Stagwell Inc Q1 FY2026 earnings call

• Net new business is at records with $141 million in Q1, last 12 months at $486 million, with large scale wins and a $60 million government contract signed. - New enterprise tech products and sales org on track, with $12 million booked towards $25 million goal. - Digital transformation segment leads growth, with AI as a tailwind. - Adjusted EBITDA grew 9% to $90 million, margin 15.3%. - Doubled new business team size, instituted client accountability program to reduce churn. - Emerging enterprise services and software business innovating with products like The Machine, Sats, Stagwell Search+, with active engagements and opportunities. - Partnerships with Deloitte, Palantir, Adobe for large contracts and initiatives.

Revenue grew 8% to $704 million and net revenue grew 4% to $585 million. All five segments saw growth in Q1. Digital transformation led with a 9% jump in net revenue to $96.5 million, with a two-year organic net revenue stack growth of over 22% in Q1. Marketing Cloud grew 5.3% to $26.5 million, Berra grew 28%, HarrisQuest family 19%. Media and commerce had 2.3% net revenue growth to $149.5 million. Marketing services grew 1.1% to $217.6 million. Communications grew 6.4% to $96.8 million, with election-related revenues expected to ramp up.

• Reiterates guidance, with organic net revenue growth strongest in Q1 in at least four years, expects acceleration to double digits in Q3 and Q4. - First quarter results and new business trends give confidence in four-year guidance: total net revenue growth 8%-12%, adjusted EBITDA $475M-$525M, free cash flow conversion 50%-60%, adjusted EPS $0.98-$1.12.

• International efforts outside UK muted by strengthening dollar and slowdowns in Middle East tourism and technology, though expected to be temporary. - Dependence on political season for communications segment revenue, as it will be in full swing in last two quarters.

Q: 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?

A: There's tremendous demand for AI in marketing. We're going to existing customers first with agentic tools like The Machine and Sats, got over 600 leads at Adobe Summit.

Q: Your guidance implies an acceleration in the second half of the year. Could you discuss how much that second half acceleration is dependent on AI product scaling versus advocacy tailwinds and existing client expansions?

A: Dependent on large-scale creative contracts closing, strong pipeline for digital transformation work, and the political season.

Q: Could you elaborate on the comments about advocacy agencies and seeing more work from corporate rather than political clients?

A: Advocacy agencies are diversifying to more public affairs, local retail work, nonprofits, universities, etc., under a single communication segment.

Q: 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?

A: Digital transformation and creative are strong areas. New clients' margins are at or better than previous, with focus on reducing small client churn.

Q: Could you discuss what improvements in churn might look like through the rest of the year and what impact that might have on our top line?

A: Goal to cut churn by about 25%, with accountability system, could get two or three points of organic growth.

Q: Could you talk about the key drivers of the 30% plus improvement in adjusted EPS?

A: Growth in adjusted EBITDA and aggressive share buyback, lowering the denominator.

Q: 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 can materialize if the conflict is prolonged? And what assumptions are you making about potential macro impact included in your guidance for 2026?

A: Mideast tourism impact is minor, 3% of business. Clients not altering plans due to conflict, strong investment in AI and political season.

Q: 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?

A: Moved a long way in government sector, won big contract, picked up smaller ones, ready to bid on largest contracts with partners.