Earnings call transcript: Stagwell reports stable Q1 2026 EPS, revenue misses

Stagwell Inc (STGW) reported its first-quarter earnings for 2026, showing stable earnings per share (EPS) of $0.17, which met analysts’ expectations. However, the company’s revenue of $704.14 million fell short of the forecasted $717.48 million, resulting in a negative revenue surprise of 1.86%. This revenue miss appears to have contributed to a premarket stock price decline of 1.35%, with shares trading at $6.60.

Stagwell’s overall performance in Q1 2026 demonstrated robust growth in key business segments, despite missing revenue expectations. The company reported an 8% year-over-year increase in total revenue, reaching $704 million. Notably, the Digital Transformation segment saw a 9% rise in net revenue, while Marketing Cloud grew by 5.3%, driven by demand for AI-enabled communication technologies.

• Adjusted EPS: $0.17, up 31% year-over-year

Stagwell’s EPS met the forecast of $0.17, showing no surprise, while revenue fell short by 1.86%, missing the $717.48 million expectation. This revenue miss contrasts with the company’s strong revenue growth in previous quarters.

In premarket trading, Stagwell’s stock price dropped by 1.35% to $6.60, reflecting investor concerns over the revenue miss. This decline keeps the stock above its 52-week low of $4.03 but below its high of $7.52, suggesting mixed investor sentiment. The stock has delivered a strong 41% return over the past six months and a 37% gain year-to-date, indicating robust momentum despite the recent pullback. According to InvestingPro analysis, the stock appears undervalued at current levels, with the Fair Value estimate suggesting meaningful upside potential. The company is featured on InvestingPro’s Most Undervalued stocks list.

Stagwell’s guidance remains optimistic, with expected growth in the Digital Transformation segment anticipated to accelerate in the second half of 2026. The company projects future EPS growth, with forecasts for upcoming quarters indicating a positive trajectory.

Stagwell’s management highlighted the company’s strategic pivot towards AI-driven solutions. "Our focus on integrating AI into our marketing services is positioning us for future growth," stated a company executive. The leadership remains committed to aggressive share repurchases, indicating confidence in the company’s valuation. InvestingPro Tips highlight that management has been aggressively buying back shares and the stock is trading at a low P/E ratio relative to near-term earnings growth. Investors can access 10 additional exclusive ProTips, along with comprehensive financial health scores and detailed metrics on the platform.

During the earnings call, analysts questioned the company’s ability to sustain growth amid economic uncertainties. Management addressed concerns by emphasizing their strategic investments in AI and technology to drive future performance.

For deeper analysis of Stagwell’s financial position and growth prospects, investors can access the comprehensive Pro Research Report, available for this and 1,400+ other US equities on InvestingPro.

Lena Petersen, Chief Brand and Communications Officer, Stagwell: Good morning, welcome to Stagwell’s first quarter 2026 earnings webcast. I’m Lena Petersen, Stagwell’s Chief Brand and Communications Officer, filling in for our Director of Investor Relations, Ben Allanson today. With me are Mark Penn, Stagwell’s Chairman and Chief Executive Officer, 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. Please submit questions through the chat function. Before we begin, I’d like to remind you that the following remarks include forward-looking statements and non-GAAP financial data. Forward-looking statements about the company, including those related to earnings guidance, are subject to uncertainties and risks, 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 and Chief Executive Officer, Mark Penn.

Mark Penn, Chairman and Chief Executive Officer, Stagwell: Thank you, Lena Petersen. This is a pivotal moment in the Stagwell story as we continue to achieve our vision of extending in services from global full service to platform self-service AI applications. We’re hitting major milestones on both ends of that vision while keeping costs under control and increasing our earnings per share. Together, these developments should produce an incredible 2026. First, our net new business is hitting records, and we are now regularly achieving large-scale wins. The first quarter was a record, and our wins are about $80 million ahead of wins last year at this time. We’re closing in on four new major assignments under final negotiations, and we just signed our first five-year, nearly $60 million government contract this week.

Second, our new enterprise tech products and sales organization are on track towards hitting the first sales goal of $25 million, with $12 million booked, and we are just getting our sales operation in place. Demand for the new products is strong with a growing pipeline. Our digital transformation segment continues to lead the way in growth. Third, this quarter is in line with expectations as indicated on the last call, and we are building towards a record-breaking second half of the year with a 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 five of our segments in the first quarter, led by a 9% jump in Digital Transformation. Digging into the Digital Transformation results, the two-year organic net revenue stack for the segment tells a particularly impressive story with growth of more than 22% in Q1. This continues an improving trend in this metric that we have seen for the last eight quarters. Given the strong start to the year, we expect the Digital Transformation segment to accelerate to mid-teens growth in the second half. AI and our understanding of how to apply it is a huge tailwind for us.

Past weakness in Communications has reversed. 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. 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-$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 to our pipeline, and we have multiple large pitches coming up. When it makes sense, we are partnering with established players like Deloitte and Palantir on massive contracts. We continue to focus on driving organic growth through larger assignments, previously the domain of our three major competitors, and reducing a high churn rate among our smaller customers. We have taken two major steps to execute that strategy, and we expect it to pay off in 2026 and in raising 2027 estimates. First, we have doubled the size of the new business team, announcing significant new hires, including Nicole Souza as Chief Growth Officer for North America, who brings with her 25 years of experience, most recently at Publicis Groupe.

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 d