Stagwell Inc - Ordinary Shares - Class A Aktie

Good morning and thank you for joining us for Stagwell's Second Quarter Earnings Webcast. I'm Ben Allanson and I lead the Investor Relations function here at Stagwell. 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 the financial review. [Operator Instructions]

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/investors for an investor presentation and some 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 Penn.

Thank you, Ben. When I founded Stagwell, I was convinced that the marketing services industry needed transformation. Stagwell was founded as a tech-forward challenger to the legacy players with the vision of providing customers with everything from global full service to platform self-service solutions. Stagwell's first half and especially the second quarter is validation of these founding principles and the work we have done to build Stagwell over the last decade and the incredible teams of people here who really make this -- make Stagwell what it is.

AI is the tech transformation that we were built for and our business is thriving as we become recognized as the leader of cutting-edge agentic marketing. This was the biggest second quarter in the history of the company. Organic revenue grew 10% year-over-year and organic net revenue grew 5%. The standout was 18% organic net revenue growth in Digital Transformation, along with 12% from Communications. Geographically, we saw 7% organic net revenue growth in the U.S. and 13% organic growth in the U.K. Adjusted EBITDA of $109 million is more than 15% higher than last year and the margin of 17.2% is 140 basis points higher. This improvement in profitability is a result of continued focus on cost management. Our labor ratio in the quarter stood at 61%, almost 300 basis point improvement year-over-year. Net new business of $171 million was our highest ever and 45% greater than 2Q '25, led by some major new assignments and adjusted EPS grew 39% year-over-year to $0.25.

I said last quarter that 2026 is a pivotal year for Stagwell. These results show we are steadily moving ahead of the competition. Starting with net new business. The run of flagship wins clearly signifies us moving into a top 4 position in the industry when it comes to key capabilities. We continued our strength with tech companies by taking IBM's creative business away from a 30-plus year legacy incumbent. We expanded our relationship with Adobe and added Colombia-based leading Adobe implementation firm, QStrauss Consulting, consulting to the Code and Theory Network just earlier this week. We continue to grow our government work by winning Visit California, an account that hadn't turned over in over 20 years. We made inroads in the packaged food segment by weeding out legacy competitors for mandates with both Hershey and Mondelez.

We expanded our European presence joining Heineken's roster and winning both Haier Europe and Allwyn. And we celebrated wins with Navy Federal Credit Union, Allegiant Airlines and countless others. This new business momentum is a testament to the tech-forward collaborative approach Stagwell brings to its pitches and the great quality of its people. The feedback when we win these mandates is consistent. Stagwell is the right combination of strong creativity, great technology and agility. Our pipeline has never been stronger. We expect cumulative year-end pipeline to be about 30% higher than last year. I've said Digital Transformation is going to be a major driver of our business this year. In 2Q, we saw organic net revenue growth of 18%, bringing our 2-year organic net revenue stack to more than 29%, a meaningful acceleration versus Q1 and the eighth consecutive quarter of improvement on that metric. This is all on top of Digital Transformation, posting a 30% adjusted EBITDA margin in the second quarter.

I'm regularly asked, how does our digital transformation businesses like Code and Theory, how have they been able to generate mid-teens plus organic net revenue growth over the last 12 to 18 months, while the IT services and legacy holdco digital transformation businesses have declined or at best stayed flat, as well as how is Stagwell able to generate more than 3x the revenue per head of its IT service players? The answer is simple. The market is increasingly moving away from commoditized IT services with thousands of low-cost engineers towards higher value work that combines business strategy, technology creativity and AI transformation. This intersection is exactly where Stagwell's digital transformation agencies operate, powered by cutting-edge software and forward deployed specialists who realize value for clients by driving adoption and optimizing workflows. The results from the digital transformation speak for themselves.

Our tech products are increasingly becoming core to our value proposition across all segments. Our solutions like The Machine and Stagwell Agentic Targeting System or SATS, which is built on Palantir's Foundry, fits seamlessly into our customers' way of working. And we're doing the same with our media solutions, giving our customers more control and transparency over their media buy with The Media Machine and Stagwell Curate, all powered by AI. We are closing in now on creating a complete suite of agentic products for enterprise, including The Machine, The Knowledge Machine, The Targeting Machine and The Media Machine. We're seeing real traction with products like The Machine and SATS. Through the first half of the year, we had $16 million of committed enterprise technology revenue and our pipeline exceeds another $16 million, firmly on track to exceed our initial bookings goal for this year of $25 million. We see this as part of the flywheel that will drive our new business momentum in the coming years.

As we look towards the second half, I want to call out the growing momentum in our Communications segment, which saw 12% organic net revenue growth in the second quarter. This represents an almost 700 basis point quarter-over-quarter acceleration from the first quarter. Political is beginning to play an obvious part and will accelerate further as we get closer to the increasingly competitive midterm elections in November. Our PR work continues to rebound strongly as well. We also continue to make strong progress on our initiatives to reduce small client churn, which will also have a positive impact on organic net revenue growth throughout the year. We anticipate an acceleration in the second half with double-digit net revenue growth led by Digital Transformation and Communications. The overwhelming majority of that growth will be organic. Our second quarter results are industry-leading and showing accelerating trends on all key metrics. Our new business successes over the last 12 months provide a strong foundation for the second half of the year.

For that reason, we are updating our full year guidance today. As I've highlighted, we expect growth in the second half of the year to be overwhelmingly organic. We maintain our 8% to 12% total net revenue growth target and our adjusted EBITDA guidance of $475 million to $525 million. We also reiterate our free cash conversion goal of 50% to 60% for the full year. However, we are raising our full year adjusted EPS guidance from $1.03 to $1.17 and this reflects our increasing confidence in the full year as well as the impact of year-to-date buyback activity. This is just the start of a multiyear growth cycle for Stagwell. As we look ahead to '27 and '28, our outstanding net new business trends provide increased visibility over the next 24 months plus. We're winning bigger, longer-term contracts and some of the most preeminent brands of the world and we continue to make headway on government contracts. We're winning these away from legacy competitors as clients look to help us -- help them adopt AI and new models of marketing.

These wins will really make the full impact next year because it takes a while for them to come on board and ramp up as we continue our momentum throughout 2026. And this is all before we really start the political super cycle of the midterm elections, presidential primaries and the largest election in American history in 2028. We are also carefully managing our costs throughout the business as we grow and expect our margins to continue expanding. This should mean solid growth in adjusted EBITDA in 2027 and then excellent growth in 2028 with the political season as well as we continue. And at the same time, we continue to make progress on our free cash generation.

With industry-leading growth, expanding margins and growing free cash flow, we do not believe that our current trading multiples are appropriate. To that end, we'll continue leveraging our buyback authorization to shrink our share count further, to have a positive compounding impact on our adjusted EPS growth. It could see us raise our already increased adjusted EPS guidance for the year, later in the year. The second quarter was excellent and it's just the start of a multiyear growth story for Stagwell.

With that, I'd like to hand it over to Ryan, who will walk you through the financials in some more detail. Ryan?

Good morning. Thank you, Mark and thank you for joining us. I'm now going to provide some detail on our second quarter results and our progress against our full year objectives. This quarter reflects accelerating revenue growth and margin expansion while continuing to fund investments that will support our next phase of growth. We delivered 11% revenue growth to $786 million and 6% net revenue growth to $632 million. Second quarter organic revenue grew 10% and net revenue grew 5%, representing our strongest growth in the last 6 quarters. Organic contributions are expected to drive growth throughout the second half of 2026.

Growth was broad-based across the portfolio, with all 5 operating segments delivering organic revenue and net revenue growth, led by Digital Transformation and Communications. Digital Transformation net revenue increased 18% organically year-over-year to $107 million. Our teams are doing far more than system implementations. They are embedding teams alongside clients to drive meaningful business transformation. This is a premium service offering. And as a result, the segment delivered a 30% margin, its highest since the merger. Communications delivered 12% organic net revenue growth to $112 million, recommending -- representing the segment's strongest second quarter since the merger. Corporate demand continues to grow as clients engage us to address critical communications and public affair challenges. Our differentiated approach combines senior strategic talent and campaign tested targeting capabilities that deliver results at both the national and local levels. We also expect election-related activity to contribute strongly to our second half results.

The Marketing Cloud increased organic net revenue by 4% to $27 million. Growth was driven by demand for AI embedded products, including 34% from LEADERS as well as high platform utilization and additional subscription-based offerings. Marketing Services generated $243 million in net revenue, representing a 0.5% organic net revenue growth. Several significant creative assignments were awarded in the second quarter and are expected to scale throughout the second half of the year, positioning this segment for stronger growth in 2027. Media & Commerce grew 1% organically to $155 million in net revenue.

Geographically, the U.S., our largest region, reported 7.1% organic net revenue growth year-over-year. The U.K., our second largest region, continued to accelerate, delivering 13.4% organic growth. As the top line accelerated, we also improved the efficiency of our business. Since launching our cost reduction program in April of 2025, we have actioned approximately $70 million of annualized savings and remain on track to achieve our year-end target of $80 million to $100 million. These actions are already contributing to margin expansion in 2026 and will be more fully reflected in 2027.

Technology investments are improving efficiency across the organization. Back-office automation initiatives are delivering results. The continued rollout of payroll, cash and expense automation platforms remain on track to generate more than 25,000 hours of monthly productivity efficiencies. Staff costs as a percent of net revenue declined 280 basis points year-over-year to 60.9%, our lowest second quarter labor ratio in 4 years. As a result, trailing 12-month revenue per head exceeded $280,000, up 6% from the second quarter last year. This remains the highest level in marketing services industry and more than 3x that of major IT providers. Even as margins expand, we continue investing in technology and talent to support future growth. We are investing in sales and account teams at both the Stagwell and brand level as well as platforms and products such as the Stagwell Content Supply Chain, The Machine and Marketing Cloud offerings. As a result, second quarter adjusted EBITDA increased 15% year-over-year to $108.7 million, with margin expanding 143 basis points to 17.2%.

Stronger EBITDA performance is translating into improved cash flow. Year-to-date cash flow from operations was $63.7 million, an increase of $9 million or 16% compared to the first half of 2025. We expect operating cash flow to improve as the year progresses, driven by the seasonal pattern of our business and the expected second half increase in communications activity related to on-cycle election year. As a result, we remain confident in achieving our full year free cash flow conversion target of 50% to 60% of adjusted EBITDA. Deferred acquisition consideration was approximately $57 million at quarter end and we expect it to be negligible by the end of the year. Our revolver balance was $360 million at quarter end and we had $374 million of unused borrowing capacity under the credit agreement. Net leverage stood at 3.04x. We remain on track to exit 2026 with net leverage in the mid-2s.

Turning to capital allocation. We remain active with share repurchases during the second quarter. We repurchased approximately 5.9 million shares at an average price of $6.22 per share. Year-to-date, we have repurchased approximately 14.4 million shares for $88 million at an average price of $6.10 per share. Shares outstanding at the end of the second quarter were 244.4 million shares, roughly $16.8 million or 6.4% below the same period last year. The lower share count, together with stronger EBITDA growth drove adjusted EPS of $0.25, an increase of $0.07 per share or 39% compared to the second quarter last year. Year-to-date CapEx and capitalized software are in line with our expectations and reflect the continued scaling of projects already underway.

We expect full year capital expenditures and capitalized software investment to be in line with last year. We are reiterating our guidance for net revenue growth of 8% to 12%, adjusted EBITDA of $475 million to $525 million and free cash flow conversion of 50% to 60% of adjusted EBITDA. As Mark mentioned, we are raising our adjusted EPS guidance to a range of $1.03 to $1.17 per share, principally reflecting the impact of share repurchases completed year-to-date. The new guidance reflects our current share count, although continued repurchases could provide additional upside. Based on the limited acquisitions to date, we expect these targets to be achieved largely organically.

Now I will hand it back over to Ben for questions.

Thank you, Ryan. [Operator Instructions]

I'm going to start with a question about digital transformation, in particular. Obviously, a really, really nice quarter, continuing a pretty meaningful trend here. So can you talk a little bit about what is sort of driving the strong level of growth there? And is it a sustainable thing in the back half of '26 and into '27 as well?

Well, I think it's sustainable for about 10 years. What's really driving it is the conversion to AI. I think as I've said for actually 2 years now, every single company that touches the consumer will have to redo the way they communicate with that consumer based on AI. And that is going to create an enormous backlog of work for people like us in Code and Theory that really focus on that last mile with the consumer. So that's why we have the largest pipeline in history related to those kinds of services. And we've also done some very smart things with the business in terms of broadening out the services now, doing the partnership with Adobe, working with Palantir, bringing in kind of the best tools that relate to either content creation or targeting. And let me tell you, at the same time, that work is getting far more efficient because about 75% of the coding now is done agentically. And so we are getting higher level assignments, greater backlog of the pipeline and we're working more efficiently than ever to produce that work.

And maybe just a follow-up on that. And this is a question from Mark Zgutowicz at StoneX. Just talking about margin trajectory within that business, particularly in the second half and again into 2027, 30% plus, I think, in this quarter. Is that something we think we're going to be able to see some upside to some leverage? How would you think about it?

Well, look, again, I think the overall products that we're delivering are becoming more efficient because of our smart use of AI internally. And I also think the demand for clients is, they need this work done now. I think time is increasingly important to those clients. And in terms of getting kind of AI and agentic work in place in terms of their communications for customers because they save money. So are they going to be -- where are they going to put their focus? Their focus has got to get online -- got to be getting online as quickly as possible.

I want to pivot quickly to new business. Obviously, a very, very strong quarter, continuing those trends. Question from Jason Kreyer at Craig-Hallum. We've heard agency peers in the market talking about a tougher environment for new business. I reckon, well is Stagwell seeing any shortage of new business opportunities? So can we maybe just lay out what we're seeing in the new deal environment right now? Are there any kind of key themes we're seeing in terms of what people are asking for? And why is Stagwell performing so well when it comes to competitive bid?

So obviously, you're seeing some comparative and competitive differences really come to the fore. Or others stepped back from creativity and said, "Oh, maybe creativity will be done by AI or maybe it will be running it for free." We stepped up with premium creativity that really helps brands differentiate themselves and we're finding that, that is really winning in the marketplace. That's why, as I went through in the script, we won so many bigger and amazing accounts really from legacy players because we think creativity and human creativity on top of being powered by AI is really what's going to win in the marketplace and what big companies need to differentiate themselves in this increasingly competitive world.

And so consequently, we're seeing there in digital transformation. We've opened pipelines at government. We've opened our pipelines globally as well as we built the division out in other -- divisions out in the other parts of the world. You see that we basically also have taken what we had over in London and the U.K. We put it in to a structure. We put in a really new team approach that is resulting in double-digit organic growth out there.

Great. I want to -- I'm going to combine a couple of questions here because I think there's a lot of interesting things here. Laura Martin has asked, can you talk about how you're using AI to accelerate revenues and/or lower costs. But I want to also bring in a little bit about CapEx and how that's trending, how it's trended in the first half of the year and how we're thinking about that in the back half of the year. So maybe, Mark, how are we thinking about using AI to accelerate revenues and lower some costs?

Yes. No. Look, I think that we set out really 1.5 years ago to make sure that AI was infused throughout every single process. Remember, we've always had a strong internal technology-first team built to help the entire enterprise, not connected just to individual brands within the enterprise. And so that team has been at the forefront of implementing AI. And Ryan here has been at the forefront of taking those back-office services and applying AI to them. And our engineers have been at the forefront of applying agentic coding, again, to making the work faster, simpler, better. And all of those things, I think, are working to really continue to define Stagwell as the leading transformer of marketing today.

Maybe on the CapEx question.

Yes, sure. Last year, we added about $145 million to our fixed assets. When you exclude the intangibles, the capital investments were close to $125 million. If you look at how the investments are going for this year, we're going to be in about the same range we expect, if you look at it from a balance sheet perspective. In terms of cash flow, last year, we had funded only about $111 million of that. And so we saw some of that pickup carry over into this year. We're closer to $90 million funded this year and we'll probably keep the same pattern. You'll see the same contribution both from the investment but also the cash perspective this year.

Remember, we've changed the way that we're investing capital. We basically are doing fewer new acquisitions, more CapEx, which we expect to come out at the same level this year as last year and share buybacks in terms of our capital allocations.

Okay. Question here about The Media Machine. It obviously plays into the broader machine narrative but launched beginning of June. Why is that important? Like how is that going to drive revenue for the business moving forward? And what's traction looking like there? Obviously, still very early. Go ahead.

Look, I think we really look at media from a performance-first objective. We look at the other players, some of whom have become just media companies and they have really dedicated those media operations to winning on the basis of scale and/or principal media. We are coming in from a slightly different approach. We're going to be technology first. We're agentic first. We're performance first. And we believe we'll be able to carve out an increasing market share as we reveal to the industry, the new tech products on which our media operation is based. And you're going to see, I think, stay tuned for further announcements in this as we take an even more competitive stance on media against those legacy players.

And just I want to like go a little bit more into some of the tech -- enterprise tech products. We just talked about $16 million of committed revenue, $16 million of pipeline. Where are we at in that right now? Like how are we building, are we on track? What are we looking for kind of through the rest of the year? And so...

Well, look, I have a lot of experience in technology. I've been Chief Strategy Officer at Microsoft. And technology is not always the easiest to build. But I will say that our teams are 100% on track with the timing. I set $25 million as the first year goal. We're really on track for the first year goal of bookings. That really sets us up nicely to really go next year full bore. At the same time, and most importantly and I think as Ryan pointed out, while we're keeping our overall labor expenses down, we're investing in new sales teams. Those sales teams are just coming on now. And now that we believe the products are ready to go to market, we're building the sales infrastructure for selling those products, which is really somewhat different from the infrastructure that we use to sell marketing services. The 2 of them are going to work collaboratively and cooperatively to sell to our clients first, the outside market second. And I think you're going to see that really explode next year.

Two more questions. First one, a little bit shorter. The second one, I think is a little bit more detailed. But the first one is just about political. How is it looking into the back half of the year? How is it going to be as a driver in there? And then maybe looking ahead to '28 as well, when should that presidential cycle really kick off?

Look, political is on track. What we have typically seen is that the midterm elections are about the size or close to the size of the past presidential election. And then the presidential election will represent kind of a new level of campaign involvement and expenditure. And so far, what we're seeing is pretty much on track with that prediction. Remember, the day after the midterms, the presidential race will start. And so there will be, I think, significant political work in '27, which is in contrast to the year before midterms when there really isn't much, if any, political work. I think you're going to see that the '27, particularly the second half of '27 with the presidential primaries will really pick up, especially in terms of fundraising and other activities. This is going to be quite a political super cycle, unlike anything we have seen in modern history.

I want to finish with sort of quite a detailed question about capital allocation, particularly in the back half of the year. And investors pointed out that based on our guidance, obviously, you're going to generate a lot of free cash in the back half. In particular, it's very similar to the traditional seasonal trends. How do you think about capital allocation, be it around M&A, stock buybacks, debt pay down heading into the back half of the year. And the comment from investors about how cheap the stock is and a variety of other things. Is that the right way of thinking about it? So I want to ask that really, obviously.

Sure. I mean, look, remember that in general and this is a point that you have to look at is that we did not make almost any acquisitions during the first half. So there'll be some acquisitions coming in the second half but this year will be primarily driven by organic revenue. The way that we're reaching the 8% to 12% is actually not as we planned originally in the early part of the year where we thought there'd be a bunch of acquisitions, instead, organic growth is higher, acquisition is lower, stock buybacks, I think, higher, EPS higher. And I think as we look at the second half of the year, we're going to continue to distribute our capital use so that as Ryan said, we hit at the end of the year, something closer to the mid-2s in terms of our debt ratio, continue to do buybacks, fund our CapEx and do some acquisitions because there are some areas, I think, particularly as our stock value goes up, it becomes even cheaper and more effective to do certain kinds of transactions. So I guess that's a long way of saying that it's a balanced approach to capital allocation that you'll see in the second half of the year.

And just on M&A and the strategy of diversifying the business, strengthening bits of the business, are they going to be smaller, bigger? How do you think about that?

Look, I don't see -- at this point, I don't think anything that's going to be huge or disruptive. I think we have a pattern of buying small to midsized companies in areas that we think there can be excellent growth and really that continue our path to global full service down to platform self-service. And we've also, I think, successfully been diversifying in owned media properties and we continue to look at acquisitions either in those area -- in that area or related to that area because I think that's something that we've really turned around quite successfully and is contributing to the bottom line this year.

Yes. But organic is the key to the story in 2026.

Absolutely.

And that -- with that, I think that's most of the questions we've covered at this point in time. We really appreciate you taking the time to listen in today. We'll obviously have another earnings call for our third quarter later on in the year. Any questions, please do reach out to [email protected]. We'd be more than happy to answer them. Thank you.

All right. We'll get started. I'm happy to have back at the conference from Stagwell, Mark Penn, Chairman and CEO. Mark, thanks for being here.

Thank you.

All right. So Mark, we are at an interesting moment for the marketing industry, significant AI-driven change, consolidation among some of your peers. We had the announcement yesterday that we'll get to. But how do you see Stagwell is positioned? And where are you most focused currently?

Well, I think we're strongly positioned for AI. I think AI and technology itself was at the core of why I created Stagwell, when I was coming from being Chief Strategy Officer at Microsoft. What I observed was in my work with the other companies was that they were not tech forward enough and they were not collaborative enough. And so on day 1, we opened up really a unique engineering team that was supposed to engineer innovation within the marketing space. And so as AI really came along here, this team is now able to produce AI marketing products that really kind of are part of a whole pivot to our business, which is very strongly positioned with digital transformation, but now is making a number of headline products, specifically AI based. And so I think it's come along at a very good time for us.

So you reported Q1 earnings at the end of April as it relates to the macro, I didn't hear any red flags, but wanted to see if you could just update on this, what you're hearing from clients, how they're approaching media spend, just given all the cross currents in the economy. And I don't know if it also makes sense just to touch upon a big cyclical event coming down the pipe in a month with the World Cup, too.

Look, this really does appear to be the best economy from a marketing and advertising point of view that we've seen since '22. '22 was like when everybody came out of the pandemic was an amazing year. And I think we've had a couple of years or 1.5 years when people were afraid of a recession all the time. And I think what we're seeing now, I mean, if you look at the growth among digital advertising, it was really 14% last year. We're looking at close to 10% growth in digital marketing this year. Obviously, you've seen linear come down. You've seen sports go crazy. You've seen gaming go crazy. I think there's a lot of good trends out there.

This is not a time where I see our clients calling up and pulling back and holding projects. It's also not a time when they're rushing and hurrying up. It's actually a surprisingly normal time in which I think people are putting on pitches, they are awarding the contracts. They are getting going. I think we're seeing a very normal economy out there by and large, believe it or not.

What about digital transformation? Stagwell's continued growth here, I think it's a contrast to some peers that maybe have described a pause in spending, what's getting your clients to finally commit or execute to those projects like AI integration?

I think we've always been tilted to the last mile when it comes to AI -- I'm sorry, when it comes to digital transformation. When you think about it, we really do everything that is designed for or touches the consumer as a kind of -- whether that's content management systems for newspapers or whether it's banking products, whether it's large-scale websites for the NBC Olympics. What we're seeing now is that all of the companies need to infuse AI. And so it has kicked off an entire round of digital transformation that fits in very well because we also tend to be, what I call, a premium digital transformation company. A lot of the tech companies are our clients. We design a lot of the interfaces for the various products. We have a very active design and then kind of a build. We have about 1,500 engineers. We are finding for our level of digital transformation and absolutely a record pipeline. We'll see double-digit growth this year, and that's in addition to the AI products that we're bringing to market.

Stagwell has been pushing up in scale with marketers. I think you last highlighted the average top 25 client was just at about a $30 million relationship. How do you think about moving this higher, both organically and then through the new business process?

Well, I think part of the theory of Stagwell, and particularly as we were built in the early years, largely through acquisition is that we would achieve a bigger and bigger scale. And when you look at what's happened to the rest of the industry, there's really only 4 companies now that can carry out a global marketing campaign. One of them was just here. There's two others and then there's us. So what we're seeing is a growth in the opportunities of larger scale, and we're now in 51 countries with 12,000 people. We don't need 100,000 people to be at the scale to take on the kinds of contracts that were coming in.

And I think you've seen, as I said on the earnings call, a record new business amount. I know, I've got 3 or 4 pitches that are coming to fruition in our favor that are just about in signing stage that will be announced over the next 2 weeks. And so I think we're in a very favorable position to continue to scale up the business with larger and larger assignments, precisely because there's now only 4 of us that can really handle these kinds of assignments.

How does that consolidation, I guess, impact the RFP environment? And as a result of some of the deals we've seen? Have you seen an acceleration in the pipeline at all?

We definitely have seen -- when I started really 4, 5 years ago, the pipeline consisted of $300 million. We hit $1.4 billion. We're going to probably hit $1.6 billion in pitches. We generally do not participate in about 20% of them, and then we win about 1/3 of those that we participate in. And so what we're doing now is we're doubling the forward sales team. We're trying to find every avenue for new pitches so that we continue to grow the business on the top line as fast as possible.

Got it. I think you had flagged government as a potentially large category with some breakthroughs recently. Just what shifted in your ability to compete for some of those large contracts and just keeping in mind some sizable deals are coming up potentially in the next couple of years?

Yes. Again, we started about a year, 1.5 years ago and said, look, we don't really have any government contracts because the collection of companies that we brought together typically would not have thought to participate much, maybe an economic development contractor or 2. But now that we've come together at a scale at about close to $3 billion in sales, that we qualify for virtually every government contract at every level for digital transformation contracts, for tourism contracts, for lottery contracts, for all these communications for website redesigns. We recently had a meeting in our office with 20 state directors of really the -- how consumers interact with state governments. And so there's a tremendous move now for you to be able to interact, believe it or not, with your government on an efficient level, and we're really well positioned for that.

And so we're seeing recently, it hasn't been officially announced, but I know the contract signed, as I said, like a big state tourism contract, a $60 million contract across 5 years. It's just like the tip of the iceberg. So we've shown that we can go out, we can start to win these things. This year, we're going to see there's the Post Office contract up, there's a Navy contract up, there's some major Department of Defense contracts up. There's a lot of contracts up that we're going to play in. And hopefully, by next year, we'll have a pretty thriving -- pretty good and thriving government practice.

And is that a global opportunity? I mean, you mentioned tourism, lottery, all categories that apply in European countries or is it a more domestic opportunity?

Well, there's nothing like the U.S. economy. And so there's actually nothing like the U.S. government. I think there are a couple of opportunities. We've done Swedish tourism, but the level -- when you're looking at these U.S. government contracts and something like recruitment is a $1 billion contract. So there are just opportunities here in the U.S. that are so much more open and so much more available. I think -- and they haven't had a new competitor like us come along again in a long time.

I guess, separate to bringing clients in, you've also refocused on sort of protecting the back door, so to speak, right, improving retention. What are the key points to highlight there?

Yes. I think when we did an analysis of what was happening because you look at it and say, "Well, okay, we have all this net new business, why aren't we growing organically faster?" And the answer was that the business was going through a transformation. And in fact, we were losing very few clients of the larger clients that what we really saw was a lot of drop-off in the small clients. And so now what we've put in is a kind of active client accountability project where every one of these small clients will have an account executive assigned to them and tracked using AI to really make sure that nothing is falling through the cracks and that large and small clients are getting the same level of service. And we've already seen a 4- or 5-point decline in the first quarter of the drop-off of the churn. And so our goal is to get the churn down about 10 points.

Okay. On Marketing Services, Mark, you made an interesting comment kind of recently that premium creative is alive and well as opposed to creative by the pound as you termed it. Curious how you would contrast that? And maybe we could just talk to the outlook for your core creative agencies.

Well, I mean, take a look at something like the Super Bowl. I mean the Super Bowl is kind of the largest creative advertising festival, right, in which there will be 50 to 60 advertisements faced off and there'll be maybe 5 to 10 winners. And we're only 1% of the market, but we're basically about 10% of the Super Bowl. We're about 20% of the winners. And so we are way over-indexing. And I think that gives clients confidence in that.

And then I think what we're also seeing is that I kind of recently went through some of the RFPs we're doing. And I said, well, do I believe that AI could have come up with ideas like this? And the answer was no. The top-level creative ideas that tend to really be successful are just not things that are easily thought of that really they're somehow orthogonal to what people think and believe. And so we have had several what I call, fourth generation post-Madison Avenue agencies, like 72andSunny and like Anomaly and like -- now DonerColle and F&B, all of which, I think, have a different take and direction of creativity. And they're offering what I call a premium creativity, which means that creativity in big marketing can make a big difference, just as targeting can make a big difference. So it's getting the right ad to the right person at the right time.

And so what we're finding is that some of the other majors have gotten so focused on media that they tended to deemphasize the premium creative, and that's creating an opportunity. And right now, if I look at the 72andSunny and Anomaly, they're both at the zenith of what they've ever been in terms of size and growth in people.

And on the by the pound creative and maybe this is more of an industry kind of question right? Are there kind of challenges to that piece of it?

Yes. I think that -- see, a premium creative generally will create a platform that can then be rolled out and copied and duplicated internationally. And that's where, if you had something I'm not going to say like -- but like a Media.Monks something or like a Hogarth that was primarily about multiplying ideas across thousands of pieces of content. That's where AI really comes in. And we didn't really have operations like that. And so that really doesn't affect us in the same way that it would affect people with those kinds of operations. That created by the pound. It still exists is going to exist, but it's going to be primarily driven through AI.

Can we unpack the AI piece of this a bit more, right? You made the comment about the Super Bowl ads, not something that could have been generated by AI. I'm curious what you're actually seeing in the market, right? Because investors, you can engage in conversations with them and imaginations can kind of run wild about where AI is going and what it can displace. But like what are you actually kind of seeing in the market? Where are there, okay, this is legitimate real concern versus, hey, this is completely overblown.

Well, look, when you analyze technology, too much time is generally spent on how it is going to make what you do more efficient. And not enough time is generally spent on how it is going to let you do things you always dreamed of doing, but couldn't do before. And so what happens is the whole slate of what you can do and can create kind of moves up and it doesn't go backward. So yes, what you really see continually is the elevator operators disappear, the toll collectors disappear. In my survey business, the survey interviewers disappear. And so more concentrated framework gets focused at the top.

So I've been through this kind of technological change in the survey business, where we started with 63 people to do a survey and now we do it with 3. We still have surveys. We still have the same margin. Some of them are less expensive than they would have been if we were going door-to-door with people. So there's a wider marketplace, a greater TAM as a result. But the surveys we do now are kind of years ahead of the surveys that we could have done. And the same thing in visuals and creation in the movies, nobody is going back and figuring out how to do silent films, okay? They move up to another level of creativity and imagination that now can be generated through these new tools.

So I think that on the one hand, we do believe there's about 15% to 20% of labor that can be simplified. It would be removed in some of these processes, particularly in production as opposed to creation, particularly in some of the targeting and following of media campaigns. But the high-level intellectual work still remain -- that has to be utilized to differentiate you still has a significant place in the stack here. And that's where I think there is a limit of what AI can do, just as there was a limit of what the PC could do, a limit of what the Internet could do. I mean these are not unlimited opportunities here for technology to displace everything. There are limited opportunities to have a new frontier of what creative can be of what we can create, how we can make it more personal and how we can have ads that are considerably more effective.

I guess with that transition, to the extent there's a cost-plus model that exists in the industry as some of that labor comes out, and how does that almost by definition, impact the revenue associated with some of these...

Well, then technology costs have to go in, right, to that. Again, what I found and look, the best example I do have is the survey business, so what happened, we did more surveys, surveys came down a little bit in price. The margin reestablishes itself anyway because nobody is going to do it for free, wouldn't -- the businesses just wouldn't exist. So consequent -- since there is need. So if you look at this, what will happen is if advertising becomes more effective, people will do more advertising. And so the actual -- we will have an industry growth and then you'll have somewhat more to do and then you'll simply -- maybe things will be, like I said, a little less expensive, but already the kind of the advertising and production piece of it is only a few percentage points of what the media costs.

So there's really not much balance sheet savings for people in this area in any event. And a lot of risk, right, because these intellectual areas here of having to get the targeting right, and the strategy right, and the creative right, can make like a 6 to 10x difference in how effective the marketing campaign is. And if everybody has the same AI tools, then what's really going to differentiate you? What's going to differentiate you is superior strategy, superior more engaging creative, and then everybody is going to have reasonably similar targeting.

Got it. I want to see if we could discuss Stagwell's Media operations. I know there's some client losses that I think either you cycled out in Q1 or you will soon. And then look, as it relates to media, we've seen notable consolidation here. There's been some retrenching by competitors. So how do you see yourself as positioned? And it would be great also if you could kind of speak to the AppLovin partnership that you announced earlier this year?

Yes. I mean, we do $5 billion to $6 billion kind of a placement with 75% to 85% of that is online. We don't do as much offline as the others. So when it comes to online scale is less of a factor. And I think what we're doing is we're upping the game in the technology. We've created the Stagwell ID Graph. So we're utilizing our research companies and our platform companies to create really additionally useful data that then we can take the Stagwell agentic targeting system, apply that with customer data to enhance it, give people access to the ability to place media campaigns as though they always dreamed of placing, but couldn't really place.

So we're taking a technology-first approach, particularly oriented in better targeting in the performance marketing. And we've hired -- actually, the CEO was just complimenting me on somebody who used to work at Omnicom, who's really heading up our Media, Slavi. And so we have a crack team. And so I really think we're well positioned in this increasingly performance technology world to compete more strongly in media.

But unlike the other companies that are really almost 100% dependent on media. Our digital transformation and our political are really our two biggest growth areas, and over here, our creative is coming up. And so the last piece of the puzzle for us is kind of getting stronger growth in media. And we're going to have very strong double-digit growth in GALE, which combines media, creative and loyalty in a very unique kind of way.

And I think on the AppLovin partnership, I think that, again, it's just really the -- I think you see a lot of growth in gaming, and we wanted to make sure that, that gaming advertisement placements, we're really opened up to a broader market constituency. And I think that the partnership really does that.

Obviously, there was some news in the marketing and ad tech space yesterday with Publicis agreeing to acquire LiveRamp. I'm curious your reaction there, any impacts to how you think about your positioning? And maybe you could just frame how Stagwell and what you're building is different than maybe what Publicis is looking to do with their purchase?

Sure. Look, I think, number one, it confirms that our technology-first approach really is the right approach in the AI world in order to be successful. I think in terms of the LiveRamp purchase itself, it will be interesting to see how you can take a platform whose core value is neutrality so that everybody felt comfortable exchanging data and put that into an environment where it's no longer perceived as neutral. I think some of the other holding companies will be concerned about running their data through LiveRamp. But more importantly, let's say, I'm over one of the auto companies, and I know that a client of Publicis is my competing auto company, I'm going to be really concerned about putting my data there. And so taking the neutrality out of that or in terms of its ownership structure, even if de facto exists, I think it's going to be a significant hurdle. I think in terms of our positioning, again, I think we're strongly positioned to add the AI applications that really need to be added so that it can be used by the clients. And that's our primary focus and approach.

And our strategy here is not just to create internal products that we use and deploy as part of our operations, say, to do your media or develop your creative but to have tools that live on top of the tech stacks of the clients themselves so that they can run, own and operate and even use other holding companies. We really have to I think, be in the business of providing the tools that companies can use in order to really take advantage of AI marketing in this transformed world.

I think since we talked last year, there's been something of a strategic pivot, maybe a deemphasis on M&A and towards the build-out of AI applications. I want to kind of talk through each of some of the key offerings that you're bringing to the market, but just what's the broader kind of opportunity you've identified here and why the sort of build rather than buy approach?

Yes. Look, I think, number one, we always had, since day 1 at the creation of Stagwell, this tech team, I was coming out of Microsoft. Our Chief AI Officer, ran Data and Analytics at both Microsoft and IBM. I think that's illustrative. You look at the kind of Code and Theory, keeps winning top business transformation agency. We really are staffed with the engineering talent that can really understand and apply AI and can build, whether it's on the Palantir Foundry or elsewhere these applications. And then on top of that, we really understand how marketing works. And so by applying that specialized knowledge, we believe that we can be really the leader in AI marketing applications in the AI world. And I think that is a realistic expectation based on our history, experience and the talent that we have available to us.

I want to touch upon some of the offerings here. Maybe we could start with the Machine. You've stated you think every company will eventually need its own marketing operations, operating system. Maybe we could just touch upon the platform. Why is this something that will be kind of attractive to enterprises as opposed to, say, services from vendors like Adobe or say, Salesforce?

Yes. No, we're finding a lot of interest out there. So the marketing operations operating system or MOOS, as I like to call it, right, is really kind of the windows of the system. It enables you to run, whether it's a targeting system. Well, first of all, it enables you to put all your agencies and vendors together. It enables you to do things like let me have a creative brief, and then send out the creative brief, get the creative responses, have them scored and then make the final decision. It's really -- when we call it the Machine, it takes all of these intermediary needs that you have to run a marketing system or marketing domain and basically runs them with the assistance of AI. But we're building it in a way that then if you're going to run the Stagwell targeting system or you're going to run 1 of 20 different apps in your tech stack that they will be integrated into the Machine, and it will be on your tech stack.

We're finding -- we're already in 4 or 5 installations, some of them in actually forward tech companies themselves because we're going to have the specialized knowledge and training to, I think, build the best ones and to get there first.

There's also Stagwell agentic targeting system, or SATS, I think that could be sold alongside the Machine or separately. Stagwell Search+, I think that's an application for search optimization within AI. What's the key value add for clients here in terms of maybe utilizing their own data? And maybe just can we touch upon Palantir's role?

Sure. We announced a partnership with Palantir. We're co-developing with two engineering teams, really what we've temporarily called SATS, although, I think it's going to be the brain. And so what the brain does is it will take first-party data, it will combine it with the Stagwell ID Graph and additional third-party data, put it into a single agentic system. And so let's say, well, okay, let's take a look at all the customers that bought back-to-school last year. And then really in a minute, you'll have that subset of customers. And then they say, well, what brands did they buy? What did they buy in the Northeast? And what did they buy in the West? How should we change our stocking of various products to be more in line with consumer demand, right?

And then I might say, well, okay, let's take a look at the lookalikes within 5 miles of each of our stores. And to have these things done within minutes as opposed to hours and weeks and analyst time is a tool that really marketers rarely have ever had at their disposal, the way that the system works. So we think that there is a tremendous market for this. We're adding unique proprietary data as part of the elements of it. But we think it's -- and look, remember, I ran marketing at Microsoft. So I know what we had and we didn't have, and I was with one of the advanced tech companies of the world, right? Well, let me tell you, when you're in one of the advanced tech companies in the world, they don't spend a lot of time working on your internal marketing, okay? And that's why there's actually an opening to sell this even to the biggest of tech companies.

I guess regarding these enterprise tools, how do you think about challenges or bottlenecks like sales infrastructure, selling cycles, putting into place kind of the necessary infrastructure to support the relationships once the product is sold.

Yes. And let me just cover also Search+, now is basically a way to track and monitor how your brand is really perceived in an agentic world and also then how to improve when somebody doesn't go to Google Search or say, tell me the best TV I should buy for my room. I want a 50-inch TV, to make sure that your brand comes up in that and monitors that and then gives you ideas for improvement. We think there's a good marketplace for that. We're seeing early interest and adoption according to that. And then sorry, your question here was...

It was really just about enterprise tools and setting up the necessary sales...

I think that's where we are now. I think that's exactly what Stagwell is doing right now, which is that we believe we have a product structure. We have the main products that we're taking to market. We typically have been responding to RFPs and have like an RFP sales motion. So we're now kind of putting into place a kind of more of a classic software sales motion. And we are, right now, I think, beginning to hire.

What we've done now is we've got like of the $25 million goal for this year, we've got about $12 million booked, we've got about a $20 million pipeline on the rest. We built up and that was basically on no salespeople. So we are kind of putting together the sales organization so that really within the next couple of months, we'll be fully scaled to go out.

About 5 minutes left. If anyone has a question, feel free to raise hand if you want. I got one here in the front. I mean can you just wait for the mic, so that the webcast can hear you. Great. Thank you.

I was curious, where does Principal Media buying fit in your ecosystem, if at all?

Again, not a major part, Principal Media buying tends to be something that's more part of a large-scale off-line buying. We do have some of our own media. And so we have a large stake of RealClearPolitics, we have thousands of airport screens. We have a bunch of travel magazines as well as the business traveler. So we have some owned and managed media, and we have an owned and managed media department, particularly in specialty areas like politics and travel. But Principal Media is not a substantial part of anything we're doing.

Mark, I want to touch upon communications. We're in on year for political. So interested to hear how you view the opportunity for your operations in '26. And then it's early, but what about 2028? This will be the first election with two real primaries in -- well, since 2016.

Yes. Look, I think we're entering a political super cycle here. I think that when people look at it, I mean, we're looking at political races now that are spending $150 million aside, when I was actively engaged in those races, gosh, if you had $25 million, that was an amazing amount. So you're seeing a sevenfold increase really in political spending. And I think these midterms, I mean, everybody is talking midterms, midterms, midterms, who ever heard of midterms like 6 months before, nobody even knew they existed. People barely voted in them. So you've seen this tremendous increase in political consciousness.

So we really have an operation in political low-dollar fundraising, which is really the best and most advanced operation, I think you'll see anywhere in terms of its ability to raise hundreds of millions of dollars. And we also have a political campaign operation. On the other side, and so we're invested, I think, obviously, I came out of a tradition some of the political work. So I just think the skills that are deployed here are really first rate. And I think the economics of it are just at a scale that I only -- I got -- I used to be in politics and say, if only we had the budgets of these CMOs, it would be amazing. And now I'm like if only the CMOs have the budget of these political figures, I think you've seen a tremendous reversal in that. And I think that it is a growth area. And then by the time we get to '28, I can't even imagine how much is going to be spent on the '28 elections and two primaries.

And is it only candidates? Is there -- we heard earlier from some separate firms that benefit from political about issue spending...

Yes. No, it's issue spending. And of course, there's the holders, the campaign and then the pack now. So the campaigns have a shadow campaign that allows unlimited contributions. And then you can have a bunch of issues thrown in as well, and you can have referendum. You can have all of these things. It all amounts to the tremendously increase in political interest. And when the -- when you think about it, politics is winner take all. So when you're at 50-50, the value of the last vote that determines everything is like infinite. And that's why you're in a situation where there's so much spending.

Got it. We're about out of time. So we'll end there. Mark, thanks so much for being here.

Thank you.

Good morning, and welcome to Stagwell's First Quarter 2026 Earnings Webcast. I'm Lena Petersen, Stagwell's Chief Brand and Communications Officer, filling in for Director of Investor Relations, Ben Allanson today. With me are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Ryan Greene, 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. [Operator Instructions]

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/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 Penn.

Thank you, Lena. 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 4 new major assignments under final negotiations and we just signed our first 5-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 4 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 5 of our segments in the first quarter, led by a 9% jump in Digital Transformation. Digging into the Digital Transformation results, the 2-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 8 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 has 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 2 quarters. All advocacy work is now within the single Communications segment, and the companies are diversifying their work for more nonprofits, universities and localized retail marketing.

By region, the U.S. 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 U.K. 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%, an 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 $0.17, 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 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 3 major competitors and reducing the high churn rate among our smaller customers. We have taken 2 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 Souza 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've instituted 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 have 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 are building an additional stream of software and service revenue housed in the Digital Transformation segment based on 3 key products: The Machine, an agentic marketing 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 of AI answers.

We announced the addition of Michael Twidell 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 3 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 also currently have 9 active opportunities with 2 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 a 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 in AI search and beyond was described by senior Google leaders as "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, AppLovin 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 1 of that growth is from the political super cycle, which will ramp starting in midyear 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 2 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 3 is our expanded wins of new clients at scale, displacing long-term holdco relationships. We are coming into the CPG and health care spaces with superior talent offerings against hollowed out creative shops, and we are moving to disrupt their long-standing government contract relationships.

While aged legacy companies are seeing shrinkage, we continue to grow year after year and have 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 1 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 5 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 BERA, our brand modeling product, grew 28% year-over-year and the Harris Quest 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 supports 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 continue to take steps to manage our costs. Payroll 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 actions, 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 million 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 sales force. 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 EBITDA in the first quarter was $89.7 million, representing a margin of 15.3%. This reflects year-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 $0.17, 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 reduced 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 3.11x. 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-2s, reflecting the combination of our growing adjusted EBITDA, disciplined cost allocation and improving free cash flow generation.

Turning to capital allocation. We repurchased 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 totaled $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 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 full 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.

[Operator Instructions]

Let's start with a question from Steve at Wells Fargo. Digital Transformation continues to track well. Can you talk about the underlying trends here in terms of new customers, expansion with existing customers and also speak to what kinds of projects we're working on in a world with far more AI adoption in marketing services?

I think we're finding that there is tremendous demand out there. Now we've come from the stage of what's AI; "Oh my God, what's legal say about AI"; to "I better have AI." And I think that we're seeing with the machine, like lots of pitches, same thing with the SaaS product. You see that we're getting big name customers. We're going first, obviously, to existing customers and offering this. But we just went to the Adobe Summit, and we got over 600 leads, right, and that kind of tremendous interest in the product.

So I think the answer to your question is really, people want to put AI into their marketing. We've got a full suite of agentic tools here. We're going to existing customers first, but we're really out -- we've just organized our sales force. We just went to Adobe Summit, picked up 600 leads. And I think that's how this thing is going really about as well as I could expect. And we've gotten 50% of our first year quota really in the first couple of months.

Great. So Steve has one more question, which is, I think last year, you cycled off of a client loss that dragged Media segment down. As we look into 2026, what's your outlook for media? And how should we expect it to trend throughout the year?

Yes. I mean we're still in the Media burning off from the Q1 H&R Block client that was there. So that kind of is fully out. And so that means our -- we don't have somebody else with a big Q1. So we think that the media stuff comes later in the year. I think right now, we run really strong. If you look, particularly GALE has been out there winning really significant contract after contracts. I think that, that's going to be probably the biggest area of kind of Media growth that we -- that I see coming down the pike. We, of course, have given now -- we have a new head of the entire division, and he's been reorganizing the media. We're adding the technology.

So our media is going to be more holiday pattern. Our political is going to be more holiday -- more or less holiday season pattern as well. And I think I see us growing across the year. And I think you're going to particularly see that pattern, both in the whole company and with media.

Okay. We've got a question from Mark at Benchmark. Your guidance implies an acceleration in the second half of the year. Could you discuss how much the second half acceleration is dependent on AI product scaling versus advocacy tailwinds and existing client expansion?

I think it's not dependent as much on AI scaling as it is on -- number one, we know that a number of large-scale creative contracts are closing. We know that our pipeline for general digital transformation work is really about as strong as we've ever seen that pipeline. And it is also -- and the third element is the political season, which really, again, promises to be another record political season. I think people -- I've never heard of people talking about midterms 6 months out like they were tomorrow.

So I think those 3 elements when we started out, say, what gives us increased confidence? Well, we just won the biggest government contract. We know that we're closing on 3 or 4 other assignments now that are in final contracting and signing stage, which are mixed across Creative and Media. We know the political super cycle is coming, and we already have the clients in the bank.

So a question came in asking for you to elaborate on the comments about advocacy agencies and specifically seeing how they're seeing more work from corporate rather than political clients?

Yes. I think that in the long term here, I ran originally where you recall an advocacy, and we were always diversifying by the end of it, Microsoft was my biggest client. And so I think we're seeing those -- all of those companies now taking more public affairs, more particularly suited to local work around retail establishments in communities. We're seeing those kinds of assignments. We're seeing more nonprofits, universities, hospitals, those kinds of clients that really work well as they begin to really diversify. Remember, we've taken the whole Communications segment now and put it together into a single unit under a single manager.

Excellent. So turning to new business. Laura at Needham was asking, could you dig a little deeper into the record net new business quarter? Can you talk about the areas where Stagwell is seeing strength? Or what verticals are driving the improvement in pipeline? And is the mix of your new clients changing? What are the margins on new clients versus historical client base?

Okay. So I think the -- in terms of new clients, I think digital transformation and creative are the 2 spots where we are seeing really strong flood of new business. I think that we're also -- as you can see, we're getting out there with the new products. But in terms of what I call the regular pitch flow, when I look at that and I look at the wins and the wins are significantly ahead of what we've ever seen, and so I think that's kind of where the new ones.

I think in terms of margin for the new clients, I think those margins are at or better than the previous. I think that as we scale up to bigger clients, we are not finding that we have -- that the margin is going to be reduced on those clients. It's really quite the opposite. We have a lot of smaller, lower-margin clients that are sort of cycling out of the system. And just in terms of the fact that our longevity with larger clients is 5x our longevity with smaller clients, just what you spend on marketing and remarketing and getting those smaller clients, just taking that overhead out gives them a higher margin.

So we have a number of questions coming in about the improvements in churn we're seeing in the business. Could you discuss what improvements in churn might look like through the rest of the year? And what impact we might -- that might have on our top line?

Yes. Look, our goal is to cut the churn by about 25% right? We've seen -- we've seen a change already as we've told kind of everybody to focus on it. We're putting in place the system, what I call the accountability system where every single client, no matter how small, we'll have someone responsible for it, has to report on it.

Look, many of these are small projects. We don't count small projects, by the way, under $500,000 in net new business. But -- so we'll separate out the small projects from the clients that should grow, and we're really focused. But our goal, if we're successful, we could get 2 or 3 points of organic growth out of that system. I think we are trying a dual-track approach, double where we've been successful, obviously, in the net new business, put a real focus on trying to mitigate what's been taking us down, which is small client churn. And those 2 together, I think, are key factors here in improving organic growth over the next -- over this year and permanently.

Okay. A question for Ryan. Could you talk about the key drivers of the 30% plus improvement in adjusted EPS this quarter?

Yes, sure. So it's really a function of 2 things. We have seen significant growth in our adjusted EBITDA, which has increased our numerator, but we also have been aggressive with our share buyback, purchasing 7.3 million shares in the quarter for about $45 million. And so we lowered the denominator with us realizing the stock has been undervalued. We've got aggressive, and we're seeing the reflect of that in our adjusted EPS growing 31%.

Great. I think we have time for one more question from Jeff at B. Riley. He's asking a question about the macro. What are you hearing from your client base regarding if and how they might alter their marketing plans as a result of the Middle East conflict, oil prices or headwinds and the macroeconomic impact that could materialize if the conflict is prolonged? And what assumptions are you making about potential macro impact included in your guidance for 2026?

Well, look, I think the only direct impact on us is Mid East tourism is not exactly the flourishing at the moment. We expect, though, when this is over, it will bounce back quickly and that a lot of these clients will then -- they will be like post pandemic, but that is -- but really only about 3% of our business is out there, but it is -- but that is some impact on us.

We are not right now, as you can see, as the stock market continues, we don't see clients making contingency plans about this. We don't see clients pulling back about this. We don't see clients altering their plans right now. I think for those in America right now, remember, gasoline prices or oil prices were above $100 a barrel for 3.5 years of the Obama administration, parts of the Biden administration. This is not what we're -- this is not like a pandemic, massive pullback. We're just not seeing that right now. And we're -- remember, people are going to pretty much lock their holiday plans in the next 2 or 3 months. So there's not a lot of time here for change.

We're seeing, in fact, tremendous investment in AI, tremendous focus on the fact that every company needs to redo its connection with AI. And we don't see any pullback from that whatsoever. And that and the political sphere, which is going to be, I think, again, a very strong season, no matter what happens in the Mid East, I think those 2 basic trends, which are the most important for us as a company are really strong and intact for this year.

Okay. Our final question is a question from Jason. And what have you learned about the opportunities in the government sector over the past year? And how do you think the opportunity for Stagwell has changed as you've been engaged in these contract discussions?

Well, I set that out as an initiative that I knew would take time. I think that we've moved a long way in the initiative. As I say, you should see in the next 2 weeks, a formal announcement of the contract I alluded to, which is a real breakthrough. We've picked up 2 or 3 other smaller government-related contracts and assignments.

But now we're really ready with the team, the accounting, the structure in order to bid on the largest contracts like the post office and the Navy to bring in good partners to, because these are massive contracts and to really to compete. And for the first time, I think, for some of these agencies to have a brand-new competitor. And so far, I can say from the ones that we've won or just about to win, that has played out pretty well for us.

On that note, that was our last question. Thank you to everyone for joining us. We'll see you next quarter.

Good morning, and welcome to Stagwell's Fourth Quarter and Full Year 2025 Earnings Webcast. My name is Ben Allanson, and I lead Investor Relations here at Stagwell. With me today are Mark Penn, Stagwell's Founder, Chairman and Chief Executive Officer; and Ryan Greene, 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. [Operator Instructions].

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/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 Penn.

Thank you, Ben. With accelerating ex-advocacy growth, net new business, expanding 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 is part of a plan for accelerated organic growth. We take market share, expand in advocacy and sports markets and deploy advanced AI applications.

Stagwell 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 2-year organic net revenue growth stack in the fourth quarter exceeded 10%, a sequential improvement of 250 basis points and a 10.1% gain over 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 2 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 and high single digits in 2026, given a string of new wins at GALE. Three, we have, for the first time, major government contract opportunities with us advancing to the final rounds. Four, 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 72andSunny 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 Cloud 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 BERA 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 72andSunny and Code and 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 Plus, 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 AppLovin that will incorporate AppLovin'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 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 EPS to $0.83 ahead of consensus and the midpoint of our guidance. It is also a 46% improvement over our last nonpolitical 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 million 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 expense 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 2 proofs-of-concept tests and one $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 MOOS, as I call it, the machine at CES. This offers clients a new way to run their marketing tech stack independent of using any holdco or application. It's like Windows only for marketing. We've already signed up 2 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 Agent Cloud, 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 8% to 12%, adjusted EBITDA of $475 million to $525 million, adjusted EPS of $0.98 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 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 trade at less than 6x forward adjusted EBITDA and 5x forward earnings, roughly 50% below typical valuation levels and based on 2027 metrics were 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. 5 of our 6 top clients are tech companies with growing marketing needs. Our top 25 clients grew 20% in overall relationships. We expect 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 us as 1 of only 4 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 3-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 count down 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 while laying the groundwork for new businesses in AI that will aim to be 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 Greene, for a review of our financials.

Thank you, Mark. Good morning, and thank you for joining us. Today, I 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 nonelection 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 5 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 Communications 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 multiyear nature of recent wins support a path to accelerating top line growth as we enter 2026. Tighter 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 million 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 3 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 efficiency.

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 offering. 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 after the end of the year, a more transparent and comparable equity and earnings profile.

Over the past 4 years, we have repurchased 55 million shares totaling approximately $323 million, reflecting our consistent commitment to returning capital to shareholders. We made these investments while maintaining a strong balance sheet, ending the year with a net leverage ratio of 2.92x. As adjusted EBITDA continues to grow in 2026, we expect net leverage to decline to the mid-2s 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 million 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.

Thank you, Ryan. [Operator Instructions] A lot of good questions today. So we're going to start off with the top line and some of our -- the performance of some of our different segments. First one up, Jason Kreyer from Craig-Hallum. Digital transformation had a really strong year of growth in 2025. What's your confidence in a continuation of that performance? And how much growth in digital transformation is sort of embedded into that 2026 guide?

We're expecting even stronger double-digit growth of digital transformation in 2026. And why is that? Number one, every company is investing in AI, and that is generating tremendous new quantities of potential work. Number two, Code and Theory is right at the forefront of the machine. And number three, Code and Theory has also realigned its business model so that in the past, it primarily did things websites and apps. Today, it's doing large-scale integration of systems and marketing systems, particularly working also with Adobe on system integrations, and we'll be working on the machine and others. So we're creating whole new streams and Dan Gardner and Trev and his leadership team are doing an incredible job on that. They've hired a whole new sales team and sales force. And so they're expanding out the business. And I think that you see in 2025, where other digital transformation companies really didn't have the kind of growth and work that Code and Theory had, the Code and Theory has the right formula here for what's needed in the age of AI.

Let's keep on the sort of digital side of things. And just sort of talk a little bit about what we're seeing as it relates to the machine, the Palantir JV and the Marketing Cloud. The question here comes from Steve Cahill at Wells Fargo. What revenue growth and EBITDA contribution do we expect from those products in 2026?

Look, I think we're just getting off the ground. We're hiring the sales teams. We're ahead with -- when you're looking already at $5 million or $10 million of revenue, can we hit at least $25 million in the first year? We can. Can we double or triple that in the next year? I certainly hope we can. We're seeing really significant interest. We have CMOs who are reading announcement of the machine and calling us saying, when can they see it? I think a marketing operating system with all of the different applications that are in marketing is something for which there is real and significant demand for. And I think our Palantir, we're going really this in the next couple of days with Palantir's top 200 clients to preview the Stagwell Agentic targeting system to all of those clients. I think there's tremendous interest in the marketplace for these products. We are already moving from development. We're going to announce shortly a new Head of Sales, who's going to -- who has a real track record in business sales as we begin to put in that department.

Great. Pivoting to creative for a second. Another question from Steve, but I think an important one. How is creative pacing given some of the questions that obviously were out there around about AI disruption in that industry?

Yes. This is the most interesting counter trend that I've seen. Given everything I read or read from all the analysts and investors and so forth, I thought, wow, creative would be dead. I think as I pointed out in the script, premium creative as opposed to creative by the pound is alive and well and in very significant demand. And that's because I think that when everybody has the same data systems and the same boring ads, creativity, actually the top level of creativity, which is represented by many of our agencies seems to be in very strong demand. Both Anomaly and 72, for example, are going to be at record revenues for their size and their history this year.

Great. And final piece of the puzzle kind of on the segment side of things, advocacy. Obviously, entering into a midterm cycle here. Barton Crockett asks, what are we seeing for advocacy in '26? What are some of those early trends? And how might that contribute to 2026 growth?

The early trends are good. I think what I typically point out is that the trends that we typically see now are that the next midterm looks like the last presidential. And I think what you're seeing with so much up for grabs here that there's going to be a tremendous interest in this midterm cycle. And then we're going to go right into the presidential cycle. So that's why I call these 3 years of political super cycle because there will be no incumbent for President, hopefully, running for office. And there will be this almost 50-50 that we are in Congress, which means that there'll be almost infinite value of expenditures in a winner-take-all system. All indications of a strong political season are good. Zac Moffatt is the new Head of the Advocacy and Communications division, and we continue to integrate product-wise into all the areas of communication that will be relevant. We also took a significant almost 40% stake in RealClearPolitics as well recently.

Obviously, advocacy is part of the Communications segment, Laura Martin asking, Communications, a little bit of a trickier year in 2025. Could you maybe expand on what we've seen in 2025 for Communications and what '26 might look like?

Yes. Communications was a bit of a sore spot in 2025. We -- it seemed to be industry-wide that while we saw such strong growth in the Cloud, Digital Transformation and Creativity. Communications, our communications also is heavily advocacy-based too. So all that kind of seemed to retreat. We've appointed a new CEO at Allison, Wendy Lund. We think she brings with her excellent skills and particularly an expertise in health care. So I think that we're going to see a very strong recovery of that area. Because that area, again, goes part and parcel with issues and communications. So I think we're going to see a strengthening of Allison. I think we're going to see a strengthening generally of the segment. And obviously, with advocacy, that segment is going to perform quite well overall.

Awesome. I mean we've got 4 or 5 questions I'd like to get to, and we're running a little short on time. But let's pivot a little bit to costs. And so a question here from Mark Zgutowicz over at Benchmark. What's the potential for some incremental cost cutting and efficiencies across the cost base? And how does that maybe factor into 2026 adjusted EBITDA?

Yes. So we're working on a number of initiatives, both in terms of the back office as well as the client delivery side of the house. So we committed to $80 million over $100 million last year. We're halfway done with that now. We have the balance of $50 million for this year that we will get. And we think there's an opportunity to get another $50 million plus or minus out of the system on top of that, that are not fully reflected in what we're looking at now in terms of our budget guidance for this year, but are potential upside that we could realize.

And maybe, Ryan, just to keep going, this time turning to free cash flow. Obviously, can you provide a little bit of information on what drove that doubling of free cash flow in 2025? And what areas might there be in terms of room for improvement to get to the high end of that 50% to 60% guidance range?

Sure. That's a great question. We were focused on cash flow going into 2025. And so we took actions aggressively on multiple fronts, starting with establishing and deploying not only a common system, but a shared service platform so that we can manage both the billing side as well as the payables side of our working capital. Our scale has now allowed us also to generate more favorable terms commercially that will improve our working capital. And so now that we have the foundation for the core processes and systems and terms, we think as we move towards automation into 2026, similar to the expense initiative I had mentioned in my script, we are now focusing on automating the billing side as well so that we get faster processing of the transactions, things are being billed more timely and the collections are being escalated on an exception base so that our teams can take action to make sure we are collecting that cash timely.

In terms of upside improvement, it's also going to be on the margin. With it being an advocacy year, we know our margin is going to expand and that will actually improve our ratio as well.

The tax bill is also helpful.

Correct.

A few more questions. This one about the competitive environment, Mark. A question from Adrian at Bank of America. You used the words managed chaos at some competitors. Could you perhaps discuss the pitching and pricing environment since the merger of 2 of our competitors?

Look, I think what we're seeing is a more active pitching environment for us than we have ever seen. And we think part of that is because the number of competitors -- when you think about it, there's only 4 companies now that have a truly global offering. And ours is just coming up in size and scale. So what we're seeing is a lot of clients are concerned that they could have an account manager one day and the next day, they're getting an e-mail that they're fired. They don't know which brands that they're using their companies and whether they're going to be there. So it's creating considerably more instability for clients who are with some of the big holdcos that are going through these changes. That's benefiting us because we're in the right place at the right time, just coming up to that scale, being able to win now larger and larger pitches because of our scale, diversity of services, global footprint and centralized management and the collaborative environment and culture that we've built on the basis of combining creativity and modern technology. I think this is positioning us well. I think we're seeing more client turnover as a result of the chaos in some of the other places. And I think that's going to help accelerate our organic growth.

Two more topics. First, capital allocation. So let's start it off, obviously, the announcement of the expansion of the buyback this morning, Barton Crockett asking, what's the expectation for the share repurchase? Is it going to be larger than '26 or larger '26 than in prior years? Is it price dependent? How are you thinking about the buyback?

Yes. I don't like to give out too much information because then investors can try to game the system. But I would be surprised if it wasn't more aggressive and larger than you've seen in the past. I think we've thrown down and said, we didn't go for a small allocation. We went for maximum flexibility, a large allocation, and we are dedicated towards seeing not just investor return in the form of the buyback, but getting a fair valuation for the stock relative to its benefits. And so we are going to focus aggressively on that. I'm not going to provide details beyond that.

And maybe just a couple of questions here about what impact that might have on M&A in 2026 and the M&A strategy? How has that changed thinking?

Again, I think in general, we are going somewhat M&A lighter than we have in the past. We are focusing on buyback until we get appropriate value of our stock, and we're making sure that we're allocating the CapEx to get our AI application products into marketplace. That is obviously job #1 in the pivot of this company and I think in the long-term success.

And one final question from an investor, ADW Capital. He says, if I subtract out the $1.2 billion of value from the political business and the Marketing Cloud that you highlighted, and then if you take the enterprise value at yesterday's close and a variety of other things, you get to about 3x 2026 EBITDA for the core business. With peers trading pretty significantly higher than that on some levels, what do you think you can do and we can do as a company to narrow that gap and potentially get to a premium to that?

Well, look, I think the marketing community really understands Stagwell, its unique positioning. I think what we're trying to get is -- and I think in the sum of the parts analysis that I gave out and that Adam, you have illustrated here, even the core business is seriously being undervalued because they just look at the whole thing. They kind of take political out. They don't count the Marketing Cloud. We've got the Marketing Cloud going to 30% to 40%. We've got a political super cycle coming. It's not something that just comes occasionally. It's a permanent increase in cycle in its own value. And then we have a marketing services operation that is tech infused with the latest in AI showing the leading growth in the industry. So in all 3 segments, I think we're seeing undervalued. We want to get the story out. We're going to back it up with an aggressive buyback. And I think hopefully, we're going to see the marketplace respond to this because we're going to make it a real focus of what we're doing to make sure that we get full value for what we're doing.

Great. Well, thank you, Mark, and thank you, Ryan. That brings an end to the fourth quarter and full year call. We hope you'll join us late this year for our first quarter call.

Good morning from Stagwell's office in Miami. Welcome to Stagwell's Third Quarter 2025 Earnings Webcast. My name is Ben Allanson, and I lead the Investor Relations function here at Stagwell. With me today are Mark Penn, Stagwell's Chairman and Chief Executive Officer; and Ryan Greene, 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. You are welcome to 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/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 Penn.

Thank you, Ben. In an industry undergoing major transformation, there are winners and there are losers. This quarter, coming on top of consistent sequential and year-over-year growth in our non-advocacy net revenue, we're clearly positioned as one of the winners. And today's game-changing Palantir announcement is another example of that. The overall revenue number of $743 million and net revenue of $615 million reflect 12% and 10% ex advocacy increases over last year.

On a 2-year stack basis, our organic ex advocacy growth was 8.4%, a meaningful acceleration over the first 2 quarters, which came -- which both came in and about 1%. We expect this figure to be in double digits in the fourth quarter.

Ex advocacy EBITDA jumped 23% year-over-year to $103 million, and our ex advocacy margin of 18% is the highest we have achieved in 2 years. Ryan will talk more about the cost reduction efforts that are clearly working there.

Our adjusted earnings per share of $0.24 is up 9% from third quarter last year, and our year-to-date cash flow from operations increased $100 million. Our LTM net new business increased to a record number of $472 million and top client relationships continue to expand significantly. A top 25 client is now an average $28 million relationship. Our current pipeline of $0.5 billion remains at its highest levels.

Marketing Services total net revenue grew 9% and digital transformation increased by 12%. And organic growth in our key segments was strong as well. Marketing Services grew 6.5% organically overall and 9% in the U.S. market. Digital Transformation grew at 7% organically and 7% organically in the U.S. While many of the competitors in the industry are shrinking and shredding operations, we are growing and meeting the demands of the new world of AI.

Investors ask, given all these trends, why is organic growth not even higher? The answer is our client base is undergoing significant transformation. Our bigger clients are getting bigger, while our smaller clients of $500,000 and under are turning over. This shift towards achieving larger scale customer relationships when complete, will result in higher and more consistent growth.

We're putting in additional awards for client retention and expansion. We are aiming to cut client shrinkage by 5 points next year and can meaningfully improve organic growth. Another factor is a slowdown in the communications vertical, reflecting industry-wide issues in that segment. We expect the trends in advocacy companies to reverse themselves next year in what promises to be a banner political year.

We are also doubling the size of our new business team to cover all major sectors and geographies and to extend the efforts with government contracts and additional technology services. Our CMO, Ryan Linder, a leader in the industry, is spearheading this effort to take advantage of our growing market position.

In terms of our strategy, we have made a major pivot from M&A to technology development this year in response to the reality of AI. It's a technology that touches everything. And as a former Microsoft Chief Strategy Officer myself, I have put together a top-tier team with John Kahan, formerly at Microsoft and IBM, Slavi Samardzija in from Omnicom, working with Mansoor Basha, [ Raman ] and the entire Code and Theory team headed by Dan Gardner and Mr. Treff.

Nothing is more important in this industry today than being a leader in AI. We are in an ideal position as a newer technology-first company at our size to adopt technology as we grow compared to some of the behemoths in the industry who have massive legacy assets and have proven hard to transform.

As part of the objective of leading in AI this morning, we announced the partnership with Palantir to build a groundbreaking industry-first audience platform that unlocks new ROI for corporate marketers. This platform is the holy grail of marketing finally brought to life. Building our proprietary algorithms and data on top of the Palantir foundry, we'll be able to offer clients access to a first-of-its-kind central hub for marketing and targeting designed to activate AI-enabled decision-making and support a wide range of use cases, such as audience creation, creative development and testing and campaign management.

The platform is AI-based to enable large companies to access tens of millions of records of marketing and sales data and to create agents that will then implement complex marketing processes and campaigns. Demos of the products are available upon request.

In addition to adopting it internally, we will sell it as a stand-alone platform that companies can use to monitor and enhance their marketing efforts and adopt highly personalized marketing strategies down to the retail outlet and the individual customer. This is a new business line for Stagwell and working together with Palantir, the goal is a significant one, creating products to generate potentially hundreds of millions of dollars in new revenue.

We are also partnering with Adobe on the content management piece of our new products. The first client peaks of this emerging technology have been favorable. We've developed an MVP over the last 5 months and expect to have advanced versions in the market within months and demos will be available for qualified clients.

In addition, The Marketing Cloud segment, which now reflects our suite of SaaS products saw excellent net revenue growth of 138% in the quarter, led once again by outstanding organic growth of 57% in our Harris insights suite of research products and strong contributions from recent acquisitions. Adjusted EBITDA margin in The Marketing Cloud was negative 4%, a significant improvement over the negative 30% margin posted in the same period last year. We're on track to deliver positive adjusted EBITDA in late 2026.

As previously mentioned, a key potential strategy here will be to spin off The Marketing Cloud at a certain point if it's full value is not recognized internally. As part of this pivot, we also invested about $35 million this quarter, continuing to strengthen our tech capabilities, including investing in The Marketing Cloud, building out the machine, the operating system for all our agencies and rolling out the Stagwell content supply chain internally built on top of the Adobe stack. This investment enabled The Marketing Cloud to launch Agent Cloud just 2 weeks ago. This unified platform gives brands instant access to multiple LLMs, image video tools and custom AI agent creation all in one place, setting teams up for fully agentic workflows.

Another part of our strategy is to expand our owned media properties so that we can offer our clients great low-cost opportunities for ROI. We just announced the acquisition of a 35% stake in Real Clear Holdings, which we've now expanded to 37.5% publisher of RealClearPolitics and 12 other news and analysis sites. This is on top of our Springs [ at airports ] travel publications and programmatic B2B media we own and operate. We have now launched the Stagwell Media Platform to bring our principal media to the market.

At our current multiple, there's no investment we can find better than our own shares given our growth and cash flow and technology development. So a major use of capital this year was buying our own shares and we repurchased 90 million shares -- $90 million worth of shares to date. The basic share count now is 252 million, down 4% from last year.

As part of the technology pivot, we did not acquire the planned $100 million of new revenue this year, but only about $65 million, but we've had increased organic growth in our core business and improved margins. We expect a strong finish as fourth quarters are typically our strongest, and we expect to be within the specified ranges on all metrics.

As to guidance for the close of the year, we're reiterating the outlook of approximately 8% total net revenue growth, $410 million to $460 million in adjusted EBITDA, $0.75 to $0.88 in adjusted EPS and 45% free cash flow conversion.

Looking into next year, we believe that our strength is building. Our core services are showing strong expanding pipelines and organic growth. Our media business is being bolstered by the development of new technology engines that will be deployed to foster even more growth here. The Marketing Cloud is turning a corner and the new partnership with Palantir will yield new products. On top of this, we expect a huge political season, and the cash demands of deferred acquisition payments next year are close to 0.

Along with lower interest rates and the advantages of the new tax bill, these developments will free up considerable cash above the 45% level. We'll continue to evaluate the best ways to enhance shareholder value as it becomes clearer to the marketplace that we are one of the winners able to meet the challenge of transformative technology and be a leader in the deployment of it.

Thank you very much. Let me turn it over to Ryan.

Thanks, Mark. Today, I'll walk you through key reporting changes and an overview of our financial performance. This quarter, we adopted a new structure with 5 segments: Marketing Services, Media and Commerce, Digital Transformation, Communication and The Marketing Cloud, designed to simplify reporting and improve transparency. The advocacy adjustments are now limited to a single segment, communications, streamlined disclosures.

Please refer to the revised earnings presentation and investor supplement posted on the Investor Relations section of our website for a restatement of prior period results and contribution percentages under the new framework.

We also redefined our organic growth calculation. Revenue from acquisitions is now considered inorganic 12 months post close. This approach mirrors a leading competitor and provides a clearer view of Stagwell driven performance. Now turning to our results. In Q3, we generated $743 million of revenue. Net revenue was $615 million, up 5.9% year-over-year. Reported organic growth was down 0.4%, but when adjusted for advocacy, organic growth was 3.2% with nearly all segments achieving higher levels.

Net revenue, excluding advocacy has accelerated throughout the year, 9.1% in Q2 (sic) [Q1] 9.9% in Q3 -- in Q2 and 10.2% in Q3. Adjusted EBITDA was $115 million, up 3% year-over-year, even without the higher gains from cyclical political work. Adjusted EBITDA margin on net revenue was 18.6%. Adjusted net income was $63 million, up 6%. Despite the advocacy pullback, adjusted EPS for the quarter increased 9% to $0.24.

Looking at our geographical performance, the U.S. remained our largest market and key growth driver. Net revenue rose 1.1% year-over-year. Excluding advocacy, total growth was 5.9%, with organic growth of 5.2%. International total net revenue grew 25.9%, led by EMEA with a 39.6% increase. Let's take a closer look at how our operating segments contributed to overall performance.

Starting with The Marketing Cloud. This segment grew 9.2% year-over-year to $246 million in net revenue. Adjusted EBITDA was $57 million with a margin of 23%. Strength in brand strategy, performance creative and research reflects steady demand across diverse client base. Next, digital transformation delivered $95 million in net revenue, representing growth of 11.9%. Adjusted EBITDA was $26 million, a margin of 27.1%.

Demand continues to build around AI, experience design and platform enablement, especially among enterprise clients. Media and Commerce contributed $154 million. Growth of 5.9% was driven by multichannel and performance media campaigns across Europe, the U.S. and Latin America. Assembly, a leading media agency delivered 20% growth, a 14-point sequential improvement, driving stronger overall performance.

Adjusted EBITDA for the segment was $25 million, a margin of 16%. Communications generated $97 million in net revenue, including $37 million in advocacy work. Excluding advocacy, PR results were softer, reflecting broader industry headwinds due to elongated pitch cycles and slower client decisions. Despite these headwinds, we maintained cost discipline to protect margin. Adjusted EBITDA was $25 million, a 26% margin.

The Marketing Cloud contributed $27 million, growing 138%. This segment now includes only our suite of SaaS and DaaS products. Growth was driven by continued adoption of proprietary software platforms and analytics solutions. This includes 50% in organic growth at research platform Quest, along with contributions from M&A. Adjusted EBITDA was a loss of $1.1 million, reflecting a margin of negative 4.1%.

This marks year-over-year improvement of $2.3 million in EBITDA and a 26% margin improvement from negative 30% in the same quarter last year. We remain on track to achieve positive adjusted EBITDA in the second half of 2026.

Nearly all segments reported positive organic growth. Excluding Communications, total net revenue for all remaining segments was 11% or 5% organically. Building on that performance, we remain focused on margin execution and expense management. Our priority is driving top line growth while maintaining cost discipline.

With a flexible cost structure, we can respond quickly to changing conditions as seen in our public relations results. This positions us to sustain margin and invest in growth while protecting profitability. Company-wide adjusted EBITDA margin was 18.6%, a sequential improvement of 310 basis points. Compared to Q3 2024, margin declined 60 basis points due to lower advocacy. However, excluding advocacy, margins rose 200 basis points year-over-year, driven both by revenue growth and labor cost controls.

Turning to the cost savings initiative announced at our Investor Day. We remain on track to deliver $80 million to $100 million in annualized savings by the end of 2026, with $60 million to $70 million this year. Since announcing this initiative in April, approximately $27 million of savings have already been actioned. One of our principal initiatives is the rollout of the Stagwell content supply chain, a foundational effort transforming how work gets done. It focuses on integrating technology for content creation, streamline workflows that reduce low-value tasks and reduce the reliance on third parties and standardized process for training to embed lasting change across agencies.

Adoption has been strong. Usage of foundational AI tools has more than doubled since Q2. We are already seeing results. On the revenue side, AI-powered content production is helping us win new business in automotive, gaming, retail and tech. On the margin side, the platform is streamlining workflows and improving efficiencies. Generative AI token usage is up 40% since Q2, showing strong adoption and impact.

In addition to margin execution, our approach to cash flow and capital allocation remains a clear lever in driving shareholder value. Cash flow from operations year-to-date was $31 million, up $100 million year-over-year. This reflects sustained benefits from working capital initiatives, including media system rollouts, shared service migrations and tighter oversight. We've also reached a scale that allowed us to negotiate better terms with certain media partners globally, easing working capital constraints.

We view these gains as sustainable and believe this strength is now fully reflected in our current trading multiples. Turning to capital deployment. Year-to-date CapEx totaled $72 million, including $45 million in capitalized software, primarily supporting technology investment in the machine, the Stagwell content supply chain, market research platform and ongoing product development with The Marketing Cloud.

Additionally, $26 million was invested in acquisition of key data assets underpinning our IP platforms, along with necessary technology refreshes and leasehold improvements. We repurchased 7 million shares for $37 million in Q3, bringing our year-to-date repurchases to 17.6 million shares for $90 million. $80 million remains available under our approved plan.

Our net leverage stood at 3.4x at quarter end. With Q4 typically our strongest cash period, we continue to target net leverage below 3x by year-end. We ended this quarter with $132 million in cash and maintained strong liquidity, including $312 million available under our revolving credit facility.

Looking ahead, we remain focused on generating strong operating cash flow to support strategic initiatives. Our approach has evolved throughout the year, shifting from acquisitions to investing in technologies that position us to lead and grow as the industry evolves. The momentum we've built throughout the third quarter gives us the visibility to reiterate our full year guidance.

We expect approximately 8% total net revenue growth, $410 million to $460 million in adjusted EBITDA, $0.75 to $0.88 in adjusted EPS and free cash flow conversion of approximately 45%. With that, I will turn it back over to Ben for questions.

Thank you, Ryan. [Operator Instructions] A lot of questions coming in and a lot of them are focused on Palantir obviously announced this morning. First one, Laura Martin at Needham. [indiscernible] can you maybe go into a little bit of the background of the Palantir, how did they come about? And then also a number of questions asking about the TAM and the size [indiscernible].

It really came about from discussions I had with Alex Karp about how we could take the unique targeting and AI capabilities of Palantir and for us to bring our unique experience in the marketing field together. And from those discussions, we set up 2 teams and the 2 teams went for 5 months developing the prototypes, which we began to show clients last month and the agreement to then go ahead and dive all the way in here to create what I consider to be the holy grail of marketing, that combination of data, technology and AI that will enable clients to say, well, let's run the back-to-school sale now and to have the marketing system bring together the content, data, find the audience and really manage and drive campaigns.

And I think this is something that really will take companies -- large-scale companies who have tremendous data today, but can only use a fraction of it, and really open it up down to the retail customer manager level so that they deploy this technology. So we're really obviously excited about it, and that's how it came about, and that's how the commitment came about to move forward.

And then maybe a little bit on the TAM and the opportunity set and also kind of a deep dive into what incremental infrastructure investments or CapEx, OpEx might be required to kind of get the partnership up to speed.

Sure. I mean, look, I think the TAM is enormous. I think these are $5 million and $10 million installations. I think this is something that one way or another, every major company is going to have in today's AI-based marketing world. Will some try to develop that on their own or others do do our system? Will competitors emerge? We think as we reviewed with a recent potential customer, we said we're clearly ahead of the others out there in the marketplace in terms of able to really bring together data and AI and marketing sciences.

We're already -- as I said in the speech, we made a CapEx -- we made -- I'm sorry, we made a pivot this year and said, let's take the acquisition money, let's transfer it over to technology CapEx. AI is really the important new development that transforms marketing. We are the company built to transform marketing myself with the experience in technology, Code and Theory having 1,500-plus engineers. We have the capabilities, which combined with the incredible teams at Palantir and their ability to bring things also to market.

I think that gives us a tremendous opening. So I think that the TAM here is really quite enormous.

And just on timing, a couple of questions about P&L impact when it might start to flow through. Is it Q4 phenomenon? Is it a 2026 phenomenon? How you think...

I think it's definitely a 2026 phenomenon. I think that we are baking -- we're going from MVP. The teams are baking the next versions. I think in an AI world, you talk months, not years. I'm really expecting significant revenue by the end of 2026 for sure.

Great. I just wanted to throw a question to Ryan here because you mentioned the CapEx side of things. Obviously, a little bit of an uptick in CapEx this year. Could you maybe just elaborate on it a little bit more what drove that...

Sure. I think that underpins Mark's direction, the shift from acquisitions to technology. About $55 million of that is spread across a number of investments ranging from the machine, the Stagwell content supply chain is in there for content creation, product development within the marketing crowd across a host of products as well as innovations in some of the market research and the underlying data feed that feed all these systems.

So Mark made this direction at the beginning of the year, you're seeing that flow through carry out in the results.

Great. I want to pivot a little bit. I have a question here sort of talking about our media business. And the question is from Steve Cahall at Wells Fargo. He goes, it appears that much of the growth in the industry is being captured by some of the larger-scale players. Do you view media as a core function for Stagwell? And if so, do you have a plan to address Stagwell's position within the media ecosystem?

Yes, our plan has very much been to upgrade our capabilities in media based on technology. We're not going to be able to beat these behemoths on the basis of scale, but we can beat them on the basis of better technology and better use of data and information. And that's exactly where we're going. So we think that as we deploy the combination here of the content supply chain, the machine and the Palantir holy grail of marketing, that will create a very competitive market -- very competitive media offering that will enable us to push that. The second strategy here is really that we are buying media so that we will have as our -- principal media is really owned media.

And we're particularly focusing in the news and politics and information sector because we think that there are really good buys in media. And the truth is what's happened is viewership of politics and political events is skyrocketed with interest. So we think that's going to be a hugely valuable area that we'll be able to deliver really strong ROI media for clients.

I think part of that is the RealClearPolitics, Real Clear Holdings announcement earlier on this quarter. Could you maybe elaborate on that? Question from Barton Crockett just asking some additional color on that at the moment? Why you do it? What is the owned media strategy over there?

Yes. I think exactly we're going to be working with the RealClearPolitics team to create new innovations. I discovered when I was working at Microsoft, when you get near the elections, RealClearPolitics was the #1 search politically related team. And so it will get enormous traffic that we now have a good opportunity both for the midterms and by the presidential election to really work with the RealClearPolitics team, reengineer the sites, and I think tremendously upgrade the monetization of those sites and their effectiveness. So you're seeing unprecedented interest in news and politics. And that's where we can uniquely play against competitors in terms of owned media.

I want to pivot slightly here, just talking a little bit about communications. It's maybe the only area of weakness really within the quarter. Could you maybe talk about what we're seeing within that? How much of that is advocacy related? How much of that is sort of a broader PR-related challenge?

Well, obviously, I think -- obviously, there's a tremendous reduction in advocacy-related work in the communications sector. And I think part of that also kind of bleeds over to kind of issues and other related communications work that sort of gets kicked into next year when it gets -- when it becomes more important.

But we did seem to see, if you look at the results of competitors and industry-wide softness in that particular sector. And I think that affected us. We -- I think that will kind of straighten itself out, once we go into the advocacy year. What's interesting for us is that there are winners and losers in digital transformation. And while some of the digital transformation company showed real weakness, our digital transformation efforts even before the deal we announced today already showing really significant pickup because I think that we, in advance here for the last couple of years, really positioned ourselves well to take advantage of the AI revolution. I've always said we were a services company first and then let's get 4,000 clients first, then let's build those tools and then let's take them to market. That was always the vision of Stagwell.

I want to stay on sort of the advocacy government side of things for just a second. A question from Jason Kreyer, Craig-Hallum. With the government shutdown still ongoing, it's going to impact my flight this evening, but that's okay. Does the government shutdown impact Stagwell's ability to penetrate the government opportunity? And so what efforts are kind of being undertaken right now to make sure that we're really well positioned maybe when the government spending comes back?

Well, we previously [indiscernible] government contract. So -- but we actually have begun to win several of those contracts. You don't see any significant effect either way because they didn't exist before, but we will want the government to reopen because it will enable the signing and moving forward of that. And I would be surprised that this lasts more than another week.

Got you. Pivoting to the Multicloud, obviously, continued strong growth within the research suite of products and things as well. You mentioned that last quarter, you mentioned it this quarter as well, the potential for a spin-off of it. Question from Barton Crockett of Rosenblatt. What kind of performance would be required for that? And what are the criteria that would need to be met for The Marketing Cloud to kind of be spun out?

Well, I think there are several. The first question is, are people looking at Stagwell as the combined services and technology company that it is, if they are, and we see the kind of trading multiples, [ so I wouldn't spin it ]. If we think that there's greater shareholder value, basically, it has to be at a sustainable level. To me, that means at least $250 million or $300 million of revenue in order to be that at substantial margin. So if we -- and for you to really see in communications, it really has 3 lines of products, communications, research and media we're targeting.

So you can see that really the research is the most advanced and we're seeing real organic growth and adoption of that. And I'm expecting the other main criteria here is that the 3 legs of the stool in the marketplace, showing substantial growth so that investors will be excited about it.

I want to wrap up with one final question. And obviously, a number of management changes recently. I think you touched on a lot of what I'm about to ask within the script as well. But I think it would be great if you kind of maybe just summarize the current strategy for the business, the pivot that we've talked about, where are we right now? And as we look kind of over the course of the next 12, 18, 24 months, what's the real focus for Stagwell moving forward?

Sure. Look, the vision of Stagwell has always been to get to global full service down to platform self-service. I understand that this was an industry in transformation and to be a transformer as part of that industry. And I think what you see, particularly in this report, you see on the global full service top 25 client relationship now is now $28 million. When I came 5 years ago, we would have been lucky for that to be $500,000.

We've had tremendous growth in the kinds of clients we serve and the relationships that we have because of the operations we have put together, and I think just the right Goldilocks kind of scale. And I think the second leg of that was always then to have a series of self-service and platform products that could then be sold in based on our experience and knowledge and connections with thousands of clients.

It's far easier to develop software than it is to sell. We have a combination of client streams. We placed $5 billion or $6 billion of media. It may not be as big a scale others, but it gives us enough scale to really kind of, I think, understand how to apply AI technology to substantially improving it.

And I think that's the shift in focus is we spent really a decade of more acquisition focus. We're now going to -- we're going to continue to do acquisitions as prudently and as makes sense. But now I think the second leg here of being focused on how we can bring AI technology best to marketing becomes a primary focus of the company.

Thank you, Mark, and thank you, Ryan. That brings to an end the call for today. Please, if you have any questions, don't hesitate to reach out to the IR team, [email protected], and we'll see you in the new year for our fourth quarter results. Thank you very much.