Stagwell Inc Q3 FY2025 earnings call

Growth and Positioning

• Non-advocacy net revenue had consistent sequential and year-over-year growth. Organic ex-advocacy growth was 8.4% in Q3, expected to be double digits in Q4. Ex-advocacy EBITDA jumped 23% year-over-year to $103 million, with a margin of 18%.

AI Partnerships

• Partnered with Palantir to build an audience platform leveraging AI for marketing, and with Adobe for content management. Developed an MVP over 5 months and expect advanced versions in the market soon.

Acquisitions and Media

• Acquired a 35% stake in Real Clear Holdings, expanding owned media properties. Repurchased 90 million shares worth $90 million.

Technology Pivot

• Shifted from M&A to technology development, investing $35 million in tech capabilities. Launched Agent Cloud, and strengthened The Marketing Cloud, with adjusted EBITDA margin in The Marketing Cloud improving from negative 30% to negative 4% year-over-year.

In Q3 2025, Stagwell's total revenue was $743 million with net revenue of $615 million. Ex-advocacy revenue increased 10% year-over-year. The Marketing Cloud segment saw net revenue growth of 138%, led by 57% organic growth in the Harris insights suite. Digital Transformation had net revenue of $95 million, growing 11.9% with an adjusted EBITDA margin of 27.1%. Media and Commerce contributed $154 million, growing 5.9% with an adjusted EBITDA margin of 16%. Communications generated $97 million in net revenue, including $37 million in advocacy work, with ex-advocacy results softer due to industry headwinds but an adjusted EBITDA margin of 26%. Ex-advocacy EBITDA was $103 million, up 23% year-over-year, and ex-advocacy margin was 18%.

Reiterated full-year guidance: 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 ahead, core services have strong pipelines, media business is bolstered by tech engines, The Marketing Cloud is turning a corner, there's a huge political season next year, low deferred acquisition payments, and expected cash free up above the 45% level.

Industry Headwinds

• Communications vertical slowdown and client base transformation with smaller clients turning over.

Government Shutdown

• Impact on government contract penetration, though not significantly affecting current position yet.

Competitive Landscape

• Potential competitors emerging in AI-based marketing, requiring Stagwell to maintain its technology edge.

Q: Background on the Palantir partnership and the total addressable market (TAM)?

A: Came from discussions with Alex Karp to combine Palantir's AI and targeting with Stagwell's marketing experience. The TAM is enormous, with potential $5-10 million installations for the AI-based marketing platform.

Q: What incremental infrastructure investments or CapEx/OpEx are required for the Palantir partnership to get up to speed?

A: TAM is large, and while some may develop similar systems in-house, Stagwell is ahead in combining data, AI, and marketing sciences, with CapEx and OpEx needed for integration but positioned well.

Q: Media business strategy and the Real Clear Holdings acquisition?

A: Focus on technology-driven media to compete with larger players. Acquired a stake in Real Clear Holdings to leverage political interest and owned media properties for strong ROI for clients.

Q: Why is the communications segment weak and what's the outlook?

A: Advocacy-related work reduced, and industry softness in PR due to elongated pitch cycles. Expected to improve with the upcoming advocacy year.

Q: Impact of government shutdown on government opportunities and efforts to position for government spending?

A: Stagwell has won some government contracts, and the shutdown isn't significantly affecting current position, but expects government to reopen soon to advance contracts.

Q: Criteria for spinning off The Marketing Cloud?

A: Need sustainable revenue (at least $250-300 million) and substantial margin, with 3 legs (communications, research, media) showing growth to make it attractive for spin-off.

Q: Current strategy and focus moving forward?

A: Shift from acquisition focus to AI technology in marketing, with a vision of global full service and platform self-service, leveraging client relationships and AI for growth.