of 2026. The majority expected to come from technology deployment across the business. Since May, we have actioned $51 million and remain on track to complete the remaining initiatives by the end of 2026. These actions are designed not only to reduce costs, but to create a more scalable and resilient operating model. As part of our broader back office transformation, we are moving to a technology-led exception-based operating model across nearly all functions, including finance, accounting, IT, and HR. Systems are increasingly handling routine workflows, allowing teams to focus on oversight. For example, expense automation is live in several brands. reducing processing efforts by approximately 60%, with broader rollouts underway in the first half of 2026. Technology is also improving efficiency within our agencies. Through our content supply chain initiative, we are embedding automation and AI across creative and production workflows, enabling higher volumes of work without the proportional increases in headcount. This is driving a shift away from manual processes and management layers and moving towards higher value and client-facing roles. By combining technology deployment with labor discipline, we improved our labor ratio to its lowest level in three years. Comparing 2025 to 2023, the last non-advocacy year, our payroll cost ratio improved by 143 basis points to 61.9%. Our focus on cash management delivered strong results in 2025, with free cash flow of $187 million, more than double 2024 levels, and representing nearly 45% conversion of adjusted EBITDA. This improvement was driven by faster billing through centralized systems and shared services, more discipline on collection, and better commercial terms negotiated at scale, strengthening both liquidity and balance sheet efficiencies. Our capital allocation approach remains aligned with our strategy of driving growth while maintaining cost and cash discipline and delivering value to shareholders. Capital expenditures in 2025 were focused on systems, platforms, and products that enhance efficiency, scalability, and future growth, including the machine, our Palantir partnership, and our marketing cloud offerings. Importantly, the marketing cloud generated a positive margin for the first time in the fourth quarter, reaching an adjusted EBITDA margin of 10.8%. These initiatives are beginning to deliver results ahead of schedule. We expect capital expenditures in 2026 to be broadly consistent with 2025 levels as we continue investing in the products, systems, and platforms. Beginning in 2027, we expect CapEx to decline as the focus shifts from investment to adoption and commercialization. In April 2025, we exchanged approximately 152 million Class C shares into Class A shares, simplifying our capital structure and creating future cash tax benefits. Combined with the repurchase of approximately 23 million shares during the year, this resulted in about 252 million Class A shares outstanding at the end of the year, a more transparent and comparable equity and earnings profile. Over the past four years, we have repurchased 55 million shares totaling approximately $323 million, reflecting a consistent commitment to returning capital to shareholders. We made these investments while maintaining a strong balance sheet and in the year with a net leverage ratio of 2.92 times. As adjusted EBITDA continues to grow in 2026, we expect net leverage to decline to the mid twos, even as we remain aggressive in share repurchases. Deferred acquisition consideration was reduced to approximately $40 million at year end and is expected to be negligible by the end of 2026. The actions we took in 2025 are transforming how we operate. As we enter 2026, we are running the business with greater control, improved visibility, and stronger conversion of revenue into earnings and cash, reflecting a company built for this phase of industry transformation. We are confident in our operating model, and that confidence is reflected in our 2026 guidance of total net revenue growth of 8% to 12%, adjusted EBITDA of $475 to $525 million, free cash flow conversion of 50% to 60%, and earnings per share of $0.98 to $1.12. Thank you. And I will now turn it back over to Ben for questions.