Stagwell Inc.

Good morning and welcome to Stagwell's first quarter 2026 earnings webcast. I'm Lena Peterson, Stagwell's Chief Brand and Communications Officer, filling in for our Director of Investor Relations, Ben Ellenson today. With me are Mark Penn, Stagwell's 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. And with that, I'd like to turn the call over to our chairman and CEO, Mark Pett.

Thank you, Lina. This is a pivotal moment in the Stagwell story as we continue to achieve our vision of extending in services from global full service to platform self-service AI applications. We're hitting major milestones on both ends of that vision while keeping costs under control and increasing our earnings per share. Together, these developments should produce an incredible 2026. First, our net new business is hitting records and we are now regularly achieving large scale wins. The first quarter was a record and our wins are about $80 million ahead of wins last year at this time. We're closing in on four new major assignments under final negotiations, and we just signed our first five-year, nearly $60 million government contract this week. Second, our new enterprise tech products and sales organization are on track towards hitting the first sales goal of $25 million with $12 million booked, and we are just getting our sales operation in place. Demand for the new products is strong with a growing pipeline. Our digital transformation segment continues to lead the way in growth. Third, this quarter is in line with expectations as indicated on the last call, and we are building towards a record-breaking second half of the year with the combination of new business and the kickoff of an advocacy super cycle. We reiterate guidance and express even further confidence given this quarter's organic net revenue growth is actually the strongest in Q1 in at least four years. We expect growth to accelerate to double digits by Q3 and Q4. Revenue grew 8% to 704 million and net revenue grew 4% to 585 million. We saw growth across all five of our segments in the first quarter led by a 9% jump in digital transformation. Digging into the digital transformation results, The two-year organic net revenue stack for the segment tells a particularly impressive story with growth of more than 22% in Q1. This continues an improving trend in this metric that we have seen for the last eight quarters. Given the strong start to the year, we expect the digital transformation segment to accelerate to mid-teens growth in the second half. AI and our understanding of how to apply it is a huge tailwind for us. Past weakness in communications is reversed, and the segment grew more than 6% principally on the backs of new corporate assignments as the political season was not yet underway, but will be in full swing in the last two quarters. All advocacy work is now within the single communication segment, and the companies are diversifying their work for more nonprofits, universities, and localized retail marketing. By region, the US led the way this quarter with over 8% organic revenue growth with over 3% organic net revenue growth and double digit growth in adjusted EBITDA. International efforts outside the UK were muted by a strengthening dollar and slowdowns in the Middle East tourism and technology, which we expect to be temporary. Adjusted EBITDA grew 9% year over year to $90 million, representing a margin of 15.3% and improvement of 75 basis points versus last year. This reflects prudent cost controls across the business. Our first quarter labor ratio declined to 63.9%, even as we invested in our go-to market engine. We are reinvesting these efficiencies in growth to take advantage of the AI opportunities. In the first quarter, we bought back approximately 7.3 million shares. Our shares outstanding at the end of the quarter was down to about 246%. million shares, down by about 19 million shares since last April, and down about 50 million shares since August 2021. As a result, EPS for the quarter was 17 cents, 31% higher than a year ago. Continued improvements in cash management means cash flow from operations improved by $34 million versus the first quarter of last year. This puts us on target to hit $250 million to $300 million in free cash flow with almost no deferred acquisition payments. Acquisitions have been dialed back as we are investing heavily in buybacks and in new technology as I've previously outlined last month. As I also predicted on the last call, We saw a surge in wins to start the year with record-breaking first quarter net new business coming in at $141 million, putting our last 12 months at $486 million. Our winning streak is continuing into this quarter as well with several important wins to be announced shortly. As I mentioned earlier, our government contract effort is also picking up steam and having success. This is adding hundreds of millions of dollars to our pipeline. and we have multiple large pitches coming up. When it makes sense, we are partnering with established players like Deloitte and Palantir on massive contracts. We continue to focus on driving organic growth through larger assignments, previously the domain of our three major competitors and reducing a high churn rate among our smaller customers. We have taken two major steps to execute that strategy and we expect it to pay off in 2026 and in raising 2027 estimates. First, we have doubled the size of the new business team, announcing significant new hires, including Nicole Sousa as Chief Growth Officer for North America, who brings with her 25 years of experience, most recently at Publicis. Second, to reduce client churn, we institute a client accountability program so that every client, no matter what its size, has a person responsible for it. We're receiving frequent reports fed into an AI engine that monitors and reports on client needs and trends. We've seen our top 100 clients grow by 15% in size, and we've decreased client churn across the business by more than 10% versus 1Q 2025 as we roll out these programs. As to our emerging enterprise services and software business, we are innovating with the products and driving early sales. In addition to the over $100 million of marketing cloud revenue, we're building an additional stream of software and service revenue housed in the digital transformation segment based on three key products. The Machine, an agentic marketing operations operating system which brings together a company's entire marketing stack. Sats, the Stagwell agentic targeting system that brings together a secure mix of client and our proprietary data with the power of Palantir's targeting. And Stagwell Search+, a new set of tools for managing search in the world that AI answers. We announced the addition of Michael Twedell to lead our enterprise AI solutions team and organize our sales and go-to-market efforts. He is quickly building a team. We are building the most cutting-edge, comprehensive, agentic marketing system available today. We believe every company will need an agentic marketing operations operating system, or MOOS as I like to call it, to unite their ever-burgeoning volume of enterprise applications and data. Since officially launching the machine, we have three active engagements that are part of the initial 12 million booked, including Con Edison, a well-known electric utility, a division at Microsoft and a soon to be announced Global Spirits brand. We are also currently have nine active opportunities with two deep into scoping the rest spanning industries from public sector to financial services. Sats will be sold both with the machine and individually. It's also in testing with multiple client engagements, including a Fortune 500 client and the Global Lifestyle Accessories brand. Working together with Palantir, we are adding key features that take users from audience identification through to media placement and assessment on an agentic basis. Stagwell Search+, our tool to help brands optimize an AI search and beyond, was described by senior Google leaders as, quote, genuinely differentiating. And we are now working regionally with Google industry heads to support client adoption. We're partnering with key leaders, including the Trade Desk at Loven and Adobe. Last week, we announced a joint initiative with Adobe called the Creative Intelligence System, which creates agentic personas to surface insights specifically for marketers in the financial sector who use Adobe as their system of record. This is a major pivot to the sales of AI application services and software. And we are now on the verge of bringing it all together, going to market with significant sales and installations this year and the ability to hockey stick it in 2027. Stagwell is on the verge of expanded growth that will carry through 26 into 27 and 28. Leg one of that growth is from the political super cycle, which will ramp starting in mid-year and then with the presidential race starting the day after the midterms. Expenditures and political efforts have expanded fourfold since 2008, and we believe it can double again. Leg two is the unique combination of services and software we are now offering, which is at the sweet spot of what clients need to adopt AI and shift new models of marketing. And leg three is our expanded winds of new clients at scale, displacing long-term whole co-relationships. We are coming into the CPG healthcare spaces with superior talent offerings against hollowed out creative shops. And we are moving to disrupt their longstanding government contract relationships. While aged legacy companies are seeing shrinkage, we continue to grow year after year and an unlimited growth runway ahead of us. We will continue to diversify the business into new high-touch areas as the business of marketing changes and into AI-based services and software that is a must-have for marketing today. We're growing our top and bottom lines. We're expanding our margins. We're delivering strong free cash flow. We continue to be significantly undervalued no matter how you look at the metrics for a healthy, growing company like us at the forefront of its field. How many companies with this profile do you know are trading at 6x free cash flow? That's why we will continue to be aggressive with our buyback. We have hundreds of millions of dollars in our buyback runway. We will use it. With that, I'd like to hand it over to Ryan, who will walk you through some of the financials in more detail.

Thank you. Good morning and thank you for joining us. Today I will share additional information about our first quarter's financial performance and how we are tracking towards our full year goals. Before beginning, I want to reiterate what we discussed on the fourth quarter call. Our first quarter is where we lay the foundation for growth throughout the year. And we go through a cycle of departing clients leaving January 1st and new clients coming on typically from April to June. Results in the quarter were firmly in line with our expectations across all metrics. We expect to deliver accelerating sequential growth in the second quarter and throughout the year. Starting with the top line, revenue increased 8% year-over-year to $704 million and net revenue increased 3.6% to $585 million. All five segments delivered revenue and net revenue growth during the quarter. Growth was led by digital transformation segment, with net revenue rising 9% year over year to $96.5 million, driven by increasing demand for integrated technology solutions paired with services that deliver measurable ROI in a changing market. The Marketing Cloud grew 5.3% to $26.5 million, driven by demand for our AI-enabled communication technology platforms and research offerings that help clients track sentiment in real time, gain faster insight, and more actionable insights into customer behaviors. Some of the other divisions are now selling Marketing Cloud products and retaining the revenue there. One product in the Middle East was pushed to Q2 due to regional conflicts, while Berra, our brand modeling product, grew 28% year over year, and the HarrisQuest family of products grew 19%. The new enterprise software products are not accounted for in the marketing cloud, but are in the digital transformation segment. Media and commerce continued its rebound, delivering 2.3% net revenue growth to $149.5 million. Performance was driven by improving new business momentum and expanding relationships as clients increasingly lean into the segment's integrated media, creative, and loyalty capabilities. Continued investment in media technology and AI-enabled platforms combined with disciplined cost management support stronger operating leverage across the segment. Marketing services maintained its momentum despite elevated prior year comparables, growing 1.1% to $217.6 million. Performance was led by our creative and research agencies and our centralized production group nearly doubled net revenue as we continue to bring more production in-house. And finally, communications grew 6.4% year-over-year to $96.8 million. largely driven by new corporate assignments as our communication firms deliver their product lines to undertake more localized marketing for retailers and other outlets. We expect election-related revenues to ramp up in the second quarter and to continue to grow each quarter thereafter. As we grew to our top line, we continued to take steps to manage our costs. Payable as a percent of net revenue declined by 110 basis points year over year to 63.9%, while G&A as a percent of net revenue declined by approximately 50 basis points to 19.6%. In the first quarter, we expanded the rollout of tech deployment through our businesses in anticipation of actioning the balance of the cost savings we announced last year. The total action savings since April last year amount to $54 million, firmly on track to achieve the $80 to $100 million that we previously outlined, with these savings flowing through the P&L during 2026 and fully reflected in 2027. These improvements were partially offset by purposeful actions to strengthen our go-to-market expertise through expanding our new business team, which we aim to double in 2026, and marketing cloud Salesforce. Additionally, we increased our investment in our AI and technology capabilities. This includes OPEX investments into our tech products, including the machine and our Palantir partnership, as well as bringing in further experts to strengthen our technical expertise in AI and data. Adjusted EBIT on the first quarter was $89.7 million, representing a margin of 15.3%. This reflects the over-year growth of 9% and margin expansion of 75 basis points. This improvement in adjusted EBITDA, together with the impact of share repurchases I will discuss shortly, drove adjusted EPS of 17 cents, a 31% increase versus the first quarter last year. Cash management continues to be a core focus for Stagwell, and we delivered further progress early in the year. Cash flow from operations improved by $34 million versus first quarter last year, driven primarily by stronger working capital execution. That improvement translated into an $18 million year over year increase in free cash flow within the quarter, keeping us firmly on track to achieve our full year free cash flow conversion target of 50 to 60% of adjusted EBITDA. These improvements in cash flow reduce our revolver balance at quarter end to $350 million, a $25 million or approximately 7% reduction versus the first quarter of 2025. Lower net debt and year-over-year growth in adjusted EBITDA drove a 0.17 turn improvement in our net leverage, bringing leverage down to 3.11 times. Our continued progress on leverage and cash has been reflected in recent ratings actions, with Moody's reaffirming our B1 rating and revising our outlook to positive in late March. We remain on track to exit 2026 with net leverage in the mid twos, reflecting the combination of a growing adjusted EBITDA, disciplined cost allocation, and improving free cash flow generation. Turning to capital allocation, we were purchased approximately 7.3 million shares during the quarter at an average price of $6.16, representing approximately $45 million of deployment. We continue to invest in our technology platforms, including the machine, our partnership with Palantir, and the marketing cloud offerings. Capital expenditures and capitalized software total $33 million in the first quarter, and we continue to expect full-year investment levels to be consistent with 2025. As Mark noted, the momentum behind these products supports this level of investment, and we expect them to begin driving growth across the segment in the second half of the year. Deferred acquisition concerns Consideration totaled approximately $50 million at quarter end, down roughly $43 million versus prior year period. As previously noted, we expect deferred acquisition consideration to be negligible by year end. First quarter results, coupled with excellent new business trends that Mark highlighted, give us confidence in our four-year guidance of total net revenue growth of 8% to 12%, adjusted EBITDA of $475 million to $525 million, and free cash flow conversion of 50% to 60%, and adjusted earnings per share of $0.98 to $1.12. Thank you, and I will turn it back over to Lena for questions.