Stagwell Inc Q4 FY2025 earnings call

• Accelerating ex-advocacy growth, record net new business, expanding margins, firm cost controls, and doubled free cash flow in 2025. - Announced strong accelerated buyback as part of plan for accelerated organic growth. - Skywill's growth driven by digital transformation and marketing services. - Two-year organic net revenue growth in fourth quarter exceeded 10%. - Expect 10% net revenue growth in 2026, principally organic. - Slowed planned acquisitions in 2025 to pivot towards AI application development. - Marketing plan segment had strong organic growth. - Big customer relationships expanding. - LTM net new business at record $476 million. - Media segment to return to high single-digit organic growth. - Adjusted EBITDA for 2025 was $422 million, ex-advocacy adjusted EBITDA surged 16% to $377 million. - Intending significant changes in operation using AI. - Free cash flow doubled in 2025 to $187 million. - Launched various AI-based products.

Skywill posted 6% growth in 2025, driven by 13% growth in digital transformation and 6% growth in marketing services. Organic growth in those segments was 9% and 5% respectively. Marketing plan segment exceeded $105 million of revenue and grew 34% organically for the full year, including more than 41% organic growth in the fourth quarter. Media segment expected to return to high single-digit organic growth. Top 25 customers grew 20% year over year and represent 29% of revenue. Top 100 grew 16%. Marketing cloud grew 111.2% or 41.2% organically in fourth quarter. Full year revenue exceeded $2.9 billion and net revenue exceeded $2.4 billion, growth led by digital transformation at 13.3%, marketing services at 6%, and marketing cloud at 230% (34.3% organic).

• Expect total net revenue growth of 8 to 12% in 2026. - Adjusted EBITDA of 475 to 525 million. - Adjusted EPS of 98 cents to $1.12 per share. - Free cash flow conversion of 50 to 60%. - Expect adjusted EBITDA to improve by nearly 20% in 2026 as cost savings flow through.

Q: Digital transformation had a strong year in 2025. What's confidence in continuation and growth in 2026?

A: Expect even stronger double digit growth in 2026 due to companies investing in AI, code and theory's right formula for AI age, hiring new sales team, etc.

Q: What revenue growth and EBITDA contribution from machine, Palantir JV, MagnaCloud in 2026?

A: Just getting off the ground, hiring sales teams, seeing significant interest, potential to hit $25 million in first year and more.

Q: How is creative pacing given AI disruption?

A: Premium creative is in strong demand as top level creativity from agencies is in demand.

Q: What are early trends for advocacy in 2026 and contribution to growth?

A: Early trends good, midterm and presidential cycles creating strong political season, new head of Advocacy and Communications Division, etc.

Q: Communications performance in 2025 and 2026?

A: Communications was a sore spot in 2025 but new CEO at Allison expected to strengthen it.

Q: Potential for incremental cost cutting and efficiencies in 2026 adjusted EBITDA?

A: Working on initiatives, halfway done with $80 - $100 million cost actions, potential for more upsides.

Q: What drove doubling of free cash flow in 2025 and room for improvement?

A: Focus on cash flow, establishing shared service platform, scale allowing better terms, automating billing, etc.

Q: Pitching and pricing environment since merger of competitors?

A: More active pitching environment, clients concerned about instability with other competitors, benefiting Stagwell.

Q: Expectation for share repurchase and impact on M&A?

A: Expect more aggressive buyback, focusing on buyback until appropriate stock value, M&A lighter than past.

Q: How to narrow gap with peers in valuation?

A: Marketing community understands Stagwell's unique positioning, want to get story out, back it up with aggressive strategy and buyback.