Earnings Call Transcript - PPHC Q1 2026

Operator, Operator

Good day. Thank you for standing by. Welcome to the PPHC First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. To ask a question during the session, you will need to press *1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's call is being recorded. I will now turn the call over to our first speaker, Matthew Mazzanti, Chief Administrative Officer. Please go ahead.

Matthew Mazzanti, Chief Administrative Officer

Thank you, operator, and good afternoon, everyone. I am here today with Stuart Hall, Chief Executive Officer of PPHC, Roeland Smits, our Chief Financial Officer, and Thomas Gensemer, our Chief Strategy Officer. A press release detailing our first quarter 2026 results was issued a short while ago and is available on the Investor Relations section of our website. Before we begin, I would like to remind you that during this call, management will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in the company's filings with the Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events, or otherwise. In addition, during this call, we may refer to certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings press release which can be found on the Investors section of our website. I will now turn the call over to our Chief Executive Officer, Stuart Hall.

George Stewart Hall, Chief Executive Officer

Thanks, Matthew. Good afternoon, everyone joining us today. I will keep this setup brief. We covered a great deal of background on the company and its marketplace on the last call, and for anyone looking for a deeper dive on PPHC, I would encourage you to listen back to that call or feel free to reach out to our Investor Relations team. They are always available. Turning quickly to the first quarter, we had a strong start in 2026. Revenue grew 27.5% to $50.1 million, with organic growth of 5.1%. That was a step up from the 4.7% we saw in the first quarter of last year. Our adjusted EBITDA was a record first quarter result at $11.2 million, up nearly 29.7% with a margin of 22.3%. While we reported a GAAP loss of $11.5 million, with the IPO proceeds on the balance sheet, we ended the quarter with net debt of just $1.8 million, down from $44.6 million a year ago. That is a very different balance sheet picture than where we were. A few other notes from the quarter that I would like to call out quickly. On M&A, we continue to execute in the same fashion we always have using the same discipline playbook that you have heard about before. On April 1, we closed the acquisition of WPI Strategy. WPI is a U.K.-based public affairs and economics consultancy that deepens our London presence through Pagefield Communications and also has applications and cross-sell potential with a number of our companies across the worldwide platform. Alongside platform-level acquisitions that we are consistently evaluating and progressing at various stages, we also pursue what I like to call common-sense talent additions or acqui-hires. These are deals that bring experienced professionals with established client relationships into existing firms. They are not transformative in size by themselves, but they are immediately accretive and they compound over time. Last week's addition of Lee Cowan and Nicholas Evans to Multistate Associates is a good example of this. It expanded the firm's stakeholder engagement practice across federal, state, and local government relations. Lastly, in March, we were added to the Russell 2000 and 3000 indices, a welcome milestone just a couple of months after the Nasdaq listing and one that will expand our shareholder base. On the operating environment, it remains favorable for our business. Federal lobbying spending continues at record levels. State-level activity is intense. Legislatures have filed over 100,000 bills in the last year on issues that our clients care about most, things like data centers, AI, health care, energy, and financial services. The policy agenda remains active at every level, and our clients are turning to PPHC companies to help them navigate it. That is exactly the operating backdrop that we built the company for, and we continue to take advantage of it. I'm going to have Thomas at the end of the call cover some of the relevant ways we are capitalizing on these tailwinds. With that, I will hand it over to Roel for a closer look at the numbers.

Roeland Jozef Bernard Smits, Chief Financial Officer

Yes, thank you, Stuart. I will take you through the key financial highlights for the quarter. Before I do so, I would like to point out that the comparables for 2025 have not been released previously due to the semiannual reporting schedule we used to operate under when we were only on the London AIM market. These Q1 numbers for 2025 were produced in a way that is consistent with all our subsequent quarters and underwent the same level of rigor and review by our auditors. First, a helicopter view of what we believe is a very strong quarter. Our revenues continue to trend upward year after year with positive organic growth. Stuart already alluded to it: we reached revenue of $50 million in Q1, which represented year-over-year growth of 28%. In the chart we presented, the light blue part of the bars represents M&A growth. In Q1, this M&A-driven growth stemmed primarily from Trail Runner, which we completed in Q2 of last year and which is now in for a full year with our portfolio, as well as Pine Cove Strategies, which joined us in Q3 of last year. The red segment represents organic growth, and in Q1 2026, this organic growth was equal to $2 million or 5%, which is in line with the organic growth that we ended Q4 of last year with. In terms of profit, we realized adjusted EBITDA of $11 million, a record for Q1 and up $2 million versus the prior year. In margin terms, it was approximately level with last year's margin. I would point out margins in Q1 typically tend to be slightly lower than full-year margins because of seasonality in our top line that favors Q2 and Q3. Overall, it is worth reemphasizing that in 2026 we anticipate a margin somewhat below our 25% target, on one hand due to the ongoing shift in business mix, but primarily because of the increase in our public company costs associated with our new Nasdaq listing. We anticipated those increased costs and are indeed seeing them come through. Looking at the financial highlights on a consolidated basis, the first two boxes—revenue and adjusted EBITDA—I already covered. The third box is adjusted net income. This measure nearly doubled from $3.7 million to $7.4 million. That was partially driven by the underlying increase in adjusted EBITDA, but a meaningful part of the step-up also stems from a change in effective tax rate from 53% in Q1 last year to 27% this year. In either year, this effective tax rate is much higher than where our full-year tax rate eventually ends up, which is typically in the 15%–16% range. However, the phasing of our tax provision across the quarters is heavily impacted by the GAAP results, which in our case are impacted by various noncash items in our P&L. The most notable noncash charge is the share-based accounting charge related to our 2021 London IPO, which will roll off at the end of 2026, and also the M&A-related payments we expense through our P&L because of continued employment conditions attached to our deal terms. Moving on to cash flow: our free cash flow for the quarter was negative $10.3 million compared to a positive $3.2 million in Q1 last year. That negative cash flow in Q1 is not atypical as the company always pays its bonuses during the first quarter, resulting in a reduction of our accrued expense balances. This year, our cash flow generation was further suppressed by a $13 million increase in accounts receivable resulting from the inclusion of the 2025 acquisitions and slower collections. A significant part of this accounts receivable investment is temporary and we anticipate it will largely unwind in upcoming quarters. Regarding EPS results, our GAAP EPS is still negative due to the noncash GAAP charges mentioned. However, adjusted fully diluted EPS was positive at $0.25 per share, up 75% from the prior year. That result is an outcome of strong improvement in adjusted net income offset by the dilutive impact of the 15% increase in the number of shares driven by our Nasdaq IPO. On the balance sheet, we ended the quarter with $43 million in cash and total debt of $45 million, therefore a net debt position of just about $2 million. Debt is a major improvement from the $27 million net debt at year end and even more so from the $45 million net debt at the same point last year. This improvement was driven by IPO proceeds coming onto the balance sheet in January in tandem with customary debt repayments we made throughout the year. From a balance sheet perspective, knowing that we have executed significant M&A over the past five years and even after those investments we find ourselves with such a strong balance sheet with hardly any net debt, we are ready for the next phase of growth with ample balance sheet flexibility for continued earnings-accretive M&A. One final point: our cash position in Q2 will be impacted by our customary final dividend over the prior book year, which was $0.24 per share and amounts to approximately $7 million in dividend payments upcoming in May. Now, as promised, let's look at operating performance by segment. We saw consolidated 5% organic growth, which is robust. Government relations showed stability and healthy growth of 5%. Corporate communications and public affairs (CC&PA) showed moderate growth of 3% against a very strong 2025 post-election comparable. Compliance and insights had organic growth of 11%, an excellent result—compliance continues to drive strong growth. On profitability by segment: our government relations segment, our anchor at 57% of total revenue, increased 8% with margins moving up to 45% from 44% on a reported basis, reflecting the full benefit of the incorporation of Torren-Manna. Segment margin in CC&PA moved up from 22% to 26% as we see operating leverage from acquisitions in that area. Compliance and insight services had another strong quarter with 11% growth and margins remaining around 50%. The subtotal for these three segments has a blended margin around 39%. Bridging to published adjusted EBITDA are two items: the bonus pool, which was up 24% versus prior year in line with profit growth; and corporate or holding costs, which are up 19% due to incremental public company cost and investments. I will skip the next three charts that portray the management P&L, management cash flow statements, and the net debt position because we already covered most of those points, but those charts are in the financial appendix. Guidance: consistent with NASDAQ practice, we have made our guidance slightly more specific than before. What hasn't changed is that PPHC expects to continue growing revenues at an average organic rate of approximately 5%, supplemented by acquisitions. If there are no further acquisitions for 2026, we would anticipate reported revenue to be in the range of $205 million to $209 million. Regarding profit, we continue to aim for an adjusted EBITDA margin around 25%. However, taking into account business mix dynamics and the impact of U.S. public company costs and certain technology investments, in 2026 we will come in below that target. We anticipate adjusted EBITDA in the range of $46 million to $48 million, reflecting an adjusted margin between 22% and 23%. We also expect strong free cash flow conversion in the balance of the year, which is typically weighted toward the second half.

Thomas Edward Gensemer, Chief Strategy Officer

Thanks, Roel. I will keep my comments focused on a handful of things that are new or notable this quarter rather than retrace the platform story we covered in detail last time. Our growth strategy is fundamentally talent-focused: recruiting top-level talent. We have had a strong start to the year by all measures. A quick recap of some of the news from the reporting quarter: 7 Letter, our leading public affairs brand, expanded in Los Angeles, bringing in a specialty media practice. We are also expanding their fast-growing defense practice with some high-impact talent. In Sacramento, firms KP and LP celebrated their 30th and 20th anniversaries, respectively, as standout leaders in the largest state market; both have built strength and long-term succession plans into their leadership since joining us. TSG recently named Alden Mitchell, previously of Stanford and Uber, as its new president. That practice continues to thrive amid rapid change across college, professional, and international sports. We also announced new leadership at Forbes Tate Partners, one of our founding firms, with fresh leadership across both the lobbying and public affairs practices. This is a planned generational succession at one of Washington's largest lobbying firms and exemplifies the institutional continuity our model is designed to produce. Our growth strategy also involves expanding service lines, capturing additional client wallet share, and executing an accretive M&A agenda. A great example of collaboration from the quarter is the launch of investor services offerings from Concordant, which brings together our platform's depth of experience to deal teams at private equity firms, family offices, and corporates facing growing policy and regulatory risk to their investments. It is a focused, repeatable product that aims to capture a different budget and is backed by the unique collection of expertise across our platform. Additionally, the growth of our issue-based practice groups and the client referral incentives we offer are tools to drive collaboration. Even with measurably increasing growth via collaboration, our key client concentration measures drifted further down: our top 10 clients are now just 8% of total revenue versus 9% a year ago, and no single client is more than 2% of the overall. There is no significant client concentration risk. An update on post-M&A integrations: Trail Runner is now a full year in and is contributing strongly to the communications segment with 82.7% reported growth and nearly a 4-point margin expansion as operating leverage shows up. Pine Cove Strategies is delivering on the Texas-based growth thesis we laid out when announced last fall with George P. Bush. On our future M&A pipeline, it remains very active: dozens of firms at various stages with the same mix—selective U.S. specializations, key states, and international opportunities in Europe, the Middle East, and Asia—guided by where our clients tell us they need us most. Our sweet spot remains businesses in the $10 million to $30 million revenue range that profitably contribute to our premium margin profile and have clear cross-sell to the existing portfolio. As in our most recently announced deals, we work closely with our existing firms to identify opportunities to acquire specialization and scale into the portfolio. Both recent deals, while small in scale, will have outsized impacts on the firms they were brought into: Pagefield and Multistate, respectively, by way of specialization and reputation. We continue to see good deal flow, with private equity platforms still dominating the competitive set along with a few traditional players. Our uniqueness remains based on the market-leading scale of our government relations segment—state and federal—policy expertise, and public market status and how that shapes our M&A formula. With that, I will hand it back to Stuart.

George Stewart Hall, Chief Executive Officer

Thanks, Thomas. Let me pull it together in the same framing we used last quarter, because one quarter later it still holds up very well. First, stability: about 90%–92.8% of our revenue is still retainer-based. Client retention remains in the mid-eighties across the entire network and no single client is more than 2% of our book, as Thomas noted. That delivered our steady 5.1% organic growth against a busy macro backdrop. Second, profitability: it was a record first quarter on adjusted EBITDA of $11.2 million with margins moving in the right direction in both CC&PA and government relations. As Roel noted, the largest noncash charge on our P&L will be approximately $30 million a year in share-based compensation from our London listing; that charge fully amortizes after this fiscal year, putting us on a clear path to GAAP profitability in 2027. Third, growth: disciplined M&A continues—one acquisition closed in the quarter, another just recently, and a robust pipeline remains under active consideration. Thomas walked through talent acquisitions and new practices across the portfolio; each is an example of compounding growth by investing in people and capabilities we already have, not simply buying revenue. Fourth, our people: approximately 200 of our 450 employees have some form of equity instrument, including more than 140 with outright stock ownership. Our model is built around keeping our best talent and bringing in the next generation into ownership. As Thomas mentioned, two of our firms celebrated milestone anniversaries this quarter and new leadership teams are in place. That is what long-term retention and succession planning looks like in practice, and it is what we work hardest at every day. In short, the quarter played out the way we expected: steady organic growth, disciplined M&A, meaningful margin progress where we have invested, and a balance sheet that gives us room to keep executing on the agenda Thomas outlined. We appreciate your time and your continued interest in PPHC. Operator, we'll open the floor for questions.

Operator, Operator

Thank you. As a reminder, to ask a question you will need to press *1 on your telephone and wait for your name to be announced. To withdraw your question, press *1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Raj Sharma from Texas Capital. Your line is open.

Analyst (Raj Sharma), Analyst — Texas Capital

Thank you. Congratulations on the results and thank you for taking my questions. I wanted to ask about your organic growth this quarter, especially in the CC&PA segment where there was 3% growth relative to much greater growth last year. Can you provide color on that—what contributed to the CC&PA growth last year that one should not expect to continue going forward? I have a follow-up as well.

George Stewart Hall, Chief Executive Officer

Thanks, Raj. Good to hear from you. As I noted, we had a really strong first half of last year in CC&PA and that creates a tougher comparable this year. We came out of the election season last year with a whole new agenda based on those results, and there was momentum that carried into the first half, particularly in project execution tied to those agenda items. That project work, combined with lobbying, especially in the communications segment where project work naturally picks up, gave us stronger growth in that period. The carryover into this year has been positive quarter to quarter, and I've been pleased with it. Roel indicated he covered the financial detail as well. What is your other question?

Analyst (Raj Sharma), Analyst — Texas Capital

My follow-up: any commentary or color on contribution from the acquisitions you recently completed—any contribution to revenues this year? Also, can you comment on the size of acquisitions you plan to do each year? I know the pipeline is robust, but any sense of what you intend to do annually?

Roeland Jozef Bernard Smits, Chief Financial Officer

Raj, this is Roel. The acquisitions we have done so far this year are on the smaller side. The largest was WPI, which closed April 1, so it is not reflected in these numbers yet. We also announced Cohen as a small acquisition effective May 1; that was more a hire of two people who brought a book of business. Our acquisition volume so far this year has been relatively small. Historically, we've said we expect to acquire on average somewhere between $30 million and $40 million of revenue each year, but that depends on availability of the right targets, timing, profit contribution, and price. Those variables make it hard to predict exact annual volume.

Analyst (Raj Sharma), Analyst — Texas Capital

Got it. Thank you for taking my questions. I'll follow up offline.

Operator, Operator

Thank you. Our next question comes from the line of Jason Tilchen from Canaccord Genuity. Your line is open.

Analyst (Jason Tilchen), Analyst — Canaccord Genuity

Good afternoon, everyone. Thanks for taking my question. Last month you announced a new practice that leverages your portfolio of assets. Thomas mentioned this should go after a different part of client budget. Could you talk about how meaningful the opportunity is, what investments you may have to make to launch and roll this out, and more broadly how many similar opportunities you see in the pipeline to organically expand into new services and areas? Also, separately, curious how the conflict in the Middle East is netting out—whether it has positively impacted defense practices or created a distraction in Washington. Any observations so far would be helpful. Finally, Roel, a quick question: EBITDA margin was up 40 basis points year over year despite increased public company costs and tech investments—can you talk to sources of efficiency beyond operating leverage at the portfolio companies?

Thomas Edward Gensemer, Chief Strategy Officer

This is a capability we've eyed for some time and it is very adjacent to where clients already call us. We have experience working with financial sponsors and directly with private equity funds, but there is a category of two or three leading providers of multi-issue regulatory diligence that we had considered acquiring. We realized we were losing too much business, so we launched a light investment from headquarters into the Concordant framework that was already set up to deliver a one-stop or best-of-practice solution. The investment is relatively light: it is about leveraging the existing Concordant framework, some selective hiring of the right people, and marketing the capability across our platform. It should capture new client budget and, in many cases, new clients—getting into a different part of private equity deal teams or new types of buyers globally. We will continue to look for adjacencies like this; WPI's economic consultancy work, for example, can bolster this service. It is a productized, service-enhanced offering and we will be entrepreneurial about scaling it.

George Stewart Hall, Chief Executive Officer

Jason, on the Middle East: we have viewed the region as an area of potential for some time, particularly for our corporate communications practices. There is significant investment capital in the region looking for connectivity in the U.S. as part of onshoring and broader investment flows, which we believe will pay dividends. We are leveraging Trail Runner's office and practice in the UAE. As the situation evolves, we expect alignment of interests around U.S. markets to accelerate. There will be a period of sorting out, but we have positioned our U.S. and London assets to leverage opportunities and will actively work that access.

Roeland Jozef Bernard Smits, Chief Financial Officer

Jason, on the margin point, there is operating leverage in a year of good revenue growth, and that helped offset higher holding costs in Q1 to a good extent. We hope to continue to see that operating leverage support margins despite incremental public company costs.

Operator, Operator

Thank you. Our next question comes from the line of Scott Schneeberger from Oppenheimer. Your line is open.

Analyst (Scott Schneeberger), Analyst — Oppenheimer

Good afternoon and congratulations. First, Stuart, you highlighted acceleration in growth versus the past two years. What is driving the organic growth in government relations—just a very dynamic environment with a lot of activity, or are you winning a few big contracts that are lifting it? Second, what is topping your priority list in the M&A pipeline—state government relations, international expansion? And part B: are there many targets in the pipeline with very robust margins, given your 25% normalized target? Do you have to pick and choose? Third, with the establishment of annual guidance, what are the factors that could push you to the top or bottom of the revenue and EBITDA ranges?

George Stewart Hall, Chief Executive Officer

Scott, it's a combination of factors. We have put a lot of effort over the past 18 months into building greater intercompany synergies across complementary brands, and that is starting to produce results. The interplay between corporate communications, investor relations, crisis, Trail Runner, and our more traditional public affairs assets has been strong, so you're seeing production off those collaborations. The macro environment is also a factor—policy change and upheaval leads clients to engage more with government relations experts. This is worldwide, not just DC, and that is contributing to the uplift in organic growth.

Thomas Edward Gensemer, Chief Strategy Officer

On M&A priorities, we've invested in corporate communications through deals like Trail Runner and Pagefield. We invest against capabilities and geography. In the pipeline there are prime margin geographies we still want to pursue as they are core to business activities, and there are specialized opportunities that may be smaller in scale but chunkier in margin. Expanding in Europe, for example, may not yield the highest margin but it is where clients need us for global policy work. We play in both high-margin domestic lobbying practices and other geographies where strategic client needs justify the investment. So yes, we have to balance margin profile with geography and capability.

George Stewart Hall, Chief Executive Officer

To add, we assess M&A against three gating factors: geographic addition, capability addition, and complementarity to the portfolio, as Thomas said. People profile is critical, and margin is a key consideration. We're not interested in putting dots on the map for the sake of presence if the margin profile or people aren't right. We will be selective.

Roeland Jozef Bernard Smits, Chief Financial Officer

On what could move us to the high or low end of guidance, two primary factors come to mind. First is volume of project work, which is somewhat unpredictable and depends on specific issues bubbling up; large issue-driven project flows can materially affect near-term results. Second is acquisitions: any material acquisition outside our anticipated assumptions could move us beyond the stated ranges.

Operator, Operator

Thank you. Our next question comes from the line of Samuel Dindol from Stifel. Your line is open.

Analyst (Samuel Dindol), Analyst — Stifel

Hi, thanks and congratulations on the results. A question on the acqui-hire front: I appreciate the hiring of Lee Cowan and Nicholas Evans a few weeks ago. Has that activity accelerated post-U.S. listing? Are you finding more people who are willing to join, or more conversations than in prior years? Any color would be helpful.

George Stewart Hall, Chief Executive Officer

Thanks, Samuel. Our pipeline feels more robust post-U.S. listing than at any prior time. We are seeing more inbound talent and more people willing to listen to us now that we're public in the U.S. The public company status and our levels of employee ownership make us a differentiated platform in a space historically dominated by private companies. For mid-career and senior people evaluating options, our model—public status with meaningful employee ownership—looks attractive if they fit culturally. We expect to continue making talent acquisitions in the foreseeable future because we're getting noticed and the fit is improving.

Analyst (Samuel Dindol), Analyst — Stifel

Brilliant. Thanks for the color.

Operator, Operator

I am not showing any further questions in the queue at this time.

George Stewart Hall, Chief Executive Officer

Great. Thank you, operator, and thank you to everyone participating today. As noted earlier, our Investor Relations team is always available. Please reach out if you'd like to follow up on anything related to financials or strategy, and we'll be glad to provide further answers. Thank you.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.